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Maintaining Ethical standers in business and Management


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Ihsan Ullah Khan, Islamabad Pakistan.

Published in: Business
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Maintaining Ethical standers in business and Management

  2. 2. Objectives of the Study In this study we will go through the Understanding of ethics from different dimensions  Business and Management Ethics  Islamic Business Ethics  Ethics in International Business 2
  3. 3. INTRODUCTION TO BUSINESS ETHICS The study of ethics in management can be approached from many different directions. The movement to include the study of ethics as a critical part of management education began in the 1970s, grew significantly in the 1980s, and is expected to continue growing in the twenty- first century. John Shad, chair of the Securities and Exchange Commission has recently pledged a $20 million trust fund to the Harvard Business School to create a curriculum in business ethics for MBA students. 3
  4. 4. DEFINING BUSINESS ETHICS  The discipline dealing with what is good and bad and right and wrong or with moral duty and obligation (Webster’s New International Dictionary, 1976). “our concern for good behavior. We feel an obligation to consider not only our own personal wellbeing, but also that of other human beings.” BUSINESS DEFINITION OF ETHICS “The capacity to reflect on values in the corporate decision making process, to determine how these values and decisions affect various stakeholder groups, and to establish how managers can use these observations in day-to-day company management” 4
  5. 5. Why Ethics Is a Vital Part of Management Practices John F. Akers, former board chair of IBM Recently said that it makes good business sense for managers to be ethical. Unless they are ethical, he believes, companies cannot be competitive in either national or international markets. 5
  6. 6. BENEFITS OF ETHICAL MANAGEMENT The employment of ethical business practices can enhance overall corporate health in three important areas  Productivity.  Stakeholder relation .  Government regulation. 6
  7. 7. BENEFITS OF ETHICAL MANAGEMENT  Productivity The employees of a corporation constitute one major stakeholder group that is affected by management practices. Keeping in view employees while making decisions will lead to employees job satisfaction. As a result their productivity will increase. For instance, Control Data Corporation found that its EAP (Employee Advisory Programs) reduced health costs and sick-leave usage significantly. 7
  8. 8. BENEFITS OF ETHICAL MANAGEMENT  Stakeholder Relations Ethical management practices can enhance corporate health is by positively affecting “outside” stakeholders such as suppliers and customers. A positive public image can attract customers who view such an image as desirable.  For example, Johnson & Johnson, the world’s largest maker of health care products, is guided by “Our Credo,” addressed by General Robert Wood Johnson to the company’s employees, stockholders, and members of its community 8
  9. 9. BENEFITS OF ETHICAL MANAGEMENT  Government Regulation If companies are believed to be acting unethically, the public is more likely to put sure on legislators and other government officials to regulate those businesses or to enforce existing regulations. Islamabad High Court (IHC) has issued notices to secretary commerce, in the case of import of forbidden food items despite ban and sought reply from them within two weeks. He told the court that about 17 forbidden food items including chips lays, chicken, butter and other goods are being imported in Pakistan He prayed the court to stay the importing of these forbidden food items. ( asked/ 9
  10. 10. CODE OF ETHICS … A formal statement that acts as a guide for the ethics of how people within a particular organization should act and make decisions.  90% of Fortune 500 firms, and almost half of all other firms, have ethical codes. Moreover, many organizations that do not already have an ethical code are giving serious consideration to developing one. 10
  11. 11. CODE OF ETHICS Issues Addressed by the Code of Ethics Are  Conflicts of interest.  Privacy of Information. (Own and others)  Gift giving.  Giving and receiving political contributions.  Example of NISSAN Japan accepting almost all gifts or entertainment from, or offering them to, business partners and government officials. The new code was drafted by Nissan president Yoshikazu Hanawa and sent to 300 major suppliers 11
  12. 12. Creating an Ethical Workplace Not only to act in accordance the law and standards, but managers also take in to consideration the other benefits of maintaining ethical environment in the organization. Following are some steps to establish an ethical workplace.  Creating, distributing, and continually improving a company’s code of ethics  Another step many companies are taking to create an ethical workplace is to appoint a chief ethics officer.  Another way to promote ethics in the workplace is to furnish organization members with appropriate training. General Dynamics 12
  13. 13. WHAT IS CONSIDERSD AS ETHICAL ? Managers can feel confident that a potential action will be considered ethical by the general public if it is consistent with one or more of the following standards:  The golden rule—Act in a way you would expect others to act toward you.  The utilitarian principle—Act in a way that results in the greatest good for the greatest number of people.  Categorical imperative—Act in such a way that the action taken under the circumstances could be a universal law, or rule, of behavior. 13
  14. 14. WHAT IS CONSIDERSD AS ETHICAL ?  The professional ethic—Take actions that would be viewed as proper by a disinterested panel of professional peers.  The TV test—Managers should always ask, “Would I feel comfortable explaining to a national TV audience why I took this action?”  The legal test—Is the proposed action or decision legal? Established laws are generally considered minimum standards for ethics.  The four-way test—Managers can feel confident that a decision is ethical if they can answer “yes” to the following questions: Is the decision truthful? Is it fair to all concerned? Will it build goodwill and better friendships? Will it be beneficial to all concerned? 14
  15. 15. Reasons of Un-ethical Behavior There are two practices which causes unethical behavior. 1) Give unusually high rewards for good performance. 2) Unusually severe punishments for poor performance. By eliminating such factors, managers can reduce any pressure on employees to perform unethically in organizations. 15
  16. 16. Sarbanes–Oxley Reform Standards Companies like Enron, Wroldcom. Maximizing own wealth by damaging the interest of shareholders, the top management commit the unethical conducts. many of these managers used inaccurate accounting reports to deceive employees, share holders, legal authorities, the media, and the general public, in case of Worldcom and Enron. The Sarbanes–Oxley Act of 2002 was passed to try to prevent such future deception in publicly owned companies. Areas covered include maintaining generally accepted accounting practices, evaluating executive compensation, monitoring fundamental business strategies. 16
  17. 17. Sarbanes–Oxley Reform Standards The Sarbanes–Oxley Act seems to support whistle-blowing as a vehicle for both discouraging deceptive management practices while encouraging ethical management practices. Whistle Blower Someone who ‘‘sounds an alarm within an organization in which he or she works, aiming to spotlight neglect or abuses which threaten the public interest’’ (Drummond and Bain, 1994). One of the most famous whistle-blowers of modern times is Sherron Watkins, former vice president of Enron Corporation. She testified to congress that she was receiving information about Enron’s Finance. Enron, once the seventh largest corporation in the United States, declared bankruptcy in December 2001. 17
  18. 18. Islamic Business Ethics While the mechanisms and tools of Islamic business ethics application change over time, the underlying concepts of Islamic ethical system are constant since they were derived from a transcendental source (i.e. revelation from Allah (the God)). When trying to develop its application, Islamic business ethics need to remain congruent with its fundamental concepts. Philosophy of Islamic Ethics According to the Quran, humans are the vicegerents of Allah (The God) on Earth: Behold, thy Lord said to the angels: “I will create a vicegerent on earth” (The Holy Quran, 2:30, Yosuf Ali translation, available at:, accessed March 9, 2012). 18
  19. 19. Islamic Business Ethics The concept of Khilafa (vicegerency) is the basis for human existence and consequently for their ethical commitment according to Islamic teachings. Whenever a Muslim behaves as a vicegerent, he/she is performing an act of worship. The concept of worship is broad and applicable to all aspects of life (Beekun and Badawi, 2005). Islamic teachings are usually referred to as Shari’a. It is common in the literature to describe Shari’a as Islamic Law. Halal regulation and certification Whether a product is Halal or not is a critical factor in Muslims consumption decisions. Therefore, Halal regulation and certification was developed to help consumers identifying products, which comply with the Islamic principles. Already in the 1970s, first efforts were made to set up a system declaring and certifying food products as Halal. (western foods chain entry) 19
  20. 20. Islamic Business Ethics The Halal market is one of today’s fastest growing markets – even in non-Muslim countries like France, Halal already overtook organic and bio-products in market volume (Ahmed, 2011). The global Halal market volume is estimated to be US$580 The current situation in Halal certification is lacking in some fundamental points and urgently needs further development. Problems in Halal Certification  There is no common basis of Halal standards, neither in the Muslim countries nor worldwide.  No functioning mechanism for mutual recognition between the countries.  Ambiguity in the Halal Products. (Shariah Compliant Islamic Finance) 20
  21. 21. Enhancing Ethical and Responsibility Practices in Halal Regulation and Certification  Halal standards can easily extend beyond the Halal product attributes, enhancing its already existing ethical component and integrating corporate social responsibility (CSR) practices and general ethic values.  Applying CSR practices can help to integrate more criteria and herewith further develop a responsible Halal business. 21
  22. 22. Addressing Problems in Halal Certification Halal regulation and certification forms a good mechanism in order to help Muslims in meeting their religious commitments while living in a globalized and diversified society. Halal business practices vary from one country and industry to another, this variation is due to governance structure in those countries and industries. Halal regulation and certification can be developed by integrating some proven tools from the domain of CSR. 22
  23. 23. Ethics in International Business  Conflicts of Profit and Ethics Milton Friedman who emphasized that, following Adam Smith’s Wealth of Nations, business had ‘‘ the social responsibility to increase its profits and that the business of business is business’’. In other words, a company’s management is acting ethically if it follows the company’s self-interest and meets the needs of the market. Which indirectly benefit the Stockholders specifically and stakeholders generally. 23
  24. 24. Ethics and Corporate Culture A case in point is that after the merger of Cadbury with Schweppes. Adrian Cadbury was much concerned that the fundamental core values of Cadbury would remain an essential part of the new Cadbury Schweppes culture. These values were clearly defined in a document The Character of the Company included a strong commitment to ability, quality, simplicity, transparency and a clear responsibility to the shareholders. Even in the new setup they were successful but in 2007 it was disclosed that Cadbury was Fined for unknowingly selling chocolate contaminated with salmonella which caused illness among a small number of customers in the biggest test of food safety laws in Britain. This case caused the company to issue a statement, which said: Quality has always been at the heart of our business, but the process we followed in the UK in this instance has been shown to be unacceptable. 24
  25. 25. Bribery and Corruption The anti-corruption NGO Transparency International, founded in 1993, defines corruption as: ‘‘the misuse of public power for private gain’’. It publishes a Corruption Perception Index (CPI) which ranks countries according to their perceived level of corruption. By the help of business Experts and Analysts. Corruption can Include:  Attempts to secure government or other contracts by bribery;  Payments because of extortion, blackmail and protection;  Facilitating government services that companies are entitled to receive but whose provision is delayed by excessive bureaucracy; and  Price-fixing. 25
  26. 26. Business in Less Developed Countries In emerging markets and in less developed countries, business is often primarily a question of attempting to balance opportunity and risks, particularly in those markets where there is strong evidence of corruption and human rights abuse. Ethical investment Ethical investment has been partly influenced by shareholder pressure on the Boards of companies to invest in business activities that meet high ethical standards. An example is the UK arm of the Dutch Triodos Bank, which provides savings products for ethical investors and lends money for investment in socially and environmentally useful products. Investors see this approach in contrast to investing in, for example, companies active in the arms trade or tobacco products. 26
  27. 27. Transparency in Accounting In March 2007 in Japan, the Japanese entrepreneur Takafumie Horie, was given a two-and-a-half-year prison sentence for false accounting over the collapse of the internet company. When testifying he said: I never studied accounting. A management book I read said ‘‘leave that to specialists’’, so that is what I did. 27
  28. 28. Ethics in Marketing and Advertising Ethical issues in this area include inappropriate advertising and representation in such areas as:  Exaggerated and unsubstantiated claims for product (99% Surety)  Inappropriate portrayal of gender, race and age.  Arousing unrealistic expectations. -------------------------------------------------------------------------------------------------------- 28
  29. 29. By: Ihsan Ullah khan MS (finance) International Islamic university, Islamabad Email “” 29