Generation of maximum returns for its stakeholders is the ultimate purpose of any business establishment but over the last decade, there has been an ongoing dialogue about the role of business as responsible stewards. Though profit motive for any organization is well understood and accepted, people do not accept it as an excuse for ignoring the basic norms, values, and standards of being a good and responsible citizen. Standards, Norms Procedures and expectations to define values of responsible business conduct are emerging worldwide.
In the past few years, ethical problems in business have been reported several times by leading newspaper and magazines. The term 'ethics' is mainly used to refer to the rules or principles that define the right and wrong conduct. According to Clarence D. Walton and La Rue Tone Hosmer, "business ethics is concerned with truth and justice and has a variety of aspects such as the expectations of society, fair competition, advertising, public relations, social responsibilities, consumer autonomy, and corporate behavior in the home country as well as abroad." Practically speaking it can also be considered to be a value system which is "concerned primarily with the relationship of business goals & techniques to specifically human ends", It also means viewing the needs & aspirations of individuals as a part of society.
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In the present day scenario it is one of the major task for the management to inculcate values & impart a sense of business ethics to the employees and organization, Managers, especially top-level managers, are responsible for creating an environment that fosters ethical decision-making in organization. Theodore Purcell and James Weber suggested three ways for applying and integrating ethical concepts:
1. Establishing of a policy regarding ethical behavior or developing a code of ethics in organization
2. An ethics committee in organization to resolve ethical issues
3. Teaching business ethics and values in management development programs.
These concepts should be applied taking into consideration the Social, Cultural, Political and Economic factors that affects the state of personal value and business ethic within different industries.
Types of Managerial Ethics
Archie B. Carroll, an eminent researcher, identified three types of management ethics, depending on the extent to which the decisions were ethical or moral:
Types of Managerial Ethics
1) Moral management
Moral management strives to follow ethical principles and doctrines. Moral managers work to succeed without violating any ethical standards. They seek to succeed remaining within the bounds of laws. Such managers undertake such activities which ensure that though they may engage in legal and ethical behavior, they also continue to make a profit. The law should be followed not only in letter but also in spirit. Moral managers always seek to determine whether their actions, behavior or decisions are fair to themselves as well as to all other stakeholders involved. In the long run, this approach is likely to be in the best interests of the organizations.
2) Amoral management
This approach is neither immoral nor moral. Amoral management simply ignores ethical considerations. It is broadly categorized into two types - intentional and unintentional. Intentional amoral managers do not take ethical issues into consideration while making decisions or while taking any action, because in their perception, general ethical standards should only be applicable to the non-business areas of life. Unintentional amoral managers, however, do not even consider the moral implications of their decisions or actions. Amoral managers pursue profitability as the only goal and pay very little attention to the impact on any of their social stakeholders. They do not like to interfere in their employees' activities, unless their behavior can lead to government interference. The guiding principle of amoral management is - "Within the law of the land, will this action, decision, or behavior help us make money?"
3) Immoral management
Immoral management not only ignores ethical concerns but it also actively opposes the ethical behavior. Organizations with immoral management are characterized by:
Total concern for profits of the organization only.
Strong inclination to minimize the expenditure.
Laws are regarded as hurdles that should be removed or eliminated.
Always on Time
Marked to Standard
Stress on profits and organization success at any cost.
The basic principle governing immoral management is: "Can we make money with this
Action, decision, or behavior? " Thus, ethical considerations are immaterial.
Factors that Influence Ethical Behavior
The manager's stage of moral development and the relationship of various moderating variables determine whether the manager will act in an ethical or unethical manner in any given situation. Moderating variable includes individual characteristics, structural design, the organization's culture, and the intensity of the ethical issue. Individuals are less likely to indulge in unethical behavior if they are bound by rules, policies, job descriptions and cultural norms. But, if the organization structure and culture allows unethical practices, even highly moral individuals may sometimes act in a corrupt way. The various factors that influence the ethical behavior of managers are
Factors affecting Ethical and Unethical Behavior
Stages of moral development
Managers taking ethical decisions may belong to any of the three levels of moral development. Each level is further subdivided into stages. The extent to which the manager's moral judgment will depends on any outside influences decreases with each stage. At the pre-conventional level, manager decides whether an act is right or wrong depending on personal results like rewards, punishment or favors. At the second level, conventional level, managers perceive moral values as important for achieving the benchmarks and meeting the expectations of others. Finally, at the last level, the principled level, managers frame ethical principles without regard to any social pressures.
Implications of six stages: The following conclusions are drawn from the study of the six stages of moral development:
Individuals move up the stages in a sequential manner.
The moral development of an individual could stop at any stage.
Most managers are at Stage four of moral development.
Stages of Moral Development
Source: Stephen P.Robbins and Mary Coulter, Management (Delhi: Pearson Education Inc., First Indian Reprint, 2002) 126.
Managers at stage 3 tend to make decisions that will be approved by other peers, while managers at stage 4 try to be a good corporate citizen who abide by all the organization's rules and procedures. Managers at later stages 5 and 6 are most likely to question the organizational practices which they believe to be wrong.
No two individuals behave in the same manner. All have different values and personality variables. Values refers to the basic convictions of an individual regarding right and wrong. Each one of us follows certain values which we learnt in our early years of development from our parents and friends (and others who influenced us). Thus, the personal values of the different managers in an organization are often quite different.
Personality variables also play to influence a person's ethical behavior. Two such personality variables are ego strength and locus of control. Ego refers to the strength of a person's convictions. A person who has higher ego strength tend to do what they think is right.
Locus of control indicates the degree to which a people believe that they are actually the masters of their fate. Based on a person's locus of control, the person can be categorized either as an internal or an external. Externals believe that whatever happens to them in life is affected by luck or chance. Internals believe they control their own destiny. Managers who has an internal locus of control are more likely to take responsibility than managers with an external locus of control for the consequences of their behavior.
Organization structures that fail to provide clear guidance to managers encourage unethical behavior. Such behavior can be checked by adopting formal guidelines like written job descriptions and codes of ethics. When people are evaluated only on the basis of their output, they are compelled to do things that are necessary to achieve good results.
The structural designs of organizations differ in the amount of time, cost and pressures faced by its employees. The greater the pressures on the managers, the more are the chances that they will compromise their ethical standards. This has an adverse impact on the other employees of the organization.
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Organization's culture strength also has a great impact on ethical standards of its employees. An organization culture that is characterized by high risk tolerance and conflict tolerance is more likely to foster very high ethical standards. Such a work culture encourages managers to be more aggressive and innovative and to openly challenge the expectations which they consider to be personally undesirable or unrealistic.
The most important factor that affects a manager's ethical behavior is the intensity of the ethical issue. A manager considers a certain issue ethical or unethical, depending upon different factors. These factors are greatness of harm, immediacy of consequences, proximity to victims, consensus of wrong, probability of harm and concentration of effect. The intensity of the ethical issue is greater when:
The number of people harmed is large.
Everyone agrees that the action is wrong.
The action has a serious impact on the victims.
There are greater chances of the act causing harm.
The person feels close to the victims.
CORPORATE SOCIAL RESPONSIBILITY
Corporate Social Responsibility (CSR) is a hot issue among IT and other companies and CEOs like talking about what their company gives back to society. CSR encompasses an organization's commitment to behave in an environmentally sustainable manner while honoring the interests of its stakeholders. Realizing the importance of CSR, Indian IT firms have earmarked a portion of their profit for social cause. Companies including Tata Consultancy Services (TCS), Infosys and Cognizant Technology Solutions have earmarked sizeable sums for CSR.
"A leadership role in the technology services sector comes with a certain responsibility, and the most successful organizations are the ones that give back to the community," says R. Chandra Sekaran, Senior Vice-President of CTS. Firms have realized that socially-responsible business practices are beneficial not only for their employees but also the society at large. Social responsibility reshapes the way business is done, both for profit and when not-for-profit.
CSR is a concept that frequently overlaps with similar approaches such as corporate sustainability, corporate responsibility, corporate sustainable development and corporate citizenship. Many see CSR as the private sector's way of integrating the social, economic and environmental activities.Â In addition to integration into corporate structures and processes, CSR also frequently involves creating innovative and proactive solutions to societal and environmental challenges, as well as collaborating with both external and internal stakeholders to improve CSR performance.
From a progressive business perspective, CSR usually involves focusing on new opportunities as a way to respond to interrelated societal, economic and environmental demands in the marketplace.Â CSR isÂ generallyÂ seen as the business contribution to sustainable development which has been defined as "development that meets the needs of the present without compromising the ability of future generations to meet their own needs", and is generally understood focusing on how to achieve the integration of environmental, economic and social imperatives. CSR commitments and activities typically address aspects of a firm's behavior (including its policies and practices) with respect to such key elements as; environmental protection, health and safety, human rights, community development, corporate governance and consumer protection business ethics, supplier relations, labor protection, and stakeholder rights.
Corporations are motivated to involve stakeholders in their decision-making and to address societal challenges because stakeholders are increasingly aware of the impact and importance of their corporate decisions upon society and the environment. Corporations can be motivated to change their corporate behavior in response to the business case that a CSR approach would potentially promises. This includes:
1) Stronger financial performance and profitability (e.g. through eco-efficiency)
2) Improved accountability to and assessments from the investment community
3) Enhanced employee commitment
4) Improved reputation and branding.
Nature of Social Responsibility Challenges and Opportunities
There is increasing focus on both the private and public sectors to be proactive in the area of Social Responsibility. The challenges faced are increasingly recognized in public policy debates as well as in the marketplace by different companies and industry associations.Â Stakeholders are beginning to challenge corporations to start social responsibility roles. Challenges generally focus on more than one elements of CSR such as corporate governance, environmental protection, human resource management practices, community development, human rights and consumer protection. The challenges often call for voluntary actions to demonstrate the responsible behavior and effective responses to environmental and social. The demand also calls upon the public sector to reinforce leadership and to use policy tools to encourage CSR. The challenges can differ from one stakeholder group to another. For example, the demands can range from a call for more disclosure of information or to demands for improved stakeholder involvement to requests for changes in management practices to proposals for altering the relationships between different stakeholders. Some of the challenges are oriented to the ways that businesses manage their internal operations such as human resources management while others are directed at the ways that a business interacts with the community and society
Peter F. Drucker, in a recent interview says, "If you find an executive who wants to take on social responsibilities, fire him. Fast.".Those who believe in favor of social responsibility may be shocked. But, bravery is needed to scrutinize the very heart of business practice, without which we may get misled when addressing the role of business and corporations. Social programs and economic regulations were created by governments to protect the citizens from being neglected by the market and from exploitation by organizations.
Organizations are free to engage in questionable behavior without even the fear of censure. Research conducted recently by international human rights organizations such as a study by Amnesty International and by Human Rights Watch found international businesses were involved in several human rights violations in the countries they operated. These violations included forced displacement of people, torture, forced or bonded labor, violations against the right to form unions and practices that infringed on the rights of women, children. The reports have highlighted the importance of social responsibility in business.
Principally, the Social Responsibility recognizes company's responsibility not only to their shareholders but also to all of their stakeholders -- all the parties affected by a business including workers, government, suppliers, the local community and consumers. In recent developments, the environment has also been put into the equation.
The new understanding of Social Responsibility is known as the triple bottom line -- Profit, People and Planet. That is business goals are always for profit, and that business and organizations are supposed to take part in the efforts to fulfill people's welfare and this requires active participation in securing the planet's sustainability. Organizations now highlight social and environmental initiatives on their websites and annual reports.
The oil company Exxon Mobil, for example, is much bigger than the combined revenue of the poor 180 countries, money does not reflect power, but it is certainly a parallel to power. About 85 percent of the world's flour stock is controlled by only six TNCs. Five TNCs now control 90 percent of the music industry and seven companies own 95 percent of the world's film industry.
This is why "Corporate Social Responsibility" needs a serious rethink. "Corporate Accountability" would be a more correct term, for accountability deals with the control of the exercise of power while responsibility merely counts on individual entities' voluntary action.
Arguments for Social Responsibilities of Business
Change in public expectations
The needs of today's consumers have changed which has resulted in a change in their expectations of businesses. Since businesses owe their profits to society, they should therefore respond to the needs of society.
Business is a part of society
Business and society are benefited when there is a symbiotic relationship between the two. Society gains from economic development and from the employment opportunities and business benefits through the workforce and the consumers provided by society.
Avoiding intervention by government
By being socially responsible, corporations attract less attention from regulatory agencies which results in greater freedom and flexibility in their operations.
Impact of internal activities of the organization on external environment
Most firms are open systems, i.e., they interact with the external environment. The internal activities of such firms have a deep impact on the external environment. To avoid such a negative impact on the external environment,the firms should be socially responsible.
Protecting shareholder interests
By being socially involved, an organization can improve its image and also protect its shareholders' interests.
New avenues to create profits
Social responsibility involves the conservation of natural resources. Conservation can be beneficial for organization. Items that were considered waste earlier (for example, empty soft drink cans) can be recycled and thus profitably used again.
Favorable public image
Through social responsibility, an organization can create a favorable image for itself. By doing so, it can attract customers, investors and other stakeholders.
Prevention is better than cure
It is in the best interests of organizations to prevent social problems. Instead of allowing large-scale unemployment which could lead to social unrest (which will harm business interests), organizations can be sources of employment for eligible youth.
Best use of resources
Organizations should make best use of the skills and talent of its managerial personnel as well as its capital resources to provide good quality products and services. By doing so, the organizations will be able to fulfill their obligations toward society.
Arguments against Social Responsibility of Business
When a organizations incurs excessive costs for the social involvement, it passes the cost on to its customers in the form of higher prices. Society, therefore, has to bear the burden of the social involvement of organizations by paying higher prices for its products and services.
Opposes the principle of profit maximization
The main motive of a organizations is profit maximization. Social involvement may not be economically viable for a organizations.
Weakened international balance of payments
A weakened international balance of payments situation could be created by the social involvement of organizations. Since the cost of social initiatives would be added to the price of the products, the MNCs selling in international markets would be at a disadvantage as compared to domestic organizations which may not be involved in social activities.
Lack of accountability
Until a proper mechanism to establish the accountability of organizations is developed, they should not get involved in social activities.
Increase in the organizations power and influence
Organizations are equipped with a certain amount of power. Their involvement in social activities can lead to an increase in their power and influence. Such influence and power may corrupt them.
Lack of consensus on social involvement
There is no agreement regarding the type of socially responsible actions that a organizations should undertake.
Taking into view the recent happenings at different organizations, it can be said that the focus on Ethics & Social Responsibility is increasing. Nowadays the organizations have to keep in view of the social benefits of all projects undertaken; they have to keep in mind the well being of all the stakeholders and also for safeguarding of the environment.
When an organizations undertakes a new project it has to keep in mind the image it will portray in the market. Any wrongdoings can be potential pitfalls for the organization; they have to be right all the time as any mistake or shortcoming can immediately result in a loss of market share and also its reputation. Thus the organizations have to continuously re evaluate its long term goals and objectives and align them with its corporate strategy. They can also take this opportunity to inculcate proper business ethics & corporate values in their employees.
Along with the social responsibility, comes the opportunity to convert these social initiatives into tangible results namely profits. An organization should look what amount of value the project can give back to the organization. A social cost benefit analysis can give the organization a fair idea about what kind of rewards the initiative can generate for the organization. Thus an organization can decide on the initiatives taking into consideration these various factors.