1.3 BECG - Business Ethics and Corporate Governence chapters PDF

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Business Ethics: A Comprehensive Perspective L E ARNI NG OB J E CTI VE S

The chapter focuses on imparting the knowledge about the ethics and values in business. After reading this chapter:  The students will have knowledge about the basics of ethics and their significance in the business.  The readers will have a fair understanding of evolution and development of trade in India.  The readers will also understand the various factors affecting business ethics.  The chapter further develops the competence of the students in understanding the scope, advantage and limitations of business ethics.

INTRODUCTION In the current globally competitive business environment, ethical conduct is the key to success for every business organisation. Ethic defines a thin line between wrong and right; it basically guides an individual or an organisation according to the morally correct and socially acceptable norms. The success or failure of any business enterprise largely hinges upon the choice of the corporate decisions made. The management decisions are largely based on the corporate policies; therefore, framing morally correct policies and enduring the ethical conduct in every business activity are the need of the hour. No business organisation can run in isolation; customers, employees and investors are the three basic founding pillars for an organisation. With the ethical conduct in its policies, an organisation can provide good quality products at reasonable price. This will help the organisation to overcome competition in the long run. Similarly by ensuring ethical

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working environment, the organisation can facilitate employee welfare, by providing fair wages and better working conditions, which will increase the productivity and rate of employee retention resulting into reduction in the overall cost of labour. By adopting ethical business practices, the organisation can gain the faith of investors which will again benefit the company in terms of lowering the cost of capital in the form of cheaper source of finance. A company in the long run enjoys goodwill in the market, which is created over a period of time on the basis of quality goods and services offered by company and its ethical behaviour with all its stakeholders. The word ethics is derived from a Greek word “ethikos”, which means science of morals. Ethics involve judgments as to good and bad, right and wrong and what ought to be (Hartman, 2002). Ethics are teen’s tendency toward deception (Bristol and Mangleburg, 2005). According to the famous philosopher Epicurus, “Ethics deals with things to be sought and things to be avoided with ways of life and with telos”. Telos here refers to the aim or end of the life. Almost every religion of the world, be it Hinduism, Sikhism, Christianity, Islam, Buddhism, or Jainism, believes in ethics and preaches about ethical behaviour. Ethics are applicable in all spheres of the life, be it personal life, social life or professional life. As far as business world is concerned, in the past few decades, the significance of the ethics has grown tremendously. Good ethical behaviour and moral values are very essential for a business firm, as the business is dependent on the society for all its resources and needs society to dispose its products and services off. Therefore, the welfare of the society cannot be ignored, and it is possible to do so only through ethical behaviour with all the stake holders of the organisation.

Defining Ethics – A Comprehensive Approach There are multiple views and opinions about the ethics worldwide. Many philosophers, scholars and academicians have defined ethics according to their perspectives and understanding of the phenomena. Some of the definitions of the ethics are as follows: Ethics can be defined as “A system of accepted beliefs that control behaviour, especially such a system based on morals.” — Cambridge dictionary. “Moral principles that govern a person’s behaviour or the conducting of an activity.” — Oxford dictionary. “Business ethics is the study of business situations, activities and decisions where issues of rights and wrongs are addressed.” — Andrew Crane.

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In a nutshell, it can be said that the business ethics are the broad guidelines, which steer an organisation in the legitimate and socially accepted pathway that leads to the profitability for the organisation and welfare of the society in the long run. In the digital era of information and technology, the investors and customers can easily access any information. The right to information and transparency has increased the level of awareness among them, and now they are fully aware of their rights and market conditions. In such an environment, the organisations have to be very careful in their operations. Business ethics shields an organisation against inexpedient events and kerfuffle. Ethical conduct in business is equally significant as making profit, as it is a double-edged sword that reaps the benefits for both the business and the society.

Values Morals and Behaviour Values are beliefs and thoughts of a community or culture that stimulate them to act in a certain manner. They trigger their inner concise to behave in a certain way. Values have an impact on the way an individual responds or behaves in the given circumstances. Honesty, truthfulness, fairness, etc., are examples of personal values. In many situations, the set of values of an individual defines his actions. An individual derives values from his/her sociocultural environment, but his/her family background also plays a vital role in the formation of set of values for him/her. Like an individual, business organisations also have values. Fairness, innovation, credibility, reliability, etc., are the examples of business values. These values guide the organisations in the ethical directions. Clearly defined organisational values help the mangers to overcome ethical dilemma. The values have a greater impact on the choices made by the management. It helps the managers in ethical decision making. Moral: This word has been derived from a Latin word “Moralis”, which means character. It counts on the righteousness and assuming what is right and what is wrong. Morality is about setting a higher standard for conduct in the light of righteous behaviour, acceptable by society and backed by culture or religion. Morality of a person is reflected in the choices he makes and decisions he takes. According to the moral philosophy, each and every conduct is judged on the parameters of rightfulness or wrong, true or false. Decisions infused with high moral values endeavour ethical conduct. Behaviour: It reflects the temperament of an individual. It flashes the vibes that a person exhibits while interacting with others. It is the way an individual expresses himself and interacts verbally or non-verbally through his actions in a group or society in the prevailing circumstances.

Ethics and Values – Are They Same? “Are ethics and values same?” This is the most conventional debatable topic over the years for many schools of thoughts. Many philosophical scholars are of the opinion that ethics and values differ from each other. They have their own grounds for the difference between ethics and values is explained in Table 1.1. In a broader perspective, the ethics can be distinguished from the values in the following ways:

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Table 1.1 Distinction between ethics and values S. No.

Ethics

Values

1

Ethics are a kind of moral compass directing an individual or organisation on what is right and what is wrong.

Values are the rules or the standards set by a person for a desirable and socially acceptable conduct.

2

Ethics can be based on profession

Values are personal to an individual.

3

Ethics can differ according to the profession.

Values differ from person to person.

4

Nature of profession, type of organisation, etc., have an impact on the ethics.

Values are influenced by individual personality traits, socio-cultural background and family of a person.

5

Ethics are just the guidelines defining the thin line between good and bad, right and wrong.

Values are the basic founding beliefs of an individual.

6

Ethics are basically derived from moral values of the socially acceptable norms.

Values are intrinsic to an individual. Every person has its own set of standards for social conduct.

7

Ethics are omniscient in the nature.

Values are personal and limited to individualism.

GENESIS OF INDIAN TRADE AND BUSINESS The historical development of trade and commerce can be traced from the evolution of human civilisation. In the Indian context, it can be classified into three segments (Figure 1.1): (i) Trade in ancient India (ii) Trade in medieval India (iii) Trade in modern India

Ancient indian trade

Medieval indian trade

Modern indian trade

Figure 1.1 The three classifications of trade in Indian context. Ancient, medieval and modern

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Trade in Ancient India Trade started with the barter system, in which goods were exchanged for the goods. The invention of the wheel was a stepping stone in the growth of trade and commerce, as it facilitated mobilisation of goods and people from one place to another place. With the development of scripts, the trade got more advance by replacing barter with the currencies as a medium of exchange, i.e., from metallic to paper currency. The developments in science, technology, transport and communication redefined the ways of doing the business by widening the geographical horizons of market, as now the trade was not limited up to the exchange of goods between two people or amongst local groups, it has evolved beyond the boundaries of states. Cotton, pepper and spices, ivory, muslin, etc., were some of the prime goods which were exported from the ancient India. Similarly, some of the raw materials were also imported from different places. The following Table 1.2 gives a brief idea about the trade relationship during the Indus valley civilisation. Table 1.2 International trade during Indus vally civilization Raw Materials Imported

Area

Tin

Afghanistan and Iran

Copper

Rajasthan and Baluchistan

Silver

Iran and Afghanistan

Gold

Afghanistan, Persia, South India

Lapis lazuli

Mesopotamia

Lead

Iran, Afghanistan and Rajasthan

From the Indus valley civilisation, stamps, ivory-made scale, utensils and pots, dockyard from Lothal (Gujarat) site and write-ups emerged from the archaeological excavation evidently show the presence of mature and developed national and international trade in ancient India. Post Indus valley civilisation, the Vedic civilisation is the second most studied civilisation. The period of Vedic civilisation is considered from 1500 BC to 600 BC, in which the early Vedic period is known as Bronze Age and the late Vedic period is known as Iron Age (Figure 1.2). Vedic Civilization Vedic civilization [1500 BC – 600 BC]

Early vedic period bronze age

Late vedic period iron age

Figure 1.2 Vedic civilisation

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Agriculture, hunting, weapon making, cattle rearing, carpentry, handicrafts, etc., were the main occupations of the people living in the Vedic civilisation. The dawn of Vedic civilisation paved way for the golden era of the Indian trade. The post Vedic era was the period of growth and prosperity, as the kings became powerful. 16 Mahajanpadas raised and prospered during this time. The history witnessed that many empires, such as the Maurya, Shunga, Andhra Satvahanas, Gupta, Sangam era of Cholas, Cheras and Chalukyas, Gujjars–Pratihars, Chauhans and Rashrakut, prospered in ancient India and had a very strong and developed trade relations. The following Table 1.3 gives a chronological order of the ancient Indian era. Table 1.3 Ancient India Era

Period

Indus valley civilisation

1750–2500 BC

Vedic civilisation

1500–600 BC

Religious revolutions

600–322 BC

Maurya empire

323–184 BC

Shunga empire

185–73 BC

Andhra Satvahanas

60–240 AD

Gupta empire

240–476 AD

Sangam era (Chola, Chera, Chalukyas) in South India and Gujjar–Pratihar and Rashtrakuta empires in North India

500–1200 AD

Trade in Medieval India The period between 1206 AD and 1858 AD comes under the medieval history of India. The era has a long history of many foreign attacks on Indian soil. In 711 AD, first Arab attack on India was initiated by Muhammad Bin Kasim, followed by an attack by Turkey under the flag of Mahmood Ghajnavi in 1001–1026 AD and by Muhammad Gori in 1175 AD. Initially the main motive behind such attacks was dacoity and loot. These brutal attacks caused irreparable damage to the wealth and economy of states, trade and commerce, human lives, cultural heritage, and social system of India. In 1206 AD, Turkey based Muhammad Gori established the roots of Ghulam dynasty in India, and for the first time in its history, foreign attackers chose to rule in India. Thereafter, many other dynasties such as Khiljis, Tughlaks, Saiyyads, Lodhis and Mughals ruled in India for the centuries to come. Below mentioned Table 1.4 gives a brief about various dynasties and their ruling period in the medieval history of India.

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Table 1.4 Medieval dynasties in India Dynasty

Period

Ghulams

1206–1290 AD

Khiljis

1290–1320 AD

Tughlaks

1320–1414 AD

Saiyyads

1414–1451 AD

Lodhis

1451–1526 AD

Mughals

1526–1707 AD

13 different Islamic rulers including incompetent Mughal scion.

1707–1857 AD

The establishment of foreign rule in India had a remarkable impact on the religion, economy, trade, society, lifestyle, culture and occupations of the Indians. Trade and ways to do trade also evolved with the time. Every dynasty had its own set of rules and regulations for the trade and welfare. Some of the rulers of the above mentioned dynasties are known for their vision, wisdom, good policies and practices related to the trade. Such as  Iltutmish of Ghulam dynasty was known for Ikta System of revenue collection.  Allauddin Khilji of Khilji dynasty was popular for his market control mechanism. ∑ Sahna-e-Mandi ∑ Diwan-e-Mustakhraj ∑ Diwan-e-Riyasat  Firoz Shah Tughlak for his welfare policies for the trade and state.  Jalalludin Muhammad Akbar for his policies and foreign trade. Trade and commerce flourished in medieval period, as these rulers from the foreign origin chose to live in India and believed in ploughing back of profit in India, which prevented the drain of wealth from the country.

Trade in Modern India Trade in modern India can be further classified into two phases:  Pre-independence  Post-independence

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Pre-independence Phase

This period is associated with the East India Company and the British rule in India. The invention of electricity and steam engine was instrumental in bringing about a revolutionary change in the trade and commerce. It paved the way for the industrial revolution of England in the late 1700s. The industrial revolution of late 1700s gave birth to factory system and mass production, which flooded the European markets with the machine-made goods. After a point of saturation in the western markets, the European companies started looking for new markets. The competition intensified between France and England, which turned into an ugly sanguinary war. India also got affected in this process, as in 1600 the East India Company, which was a private company with 217 partners, was established in India. This period of post Mughals and pre British rule passed from a rough patch. As the profit maximisation was the only motive of the company, it overlooked the developmental aspects. The company policies resulted into huge dissatisfaction and drainage of wealth from India. Farming, handicraft business, textile, cottage and handloom, dyeing, craftsmenship, pottery, shoemaking and many such other occupations suffered a severe setback due to company’s policies. Unemployment, excessive tax policies and rapidly growing interference of the company into Indian politics badly hit the trade and commerce in India. The Company Raj gave encouragement to Zamindari, Mahalwari and Rayotwari systems in India, which in coming future became the main reasons for exploitation of farmers and drowning of the rural economy. After the revolt of 1857, the British crown took the charge from the East India Company, and India was governed by the Queen’s Charter. The situation of trade commerce and economy remained poor in spite of the change in the power. The British rule was the phase of exploitation, atrocity, and wealth drain from India in which the trade and commerce suffered the most. Post-independence Phase

On 15th August 1947, India got independence. At the time of independence, the Indian economy was struggling with poverty, unemployment, poor transportation, poor agriculture sector dependent completely on monsoon, poor literacy rate, weak industrial sector, low capital formation, and poor infrastructure. It took years to achieve self-sufficiency in terms of agriculture products. Trade and commerce evolved gradually. After the Liberalisation, Privatisation and Globalisation (LPG) policy, the doors of prosperity opened for India. With the ambitious policies and innovative initiatives of the Government of India, presently the Indian economy is among one of the fastest growing economies of the world. According to a report published by the World Trade Organisation (WTO), India’s share in the total world export was 1.69% and 2.34% in total world imports in 2015. This shows the tremendous growth in the Indian trade over past decades. India is rising slowly and steadily so as the Indian trade, and the entire world is looking up with the possible business opportunities with India. Various government initiatives and policies such as LPG, Shine India, Digital India, and Make in India have created goodwill for Indian economy, and made India a lucrative destination for foreign investments. With the GDP of 7.3% and 1.2 billion population, Indian economy is one of the fastest growing economies of the world. Irrespective of the global financial crisis and economic slowdown, Indian

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economy is showing signs of stability and growth potential. With the second largest population of the world an...