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Values and Management

Ethics

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The profession of business ethics has long needed a highly practical resource that is designed particularly for leaders and managers -- those people charged to ensure ethical practices in their organizations. Unfortunately, far too many resources about business ethics end up being designed primarily for philosophers, academics and social critics. As a result, leaders and managers struggle to really be able to make use of the resources at all. Also, far too many resources about business ethics contain sensationalistic stories about businesses "gone bad" or prolonged preaching to businesses to "do the right thing". These resources often explore simplistic ethical questions, such as "Should Jane steal from the company?" The real world of leaders and managers is often much more complex than that.

Definitions of Business Ethics THOMAS M. GARETT According to him, “Business Ethics is primarily concerned with the relation of business goals and techniques to specific human needs.” WHEELER “Business Ethics is an art or science of maintaining harmonious relations with society, its various groups and institutions as well as reorganizing the moral responsibility for the rightness or wrongness of business conduct.”

Meaning of business ethics Ethics may be defined as the discipline dealing with what is good and bad and with moral duty and obligations. It is the science of morality which guides and helps to achieve objectives through legal and moral means only. Ethics is based on social, cultural, customs and tradition of a society, and determined for a self-regulation of human behavior for mutual goods that is good to the individual and society.

Business Ethics is a recently developed concept that tries to apply moral principles to business activities. It is a code of conduct, determined to regulate the activities of business towards society and others on legal, moral, social and ethical value. Business ethics signifies moral obligations on businessmen to protect the interest of clients and consumers, respect and follow business rules sincerely, and finally uphold the social and cultural values of the society. Business ethics means conducting business with a sense of responsibility towards society, and with human touch.

Features or characteristics of business ethics The following are some of the important features of business ethics: 1 Ethical values: Business ethics is concerned with morality in business. In today’s world, business community forms a large part of the society and its actions are bound to have a direct impact on the well being and welfare of the society. Business affects society in terms of what it does and through what products it supplies. Therefore, it is necessary that business community conducts its activities with self – check, self – control, self – sacrifice, keeping always in mind the interest of community at large. 2 Relative term: Ethics is a relative term i.e. the concept of morality and immorality differs from one individual to other or society. What is moral in one society may be immoral in other. For example, taking or giving bribe is considered as unethical in our society but may be a routine affair or just ignored by society in some other countries. 3 Interest of society: Business ethics implies that the business should do first good to the society and then to itself. Business is an important institution and has a social responsibility to protect the interest of all those groups like employees, shareholders, consumers who contribute to the success of business. 4 Businesses – society relationship: Business ethics set the terms and standards to understand business – society relationship. It indicates what society expects from business and what it thinks about business. 5 Provides framework: Like an individual, business is also bound by social rules and regulations. Business is expected to confine its activities within the limits of social, legal, cultural, economic environment.

Need or importance of business ethics: The need for business ethics is more felt in recent years than ever before. The rise in competition, lust for money and power, changing social and cultural values and growing influence of materialism has brought about downfall in the cultural and ethical values of the society in general and business in particular. It is contended that business is responsible for many of the socio-economic evils. If business is allowed to be conducted on unethical principles, then it will have an adverse effect on the society. It may lead to chaos, confusion and even end of society. Fortunately, various social groups and associations are aware about the dangers associated with unethical business practices and have been playing a vital role to enforce ethical values on business. The following points outline the importance of business ethics: 1. Protection of consumer rights: Consumer is the centre of all business activities. In fact, business is essentially meant for satisfaction of consumer wants. Unfortunately, consumers are the most neglected and exploited group. The application of business ethics will help to confer and implement consumer rights. This will enhance the strength of individual consumer against the powerful business community. Business ethics can be used to check malpractices like adulteration, unfair trade practices and to make the working of business consumer oriented. 2. Social responsibility: Business ethics is a novel method of making business socially responsible for its actions. Exploitation of consumers, employees, careless use of natural resources etc, is common in all types of business. Compliance to ethical standards will ensure •

Protection of consumer rights.

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Public accountability.

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Proper utilization of scarce natural resources.

It will also make business community aware and responsible for ecological and environmental problems, energy crisis and social welfare.

3. Concept of socialism: The concept of socialism in business states that gains in business must be shared by all and not by the proprietor. Profits are the sign of business success and also result of group efforts. Employees, shareholders, consumers, suppliers all contribute to the success of business. Therefore, success i.e. profit should be shared equally by all concerned person. 4.

Interest of Industry: Business ethics is necessary to safeguard the interest of small scale business firms. The tendency of big business unit is always to dominate the market and drive away the small and medium scale unit from the market. Small scale unit can establish their position and fight for their rights if the industry follows a code of ethics. Further ethical code will prevent exploitation of domestic industries at the hands of Multinational Corporation.

5. Consumer movements: The growth in consumer movement is also another important factor that has necessitated the need for business ethics. The spread of education and awareness among consumer about their rights has made the business community to conduct business on ethical principles. Consumers of today are well organized and would not allow business to act illegal or unfair way detrimental to the common interest of consumers. 6. Better relations with society: Business ethics is needed to develop good relations between business and society. The relationship of business with society has various dimensions such as its relations with shareholders, employees, consumers, distributors, competitors and government. Ethics is needed to maintain good relations among the firms on one side and between the firm and social groups on other. Business ethics will help to promote and protect the interest of various groups, associated with business activities. 7. Consumer welfare: There has been a structural change in the concept of business. The concept of profit has gradually been replaced by consumer satisfaction. The large scale production and increased competition in the market has compelled businessmen to adopt such strategies and steps that ensure welfare of consumers and society. In the changed circumstance, business ethics is needed to redefine traditional concept of profit and replace it by profit through consumer satisfaction.

8. Benefits to business and society: ethics suggests what is good and bad, right and wrong, ethical and unethical to businessmen. It brings an element of honest sincerity, fairness and human touch to business activities. Society is also benefited by the introduction of business ethics. It ensures healthy and competitive business atmosphere, consumer and labour welfare, an improvement in social, economic and cultural values of the society.

Myths about Business Ethics Business ethics in the workplace is about prioritizing moral values for the workplace and ensuring behaviors are aligned with those values -it's values management. Yet, myths abound about business ethics. Some of these myths arise from general confusion about the notion of ethics. Other myths arise from narrow or simplistic views of ethical dilemmas. 1. Myth: Business ethics is more a matter of religion than management. Diane Kirrane, in "Managing Values: A Systematic Approach to Business Ethics," (Training and Development Journal, November 1990), asserts that "altering people's values or souls isn't the aim of an organizational ethics program -- managing values and conflict among them is ..." 2. Myth: Our employees are ethical so we don't need attention to business ethics. Most of the ethical dilemmas faced by managers in the workplace are highly complex. Wallace explains that one knows when they have a significant ethical conflict when there is presence of a) significant value conflicts among differing interests, b) real alternatives

that

are

equality

justifiable,

and

c)

significant

consequences on "stakeholders" in the situation. Kirrane mentions that when the topic of business ethics comes up, people are quick to speak of the Golden Rule, honesty and courtesy. But when presented with

complex ethical dilemmas, most people realize there's a wide "gray area" when trying to apply ethical principles.

3.

Myth:

Business

ethics

is

a

discipline

best

led

by

philosophers, academics and theologians. Lack of involvement of leaders and managers in business ethics literature and discussions has led many to believe that business ethics is a fad or movement, having little to do with the day-to-day realities of running an organization. They believe business ethics is primarily a complex philosophical debate or a religion. However, business ethics is a management discipline with a programmatic approach that includes several practical tools. Ethics management programs have practical applications in other areas of management areas, as well. 4. Myth: Business ethics is superfluous -- it only asserts the obvious: "do good!" Many people react that codes of ethics, or lists of ethical values to which the organization aspires, are rather superfluous because they represent values to which everyone should naturally aspire. However, the value of a codes of ethics to an organization is its priority and focus regarding certain ethical values in that workplace. For example, it’s obvious that all people should be honest. However, if an organization is struggling around continuing occasions of deceit in the workplace, a priority on honesty is very timely -- and honesty should be listed in that organization’s code of ethics. Note that a code of ethics is an organic instrument that changes with

the

needs

of

society

and

the

organization.

5. Myth: Business ethics is a matter of the good guys preaching to the bad guys. Some writers do seem to claim a moral high ground while lamenting the poor condition of business and its leaders. However, those people well versed in managing organizations realize that good people can take bad actions, particularly when stressed or confused. (Stress or confusion are not excuses for unethical actions -- they are reasons.) Managing ethics in the workplace includes all of us working together to help each other remain ethical and to work through confusing and stressful ethical dilemmas.

6. Myth: Business ethics in the new policeperson on the block. Many believe business ethics is a recent phenomenon because of increased attention to the topic in popular and management literature. However, business ethics was written about even 2,000 years ago -- at least since Cicero wrote about the topic in his On Duties. Business ethics has gotten more attention recently because of the social responsibility movement that started in the 1960s. 7. Myth: Ethics can't be managed. Actually, ethics is always "managed" -- but, too often, indirectly. For example, the behavior of the organization's founder or current leader is a strong moral influence, or directive if you will, on behavior or employees in the workplace. Strategic priorities (profit maximization, expanding market share, cutting costs, etc.) can be very strong influences on morality. Laws, regulations and rules directly influence behaviors to be more ethical, usually in a manner that improves the general good and/or minimizes harm to the community. Some are still skeptical about business ethics, believing you can't manage values in an organization. Donaldson and Davis note that management, after all, is a value system. Skeptics might consider the tremendous influence of several "codes of ethics," such as the "10 Commandments" in Christian religions or the U.S. Constitution. Codes can be very powerful in smaller "organizations" as well. 8. Myth: Business ethics and social responsibility is the same thing. The social responsibility movement is one aspect of the overall discipline of business ethics. Madsen and Shafritz refine the definition of business ethics to be: •

An application of ethics to the corporate community,

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A way to determine responsibility in business dealings,

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The identification of important business and social Issues, and

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A critique of business.

Items 3 and 4 are often matters of social responsibility. (There has been a great deal of public discussion and writing about items 3 and 4. However, there needs to be more written about items 1 and 2, about how business ethics can be managed.) Writings about social responsibility often do not address practical matters of managing ethics in the workplace, e.g., developing codes, updating polices and procedures, approaches to resolving ethical dilemmas, etc. 9. Myth: Our organization is not in trouble with the law, so we're ethical. One can often be unethical, yet operate within the limits of the law, e.g., withhold information from superiors, fudge on budgets, constantly complain about others, etc. However, breaking the law often starts with unethical behavior that has gone unnoticed. The "boil the frog" phenomena is a useful parable here: If you put a frog in hot water, it immediately jumps out. If you put a frog in cool water and slowly heat up the water, you can eventually boil the frog. The frog doesn't seem to notice the adverse change in its environment. 10. Myth: Managing ethics in the workplace has little practical relevance. Managing ethics in the workplace involves identifying and prioritizing values to guide behaviors in the organization, and establishing associated policies and procedures to ensure those behaviors are conducted. One might call this "values management." Values management is also highly important in other management practices, e.g., managing diversity, Total Quality Management and strategic planning.

BUSINESS ETHICS IN PRACTICE Having studied the principles, let us now go to the application of these principles in real life. Before proceeding with the topic, it should be kept in mind that along with business enterprise, employees, creditors, consumers do have some ethical duties towards the business enterprise. Since the present topics studies ethics of business, the other areas of ethics have not been touched.

1. Ethics Relating to Consumers: •

Protection of consumer’s interest and his right to information, to choose and to be heard.

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To charge uniform price on all identical goods.

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To supply proper information about product, like the contents, usage and possible side effects to buyers.

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To supply qualities goods at right price, right time and to right customer.

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In case of machinery and related items, provide prompt after sales service and ensure supply of spares in time.

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To follow ethical standard in advertising. Inform about price change or shortage of goods to consumers in advance.

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To follow faire business practice and avoid cheating, deceiving or exploiting consumers.

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Equitable distribution of goods at time of shortage.

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Avoid sale or distribution of defective goods or substandard goods.

An example to be provided relating to this aspect would be the case of Johnson and Johnson (J&J) company. If you are planning to infuse strong, ethical principles throughout your company or want to change the culture of your company, then you might take the advice of Bob Kniffin, Vice President of External Affairs, at Johnson and Johnson (J&J) company. The way that J&J handled an ethical issue (the "Tylenol scare" crisis) in the 1980s is probably one of the most inspiring and enlightening examples of how to successfully deal with a major ethical issue in business. Kniffin was one of the key players in helping J&J to handle the crisis so effectively. Kniffin said that it was not the J&J Credo (a form of a code of ethics) that helped J&J to handle the crisis so well. Rather, it was the ongoing "challenge sessions" that the company regularly held in order for each person to clarify their own perspective

and commitment to the J&J Credo. Authenticity Consulting's peer coaching groups are a powerful, yet straightforward, means to organize, facilitate and evaluate challenge sessions.

2. Ethics Relating to Employees It means the duties and responsibilities of employer towards employees and includes: • Recruitment: Employees should be selected on the basis of efficiency, ability, qualification and experience, and not on caste, religion, relations, vested interest or any other personal factor. • Dismissal: The services of an employee should be terminated only after giving him due notice.

Dismissal is to be resorted to for just causes like automation and

modernization, lay-off, gross indiscipline, repeated misconduct, frequent illness etc. The whim of the employer, political pressure, trade union activities are not just causes for removal. • Wages and Working Conditions: Wages must be related to the efforts put in by the employee. It should be based on the principle of “Equal Work Equal Pay”. • Job Safety and Security: The employer should take all legal and technical steps to make working area a safe place to perform job. Further employees should be made permanent as fear of uncertainty of job affects the moral and efficiency of employees. Workers should be encouraged to improve their efficiency by providing proper rest and recreation facilities, training, promotion and development facilities. 3. Ethics Relating to Society/Government: •

To support good work and donate generously to charity cause.

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To pay taxes regularly.

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Participate in the promotion of civic improvement, education and help the government in times of crisis like war or natural calamity.

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To keep better relations with government and others groups from society.

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To work for maintaining ecological balance by ensuring better utilization of depleting natural resources, proper disposal of waste, planting of trees etc.

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To acquaint the community with its activities and maintain cordial relations. This can be done by arranging factory visits, seminars or social gatherings

4. Ethics Relating to Competitors: In order to win, businessmen go to any extent; use all fair and foul means to eliminate the competitor from the business scene. Companies resort to all unfair means like •

disturbing the production by fomenting labour disputer,

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hiring or kidnapping key employees,

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price-cutting

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Granting additional incentives and commissions to distributors and so on.

In the long run such type of business rivalry does no good to both business and society. It destroys the confidence in business pollutes the business environment and weakens human ideals. Therefore, business should encourage healthy competition in the interest of all. 5. Ethics Relating to Shareholders: •

To make profit,

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To protect investment by creating reserves and surpluses.

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Ensure a fair and regular return on investment.

6.Ethics and Honesty: In dealing with employees, distributors and consumers, the company should follow the principle of equality and justice i.e. equal treatment to all, no discrimination and favoritisms, Honesty be rewarded and dishonesty punished. It is the general tendency of some employees to steal or make profits by misusing their position or facilities (like leave travel allowance or medical allowance) provided by the company. If no action is take against erring or corrupt employees, it breeds dishonesty, unrest and corruption. Employer should never shield or protect or even tolerate undisciplined and corrupt subordinate as it has a psycho-logical impact on other employees. About the honesty towards consumers, it is expected that the company provides the best quality of product and supplies technical data about the possible side effect of using the product.

7. Ethics and Secrecy: During The course of business, much information is generated and collected. Such data relates to employees, suppliers, terms of agreement and so on. It can be grouped into personal data, technical data, trade related data, financial data etc. Further the said information can also be grouped as open and secret data. It is the basic duty of management to keep confidential data hidden or secret and should take all possible steps and measures to preserve and maintain its secrecy. Such information must be used ethically i.e. not to harm or exploit the weakness of any employee or a trading partner. Secrets can be revealed with prior permission of the concerned person.