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ChandramowlyGuest Author

Can We Afford Business Ethics?

By Chandramowly

Organisations must be built on the bedrock of business principles for long time survival and success, because a continued business is all about relationship and brand leadership, more than money, writes, M.R.Chandramowly

There is a hard lesson we are learning today. Ethics is no longer an ornamental snobbish freedom of luxury. It is the base, which underpins and holds an organisation for its survival and success.

It’s no accident that the first recipient of the ‘Living Economy Award’ based on Business Ethics, was Judy Wicks and her White Dog Cafe in Philadelphia. In running this restaurant with $5 million in annual revenues and 100 employees, Wicks’ caring hand reached into every corner of what a living economy would encompass: the organic meats raised by local farmers, the living wage she aims to pay even to dishwashers, the 100 percent wind power that runs the place, the 10 percent of profits given to charity, and the cooperation with would-becompetitors. Wicks said “business is about relationships more than money. At the White Dog, we try to increase the capacity to care.”

If we take a bird’s eye view of 2002, with this sample of an organisation built on principles of business ethics, we see that as a year spurred by headlines of business scandals, diminished investor confidence and raised concerns about the erosion of corporate responsibility, and multinational corporations collaborating with corrupt and ineffective practices. It is an alarming situation of collapse of ethical principles and exposure of facts that aspects of business ethics exists only on papers. How have we defined business ethics for the organisations we work for?

Business ethics

Business Ethics is a body of principles or standards of conduct that govern the behaviour of individuals and groups. While most organisations make this as a part of corporate manual and leave it there, some organisations struggle to maintain their ethics and operating culture systems continuously. They know for sure that unattended, these systems can drift and impact critical processes and organisational health which may wipe out the organisation itself. Effective management of Business ethics will lead to long-term business results, and employee/customer satisfaction. This being the school of thought of ethics, the reality of practicing business ethics is however dissatisfactory.

Business scandals

In an increasingly interdependent economy, business decisions will affect us all. Those decisions that are based on sound ethical judgment will have the most favourable and beneficial results. Business houses are subject to constant surveillance by society and the state. Even before the Enron-Andersen fiasco, a series of new financial earthquakes, with their epicentres in the US,

have begun to wreak havoc on international investors. WorldCom buckled under a $3.85 billion accounting debacle sending the market to their lowest levels since 1998. Merck did not account for $12 billion worth of sales. Xerox, is said to have bribed Indian officials to get government contracts.

A study reported that, 115 companies (23%) out of the Fortune 500 companies had been convicted of at least one major crime or paid penalties for serious misbehaviour.

Ethics vs performance

Leading business schools, management experts and organisation success stories, have stressed on the risks associated with blatant ethical failures and their consequences. While the consequences are glaringly clear, the biggest impact of business ethics is on organisational performance. The general reason for unsatisfactory performance emanates from operating culture.

Research says, the leading causes of many organisational problems such as, customer dissatisfaction, employee turnover, ineffective quality improvement and training efforts, failed mergers and technology projects, weak innovation, and failed product development – all have been linked to the operating culture.

Operating culture can be attributable to over half of all documented Quality Costs (Cost of Poor Quality). If Quality Costs for world-class organisations run between 10 and 15% of total sales revenue, the associated operating culture/ethics component in the best world-class companies is costing companies billions annually.

There is a human tendency in management to seek a single cause for failure when multiple causes are at work. In such instances, blaming failure on “poor leadership,” “poor employee execution,” or “market externalities,” may be politically convenient to put the money on someone’s back and finally a poor scapegoat is beheaded. But in reality the failed leaders rarely fix, change, or improve anything to build an ethical culture.

The ability of organisations to manage ethics at this micro-level is a process capability that yields significant economic returns. Identifying the causes is not easy, and usually it requires a proper diagnosis. Mostly the root cause will always points out towards the mindset and practices of people.

The linkage

After the easy fruit is extracted from a new technology or process, all that is left for an organisation is to develop its people who breathe the right culture. Most companies look at people as a mere collection of skills and capabilities and forget the fact that people are also a “system” with a process capability of their own which actual can build a robust culture. The people system is also referred to as the social system or culture of the organisation. This culture, once sets in, becomes powerful and develops to have more impact than management when it comes to what, where, and when things to get improved. Hence the key to significant improvement has been and always will be the supportive capability of the culture to manage improvement. This culture component has a unique relationship with ethics. It not only benefits from ethics management, but is also utterly dependent on it!

Results & Ethics

The domain of economic imperialism is worldwide. Nevertheless, the freedom to operate is not a

license to abuse. The market economy requires and promotes both crime and corruption because it needs a change in the value system where money becomes supreme.

Of course, profit has to be the primary concern of any business. While profit may be the overall objective of a business, two legs support the ‘corporate body’ for long-term success. One, the methods employed to achieve profits have to be ethical and moral. Two, a company must look around for some ways and means to return to society some endowments for the welfare of everyone.

Value based organisations survive and flourish for a longer time. In 90% of the ethical problems we face, we know what we should do. The real question is whether we are willing to do the right thing when it is likely to cost more than we want to pay. With everything, from insider trading to employee theft on the rise, it is no wonder that businesses are beginning to focus on the impact of ethical leadership.

The Dilemma

Managers are forced to decide on issues where there are arguments on both sides – a problem that makes ‘ethical decision-making’ very difficult. Kenneth Blanchard and Norman Vincent Peale, authors of ‘The Power of Ethical Management’ – point out three questions you should ask yourself whenever you are faced with an ethical dilemma;

1.Is it legal?

2.Is it balanced?

3.Is it right?

Most of us know the difference between right and wrong, but when push comes to shove, how does this decision makes you feel about yourself?

Ethics policy

Good Business Ethics is the ability to reason and operate within a sound ethical system. It must have clarity, consistency and relevance – in support of group performance. It must meet the needs of all participants and interested parties. Ethical behaviours must be organically developed at all levels simultaneously. It must be useful to an organisation and to all who are involved. And finally its ‘quality’ or conformance to philosophical requirements of clarity, consistency, and relevance must be measurable.

A well-defined ethics policy along with an outline of related standards of conduct provides the framework for right and moral behaviour within a company. The benefit of business ethics is higher employee morale and commitment which leads to mutual long-term benefits for all stakeholders. According to Blanchard and Peale, you can base your policy on five fundamental principles.

1.Purpose- Which combines both vision and values to be upheld in business;

2.Pride- that which builds dignity and self-respect

3.Patience- To achieve a long-term versus short-term results, one must develop certain degree of patience

4.Persistence – Striving to be committed and stand by a principle or the given word

5.Perspective – A way of regarding situations holistically. In a world where there is never

enough time to do everything we need or want to do, it is often difficult to maintain perspective.

The main reason for having an ethical policy and guidelines is not to provide a cookbook solution to everypractice-related problem, but to aid in the decision-making process for situations that involve ethical questions.

Measuring ethics

When societal values are deteriorating, maintaining high ethical standards in business becomes increasingly difficult. People will undoubtedly ask that, if everyone else is cheating, how can an ethical person possibly succeed? Nevertheless, the real question is how does one measure success?

In 1923, a very important meeting was held at the Edgewater Beach Hotel in Chicago. Attending this meeting were nine of the richest men in the world: (1) Charles Schwab, President of the world’s largest independent steel company, (2) Samuel Insull, President of the world’s largest utility company, (3) Howard Hopson, President of the largest gas firm, (4) Arthur Cutten, the greatest wheat speculator, (5) Richard Whitney, President of the New York Stock Exchange, (6) Albert Fall, member of the President’s Cabinet, (7) Leon Frazier, President of the Bank of International Settlements, (8) Jessie Livermore, the greatest speculator in the Stock Market and

(9) Ivar Kreuger, head of the company with the most widely distributed securities in the world.

Twenty five years later, (1) Charles Schwab had died in penury, having lived on borrowed money for five years before his death. (2) Samuel Insull had died virtually penniless after spending some time as a fugitive from justice. (3) Howard Hopson was insane. (4) Arthur Cutten died overseas, broke. (5) Richard Whitney had spent time in Sing-Sing. (6) Albert Fall had been pardoned from prison so he could die at home. (7) Leon Fraizer, (8) Jessie Livermore, and (9) Ivar Kreuger each died by committing suicide. Measured by wealth and power these men had achieved success, at least temporarily. Making a lot of money may be an acceptable goal, but money most assuredly does not guarantee a truly successful life. How do you measure success?

Business Ethics requires a philosophical commitment for “internal consistency.” Internal consistency is the most demanding aspects of Business Ethics and also the most rewarding. This understanding and commitment must come from top management in the form of resources, training, and direct involvement.

Business Ethics goes beyond the scope of most ethics programmes to make the required connections between ethics, logic, human nature, utility and successful human interaction.

The author is former Corporate Vice President – HR and currently HRD and Leadership Competency Building Consultant.

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M. R. Chandramowly is a MRCTrainer and HR Solutions Facilitator. A Graduate in Science and a Post Graduate in Literature/Anthropology he has received course graduation from Covey Leadership, Competency Management Accreditation from SMR Inc, VOICES Certification from Lominger Inc, ‘Human Values’ from IIM Calcutta and ‘Silva Mind control’ from Australian Business Programs. Mowly, with 25 years of HR professional experience worked with organizations like MICO Bosch, PSI-Bull. and took to HR training and consulting after his last assignment as Corporate VP – HR for Praxair Group in India. An active contributor in the area of Leadership Competencies and HR Education. Mowly has trained executives of several organizations and published articles, presented theme papers in national and international HR conferences.

A visiting faculty teaching Business Ethics for Post Graduate HR, Mowly served as secretary of National HRD Network and facilitated HR workshops for National Institute of Personnel Management and Bangalore HR Summit. He is working on synthesizing eastern wisdom with western leadership competencies developing a learning module ‘Value Based Competencies’. The author is an HR Expert and can be reached at cmowly@gmail.com

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