Institute for International Management & Technology

School of Management and Entrepreneurship

BUSINESS COMMUNICATION
Semester 1 2011-2012
Module Leader Dr. Kalpana Maheshwari

Business Ethics In The Corporate World Submitted By: Kanishk Matta

Executive Summary
In this report, Ive endeavored to evaluate major factors contributing and attributed to Business Ethics. By giving definition and historical background of Business Ethics, Ive tried to give reader a base, and thereafter, Ive tried to raise major issues and the impact business ethics have on success of business. Later in the report, Ive mentioned social obligation and moral obligation, which are nothing but two side of the coin of Business Ethics. I hope, I have done justice to the topic, though topic was too vast, however, Ive tried to keep things short and to the point.

What is Business Ethics?

Ethics is a study case of philosophy which directly refers to the question of right and wrong, good and bad in human conduct and values (Dictionary 2011). On the other hand, business ethics is application of ethical values based on beliefs and pre-conceived notions of right and wrong on a commercial decision or activity (A. Marcoux, 2008). As we know, since the time immemorial business primary agenda was profit maximization, however, with the coming of globalization and liberalization in the world of business, business priorities have deepened and broadened. Wherein, business ethics is the core part of it that enforces to not to break law in any work-related activity; prevent actions that may affect companys reputation; avoid getting tangled in any lawsuit. These ethical business practices heavily deals with loss of money and reputation. (J. Fieser, 2011) But nowadays, as scope of business has widened and complexities have entrenched, so does, ethical value system in the business world have made inroads in daily decision making process and managerial actions, at some point which may be complex and difficult to handle. However, observing business ethics from narrow perspective of business would be incomplete assessment of it, hence, larger purview of its social, cultural, metaphysical, historical and international standing would give it a chance for better understanding.

Historical Background
Indias tryst with business ethics dates back to Kautilyas Arthasstras that was found in 3rd century BC. Kautilyas Arthasstras is one of the oldest written management transcripts which are still treated as relevant and applicable in contemporary business scenario. Kautilya, who is popularly known as Chanakya, endeavored to comprehensibly elucidate the purpose and philosophy of an organization, organizational culture, leadership established upon values and ethics, and achievement of purpose and welfare of stakeholders and shareholders in an organization. (Kautilya, 2011) If we define business ethics as law of moral code, then the code of Hammurabi (1800 BC) could be one the earliest example of business ethics, wherein tribute, taxes and daily commercial activities were codified to nurture healthy business environment free of corruption. The Talmud and Ten Commandments (After the death of Christ, 200) also includes moral codes for the business activities. However, these books are more religious and are limited in scope; despite this these books offer an insight into the historical legacy of ethics in business. (History Guide, 2000) In contemporary history, Raymond Baumhart works on business ethics (1960s) are attributed to be the first concrete effort to understand, design, structure and develop effective business ethics

background and base. Subsequently, vertical and horizontal study in business ethics, opened wide array of avenue in which different branches of ethics related to business grew and develop to become discrete subject matter such as financial ethics, organizational ethics, leadership ethics etc. (A. Marcoux, 2008)

Role of Business Ethics in Businesss Success

The prime goal of an organization is profit maximization, but simultaneously business ethics are also significant in achievement of this goal. But arent the goal of profit maximization and role of business ethics are contradictory in nature to some extent? There have had been a big debate on how business ethics could stay in harmony with prime goal of an organization. Many experts have asserted the role of business ethics in business by calling business ethics is a profitable practice. In the business ethics journal from The Stanford Encyclopedia of Philosophy, Authored by Marcoux, presented an example of a situation, suppose, if there is a company that has global reputation of strong business ethics, and the very same company endeavors to enter some African country where bribe is the common norm. This company wants to bring employment to the Africa, but if this company does not pay bribes to government officials then company wont get license to work there. Now, in this situation, where company has an ethical goal of bringing employment to Africa and an organizational goal of profit maximization but it has to opt for unethical means to achieve it, how do we expect company to conform to business ethics? These types of questions raises few more questions such as if a corporation or company is a moral agent or not? A corporation should cater to shareholders interests or stakeholders interests or social responsibilities? These questions are highly complex and require long debate to reach at a consensus. (A. Marcoux, 2008) However, Milton Friedman in his one of the most popular article The Social Responsibility of Business is to Increase its Profits dated 13, Sept 1970 in The New York Times newspaper, asserted that business motive is to maximize profits and the fulfill social responsibility. But business ethics should be the dominating factor in this equation of profits and social responsibility for not just the betterment of employers and employees but also the welfare of society. Therefore, Milton elaborated that by fulfilling moral and social obligations of a corporation, a corporation can still earn maximum profits and reputation. (Milton Friedman, 1970)

CSR (Corporate Social Responsibility) is one of the effective tools to fulfill social obligations and for moral obligation, a corporation needs to have policies, work-culture and its leader should have sense of high level of personal integrity to nourish ethical values and make success truly deserving.

Corporate Social Responsibility (CSR): A Social Obligation

Corporate social responsibility (CSR) is closely related to sustainable development, philanthropy and corporate responsibility concepts. Though CSR doesnt have a definition, however, it can be said to be a private initiative to satisfy social obligation of the local community. The dynamic landscape of business has made CSR a corporate tool to influence customers, shareholders, government and local community to create a brand image and positive response to its business system. But with this do we completely understand the meaning of CSR? Yes, CSR term is pretty vague and due to this, corporations arent able to decide what comes under its purview? To some corporations, CSR is caring for your employees and customers, to some its about environmental issues, and for others its about social welfare. Theres no strict set of actions or values or rules defined that may give a corporation sanction to CSR activities. However, Government of India (GOI) has endeavored to give it a design if not definition. GOI has renamed CSR as Responsible Business, these are set of guidelines offered by Union Minister of Corporate Affairs Murli Deora. These guidelines are voluntary; however, GOI had tried to make mandatory 2% spending of profit (profit after tax) on CSR activities but failed. The reason for failure was disagreement of corporate sector and indecisiveness of GOI, and still there is no consensus on it, therefore debate is still on. (India Knowledge @ Wharton, 2011 ) Apart from this debate on CSR, another debate is also there, debate on zero-sum game of CSR. Porter and Kramer in their article Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility has correctly put clashing of business with social welfare, and also warned that there is emerging trend among corporations that CSR is the source of PR campaign and marketing and issues of society arent being addressed rationally, instead only those issues are being getting limelight where other competitors are working or where they see business value. Authors suggest that CSR activities could be channelized to exploit societys creativity and innovation, and hence make a real difference. Corporation CSR activities should lead to Creating Shared Value (CSV) instead of focusing only on market value, business value and reputation of the corporation. By doing this, a corporation more actively participate in the social welfare and satisfy its social obligation more responsibly. (Porter and Kramer, 2006)

Now, to standardize or to judge if a corporation is doing well in CSR activities, many international organizations or government bodies have issued set of standards. If these standards are met in their full forms then the corporation is provided certification to ascertain its role in CSR activities in marketplace. The International Organization for Standardization (ISO) is an autonomous body that offers international certifications on meeting set of standards of management practices. Now, ISO have launched set of standards guiding social responsibility (SR) under ISO 26000, this will not be a certification. ISO 26000 will be shared with ISOs members of Working Group on Social Responsibility (WG SR). Swedish Standards Institute (SSI) and Brazilian Association of Technical Standards (ABNT) will lead this ISO Working Group on Social Responsibility. (ISO, 2010)

Personal Integrity: A Moral Obligation

The personal integrity (PI) is another important part of Business Ethics, which is quite complex in nature as it directly deals with human psychology, perspective, nature and attitude. Personal integrity can always be attributed to human frame but often many researchers have also connected it to identity of a corporation. In legal terms, a corporation is an individual who may be convicted or accused under criminal or civil laws; therefore, corporations individual identity makes it imbibe virtues of personal integrity. Personal integrity of a corporation can be defined in terms of its policies, culture, business practices and other activities. Personal integrity of a corporation is well defined. On the contrary, individuals personal integrity is complex and cannot be canvassed in set rules and definitions. Conscience is the largest part of personal integrity of an individual, who may resist bribe or become whistle blower if he/she observe any wrongdoing. Personal integrity demands from the individual to take righteous decision at the right time. Nevertheless, even if books talks about problem of Personal Gains Vs Personal Integrity, we arent able to find solution in real life situations. In a corporation, employee may find some wrongdoing but he/she may not take action hence becoming the part of malicious obedience whereas if a manager involves himself/herself into a wrongdoing, he/she may sacrifice personal integrity to achieve personal gains. To prevent such situations, three fundamental cornerstones of responsibility, authority and accountability, can easily do it. (Roger M. Boisjoly, 1993) In the nutshell, personal integrity at workplace is most important to not just save market share but also to prevent actions that jeopardize reputation of a corporation or lead to disasters like Bhopal Gas Tragedy or Satyam Computers.

Conclusion
Business ethics is a vast area of research, wherein many factors both internal and external are capable to broaden and deepen the scope of study. Apart from studies, Business ethics need to become more applicable then remaining only bookish. Beside, contribution of academic world to business ethics, now it is high time for corporate world to come to fore front and contribute to business ethics in terms of application, implementation and evolution. However, corporate world has achieved high feats by fully realizing the potential of social and moral obligation, and continue to cater to it, nevertheless, enlargement of horizon and perspective will not only make business worthwhile but more profitable and sustainable.

References
Marcoux, A. (Fall 2008) Business Ethics, The Stanford Encyclopedia Of Philosophy, 1, Fall (online) (cited 10th Oct 2011). Available from <http://plato.stanford.edu/archives/fall2008/entries/ethicsbusiness/>. The Dictionary (2011) Ethics (online) (cited 11th Oct 2011). Available from <URL:http://dictionary.reference.com/browse/ethics>.

Friedman, M. (1970) The Social Responsibility of Business Is to Increase Its Profits, The New York Times Magazine. India Knowledge @ Wharton (2011) Corporate Social Responsibility in India: No Clear Definition, but Plenty of Debate (online) (cited 12 October 2011). Available from <URL:http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4636>. History Guide (2000) The Code of Hammurabi (online) (cited 11 October 2011). Available from <URL: http://www.historyguide.org/ancient/hammurabi.html>. Fieser, J. (2011) Business Ethics, The University of Tennessee at Martin, 1:1, (online) (cited 11 October 2011). Available from <URL:http://www.utm.edu/staff/jfieser/vita/research/busbook.htm>. Porter, M. E. and Kramer, M. R., (2006) Strategy and Society: The Link Between Competitive Advantage and Corporate Social Responsibility, Harvard Business Review, 1:1, (online) (cited 11 October 2011). Available from <URL: http://hbr.org/product/strategy-and-society-the-linkbetween-competitive-/an/R0612D-PDF-ENG>. The International Organization for Standardization (2010) Social Responsibility (online) (cited 10 October 2011). Available from <URL: http://isotc.iso.org/livelink/livelink/fetch/2000/2122/830949/3934883/3935096/home.html?nodei d=4451259&vernum=0> Boisjoly, Roger M. (1993) Personal Integrity and Accountability, American Accounting Association Accounting Horizons.