Management Business Ethics: A New World Order

Management

Business Ethics: A New World Order

Today, the world of business has changed in a remarkable way. It has undergone endless changes to adjust itself to the new competitive realities. The organizations must tune themselves with this changing environment in a way which is honest, ethical and accountable to the employees, customers, shareholders and stakeholders. Business ethics has become the theme of worldwide importance in the current eon. Often we hear shocking stories of corporate misconduct and wrongdoing by individual business people. It appears that somewhere a thin line of discipline with ethics is missing in most of the well-known corporates. It is difficult to imagine them giving greater importance to ethics than business, profit maximization and managerial leaders.

A business that makes nothing but money is a poor kind of business.

-- Henry Ford, 1863-1947

In the past, CEOs predominantly fo-cused on the management of business than on ethics. Jack Welch (former CEO, General Electric) in one of his letters to shareholders, says, "In the old culture, managers got their power from secret knowledge: Profit margins, market share, and all that... In the new culture, the role of the leader is to express a vision, get buy-in, and implement it." Presently, the CEO's most challenging leadership transition is not changing the job but of guiding the company onto a new path. A company to survive for long, needs focus, and has to be fair and firm. In these turbulent times, the CEO needs to be more careful and ensure reduction of debts, halt sales decline and watch the cash flow. One needs to compete not just by being big but also by being the best. The roles are blurred in unfamiliar ways but one must know how to play the game according to the rules. It is very easy to be unethical and this behavior has been the way of business in recent times, which has seen little rewards. The top management needs to have corporate transparency and respect for ideas. Though 21^st century skills requires CEOs to become opportunity-driven and also take greater calculated risks, their focus should not get deviated from ethics while perusing all this. Ethics only complements the management, it does not act as a replacement. When issues like Satyam hit the headlines, it becomes difficult to ignore business ethics.

Business ethics is all about the character and behavior, education and moral philosophy. Ethics in corporate governance means the strictures which a company sets for itself to function. Lucidity and revelation about accounts as well as other important issues have to be communicated to the stakeholders in an honest and punctual manner. These build up buoyancy and faith in the marketplace. It exemplifies the role of a CEO by pointing out the difference between what rights he has to do in the organization and what is the right thing to do. A business, which wants to stay alive long and also spawn good profits has to achieve market trustworthiness by making brand loyalty as its main goal which can only be achieved by following ethical standards. Developing ethics will not stop unethical behavior but the efforts to follow such standards will be apparent to the people. The pathway to follow such rules is vital for developing long-term associations with workforce, investors, clients, and stockholders.

If ethical behavior is allowed to grow, it inspires stakeholders and also marks a firm as performing its functions as a socially responsible entity. But, who are these stakeholders? They include customers, employees, suppliers, government, community, shareholders that shape the business (Refer Figure 1). It is very essential for all the businessmen to know in reality that ethics acts as a mirror, and people are judged based on their intensions, behavior and are ultimately accountable for their actions. Basically, ethics are considered at two levels – one at an individual level and the other at an organizational level. CEOs should consider that they should not do the things that are in favor of one's self-interest. Every person has his own intrinsic worth and value and the ethics tend to flow from his own core values.

The CEO plays a pivotal role in establishing the ethical standards of the company. He along with the board of directors can make an impact on the market. CEOs need to determine their ethical vision which should not be negotiable but supported by their stakeholders and employees too. According to Founder Chairperson of Infosys Narayana Murthy, making business ethics its unique selling proposition, a company can accelerate its profit-making process. He feels that business ethics should include certain issues and ideologies, like transparency, accountability, honesty, and trust.

All these are interrelated. If the stakeholders believe that the business they are trading with is transparent, accountable for its actions and honest in its dealings, it will build up trust. Without a proper cohesion among these features, it is difficult to endure in a growing complex business milieu due to the non-compromising attitude on ethical standards. Figure 2 presents a similar kind of decision-making process followed in the company.

Factors Affecting Ethical Decisions

There are various factors that affect the ethical decisions (Refer Figure 3) and the ethical outcomes of top management. Value differences between the CEO and the other board members will create conflicts between them.

Many a time, coping with reutilization leads to a compromise on ethical standards. Here the CEO should play a pivotal role in giving more importance to ethics than profits. Sometimes to attain competitive advantage, different groups within the company bring immense pressure to go for innovation. The CEO should stay firm not to comprise on ethical decision-making.

This is more relevant in case of multinationals. When companies move to other nations in search of revenue and non-saturated markets, ethics can build and sustain a reputation. The challenge of operating in foreign markets is now more daunting because they now exist in an alert media landscape where accountability for corporate actions is greater.

Today's business leaders are in an exceptional position to influence what occurs in society for time to come. But with this power also comes immense responsibility. They have the power to bring about changes that will eliminate economic inequality, ecological dilapidation, and social injustice _ issues that decide our long-term viability. These business leaders must work to create lasting social change. By accommodating an equal balance in decision making, leaders will promote key business considerations such as profits, consumer satisfaction, and society's well-being. But some unfortunate events like Satyam scandals really show a gloomy future especially for the Indian scenario.

In the Indian corporate world, January 7, 2009 is considered as a black day, the day when India was hit by its first major scandal leading to the collapse of the stock of a major Indian IT corporate. It admitted to fraud and increased revenue and costs. The founder chairman Ramalinga Raju admitted that he falsified the account in the company. The $1.6 bn listed in assets is non-existent. The mockery of the meaning of Satyam has been highlighted by many media reports. Satyam is derived from the Sanskrit word for truth and honesty. The company was 21 years old recently and its admission of fraud has sent tremors throughout the corporate sector in India. The Satyam scandal has been dubbed as India's Enron, and purportedly the largest corporate fraud in India.

A Novel Description of Guidance

The world is not for a split second, it survives as a gamut of time and any meaning of leadership must understand that it is not a happening that happens in a day, but is a long process and takes time. While an act of leadership may appear long and broken, for real leadership to happen it must be constructed on a chain of events that produces a very useful result.

If leadership takes place over a period of time and has a series of acts and associations, then inbuilt in the concept of leadership is the concept of `ethics'. For a leader to maintain a leading position or spot or lead over a significant time, his actions must be ethical both in his personal capacity and by all others in the organization. History shows that even great leaders who did not use their leadership actions on sensible prospects in a honorable way, the world rose up against them and destroyed them. Hitler, Stalin, Mussolini and others who led by least ethical means and practiced less than worthwhile policies could not get away with their behavior for too long a period because the people around the world has a much greater competence to see the actions of leaders and take crucial action against them. The Watergate scandal is another proof of this concept.

If leadership take s a long time to progress, then studies performed in history show that there is relative efficiency of ethical leadership is more as compared to unethical leadership. It also proves that it is ethical leadership that works in the new era in which we now live where a leader's actions are more visible and difficult to hide than ever before.

Conclusion

In today's competitive world, leaders only think of profits, and ethics has taken a back seat. If a business wants to survive for a long time in this competitive world by generating good revenues and returns, it has to maintain the brand loyalty by following the ethical standards. It is necessary for the organizations to follow these standards to develop long-term relationships with employees, investors, clients, stakeholders and shareholders. The increasing importance of ethics will not stop unethical behavior. Ethics today is considered from a negative angle also. Corporate strategy addresses technological and competitive developments that increase the firm's profits. Given the point that there is not one universal set of behavior that one considers ethical and the fact that the terms moral and ethical are often used interchangeably, it is difficult to differentiate. It is not taken very seriously even while in college. It has remained merely as an elective in management colleges. These days corporate generals practice covert and overt ethical problems. Overt ethical problems deal with bribery, theft, collusion, etc. They are clear and reprehensible whereas covert ethical situations occur in corporate acquisitions, marketing and personal policies, capital investment, etc.

While it will be harsh to blame all Indian corporates for Satyam's misconduct, but it will be equally presumptuous to absolve all its denizens as good. Somewhere some kind of lesson is to be learnt by the business leaders. They need to be ethical and need to set some ethical standards. The ethical standards of a company have to be non-negotiable. The image of a non-compromising attitude on ethical issues is the responsibility of the CEO. That will build the confidence of the stakeholders, which in turn will help in establishing the credibility of the firm as a global model.

-- Aruna Desai
Faculty Member,
INC (HQ), Hyderabad.
The author can be reached at
desaiaruna99@gmail.com