Buseness environment and ethics lesson 06

LESSON 63Ethics 6 ETHICS CONTENTS 6.0 Aims and Objectives 6.1 Introduction 6.2 Ethical Theories 6.3 Characteristics of Ethics 6.4 Modern Decision-making and Ethics 6.5 Ethical Decisi

61 Ethics

UNIT II

62

Business Environment and Ethics

62

Business Environment and Ethics

LESSON 63

Ethics

6

ETHICS

CONTENTS

6.0 Aims and Objectives

6.1 Introduction

6.2 Ethical Theories

6.3 Characteristics of Ethics

6.4 Modern Decision-making and Ethics

6.5 Ethical Decision-making Dilemma

6.6 Sources of Ethics

6.7 Ethics and Profit

6.8 Let us Sum up

6.9 Lesson End Activities

6.10 Keywords

6.11 Questions for Discussion

6.12 Suggested Readings

6.0 AIMS AND OBJECTIVES

After studying this lesson, you should be able to:

z Understand the concept and origin of ethics

z Understand the role of ethics in business decision

z Know the relationship between ethics and business decisions

6.1 INTRODUCTION

The word ‘Ethics’ has been originated from the word ‘ethos’, meaning character or

manners Ethics is thus said to be the science of morals; a treatise on this: moral

principle; recognized rules of conduct Ethics involves judgment as to good and bad,

right and wrong, and what ought to be Ethics deals with things to be sought and

things to be avoided by ways of life An ethical dilemma exists where two or more

values are in conflict, and we seek from ethics a resolution to this conflict Business

ethics refers to the measurement of business behavior on standards of right and wrong,

rather than relying entirely on principles of accounting and management Ethics is not

only desirable but is essential for the smooth functioning of business If business does

not follow ethics then there will be an utter chaos and there will be no trust and in this

situation there is no scope of business Ethics plays a role whether it is a buyer and

seller relationship or it is a competitor relationship The objectives of Ethics are:

1 Studying human behavior and makes evaluative assessment about them as moral

or immoral (diagnostic goal)

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Business Environment and Ethics 2 Established moral standards and norms of behaviour

3 Makes judgment upon human behavior based on these standards and norms

4 Prescribe moral behavior and makes recommendation about how to or how not to behave (therapeutic goal)

5 Express an opinion or attitude about human conduct in general

6 TISCO never faced any lock out or labor problem only because of ethical standards followed by TATA TATA is one of the most trusted brands of India only because of its ethical standards

Matsushita Electric Co follows the following value system The seven ‘Spiritual’ Values

1 National Service through Industry

2 Fairness

3 Harmony and Cooperation

4 Struggle and Betterment

5 Courtesy and Humility

6 Adjustment and Assimilation

7 Gratitude Prof S.K Chakraborty in his book “The Management and Ethics Omnibus” cited following values which are deep rooted in Indian Culture and Society:

1 The Individual Must be Respected

2 Cooperation and Trust

3 Jealousy is Harmful for Health

4 ‘Chitta-Shuddhi’ or Purification of the Mind

5 Top Quality Product/ Service

6 Work is Worship

7 Containment of Greed

8 Ethico-moral Soundness

9 Self-discipline and Self-restraint

10 Customer Satisfaction

11 Creativity

12 The Inspiration to Give

13 Renunciation and Detachment

6.2 ETHICAL THEORIES

Ethical theories can be divide into two categories: Teleological and Deontological The teleological determine the ethics of an act by looking the consequences of the decision (the ends), while deontological theories determine the ethics of an act by looking to the process of the decision (Means)

65 Ethics

1 Teleological (Utilitarianism) Ethical System: The teleological morality of a

decision is determined by measuring the probable outcome The theory most

representative of this approach is utilitarianism, which seeks end the greatest

“good” (or Utility) for the greatest number The most basic form of utilitarian

analysis is cost – benefit analysis, where one tallies the costs and benefit of a

given decision and follows the decision that provides for the greatest overall gain

Utilitarianism hold that actions are right in proportion as they tend to promote

happiness, wrong as they tend to produce the reverse of happiness

2 Deontological Ethical System: A deontological system is based on rules or

principles that governs decisions In this system ethics are measured by the

rightness of an act depends little on the results of the act According to it moral

persons is one of goodwill, and that person renders ethical decisions based on

what is right, regardless of the consequences of decision Thus the student who

refuses to cheat on exam is morally worthy if her or his decision springs from

duty But morally unworthy if the decision is merely one born of self interest,

such as fear of being caught

3 Hybrid Theory: Robert Nozick holds that justice and fairness, right and wrong are

measured not by equality of results for all, but from ensuring equal opportunity

for all to engage in informed choices about their own welfare

Enlightened ethical egoism says that it is important to the individual that the

world is a “good” world; therefore the individual may have a self interest in

curbing pollution or in community projects, even though she or he may not

individually and personally benefit from the decision

4 Distributive Justice and Social Contract: Prof Rawls of Harvard University

propounded this theory Who says that when people get together, they form

societies and cooperation, and when they come together their arises conflict

because people do not receive a just distribution of the benefits yielded through

their activities Rawls believe that the base of all distribution systems should be

just and the primacy of justice in the basic structure of our system of society

requires greater equality

5 Individual Freedom: According to this theory all individuals must be allowed to

make informed choice by all in society Though choice must be within the law

and the same freedom enjoyed by one individual in the society, must be extended

to all within the society

Check Your Progress 1

1 Define ethics

………

………

2 Describe, in brief, the ethical theories

………

………

6.3 CHARACTERISTICS OF ETHICS

1 Ethical decision differs with the individual perspective of different persons Each

person has its own perception and believes regarding ethics Hence ethical

decision of not have unique solutions, but have a multitude of alternatives

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Business Environment and Ethics 2 Ethical decisions are not limited only to themselves, but affects a wide range of

other situations as well Similarly, unethical decision do not end in themselves, but have widespread ramification

3 Most ethical decision involves a trade off between costs incurred and benefits received

4 Many times consequences of ethical decision are not clear They are ambiguous in nature Similarly it is not clear what the consequences will be of an unethical decision, either of an individual or of on organization

5 Ethical decisions have long term impact Ethical decision may give bitter results

in short term as lost of sales but in long term it reaps not only good results but results will also of persist for long As high quality management may effect bottom line in short turn but it in long term it position the product in the mind of prospective customer, which gives lasting impression

6 Every person is individually responsible of the ethical or unethical decision and action that he or she takes but the consequences of decision have to be faced by whole organization

7 Ethical decisions are voluntary human actions A person can not escape his personal liability by quoting that he committed because of seniors pressure

6.4 MODERN DECISION-MAKING AND ETHICS

The economic activity and competition are no longer considered to be bedfellows altogether incompatible with ethics and morals This is correct because man is always much more than mere commerce and competition He has the ineffable of ethics and morals also to manage – whether in business or politics

Two academics, Victor and Cullen, conclude a research study by pointing out;

It is our belief that organization theory needs to attend more explicitly to the ethical content in organizational processes Ethical issues in organizations increasingly preoccupy theoreticians and practitioners Firms are attempting to control the ethical decision-making of individuals, and society is attempting to influence directly the ethical decisions making of firms

Business decision based on moral reasoning can be too absolute and decision based on only realities and logic can be too harsh and inhuman To avoid these two extremes one can resort to traditional stakeholder model of decision-making Stake holder theory suggests that in reaching ethical decision, we respond to the following inquiries:

1 What is the moral dimension?

2 What is ethical issue?

3 Who are the interested parties?

4 What values are involved?

5 What alternative do you have in your decision?

6 What is the weight of the benefits and the burdens of each alternatives on each impacted party?

7 Are there any analogous cases?

8 Can I discuss the case with relevant others?

9 Can I gather additional opinion or perspectives?

10 Is the decision in line with legal and organizational rules?

11 Am I comfortable with the decision? Can I live with it?

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Philosopher Laura Nash suggest asking oneself 12 question prior to reaching a

decision in an ethical dilemma (Laura Nash “Ethics without the sermon”, Harward

Business Review 56, no.6 (1981) pp 80-81)

1 Have you defined problem accurately?

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

3 How did the situation occur in the first place?

4 Who was involved in the situation in the first place?

5 What is your intention in making this decision?

6 How does this intention compare with likely results?

7 Who could your decision or action injure?

8 Can you engage the affected parties in a discussion of the problem before you

made your decision?

9 Are you confident that your decision be as valid over a long period as it seems

now?

10 Could you disclose without qualms your decision or action to your boss, your

CEO, the board of directors, your family, or society as a whole?

11 What is the symbolic potential of your action if understood?

12 Under what condition would you allow exceptions to your stand?

In evaluating decision two elements should be considered: Integrity and

Accountability Integrity, means consistency in values, would require that the decision

maker define her or his values, as well as create a prioritization of those values

Accountability means no matter which direction is taken, the decision maker must be

accountable to all stakeholders who are impacted by this decision

6.5 ETHICAL DECISION-MAKING DILEMMA

Managers experiences the dilemma of ethical decision making during performing their

duties as:

1 I have to satisfy inspector from the electricity board to maintain adequate power

supplies in times of recurrent shortages

2 I have to oblige, entertain, and enrich an important customer to keep him from

switching over to competitor

3 I have to do manipulation in accounts statement to show high profit figure

4 To increase profits I have to sell same product in three different packing at

different price

5 Without having any improvement in product I have to advertise New and

Improved

6 I have to sign a transfer orders of an officer to satisfy the prejudice of a higher

level officer

7 I have to oblige bank officer to get loan for the project

American Accounting Association (AAA) published in 1988 a report on Ethics in the

Accounting Curriculum which included a “decision model” for analyzing ethical

dilemmas Its steps are shown in Figure 6.1

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Business Environment and Ethics

Determine the Facts Define the Ethical Issue

Identify major principles, rules

and values Specify the alternatives

Compare values and alternatives for a clear decision Assess the consequences Make your Decision

Figure 6.1: Decision Model for Analyzing Dilemmas

Modern theories of ethics may prove useful in understanding and encouraging ethical behavior in business Imagine a lawless system where every human action is influenced by market forces Does in this situation organization can remain ethical? Does business can exist if every firm took decision on the basis of self interest at any cost? Does lawless market forces ensure justice and fair business Of course not Economist Dwight Lee and Richard Mckenzie support this contention They explain that a businessperson may act honestly because of the high cost of dishonesty

An economy in which people deal with each other honestly produces more wealth than one in which people are chronically dishonest because more exchanges occur directing resources into their most productive employments

[Dwight Lee and Richard Mckenzie, “How the Marketplace Fosters Business Honesty”, Business and Society Review (Winter 1995) pp 5-9]

6.6 SOURCES OF ETHICS

Sources of ethics are as follows:

1 Genetic Inheritance: There are persuasive evidence and arguments suggesting that the evolutionary forces of natural selection influences the development of traits such as cooperation and altruism that lie at the core of ethical system The very first school of ethics is the home More ethical the parents will be higher the chances that children will be following the same ethics Ethics are passed on generation from one generation to second generation and process goes on

2 Religion: Religion plays a critical role in deciding ethics Before effective law

system it is the religion that has played a role of restriction on unsocial activities Today also a common man tries to abide by the ethics describe by the religion As the Brihadarayaka Upnishad states, the Karmavada states:

69 Ethics Yathakari, Yathachari tatha bhavati

Sadhukari sadhur-bhavati, papakari papi bhavati;

Punyah punyena karmaan bhavati, papah papena

[As it does, and as it acts, so it becomes: the doer of good becomes good, and

the doer of evil becomes evil ; he become virtuous through a virtuous act and

vicious through a vicious act.]

All religion preach humanity, all religion preach peace all religion preach

development of whole society Ethics has its roots in religion Sacred Geeta

preaches about Niskam Karma that is work with out sake of result

Following verse of Isha Upanishad talks about enjoyment in detachment:

Isha vasyanidam sarvah,

Yatkincha Jagatyam jagat

Tena tyaktena bhunjitah

Ma gridha kasyaswiddhanam

(All this whatsoever moves on earth should be understood as covered by the lord

So let your enjoyment be done with detachment Do not covet the wealth of

others.)

3 Culture: Culture also begets ethical standards Culture refers to rules, customs

and standards transmitted through generation to generation Though culture

changes with region but their ethical standards remain same Different places may

have different cultures regarding dress sense but no culture believes in dishonesty,

or in the deceiving others in the name of others There are three aspect of culture:

(a) Universal, trans-cultural human values and ideas: These are universal ideals

Which is expected from sages, saints etc As in its ideal form it is culture to

spend a part of life in vanprastha, that is in forest after fulfilling worldly

duties, or to chant sacred mantras in the morning or to meditate in tapovans

(b) Culture specific, operative human values that translate the ideals into

actionable conduct in a given culture: It is the cultural values expected from

common man it is all about day to day operations and believes As in India

‘mother’ image being most dominant in relation to woman in India, we have

the operational value that even a father cannot touch his daughter’s body once

she attains puberty

(c) Culture Specific, operative human values that derive for certain altogether

different human ideals: This predisposition contributes to purity of mind and

is check against permissive and incest In India it is translated into practical

conduct through the tradition of a son or a daughter bowing down and

touching the feet of his/her parents or by a student doing the same to a

teacher

4 Philosophical System: Philosophical system also influences the ethics Aristotle,

Pluto, Shri Aurbindo, Vivekanand, Subhash Chandra Bose, Swami Dayanand,

Mahatma Gandhi have left lasting impact on the ethics with their philosophies

There are difference of opinion to On the one hand there is a philosophy of Karl

Marx according to him it is unethical to do business to accumulate wealth etc on

the other hand Mahatma Gandhi believes in business and preached trusteeship

according to which business man should look after the welfare of its employee

Jamna Lal Bajaj, JRD TATA, G.D.Birla who were influenced by M Gandhi

adopted this philosophy and invested heavily on the welfare of employees On the

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Business Environment and Ethics other hand countries like China erstwhile USSR etc were influenced by the

philosophy of Karl Marx and they declared business as unethical in their respective countries Vivekananda has given great importance to means of achieving results:

“with means aright end must come … if we take care of the cause the effect will take care of itself The realization of the ideal is the effect The means are the cause: attention to the means, is therefore is the great secret of life.”

5 Legal System: In society take the activities as hoarding the stock, black

marketing, cheating, giving wrong information etc as unethical and there is law to restrain all these activities There even laws against exploitation of labour, sexual harassment etc and all this activities are considered as unethical

6 Code of Conduct: Steiners and Steiner identify three primary categories of such

codes First Company codes, ordinarily belief and highly generalized Second company operating policies often contain an ethical dimension As policies regarding, customer complaints, hiring and other decisions serve as a guide to conduct and as a shield by which the employee can protect against unethical advances fro m those outside the firm Third many professional and industry associations have developed codes of ethics, such as in India Association of advertising agencies have develop a code of conduct for themselves Council for Fair Business Practices (CFBP) established in 1966 adopted following code of fair business practices:

(a) To charge only fair and reasonable prices and take every possible step to ensure that the prices to be charged to the consume are brought to his notice (b) To take every possible step to ensue that the agents or dealers….do not charge prices higher than fixed

(c) In times of scarcity, not to withhold or suppress stocks of goods with a view

to hoarding or profiteering

(d) Not to produce or trade in spurious goods of standards lower than specified (e) Not to publish misleading advertisement

(f) To invoice goods exported or imported at their correct prices

(g) To maintain accuracy in weights and measures of good offered for sale

(h) Not to deal knowingly in smuggled goods

(i) Providing after sales service where necessary or possible

(j) Honoring the fundamental rights of the consumer- right of safety, right to choose, right to information and right to be heard

(k) Discharging social responsibilities and the responsibilities to protect the environment and nature’s infrastructure

(l) Ensuring that the product warranty is offered in simple, unambiguous and concise language, highlighting the rights of the consumer under it