Business Ethics Tathagat Varma Session 6/12: 20-‐Aug-‐09
Quiz • Why people engage in unethical behavior? – A belief that the acEvity is within reasonable ethical and legal limits – that is, that is not “really” illegal or immoral – A belief that the acEvity is in the individual’s or the corporaEon’s best interests – that the individual would somehow be expected to undertake the acEvity – A belief that the acEvity is “safe” because it will never be found out or publicized; the classic crime-‐and-‐ punishment issue of discovery – A belief that because the acEvity helps the company the company will condone it and even protect the person who engages in it
Quiz • What are the major ethical dilemmas of today’s business? – Green / eco-‐responsible business, sustainable development – Data Privacy, IP – Digital idenEty – Financial control vs. empowerment – InternaEonal business,
Quiz • IdenEfy ethical issues in the following situaEon, and suggest an ethical response to those issues: – Satyam works for a pharma company as a sales rep. He is based out of Bangalore but travels frequently for work. He aZends an interview with a compeEtor on a weekday in Mumbai, and he ﬁles expense report with his company claiming the travel as business travel. During interview, he is promised he]y bonus if he could bring at least 25% of his current business to the compeEtor in next 3 months. In Mumbai, he also met an old friend over lunch, and included lunch bill as business entertainment. While retuning from Mumbai, he picked up a Barbie doll for his boss’s daughter whose birthday was on coming Sunday.
Quiz • Satyam works for a pharma company as a sales rep. He is based out of Bangalore but travels frequently for work. He aZends an interview with a compeEtor on a weekday in Mumbai, and he ﬁles expense report with his company claiming the travel as business travel. During interview, he is promised he]y bonus if he could bring at least 25% of his current business to the compeEtor in next 3 months. In Mumbai, he also met an old friend over lunch, and included lunch bill as business entertainment. While retuning from Mumbai, he picked up a Barbie doll for his boss’s daughter whose birthday was on coming Sunday.
Quiz… 1. Business ethics focuses mostly on personal ethical issues – No. Business ethics focuses on organizaEonal concerns (legal and ethical – employees, customers, suppliers, society) 2. Business ethics deals with right or wrong behavior within a parEcular organizaEon – Yes. That stems from the basic deﬁniEon 3. Business ethics contributes to investor loyalty – Yes. Many studies have shown that trust and ethical conduct contribute to investor loyalty 4. If an acEvity is approved by most members of an organizaEon and it is also customary in the industry, it is probably ethical – Yes. An acEvity that is generally regarded as ethical and survives open discussion inside and outside the organizaEon is usually acceptable 5. The primary method for resolving business ethics disputes is through the criminal court system – No. Lawsuits and civil liEgaEon are the primary way in which business ethics dispute are resolved
Quiz… 6. Whistle-‐blowers o]en retain their posiEons and conEnue to advance within the organizaEon – No. Whistle-‐blowers o]en lose their jobs 7. A person who behaves unethically and is rewarded is likely to conEnue to act unethically – Yes. If no punishment occurs for unethical behavior or the behavior is rewarded, it is likely to conEnue 8. SocializaEon refers to the process in which a person learns the values and behaviors considered appropriate by the organizaEon – Yes. SocializaEon teaches employees how to behave with respect to their roles within the organizaEon 9. The accountability and responsibility for appropriate business conduct rest with top management – Yes. ExecuEves in the organizaEon determine the culture and iniEaEves that support ethical behavior 10. Management’s total loyalty to maximizaEon of proﬁt is a principle obstacle to achieving higher standards of ethical pracEce – Yes.
The Discipline of Building Character • Joseph Badaracco, Jr • We have all experienced, at one Eme or another, situaEons in which our professional responsibiliEes unexpectedly come into conﬂict with our deepest values…At these Emes, we are caught in a conﬂict between right and right. And no maZer which opEon we choose, we feel like we’ve come up short. • In every case, regardless of what path is chosen, these decisions taken cumulaEvely over many years form the very basis of an individual’s character. For that reason, I call them deﬁning moments.
The Discpline… • An ethical decision typically involves choosing between two opEons: one we know to be right and another we now to be wrong. • A deﬁning moment, however, challenges us in a deeper way by asking us to choose between two or more ideals in which we deeply believe. Such challenges rarely have a “correct” response. Rather, they are situaEons created by circumstance that ask us to step forward and “form, reveal and test” ourselves.
The Discipline… • We form our character in deﬁning moments because we commit to irreversible courses of acEon that shape our personal and professional idenEEes. • We reveal something new about is to ourselves and others because deﬁning moments uncover something that has been hidden or crystallize something that had been parEally known. • And we test ourselves because we discover whether we will live up to our personal ideals or only pay them lip service.
The Discipline… • In today’s workplace, three types of deﬁning moments are parEcularly common. – The ﬁrst type is largely an issue of personal idenEty. It raises the quesEon, Who am I? – The second type is organizaEonal as well as personal: both the character of groups within an organizaEon and the character of an individual manager are at stake. It raises the quesEon, Who are We? – The third type of deﬁning moment is the most complex and involves deﬁning a company’s role in the society. It raises the quesEon, Who is the Company? • By learning to idenEfy each of these three deﬁning moments, managers will learn to navigate right-‐vs-‐right decisions with grace and strength.
A Guide to Deﬁning Moments • For Individuals: Who am I? • For Managers of Work Groups: Who are We? • For Company ExecuEves: Who is the Company?
Who am I? • What feelings and intuiEons are coming into conﬂict in this situaEon? • Which of the values that are in conﬂict are most deeply rooted in my life? • What combinaEon of expediency and shrewdness, couple with imaginaEon and boldness, will help me implement my personal understanding of what is right?
Who are We? • What are the other strong, persuasive interpretaEons of the ethics of this situaEon? • What point of view is most likely to win a contest of interpretaEons inside my organizaEon and inﬂuence the thinking of other people? • Have I orchestrated a process that can manifest the values I care about in my organizaEon?
Who is the Company? • Have I done all I can to secure my posiEon and the strength of my organizaEon? • Have I thought creaEvely and boldly about my organizaEon’s role in society and its relaEonship to stockholders? • What combinaEon of shrewdness, creaEvity, and tenacity will help me transform my vision into a reality?
Why Be an Ethical Company? • …Theyre Stronger and Last Longer • Of the original Forbes 100 in 1917, 61 ceased to exist by 1987. • Of the remaining 39, only 18 stayed in the top 100, and their return was 20% less than the overall market during the period from 1917 through 1987. • Of companies in the original Standard & Poors 500-‐stock index in 1957, only 74 remained in 1997; of these, only 12 outperformed the S&P 500 in the period from 1957 through 1998. • The average CEO tenure in the U.S. is 4.2 years, less than half the 10.5-‐year average in 1990.
Why… • Beer, author of High Commitment, High Performance, a book on business ethics recently published by Josey-‐ Bass, posited three core reasons why Wall Street failed so badly in the fall of 2008: The ﬁrms lacked a higher purpose, lacked a clear strategy, and mismanaged their risk. • Charles Schwab & Co. (SCHW) has largely avoided the huge fallout. So has US Bancorp (USB). A quality both of these companies share is a laser-‐like focus on customer service and on honesty and transparency. This comes from their cultures. • Neither company touched the subprime mortgage securiEzaEon market, because they saw it as risky and simply not the kind of business that served the companys long-‐term interests
Why… • Another key failing Beer discussed was the inability of actors inside the large, failing banks to speak truth to power. Key players inside the banks felt inEmidated by superiors; the internal voice of conscience and purpose of these insEtuEons was silenced by a maniacal focus on short-‐term proﬁts and whatever scheme would bring them in. • The silencing of employees who sought to challenge strategy and risk-‐management pracEces likely also undermined the banks moral authority and emboldened those who already felt inclined to do the wrong thing. With a muted internal voice, these organizaEons lacked a moral compass. As a result, they drove oﬀ a cliﬀ with astonishing speed.
Why… • The moral here is fairly simple: When a companys ethical compass is poinEng true north, everything else falls into line. This isnt to say that companies with great ethics dont fail. But it does seem to indicate that companies without good ethics are far more likely to fail due to their inability to sustain or hear an inner voice to guide them through the dark Emes to the light.