Businesses have to be resilient to survive. In this tussle, businesses are forced to succumb to unethical practices.
--BY JAGDISH PRASAD AGRAWAL
Ethics is about doing the right thing. It is absolute, contextual and relative. A general perception persists that a business has to be conducted unethically to be successful, i.e. by evading taxes and fooling customers. It is a short cut to making instant money. This mass misperception about business is doing more harm to the society than to businesses themselves.
If businesses contribute to society and to values then their products and services need to be trusted. Any commercial activity creates livelihoods for members of a society whether through self employment or employment. If those working in businesses (thereby providing an essential service to the community) are maligned as unethical, it definitely discourages a new generation from being entrepreneurial, a fact which is manifestly becoming more frequent these days. A fresh MBA graduate seeks placement in the corporate sector whereas an uneducated person with some finances wants to set up some sort of a business/ retail shop / or any other small service provider. Though the entrepreneurial spirit of small businesses is most welcome, it is a matter of great concern that those who are trained to be businessmen are shying away from it.
The nexus between politics and businesses is becoming more and more evident in the surprising outcome of elections the world over. This nexus has jeopardised the spirit of democracy which has become more quantitative than qualitative. It is a common belief that without this nexus the politics of the majority cannot survive and also that those who pay the piper calls the tune. This creates a business environment in which only those with the right connections can survive. Meritocracy is at stake. In these circumstances how is doing the right thing possible when external factors can justify all that one does?
Ethics and governance have become topics of concern throughout the world both in the corporate and academic sectors. But the issue of business ethics gained importance after liberalisation and globalisation which shifted the private sector to the centre of developmental strategies even in socialist and communist countries. With liberalisation and globalisation came a wave of democratisation associated with universal election and the power of money to decide the outcome. The vicious circle that it has created among the electorate, politics and businesses has aroused increased concern about its ethicality all around the world including Nepal. Earlier these issues were talked about in whispers but lately the whole society wants to debate about it openly. The business practices are opening up to social scrutiny and it is welcome that the private sector especially the corporate sector is responding to it positively.
Malpractice, corruption, bribing in the public domain as seen lately in Nepal has also raised suspicion about business ethics as there is a general belief that these can happen only in collusion with the private sector. The recent election including that of parliament and provinces would have cost the exchequer approximately Rs 50 billion and an equal amount would have been spent by the candidates and the parties also. This enormous spending disproportionate to our income definitely impacts the ethical workings of any institution including businesses not only in Nepal but everywhere in the world. Businesses have to be resilient to survive. Hence their response is dictated by circumstances. Internal change is more convenient than trying to resist external factors. In this tussle, businesses are forced to succumb to unethical practices.
Previously business ethics was in the domain of corporate governance only. The ethical issues were limited. But in recent years the scope of ethical practices has broadened and has become universal and diverse. The customers choose products and services based on their perceptions of the ethical / unethical practices a company follows. It is no longer just based on the evading of taxes and / or fooling of customers in terms of poor quality- it also depends on any infringement of the rights of any of the stakeholders. What exactly is business ethics? If we go by dictionaries, ethics refers to a set of values and principles. In the past our forefathers used to stress on the values of honesty, integrity and trust while conducting their businesses. These values still are equally important but enforcement of these values is now based upon contractual documents. Hence it is difficult to pin down the absolute parameters of what is an ethical code for doing business these days. It is contextual and relative depending upon the mutually agreed conditions laid down in the document.
Any conduct to be ethical has to justify the end, the standards of which are set by the society, laws of the land and the constitution of the country. It may happen that an individual’s ethical value system is at variance with that of the organisation he or she belongs to. In such circumstances there is a conflict between the person’s own value system and that of the institution and or the society to which he belongs, which results in frustration. In today’s debilitating circumstances of eroding social and political values a person or a business organisation is in a dilemma on how to respond to these deteriorating scenarios either by becoming compatible and accepting them or by fleeing from them as protesting them is not an option.
A business organisation is like a person who can excel only if there is no conflict between his personal strength and the freedom to perform as per his values. It is an ethical issue. The conflicting situation of working as per one’s strength but against his values, in the long run, may not be worth devoting one’s life to it. Values should be the ultimate test. With respect to ethics the rules are the same for everybody. The test is a simple ‘Mirror Test’. Ethics require that you ask yourself the question-“What kind of person do I want to see in the mirror in the morning?” What is ethical behaviour in one kind of organisation or situation should be ethical for another also. Corporate social responsibility, business ethics and corporate governance are closely intertwined. Business creates wealth but creation of wealth alone is not the goal in today’s welfare society. Distribution of wealth has also become equally important as it only determines social justice. Our forefathers understood this but it is a pity that under the given political circumstances of today’s business environment they are sometimes forced to resort to unhealthy unscrupulous practices which, while creating wealth, prevent its due distribution to other stakeholders.
In the Mahabharata, Ashwathama at one point in time exhorts Duryodhan that “only the trader caste can cheat as that is their profession” which today’s businesses do not believe. Businesses give a yeoman’s type of service to society, take risks and are aware of the necessity of guarding against any unethical practices as they understand their responsibility. They are alert and respect society’s scrutiny of their activities at every step. In today’s environment unethical ways of doing business are becoming enormously costly in terms of not only financial losses but also in terms of rejection of the product and services by the society and the customer. There are many examples in the corporate world when established companies have gone down the drain because their corporate governance was found to be unethical.
Business ethics is important for the survival and growth of businesses as only then will they attract young entrepreneurs. Today’s youth do not want to be encumbered with the shackles of unethical practices and its consequences. They love transparency. In order to encourage transparency and ethical conduct, a multi pronged approach will have to be taken. On the one hand the business schools will have to incorporate business ethics in their curriculum in MBA courses, on the other hand the political system will have to be cleaned of unethical practices. Non discretionary laws, fair codes of conduct, alert judiciary, watchful media and civil society will go a long way to check unethical practices in public services. Since 1987 serious attempts have been made by the renowned business schools all over the world to integrate business ethics into their curriculum. The most important way of stressing business ethics is including the subject in the curriculum of short term business executive training programmes for experienced practicing managers.
Unless the executives at the top of the ladder vow to be ethical in their day to day dealings with their subordinates and do so in their daily business strategies and practices, the culture of ethics will not percolate to the bottom.
At the corporate level, the Board of Directors is becoming aware of the necessity of taking corrective measures to create a business environment which is compatible with a country’s legal frame work under which the managers can work more transparently and the stakeholders get correct information. Many institutions have been created and statutorily assigned to audit and report the corporate world’s performance to their share holders in order to forewarn them of likely disasters. The board is at the centre of upholding the business ethics of their enterprises.
To ensure effectiveness, the quality of the members of the board, their role and disclosure checklists are being made mandatory. However at the end, it is on the shareholders who have to be alert to check and prevent any unethical practices in their enterprises. This applies to the private sector also. The board of directors can adopt a code of ethics which can be evaluated trimonthly. Some members of the board can be retired periodically so that new incumbents can bring in new experiences and ideas in the sphere of ethical conduct. The board and management should always be segregated so that the code of ethics can be effectively implemented. All business decisions include ethical dimensions. Businesses have to recognise that it is in their own interest to sustain the businesses through profits which must be made compatible with a sense of responsibility towards individuals as well as society.
The most vexing ethical issues lie with the unorganised sector which comprises a big chunk of businesses in the developing world such as Nepal. This sector is composed of tiny businesses doing trade in product and services. This sector is important because it provides the maximum employment but their statutory compliance is very poor. Unscrupulous practices are rampant. Their businesses survive because they do not have to incur the cost of complying with the statutory requirements. Conducting business unethically is their comparative advantage and they therefore, knowingly flout the statutory norms. It is a challenge for the government as well as the organised private sector to tame this portion of business which, without sacrificing the entrepreneurial spirit, can be brought into the fold of conducting their businesses more ethically.
In our society ethics and sacrifices at a personal level are highly respected values in the minds of the masses and many unscrupulous people take advantage of it by resorting to unethical claims in their business dealings. The most difficult part of ushering in an environment conducive for conducting business ethically lies in the public and political domains which worldwide are not showing signs of improvement. Most of the big companies of the world are faced with the dilemma of paying bribes or not getting the purchase orders from the government. Siemens between 2003 and 2008 had to make 4283 illegal payments totaling USD 1.4 billion for 332 projects. Transparency International Brazil found that more than half of Brazil’s current federal legislators had been elected with donations from the food industry. These are a few glaring examples of unethical practices in the corporate sector. The corporate world has started realising that continuing to pay such kick backs are not going to sustain them. Hence Siemens and others are undertaking introspection and instituting internal mechanisms of control to prevent such unethical practices.
Industry financed academics, corporate lawyers, lobbyists and associations sometimes quietly advocate, file lawsuits and resort to other means to safeguard, protect and campaign for products and services which are otherwise found to be detrimental to public health and moral.
Equally important is how to clean up the public and political domains which have become so unethical that it not only encourages others to follow suit but also prevents and threatens those who want to clean themselves. This is a bigger challenge and so far it has eluded solutions. Till better solutions are found vigilance on the part of the media and civil society seems to be the only answer. In the developing world like Nepal the entire domain of public service has become more quantitative and populist. Entering this domain has become so competitive that only financial edge / muscle can push you into it. This has ushered in a culture of money mindedness which leads to unethical practices.
All these fall in the domain of business ethics and need to be taken care of. Any regulatory mechanism to oversee them will definitely help but the most effective way to cleanse this mess will be the pressure exerted by the stakeholders and the society at large so that doing business ethically becomes cost effective as well as widely acceptable to all.
The writer is the chairman of Nimbus Group.