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Creating a business culture based on ethics

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  • 1. A P A P E R P R E S E N T E D A T T H E I I C F I P G L O B A L C O N F E R E N C E 2 0 1 4 O N 2 3 R D A P R I L 2 0 1 4 H E L D A T T H E K E N Y A I N S T I T U T E O F C U R R I C U L U M D E V E L O P M E N T N A I R O B I , K E N Y A B Y C P A M O H A M E D E B R A H I M – C F I P , M B A ( M A N C H E S T E R ) , A C M A , C G M A , F F A , F C T Creating a Business Culture Based on Ethics
  • 2. 1. WHAT IS BUSINESS ETHICS Business ethics as we define the term is “the ethics underpinning business”, so in order to appreciate the ethics we need to understand the different schools of philosophy on which the fundamentals of ethics are based. The fundamentals of business ethics are about the mapping of the value set into the management decisions of the business. Business ethics begins with the premise that subjective concepts like ethics and morality are consistent with the economist‟s notion of rational self- interest. The problem is applying this premise to the business and to corporate management and employee behaviour. Businesses usually codify the value set into a code of ethics.
  • 3. 1.1 Aspects of Business Ethics Business ethics has two aspects: one involves the specific situations in which ethical controversy arises; the other concerns the key principles of behaviour that can be applied both within the firm and across the family of stakeholders. Business ethics is not necessarily a new phenomenon. In 18th and 19th century, for example, business transactions were largely conducted on the principle of caveat emptor, a principle carried through to the 21st century. The onus is on the purchasers of goods and services to assure themselves that the products they tended purchasing were of the quality for which they would hope, and the vendor‟s duty was simply to fulfil a few legal obligations
  • 4. 2. PHILOSOPHICAL SCHOOLS WHICH PROVIDE A BASIS FOR BUSINESS ETHICS 2.1 SUBJECTIVISIM – IT IS UPTO THE INDIVIDUAL The ethical theory that moral judgements are “up to the individual” was based on the concept of self-realisation expounded by among others F.H Bradley (1846 -1924), who claimed that there is a ideal self to which each individual strives to achieve. It is also supported by the existentialist movement which tends to recommend that in matters like ethics the important thing is not what you decide but that you decide. Another theory that to an extent supports this theory is that of “emotivism” as propounded by the British philosopher A.J Ayer (1910 to 1989). Ayer held that Ethical assertions need not be verifiable as they have emotive meaning unlike scientific assertions, which should be independently verifiable. The American philosopher contended that ethical statements were like imperatives. The Oxford philosopher R.M. Hare formulated a logic of imperatives, a system of espousing good and bad reasoning on an ethical position, which does not determine which is true or false.
  • 5. 2. PHILOSOPHICAL SCHOOLS WHICH PROVIDE A BASIS FOR BUSINESS ETHICS 2.2 CULTURAL RELATIVISM– EVERYONE DOES IT Cultural relativism implies what is right or wrong depends is relative to time and place. This relativism is inspired by several considerations namely:-  Firstly it acknowledges that human beliefs and practices varies from one time to another and one place to another.  Secondly it is a reaction against the arrogance of one culture over another which claims to have a monopoly of the truth.  Third, in the area of ethics, relativism accommodates the fact that there are important moral differences between cultures which are difficult to resolve. The logic behind this theory is that people from one part of the world or one time in history and another place or time in history are not superior or inferior to another, but simply different. Its primary assertion is that ethic‟s is as dynamic as a society and ethical values move with changes in society.
  • 6. 2. PHILOSOPHICAL SCHOOLS WHICH PROVIDE A BASIS FOR BUSINESS ETHICS 2.3 CONSEQUENTALISM – BETTER OF TWO EVILS This school of ethical theory contends that the circumstances surrounding a ethical problem makes a difference to the decision that is taken. To the “consequentialist” what is important is not ethical principles but the outcome of the ethical decision. The best known school of thought is Utilitarianism, traditionally the utilitarian holds an action is good as long as they are conductive to the “greatest happiness to the greatest number of people”. Philosophers associated with utilitarianism are Jeremy Bentham (1748- 1832) and John Stuart Mills ( 1806 – 1873). Bentham asserts “humankind is subject to two masters pain and pleasure, which govern all we do”. An action is right or wrong depending on whether it harms people by making them suffer pain, whether physical or psychological. This theory was further refined by G. E. Moore (1873- 1858) who introduced the concept of “ideal utilitarianism” giving greater status to intellectual pleasures. The concept of the law of diminishing marginal utility also comes into play, as the pleasure derived by an increase in pay of Kshs 10,000 to a cashier in a supermarket earning Kshs 20,000 is greater than the same increase to an accountant earning Kshs 200,000 in the same supermarket‟s head office.
  • 7. 2. PHILOSOPHICAL SCHOOLS WHICH PROVIDE A BASIS FOR BUSINESS ETHICS 2.4 NON-CONSEQUENTIALISM – IT IS SIMPLY WRONG Religious morality is one school of thought in this family of ethical theory, which asserts that there are indeed actions which are right or wrong, and there are fundamental moral principles which stand true in all time and at all places, as given by a divine law giver, this is common to Judaism, Christianity and Islam. Respect for persons – Kantian ethic‟s of duty is another school of thought in this family of ethical theory, however unlike the above the emphasis is not on a divine law giver, but rather on human reason as the arbiter of right or wrong. The German philosopher, Immanuel Kant (1724 to 1804) believed that the essence of morality was found in reason, by a process of rational deduction. NB: Kant‟s theory has its roots in the philosophy of Aristotle (384 -322 BCE) who defined humans as rational animals and the French renaissance philosopher Descartes (1596- 1650) who stated “I think, therefore I am”, he contended that humankind was distinguished from the animal kingdom because of the powers of reason.
  • 8. 2. PHILOSOPHICAL SCHOOLS WHICH PROVIDE A BASIS FOR BUSINESS ETHICS 2.4 NON-CONSEQUENTIALISM – IT IS SIMPLY WRONG Kant‟s contribution is the formulation of the categorical imperatives :- First, “I ought never to act except in such a way that I can also will that my maxim should become a universal law.” Second, “Act in such a way that you always treat humanity never simply as a means, but always at the same time as an end” Third, "that all maxims which stem from autonomous legislation ought to harmonize with a possible realm of ends as with a realm of nature. So act as if your maxims should serve at the same time as the universal law " In principle the third imperative synthesis the first two imperatives, meaning that we should so act that we may think of ourselves as "a member in the universal realm of ends “ legislating universal laws through our maxims (that is, a code of conduct), in a "possible realm of ends". None may elevate themselves above the universal law, therefore it is one's duty to follow the maxims.
  • 9. 2. PHILOSOPHICAL SCHOOLS WHICH PROVIDE A BASIS FOR BUSINESS ETHICS 2.5 NATURAL LAW – AN ETHICS OF RIGHTS The ethical theory that acknowledges the supremacy of rights is the “natural law theory”, its asserts rights rather than duty are primordial in determining ethical action. Duties can only be defined in terms of rights e.g. my right to property generates your duty not steal it or the public‟s/stakeholders right to information generates the government‟s or corporate entity‟s duty to tell us the truth in its stewardship reporting responsibilities. The most important philosopher to propound this theory was John Locke (1632-1704), he asserts “To understand political power aright, and derive it from its original, we must consider, what state all men are naturally in, and that is, a state of perfect freedom to order their actions and dispose of their possessions and persons, as they think fit, within the bounds of the law of nature, without asking leave, or depending upon the will of any other man.” Locke identifies two principle rights one the right to freedom to act and secondly the right to property including intellectual property, copyright and patent rights and property of one‟s person.
  • 10. 3. ETHICAL CRITERIA 3.1 ETHICAL CRITERIA: ‘NO DIFFERENCE THEORY’ The law is the most important source for ensuring that consumers receive a fair deal from retailers and manufacturers. The various health and safety laws have ensured substantial improvements in working conditions for employees. Contract law entails that employers no longer have complete freedom to make contracts or in many jurisdictions trades unions represent the workers in wage and work conditions. Notwithstanding the advances in the law, this does not mean that business can leave the law to resolve its moral dilemmas. Management are expected to act in a responsible manner. Either management ascribe to the „no difference theory‟, whereby they should maintain the same standards of ethical behaviour in business as they would in their private lives or they ascribe to the value set within the firm.
  • 11. 3. ETHICAL CRITERIA 3.2 ETHICAL CRITERIA: GOOD ETHICS MEANS GOOD BUSINESS This view of business ethics is often referred to as the coincidence theory: virtue and prosperity fortuitously coincide. If a firm sells defective goods, customers will simply discontinue purchasing the firm‟s products. Management desires to avoid legal disputes and wish to ensure that the firm‟s activities from hiring and firing employees, supply chain management to selling and sales all fall within best practice. An ethically „clean‟ firm runs less risk of litigation. Litigation and adverse publicity have followed all the major disasters in the business world: the Bhopal disaster in India, the Zeebrugge ferry disaster off the coast of Belgium, Exxon oil spillage off the Alaska coast, Perrier bottled water contamination in Europe. In many respects legislation provides a baseline, below which business should not stoop.
  • 12. 3. ETHICAL CRITERIA 3.3 ETHICAL CRITERIA: KANTIAN REASON (1 of 2) In considering whether religion itself is the ultimate source of moral authority, Europe‟s Age of Enlightenment in the 18th and early 19th centuries was marked by an emphasis on human reason. In matters of morality, what was right or wrong, good or bad, was not to be accepted simply because of divine authority or the authority of a Church; rather human reason could be trusted as the arbiter of truth, right and wrong, bad and good. The German philosopher, Kant, believed that the essence of morality was to be found in reason: it was by a process of rational deduction (as distinct from religious faith) that one could discover the basis of right and wrong. The first thing that reason tells us, Kant argued, is that one‟s duty is to be done for duty‟s sake. Morality is not the same as self interest, or even benevolence. If the fact that Jones is an employee were the reason for treating him well, then management would be let off the hook if, say, management were to quarrel with him, and the friendship were to come to an end. In other words, feeling of friendship or compassion for others cannot constitute truly moral grounds for acting. The moral law, Kant argued, was to be obeyed because it is the right thing to do, not because of any consequences, which accrue to moral behaviour.
  • 13. 3. ETHICAL CRITERIA 3.3 ETHICAL CRITERIA: KANTIAN REASON (2 of 2) The second point, which Kant noted about the moral law was that it is by nature universal, unless there is an exception. For example, Mr A in a poor country may accept bribes whereas Mr B in a relatively rich country may not. Each are acting according to different principles or maxims: the poor man, ex-hypothesis, has no means of survival. A „maxim‟ for Kant is the personal principle on which we act. He defined his categorical imperative, a basis for Kantian moral theory as follows: “I ought never to act except in such a way that I can also will that my maxim should become a universal law”. Therefore, for bribery or theft to be right in one set of circumstances but wrong in another there must be a relevant difference in those circumstances and hence in the maxims on which the various parties are acting. But can the maxim become universal? In order to answer the question, critics of Kant, have introduced additional principles to those identified by Kant. The debate need not detain us. Suffice to say that Kant insists that his moral theory is independent of the consequences.
  • 14. 3. ETHICAL CRITERIA 3.4 ETHICAL CRITERIA: UTILITARIANISM (1 0f 2) As in our example, in making a moral decision, one might balance one person‟s welfare against someone else‟s and reach a decision on the basis of which course of action achieves the greatest good. To argue in this way is to adopt what is referred to as a „consequentialist‟ approach to morality. Unlike Kantianism, what is really important for consequentialists is not moral principles that seem to be carved in tablets of stone but outcomes of ethical decisions. The best known of the theories is utilitarianism, which holds that actions are right in so far as they are conducive to the greatest happiness of the greatest number of people and wrong in so far as they are not. The utilitarian is not recommending that right actions must invariably produce large amounts of happiness. Let us suppose that the management team notes that the firm is losing market share to its competitors (say) because it has not kept up with innovative new product designs.
  • 15. 3. ETHICAL CRITERIA 3.4 ETHICAL CRITERIA: UTILITARIANISM (2 0f 2) Management have a choice: either they introduce new technology and offer redundancies or alternatively suggest a reduction in wages. If they do not introduce new technology the firm will probably continue to be uncompetitive and eventually close. Firm closure will have much worse consequences than the alternative. The greatest happiness in this case really translates into the least misery. This raises two further issues: (i) there is an over-emphasis on the amount of happiness with no reference to the distribution of happiness; and, (ii) individual actions are piecemeal. Combined these two issues raise an important point: is human happiness the only consideration to be taken into account when deciding what is right and wrong? In the example above, an element of justice could be introduced into the choice of wage reductions. Suppose workers receive Kshs. 8,000 and management receive Kshs 80,000. Management have a choice: it can award itself a reduction in payments with a meagre increase for workers or it can endure a management wage freeze until the firm recaptures its lost market share. Alternatively, management could introduce voluntary redundancy schemes or a performance related pay structure. These solutions are more just than any arbitrary reduction in wages and they are also relevant to determining what is right or wrong. And such a determination requires the adoption of rules within the firm, which are defined in terms of duties.
  • 16. 4. THE BUSINESS VALUE SET RIGHTS AND DUTIES Ethics, through beliefs and values form the building blocks of organisational behaviour. Values and beliefs are part of the cognitive sub-structure of an organisational culture. Values are intimately connected with moral and ethical codes, and determine what people think „ought‟ to be done. For example, individuals and organisations that value honesty, integrity and openness consider that they (and others) should act honestly, openly and with integrity because that is the right thing to do. Beliefs on the other hand concern what people think is and is not true. The value set is composed of rights and duties. The distinction is reasonably straightforward. For the most part, rights and duties are the opposite ends of the same coin. If management as an employer has a duty to ensure reasonable standards of health and safety for workers, workers have a right to expect it. If it is believed or if it has become a market norm that workers have a right to a minimum wage, then management as employers have a duty to pay it. These rights and duties can be categorised in three parts:-  General rights and duties  Legal rights and duties  Role-specific rights and duties
  • 17. 4. THE BUSINESS VALUE SET RIGHTS AND DUTIES 4.1 General rights and duties General rights and duties are moral entitlements in which everyone shares and are universally recognised e.g. a duty not to cheat, for example, or a duty not to steal. 4.2 Legal rights and duties Legal rights and duties are more circumscribed. They only apply within certain jurisdictions. In many jurisdictions legal rights and duties are defined through statutes passed by parliament, through common law, and through legal judgements handed down in courts, which establish precedents, that is, case law. Although there is an overlap between law and ethics (for example, it is both illegal and unethical to sell „spoilt‟ products), some actions are unethical but not illegal, and (less commonly) vice versa. Breaking a promise made to a friend is usually not illegal, but is unethical unless some very good reasons can be found to the contrary.
  • 18. 4. THE BUSINESS VALUE SET RIGHTS AND DUTIES 4.3 Role Specific rights and duties Within the firm, there are role-specific rights and duties. For example, all workers have a right to use the firm‟s canteen or parking spaces. A role-specific duty may also be a legal duty: for example, the sales manager who failed to promote the firm‟s goods could also be in breach of contract. Or a worker who shirks on the production line would be failing in a role-specific duty, but may not be acting illegally. While in so far as any role- specific right or duty is moral as opposed to legal, it derives its moral force from being a restricted instance of a general right or duty. Our sales manager or worker, for example, could be demonstrating an absence of a firm-specific value set: in other words, the value set within a firm is akin to a universal morality. In the absence of a value set represented by a corporate code of ethical conduct, there is a role-specific failure of a general moral duty of fidelity within the business.
  • 19. 5. CONCLUSION Creating a business culture based on ethic‟s requires the entity (corporate, firm, government department, quasi- government agency and not for profit organisation) to develop its own ethical value set commonly called the “Code of Ethical Conduct”. Each entity should consider the business they are in, the environment they operate in and the ethical theories and philosophy expounded above to develop their own code of conduct, which serves the markets, the era and society they operate. I believe every organisation is unique as its principal stakeholders will determine which theories to place emphasis. THANK YOU
  • 20. Mombasa Ace House, 3rd Floor Narok Road- Off Jomo Kenyatta Avenue PO Box 16916-80100, Mombasa, Kenya Nairobi KMA Centre, 7th Floor, Mara Road, Upper Hill Emails : mebrahim@acegroup.co.ke CPA Mohamed Ebrahim asalyani@acegroup.co.ke CPA Ahmed Salyani bmusani@acegroup.co.ke Bilal Musani Website : www.acegroup.co.ke CPA Mohamed Ebrahim MBA Manchester, FCFIP, FFA, FCT, ACMA-CGMA is a partner/director in Ace Group of Companies ,which comprises the following entities:  Ace Associates Certified Public Accountants a member firm of McMillan Woods Ace Consultants Limited Ace Financial Advisory Limited Ace Taxation Services Limited Ace Secretaries and Registrars