Business Ethics Tathagat Varma Session 2/12: 23-‐Jul-‐09
History • Probably as old as trade itself ! • The Code of Hammurabi (1700s B.C.), prescribing prices and tariﬀs and laying down both rules of commerce and harsh penalMes for noncompliance, evidences some of civilizaMons earlier aQempts to establish the moral contours of commercial acMvity. • Aristotles Poli&cs (300s B.C.) addresses explicitly commercial relaMons in its discussion of household management. • Judeo-‐ChrisMan morality, as expressed in, e.g., the Talmud (200 A.D.) and the Ten Commandments (Exodus 20:2-‐17; Deuteronomy 5:6-‐21), includes moral rules applicable to commercial conduct.
Today • As a discrete, self-‐conscious academic discipline, business ethics is roughly four decades old. • Raymond Baumharts (1961, 1963, 1968) groundbreaking studies in the 1960s are generally understood to be early contribuMons to business ethics. • Richard DeGeorge (2005) dates academic business ethics to the 1970s, idenMfying Baumhart as a forerunner to a self-‐conscious academic business ethics. • Prominent contemporary business ethicist Norman Bowie dates the ﬁelds ﬁrst academic conference to 1974 (DeGeorge 2005).
1960s • Ethical Climate – Social unrest. AnM-‐war senMment. Employees have an adversarial relaMonship with management. Values shi` away from loyalty to an employer to loyalty to ideals. Old values are cast aside. • Major Ethical Dilemmas – Environmental issues – Increased employee-‐employer tension – Civil rights issues dominate – Honesty – The work ethic changes – Drug use escalates • Business Ethics Developments – Companies begin establishing codes of conduct and values statements – Birth of social responsibility movement – CorporaMons address ethics issues through legal or personnel departments
1970s • Ethical Culture – Defense contractors and other major industries riddled by scandal. The economy suﬀers through recession. Unemployment escalates. There are heightened environmental concerns. The public pushes to make businesses accountable for ethical shortcomings. • Major Ethical Dilemmas – Employee militancy (employee versus management mentality) – Human rights issues surface (forced labor, sub-‐standard wages, unsafe pracMces) – Some ﬁrms choose to cover rather than correct dilemmas • Business Ethics Developments – ERC founded (1977) – Compliance with laws high-‐lighted – Federal Corrupt PracMces Act passed in 1977 – Values movement begins to move ethics from compliance orientaMon to being "values centered"
1980s • Ethical Culture – The social contract between employers and employees is redeﬁned. Defense contractors are required to conform to stringent rules. CorporaMons downsize and employees ahtudes about loyalty to the employer are eroded. Health care ethics emphasized. • Major Ethical Dilemmas – Bribes and illegal contracMng pracMces – Inﬂuence peddling – DecepMve adverMsing – Financial fraud (savings and loan scandal) – Transparency issues arise • Business Ethics Developments – ERC develops the U.S. Code of Ethics for Government Service (1980) – ERC forms ﬁrst business ethics oﬃce at General Dynamics (1985) – Defense Industry IniMaMve established (1986) – Some companies create ombudsman posiMons in addiMon to ethics oﬃcer roles – False Claims Act (government contracMng)
1990s • Global expansion brings new ethical challenges. There are major concerns about child labor, facilitaMon payments (bribes), and environmental issues. The emergence of the Internet challenges cultural borders. What was forbidden becomes common. • Major Ethical Dilemmas – Unsafe work pracMces in third world countries – Increased corporate liability for personal damage (cigareQe companies, Dow Chemical, etc.) – Financial mismanagement and fraud. • Business Ethics Developments – Federal Sentencing Guidelines for OrganizaMons (1991) – Class acMon lawsuits – Global Sullivan Principles (1999) – In re Caremark (Delaware Chancery Court ruling re Board responsibility for ethics) – IGs requiring voluntary disclosure – ERC establishes internaMonal business ethics centers – Royal Dutch Shell InternaMonal begins issuing annual reports on their ethical performance
2000s • Unprecedented economic growth is followed by ﬁnancial failures. Ethics issues destroy some high proﬁle ﬁrms. Personal data is collected and sold openly. Hackers and data thieves plague businesses and government agencies. Acts of terror and aggression occur internaMonally. • Major Ethical Dilemmas – Cyber crime – Privacy issues (data mining) – Financial mismanagement. – InternaMonal corrupMon. – Loss of privacy -‐ employees versus employers – Intellectual property the` – The role of business in promoMng sustainable development • Business Ethics Developments – Business regulaMons mandate stronger ethical safeguards (Federal Sentencing Guidelines for OrganizaMons; Sarbanes-‐Oxley Act of 2002) – AnMcorrupMon eﬀorts grow. – Stronger emphasis on Corporate Social Responsibility and Integrity Management – OECD ConvenMon on Bribery (1997-‐2000) – UN ConvenMon Against CorrupMon (2003); UN Global Compact adopts 10th principle against corrupMon (2004) – Revised Federal Sentencing Guidelines for OrganizaMons (2004) – Increased emphasis on evaluaMng ethics program eﬀecMveness
What is Decision-‐making ? • Decision making can be regarded as an outcome of mental processes (cogniMve process) leading to the selecMon of a course of acMon among several alternaMves. Every decision making process produces a ﬁnal choice. The output can be an acMon or an opinion of choice. • Key inﬂuences: – Law of the Land, Company Policies: SMck to the rules at all cost Vs. break all rules – Environmental Factors, the ground situaMon, criMcality, urgency, importance, etc. – Data available: Certain, Complete, Consistent, Timely, etc. – Aﬀected by personal factors, biases
Personal Factors aﬀect Decision Making • Intellectual Ability: The mental ability of two individuals will not be the same. People diﬀer in their capacity to perceive, understand and analyze any given problem. Such a diﬀerence is reﬂected in their decisions. • Experience: A manager with considerable experience may not encounter problems while evolving decisions even on crucial maQers. This is obviously because he would have already come across such situaMons in his career. A manager who lacks experience, on the other hand, may fumble. • Sen@ments and Values: Every manager has his own values, beliefs and senMments. Some managers may be pragmaMc in their approach and may evolve a pracMcal decision each Mme. On the other hand, there are sMll some others who may like to play safe and go by convenMon or custom. • Courage: Undoubtedly, The manager needs courage to evolve and implement certain decisions on sensiMve issues. • Level of Mo@va@on, Self-‐Conﬁdence, etc: A manager with a high level of moMvaMon and self-‐conﬁdence may not be afraid of the reacMon to his decisions. He will not bother even if his decision does not get the approval of everyone. He is sure of the success of his decision.
Values • The core beliefs we hold regarding what is right and fair in terms of our acMons and our interacMons with others. Another way to characterize values is that they are what an individual believes to be of worth and importance to their life (valuable). (From "What is the Diﬀerence Between Ethics, Morals and Values?", Frank Navran, / ask_e4.html)
Morals • Values that we aQribute to a system of beliefs that help the individual deﬁne right versus wrong, good versus bad. These typically get their authority from something outside the individual -‐-‐ a higher being or higher authority (e.g. government, society). Moral concepts, judgments and pracMces may vary from one society to another. (From "What is the Diﬀerence Between Ethics, Morals and Values?", Frank Navran, /ask_e4.html)
Ethics • The decisions, choices, and acMons (behaviors) we make that reﬂect and enact our values.. • The study of what we understand to be good and right behavior and how people make those judgments. (From "What is the Diﬀerence Between Ethics, Morals and Values?", Frank Navran, /ask_e4.html) • A set of standards of conduct that guide decisions and acMons based on duMes derived from core values. (From "The Ethics of Non-‐proﬁt Management," Stephen D. PoQs, /resources/speech_detail.cfm?ID=821 ) • There are many deﬁniMons as to what ethics encompasses: – The discipline dealing with what is good and bad and with moral duty and obligaMon; – Decisions, choices, and acMons we make that reﬂect and enact our values; – A set of moral principles or values; – A theory or system of moral values; and/or – A guiding philosophy. (From "CreaMng a Workable Company Code of Conduct," 2003, Ethics Resource Center)
What Ethics is NOT • Ethics is not the same as feelings. Feelings provide important informaMon for our ethical choices. Some people have highly developed habits that make them feel bad when they do something wrong, but many people feel good even though they are doing something wrong. And o`en our feelings will tell us it is uncomfortable to do the right thing if it is hard. • Ethics is not religion. Many people are not religious, but ethics applies to everyone. Most religions do advocate high ethical standards but someMmes do not address all the types of problems we face. • Ethics is not following the law. A good system of law does incorporate many ethical standards, but law can deviate from what is ethical. Law can become ethically corrupt, as some totalitarian regimes have made it. Law can be a funcMon of power alone and designed to serve the interests of narrow groups. Law may have a diﬃcult Mme designing or enforcing standards in some important areas, and may be slow to address new problems. • Ethics is not following culturally accepted norms. Some cultures are quite ethical, but others become corrupt -‐or blind to certain ethical concerns (as the United States was to slavery before the Civil War). "When in Rome, do as the Romans do" is not a saMsfactory ethical standard. • Ethics is not science. Social and natural science can provide important data to help us make beQer ethical choices. But science alone does not tell us what we ought to do. Science may provide an explanaMon for what humans are like. But ethics provides reasons for how humans ought to act. And just because something is scienMﬁcally or technologically possible, it may not be ethical to do it.
Why IdenMfying Ethical Standards is Hard ? • There are two fundamental problems in idenMfying the ethical standards we are to follow: – On what do we base our ethical standards? – How do those standards get applied to speciﬁc situaMons we face? • If our ethics are not based on feelings, religion, law, accepted social pracMce, or science, what are they based on? Many philosophers and ethicists have helped us answer this criMcal quesMon. They have suggested at least ﬁve diﬀerent sources of ethical standards we should use.
Five Sources of Ethical Standards • The UMlitarian Approach • The Rights Approach • The Fairness or JusMce Approach • The Common Good Approach • The Virtue Approach
The UMlitarian Approach • Some ethicists emphasize that the ethical acMon is the one that provides the most good or does the least harm, or, to put it another way, produces the greatest balance of good over harm. The ethical corporate acMon, then, is the one that produces the greatest good and does the least harm for all who are aﬀected-‐ customers, employees, shareholders, the community, and the environment. Ethical warfare balances the good achieved in ending terrorism with the harm done to all parMes through death, injuries, and destrucMon. The uMlitarian approach deals with consequences; it tries both to increase the good done and to reduce the harm done.
The Rights Approach • Other philosophers and ethicists suggest that the ethical acMon is the one that best protects and respects the moral rights of those aﬀected. This approach starts from the belief that humans have a dignity based on their human nature per se or on their ability to choose freely what they do with their lives. On the basis of such dignity, they have a right to be treated as ends and not merely as means to other ends. The list of moral rights -‐including the rights to make ones own choices about what kind of life to lead, to be told the truth, not to be injured, to a degree of privacy, and so on-‐is widely debated; some now argue that non-‐ humans have rights, too. Also, it is o`en said that rights imply duMes-‐in parMcular, the duty to respect others rights.
The Fairness or JusMce Approach • Aristotle and other Greek philosophers have contributed the idea that all equals should be treated equally. Today we use this idea to say that ethical acMons treat all human beings equally-‐or if unequally, then fairly based on some standard that is defensible. We pay people more based on their harder work or the greater amount that they contribute to an organizaMon, and say that is fair. But there is a debate over CEO salaries that are hundreds of Mmes larger than the pay of others; many ask whether the huge disparity is based on a defensible standard or whether it is the result of an imbalance of power and hence is unfair.
The Common Good Approach • The Greek philosophers have also contributed the noMon that life in community is a good in itself and our acMons should contribute to that life. This approach suggests that the interlocking relaMonships of society are the basis of ethical reasoning and that respect and compassion for all others-‐especially the vulnerable-‐are requirements of such reasoning. This approach also calls aQenMon to the common condiMons that are important to the welfare of everyone. This may be a system of laws, eﬀecMve police and ﬁre departments, health care, a public educaMonal system, or even public recreaMonal areas.
The Virtue Approach • A very ancient approach to ethics is that ethical acMons ought to be consistent with certain ideal virtues that provide for the full development of our humanity. These virtues are disposiMons and habits that enable us to act according to the highest potenMal of our character and on behalf of values like truth and beauty. Honesty, courage, compassion, generosity, tolerance, love, ﬁdelity, integrity, fairness, self-‐control, and prudence are all examples of virtues. Virtue ethics asks of any acMon, "What kind of person will I become if I do this?" or "Is this acMon consistent with my acMng at my best?"
A Framework for Ethical Decision Making • Recognize an Ethical Issue • Get the Facts • Evaluate AlternaMve AcMons • Make a Decision and Test it • Act and Reﬂect on the Outcome
Recognize an Ethical Issue • Could this decision or situaMon be damaging to someone or to some group? Does this decision involve a choice between a good and bad alternaMve, or perhaps between two "goods" or between two "bads"? • Is this issue about more than what is legal or what is most eﬃcient? If so, how?
Get the Facts • What are the relevant facts of the case? What facts are not known? Can I learn more about the situaMon? Do I know enough to make a decision? • What individuals and groups have an important stake in the outcome? Are some concerns more important? Why? • What are the opMons for acMng? Have all the relevant persons and groups been consulted? Have I idenMﬁed creaMve opMons?
Evaluate Alternate AcMons • Evaluate the opMons by asking the following quesMons: – Which opMon will produce the most good and do the least harm? (The UMlitarian Approach) – Which opMon best respects the rights of all who have a stake? (The Rights Approach) – Which opMon treats people equally or proporMonately? (The JusMce Approach) – Which opMon best serves the community as a whole, not just some members? (The Common Good Approach) – Which opMon leads me to act as the sort of person I want to be? (The Virtue Approach)
Make a Decision and Test it • Considering all these approaches, which opMon best addresses the situaMon? • If I told someone I respect-‐or told a television audience-‐which opMon I have chosen, what would they say?
Act and Reﬂect on the Outcome • How can my decision be implemented with the greatest care and aQenMon to the concerns of all stakeholders? • How did my decision turn out and what have I learned from this speciﬁc situaMon?
What do you do when you see…? • Your boss/colleagues/team members indulging in – ViolaMon of company policies – Illegal behavior – Unethical pracMces – Workplace harassment • Do you – Report immediately – Raise hell – Tip-‐oﬀ law agencies – Call the press • You have to make some kind of decision!
We Don’t Need Another Hero ! • Published in HBR in Sep 2001, this arMcle is by Joseph L. Badaracco, John Shad Professor of Business Ethics • Key ideas: – The gold standard of honorable leadership: the charismaMc hero astride a white horse, baQling wrongdoing, spearheading large-‐scale, ethical missions. MarMn Luther King, Jr., for example. – But should this standard apply in corpora&ons? In most ﬁrms, the opposite leadership style is far more potent. It’s not the heroic types but the quiet leaders who achieve extraordinary results. They work inconspicuously, deep within their organizaMons—paMently picking, and ﬁghMng, their baQles. – Quiet leaders don’t make headlines. But through their modest, measured eﬀorts far from the limelight, they make their organizaMons much beQer places. And, they don’t rack up casualMes.
Essence of ‘Quiet Leadership’ • …the most eﬀecMve moral leaders in the corporate world o`en sever the connecMon between morality and public heroism. These men and women aren’t high-‐proﬁle champions of right over wrong and don’t want to be. They don’t spearhead large-‐scale ethical crusades. They move paMently, carefully, and incrementally. They right—or prevent—moral wrongs in the workplace inconspicuously and usually without casualMes. I have come to call these people quiet leaders because their modesty and restraint are in large measure responsible for their extraordinary achievements. And since many big problems can only be resolved by a long series of small eﬀorts, quiet leadership, despite its seemingly slow pace, o`en turns out to be the quickest way to make the corporaMon— and the world—a beQer place.
From the arMcle… • In this arMcle, I explore the ﬁndings of my four-‐year eﬀort to understand how quiet leaders see themselves, think about ethical problems, and make eﬀecMve decisions. Although all names have been changed, the anecdotes below are based on more than 150 case studies that I gathered from several sources, including direct observaMon, parMcipaMon in situaMons as an adviser, and papers and accounts by many of my older MBA students who came from corporate posiMons with serious management responsibiliMes. The stories have convinced me that while certain ethical challenges require direct, public ac@on, quiet leadership is the best way to do the right thing in many cases. That’s because quiet leadership is prac@cal, eﬀec@ve, and sustainable. Quiet leaders prefer to pick their baSles and ﬁght them carefully rather than go down in a blaze of glory for a single, drama@c eﬀort.
4 PracMces of Quiet Leadership • My research suggests that quiet moral leaders follow four basic rules in meeMng ethical challenges and making decisions. Although not always used together, the rules consMtute an indispensable tool kit that can help quiet leaders work out the dilemmas they face. Some tac@cs may seem a liSle too clever or even ethically dubious. Certainly, few people would want to work at jobs where such moves cons@tute business as usual. Nevertheless, these guidelines oVen prove cri@cal when leaders have real responsibili@es to meet. – Put things oﬀ un@l tomorrow – Pick your baSles – Bend the rules – Find a compromise
Put things oﬀ unMl tomorrow • Put things oﬀ un@l tomorrow. When an ethical dilemma escalates, buy Mme—it can spell the diﬀerence between success and failure. • Example: Under intense ﬁnancial pressure, new regional bank president Kyle Williams inherited four chronic underperformers whom his superiors wanted to ﬁre immediately. Fearing legal repercussions, he stalled for Mme. He sought legal personnel advice and raised strategic quesMons—gaining weeks to resolve all the issues. The payoﬀ? Three of the problem employees le` for incontroverMble reasons; one became a ﬁrst-‐rate loan oﬃcer.
Pick your baQles • Pick your baSles. Quiet leaders protect their poliMcal capital—their reputaMon for accomplishing things and their networks of people who appreciate and reward their eﬀorts. Before taking a stand, they calculate the risks and returns to that capital. • Example: PR manager Michele Petryni fumed when a partner in her law ﬁrm excluded her from a meeMng because of her gender. But rather than making trouble, she used pointed humor.“I’ve never been told I couldn’t play ball because I didn’t have the right equipment!” she joked with a colleague. He told the senior partner what happened—generaMng an apology from the ﬁrm. Petryni raised awareness of the problem—and protected her poliMcal capital.
Bend the rules • Bend the rules. Following rules slavishly can be a moral cop-‐out. Face it: We’ve all told a “white lie” to protect a friend’s feelings. Quiet leaders ﬁnd eﬀecMve ways to maneuver within the rules’ boundaries. • Example: Consultant Jonathan Balint’s brother-‐in-‐ law worked at Jonathan’s client company and was debaMng whether to stay there. Jonathan knew the client was planning a major layoﬀ. Instead of betraying the client’s conﬁdenMality by alerMng his brother-‐in-‐law, he oﬀered hints (“No one is indispensable”). The brother-‐in-‐law caught on— and Jonathan protected his own reputaMon and career.
Find a compromise • Find a compromise. An unwillingness to compromise may be morally principled—but it’s unrealisMc in most situaMons. Quiet leaders cra` responsible, workable compromises. • Example: Sales rep Roger Darco couldn’t sell a longMme customer a server it needed; his company reserved them for “premier” clients. Rather than disappoint his customer or fake documents to sell the server, Roger arranged for his customer to serve as a test site—and get the computer earlier. He pleased his customer and his company.
Reading List • The Ethical Mind – conversaMon with Howard Gardner • The Ethical ResponsibiliMes of Professionals – Howard Gardner • Business Excellence through Value Systems – Sharu Rangnekar