Sunday, 1 April 2012

The Challenge of Ethical Behavour in Bussness

Jayadev Sahoo

                The purpose of this research paper is to highlight the significance of ethical behaviour in business/organizations. The corporate and government (here Indian government) scandals, namely, Satyam, Enron,, 2G spectrum scam, Illegal mining scam in Karnataka, Adarsh scam in Maharashtra and CWG scam in Delhi, propelled the organizations to adhere ethical behaviour. I have tried my level best to throw light on three points:
1.  Some reasons why unethical behaviour occurs in organization
2. Highlight the importance of organizational culture/behaviour in establishing an ethical climate within the organization
3. Present some suggestions for creating and maintaining an ethically-oriented culture

1. Why Unethical Behaviour Occurs in Organization
                The capacity of a man to behave unethically is limitless. Unfortunately, unethical behavior occurs frequently in a business. The reason is: when greed overtakes concern about human welfare. Wareen Buffett once said that the characteristics that he seeks in a manager are intelligence, hardwork and integrity. “If you do not have the third, the first two will kill you.”1 For example- Ramalinga Raju at Satyam, Jeff Skilling at Enron, and 2G spectrum scam. Let us discuss the three examples one by one:
                SATYAM FRAUD:- Satyam fraud took place in January, 2009. Satyam Chairman Ramalinga Raju confessed the offence before the public. He has resigned from the board admitted that he cooked the balanced sheet to show cash balance of Rs 5,361crore instead of Rs.321crore.2  No board members had any knowledge of the real situation. Accured intrest of Rs.736crore in books is non-existent. Rs.1,230crore was arranged to Satyam, but was not reflected in the books. Even the auditors’ did not catch such a blatant cooking of books.3 Satyam has turned into ‘Asatyam’ (falsehood). All these things happened on account of greed only.
ENRON SCANDAL:- The Enron scandal came into limelight in October 2001, eventually led to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas. Enron was formed in 1985 by Kenneth Lay after merging Houston Natural Gas and Inter-North. Several years later, when Jeffrey Skilling was hired, he developed a staff of executives that, through the use of accounting loopholes, special purpose entities, and poor financial reporting, were able to hide billions in debt from failed deals and projects. Chief Financial Officer Andrew Fastow and other executives not only misled Enron’s board of directors and audit committee on high-risk accounting practices, but also pressured Anderson to ignore the issues. Shareholders lost nearly $11billion when Enron’s stock price, which hit a high of US$90 per share in mid-2000, plummeted to less than $1 by the end of November 2001. The US Securities and Exchange Commission (SEC) began an investigation, and rival Houston competitor Dynegy offered to purchase the company at a fire sale price. The deal fell through and on December 2, 2001, Enron filed for bankruptcy under Chapter 11 in United States Bankruptcy Code. Enron’s $63.4 billion in assets made it the largest corporate bankruptcy in US history.
2G SPECTRUM SCAM:- The Telecom minister A. Raja issued 2G licenses to private telecom players at throwaway prices in 2008. According to the Comptroller and Auditor General (CAG), rules and procedures flouted while issuing licenses and spectrum scam has cost the government Rs.1.76lakh crore. He allotted entry fee for spectrum licenses in 2008 pegged at 2001 prices and mobile subscriber base had shot up to 350 million in 2008 from 4 million in 2001.8
                        The above three examples, viz., Satyam, Enron and 2G scam vividly vindicates the human greed over national/organizational interest. The unethical behavior occurs in the organizations by the individuals’ knowingly. One question can be raised why individuals knowingly commit unethical actions is based on the idea that organizations often reward behaviors that violate ethical standards. Consider, for example, how many business executives are expected to deal in bribes and payoffs, despite the negative publicity and ambiguity of some laws, and how good corporate citizens who blow the whistle on organizational wrongdoing may fear being punished for their actions. Jansen and Von Glinow (1985) explain that organizations tend to develop counternorms, accepted organizational practices that are contrary to prevailing ethical standards.
                Indeed, governmental regulations requiring full disclosure and freedom of information reinforce society's values toward openness and honesty. Within organizations, however, it is often considered not only acceptable, but desirable, to be much more secretive and deceitful. The practice of stonewalling, willingly hiding relevant information, is quite common. One reason for this is that organizations may actually punish those who are too open and honest. Look at the negative treatment experienced by many employees who are willing to blow the whistle on unethical behavior in their organizations. Also, consider for example, the disclosure that B. F. Goodrich rewarded employees who falsified data on quality aircraft brakes in order to win certification (Vandevier, 1978).9 Similarly, it has been reported that executives at Metropolitan Edison encouraged employees to withhold information from the press about the Three Mile Island nuclear accident (Gray and Rosen, 1982). Both incidents represent cases in which the counter norms of secrecy and deceitfulness were accepted and supported by the organization.
                It has been noticed that that there are many other organizational counter norms that promote morally and ethically questionable practices. These practices are commonly rewarded and accepted suggests that organizations may be operating within a world that dictates its own set of accepted rules. This reasoning suggests a second answer to the question of why organizations knowingly act unethically, because managerial values exist that undermine integrity. In a recent analysis of executive integrity, Wolfe explains that managers have developed some ways of thinking (of which they may be quite unaware) that foster unethical behavior.10
                Research shows that there are two kinds of mentality developed by the individuals, one is “bottom-line-mentality” and the other one is “political-bottom-line-mentality.”
                BLM refers that financial success as the only value to be considered. It helps to get short-term financial success, although it causes the problem for the whole organization. It promotes an unrealistic belief that everything boils down to a monetary game. An individual is ready to come down at any standard or any level to earn money. There is no ethics, conscience or morality for them. Let us take the example of 2G scam. In order to earn money, the ECOs and directors have crossed all limits. Unitech Wireless (Tamil Nadu) managing director Sanjay Chandra, Swan Telecom director Vinod Goenka and three senior executives of Reliance ADA Group- Gautam Doshi (group MD), Surendra Pipara (senior vice-president) and Hari Nair (senior vice-president), who have been arrested by the Central Bureau of Investigation (CBI).11 They have a lot to lose.
                PBLM occurs in public sector. This type of mentality maintains that in order to gain political advantage of one party over another party, the ruling party spends a hefty amount of money in their own-ruled states. For example- UPA government is at the center right now. When the budget was presented in the parliament, the lion’s share went to the UPA-ruled states only. Railway minister, Mamata Banerjee presented Railway budget in parliament, 2009-10. She allotted nineteen out of sixty-nine trains to Bengal.12 Out of nineteen; fifteen are normal trains and four non-stop trains. She introduced “Macher Jhol” in Railway menu and allocated some big projects such as expansion of the Kolkata Metro network, a coach factory in Singur and a rail industrial park in Nandigram.13 When Lalu Prased Yadav was the Railway minister during 2004-09, he also did the same thing. Lalu introduced “Litti Chokha” and “Kulhars” in Railway menu. He allotted thirty nine new trains to Bihar during his five years tenure. Even though the neighbouring state Orissa hardly had any new trains. This PBLM compels the politicians to overlook the welfare of all and concentrate only on their own states and constituencies.
                The moment the parliamentarians attach importance to their own constituencies, they have to spend a hefty amount of money for the upliftment of the local people irrespective of the significance of the project or schemes. They have to allocate special projects or schemes to create jobs and gain political support. This practice is called pork-barreling. This practice is common among the politicians because many MPs believe it will help them get votes in the next elections. For example- Suresh Kalamandi, the big boss in CWG scam in Delhi, Januarary 2011, was proposing projects from Tihar Jail at Rs.2.3crore for Pune constituency. The person who claimed himself to be suffering for dementia, how could propose a project. This is all to wash the minds of people and get votes in the next elections. The image and reputation of Suresh Kalamandi has tarnished badly in CWG scam. Yogesh Gogawale, a senior BJP leader, said that the way Kalmadi had fooled the citizens beyond the tolerance level. "If he has been diagnosed with dementia, then how can he lead the city and work for the citizens. It was funny to read the news about his sending proposals from Tihar Jail to the Pune District Collector office about spending money from his MP funds," he said.
                Wolfe also holds that basically there are two kinds of mentality developed by the managers. The first one is called exploitative mentality and the other one is called Madison Avenue mentality. Exploitative mentality17 is a view that encourages "using" people in a way that promotes stereotypes and undermines empathy and compassion. This is a highly selfish perspective, one that sacrifices concerns for others in favour of benefits to one's own immediate interests. In other words, this mentality gives importance on self-interest rather than organizational interest. The next one is Madison Avenue mentality18, a perspective suggesting that anything is right if the public can be convinced that it's right. This shows that in order to convince the audience, the managers could go to any extend. It provides scope to them to hide their unethical practices. The best way to catch the minds of audience is through advertisement. Advertising is a highly visible business activity and any lapse in ethical standards can often be risky for the company in order to be consumer-oriented, an advertisement will have to be truthful and ethical. Now-a-days, most of the companies believe in “jo dikhata hai vo bikata hai”.  This is a wrong notion of most of the companies. They are showing false advertisements on Televisions by the filmy actors or actresses to appeal the emotions and sentiments of the people. This is called the fallacy of Argumentum ad Populum.19 However; this should not be done in business. Notwithstanding, the ads of the celebrities or cricketers can turn the tide in Company’s favour, but in the long- run, it would not help at all. Let us see the ten most watched ads on Television till March 2011.20 The following table presents the rankings, brands and taglines of the ten most watched ads.
Drink Complan and see the difference
First drink, then think
Tata Indigo Manza
Indulge in Style
Thums Up
Grow Up to Thums up
Cadbury’s Dairy Milk Chocolate
Glass and a half of full cream dairy milk
Fair and lovely Multivitamin
Gorepan sa kahi zyaada, saaf gorapan
Fanta ka signal loud, Bunking is allowed
Mountain Dew
Darr ke aagey jeet hai
Colgate Max Fresh Gel
Not just fresh Max fresh
Maaza Lao, Aam Ki Pyaas Bujhao
                The above table clearly shows that there are as many as five soft drink brands in the Top ten. However, the Number One spot has been taken not by any of the soft drink brands, but by a health food drink, Complan. It is far ahead than of its rival brands, Bournvite and Horlicks, which is not presented in my list. Although Complan occupied the first position, there are many allegations against Complan by the Advertising Standards Council of India (ASCI). ASCI  sent a notice to Heinz India to either modify or withdraw an advertisement which claims that its health drink, Complan, increases a child's height by as much as two times. ASCI said the Complan ad, which has the tagline “Drink Complan and see the difference”, depicts exaggerated growth in children on consuming Complan, in terms of height, amounting to gross exaggeration in absence of any scientific validation. Hence, in order to fool the people, they can go to any extend. It is not diffucult to recognise the people, those who are knowingly engage in unethical practices. The overemphasis on short-term monetary gain and getting votes in the next election may lead to decisions and rationalizations that not only hurt individuals in the long-run, but threaten the very existence of organizations themselves.
                According to the model developed from Baucus and Near's research illegal behavior occurs under certain conditions. For example, results from their research showed that (1) large firms are more likely to commit illegal acts than small firms; (2) although the probability of such wrongdoing increases when resources are scarce, it is greatest when resources are plentiful; (3) illegal behavior is prevalent in fairly stable environments but is more probable in dynamic environments; (4) membership in certain industries and a history of repeated wrongdoing are also associated with illegal acts; and, (5) the type of illegal activity chosen may vary according to the particular combination of environmental and internal conditions under which a firm is operating (Baucus and Near, 1991).22
                In this section, I would like to highlight the significance of organizational culture and ethical behaviour in the corporate sector. How do organizational culture and ethical behaviour affect the overall performance of the organizations? Do organizations vary in the “ethical climate” they establish for their members? The answer of this question depends upon the organization. There are some organizations that set some standards for themselves, and the lower level employees follow it. What is set at the top, followed by the bottom? However, this is not true in most of the organizations. In order to click at the international as well as national level, organizations have to take care of the customers. A customer is the king in the market. It is the corporates which depend upon the customers and not the vice-versa. For example- when a few Nano cars caught fire in the market in November 2011,  Chairman of Tata Motors, Ratan Tata has called back all the 70,000 plus Nano cars for free repairing and services.23 Only a few Nano cars caught fire on account of electric short-circuits in the manufacturing design. The company has decided to install a fuse which is expected to mitigate the risk of short-circuit. The company did the social responsibility regardless of the cost.
                Social responsibility has become the paramount in corporation, the same thing done by the Johnson & Johnson Company. There was a lot of confusion when the infamous Tylenol poisoning took place.24 Johnson & Johnson Chairman and CEO James E. Burke decided to call back all the 93,000 bottles produced in the firm. All the advertising for Tylenol was suspended. In addition, it maintained open communication with the public via an 800 telephone number, thousands of mailgrams, numerous press conferences and media interviews. Finally, the capsules that were recalled were replaced without question or charge. The open manner in which Johnson & Johnson saved the public lives cost the company $100 million. The ethical climate which the company set at the top, helped the bottom line managers and executives to take the action quickly. Here is an example of the company which crossed all the ethical limits to earn money and collapsed in the end. Beech-Nut Corporation is a baby-food company in the United States. The company had a good reputation on products known for their purity, high quality and natural ingredients. Unfortunately, the company did not make any profit and subsequently, it merged with Interjuice Trading Corporation. Hence, Beech-Nut started to sell apple juice. Again, there was heavy loss. In order to make profit, they started to sell adulterated and misbranded juice. Though the warnings came from Food and Drug Administration (FDA), they continued it. The FDA fined Beech-Nut $2 million in February, 1988. The image and reputation of the corporation tarnished. As a consequence, the firm lost the trust and confidence of its customers and their support. The problem of Beech-Nut was, in order to recovery from loss, they started to cheat the customers. They believed that everyone is doing it. There is no harm to sell adulterated juice.
                Pressure, opportunity and predisposition can all lead to unethical activities; however, organizations must still take a proactive stance to promote an ethical climate. In the final section, I would like to provide some useful suggestions for promoting an ethical climate in the organization.
3. Some Suggestions For Creating and Maitaining an Ethiccally Oriented Culture
                Organizations should provide ethics training to the employees in order to strengthen their ethical values. “Ethics is everyone’s business, from top-level managers to employees at the lowest levels of the organization. One of the management’s most important challenges is to conduct business ethically while achieving high levels of economic performance.”27 Values are relatively permanent and deeply held preferences of individuals or groups. The attitudes and personal choices get formed on the foundation of values. The most stable and enduring characteristics of individuals are governed by the values they live by. Values serve the process of ‘becoming’, in the sense of transformation of the level of consciousness to purer, higher levels. They help us to distinguish between the ‘desired’ and the ‘desirable’, between the ‘delectable’ and the ‘electable’, between the ‘short-term’ and the ‘long-term’, between the ‘preya’ (the pleasant) and the ‘shreya’ (the good).”28,31.
            Notwithstanding unethical behaviour pays in the short-run, but in the long-run it does not pay. Even though you lose business, by adhering ethical behaviour, your image and reputation is not at stake. An organization cannot survive unless it produces goods and services that society wants and needs. Thus an organizational culture that promotes ethical behaviour is not only harmonious with prevailing cultural values, but also, it makes good sense.
            Nielsen (1989) has stressed the significance of a manager in contributing to ethical or unethical behaviour. If the manager is ethical, there is ethical behaviour in the organization and vice-versa. A manager should be a leader. He has to lead from the front. An organization needs an ethical manager. You are the role model to the sub-ordinates/employees. A manager has to inculcate good virtues and habits among the sub-ordinates because each and every action of the manager will be keenly noticed by the followers. A Persian saying goes: “If the king plucks one apple from the public garden, the public will take away even the roots.”
In order to prevent unethical practices, the manager has to retain the best people.
            According to the philosopher, Henry David Thoreau, every man has the unquestionable ability to elevate his life by conscious efforts. Many managers by experience learn leadership qualities and elevate themselves to the status of a good ethical leader. Most of these ethical leaders exhibit the following characteristics.
            a.  Ethical leaders are people-oriented in the sense they care about people and treat people with respect. This humanistic approach builds confidence from the staff, customers and suppliers. It also gives a new dimension to leadership namely leadership from the heart.
            b. The ethical leaders should provide visible ethical actions by serving as a role model of ethical conduct and behaviour.
            c. Ethical awareness taking the interests of multiple stakeholders.
            d. Neutral and impartial using fairness in management.
The Institute for Business, Technology and Ethics36 suggests that an ethical leader should be able to promote the following traits in a healthy organization: An ethical manager should manage with the four points of responsibility:
Purpose: This refers to the goals and objectives of the organization.
People: The composition of people in the organization, their roles, duties, responsibilities, claims and interests.
Power: The authority and the ability of the organization.
Principles: The guiding principles and aspirations of the organization.
Although much remains to be learned about why ethical behaviour occurs in organizations and creating and maintaining organizational cultures that encourage ethical behaviour, organizations can benefit from the following suggestions:36
v  A clear code of business ethics printed and widely disseminated.
v  An ethics committee set up to consider issues and have their debates conducted in a collegial spirit.
v  Before any complaint of ethical breach is heard a complaint should be specific and accompanied by evidence.
v  No financial disadvantage should accrue to a complainant unless the complaint was motivated by malice.
v  Protection in the form of career preservation, except where clearly unjustified, should be provided.
v  An ‘ethical informers’ (whistleblowers) support group.
v  Do not promise what the organization cannot deliver.
v  Provide ethics training programs for all employees.
   Conclusion- From the above analysis, it clearly shows that though it is difficult to apply ethical principles in business and there is hardly any chance of success initiatially, still ethical behaviour pays in the long-run. It is rightly pointed out: “When going is tough, the tough gets going.” The challenge of ethical behaviour must be met by organizations if they are truly concerned about survival and competitiveness. The need of the hour is to step forward and operate with strong, positive and ethical cultures. In order to realize the dream, the application of love in organization is a prerequisite one. Love with rules and regulations can work in most of the organizations because it is a combination of heart and love.
Notes and Refrences
1. The Hindu Business Line, dated on 08.11.2010.  http/
2. India Today, 12.09.2011, pp. 48-49. http/
3. India Today, 08.08. 2011, pp. 18-20.
7. The Times of India, dated on 23.09.2011. http/
9. K. Vandevier, “The Aircraft Brake Scandal: A Cautionary Tale in Which the Moral is Unpleasant”, in A. G. Athos and J. J. Babarro, eds., Interpersonal Behaviour: Communication and Understanding Relationships, Prentice-Hall, Englewood Cliffs, NJ, 1978, pp. 529-540.
10.  D. Wolfe, “Is There Integrity in the Bottomline: Managing Obstacles to Executive Interity”, in S. Srivastva, ed., Executive integrity: The Search For High Human Values in Organization Life, Jossey-Bass, San Francisco, 1988, pp. 140-171.
11. Business World, 02.05.2011, p. 17. http/
17.  Ronald R. Sims, The Challenge of Ethical Behaviour in Organizations. Journal of Business Ethics, Vol.11, Issue. 7, 1992, pp. 60-74.
19.  K. OM. Narayana Rao, Deductive Logic, Kalayani Publishers, Cuttack, 2008, pp. 60-65.
20.  Business Today, 15.05.2011, p. 30. http/
22.  S. M. Baucus and J. P. Near, ‘‘Can Illegal Corporate Behaviour be Predicted? An Event History Analysis’’, Academy of Management Journal 34(1), Near1991, pp. 9-36.
23.  The Times of India, dated on 11.11.2011.
24.  David J. Fritzsche, Business Ethics: A Global and Managerial Perspective, Tata McGraw-Hill, Singapore, 1997, pp. 25-38.
27.  S. Pamela Lewis, H. Stephen Goodman, M. Patricia Fandt, Management Challenges in the 21st  Century, South-Western College Publishing, Thomson Learning, Thrid Ed. p. 89.
28.  Swami Gambhirananda, Katha Upanisad, Advaita Ashrama, 1980, Verse 1-2, pp. 34-36.
36.  Ronald D. Francis and Mukti Mishra, Business Ethics: An Indian Perspective, Tata McGraw Hill Education Private Limited, New Delhi, 2010, p. 130.
Jayadev Sahoo,
Ph.D. Scholar, Deptt. of Philosophy,

Pondicherry University, Pondicherry.