Can Corporations

have a conscience of their own?

MIM VI 27th February 2007
 Team Members
Name Roll No

Shinde Nitin 86

Verma Devendra 99

Shah Chandresh 78

Zare Shripad 103

Chincholi Satish 10
 Agenda

•Definition

•Modern Business Environment

•Causes of unethical behavior & some facts

•How to decide what is right or wrong?

•The Solution - Institutionalizing Ethics

•Conclusion
 Conscience – What is it?

•Conformity to one's own sense of right conduct;

•Motivation deriving logically from ethical or moral principles that

govern a person's thoughts and actions

•Inner sense of right and wrong, as in: Wouldn't it bother your

conscience to lie to your friends?
 The Modern Business Environment

Today, things have got more complicated

5. There is no longer one agreed moral code. Most people have a weak
sense of religion or none at all. So their morals must come from
somewhere else.

2. There are competing religious and social moral codes, especially for
multinational companies operating in different parts of the world and
employing people from different cultures.

3. The pursuit of profit has become a goal in its own right, and this puts
pressures on people to compromise their standards, not just ethically,
but in less important areas also. So when good behavior and good
profits come into conflict, businesses find it difficult to resist the
profits.
 The Modern Business Environment

4. Businesses are only the people who work there; businesses don’t
decide anything – it’s the people who make decisions. But
businesses have group cultures with their own norms and standards.
Individuals have a strong need to fit in and be accepted, so it is very
difficult for any individual to stand up against attitudes and decisions
they disagree with.

5. Greater wealth in the western economies means people have less

tolerance for ethically dubious behavior. We are no longer so
desperate for growth and employment at any cost. People are also
better educated and better informed. People are less deferential ie
they are less accepting of what people in authority say. So there are
higher expectations of how businesses should behave.

6. Businesses have to sell to consumers and employ workers who have

their own standards and opinions. They are not going to buy from or
work for a business they disapprove of. So there is a competitive
pressure for better behavior from businesses.
 The Modern Business Environment

7. Many managers and owners have ambitions of social acceptance and

recognition eg knighthoods, and so are not going to get caught
behaving unethically.

8. Modern technology creates ethical dilemmas which never existed until

quite recently. Medical products, and gene technologies, are a good
example of this. Should parents be allowed to alter the genes of their
unborn children, and should businesses sell the products to do this?

The above factors all pull in different directions. It has all got a lot more
difficult and a lot more complicated.
 Impact of unethical conduct

According to a study conducted in the U.S., unethical or illegal conduct

in Corporate America results in an estimated $40-$300 billion a year
in lost revenues to government, and in higher prices paid for products
and services by consumers.

Similarly, some estimate that 20-40% of all financial transactions in India

go unreported, in the form of bribes, illegal activity and to avoid taxes.
 Causes of unethical behavior

• Unethical behavior is conditional upon expectations.

(expectations are derived from what people know as well as what
people
believe)
• On ambiguous situations, where the ethically correct path is not clear,
people choose the ethical path when they are reminded of ethical
norms before the experiment,
• Those facing an ambiguous situation without ethical guidance are
more likely to transgress.
• People who behave unethically without a reason are rare
 What should the business do?
Whatever it does, it is going to upset one group of people or another,
because society at large cannot clearly answer these questions, and
there is no clear guide to the business how to behave

Institutionalizing of ethics is important because people will act ethically

where opportunities for corruption are minimized and ethical norms
are publicized
 How to decide what is right or wrong for a business?

Business is based on voluntary exchange for mutual benefit

If any of the stakeholder is unhappy, they exit the relationship in a
following way

• Customers - to shop at another competitor

• Employees - to seek a job with a different firm that provides more
of what they seek
• Investors - to sell their shares and invest their money in some
other alternative
• Suppliers - to seek alternative outlets to sell their products

The voluntary exchange for mutual benefit creates the ethical foundation
of business and that is why business is ultimately justified to rightfully
exist within a society
How to decide what is right or wrong for a business?

• This ethical foundation of business doesn't necessarily

mean that everything any particular business does is
always ethical, but only that voluntary exchange for
mutual benefit is itself an ethical process

• A business is still expected to behave ethically in its

voluntary exchanges (not lie, steal, or cheat) and to be
responsible for any negative impacts it may create (for
example, environmental pollution)

• Character of corporate organizations is defined by the

character of its leaders
 Morality & Ethics
Morality and ethics have same roots,
• mores which means manner and
customs from the Latin and
• ethos which means custom and habits
from the Greek.
 Morality & Ethics
• Morality: first-order set of beliefs and
practices about how to live a good life
• Morality The quality of being in accord
with standards of right or good conduct.
• A system of ideas of right and wrong
• conduct: religious morality; Christian
morality.
• Virtuous conduct.
• A rule or lesson in moral conduct.

• Ethics: a second-order, conscious

reflection on the adequacy of our moral
beliefs.
• Lawrence Kohlberg using surveys,
Kohlberg presented his subjects with
moral dilemmas and asked them to
evaluate the moral conflict. He was able to
prove that-
• youth at various ages, as youth proceed
to adulthood, they are able to progress
up the moral development stages
presented.
 Kohlberg’s Stages of Moral
Development
• Kohlberg believed that individuals could only
progress through these stages one stage at a time.
• That is, they could not "jump" stages.
• Kohlberg's ideas of moral development are based on the
premise that at birth, all humans are void of morals,ethics,
and honesty.
• He identified the family as the first source of values
and moral development for an individual.
• He believed that as one's intelligence and ability to
interact with others matures, so does one's patterns
of moral behavior.
 Ethics is long term policy
• All religion, all ethics and morals spring from the basic conflict
between short term and long term:
– If we limit ourselves to the short term:
• Pleasures today, even at the cost of pains tomorrow, sound like a good
bargain
– If we take long term into account:
• Every such pleasure which is not lasting, is avoidable
• Long term is how long:
– Do we look at our lifetime?
– Do we look at the lives of our children and posterity?
– Do we take the eternal view of perennial life
• Religion in its absolute form tends towards the eternal view:
– All practical adaptations of ethics are essentially truncated forms of the
total religious view
 Long termism in business
• Issues of corporate ethics have taken the form of short-termism vs.
long-termism
• If businesses are focused on long term stability and growth, they are
ethical:
– Short term strategies, aimed at earning per share for the year in
question, compromise on longer interests
• Warren Buffet has often stressed on long term strategies
• Investigations into Fannie Mae suggested that the entire senior
management was intensively focused on earnings guidance
• Capital market orientation of companies force them to be tempted
by short term targets:
– Increasingly, the entire system of how companies are evaluated by
analysts, investors and stock markets leads to a short term approach
– McKinsey survey [March 2006] shows that companies are focused on
short term strategies due to market pressures
 Can it be ethical, if it is not legal?
• Is law the embodiment of ethics?
• The essence of ethics is long-termism
• Laws are contemporary
– Not all laws are based on foundations of ethics
• Laws change every quarter; surely every year
– The way present-day laws are made, they are full of
errors and aberrations
– Hence, it is possible to draw lines of distinction
between law and ethics
 Warren Buffet’s rule of thumb for
ethical conduct
• “…I want employees to ask themselves
(when they are in doubt about whether a
particular conduct is ethical or not)
whether they are willing to have any
contemplated act appear the next day on
the front page of their local paper – to be
read by their spouses, children and friends
– with the reporting done by an informed
and critical reporter.” [Berkshire
Hathaway’s code of ethics]
 Ethics are no more in religious texts;
they are a part of business law
• If you think business and ethics are aliens, you are
mistaken
• Not only are ethics respected in business, they are a part
of the law
• As a part of Sarbanes Oxley law, directors have to sign
an ethics declaration
– This law enacted in pursuance of series of corporate scandals:
• Enron, WorldCom, Tyco, etc.
• In India also, this has been implemented: all directors
annually sign Code of Corporate Ethics
– This is part of Corporate Governance Code
– Clause 49 of the Listing Agreement
 Purpose
• If most entrepreneurs don't create their
businesses for the primary purpose of
maximizing profits, then what are their
primary goals?
 “Service to others”
• The first great purpose that great
businesses express is "Service to others".
• Genuine empathy leads to the
development, growth, and expression of
love, care, and compassion
• E.g Indian Railways,Wal-Mart,NGO’s
 “Excitement of discovery”
• The second great purpose that animates
great businesses is "excitement of
discovery and the pursuit of truth".
• To create a product or service that has
never before existed and that advances
the well-being of humanity!
• Google,Intel.
 “The Heroic”
• The third great purpose that inspires many
great businesses is "The Heroic"—
changing and improving the world through
heroic efforts.
• Unconventional thinking
• Passion
• TATA,INFOSYS,RELIANCE,MICROSOFT
 Bill Gates
• Bill Gates announces he will leave his day-to-day
role at Microsoft by July 2008, it signals an end to
his running of the firm, which has lasted over 20
years.
• Bill Gates and his wife Melinda found the Bill and
Melinda Gates Foundation, an organization
focused on tackling global health and education
problems
• The foundation aims to fight disease and promote
education around the world, particularly in
developing countries
 Lee Iacco
• I have found that being honest is the
best technique I can use.
• Right up front, tell people what
you're trying to accomplish and what
you're willing to sacrifice to
accomplish it.
• Worked on 1$ per annum for couple
of years
 Warren Buffet
• Warrren Buffet donated a whopping
37bn$ to Bill and Melinda Gates
Foundation
• One of the terms of the donation is that at
least one of Bill or Melinda Gates
continues to be involved with the
foundation
 Muhammed Yunus
• Founded Grameen Bank in Bangladesh in 1983
• Micro financing
• Winner of 2006 Nobel Peace Prize
• Grameen operates 1,084 branches, serving 2.1
million borrowers in 37,000 villages.
• On any working day Grameen collects an
average of $1.5 million in weekly installments. Of
the borrowers, 94% are women.
 Narayan Murthy
• Introduced ESOP
• Early adopters of Corporate Governance
• GLOBALISM
 Institutionalizing Corporate Ethics
A firm that seriously desires to operate in an ethical and socially
conscious manner would do well to Institutionalizing its Ethics.

Such Institutionalizing would requires 3 steps:

• Drawing up a company policy or code of ethics.

• Familiarizing its employees at all levels with the code and with
the processes of ethical reflection on complex issues through
special training. Programmes, or through special sessions on
ethics in the course of regular tanning programmes.
• Ensuring the implementations of the Code by means of a
formally designated Ethics Committee of the Board of Directors.
 Institutionalizing Corporate Ethics

• A code of ethics that is going to be observed cannot be drawn up by

an individual or a small group of the top management and then
promulgated without discussion among the employees
• Having an ethical code and doing nothing to ensure its
implementation only leads to cynicism on all sides.
• This is, in fact, a form of unethical and deceptive behaviour.
Therefore, besides having such a code, steps must be taken to see
that it is implemented.
• The first step is to ensure that the employees at all levels are familiar
with the code and understand that it is not meant to be mere window
dressing but is to be implemented and that the company is serious
about the matter.
 Institutionalizing Corporate Ethics
Making the Code Known:

• Company’s ethical codes should be printed and copies sent to every

employee.

• The company should help employees understand the implications of

the code for their daily work life
 Institutionalizing Corporate Ethics

Implementing the Code:

The management should let it be known that unethical or anti-social
conduct on the part of the employees will not be tolerated, no matter
what be pretext might be, even if it is to make greater profits for the
company

• Constitution of an Ethical Committee

• To solve problems that arise in the grey area of ethical policy
• Recommend decisions to the board of directors
• To make the policy decisions of the Board known so that
employees would understand the reasons behind the same
• Monitor compliance with the ethical policy of the company and
make periodic reports to the Board
• To recommend to the Board any changes in the company’s
ethical policy
 Institutionalizing Corporate Ethics

Ethical and Social Audit:

Periodical Social Audit conducted by outsiders of unimpeachable honesty
and competence
 CONCLUSION

Corporate Ethics is an intensely practical issue which should engage the

serious attention of the management of any company today

While such responsibility can impose onerous burden on the

management of any corporations, it also brings its own rewards
 CONCLUSION

Too much of business ethics today is focused on questions of law and policy --
questions about regulations, business practices, and legal requirements --
such as pollution control, worker safety, truth in advertising, employee due
process, social responsibilities to surrounding communities, and others. All of
these, while they are important, are considered as either legal or social
requirements for businesses
But what gets left out in this thinking is an adequate sense of or an emphasis on
personal values and integrity. Business does not operate in a vacuum. It is a
subsystem of our social order. Business ethics is a more personally oriented
ethics rather than a public policy or a legal contract. Ethics is what is legal,
and more. Much more. It encompasses honesty, forthrightness, reciprocity,
fair play, keeping commitments, and kindness -- virtues that may be too much
to ask for in today's world.
 It all begins with you!!
As a good start, how many of the following questions can you say are true for
you?

• I know what I stand for, and I stand for at least 10 things.

• I only do what I feel is right and just.
• I keep my word 99% of the time.
• I am in optimum emotional, spiritual, and physical condition.
• I always leave people better off.
• I understand my values and orient my life around them.
• I have not lied or been deceptive in any of my dealings for at least a
year.
• My needs are met, and I don't drain others around me.
• I am on time 98 % of the time.
• I tell my truth, but am unconditionally constructive in my interactions
with others.

If you can truthfully agree with at least 8 of the questions above, your character is
probably well developed and you probably already know it!
THANK YOU