Ethics is good businessVinod Kothari 1012 Krishna, 224 AJC Bose Road Kolkata- 700 017. India. http://www.vinodkothari.com http://www.credit-deriv.comE-mail:vinod@vinodkothari.comPhone 91-33-23233863/22817715/ 22811276 Fax: 91-33-23233863/ 22817715/ 22811276

Ethics are no more in religious texts; they are a part of business lawIf you think business and ethics are aliens, you are mistakenNot only are ethics respected in business, they are a part of the lawAs a part of Sarbanes Oxley law, directors have to sign an ethics declarationThis law enacted in pursuance of series of corporate scandals:Enron, WorldCom, Tyco, etc.In India also, this has been implemented: all directors annually sign Code of Corporate EthicsThis is part of Corporate Governance CodeClause 49 of the Listing Agreement

Are ethics and business compatible?In an extreme, altruistic sense, business and ethics may seem incompatible:Earning profits may also be a unethicalIn Islamic finance, earning interest is unethicalAll possessions stem from insecurity; insecurity comes from mistrust:Therefore, possession itself may be unethical in extreme sense Lots of businesses may need violence of some degree:E.g., Medical researchWhere do we draw the line between business and morality:If the approach is subjective, then ethics lose their meaning as everyone defines ethics to suit ones convenienceIs there a universal, perennial definition of ethics?

Morality and religionMorality and ethics have their roots in religionReligion and business are mutually incompatibleReligion deals with the inner self; business deals with the outer worldReligion deals with contentment; business is a play of ambitionReligion says, adjust your within to suit your without; business says, adjust your without to suit your withinThey are opposites, not merely incompatible

When did ethics begin?In most cultures, ethics are connected with divine origins:Babylonian civilization received laws of Hammurabi from sun godGod gave 10 commandments to MosesIn Greek civilization, Plato says that god Zeus gave morality to help mankindManusmriti Samhita incorporates earliest code of social and legal ethics in India

Ethics and societyIn fact both religion and ethics serve a common need: societySocieties are built on the plank of co-existence and mutualityAll societies, whether those of humans or non-humans, need mutual support, forbearance and care:Observed in societies of wolves, baboons, dolphins, etc.Thus, two important pillars of all societies are:Reciprocitykinship

Ethics Indian viewIndian religion has always been associated with philosophyThe vedas (about 4000 years old) talked about 4 basic goals of existence:ProsperitySatisfaction of desiresMoral duty SalvationUpnisads distinguished between law and ethics ethics come from inner desireCharavac philosophy was basically materialistic and was a voice of dissentIn a way, Charvak was reactionary; he was opposing the Brahmanical dogmas in a sharp wayJain scriptures deal with akriyavad at lengthJain philosophy was based on the quintessential principle of non-violenceBuddha dwelt on compassion and brotherhood

Ethics ancient Chinese viewTwo great ancient Chinese philosophers, Lao-tzu, and Confucius, existed in 6th century BC.Lao-tzu, proponent of the rule of Tao, emphasized simplicity and humility; said rank, social status are meaningless.Confucius dealt with superior man one who aims at good, has ethical valuesOne word he gave was reciprocity; do not do unto others what you do not want to be done to you

Ethics in ancient GreeceEarly Greek philosophers: Pythagoras, Socrates, Plato and Aristotle,, have all emphasized ethicsPythagoras was contemporary of Buddha and Lao Tzu, and it is contended by many that he was influenced by Jain philosophySocrates is regarded as one of the major contributors to Western ethics:Socrates did not prescribe ethics but propounded method of enquiryPlato, a disciple of Socrates, took forward ethicsEthics results from balance of 3 forces: intellect, emotion and desirePlato for the first time dealt with long term good and short term good:He said, ethics survive in the long runAristotle propounded the theory known as Golden Mean somewhat similar to Buddhas middle path

Ethics in ChristianityJesus was admitted a reformer of Hebrew ethics and did not innovate a system of his own.St Augustine is regarded as one of the first ones to codify Christian views on ethics:He held spiritual bliss on the top of worldly pleasuresAlso rejected the idea that love of God is for fear of punishment in afterlifeLong time after St Augustine, French philosopher Peter Abelard (11-12th century) dealt with ethics:Stressed on intentions or the inner consent to a crimeSt Thomas Aquinas (13th century) gave the idea of the natural lawEthics which are so basic that they require no legislatorIn 17th century England, there came scholars who were called intuitionalists who believed in intuition Coming to 17th century England, the idea of enlightened self-interest came in that morality does not clash with self- interest

Normative ethics 19th century philosophy19th century thinkers did not dwell much on whether ethics are subjective or objectiveMeta-ethics, or normative ethics, deals with what is right and what is wrongIn 19th century England, another philosophy emerged called utilitarianism (Bentham)Utilitarians relate everything to pleasure and painEverything that increases pleasure or reduces pain is goodFrom here on, economics enters ethics:Economist JS Mill also contributed to the Benthams theorrySidgwick also contributed to the same

Present day ethics philosophyBy end of 19th century, Kant, Hegel and Marx had expressed several views on ethicsNietzsche came with radical thoughts god is deadSartre came with similar ideas, denying idea of God and said whatever ensures existence is goodCurrently, ethics is divided into 3 branches:Meta-ethics: deals with ethical propertiesNormative ethics: deals with what things are good or badApplied ethics: application of ethics to practical problemsIs what is good or bad judged from its consequences:Teleology actions are judged by their consequencesDeontology actions are judged by whether the accord with the general rule

Are ethics limited to mankind?Are ethics limited to men only or do they extend to animals too?Several philosophers have rejected the classical view that men need ethics only to fellow human beings who can reciprocateIntermediate versions of pure vegetarianism have been coming once in a whileLikewise, issues of responsibility to the environment have also been raised.In other words, philosophy is not far from the religious view of total non-violence

Ethics is long term policyAll religion, all ethics and morals spring from the basic conflict between short term and long term:If we limit ourselves to the short term:Pleasures today, even at the cost of pains tomorrow, sound like a good bargainIf we take long term into account:Every such pleasure which is not lasting, is avoidableLong term is how long:Do we look at our lifetime?Do we look at the lives of our children and posterity?Do we take the eternal view of perennial lifeReligion in its absolute form tends towards the eternal view:All practical adaptations of ethics are essentially truncated forms of the total religious view

Long termism in businessIssues of corporate ethics have taken the form of short-termism vs. long-termismIf businesses are focused on long term stability and growth, they are ethical:Short term strategies, aimed at earning per share for the year in question, compromise on longer interestsWarren Buffet has often stressed on long term strategiesInvestigations into Fannie Mae suggested that the entire senior management was intensively focused on earnings guidanceCapital market orientation of companies force them to be tempted by short term targets:Increasingly, the entire system of how companies are evaluated by analysts, investors and stock markets leads to a short term approachMcKinsey survey [March 2006] shows that companies are focused on short term strategies due to market pressures

Can it be ethical, if it is not legal?Is law the embodiment of ethics? The essence of ethics is long-termismLaws are contemporaryNot all laws are based on foundations of ethicsLaws change every quarter; surely every yearThe way present-day laws are made, they are full of errors and aberrationsHence, it is possible to draw lines of distinction between law and ethics

Jain ethicsCharitra dharma, that is, ethics, is one of the two main foundations of Jainism, the other being shrut or philosophyJainism is founded on the equality of all living beingsTo an extent, it puts all non-living beings also on a status of respectHence, Jainism represents the highest standard of ethics ever

Some fundamental questions about ethicsThat everyone should be ethical is not in doubt:No one has ever taught unethical behaviorFundamental questions:What is ethical?Answer to this question is the same as why ethics?is ethics subjective or objective?Why my conscience permits is ethics: emotionalist thinkingThis makes the whole concept of ethics chaoticEthics are based on collectivismIs ethics contemporary or perennial?Is ethics whole or partial?Is ethics the same as law?Who or What does unethical behavior offend the law or humanity?

A possible, incomplete, practical guide to ethics in businessIf there is a rule, and an exception to the rule, the idea should be to fit into the rule and not fit into the exceptionIf short term and long term interests clash, long term should prevail:How long is long term may be 5-7 yearsConduct which violates code of ethics of a self-regulatory organization is unethicalWhile the eventual aim should be total ethics, there is nothing wrong in progressing towards ethics in stagesWhere business relations are based on long-term faith, a conduct that breaches the faith is unethicalE,g. cheating of a business partnerLaws that are founded on principles of morality and good business conduct should not be violatedIf business using investors/lenders money becomes unsuccessful, ethics requires minimal personal expenses and maximum effort to restore businessIf a conduct is unethical, anything done to cover it is also unehtical

Warren Buffets rule of thumb for ethical conductI want employees to ask themselves (when they are in doubt about whether a particular conduct is ethical or not) whether they are willing to have any contemplated act appear the next day on the front page of their local paper to be read by their spouses, children and friends with the reporting done by an informed and critical reporter. [Berkshire Hathaways code of ethics]