BPMS2033 Islamic Business Ethics and Social Responsibility-Fundamental

BPMS2033

ISLAMIC BUSINESS ETHICS

AND SOCIAL RESPONSIBILITY

Mohd Adib Abd Muin

Islamic Business School (IBS)

2015

BPMS 2033 ISLAMIC BUSINESS ETHICS AND SOCIAL RESPONSIBILITY

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ISLAMIC BUSINESS ETHICSYou are the best of peoples, evolved for mankind, enjoining what is right, forbidding

what is wrong, and believing in Allah. (Qur’an 3: 110)

According to Cherrington (1993), Every day, individuals face ethical issues at work,and rarely know how to deal with them. A recent review of articles published inthe Wall Street Journal during only one week in 1991 uncovered a whole array ofissues being faced by employess: Stealing, lying, fraud and deceit

Unethical behavior in businesses. For instance, a recent survey of 2000 major UScorporations revealed that the following ethical problems (arranged in order ofimportance) concerned managers: Drug and alcohol abuse Employee theft Conflict of interest Quality control issues Discrimination in hiring and promotion (cable) Misuse of proprietary information Abuse of company assets Environmental pollution


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• According to Baumann Mary (1987) In a survey of 300 companies across the world, over 85% of senior executives indicated that the following issues were among their top ethical concern:

– Employee conflict of interest

– Inappropriate gifts

– Sexual harrasment

– Unauthorized payments


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Question?

• Is it naïve for a Muslim

businessman to behave

ethically in globally,

competitive environment??


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Answer..

• The answer is a resounding NO!!• In Islam, ethics governs all aspects of life. The

conditions for everlasting success or Al-Falah (to seek pleasure of Allah in the world and hereafter) in Islam are the same for all Muslim-whether in conducting their business affairs or in carrying out their daily activities. Without specifying any situational context, Allah describes people who attain success as those who are

“inviting to all that is good (khayr), enjoining what is right (ma’ruf) and forbidding what is wrong (munkar)”

(Qur’an 3:104)


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Need to answer these Questions!!

1) What specific standards of conduct should a company follow?

2) What is a Muslim businessman’s responsibility to internal and external stakeholders?

3) Although a firm’s top executives may exhibit exemplary ethical behavior, how can middle- and lower-level managers be encouraged to behave in a similarly ethical manner?

4) What are some guidelines that would ensure consistent ethical behavior in a Muslim business?


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Defining Ethics

• Ethics may be defined as the set

of moral principles that distinguish

what is right from what is wrong.

• It is normative field because it

prescribes what one should do or

abstain from doing.


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Continue..

• Business Ethics: sometimes referred to as managementethics or organizational ethics, simply limits its frame ofreference to organizations.

• Within an Islamic context, the term most closely related toethics in the Qur’an is khuluq. The Qur’an also uses a wholearray of terms to describe the concept of goodness:– Khayr (goodness)

– Birr (righteousness)

– Qist (equity)

– ‘adl (equilibrium and justice)

– Haqq (truth and right)

– Ma’ruf (known and approved)

– Taqwa (piety)


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Factors Influencing Ethical

Behavior in Islam• What is considered ethical behavior may depend on

the factors that define and affect ethical behavior.

• According to Barney, Jay B. & Griffin, Ricky W. (1992) there are consist of three factors:1. Legal Interpretations

2. Organizational Factors

3. Individual Factors1. Stages of moral developtment

2. Personal values and personality

3. Family influences

4. Peer influences

5. Life experiences

6. Situational factors


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1.Legal Interpretations

• Legal Interpretations are based upon contemporary and oftentransient values and standards; in an Islamic society, thesevalues and standards are guided by the Shari’ah and thecollection of previous fiqh judgements.

• The result of these divergent approaches is amazing: at onetime, it was legal and ethical in the United States todiscriminate against women and minorities in hiring; now,affirmative action laws make it illegal to discriminate againstthese groups.

• By contrast, Islam has given women permanent andunalienable rights, and has never discriminated againstminorities on any basis. For example, Abu Dharr reported thatthe Prophet (pbuh) said to him:

“You are not better than people with red or black skins unless you excel them in piety.”


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Cont..

• Similarly, the Islamic ethical system does not endorsethe caveat emptor concept that many Western courtshave considered valid in several shadowy cases.Thus, Anas ibn Malik reports the following hadith:

“Allah’s Messenger (peace be upon him) forbade the sale of fruits till they are almost ripe. Anas was asked

what is meant by “are almost ripe.’ He replied, “Till they become red.” Allah’s Messenger (peace be upon him) further said, “If Allah spoiled the fruits, what right would one have to take the money of one’s brother (i.e., other

people)?”

(Anas ibn Malik, Sahih al-Bukhari, 3.403.)


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Cont..

• The Hanafis’ interpretation of Islamic law reinforces this emphasis on equty and fairness:

“If the vendor sells property as possessing a certain desirable quality and such property

proves to be devoid of such quality, the purchaser has the option of either canceling the

sale, or of accepting the thing sold for the whole of the fixed price. This is called option for

misdescription.”


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2. Organizational Factors

• The organization too can affect influence participants’behavior. One of the key souces of organizational influence isthe degree of cimmitment of the organization’s leader toethical conduct.

• This commitment can be communicated through a code ofethics, policy statement, speeches, publications, etc.

• For example, Xerox Corporations has a 15 page ethical code,one section of which states:

“We’re honest with our customers. No deals, no bribes, no secrets, no fooling around with prices. A kickback in any form

kick anybody out. Anybody.

• The above statement is clear and relates specific unethicalbehavior to negative consequences.


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Cont…• Codes of ethics are gaining in popularity in many organizations, and

often vary from one industry to another. Although such codes mayenhance ethical behavior among organizational participants, theiruse is sometimes inappropriate.

• Some organizations may be trading in or selling in khamr or otherharam products or services; hence, the conduct of the wholeorganization is unethical.

• Developing and enforcing a code of ethics in this type oforganization is clearly erroneous since Allah Subhanahu wa ta’alahas said in the Qur’an:

“They ask you concerning wine and gambling. Say, “In them is great sin, and some profit for men; but the sin is greater than the profit.”

(Qur’an 2: 219)

• In general, however, organizations engaged in HALAL businessescan foster ethical behavior through the development of an Islamiccode of ethics.


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3. Individual Factors

• Individual come to work with different

values. Factors affecting one’s ethical

behavior include: stages of moral

development, personal values and moral,

family influences, peer influences, and life

experiences.


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3.1 Stages of Moral Development

• The prophet (pbuh) suggested that individualsundergo two stages of moral development: theminor or pre-pubescent stage and the adulthoodstage. In a hadith narrated by ‘A’ishah (rah), shenarrated that:

“The Apostle of Allah (peace be upon him) said: ‘There are three (persons) whose actions are not recorded: a sleeper till he awakes, an idiot till he is

restored to reason, and a boy till he reaches puberty.’

(Abu Dawud, 4384)


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Cont…

• From the above hadith, two facts can be inferred. First, certain typesof people are not responsible for their behavior: the sleeper, thelunatic and the child before puberty. Second, an individual is notresponsible for his actions until the age of reason.

• In addition to physical and mental development, Islamic scholarshave suggested that there are three states or stages of thedevelopment of the human soul or nafs.1) Ammarah (12:53)- which is prone to evil, and if not checked and

controlled, will lead to perdition.

2) Lawwamah (75:2)- which feels consciouness of evil, and resits it,asks for Allah’s grace and pardon after repentance and tries toamend; it hopes to reach salvation.

3) Mutma’innah (89:27)- the highest stage of all, when the soul achievesfull rest and satisfaction after ‘aql (intellect) has checked the eviltendencies of man.

• What will govern this ethical behavior and the interaction amongthese three states of the soul is his level of taqwa or piety.


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3.2 Personal Values and Personality

• An individual’s values and morals will also influence his or her ethicalstandards. A person who stresses honesty will behave very differently fromanother who does not respect other people’s property.

• Interestingly, in Islam, the decay and eventual disappearance of honesty isa sign of the imminence of the Day of Judgment. Abu Hurayrah reports:

“While the Prophet (pbuh) was saying something in a gathering, a Bedouin came and asked him, “When would the Hour (Doomsday) take place?” Allas’s

Apostle (pbuh) continued his talk, so come people said that Allah’s Apostle (pbuh) had heard the question, but did not like what that Bedouin had asked.

Some of them said that Allah’s Apostle (pbuh) had not heard it.

When the Prophet (pbuh) finished his speech, he said, “Where is the questioner, who inquired about the Hour (Doomsday)?” The Bedouin said, “ I am here, O Allah’s Apostle (pbuh).” Then the Prophet (pbuh) said, “When the power or authority comes in the hands of unfit persons, then wait for the Hour

(Doomsday).”

(Sahih al-Bukhari, 1.56)


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3.3 Family Influences

• Individuals start to form ethical standards as children. The Prophet(saw) emphasized the importance of family nurturing when he said:

“Command your children to pray when they become seven years old, and discipline them for it (prayer) when the become ten years old; and

arrange their beds (to sleep) separately.”

(‘Abd Allah ibn Amr ibn al ‘As, Abu Dawuud, 0495)

• Here, the implication is that if you wish your children to grow up asgood Muslims, you need to start shaping them from a young age.

• Children are likely to develop hiqh ethical standards if they perceiveother family members as consistently adhering to hiqh standards,and

• If they are rewarded for ethical behavior but punished for beinguntruthful, stealing etc.


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3.4 Peer Influences

• As children grow and are admitted to

school, they are influences by the peers

with whom they interact daily.

• Thus, if a child’s friends engage in drawing

graffiti, the child may imitate them. If the

child’s peers avoid such behavior, the child

is likely to behave accordingly.


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3.5 Life Experiences

• Whether positive or negative, key events

affect the lives of individuals and

determine their ethical beliefs and

behavior.


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3.6 Situational Factors

• People may behave unethically in certain situationbecause they may see no way out. For example, amanager may record fictitious sales in order to coverlosses within his area of responsibility. According toIslam, debt is a major reason why individuals behaveunethically. In a hadith narrated by ‘Aishah (raw),

“Somebody said to (the Prophet), “Why do you so frequently seek refuges with Allah from being in debt?” The Prophet (pbuh) replied, “A person in debt tells lies

whenever he speaks, and breaks promises whenever he makes (them).”

(Sahih al-Bukhari, 1.795)


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4.0 The Islamic Ethical

System


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4.1 The Islamic Ethical System

IES Differ from secular ethical system and from the moral code advocated by other religions.

Action and decesions are judged to be ethical depending on the intention of individual. Allah is omniscient, and knows our intention completely and perfectly.

Based on al-Qur’an and the Sunnah Halal intentions Accountability and justice Belief in Allah endows the individual with complete freedomfrom anything or

anybody except Allah. Islam is open system Islam encourages humankind to experience tazkiyyah concept Stay away from decisions based only on one’s perception of situation. Consultation or shura with others No egoism Etc.


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4.2 Alternate Ethics System (Decision-Making Criteria)

• Contemporary ethics differs from the Islamic ethical system in multiple ways.

• Six ethical system now dominate ethical thinking in general. These are summarized as below:

– Relatvism (self-interest)

– Utilitarianism (calculation of cost and benefits)

– Universalism (Duty)

– Rights (Individual entitlement)

– Distributive Justice (Fairness and equity)

– Eternal Law (Scripture)


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4.3Distributive Justice

• This approach to ethics revolves around a single value: justice. To be considered ethical, decisions and actions should ensure an equitable distribution of wealth and benefits and burdens.

• There are five principles that may be used to ensure this proper distribution of benefits and burdens:1. To each an equal share- distributes its yearly bonuses

2. To each according to individual need- basic need

3. To each according to individual effort-everything else being equal.

4. To each according to social contribution- social issues

5. To each according to merit-promotion, hiring and firing decisions, no bias, nepotism and favoritism.


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Cont…

• Islam is in favor of justice. According to the Qur’an, the role of the message delivered by His prophets has been to establish justice (Qur’an, 57: 25)

• Muslims in positions of leadership are encouraged to deal justly with their followers or subordinates.

• “The Prophet of Allah (peace be upon him) said, “A commander (of the Muslims) is a shield for them. They fight behind him and they are protected by (him from tyrants and aggressors). If he enjoins fear of God, the Exalted and Glorious, and dispenses justice, there will be a (great) reward for him; and if he enjoins otherwise, it redounds on him. (Sahih Muslim, no 4542)


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4.4 Axioms of Islamic Ethical Philosophy

1) Unity- concept of tawhid, is the vertaical

dimension of Islam. It combines into a

homogeneous whole all the different aspects

of a Muslim’s life: economic, political,

religious, and social, and stresses the idea of

consistency and order throughout. The axiom

of unity has lasting effects on the Muslim.


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2. Equlibrium: related the concept of ‘Adl

3. Free Will: Man’s ability to act without

external coercion within the parameters of

Allah’s creation and as Allah’s trustee on earth.

4. Responsibility: accountable for every action

5. Benevolence: ihsan


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5.0 Degrees of Lawful and Unlawful

Behavior in Islam

1) Fard- that is mandatory/ obligation/ must

perform

2) Mustahabb-not obligatory but hiqhly

recommended of Muslims.

3) Mubah-action are permissible

4) Makruh- not absolutely forbidden, but are

detested. Less degree than the haram.

5) Haram- unlawful and prohibited


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REFFERENCE

• Al-Qur’an al-Karim• Barney, Jay B. & Griffin, Ricky W. (1992). The

Management of Organizations. Houghton Mifflin Company, p.720.

• Raffik Issa Beekun. (2003). Islamic Business Ethics. USA: The International Institute of Islamic Thought.

• Cherrington, J.O. and Cherrington, D.J. (1993). “A Menu of Moral Issues: One Week in the Life of the Wall Street Journal.” Journal of Business Ethics, 11, pp. 255-265.


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Education

BPMS2033 Islamic Business Ethics and Social Responsibility-Fundamental