ethics in business
DESCRIPTION
Notes for MBA FInal Year STudents on Business EthicsTRANSCRIPT
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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)