Business Ethics as Competitive Advantage for ...

Kain &Sharma, Apeejay - Journal of Management Sciences and Technology 3 (1), June- 2014 (ISSN -2347-5005)

Business Ethics as Competitive Advantage for Companies in the Globalized Era Dr.Poonam Kain

Dr. Sonika Sharma

School of Management Apeejay Institute of Technology , Greater Noida

Imperial College of Business Studies Bangalore

________________________________________________________________________________________________ Abstract: Business Ethics refer to rules and standards governing person's conduct. Ethics has only recently become an important area of study in globalized era. It has been found that ethical behaviour is influenced not only by individual or group behavior but also by factors in the cultural, organizational and external environment. Ethical codes, role models, policies and practices and reward and punishment system comprise the organizational influences. The external factors include development taking place in the political, legal, economic and international arena. All these factors in determining the ethical behavior and groups in organizations. For most employers the relationship is also of critical importance. The cost of labor, and the effective use of the HR, is often a major influence on the success of an organization. The employee body as a whole will be important, although the economic importance of individual employees will depend on the employers’ dependence on their skills, and ability to replace them if necessary on the labor market. In the same way, the employees’ dependence on a particular employer will rest on whether there are employment opportunities elsewhere. Keywords: Ethical Culture, ICCPR, ICESCR, FICCI, CII, NHRC,Ethical Code and Conduct, Corporate Social Responsibility I INTRODUCTION Since the

inception of globalization, working culture of organizations

has really attracted the attention of the

Researchers. It has been the interesting issue for the researchers to understand as to

what factors are responsible for

developing the businesses ethics. In Global Era it is most important for the companies to follow the Business Ethics into the different

functional areas of management. A debate about appropriate ethical approaches to the management of

people at work has a much longer history. This widespread interest is not surprising because the types of employment relationships that develop in society are important, not only for the success of organizations and for the life experience of individual employees, but for the wider political and social culture of society as a whole. Clearly, the nature of relationships between employees and employers can vary greatly. At one extreme are causal, short-term, and probably strictly instrumental exchanges of small amounts of time and labor for limited rewards (e.g. a student paid an hourly rate for evening or Saturday work at the local shop/garage/ restaurant or bar). At another extreme is the employment relationship that consumes the majority of an employee’s time and emotional energy, with the expectation of a lifelong career within one organization determining not only financial rewards and immediate lifestyle, but a person’s lifetime opportunities for personal development, organizational influence, and social prestige. For most employees, in most countries, and for much of recent history, the rewards and job satisfaction associated with their employment relationship will have a determining influence on their standard of living and life experience. For breadwinners with dependent family, the standard of living of loved ones will also be involved. For most employers the relationship is also of critical importance. The cost of labor, and the effective use of the HR, is often a major influence on the success of an organization. The employee body as a whole will be important, although the economic importance of individual employees will depend on the employers’ dependence on their skills, and ability to replace them if necessary on the labor market. In the same way, the employees’ dependence on a particular employer will rest on whether there are employment opportunities elsewhere. Nevertheless the employment relationship is important for both sides. It is therefore not surprising that it has attached much attention and that ethical dilemmas associated with the relationship have for long been the subject of analysis.

39


A. Ethics at Workplace ‘Business ethics’ is the moral evaluation of the goals, policies, practices, and decisions taken within business organizations as they impact on human well-being, fairness, justices, humanity, and decency. Here, the term ‘ethics’ is synonymous with ‘morality’ which is in general equivalent terms. Often business ethics is presented in terms of the decisions facing individuals as board members, managers, or employees and the dilemmas ( i.e. choices between competing moral considerations), or temptations ( as in conflicts of interest) facing them. However, these individual choices have to be seen in the context of the roles that people are expected to play within a specific organization operating in a particular type of political, economic, and social system. This means that business ethics has to consider the moral critique of business and management practices as a whole and not just address the behavior of individual managers and others. It is individuals who must ultimately make moral choices, either on their own or collectively, but identifying what choices exist and decisions they ought to make requires analysis of the morality of the existing and potential system and its constituent roles. TABLE 1 TOP FIVE REASONS TO RUNA BUSINESS IN AN ETHICAL MANNER

Factors Protection of brand and reputation The right thing to do Customers trust and loyalty Investor Confidence Public acceptance/recognition

Rank 1 2 3 4 5

Source: A Global Study of Business Ethics 2005-2012

B. The Need for Code of Ethics for Indian Industry India is a signatory to the Global Compact and Millennium Development Goals. Yet, there is a lack of code for promoting ethical business practices. Therefore, there is a need to develop structures for facilitating adoption of code of ethics by Indian industry. The Human Rights Council of the United Nations, at its Eleventh Session (June 2008), unanimously welcomed the Special Representative Mr. John Ruggie’s proposal for establishing a policy framework based on three principles of “protect, respect and remedy” – in order to promote the cause of human rights in business enterprises. Besides reemphasizing the state duty to protect human rights, this framework also lays down that businesses have a responsibility to respect human rights. Need for Formulating Industry-wide Code of Ethics have also come out with guidelines to promote ethical business practices. Besides fulfilling regulatory compliance, a code of ethics should be an acknowledgment of the nation’s growing economic clout. The growth in stature has been symbolically acknowledged by the recent adoption of currency symbol for our Rupee, which bracketed the Rupee with elite league nations. A similar imperative needs to be extended to the gamut of Corporate Ethics. Developing a code of Corporate Ethics in line with international best practices will not only provides an imperative to tune in with latest global practices and standards but will also allow the Indian Corporations to emerge as role models for others to follow. Globally it has been realized that the challenge facing business is not just to ‘market’ a product; rather it lies in making the process ‘Socially Acceptable’. The rising concern for charting a road map for sustainable business manifests this challenge to have an updated code of ethics for the industry.In a competitive world, an updated and well-defined code of ethics reflects the core values of an organization. This can protect against harassment or dictum, fines and sanctions.

40


To quote the Ruggie Report again, “Companies have had to acknowledge that business as usual is not good enough for anybody, including business itself”. II REVIEW OF THE PRESENT LITERATURE In the UK, the Government encourages adoption and reporting on Corporate Social Responsibility (CSR) through guidance on best practice, regulation, and fiscal incentives. In addition, within the corporate sector it would now appear that there is also a growing interest in the development of corporate codes of conduct or ethics. In this respect the Illionis Institute of Technology, Center for the Study of Ethics in the Professions, ‘Codes of Ethics Online’ provides a large and growing collection of code drawn from a wide variety of industries including communication, IT, engineering, finance, and real estate. Given all of these initiatives in business ethics and CSR, one might expect a similar growth of interest in ethics and HRM. After all an extremely important component of making business more ethical is to take seriously the ethical aspects of managing people. A review of the literature does indeed reveal a modest growth of interest in the subject. Over the last decade there have been a number of books, edited collection, and articles published on ethics in academic journals and elsewhere. Nevertheless, it has not really kept pace with developments in the broader field of business ethics. An article titled “Second India Scandal Has Business Leaders Rethinking Ethical Standards” shows how grave the situation in India is. It states – “Recent scandals in India’s technology industry have triggered new scrutiny of the country’s ethics practices and standards. In the most recent development, WIPRO, one of India’s biggest computer outsourcing firms, was blacklisted by the World Bank for allegedly providing “improper benefits” to Bank staff, reports Forbes.”The human rights impact of companies is assessed by using the following international conventions as yardsticks: the Universal Declaration of Human Rights (UDHR), the International Covenant on Civil and Political Rights (ICCPR), the International Covenant on There are many more such examples. Such incidents emphasize the maxim ‘prevention is better than cure'. India has been slow to join the international movement towards greater corporate respect for human rights and state protection against corporate human rights abuses. Critics assert that the Indian government has hitherto ignored the link between its promotion of greater freedom for business growth and the greater likelihood of harmful societal effects, including human rights violations. Recently, however, the National Human Rights Commission (NHRC) of India has decided to draft a Corporate Code of Ethics. The NHRC Code of Ethics for Indian Industry is a positive development that should be welcomed by the public and private sector alike, as it gives recognition to the harmful effects on business society and takes steps to protect against or mitigate such effects. Until now, Indian businesses have been left to their own devices with regard to corporate social responsibility (CSR). Some have well developed and internationally recognized CSR programs. The Tata Group provides the best example: “Every employee of a Tata company, including full-time directors and the chief executive, shall exhibit culturally appropriate deportment in the countries they operate in, and deal on behalf of the company with professionalism, honesty and integrity, while conforming to high moral and ethical standards. Such conduct shall be fair and transparent and be perceived to be so by third parties. Every employee of a Tata company shall preserve the human rights of every individual and the community, and shall strive to honour commitments. Every employee shall be responsible for the implementation of and compliance with the Code in his /her environment. Failure to adhere to the Code could attract severe consequences, including termination of employment.” The Corporate Public Sector Enterprises (CPSE), for instance, was initially introduced for ensuring equity and justice to the society as a whole. Over the past few decades, it has worked hard to achieve this aim, with moderate success. The government has recognized that public-sector business undertakings impact customers, employees, shareholders, communities and the environment Tata takes its ethical obligations to the community quite seriously. It is clearly

41


opposed to Corruption and fraud by promoting transparency in all aspects of its business. However, the example it has set is not widely followed. While some companies have worked hard to install the values of social responsibilities into their business practices, Indian businesses generally do not adhere to any codes of ethical conduct. As a result, the public sector has a major role to play in implementing CSR programs. It has already made some progress with regard to state-owned businesses. Indian industry organizations have taken similar initiatives. The Confederation of Indian Industry (CII) released a Code of Business Ethics to its members (more than 8000 member companies), aiming to reduce corruption and ensure transparency among business communities through effective ethical practices in the organization. The Federation of Indian Chambers of Commerce and Industry (FICCI) have also adopted a similar stand when it comes to ethics in business. It promotes a value-based business model for creating social and economic values. A few of the measures include: • Calculating benefits and costs to make the business case; • Identifying and managing positive as well as negative impacts; • Integrating CSR best practices into key business areas; • Recognizing outstanding efforts towards this end. Despite these initiatives, private businesses still do not adhere to codes of ethical conduct. Thus, in addition to inter-organizational policies, the government must also be vigilant and draft laws concerning corporate liability for human rights violations. TABLE 2 TOP FIVE BUSINESS DRIVERS IN TERMS OF THEIR IMPACT ON BUSINESS ETHICS Factors Corporate scandals Marketplace competition Demands by investors Pressure from customers Globalization

Rank Today 1 2 3 4 5 Source: A Global Study of Business Ethics 2005-2012

Rank in 10 Years 4 2 5 3 1

III EXPLORING THE DIMENSIONS OF ETHICAL PRACTICES IN INDIAN INDUSTRIES This paper will explore the state of ethics in companies in India, giving business leaders and researchers critical insight into this increasingly important player in the global marketplace. Over three decades ago, British historian E.P. Thompson commented that “India is the most important country for the future of the world.” Today, India’s critical and growing role in the global economy is widely acknowledged. Because of its large and diverse population, including a high percentage of working –age adults, India is becoming a major player in the global marketplace and of great interest to multinational companies seeking an educated and cost effective workforce. Yet challenges remain. In the words of Tushar Poddar , Managing Director, Global Investment Research , at Goldman Sachs, “Governance is going to be a critical challenge and has been over the past few years , and the way India resolve it would also affect its potential growth rates.” More needs to be known about the governance and ethics challenges in companies operating in India. This paper has tried to identify a proven approach that provides statistically reliable findings regarding employee perception of ethics in the Indian workplace. The research focuses on culture metrics because it has been proven that when companies have a well implemented program and a strong ethical culture, risk is reduced. This translate into reduced misconduct, greater reporting of

42


misconduct reduced pressure to compromise standards or the law, and reduce retaliation for reporting misconduct. Here ethical culture is defined and measured based upon the following factors: A. Ethical Leadership Leaders set the tone at the top and model ethical culture as a part of earning the trust of employees B. Supervisor reinforcement Employees look to immediate supervisors for the signs that the tone at the top is important and taken seriously. C. Peer commitment Peers talk about the importance of ethics and support one another in “doing the right thing”. Some common elements have been identified that are part of every “well –implemented ethics and compliance program.” A “well implemented program” includes: 

Written standards for ethical conduct



Training on standard of ethical workplace conduct



Mechanism for seeking ethics –related advice or information

A “well implemented program” should yield several positive outcomes. 

Willingness to seek ethics advice”



Receipt of positive feedback for ethical conduct



Feeling of preparedness to handle situations that invite misconduct



Able to question the decision of management without fear of reprisal



Rewarded for the following ethics standards



Employees who achieve standards



Employees who achieve success through questionable means are not rewarded IV RESEARCH METHODOLOGY

A. Objectives This study on Business Ethics and Indian industries in Globalized Era has the following objectives: 

To study the competitive advantage of adopting Business Ethics at workplaces.



To study, compare and analyze the perceptions of the employees with regard to the Ethical and Employment practices being adopted by the Indian Industries.



To assess, compare and analyze the factors influencing the satisfaction of the employees towards the Ethics and Employment practices.

B. Design The general intent of this descriptive study was manifold. Therefore a systematic and organized methodology was obtained for the study. A survey design was used to obtain the required information. The population for this study comprised of employees working in various IT organizations in Bangalore Region. A sample size of 100 was chosen for this study. Simple random sampling technique was used to gather data from the respondents, because of which respondents diverged from every age group, gender, organization, marital status etc. The questionnaire was intricately designed to tap the demographic variables including age, education, gender, marital status, and tenure of the respondents. The instrument is divided into two parts, part one of the instrument has 14 items to check the ethical standard for the internal equity of the organization while part two has 16 items to check the ethical standards for the

43


external equity of the organization. The perceptions and satisfaction of the respondents towards the Ethical and its competitive advantage to Employment practices in the IT industry are measured by the thirty statements, qualifying as the factors being derived from a review of literature in the area of study, on Likert’s (1932) five-point scale of ‘strongly agree………… strongly disagree’, the scale in quantitative terms being: 5 as strongly disagree, 4 as disagree, 3 as neutral, 2 as agree and 1 as strongly agree. The data collection began in the month of January 2013. Statistical Package for the Social Sciences (SPSS) version 17.0 was religiously used for the statistical analyses. The significance of the study lies in the detonation of the IT industry in the recent years. Where on one hand the sector is growing with leaps and bounds, on the other the employee turnover has been alarmingly high, thus costing a lot to the company. The middle level and low level employees are victims of dearth of motivation and employee satisfaction also seems to be brandishing. The study is an attempt to assess the Ethics and its competitive advantage in IT industry. Thus, not only it is significant for academicians but also for professionals who can exploit it to control the employee turnover and improve the working conditions. To test the validity of the instrument, a pilot study was done on 25 participants in the month of December 2012. Based on their responses, validity tests were done to check for the validity and usability of the instrument. Cronbach alpha, KMO measure of adequacy and Bartlett’s test of sphericity were conducted. Cronbach alpha was calculated to measure the internal consistency reliability of the instrument. The cronbach alpha came as 0.898 for Part II and 0.963 for Part III thus the instrument was considered reliable for the study. Kaiser-Meyer-Olkin test was done to measure the homogeneity of variables and Bartlett's test of sphericity was done to test for the correlation among the variables used. The KMO value for part I of the instrument was 0.745, and for part II was 0.767, both of which are acceptable as a middling value. The Bartlett’s test showed significant results for both the parts and hence the instrument was accepted for further study. On getting quite meritorious results of the validity, the instrument was floated for data collection. TABLE 3 TESTS OF VALIDITY OF THE QUESTIONNAIRE No. of items

Cronbach’s Alpha

Kaiser-Meyer-Olkin Measure of Sampling Adequacy

Bartlett's Test of Sphericity

Part 1

14

.898

.745

Approx Chi -square Df Sig

Part II

16

.963

.767

Approx Chi -square Df Sig

6052.012 210.000 .000 12554.051 190.000 .000

V FINDINGS Findings represent the views of the Indian workforce in the IT sector. They provide business leaders a snapshot of trends in workplace ethics and an identification of the drivers that improve ethical workforce behavior. Researcher identifies the strategies that business leaders can adopt to strengthen ethics cultures of their businesses. 1. Companies’ investments in ethics and compliance are paying off, but there remains room for improvement. The data show just enough negative results to suggest that progress is not necessarily irreversible – especially if a revitalized economy arouses workers’ willingness to engage in riskier behavior. It is clear that manager behavior could be improved, and that reducing retaliation is essential. Building strong ethics cultures remains a constant work in progress. It is also possible -- and we believe probable -- that increasingly sophisticated ethics and compliance (E&C) programs

44


are creating new norms in worker conduct. By almost every measure, companies are working harder to build strong cultures and further develop their ethics and compliance programs. 

The percentage of companies providing ethics training rose from 74 percent to 81 percent between 2011 and 2013.



Two-thirds of companies (67 percent) included ethical conduct as a performance measure in employee evaluations, up from 60 percent in 2011.



Almost three out of four companies (74 percent) communicated internally about disciplinary actions when wrongdoing occurs.



Companies are doing a better job of holding workers accountable, imposing discipline for misconduct, and letting it be known that bad behavior is being punished.

2.The elements considered as part of an ethics and compliance program include: 1) written standards of ethical workplace conduct, 2) training on the standards, 3) company resources that provide advice about ethics issues, 4) a means to report potential violations confidentially or anonymously, 5) performance evaluations of ethical conduct, and 6) systems to discipline violators. A seventh element is a stated set of guiding values or principles. 3. Two elements i.e. evaluation and discipline are proven to be most critical for reducing misconduct. That is significant because data shows discipline and ethics as a part of employee evaluations are two of the most powerful tools in effective E&C programs. Robust and well-implemented ethics and compliance programs have a profound positive impact on companies’ commitment to standards and good conduct, i.e., their ethics cultures. Following from the improvements in programs, strong ethics cultures are also on the rise. The percentage of companies with “strong” or “strong-leaning” ethics cultures climbed to 66 percent. 4. The increase in ethical commitment is significant because ethics culture drives employee conduct. When companies value ethical performance and build strong cultures, misconduct is substantially lower. Culture is another way of referring to “the way things are done around here.” .In business, culture encompasses everything from how employees dress, to the way they work with customers, and their interactions with the boss. 5.Ethics is a component of culture. The study measures critical aspects of ethical culture, including: management’s trustworthiness, whether managers at all levels talk about ethics and model appropriate behavior, the extent to which employees value and support ethical conduct, accountability, and transparency.The strength of ethical culture indicates the extent to which employees at all levels of the company are committed to doing what is right and successfully upholding values and standards. VI CONCLUSIONS Both legally and strategically, India stands to benefit from improving business ethical standards. From a legal perspective, the growing international consensus on the state responsibility to prevent corporate human rights violations obliges India to take further steps to protect its citizens from such abuses. From a strategic perspective, India needs to strengthen its position in the international community. It can do so by pushing for stronger laws to curb corporate human rights abuses that will signal its intent to conform to international laws and guidelines. India, as a member country of the United Nations, has pledged under Articles 55 and 56 of the UN Charter to take joint and separate action to promote universal respect for, and observance of, human rights and fundamental freedoms, without distinction as to race, sex, language, or religion. India has also ratified the ICCPR and the ICESCR, and has definite human rights obligations. Since business operations affect human rights on a large scale, the State has a responsibility to ensure that

45


corporate conduct is conducive towards creating an atmosphere of respect for the human rights of all. Before the Indian government acts, though, Indian corporations must take their own affirmative steps towards greater respect for human rights. By adopting the NHRC code of ethics, they would follow the lead of hundreds of multinational corporations that have adopted the U.N.’s “Protect, Respect and Remedy” framework or similar frameworks. The sustainability of India’s economic growth demands nothing less. REFERENCES [1]Anthony Fletcher, '''Englandpast.net": a framework for the social history of England', Historical Research, 75 (2002), 296–315 [2]Barth, Steven R. Corporate ethics: the business code of conduct for ethical employees. [Boston]: Aspatore, 2003. HSU HF5387 .B356 2003. [3]Boatright, John Raymond. Ethics and the conduct of business. Upper Saddle River, N.J.: Prentice Hall, c2000. MCM HF5387 .B6 2000 [4]Christopher Kent, 'Victorian social history: post-Thompson, post-Foucault, postmodern', Victorian Studies, 40, 1 (1996), 97–13 [5]David Keller (2002), man.ed, Ethics and Values: Basic Readings in Theory and Practice (Pearson Custom Publishing). [6]Edwin A. Roberts, 'From the history of science to the science of history: scientists and historians in the shaping of British Marxist theory', Science and Society, 69, 4 (2005), 529–58 [7]Galford, Robert M. The trusted leader : bringing out the best in your people and your company. New York: Free Press, c2002. APL 174.4 GAL. [8]Garten, Jeffrey E. The politics of fortune: a new agenda for business leaders. Boston: Harvard Business School Press, c2002. 658.4 G244P. [9]Gunther, Marc. Faith and fortune: the quiet revolution to reform American business. New York: Crown Business, c2004. APL 174.4 GUN. [10]Johnson, Roberta Ann. Whistle blowing: when it works--and why. Boulder: L. Rienner Publishers, c2003. HSU HD60.5.U5 J664 2003. [11]Kaptein, Muel and Johan Wempe. The balanced company: a theory of corporate integrity. Oxford; New York: Oxford University Press, 2002. HPU HF5387 .K353 2002. [12]Larmer . A, 1996 “ Ethics in the workplace: Selected reading in business ethics, Minner St. paul, M.NB.Wst, C. ISBN- 0314068023. [13]Maxwell, John C. There's no such thing as business ethics: there's only one rule for making decisions. New York: Warner Books, c2003. APL 174.4 MAX. [14]McLemore, Clinton W. Street-smart ethics: succeeding in business without selling your soul. Louisville, Ky.: Westminster John Knox Press, c2003. HSU HF5387 .M432 2003. [15]Richter, Judith. Holding corporations accountable: corporate conduct, international codes, and citizen action. New York: Zed Books, 2001. HSU HD60 .R525 2001. [16]Sethi, S. Prakash and Oliver F. Williams. Economic imperatives and ethical values in global business: the South African experience and international codes today. Notre Dame, IN: University of Notre Dame Press, 2001. 174.4 S495E. [17]Shin, Kihyoung. The covenantal interpretation of the business corporation. Lanham, Md.: University Press of America, c2001. 174.4 S556C. [18]Soule, Edward Morality & markets: the ethics of government regulation. Lanham, Md.: Rowman & Littlefield Pub., c2003. 172.2 S722M. [19]Sharma Sonika, 2012, “Human Resource of Management Ethics and Employment: A case study of IT Companies “Chapter -3 A Global study on Business Ethics. Ph.d thesis.

46