Ihsan Ullah Khan, Islamabad Pakistan.

1. Ethical Management:
Maintaining Ethical
Standards in Business and
Management
MODERN MANAGEMENT BY SAMULE C. CERTO
CH # 3
CORPORATE SOCIAL RESPONSIBILITY, ETHICS, AND
SUSTAINABILITY.
BY: IHSAN ULLAH KHAN MS (FINANCE) INTERNATIONAL ISLAMIC UNIVERSITY,
ISLAMABAD
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2. Objectives of the Study
In this study we will go through the Understanding of ethics from
different dimensions
 Business and Management Ethics
 Islamic Business Ethics
 Ethics in International Business
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3. INTRODUCTION TO BUSINESS ETHICS
The study of ethics in management can be approached
from many different directions. The movement to include
the study of ethics as a critical part of management
education began in the 1970s, grew significantly in the
1980s, and is expected to continue growing in the twenty-
first century. John Shad, chair of the Securities and
Exchange Commission has recently pledged a $20 million
trust fund to the Harvard Business School to create a
curriculum in business ethics for MBA students.
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4. DEFINING BUSINESS ETHICS
 The discipline dealing with what is good and bad and right and wrong
or with moral duty and obligation (Webster’s New International
Dictionary, 1976).
“our concern for good behavior. We feel an obligation to consider not
only our own personal wellbeing, but also that of other human beings.”
BUSINESS DEFINITION OF ETHICS
“The capacity to reflect on values in the corporate decision making
process, to determine how these values and decisions affect various
stakeholder groups, and to establish how managers can use these
observations in day-to-day company management”
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5. Why Ethics Is a Vital Part of Management Practices
John F. Akers, former board chair of IBM
Recently said that it makes good business sense for managers to be
ethical. Unless they are ethical, he believes, companies cannot be
competitive in either national or international markets.
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6. BENEFITS OF ETHICAL MANAGEMENT
The employment of ethical business practices can enhance overall
corporate health in three important areas
 Productivity.
 Stakeholder relation .
 Government regulation.
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7. BENEFITS OF ETHICAL MANAGEMENT
 Productivity
The employees of a corporation constitute one major stakeholder
group that is affected by management practices. Keeping in view
employees while making decisions will lead to employees job
satisfaction. As a result their productivity will increase.
For instance, Control Data Corporation found that its EAP (Employee
Advisory Programs) reduced health costs and sick-leave usage
significantly.
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8. BENEFITS OF ETHICAL MANAGEMENT
 Stakeholder Relations
Ethical management practices can enhance corporate health is by
positively affecting “outside” stakeholders such as suppliers and
customers. A positive public image can attract customers who view
such an image as desirable.
 For example, Johnson & Johnson, the world’s largest maker of
health care products, is guided by “Our Credo,” addressed by
General Robert Wood Johnson to the company’s employees,
stockholders, and members of its community
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9. BENEFITS OF ETHICAL MANAGEMENT
 Government Regulation
If companies are believed to be acting unethically, the public is more likely
to put sure on legislators and other government officials to regulate those
businesses or to enforce existing regulations.
Islamabad High Court (IHC) has issued notices to secretary commerce, in the
case of import of forbidden food items despite ban and sought reply from
them within two weeks.
He told the court that about 17 forbidden food items including chips lays,
chicken, butter and other goods are being imported in Pakistan
He prayed the court to stay the importing of these forbidden food items.
(Pakistantoday.com.pk)
http://www.pakistantoday.com.pk/2015/04/02/city/keep-haram-food-out-ihc-
asked/
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10. CODE OF ETHICS …
A formal statement that acts as a guide for the ethics of how people
within a particular organization should act and make decisions.
 90% of Fortune 500 firms, and almost half of all other firms, have
ethical codes. Moreover, many organizations that do not already
have an ethical code are giving serious consideration to
developing one.
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11. CODE OF ETHICS
Issues Addressed by the Code of Ethics Are
 Conflicts of interest.
 Privacy of Information. (Own and others)
 Gift giving.
 Giving and receiving political contributions.
 Example of NISSAN Japan
accepting almost all gifts or entertainment from, or offering them to,
business partners and government officials. The new code was drafted by
Nissan president Yoshikazu Hanawa and sent to 300 major suppliers
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12. Creating an Ethical Workplace
Not only to act in accordance the law and standards, but managers also
take in to consideration the other benefits of maintaining ethical
environment in the organization.
Following are some steps to establish an ethical workplace.
 Creating, distributing, and continually improving a company’s code of
ethics
 Another step many companies are taking to create an ethical
workplace is to appoint a chief ethics officer.
 Another way to promote ethics in the workplace is to furnish
organization members with appropriate training. General Dynamics
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13. WHAT IS CONSIDERSD AS ETHICAL ?
Managers can feel confident that a potential action will be considered
ethical by the general public if it is consistent with one or more of the
following standards:
 The golden rule—Act in a way you would expect others to act toward
you.
 The utilitarian principle—Act in a way that results in the greatest good
for the greatest number of people.
 Categorical imperative—Act in such a way that the action taken under
the circumstances could be a universal law, or rule, of behavior.
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14. WHAT IS CONSIDERSD AS ETHICAL ?
 The professional ethic—Take actions that would be viewed as proper by
a disinterested panel of professional peers.
 The TV test—Managers should always ask, “Would I feel comfortable
explaining to a national TV audience why I took this action?”
 The legal test—Is the proposed action or decision legal? Established
laws are generally considered minimum standards for ethics.
 The four-way test—Managers can feel confident that a decision is
ethical if they can answer “yes” to the following questions: Is the
decision truthful? Is it fair to all concerned? Will it build goodwill and
better friendships? Will it be beneficial to all concerned?
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15. Reasons of Un-ethical Behavior
There are two practices which causes unethical behavior.
1) Give unusually high rewards for good performance.
2) Unusually severe punishments for poor performance.
By eliminating such factors, managers can reduce any pressure on
employees to perform unethically in organizations.
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16. Sarbanes–Oxley Reform Standards
Companies like Enron, Wroldcom. Maximizing own wealth by
damaging the interest of shareholders, the top management commit
the unethical conducts. many of these managers used inaccurate
accounting reports to deceive employees, share holders, legal
authorities, the media, and the general public, in case of Worldcom
and Enron.
The Sarbanes–Oxley Act of 2002 was passed to try to prevent such
future deception in publicly owned companies. Areas covered include
maintaining generally accepted accounting practices, evaluating
executive compensation, monitoring fundamental business strategies.
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17. Sarbanes–Oxley Reform Standards
The Sarbanes–Oxley Act seems to support whistle-blowing as a vehicle for
both discouraging deceptive management practices while encouraging
ethical management practices.
Whistle Blower
Someone who ‘‘sounds an alarm within an organization in which he or she
works, aiming to spotlight neglect or abuses which threaten the public
interest’’ (Drummond and Bain, 1994).
One of the most famous whistle-blowers of modern times is Sherron
Watkins, former vice president of Enron Corporation. She testified to
congress that she was receiving information about Enron’s Finance.
Enron, once the seventh largest corporation in the United States, declared
bankruptcy in December 2001.
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18. Islamic Business Ethics
While the mechanisms and tools of Islamic business ethics application
change over time, the underlying concepts of Islamic ethical system
are constant since they were derived from a transcendental source
(i.e. revelation from Allah (the God)). When trying to develop its
application, Islamic business ethics need to remain congruent with its
fundamental concepts.
Philosophy of Islamic Ethics
According to the Quran, humans are the vicegerents of Allah (The
God) on Earth: Behold, thy Lord said to the angels: “I will create a
vicegerent on earth” (The Holy Quran, 2:30, Yosuf Ali translation,
available at: www.quran.com, accessed March 9, 2012).
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19. Islamic Business Ethics
The concept of Khilafa (vicegerency) is the basis for human existence and
consequently for their ethical commitment according to Islamic teachings.
Whenever a Muslim behaves as a vicegerent, he/she is performing an act
of worship. The concept of worship is broad and applicable to all aspects
of life (Beekun and Badawi, 2005).
Islamic teachings are usually referred to as Shari’a. It is common in the
literature to describe Shari’a as Islamic Law.
Halal regulation and certification
Whether a product is Halal or not is a critical factor in Muslims consumption
decisions. Therefore, Halal regulation and certification was developed to
help consumers identifying products, which comply with the Islamic
principles. Already in the 1970s, first efforts were made to set up a system
declaring and certifying food products as Halal. (western foods chain
entry)
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20. Islamic Business Ethics
The Halal market is one of today’s fastest growing markets – even in non-Muslim
countries like France, Halal already overtook organic and bio-products in market
volume (Ahmed, 2011). The global Halal market volume is estimated to be US$580
The current situation in Halal certification is lacking in some fundamental points and
urgently needs further development.
Problems in Halal Certification
 There is no common basis of Halal standards, neither in the Muslim countries nor
worldwide.
 No functioning mechanism for mutual recognition between the countries.
 Ambiguity in the Halal Products. (Shariah Compliant Islamic Finance)
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21. Enhancing Ethical and Responsibility Practices
in Halal Regulation and Certification
 Halal standards can easily extend beyond the Halal product
attributes, enhancing its already existing ethical component and
integrating corporate social responsibility (CSR) practices and
general ethic values.
 Applying CSR practices can help to integrate more criteria and
herewith further develop a responsible Halal business.
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22. Addressing Problems in Halal Certification
Halal regulation and certification forms a good mechanism in order to
help Muslims in meeting their religious commitments while living in a
globalized and diversified society.
Halal business practices vary from one country and industry to another,
this variation is due to governance structure in those countries and
industries.
Halal regulation and certification can be developed by integrating
some proven tools from the domain of CSR.
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23. Ethics in International Business
 Conflicts of Profit and Ethics
Milton Friedman who emphasized that, following Adam Smith’s Wealth
of Nations, business had ‘‘ the social responsibility to increase its profits
and that the business of business is business’’.
In other words, a company’s management is acting ethically if it
follows the company’s self-interest and meets the needs of the market.
Which indirectly benefit the Stockholders specifically and stakeholders
generally.
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24. Ethics and Corporate Culture
A case in point is that after the merger of Cadbury with Schweppes.
Adrian Cadbury was much concerned that the fundamental core values of
Cadbury would remain an essential part of the new Cadbury
Schweppes culture.
These values were clearly defined in a document The Character of the
Company included a strong commitment to ability, quality, simplicity,
transparency and a clear responsibility to the shareholders.
Even in the new setup they were successful but in 2007 it was disclosed that
Cadbury was Fined for unknowingly selling chocolate contaminated with
salmonella which caused illness among a small number of customers in the
biggest test of food safety laws in Britain. This case caused the company to
issue a statement, which said:
Quality has always been at the heart of our business, but the process we
followed in the UK in this instance has been shown to be unacceptable.
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25. Bribery and Corruption
The anti-corruption NGO Transparency International, founded in 1993, defines
corruption as: ‘‘the misuse of public power for private gain’’. It publishes a
Corruption Perception Index (CPI) which ranks countries according to their
perceived level of corruption. By the help of business Experts and Analysts.
Corruption can Include:
 Attempts to secure government or other contracts by bribery;
 Payments because of extortion, blackmail and protection;
 Facilitating government services that companies are entitled to receive but
whose provision is delayed by excessive bureaucracy; and
 Price-fixing.
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26. Business in Less Developed Countries
In emerging markets and in less developed countries, business is often
primarily a question of attempting to balance opportunity and risks,
particularly in those markets where there is strong evidence of corruption
and human rights abuse.
Ethical investment
Ethical investment has been partly influenced by shareholder pressure on
the Boards of companies to invest in business activities that meet high
ethical standards.
An example is the UK arm of the Dutch Triodos Bank, which provides
savings products for ethical investors and lends money for investment in
socially and environmentally useful products.
Investors see this approach in contrast to investing in, for example,
companies active in the arms trade or tobacco products.
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27. Transparency in Accounting
In March 2007 in Japan, the Japanese entrepreneur Takafumie Horie,
was given a two-and-a-half-year prison sentence for false accounting
over the collapse of the internet company. When testifying he said:
I never studied accounting. A management book I read said ‘‘leave
that to specialists’’, so that is what I did.
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28. Ethics in Marketing and Advertising
Ethical issues in this area include inappropriate advertising and
representation in such areas as:
 Exaggerated and unsubstantiated claims for product (99% Surety)
 Inappropriate portrayal of gender, race and age.
 Arousing unrealistic expectations.
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29. By: Ihsan Ullah khan
MS (finance) International Islamic university,
Islamabad
Email “Ihsanmba21@gmail.com”
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