“In a time of universal deceit, telling the truth is a revolutionary act”
– George Orwell
On September 18th, 2015, United States Environmental protection agency issued a notice of violation of Clean Air Act against Volkswagen for tweaking its diesel engine in order to bypass the emission test. 11 million Cars, worldwide, between the model year 2009 and 2015 were identified to have faulty systems. This proves how contemplating an unethical decision with its apparent short term benefits is eventually a recipe for disaster.
For a business entity, ethics can be categorized as its responsibilities towards, (i) its customers, (ii) its employees, (iii) the government and (iv) the ecological balance of our planet. We need ethics as they are vital for the proper functioning of the economic, political and social network which will eventually lead to the overall development of the human race.
So, how and why does unethical behaviour creep into a system and make highly intellectual business leaders lose track of their ethical responsibilities? The answer lies in the fact that any deviation from ethical practices is mostly the result of the current competitive corporate culture or pressure from the higher managerial food chain, which can emerge when a company is unable to live up to its financial expectations. To overcome these bottlenecks, leaders eventually end up bending the rules and this is when ethics and policies collide.
Let us take an example of child labour. If a firm hires children as its major work force, it can drive down its prices. Now to remain competitive, the rival firm has to relook into its cost structure and come up with an optimized price point. Should the firm also look to hire children in its work force? Is it ethical? Will this help in achieving cost cut? The instinctive answers to these questions may be yes but in the long run, it will not serve the purpose of growth. History is full of references of organisations which have linked good ethical practices with their performance and have eventually outperformed their competitors financially.
Ethisphere Institute, a global leader in defining and advancing the standards of ethical business practices has listed Tata Steel as one of the World’s Most Ethical Company for the year 2017. Points are awarded to an organization based on: ethics and compliance program (35%), culture of ethics (20%), corporate citizenship and responsibility (20%), governance (15%) and leadership, innovation and reputation (10%). Prior to 2017, the Indian Steel giant had bagged this award in years 2012, 2013, 2015 and 2016. Over decades, ethics has been a major driver for Tata Group. One of the core business ethic principles the company follows is to fully support the development and operation of competitive open markets. It may be pointed out that this policy hampers the organizations’ revenue, but In the long run, these policies promote a strong public image based on trust and relationship.
The challenge for those in business is to identify ways to do what is ethically correct while maximizing a shareholder’s wealth. Before taking any decision, the leadership of an organization must introspect what impact will their decision have on the organization and society as a whole in both the short and long run. The importance of ethics has been reinforced into business organisations and business individuals time and again.
As Henry Ford once said, “A business that makes nothing but money is a poor kind of business”. Ethics in business is present; the difficult question is how to make it more prevalent.
Authors: Saurav Dhar & Rishi Raj
PGPM, Class of 2018, Great Lakes, Gurgaon