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This introductory chapter deals with major concepts, definitions, theories, paradigms, models and strategies of
corporate ethics and morality from a systems-perspective. Everything in the world is a system, and so are a
corporation and corporate ethics and morality. Systems-thinking empowers a holistic and integrated approach to
the dynamic and challenging problem of corporate ethics and morality. A systems approach studies every system
as a dynamic exchange of inputs, processes and outcomes. Ethics, Business Ethics, and Corporate Ethics are
studied as inputs, processes and outputs of corporations, especially in relation to problem identification and
formulation, alternative solutions determination, corporate deliberations among competing solutions, corporate
decisions making and choice, corporate strategy of solution implementation, and corporate prediction and
control of outcomes.
genuine errors of judgment made in 2008, opines Saurabh Mukherjea, head of institutional equities at Ambit Capital.
Over the past eight years, according to a study conducted by the Credit Suisse, the House of Debt report, corporate
debt of some ten over-leveraged corporate industry groups covered by the study ballooned by an explosive 730%,
from a borrowing of Rs 100,400 crore in FY 2007 to Rs 733,500 crore in FY 2015 (See Business Outlook, December
11, 2015, p. 28). Apparently, the Indian promoter community realized that foreign investors were providing
generous equity funding to Indian industry groups and they had to match it by equally generous funding from public
sector unit (PSU) banks based on the premise that it is the only way long-term infrastructure funds could be funded.
Based on this pretext, politically directed loans were made with very little prospect of repayment, observes Saurabh
Mukherjea.
Adani
Essar
GMR
GVK
Jaypee
JSW
Lanco
Vedanta
Videocon
Gross Debt
FY 2013
FY
2014
81.122
84.440
FY
2015
EBITDA
EBIT
PAT
FY 2015
FY
2015
FY
2015
Interest Cover
FY
2014
FY
2015
Debt/EBITD
A
FY
2014
FY
2015
Debt/
Equity
FY
201
4
FY
201
5
96.031
12.370
8.848
1.948
1.1
1.3
7.3
6.5
2.9
101,46
98,644
99,949
8,370
2,836
-787
0.3
0.8
11.1
8.5
4.6
4
40,824
45,045
47,976
2,554
742
-2,733
0.4
0.2
16
16.8
5.4
26,964
31,026
33,933
739
34
-834
0.5
0
21.7
32
7.4
63,654
72,979
75,163
6,138
4,451
-1,727
0.8
0.6
11.1
11.9
6.9
46,118
53,027
58,171
13,025
8,801
3,146
2
1.9
4.1
4.2
1.8
41,084
44,082
47,102
1,693
580
-2,036
0.1
0.2
24.6
23.1
16.1
103,34
99,610
101,227
23,195
10,760
1.6
1.3
1.8
2.3
0.4
0
23,483
40,768
N/A
45,405
-112
-1,649
5,119
-0.3
-0.3
285.5
NM
8.4
[EBITDA = Earnings before interest, taxes (EBIT), depreciation and amortization; PAT = Profits before taxes].
3.1
3.9
7.1
12.2
7.1
1.8
43.8
0.7
3.8
Business Outlook conducted a similar study towards the middle of 2015 from the Bombay Stock Exchange
(BSE) universe of companies that met with several filtering stringent criteria. The first was debt/equity ratio > 2.5.
Within this filtered group the study selected companies that verified three more debt-related criteria a) interest
coverage ratio 1.5; b) [(opening cash + CFO)/interest cost] 1.5; and c) market capitalization/debt < 100%.
Twenty companies got caught in this group (incidentally, six of these also belonged to the stressed corporations
group of Credit Suisse House of Debt study). The total outstanding debt of these companies in 2015 was Rs
406,000 crore ($73.818 billion). Twelve of these 20 were infrastructure companies (e.g., power, construction, and
road business) and accounted for 77% of the total outstanding debt. Other companies in this list were in textile,
aviation, steel, and telecom. Technically, these twenty companies are the most vulnerable to debt troubles, as they
face a highly challenging environment in meeting their debt obligations (Kripalani and Gupta 2015: 26). However,
the rating companies and the banking systems in India did not ring their alarm bells on these heavily debt-burdened
companies, For instance, for twelve of these debt-stressed companies, ratings scores did not go below BB; in fact,
ten of these companies scored investment grades BBB and above. Only six companies were rated D (that is, at
default).
According to Pradip Shah, chairman of IndAsia (who while at Crisil introduced the concept of credit rating to
India), some of the Indian credit rating agencies award ratings without much due diligence (cited in Kripalani and
Gupta 2015, p. 28). If ratings reflect your capacity to pay back loans or debts, then higher ratings may give false
information to the investors. Experts do not seem to think that a benign inter rate cycle is going to help improve
matters. Rare cuts (e.g., Repo, CRR) are not going to help matters much as far as improvement in fundamental is
concerned, says Sanjay Bakshi, a widely followed value investor in India as also adjunct professor at MDI, Gurgaon.
Deep N. Mukherjee, visiting faculty, IIM Calcutta, believes there is no reason to expect the debt woes to
mitigate unless all the stakeholders (i.e., policy-makers, banks and promoters) are willing to end the charade. The
only endgame is that FII debt providers or FDI would come in over the next two to three years. They could if, for
instance, can say that their cost of debt is 4-6% and they could afford to infuse debt at 2-3% above the 10-year bond
yield of 7.7%. That is, you would new money to turnaround the distressed companies. Analysts add that 17% of the
total loans are stressed, and of this 5% are non-productive assets (NPAs). So some provisioning is done for them; but
the balance of loans need haircuts if they stand any chance of recovery. But currently, it does not look bright. Three
to four years have passed already and in India, the cost of waiting is close to 12-13%, which is basically the
additional interest rate that you will need to pay on the debt because of the delay, adds Mukherjee (Business
Outlook, December 11, 2015, p. 40).
Finding it difficult to meet the interest expenses, certain companies are refinancing or undertaking financial
engineering by capitalizing their interest costs and inflating their assets. For instance companies like Bhushan Steel
have capitalized close to Rs 2,200 crore of interest in FY 2015, and companies like Century textiles, HCC have
followed suit. Other companies such as DLF, Jaiprakash Associates, HCC, Lanco, and others have also sold their
core and non-core assets to make room for some breathing space on their leveraged balance sheets( Business
Outlook, December 11, 2015, p. 38). However, these distressed sales are creating newer problems for the companies.
That is, to attract buyer interest, promoters are putting their healthy EBITDA-generating assets on the block, which
in some cases contribute as much as 70% of their operating profit. Which means, after these assets are sold, the
debt/EBITDA (or interest coverage ratios) of companies will take a hit. Recent sales of Jaypee group and Lanco are
cases in point. Jaypee has been most aggressive in selling assets and will realize Rs 22,000 crore from these sales. It
has sold 8.4 metric tons (MT) of cement capacity for Rs 5,000 crore and firmed up the sale of another 4.9 MT for Rs
5,400 crore. Jaypee is also selling 1,391 MW of hydro plants to JSW energy, which will bring down debt by about
30%. However, all these assets contributed 59% to EBIT in JY 2015, and the debt/EBITDA will start depressing
soon (Business Outlook, December 11, 2015, p. 38). . Yesterdays solutions are todays problems.
Meanwhile, the government is planning to introduce a bankruptcy Code by the end of December 2015 to help
bankers recover their investments faster so that there is efficient flow of capital across the economy. But if the Code
does not have teeth, then it may not deter erring promoters. Moreover, the Code when notified and enforced may
not be fully complied with for the next two to five years. That the Code will enable economic growth and efficient
capital flows come back is anybody guess, especially if there are external shocks (e.g., another financial crisis,
another war) that bring about further deterioration
One wonders the morality of borrowing indiscriminately, of over-leveraged companies, of banks trying to
feed the debt-ridden business groups, of politically pressured public sector bank loans to the floundering companies,
and the morality of rating agencies that continue to rate such companies with investment grade (i.e., BBB) and
above. This is the challenge of corporate morality today; this is the nightmare of corporate ethics. Most Western
countries and economies sweeten the cost of borrowing. This is bad economic idea; it is also ethically and morally
questionable. It is bad intersection of corporate morality and political morality. Despite the fact that the world is
mired with debt, governments make borrowing costs tax deductible, cheapening debt and encouraging borrowers to
borrow more. In contrast, the dividend payments and retained earnings that flow to shareholders are taxed in most
places (See A Senseless Subsidy, The Economist, May 16, 2015, p. 15).
References
The Great Distortion: A Dangerous Flaw at the Heart of the World Economy, Front Page Feature, The Economist, May 16-22,
2015, pp.7, 15-18, 63.
Briefing Ending the Debt Addiction: A Senseless Subsidy, The Economist, May 16, 2015, pp. 15-18.
Free Exchange: Miraculous Conversion, The Economist, May 16, 2015, p. 63.
Bad Debt or Death Bed? Several Companies are nearly dead, with their Equity almost Wiped out; there is little Chance they will
survive but for their Bankers Largesse, Business Outlook, featured front page article, December 11, 2015, pp. 26-40.
Kripalani Jash and Jitendra Kumar Gupta (2015), Ever-greening of Loans is keeping several Over-leveraged Companies alive.
What could be the Endgame? Business Outlook, December 11, 2015, pp. 36-40.
Mahalakshmi, M. (2015), House of Cards, Editors Note, Business Outlook, December 11, 2015, p. 5.
6.
Discuss the legality and morality of the new hybrid financial instruments such as Cocos and ERNs. To what extent
do they ingeniously support the corporation and corporate debt at the expense of investors and the general public,
and why?
Currently in the USA, promoters can legally invest in as many shares as they want in a firm.
Moreover, the law entitles the promoters to have one representative on the board for every 17 percent
shares that they hold in that firm. As often happens, if a group of promoters with vested interests buys
17% and more of shares, then each 17% share entitles them one board membership. Hence, if they
collectively owned a total 68% or 85%, then can control the company management with four or five
members on the board, and that can enable them to dictate managerial policy for the company as a whole.
If promoters are primarily interested in getting high and immediate returns on their invested capital, then
that can constrain long term new product and new market development policies of the managers. This
empowers the promoters over the traditional customer-employee based management system, whereby the
promoter can force the management to increase the return on their investment by whatsoever means it
takes. That is, the promoters could enforce a dubious ethical system which affirms that means justify
ends, and not vice versa.
This also may lead to the culture of allotting ESOPs to the top and mid-level managers. This can be
painfully detrimental to the long term future of the firm, because the management tends to get more
concerned about maximizing profits, increasing net worth and enhancing share prices to meet targets.
They can completely ignore ends in the form of vision and missions, values, goals and objectives and
even jeopardize long run growth and profitability of the firm. Moreover, what happens in todays
corporate world is that whatever target gets achieved becomes a standard, and the next quarters targets
are made more stringent. This leads to a tendency amongst the employees to manipulate cash flows,
inflate earnings, deflate debts, thereby forging profits, showing better return on assets, higher net worth of
the firm, all of which can increase share prices and market capitalization.
This is ethically and morally wrong. And this is happening due to the fact that there is a lot of
pressure on the employees from the board of directors. The directors panel, as we have discussed above
consists of the representatives of the Investment Banking firms in majority. They have nothing to do with
the vision and mission of the firm. Their sole target lies in maximizing the returns on the investment of
their respective investment banks. They do not care whether the company is following an ethical path in
doing so or not. The company management tries to bypass through the loopholes in the laws and the
legislations to reach their short term targets. Or else the managers who want to be ethically correct in their
approach leave the corporate and move to startups where they receive a handsome pay package which is
in equivalent terms with that of the corporates, and, apart this, they get a whole lot of independence and
autonomy in the decision making process. Thus they get a better work environment in the startups rather
than the corporates. A top level manager leaving a company is not a good sign for the firm as it leads to
reputational loss for the company and its share prices can see a downhill turn if the news of a rift between
the employees and the board of directors reaches the market.
In the long run, this kind of approach is really very unhealthy for the firm as we can take example
from the cases of Enron and Satyam where we have seen that to increase share prices, how the processes
and the cash flows were manipulated so as to mislead the market in increasing the net worth of the
companies. But what happened at the end? Both these companies went bankrupt and the respective
chairmen are under imprisonment. So basically in the long run it leads to a dead end, where the person
involved, the firm, the investors and the millions of people who invest in the firms shares have nowhere
to go. Such scenarios must be avoided. Playing with the lifetime savings of so many people is not at all
justified. It might be legally acceptable at that particular juncture of time, but, deep within the conscience
a person knows that whatever he is doing is wrong on his part. The best question one can ask to himself at
4
that point of time is that, if I would have done the same thing if my family members were at the receiving
end of my deeds. Then the concerned person will take a morally and ethically correct decision and he will
do something which he ought to do. He wont just make away with something that he should do. This
kind of critical, visual and moral based thinking will help a person in taking the right decision at the right
time, at the right place, and involving the right principles.
Looking into the long term economic effect of this share concentration within top promoters in
investment banking firms, and its ill-effects on the thinking, ethicality and morality of the firms
managers the thinking process of the employees will turn more short term based and there is a high
probability that their decision making may turn myopic with long term benefits taking a severe backlash.
Other unfortunate consequence of this phenomenon can be that there will be scarcity of visionaries in the
corporate world. The growth of the corporates will become directionless due to the lack of visionaries and
there will be a downfall in the valuation of the corporates. And once the devaluation starts for the
corporates, there will be a high probability of attrition among the employees as they would be unsure
about the future perspectives of their career. This will lead to further degradation of the firms reputation
which in turn will lead to further devaluation of the share prices.
Thus, we can see that it is a vicious circle where the companies are getting trapped into, just due to a
set of immoral practices of making faster money. Moreover this kind of management system will
encourage more practices like ENRON and Satyam and more and more managers will try to find
loopholes and shortcuts in the legal system to maximize profits. This will lead to a number of immoral
practices growing in the corporate and one day or the other some whistle-blowers conscience will wake
and he would bring the firm shattering to the ground. This would not only pose a threat to the individual
firms only, but to the nations economy on the whole as well. As we have seen in the case of Petrobras,
how the failure of one company can lead to the downfall of an entire economy and its bond value, the
credit ratings of the nation as in the case of Brazil.
Same was evident in the case of the Volkswagen scandal, wherein one bad call by the companys
management, not only destroyed the reputation of the company. But it also initiated a downhill turn for
the finances of the company. Moreover the reputation of Germany which is known for its extremely
advanced automotive engineering and technology got a bad hit and the goodwill of other German
carmakers like BMW, Audi and Mercedes has also taken a blow for no reason. Thus Germany which was
the savior of the European Union is all of a sudden finding itself in a situation of crisis. Therefore, a set of
morally incorrect judgments can not only be devastating for the company, but it can lead to the downfall
of an entire nations economy.
The legal system in any country as we know is mostly reactive and retroactive. Laws are made once
a wrong deed has already happened. It is almost impossible to pre-empt the effects of an action and
making a law to prevent it. So we cannot blame our legislatives and law-makers for not coming up with
some proactive laws and legislations well before the crime or the scam happens. It will be like a bonus if
the senators or the MPs come up with laws which would prevent wrong doings. But as a person, we all
must be aware that whatever we are doing is ethically correct or not, and how many people will be
affected by this one decision made by me. If we reach at a conclusion that a lot of people will be at the
losing end due to our action, it is our moral responsibility to not take that decision or action. If we fail to
do so, we must be rest assured that one day or the other, a law will be made which would make our
actions illegal and that we would be convicted and prosecuted at that point of time, as in the case of
Enron.
Thus, share market concentration in the hands of a few promoter investors might be legally correct at
this point of time. But it is morally and ethically wrong. And taking into consideration the competition
and the profit maximization goals, there is a high probability that people will resort to much worse
5
practices in order to retain their jobs or may be get promotions. This can even lead to the downfall of
great economies or at-least dent the growth pace of a developing economy. Therefore, we can predict that
the government will come up with legislations that will fix the upper cap of shareholding in a firm as
suggested by Dr. Raghuram Rajan, the governor of Reserve Bank of India - he has asked for an upper
limit of 20% shareholding by a single promoter in a corporate firm. Thus, given this legislation, promoter
concentration could be illegal as well in India. Hence corporates must look for alternative means for
funding the company or at least negotiate with promoters more autonomy to run the enterprise to avoid
getting into a legal fix in the future.
Top 1%
Next 9%
Bottom 90%
Business Equity
Financial Securities
Trusts
Stocks and Mutual Funds
Non-Home Real Estate
Total Investment Assets
62.4%
60.6%
38.9%
38.3%
28.3%
49.7%
30.9%
37.9%
40.5%
42.9%
48.6%
38.1%
6.7%
1.5%
20.6%
18.8%
23.1%
12.2%
Exhibit 1.2.2: Investment by Deposits, Pension Accounts, Liquid Assets, Housing, and Debt
(Data: 2007: Source: Wolff 2009)
Investment Asset Type
Top 1%
Next 9%
Bottom 90%
Deposits
Pension Accounts
Life Insurance
Principal Residence
Total Other Assets
Debt
20.2%
14.4%
22.0%
9.4%
12.0%
5.4%
37.5%
44.8%
32.9%
29.2%
33.8%
21.3%
42,3%
40.8%
45.1%
61.5%
54,2%
73.4%
Hence, given the uneven possession of financial wealth in the world as seen from these charts, the
promoter concentration of investment share of the stock market seems to be a logical consequence and
economically consistent. But how did the former (i.e., financial wealth possession inequality) come
about? From income inequality, from social inequality, or from economic inequality? All three sources of
inequality are unjust, even though some form income inequality seems to be justified given individual
different skill abilities and intellectual capacities for gainful work. Hence, currently, almost everywhere in
the world, ownership and investment by the big firms remains the single the single most popular way of
financing new ideas.
Share market concentration within the hands of a few promoter investors can be advantageous as
well as disadvantageous, legally, ethically and morally:
7
Legally, it is the choice of the promoters of a particular corporation to decide to hold shares within a
few hands or release an offering and go public. Thus justification in legal terms for concentration of
shares in a few hands is not really a concern. The role of justifying in terms of legality comes when the
firm has violated some laws that have led to the firm as a whole coming under the scanner. It is not
uncommon, especially for private firms, to fiddle with their balance sheets and P&L statements to paint a
bright and colorful picture in place of gloomy scenery. The case of Satyam, where the owners themselves
fudged the books to maintain the investor confidence is a perfect example of a firm cheating with its
investors. Moving on, the long term unintended consequences can be severe in case one violates the legal
terms the firm is bound to follow. Firms have ended up paying hefty fines in such cases and even faced
closures and bankruptcy.
Ethically, the outcome of having few promoters investors depends upon how aligned their thinking is
with what the firm plans to achieve and what principles it plans to follow. Since the power of critical
decision making lies with these few people, their understanding of the firms goals and their thinking
process for arriving at the implication of their decisions affects the whole organization. Ethical standards
often define organizations, examples of which can be, from a single sector, the community builder TATA
Steel and the profit maximizing Jindal Steel. In terms of the future, firms with weak ethical grounds might
be successful and profitable in the short run, since they are quickly able to change and adapt to profit
maximizing strategies without thinking the long term implications of their actions. On the other hand,
firms with a strong focus on building and adhering to strong ethical standards will always, despite small
periodic losses, ensure that the firm has a long future ahead of it and will continue to reinvent itself as per
the changing times.
Morally, the fate of an organization lies in the hands of a chosen few investors is wrong. The
organization consists of lots of individuals and it is of huge importance, for the firm to functional
normally, that the goals of an organization and their thinking capability match with what the firm plans to
do. Thus resting power with a few can be a dangerous in the scenario where the investors sway form their
paths and start fudging with the image brand. An example of this can be again, the Satyam fiasco, where
the choices of a few individuals led to the closing of the entire organization. Morally, just like the ethics
point of view, facilitates long and short term plans.
Collectively analyzing these areas, one can look at the unintended economic consequences that such
a firm has. As pointed out earlier, it might look easy for a firm to break away from these standards and
earn a quick profit but it is only those strong organizations that foresee the loss about to happen and
prepare themselves to steer comfortably in such conditions. Severe unintended consequences can be the
plea by a firm to accept certain face saving details resulting in a legal trial of the firm ultimately leading
to closure.
The concept of a company being a long lasting and a stable institution is ceasing to exist. We are
now witnessing the birth of a new Corporation which is no more a colossal monster moving in torpor but
is agile and hungry. The life of a company has also come down to 20 years from 61 years. The falling of
the old corporation brings forth many moral and ethical issues. The central issue of the rise institutional
investors changes how a company is owned and the decision making chain in a company. The silver
lining is that the fast paced change, constructive break-down and the new way doing business provides
ample opportunities for the daring and the dreamers. The tall walls that were built and guarded by the old
organizations are crumbling to the ground and making way for the new age companies.
1.
Promoter dominance and interference can seriously paralyze otherwise able CEOs and Managing
Directors. Investigate the social and economic implications of this phenomenon.
2.
Promoter dominance and interference can seriously paralyze otherwise able CEOs and Managing
Directors. Investigate the ethical implications of this phenomenon, especially in reference to skewed
distribution of wealth as described in Exhibits 1.2.1 and 1.2.2.
3.
Promoter dominance and interference can seriously paralyze otherwise able CEOs and Managing
Directors. Investigate the moral implications of this phenomenon.
4.
The central issue of the rise dominating institutional investors changes how a company is owned and
the decision making chain in a company. Investigate the legal, economic, social, ethical and moral
implications of this phenomenon.
5.
The concept of a company being a durable, robust and stable institution is ceasing to exist. We are
now witnessing the birth of a new Corporation which is no more a colossal monster moving in torpor
but is agile and hungry. The life of a company has also come down to 20 years from 61 years. The
falling of the old corporation brings forth many moral and ethical issues. Discuss, investigate and
corroborate this event with further facts and figures.
6.
How can you economically, ethically, and morally save the corporation from promoter dominance in
the coming years.
Introduction
A typical week in USA: 10 billion shares of Americas 500 largest listed corporations will have
changed hands in frenzied trading; Silicon Valley upstarts are planning the downfall of firms and have
already unsettled some major industries. The corporate executives of these largest listed firms will have
been swamped by 750,000 incoming e-mails and a torrent of instant data about customers and their
rapidly changing values and lifestyles; in five days these firms will have bought back $11 billion of their
own shares, not far off from what they invested a week earlier; computers buy and dump shares in the
stock markets within milliseconds. With one eye on their smart phones and the other on their share
prices, corporate bosses seem to be the enviable captains of a hyperactive frenetic capitalism. Long-term
thinking and planning has been a luxury. When managers whose allegiance to firms is measured in
weeks, they are not striving to satisfy investors; they are pumping share prices in order to maximize their
own pay. Competition is becoming even more ferocious and yet not fierce enough. Investors cannot see
9
past their noses, and firms are reluctant to invest their profits in business. Short-termism and myopic
capitalism are rampant. In brief, this is the market battleground in which corporate executives function
today and corporate ethics is challenged.
Yet since the financial crisis of 2008, firms are back on longer business horizons. New corporate
bonds have an average maturity of 17 years, double the length since they had in the 1990s. In 2014
departing chief executives of S&P 500 firms served for an average of a decade longer than at any point
since 2002. The average holding period of an S&P share may be a pitiful 200 days, but that has doubled
since 2009. Larry Fink, the boss of BlackRock, the worlds biggest asset manager, asks firms to draw-up
five-year plans. The same system that is accused of myopia has just financed the $500 billion shaleenergy revolution, a boom in experimental biotech companies and the electric car ambitions of Elon
Musk, an accomplished maverick entrepreneur. i Corporate ethics must survive and thrive in the midst of
this market challenge, confusion and ambiguity.
If today is a typical day on planet Earth, writes David Orr (1990), a celebrated US environmentalist
we cited in the Prologue, we will lose 116 square miles of rainforest, or about an acre a second. We will
lose another 72 square miles to encroaching deserts, as a result of human mismanagement and
overpopulation. We will lose 40 to 100 species, and no one knows whether the number is 40 or 100.
Today the human population will increase by 250,000. And today we will add 2,700 tons of
chlorofluorocarbons to the atmosphere and 15 million tons of carbon. Tonight the Earth will be a little
hotter, its waters more acidic, and the fabric of life more threadbare.
The truth is that many things on which our future health and prosperity depend are in dire jeopardy:
climate stability, the resilience and productivity of natural systems, the beauty of the natural world, and
biological diversity. It is worth noting, says David Orr (1990), that this is not the work of ignorant
people. It is, rather, largely the result of work by people with BAs, BSs, LLBs, MBAs, and PhDs. We
must reverse this trend if this planet should continue to be inhabitable for humankind. A course in
business and corporate ethics should provide enough ecological sensitivity to reverse this trend.
Laments Ciulla (2015), a much respected business ethics scholar in the USA: In the 30 years that I
have worked in business ethics, I have been delighted to see how the field grew and developed around the
world. Nonetheless, it pains me that the battle to teach ethics courses in business schools continues, not
with the business community but with business schools. Many of them are still not interested in investing
in business ethics faculty and courses because, despite scandals and the crash of the global financial
system, they still do not think that business ethics is important.
10
Conceptual definition: this tells what the thing you want to define IS; that is, it tells what it is. For
example, man is a rational animal; an animal is a sentient being; business is a buyer-seller exchange;
the corporation is a listed company, and the like, are conceptual definitions.
Operational definition: this tells you what the thing you intend to define DOES; it tells what it does.
For example: An adult family man is a husband, father and a bread-winner; an animal is a multilegged mobile creature that hunts for its living; a market is where buyers and sellers meet to exchange
goods and services; a corporation serves the public as its lives by its capital, and the like, are
operational definitions.
While we need both types of definitions, our emphasis is along operational definitions given, as we
shall see later, that the practical domain, nature and challenge of corporate ethics is to explore and
determine what it does to a corporation and its stakeholders..
What is Morality?
Ethical scholars distinguish between morality and ethics. According to Vernon Jensen (1997: 4), a
communication-ethics scholar, ethics refers to theory, to abstract universal principles and their sources,
whereas the word morals implies practicing those principles of applied ethics, our culture-bound modes
of conduct. The first concept of ethics defines it conceptually, while the second of morals defines ethics
operationally. We need to go further than that. We first start a discussion on morality, as historically,
morality has preceded ethics by centuries and millennia and has helped to guide and formulate ethics.
Morality is as old as humanity. Our first ancestors had the same moral and social objectives as we have
today: mutual existence, respect and peace within a group or community.
Conceptually, morality (from the Latin moralitas) is the value-quality or character of a person,
family, group or society. It is rightness or wrongness, justice or injustice in action of a person, group, or
society. Morality constitutes principles of right or wrong, truth or falsehood, and fairness or unfairness in
human conduct. Thus, operationally defined, morality covers those beliefs and values, practices and
activities of people that are considered right or wrong, good or bad, truthful or untruthful, and fair or
unfair. Morality studies the rules and principles that govern these activities and the values that are
embedded in those activities (De George 1999: 19).
Thus, morality is generally used to describe a sociological phenomenon, namely, the existence of a
society with rules and standards of social behavior. In this sense, moralities are best understood as special
11
forms of social control (such as corporate governance structures and rules) and special forms of practical
reasoning (Baier 1965). These are operational definitions of morality. Thus, we speak of the morality of
the Greeks, the morality of the Romans, the morality of 20 th century Americans, the morality of 21 st
Century Asians, the morality of the free enterprise capitalist system, and the like. Accordingly, we do not
usually speak about the ethics of Greeks or the ethics of Romans or Americans or Indians.
As Lincoln Steffensii aptly said, morality is moral only when it is voluntary. Many of us abide by
rules, laws and social sanctions primarily for fear of being caught violating them and publicly exposed
and punished for such violations. Such attitudes and behaviors encourage hypocrisy. Corporate morality
is moral strength when you follow organizational rules because of their intrinsic moral values of justice,
integrity, social legitimacy and common good. Morality does not die out in the absence of laws and
injunctions; it thrives. Moreover, racism and discrimination based on gender, caste, creed, ethnicity and
nationality, can become increasingly vicious when it is cloaked in pseudo religion-based social and moral
sanctions. Thus, morality is moral when it is intrinsically motivated. Corporate morality is moral when it
is not driven just by law compliance or even by observance of a code of ethical conduct. Both these
behaviors, legal and ethical, should be intrinsically motivated by ones moral beliefs, principles and
convictions, ones moral and religious conscience, and by ones sense of duty and purpose in life.
12
what one is and what one thinks. In this sense, laws, ethics, morality and spirituality are not static but
dynamic social systems of self-control and humanization.
We also use the term ethics to denote a field of moral philosophy. Like logic, epistemology and
metaphysics, ethics as a moral normative philosophy dates back to the time of ancient Greeks [e.g.,
Socrates (470-399 BC), Plato (427-347 BC) and Aristotle (384-322 BC)]. In this view, ethics as a
philosophical endeavor is the study of morality. Ethics studies morality; ethics presupposes the existence
of morality and moral people who judge right from wrong (De George 1999: 19). Such a study can be
descriptive or normative. While descriptive ethics is a scientific inquiry into the actual moral beliefs and
behaviors of people, normative ethics, based on various philosophical theories and doctrines, prescribes
what our beliefs and behavior should be.
On the other hand, ethics is also derived from the Greek word ethikos that generally refers to the
rules and norms of specific kinds of conduct or the code of conduct for specialized groups. Thus, we
speak about ethics of doctors, ethics of lawyers, ethics of engineers, ethics of the nursing profession,
ethics of commerce, ethics of the accounting profession, ethics of business executives, ethics of corporate
executives, and so on, rather than morality of doctors, morality of lawyers or accountants or corporate
executives (Boatright 2003: 22-23).
Thus a more formal and comprehensive definition of ethics would be: Ethics is that branch of
philosophy that theoretically, logically and rationally distinguishes between and determines right from
wrong, good from bad, moral from immoral, fair from unfair, and just from unjust actions, activities and
decisions and behaviors. To do this, ethics establishes rules and standards that govern moral behavior of
individuals and groups, organizations and institutions, and these are based on various ethical theories and
paradigms that have come down through history of ethical thought. Applied ethics refers to moral
judgments and conclusions we arrive at based on these rules, standards, codes of conduct, and models.
We are not explicitly including all values in the definition of ethics as such. For some people values
are very relative and personal: e.g., to obtain a degree, to get a job, to make money, to hoard wealth, to
buy a home, to own an expensive car, to go abroad, and so on. But ethics is a science of principled moral
values and principled moral behavior. The value and behavior should stem from certain well established
moral principles, standards and rules, or from the moral judgments of people whom we call wise and
honest. That is, values are values when certain universal moral principles back them. Values derive value
from these moral principles, and not vice versa. The power of moral principles is that they are universal,
timeless truths. When we apply them and live by them, we generate values and best practices. Such
principles deal with meaning and truth, honesty and integrity, and not any specific religion necessarily.
For instance, we value human life because of the moral principle of fundamental human dignity and
the inalienability of the God-given right to life, liberty and the pursuit of happiness. Nobody can take
these God-given or natural rights from us. Nor can we abdicate or abandon this right to life, liberty and
the pursuit of happiness. Similarly, we value honesty because of the fundamental moral principle and
mandate of speaking the truth. On the other hand, all our good works and best practices do not produce
quality of life results in our homes, institutions and corporations, countries and continents, if they are not
based on valid and solid moral principles.
Managerial Ethics is a subset of business ethics. Managerial ethics focuses on transactional moral
values. Managerial ethics assures that all buyer-seller exchange processes, at all levels, create, design and
offer good, safe and healthy, legal, ethical and moral products and services that are profitable and growthoriented, but which are also affordably priced, justly distributed, that serve the needs, wants and desires of
the entire human family, and at the same time, support the ecological and sustainable resources of the
planet and the universe. This is a tall order for managerial ethics. That is because the scope of managers
in a chaotic and turbulent market environment is wide and widening. Where there are people, there is
behavior, and where there is behavior there is scope and demand for ethics. Where there is business there
is scope and challenge of business ethics, and there is role and scope for managerial ethics.
Managerial ethics is stewardship. It is responsibility and accountability to all stakeholders such as
customers, employees, suppliers, vendors and distributors, shareholders and promoter investors, banks
and creditors, governments and the media, the local and national and global communities, the planet and
the universe, and even the competition. Of course, managers should draw the specific boundaries of their
industry and markets, products and services, and hence define and characterize their specific stakeholders;
but the overall scope of ethics and morals is the same within these bounded functionalities.
If business is basically a buyer-seller exchange management process, then business ethics is the
science of social values that enables and empowers buyer-seller exchange management.
Or,
operationally, business ethics is a principled action program of moral values that humanizes the buyerseller exchange management process. Business ethics brings the moral values of both intellectual virtues
(e.g., prudence, wisdom, transparency, due diligence, and objective investigation) and moral virtues (e.g.,
temperance, fortitude, honesty, integrity, justice, and compassion) to the marketplace, to the buyer-seller
exchange system of inputs, process and outcomes. Business ethics is the ethics of commerce and ecommerce, the ethics of the marketplace with its produce and products, brands and services, the ethics of
building human, physical and money capital, and the ethics of the production, distribution and
consumption processes that define the markets.
This Book follows this latter approach of defining, operationalizing and assessing ethics as an
actionable program of responsible values that humanize societies. Ethics deals with human behavior.
Ethics becomes relevant wherever people interact and function together. Hence, every field of business
such as planning and strategy, accounting, finance, human resources management, business law,
marketing, business research, and production management involves ethical issues and moral challenges.
making for business practitioners and business corporate executives. Business ethics should provide
tools of ethical and moral reasoning, fortified with relevant theories, models and paradigms of ethical and
moral reasoning and values. Every field of business such as business strategy, organizational behavior,
accounting, finance, human resources management, business law, marketing, business research, and
production management involves people and behavior, and, therefore, involves ethical issues and moral
challenges.
15
consequences of our decisions, choices and strategies, and undertaking responsibility for harmful
consequences, if any. Business and corporate ethics should provide tools of ethical and moral reasoning,
fortified with relevant theories, models and paradigms of ethical and moral reasoning and values. Every
field of business such as accounting, finance, human resources management, business law, marketing,
business research, and production management involves ethical issues and moral challenges today.
Corporate ethics should identify, understand and address such ethical issues and moral challenges.
Further, if all business is defined as exchange between buyers and sellers, if business management is
the science of business exchange, and if ethics is the science of moral values and principles, then business
ethics is the science of moral values and principles in business exchanges. Accordingly, corporate ethics
is the science of executive moral values and principles in special corporate-wide exchanges such as
corporate deliberations and decisions, corporate choices and strategies that impact the whole corporation
and its stakeholders.
16
hence, ethics is a dynamic and not a static concept; b) as values change over time, ethics change across
cultures; values define what we consider acceptable ways of working; hence, by its very definition, ethics
has a contextual or relativistic and not absolute connotation. Most societies, however, agree there is a
base level of black and white absolute values and ethics consistent across cultures (e.g., do not kill; do
not cheat; do not lie; be honest; honor contracts, and keep promises). Treat others the way you want
others to treat you, the Golden Rule, is an absolute value too. These are absolute universal values that
characterize human beings and society.
Nevertheless, there is a large spectrum of grey area in ethics where values and cultures are involved
(e.g., be non-hierarchical; be inclusive; be good; be caring; be compassionate; be fair; be just; do not
fraud; be generous; be contributing; be cooperative). It is the grey area that tests corporations, its leaders
and chief executives. Values such as social compliance, legal compliance, ethical conformance, moral
obedience, industrial codes of conduct, consumer privacy, personal security, patent rights and duties,
intellectual property rights and duties, and employee rights and duties may not be similar across countries
and continents. As also, certain questionable strategies such as aggressive competitive practices,
international dumping of goods, wash trading, insider trading, and other financial shenanigans, acceptable
in certain countries and cultures may not be so in others, thus creating grey areas of ethical values and
moral interests. Most of the times business and corporate executives will have to operate in this grey
area that is prone to personal conflicts and choices, each of which tests individual ethical sensitivities,
decision abilities and personality characters (see Narasimhan 2011). [See Corporate Ethics Exercises
1.1 and 1.2].
A course in or book on Corporate Ethics should empower business executives, management students
and other business practitioners readily to identify and effectively to address ethical and moral problems
and challenges that each functional business field or discipline involves. We also need a moral awakening,
a quick recovery of ethical values of corporate integrity and honesty, and a great sense of corporate
citizenship and stewardship (Mascarenhas 1995). This book targets such audiences and challenges them
with practical wisdom skills for ethical reasoning, moral explanation, moral judgment and deliberation,
ethical assessment of business decisions and actions, and undertaking moral responsibility for harmful
consequences of corporate decisions.
At the corporate level, CEOs and most of their decisions impact the entire corporation, often the
industry, and the country that the industry dominates. Thus, the major corporate decisions of Bill Gates,
Steve Jobs, Michael dell, Narayana Murthy, Natarajan Chandrasekharan and Azim Premji have affected
the IT world, especially in India. Major corporate decisions of Michael Dell, Lenovo, and Compaq have
also affected the distribution and diffusion of personal computers in the world. Major decisions and
products of Apple, Sony, and Microsoft have affected the entertainment or electronic game industries of
the world. Corporate ethics deals with such deliberations, choices, decisions and strategies that impact
corporation-wide, industry-wide, countrywide, continent-wide, or globe-wide.
Morality as a System
As part of our methodology for exploring corporate ethics, we now introduce some preliminary
concepts and terms of systems and systems-thinking in order to understand better the dynamic nature of
morality in general, and of corporate ethics and morality in particular. Morality is primarily a system of
beliefs, principles and drivers of good behavior and good outcomes in in any organization,
The word system originates from a Greek verb sunisthnai, which originally meant to cause to
stand together. Etymologically, therefore, a system implies a structure that holds the parts together in a
functional whole. A system is a perceived whole whose elements hang together because they continually
affect each other over time and operate toward a common purpose. In this sense, the human body, the
heart and its organs, the home and the factory, the ecology and the atmosphere, diseases and epidemics,
are systems or structures that hang together via forces of interrelationships and interactions (Senge et al.,
1994: 90).
A system is anything (subjects, objects, properties or events - SOPE) that is made up of two or more
parts. Each part of the system interacts with other parts within the system to produce a holistic effect that
transcends the effects of individual parts. Everything in the universe has two or more parts, and,
therefore, is a system. The universe with all its constellations, galaxies, stars and planets is a system. Our
mother earth is a unique planetary system of geo-, hydro-, thermo- and atmo- spheres that make plant,
animal and human life possible. Ethics, morality, business ethics, managerial ethics, executive ethics and
corporate ethics all are systems that we need to explore.
Everything there is, is a system. As human beings we are bio-rational systems, our homes and
workplaces are socio-physical systems, our schools and universities are education and knowledge
generating systems, our corporations and governments are management or governance systems, our
planet and the universe are terrestrial and cosmic systems. Our businesses and markets, our work and
human endeavors are systems bound by an inevitable fabric of interrelated forces and actions that often
take years to fully play out their effects on each other. Since we are part of the lacework, it is doubly
difficult for us to see the whole pattern of the fabric and pace of change. Instead, we often focus on
snapshots of isolated parts of the system, and wonder why our complex problems never get solved.
All reality is a system. Every system has at least three dynamic elements: inputs, processes and
outputs. Inputs are subjects and objects as antecedents, determinants, materials, infrastructure, and
resources that are the starting elements of any system. The inputs are converted into outputs by elements
called processes such as policies, procedures, organization learning routines, patents, technologies,
regulations and enforcements. Thirdly, outputs are outcomes or consequences, intended or unintended,
good or bad, just or unjust that result from inputs and processes.
If from a systems-thinking viewpoint we consider ethics, business ethics, and corporate ethics as
systems, and if each system has its own specific inputs, specific processes, and specific outputs, then we
18
may distinguish ethics, business ethics, and corporate ethics as in Table 1.1. A similar table can also be
drawn to distinguish between morality, business morality, and corporate executive morality.
19
At the heart of a learning organization is a shift of mind from seeing ourselves as separate from the
world to being connected to the world, from seeing problems as created by someone else out there to
seeing how our own actions create the problems we experience. In a learning organization, people should
continually discover how they create their reality and change it, and empower themselves or impoverish
from it. Archimedes said, Give me a lever long enough and single-handed I can move the world (see
Senge 1990; 2006: 12-13).
There are many paradoxes in organizational life. For instance, the time of our greatest growth is the
best moment to plan for harder times. The policies that gain the most for our current dominant market
position may ultimately drain our resources most quickly. The harder we strive for what we want, the
more we may undermine our own chances of achieving it. Systems principles like these are meaningful
not so much in themselves, but because they represent a more effective way of thinking and acting.
Incorporating them into our corporate strategic behavior requires peripheral vision - the ability to pay
attention to the world as if through a wide-angle lens, so you can see how your actions interrelate with
other areas of activity (Senge et al. 1994: 87-88). [See Corporate Executive Exercise 1.4].
Cognitive or intellectual development that includes one's innate and learnt conceptual, intellectual and
reasoning skills (Goolsby and Hunt 1992).
Moral development that includes one's ethical-moral reasoning skills, moral attitudes and beliefs,
moral rules and principles, often corresponding to the stages of moral development described by
Kohlberg (1969) and as empirically verified by scholars (e.g., Baxter and Rarick 1987; Penn and
Collier 1985). Advanced moral development presupposes advanced cognitive development and logical
reasoning skills (Blasi 1980; Kohlberg 1969; Rehrauer 1996; Rest 1979).
20
Personality or volitional development that may include character-skills such as will-power," ego
strength" and "field dependence" (Trevino 1986), the former two reflecting the strength of one's moral
and intellectual convictions, and the latter, one's dependency on significant others in ethical decisionmaking. Personality development also includes moral development that results in good moral decisions
and executions that presuppose good character (Aristotle 1985; Hauerwas 1981). Ethical beliefs are
closely linked with personal values of top-level executives (Lincoln, Pressley, and Little 1982).
Analogously, the corporation or institution as a body is a moral entity that has its own "ethical input"
structure of cognitive, moral and personality development. Corporate ethical inputs are norms and values
that define the corporation in its everyday business operations. These ethical inputs, in as much as they
affect individual and corporate ethical behavior, may be grouped under three heads: [See Corporate
Ethics Exercise 1.5].
Corporate cognitive development that reflects the level of corporate skills in manpower, materials,
money, finance, accounting, marketing, law, and technology management the corporation controls for
sustaining competitive advantage in the domestic and global industry. Most of these corporate skills
and competencies have ethical content and implications (Blasi 1980; Goolsby and Hunt 1992).
Corporate moral development reflect ethical and moral skills the corporation has developed for
internalizing and fulfilling government and industry laws, trade norms, market conventions, corporate
ideologies and policies, corporate goals and objectives, corporate and industrial codes of ethical
conduct, environmental regulations, and corporate social responsibility. Company morale and
corporate conscience (Good aster and Matthews 1982) are expressions of corporate moral development
(Ferrell and Skinner 1988; Hunt and Chonko 1985; Rehrauer 1996).
Corporate personality or volitional development reveal the combined result of corporate cognitive and
moral developments: This is often expressed in attributes such as corporate culture and climate,
organizational design (Galbraith 1977), structure of hierarchies (Mintzberg 1979), lines of authority
and "locus of control" (Trevino 1986), "role set-configurations" and "differential association" (Ferrell
and Gresham 1985), and corporate challenges or "opportunity matrix" (Ferrell and Gresham 1985)
The "corporate ethical process" that converts "personal" and "corporate" ethical inputs into ethical
outputs or outcomes may also involve three components:
Corporate planning that implies choosing ends, goals and objectives, given ones choice of business or
industry or country of operation, and prioritizing goals in relation to one's goals and ideologies,
principles, and responsibilities to major stakeholders (Ansoff 1977; O'Connor 1978).
Corporate strategy that implies choosing specific action-programs to realize these goals and objectives
such that the net social and economic benefits of decision-outcomes are maximized and differentiated
from ones competition (Ansoff 1965, 1980; Porter 1980, 1996; Mascarenhas 2011);
Lastly, basic "corporate ethical outputs" are realized values in terms of satisfied or dissatisfied
"stakeholders" who include stockholders, suppliers, creditors, employees, unions, customers,
21
governments, and domestic and international sectors (Ansoff 1965; Freeman 1984; Goodpaster 1991).
Stakeholder dissatisfaction could arise from many social costs or externalities. Typical turnaround social
costs are of two types: proximate costs such as unsafe working conditions, racial or sexual harassment,
unjust wages, unjust plant closing and massive layoffs, harmful products, exorbitant prices, customer
rights denied, and air-water-earth pollution. Remote externalities include planned obsolescence of plants
and consequent ruthless plant closings, accelerated obsolescence of products, lifestyles and employee
skills, with the attendant phenomena of forced unemployment, underemployment, inflation, stagflation,
recession and depression. [See Corporate Ethics Exercises 1.6 and 1.7].
Stated differently, basic corporate ethical outputs are:
Imputed to intermediary and terminal corporate value-realizations are social costs and benefits for
which the corporation must assume full responsibility and accountability.
the product, activity, or enterprise in question. For instance, knowing the purpose of the car enables us to
judge one car better than the other by speed, safety, gas mileage, comfort, trunk space, style, roominess
and the like. To the extent, however, that the purpose of a product or enterprise is relative to the buyer,
owner, or user, the rightness of the criteria may be relative or value-based. Purpose is something we give
to the product or person or enterprise (Baier 1965: 19-23).
There can be multiple standards in comparisons and ranking. Parker 51 may be better than
Waterman under certain criteria like style, inking, replacement, brand name, and signature product. This
house is bigger than that in height, width, depth, and number of rooms, spacious rooms, number of square
feet, stone or brick, better roofing material, better flooring, better plumbing, and the like. In such cases,
the comparisons and rankings are more complex, but still objectively verifiable. Most often, the
comparisons or rankings are also verifiable after use, experience or expertise. Some value judgments are
opinions of users, experts, teachers, retailers or manufacturers e.g., Plato was a better philosopher than
Aristotle; cars are better today than they were fifty years ago; this brand of toothpaste is best for teethwhitening; this cola is best for thirst quenching; this restaurant is the best in town; that retail outlet is the
best for ambience, and the like. Some of these statements are puffery. These value judgments are not
conclusively verifiable; verifiability or validation may not be always necessary, meaningful or relevant.
Statements of science, on the other hand, are more objective, data-driven, verifiable or falsifiable.
They are often stated as discoveries of existing order in observed phenomena (e.g., inventions,
discoveries, formulae, patterns, and movements of nature) or by empirically verifiable constructs,
theories, hypotheses that when proved (or falsified) become laws, generalizations, and paradigms that
explain nature and natural phenomena.
Then there are moral value judgments (e.g., John is more honest than James; Jane as a PR Director is
more trustworthy and reliable than Joan; this company is more socially responsible than that; this
negotiating model and behavior is more ethical and moral than its competing one; this brand version of
adult entertainment is more moral than all others we offer, and the like). These are evaluative judgments.
These are also comparative judgments, but as moral value comparison judgments we not only affirm the
existence of a moral property in these people or institutions, but also make a judgment about the ethical or
moral appropriateness of these properties or certain lines of behavior.
Lastly, we have moral value imperative judgments and principles for instance, executive honesty
and integrity are better than executive efficiency and performance; honesty is the best policy; telling truth
is better than telling a lie no matter what the cost; giving is better than receiving; altruism is more moral
than individualism, and treat others as you would have them treat you (the golden rule). These are
terminal values that are moral. Some terminal moral values may be expressed differently by each
religion or civilization. For instance, Table 1.3 illustrates how the terminal value of the Golden Rule
was understood and expressed by various religions down the centuries. Most of these are Kantian
categorical imperatives that are universalizable (i.e., they must be applicable to all) and reversible
(including you). [See Corporate Executive Exercise 1.8].
Laws promote common good, but are basically reactionary in origin, and in general preempt injury or
evil (based on the principle of non-malfeasance). Legality is basically law compliance.
Ethicality is predicated on conformance to external (social) norms and customs; it is primarily defined by
principles based on teleological (consequentialist) ethical theories. Ethicality safeguards, promotes and
defines social good in terms of outputs or consequences. Decisions and actions are ethical if and only if
their social benefits clearly outweigh social costs.
Morality is obedience to inner categorical imperatives. It is primarily predicated on ones inner beliefs
and strengths, good reasons, intentions and motivations, one's character, personality and (religious)
conscience. Decisions and actions are moral if and only if they stem from right intentions and
motivations, regardless of consequences and circumstances. Right intentions and motivations are
defined principally by their consonance with deontological theories of human rights and dignity and
distributive justice principles of basic human equality. Morality safeguards, promotes and defines
personal and social rights and duties.
Spirituality goes beyond the legal, ethical and moral aspects of life to include and ground upon virtues
such as honesty, integrity, wisdom, commitment and moral audacity, and especially the cardinal virtues
of prudence, temperance, justice and fortitude. Spirituality has several dimensions. It is all
embracing. It is best not defined and hence limited or compartmentalized but holistically experienced.
It is best not conceived, hypothesized, constructed, theorized and speculated. It needs to be lived,
witnessed, and then written about. It is surrender to God who alone can rescue us from our greed,
selfishness, and avarice and jealousy. It is experiencing God and thereby fighting our addictions of
mind, body and matter. It is believing in God, accepting Gods reign in our life, accepting his presence,
providence and intervention into humanity and human history. It is a journey to God with God and
humankind, a voyage into destiny, into eternity. It is community, community-building, mutual trust,
mutual respect, mutual hope, mutual love. It is freedom; it is liberty; it is life; it is pursuit of happiness.
It is bliss. It is an inalienable God-given right and duty. It is a universal call to detachment or
renunciation. It is finding God in all things good and bad; it is experiencing God in all things good and
bad; it is seeking truth amidst darkness, risk, uncertainty, ambiguity and chaos of todays markets. It
is reverential fear of God not enslaving timidity. It is obedience to God not slavery. It is humility not
arrogance.
Virtue ethics deals with what is good life and what is happiness for the community. Without a theory of
good life and the good society, there is no check on legal maneuvering, political expediency, market
opportunism, and business turnaround malpractice. In a secular society, if moral rules and injunctions
are to derive their binding force, they must do so from a theory of moral law or from the assent of
virtuous individuals who choose the rules and the society they live in as part of their self-definition
(Anscombe 1981: 30). According to MacIntyre (1981), the authority of moral law is best when it is
theological (i.e., based on divine law and revelation). But in a secular society such as ours, we must rely
on the virtues of people it is only from the debate and shared life of virtuous people that we may
obtain a consensus on what is common good and what is good life. A business turnaround or
transformation situation constitutes a moral community in which the debate about common good for
society should take place within the context of executive virtues.
24
character, clear conscience and one's categorical imperatives. In general, morality is predicated on
deontological and distributive justice principles.
An act is spiritual if additionally being legal, ethical and moral, it is also grounded on certain cardinal
virtues like honesty and integrity, wisdom and prudence, moral courage and fortitude, and on certain
transcendental principles of faith, hope love, detachment, renunciation, compassion and altruism.
What is legal may not be ethical or moral or spiritual (e.g., some states have legalized abortion and legalized
civil unions between couples of the same sex).
What is ethical is not necessarily moral or spiritual (e.g., some employment rules or corporate codes of
conduct may discriminate against the elderly, women, the poor or ignore the marginalized).
Table 1.4 summarizes the above discussion and elaborates on the domain, definition, the predominant
ethical theory, and the dilemma, mandate and aspiration of legality, ethicality, morality and spirituality.
All these four concepts can also be distinguished in relation to their source of empowerment, predominant
virtue challenge, grounding responsibility, assessment criteria, and their formula of executive success.
Corporate executives need to excel in all four domains of law, ethics, morals and spirituality.
25
cash flow crisis, financial distress, financial turbulence, worker apathy, insolvency and imminent
bankruptcy (Mascarenhas 2011).
Every part and discipline of business (e.g., accounting, finance, marketing, OB, HR, production, and
business law) implies ethics. Every stakeholder of business (e.g., customers, producers, employees and
employers, suppliers and creditors, distributors and promoters, domestic and international governments,
local and global communities) involves moral rights and duties, moral and ethical responsibilities and
obligations that, in turn, invoke ethical values and moral principles. A comprehensive and integrated
course in corporate or business ethics should include every part of business, as also every stakeholder of
business. This book relates to corporate ethics that deals with major moral corporate executive leaders,
their specific skills, personality, and critical thinking inputs, their moral reasoning processes, their
decisions and choices, their mental models and business models, their strategies and actions, and above
all, executive moral obligations regarding the consequences of their decisions.
Concluding Remarks
In general, the ethical-moral reasoning advocated in this book involves a five-dimensional ethical
appraisal: 1) a teleological analysis of positive/negative effects of executive decisions; 2) a deontological
analysis of the moral principles, rights and duties underlying these decisions; 3) a distributive social
justice based analysis of the spread of costs and benefits and rights and duties of corporate executive
decisions, 4) a distributive corrective justice based on setting up processes and procedures whereby
current and past wrong distributions of costs and benefits and rights and duties of all stakeholders may be
rectified, and 5) a virtue-ethics analysis of the physical, functional and moral well-being effects of
corporate decisions and strategies.
Ethics has meant different things to different generations. While to the Greek philosophers Socrates,
Plato and Aristotle ethics was a science of human values derived from certain philosophical concepts and
theories and as lived by exemplary peoples and societies, over the centuries and millennia, ethics to
modern generations has come to mean something more practical, livable, applicable and demonstrable in
human conduct. Ethics is currently reckoned as a responsible action program for the betterment of
humankind represented by individuals, groups, organizations and societies. Ethics empowers us to chart
and live a new value-laden direction and meaning in life.
Business ethics, however, should go beyond certain pragmatic values that most business executives,
business management students and business institutions work for. Most top B-School students consider a
course in Business or Managerial Ethics as not value-adding as it may not support their desired set of
pragmatic values. Most of these values (e.g., graduating with honors, securing a job in a multinational
company, and striving up the executive success ladder) are instrumental and temporary, and are means
and not ends. B-school students focused only on these values are ill-prepared to meet the tough
challenges of todays uncertain, ambiguous and chaotic markets and economies, and hence, often
fraudulent and corrupt world.
But ethics is a science of principled moral values and principled moral behavior. The value and
behavior should stem from certain well established moral principles, moral standards and rules, or from
the moral judgments of people whom we call wise and honest. That is, values are values when certain
universal moral principles ground and support them. Values derive value from these moral principles, and
not vice versa. The power of moral principles is that they are universal, timeless truths. When we apply
them and live by them, we generate values and best practices. Such principles deal with meaning and
truth, honesty and integrity, wisdom and justice.
26
27
INPUTS:
PROCESS:
Personal and
Corporate Inputs
Business Management
& Corporate
Governance
Processes:
Executive Reasoning,
Decisions & Strategies
OUTPUTS:
Business or
Market
Consequences
Teleological
Deontological Principles:
Ethics of Rights and Duties
Principles:
Ethics of Costs and
Benefits
Ethics of Responsibility;
Ethics of Human Personhood; Ethics of Virtue; Ethics of Trust;
Ethics of Moral Worth; Ethics of Moral Reasoning
28
Ethics
Business or
Managerial
Ethics
Corporate
or Executive
Ethics
Inputs
Processes
Outputs
Ethical concepts,
ethical theories,
ethical axioms,
ethical rules and
principles, ethical
codes of conduct
and ordinances,
ethical values and
real business cases
involving ethics
and morals.
Ethical business
concepts and
theories, business
axioms, rules and
principles, ethical
codes of conduct
and ordinances,
ethical values and
real cases as
applied to business
ethical and moral
exchanges.
Ethical business
reasoning and
understanding, ethical
deliberation and choices,
ethical argumentation
and explanation, ethical
rationalization and
justification, and
consequent ethical
decision-making ethical
monitor and control, as
and when applied to
business exchanges and
markets.
Ethical concepts,
theories, axioms,
rules and
principles, ethical
codes of conduct
and ordinances,
ethical values and
real cases as
applied to
corporate-wide
29
domains of
executive decisions
and boardroom
behaviors and
conduct.
when applied to
corporate executive
behaviors in
boardrooms and about.
30
Validation Criteria
Practical, Factual,
Comparative
Judgments
Practical Factual
Ranking
Judgments or
Opinions
Usury is wrong.
A man should marry his brothers widow if the brother
dies childless.
It is wrong to take more than one wife.
Wives should be submissive to their husbands.
Moral Judgments
or Principles
Absolute to
Human Nature
Moral Categorical
Imperatives
Scientific
Judgments
Legal Judgments
Moral Judgments
relative to ones
Culture
Ethical Judgments
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Religious Philosophy
Golden Rule
Version
Comments
Zoroastrianis
m
(650 BC?)
Whatever is disagreeable
to yourself, do not unto
others (Shast-nashayast13:29)
Buddhism
(630 BC)
Judaism
(2000 BC?)
Jainism
(600 BC)
Confucianism
(520 BC)
Christianity
(30 AD)
Islamism
(600 AD)
Bahai
(1844 AD)
No one of you is a
believer until he loves his
neighbor what he loves
for himself
Choose for your neighbor
that which you choose for
yourself (Epistle to the
Son of the Wolf: 30)
32
Legality
Ethicality
Morality
Law, Legislature,
Jurisprudence,
Enforcement all
local and national
values
Ethics; Codes of
conduct; Mores,
customs; pacts and
agreements
organizational and
executive values
Law compliance
Compliance with
professional codes
of conduct, mores
and conventions
Teleology of costs
and benefits
Distributive justice
Deontology of rights
and duties
Legal dilemma:
Conflicting laws
Ethical dilemma:
conflicting ethical
codes and pacts
Moral dilemma:
Conflicting moral
principles and duties
Mandate
Do what is legal.
Do what is right.
Do what is good.
Aspiration
Legal compliance
Ethical excellence
Source of
empowerment
Laws, ordinances,
Acts, Bills,
Legal rights
Sociality
Mores, conventions,
Codes of conduct;
Ethical rights
Immanence
Individuality
Honesty,
Transparency
Accountability
Prudence,
Frugality
Fortitude
Legal responsibility
Do not harm.
Law of malfeasance
Compensatory
justice
Social
responsibility;
Prevent harm
Preemptive justice
Procedural justice
Moral responsibility
Protect from harm
Protective justice
Spiritual responsibility
Do good unto others;
Beneficent justice
Virtuous justice
Building trust
Are laws:
Fair or unfair?
Just or unjust?
Are intentions:
Right or wrong?
Good or evil?
Underlying character:
Virtue or vice?
Wise or unwise?
Courageous or cowardly?
Interactive
acceptance of
adherence to
universally binding
moral principles,
especially, the golden
rule
Prophetic and
charismatic living and
witness of great virtues
and moral values that
flow from an abiding
moral and spiritual
character.
Domain
Definition
Predominant
Ethics Theory
Dilemma
Predominant
virtue
challenge
Responsibility
Assessment
criteria
Success
equation or
formula
Reactive legal
compliance and
greening of America
33
Morals
Moral principles
Moral rules
Moral imperatives
Universal and
reversible
imperatives
Internalization of
moral rules,
standards and
principles
Spirituality
Virtues
Integrity, honesty, trust
Wisdom, prudence
Moral courage timeless
and eternal values,
attitudes and beliefs.
Experiencing and
witnessing high levels of
virtues such as integrity,
honesty, wisdom,
prudence and moral
courage
Virtue ethics, especially
based on trust and
wisdom
Spiritual dilemma:
conflicting demands of
virtues, drives and habits
Do what is right rightly
with virtue, trust and
good intentions.
Spiritual quest and trust
Cardinal virtues of
prudence, wisdom,
courage and fortitude;
Personality/character;
Spiritual rights
Spiritual transcendence
Integral spirituality
Compassion & trust
Unconditional love
As also, certain questionable corporate strategies thrive in ambiguity and greyness. Investigate the source, domain,
severity and treatment of greyness in the following corporate action areas:
a)
b)
c)
d)
e)
f)
g)
h)
1.3
How could you apply the following fundamental principles of Systems Thinking to detect and avert the long-term
deleterious effects of bad debts created by over-leveraging the corporation with debt, and why?
a)
Systems-thinking is more than a powerful problem-solving tool; it is a powerful language, augmenting and
changing the ordinary ways we think and talk about complex issues and problems. It is a dynamic language for
describing how to achieve fruitful change in organizations.
b) You cannot practice systems-thinking as an individual you need many perspectives from different crossfunctional disciplines (e.g., sociology, Institutional or Organizational Psychology, Mathematics, Statistics and
Economics) to bear upon complex problems and issues.
c) Systems thinking by its very nature points out to and thrives on interdependencies and the need for
collaboration it is a collective and collaborative team discipline.
d) Without learning about the industry, the business, its specific vision and mission, as well as their own tasks,
employees cannot make the contributions of which they are capable. This requires dramatic learning efforts,
both for the employees who must learn to act in the interest of the whole enterprise, and for the senior managers
who must learn how to extend mastery and self-determination throughout the organization (Senge et al. 1994:
11). Systems thinking can enable this process.
e) We fragment the complex world in order to understand it. This makes complex tasks and subjects more
manageable. If we just admire the broken pieces, however, our vision remains fragmented, each of us mistaking
the piece for the whole (as did the blind men trying to define the elephant). If we reassemble and reorganize the
pieces, however, we see connections, interactions and interrelationships between parts and components we have
never seen before nor registered, and eventually see a larger whole, and understand reality around us better.
This is systems thinking.
f) Systems thinking helps us to destroy our illusion that the world is created of separate and unrelated forces.
When we do this, our homes, our schools, our universities, our organizations, our institutions and we ourselves
truly become learning organizations.
34
1.4
In understanding the distinctive features and benefits of systems thinking, how will you internalize, organize and
implement the following in your corporation?
a)
Systems-thinking is a discipline for seeing wholes. It is a framework for seeing interrelationships rather
than linear cause-effect chains and things, for seeing processes and patterns of change rather than static
snapshots.
Systems-thinking is a sensibility for the subtle interconnectedness that gives living systems their unique
character.
It is a discipline for seeing the structures that underlie complex situations, and for discerning high from
low leverage change.
It is a shift of mind from seeing parts to seeing wholes, from reacting to the present to creating the future,
from seeing ourselves as helpless reactors to changing reality to seeing ourselves as active participants in
shaping that reality.
More specifically, systems-thinking is a way of thinking about, and a language for describing and
understanding, the forces and interrelationships that shape the behavior of systems. The discipline helps us to
see how to change systems more effectively, and to act more in tune with the larger processes of the natural
and economic world.
Systems-thinking is a fundamental shift from linear thinking to circular thinking, from seeing things as
static structures or objects to viewing them as processes. A tree is not an object, but an expression of process,
such as photosynthesis, which connect the sun and the earth. A human being is not just a subject, but also a
dynamic process of inhaling and exhaling, metabolism and anabolism, growth and renewal.
The art of systems thinking lies in seeing through complexity to the underlying structures generating
change. Systems-thinking does not ignore complexity; on the contrary, it organizes complexity into a
coherent story that empowers us to detect and distinguish between causes and effects of problems, their
separation in space and time, and how we can remedy them in enduring ways.
The greatest benefit of systems thinking is to distinguish between high-leverage from low-leverage changes
in highly complex situations.
b)
c)
d)
e)
f)
g)
h)
1.5
Using the methodology of probing the ethical and moral content of corporate actions and strategies described
under The Domain of Corporate Ethics, and applying the six ethics theory criteria do the following in relation
to case 1.1:
a)
b)
c)
d)
e)
f)
1.6
As an executive ready to take on corporate challenges, how would you assess your personal ethical inputs under
the following three heads?
a)
Cognitive or intellectual development that includes one's innate and learnt, conceptual, intellectual and
reasoning skills.
b) Moral development that includes one's ethical-moral reasoning skills, moral attitudes and beliefs, moral rules
and principles, often corresponding to the stages of moral development described by Kohlberg (1969). Note
that advanced moral development presupposes advanced cognitive development and logical reasoning skills.
c) Personality or volitional development that may include character-skills such as will-power," ego strength"
and "field dependence" (Trevino 1986), the former two reflecting the strength of one's moral and intellectual
convictions, and the latter, one's dependency on significant others in ethical decision-making. Personality
development also includes moral development that results in good moral decisions and executions that
35
presuppose good character. Ethical beliefs are closely linked with personal values of top-level executives.
1.7
As an executive ready to undertake corporate challenges of the company entrusted to you, how would you assess
your corporate ethical inputs under the following three heads?
a)
Corporate cognitive development that reflects the level of corporate skills in manpower, materials,
money, finance, accounting, marketing, law, and technology management the corporation controls for
sustaining competitive advantage in the domestic and global industry. Most of these corporate skills and
competencies have ethical content and implications.
b)
Corporate moral development which is reflected in the ethical and moral skills the corporation has
developed for internalizing and fulfilling government and industry laws, trade norms, market customs,
corporate ideologies and policies, corporate goals and objectives, corporate and industrial codes of ethical
conduct, environmental regulations, and corporate social responsibility. Company morale and corporate
conscience are expressions of corporate moral development.
c)
Corporate personality or volitional development that reflects the combined result of corporate
cognitive and moral developments: This is often expressed in attributes such as corporate culture and climate,
organizational design, structure of hierarchies, lines of authority and "locus of control, "role-setconfigurations" and "differential association," and corporate challenges or "opportunity matrix."
1.8
As an executive having undertaken executive challenges of the company entrusted to you, how would you assess
your corporate ethical outputs under the following three heads?
a)
Basic "corporate ethical outputs" are realized values in terms of satisfied or dissatisfied "stakeholders" who
include stockholders, suppliers, creditors, employees, unions, customers, governments, and domestic and
international sectors.
b) Realized short-term or intermediary values such as satisfied customers, appeased governments, fulfilled
employees, satisfied shareholders, reconciled creditors, suppliers, and distributors.
c) Targeted long-term and quasi "terminal" ethical values such as company growth and prosperity, increasing
market share and profitability, company reputation and integrity
1.9
Stakeholder dissatisfaction could arise from many social costs or externalities. As a corporate executive having
undertaken corporate challenges of the company entrusted to you, how would you assess your corporate
ethical costs under the following heads?
a)
Proximate costs such as unsafe working conditions, racial or sexual harassment, unjust wages, unjust plant
closing and massive layoffs, harmful products, exorbitant prices, customer rights denied, and air-water-earth
pollution.
b) Remote externalities include planned obsolescence of plants and consequent ruthless plant closings,
accelerated obsolescence of products, lifestyles and employee skills, with the attendant phenomena of forced
unemployment, underemployment, inflation, stagflation, recession and depression.
36
Endnotes:
37
iii (See Foucault, M. (1984), The History of Sexuality, Volume 2: The Use of Pleasure, Penguin: London, p. 26). Paul-Michel
Foucault (1926-84) a French philosopher and historian, was one of the most influential and controversial scholars of the post-World War
II period. The son and grandson of a physician, Michel Foucault was born to a bourgeois family. He resisted what he regarded as the
provincialism of his upbringing and his native country, and his career was marked by frequent sojourns abroad. A distinguished but
sometimes erratic student, Foucault gained entry at the age of 20 to the cole Normale Suprieure (ENS) in Paris in 1946. After
graduating in 1952, Foucault taught at the University of Lille, spent five years (195560) as a cultural attach in Uppsala, Sweden;
Warsaw, Poland; and Hamburg, West Germany (now Germany). Foucault defended his doctoral dissertation at the ENS in 1961, translated
as Madness and Unreason: A History of Madness in the Classical Age), it won critical praise but a limited audience. He became famous
in 1966 for Les Mots et les Choses (Words and Things; Eng. trans. The Order of Things) as one of the most original and controversial
thinkers of his day. Between 1971 and 1984 Foucault wrote several works, including Surveiller et Punir: Naissance de la
Prison (1975; Discipline and Punish: The Birth of the Prison), a monograph on the emergence of the modern prison; three volumes of a
history of Western sexuality; and numerous essays. Foucault continued to travel widely, and as his reputation grew he spent extended
periods in Brazil, Japan, Italy, Canada, and the United States. He became particularly attached to Berkeley, California, and the San
Francisco Bay area and was a visiting lecturer at the University of California at Berkeley for several years. Foucault died of a septicemia
typical of AIDS in 1984, the fourth volume of his history of sexuality still incomplete.