Emergence of business ethics in corporate culture

Emergence of business ethics in corporate culture

Dividing history in business perspective, we find two stages: the dark age, the age before 15^th century; and after-the-dark age or Industrial Revolution, the age onward 15^th century. In the dark ages the only business was trade. The process of exchange of one good for another carried among individuals, groups and city-states. Different people, groups and city-states had their own rules and principles for such trade. They had their own standards of measurement, weighing and the like. In spite of those differences, the notion of what is good and what is bad was common among them. All traders knew about the notion of fair exchange, fair wages, fair treatment, treating equals equally and trading equals for equals or having an equal amount both before and after the transaction. All these we categorized as Micro-ethics or often we say traditional ethics. Philosophers like Aristotle have greater contribution to these ethics. He made moral judgments about greed, or the unnatural use of one’s capacities in pursuit of wealth for its own sake and similarly condemned taking interest rates on lent-money. All notions like those were not necessary to be thought. For, everyone was known as those ethics were innate and natural.

However, when the Industrial Revolution took place, the world became a complex and an overwhelming place. People became creative and initiative. They started building factories. People, who have no land for farming or any other source of money earning, flourished to factories for working. They worked for factory and the factory’s owner gave them wages. People bought the products of the factories; factory earned profits. There was consistency in the system because everyone has its own interest: factory owner had his own interest, people had their own interest and labors had their own interest which Adam Smith called “The invisible hand”. For such situations when exist, you don't need any regulatory system, as it is itself regulated by this invisible hand.

Later on this system was named Capitalism by Karl Marx. He rebuked this system and claimed it is built on the exploitation of labor. From his analysis of his labor theory of value, he said that all economic value comes from human labor. But in capitalism the only commodity not sold at its real value is human labor.

Fair earnings – unfair wages = incredible profit

Workers are paid less than the value they produce. The difference between the values the workers produce and what they are paid is the source of profit for the owner. If workers were paid the value they produced, there would be no profit and so capitalism would disappear.  

In a meanwhile corporations and multinational corporations were growing in size and importance. Big business was replacing small and medium-sized businesses in the societal image of business. The chemical industry was booming with innovation, and in its wake came environmental damage on a scale that had not previously been possible. The spirit of protest led to the environmental movement, to the rise of consumerism, and to criticism of multinational corporations. Many critics claimed that Multinational Corporations suck profits from the exploitation of workers in less developed countries and bring inequality in the society, for richer grows richer and poor becomes poorer.

When Corporations found themselves under public attack, they responded by developing the notion of social responsibility. They started social responsibility programs and spent a good deal of money advertising their programs and how they were promoting the social good. But whether it was reforestation or cutting down on pollution or increasing diversity in the workforce, social responsibility was the term used to capture those activities of a corporation that were beneficial to society and usually, by implication, that made up for some unethical or anti-social activity with which the company had been charged.

Business then created ethical structures that helped it and its employees to act ethically. The structures may include clear lines of responsibility, a corporate ethics code, an ethics training program, help line, a means of transmitting values within the firm and maintaining a certain corporate culture, and so on. Some companies have always been ethical and have structured themselves and their culture to reinforce ethical behavior. And other slowly began to change; and the change became a movement when more and more companies started responding to growing public pressure, media scrutiny, their own corporate consciences, and, perhaps most importantly, to legislation. Whatever are the reasons behind business-ethics-emergence, one is obvious that corporations did adopt business ethics because of their own interests.

Stages of Business Ethics Development

Profit

Stage1. Legislations

Stage 2. Ethics

Stage 3. Philanthropy

At first companies’ goal was profit only. When public pressure increased legislation, the corporations itself brought the notion of society welfare. Milton Friedman said that business must hold obligations to its shareholders. Projects for society welfare (which do not increase the company's business) are equal to stealing from the shareholders. This argument was countered that business must hold obligations to its stakeholders. For then shareholders are the subclass of stakeholders.

 After that, comes legal stage, when Business Ethics was enforced by legislation.  The U. S. Civil Rights Act prohibited discrimination of the basis of race, color, religion. The Pakistan Employment of Children Act (ECA) bans employment of child under 14; prohibited child labor. After that comes ethical stage. Organizations adopted these ethics itself in the pursuit of their reputation. They promoted stated goals to achieve real goals. And at last Philanthropic stage, where there could be two dimensions: Real Philanthropy (e.g. Edhi Foundation), or Philanthropy for some political aims (e.g. NGOs).

Business ethics is important in a corporate culture. Without business ethics corporations cannot achieve their goals. In the age of globalization, competition rises time by time. And if one do not imitate others in this competition they will lag behind the others. For Example, During 1990’s there was only one petrol station in Pakistan which was PSO- Pakistan State Oil. So, whenever people went there for fuel, PSO workers and managers used to shout at everyone and didn't care for their customers. Unfortunately, customer had no other option. But when French company-- Shell -- began operational in Pakistan, its workers used to give smile to their customers on every visit and they also used to clean front mirror of the customers' cars. People were getting very pleased on their behavior and began to switch from PSO to Shell because Shell was having some ethical considerations and giving value to their customers. The status of PSO went down and they realized the ethical values in their culture. In response, PSO also imitated the practice of smiling and cleaning.

Culture is the personality of organization and every culture has its own personality putting different influence on customers. This personality is established by the ethical values like (avoidance of disturbance and lobbies, trust and respect for employees and employees' privacy, no interference in other’s business, maintaining the balance between transparency and confidentiality, and so on) in that organization. A culture that has polite environment will be liked by its customers and will have greater reputation among other cultures. You will feel different when you visit National Bank of Pakistan than to visit MCB, or Pakistan Post Office than to TCS. And these culture ethical values make all the difference.

                                                                                                                             

         Author: Raheel Shahab