Measuring the ethical quotient of corporations: the case of small and medium enterprises in India.
Lather, Anu Singh
Ethical business values translated into management behaviours can
make the difference between employee satisfaction and frustration--with
the consequent impact on results.
Maister, 2008
ETHICS AND VALUES
A present day term, ethics are the rules or standards governing the
conduct by which one lives one's life and makes all his decisions.
Being Ethical means doing what is right to achieve what is good. The
study and assessment of morals is Ethics. It is the character or custom
by which one lives one's life. Ethics are ready reckoners of how to
react to certain situations long before that situation happens. The term
is employed, used, associated with sustainable development that cannot
survive without it. While morality answers the question "what
should I do?" ethics, for its part, answers the question dealing
with "how should I do", or better still: "how should I
live within and by my company?" Ethics therefore questions not only
the person, but also his environment. It questions the world insofar as
relationships and exchanges are concerned. Rendered present by the
intermediary of charters and obligations of sustainable development, it
fully participates in the social responsibility of the company and aims
at guiding its steps towards the attainment of this goal (Fray, 2007).
The fact that ethics aims at improving the world and its exchanges
explains as to why it touches on the professional ethics and value
systems of organizations. In this frame of mind, ethics serves above all
to construct the very point of view of the company, without
disconnecting it for all this from its environment, but on the contrary
by enabling it to create its landmarks within this environment in
relationship to the other players (Begley & Stefkovich, 2007).
Whether or not values and ethics are consciously employed as guides
to decision making by individuals, they remain in general an important
influence on the cognitive processes of individuals and groups of
individuals. Values can be formally defined as conceptions of the
desirable with motivating force characteristic of individuals, groups,
organizations, and societies that influence choices made from available
resources and means (Hodgkinson, 1978). Begley (2006) describes the
influence of values within individuals as the internal psychological
reflections of more distilled levels of motivation (e.g. a concern for
personal interests, consequences, or consensus) that become tangible to
an observer in the form of attitudes, speech, and actions. Thus, values
in their various forms, including ethics, can be thought of as conscious
or unconscious influences on attitudes, actions, and speech. However, it
is important to note that valuation processes can involve more than
ethics. Values can take different forms and can be best categorized
according to their motivational grounding. Ethics, as a particular form
of values, as opposed to the scholarly discipline, are normative social
ideals or codes of conduct usually grounded in the cultural experience
of particular societies.
The collapse of companies such as Enron, Arthur Anderson, WorldCom
and Global Crossing in the USA, HIH Insurance and OneTel in Australia,
Bhopal Gas Tragedy and Satyam in India and Parmalat in Italy has led to
a loss of confidence by the investing public in the system of financial
reporting and accountability. A major factor in this loss of confidence
was the unprecedented implosion of one of the then "Big 5"
accounting firms, Arthur Andersen, with the loss of 85,000 jobs
worldwide and the loss of public trust in the accounting profession that
accompanied it. These developments led to the promulgation of the
Sarbanes-Oxley Act of 2002 in the USA and similar legislation such as
the Corporate Law Economic Reform Program (Audit Reform and Corporate
Disclosure) Act 2004 in Australia. The globalization and diversification
of accounting services, combined with market competition and high
profile corporate collapses has drawn attention to the accounting
profession and its perceived ethical standards (Ponemon, 1995; Ashkanasy
and Windsor, 1997; Armstrong et al., 2003; Leung and Cooper, 2005).
Commentators are now questioning, whether the value systems of
accounting professionals are strong enough to withstand client and
economic pressures that potentially compromise professional judgement
(Douglas et al., 1995; Jennings, 2004). All the above corporations share
the same problem--the lack of ethics and morals. Their behavior caused
havoc for untold thousands of people. Ethics, especially in a fiduciary
relationship, is of primary importance. As companies globally face
issues relating to transparency, accountability and timely disclosure of
material information, the concept of corporate governance and business
ethics has gained significant importance.
Due to the increasing pressure to conform to ethical practices, the
large companies and MNCs have started addressing the concept of business
ethics more seriously than before (Harila & Petrini, 2003). It is
the small and medium size corporations that need to be closely
monitored, because not only do they lack resources but also they lack
the leadership to adopt ethical practices. Their mismanagement affects
the ability of SME companies to incorporate responsible and ethical
practices in their business operations (Joquico, 2008). Some of the
characteristics highlighting SMEs in India are given below.
Governance: SMEs are often family-owned enterprises managed by
family members, which creates challenges for reporting unethical conduct
and managing conflicts of interest.
Fewer organizational structures than large enterprises: In their
operations, SMEs rely far more on informal processes such as verbal
communication than on the formal policies and procedures that structure
large enterprises. They thus lack the sound organizational systems that
support ethics programs in large organizations. Symptomatic of a lack of
structure is the tendency to focus less on medium-and long-term planning
than on immediate, day-to-day issues.
Tendency of some SMEs to remain "informal" where
possible: Another factor that shapes the context of the SMEs is the dual
economy of formal--legally registered--and informal sectors. For many
enterprises, this distinction is not absolute; these enterprises observe
some regulations while evading taxes and failing to comply with labor
regulations.
Training: Lastly, SMEs invest little in training employees in areas
not apparently related to technical or commercial matters.
It is against this background that the present study has been
conducted in SMEs located in and around the Indian capital of Delhi.
SMEs IN INDIA
Small and Medium Enterprises (SMEs) are officially defined and
exclusively identified for promotion in the manufacturing sector of most
national economies. The most important justification for the exclusive
promotion of SMEs is their potential for employment intensity. In
general, a SME generates more jobs per unit of capital investment than a
large enterprise. However, there is no uniform definition of a SME in
the global economy. Different countries have defined SMEs in different
ways. In Japan, an SME in the manufacturing sector is defined in terms
of upper limit of paid-up capital of 300 million Yen or 300 employees
(Small & Medium Enterprise Agency, 2004). In South Korea, SMEs are
defined as firms, which are independently owned and employ less than 300
persons in the manufacturing, mining, transportation and construction
sectors (Baek, 2002). In the European Union, SMEs are defined in terms
of employment and turnover/balance sheet total. To be classified as a
SME, an enterprise must satisfy the criteria for the number of employees
and one of the two financial criteria, that is, either the turnover
total or the balance sheet total. In addition, it must be independent.
There is no official definition of a SME in India (Subrahmanya, 2005).
The Government of India has officially defined a small-scale enterprise
under the Industries Development and Regulation (IDR) Act, 1951, in
terms of upper limit of original investment in plant and machinery at
Rs.10 million. But the recently introduced Small and Medium Enterprises
Bill, 2005 (SIDO, 2005) has proposed a definition of a medium enterprise
in terms of investment in plant and machinery in the range of Rs.50
million to Rs.100 million and proposed to revise the upper investment
limit for a small-scale enterprise to Rs.50 million. If this definition
is accepted, then SMEs would cover all enterprises having investment in
plant and machinery up to Rs.100 million. But there is no single source
of data, which provides statistics on the size and composition of SMEs
in India. The Annual Survey of Industries (ASI) is the most
comprehensive and reliable source of data on Indian industry covering
registered factories.
ROLE AND IMPORTANCE OF SMEs IN THE INDIAN ECONOMY
The Small and Medium Enterprises (SMEs) play a vital role in the
industrial development of any country. The importance of the SME sector
is well recognized world over from its significant contribution in
gratifying various socio-economic objectives, such as higher growth of
employment, output, promotion of exports and fostering entrepreneurship
(Mahmood, 2008). In fact there is an increasing importance of SMEs in
developing countries because of their role in economic growth and
poverty reduction. SMEs are considered as an engine of growth in a
prosperous and growing economy (Harvie, 2004). SMEs not only contribute
to the economic development by creating employment for rural and urban
population, but also provide flexibility and innovation through
entrepreneurship. They are even responsible for increasing the
international trade by diversifying economic activity. Their role in
income generation and economic growth for developing countries is
critical so much so that they are major contributors to GDP and private
sector employment. SMEs provide sustainable growth, generate jobs, and
help reduce poverty levels (Mahmood, 2008). SME development is pivotal
for pro-poor growth because it makes possible the transition from low to
middle-income status. They function as catalysts of economic change and
in many developed and developing economies they have been pioneering new
technologies and management methods (Spence, 2000). Thailand, Turkey,
India are just a few of the developing countries that have made swift
progress in encouraging and fostering their SME sector. Their
contribution to the economy is summarized in Table 1.
It is therefore imperative for the future economic growth of
developing countries to create and promote an environment that nurtures
and facilitates the small and medium sector and enables it to realize
its true potential. Institutional framework and policy specifications
are important factors in helping the evolution and success of SMEs
across the globe. Today, many countries have introduced schemes in
diverse areas, viz., financing, technology, innovation, managerial
ability, market information and developmental assistance, aimed at
improving the working environment for SMEs (Webley, 2003). In India the
Small Scale Industries (SSI) employ around 26 million people and are
involved with the production of over 7500 industrial items with the
product range varying from very simple items produced with traditional
technology to high tech products. At present, the SSI sector accounts
for over 90% of industrial units in the country, 40% of value addition
in the manufacturing output and approximately 35% of India's
exports (EXIM Bank of India, 2005) (1).
However, there are certain constraints faced by the SSI sector
which include product reservations, regulatory hassles--both at the
entry and exit stages, insufficient finance at affordable terms,
inflexible labour markets and infrastructure related problems--like high
power tariff, and insufficient export infrastructure. The policy of
product reservations has restricted operation of economies of scale and
greater efficiency in the small scale sector. Starting a business in
India requires number of permits, even after the initiation of
liberalization programme, as compared to many other developing Asian
nations. Insufficient finance at affordable terms is another challenge
daunting the performance of Indian SME sector. Infrastructural
bottlenecks such as transportation and communication facility along with
insufficient export infrastructure increases the transaction cost of SME
units in India. Problems in assessing adequate and reliable power at
affordable price are other problems of Indian SMEs. SMEs and SSI face
challenges related to access to finance both domestically and
internationally, developing international trade linkages. Developing
entrepreneurial culture and ethical business environment are also
important challenges. The main underlying constraint to their growth is
lack of corporate governance structure. There is generally a lack of
awareness among these enterprises regarding significance of corporate
governance and if there is awareness, there is a general aversion to
adopting these practices because of the high cost of implementation
(Mahmood, 2008).
To overcome these challenges SME development requires a
crosscutting strategy that touches upon many areas. Apart from conducive
policies, there is a need for simplified legal and regulatory framework,
good governance, abundant and accessible finance, suitable
infrastructure, entrepreneurial skill development infrastructure and
competitive environment (Sinha, 2005). There is a pressing need for
embracing corporate governance and ethical business practices. Conducive
WTO compatible policies are required for this sector to decide on
various issues such as cap on capital investment, ceiling on FDI,
interest subsidy, de-reservation of items, and creation of technology
upgradation fund. Existence of adequate institutional framework and
efficient administrative system, along with deregulation of economic
activities, would facilitate restructuring of small and medium
enterprises in India (Banerjee, 2005).
The small and medium scale enterprises could be defined as one
entity for policy purposes, with the objective of facilitating higher
investment and thereby encouraging the technology upgradation.
Reservation of items should be phased out substituting with promotional
support to strengthen their globalization efforts. Reengineering the
entire gamut of regulatory processes, especially at the state and local
levels, with the objective of installing transparent policies would
bring down the cost of investment related delays. SMEs should be
encouraged to work in a cluster environment ensuring complementarities,
common activities, collective goods and institutional stability. This
strategy requires sector specific actions, aimed at increasing the
competitiveness of the cluster, promoting networks and cooperation
amongst firms. There is a need for development of a comprehensive
programme for improving the technology base and strengthening of
innovation culture in SMEs. Management skills are very necessary for the
success of SMEs in any developing country. Strengthening National
Entrepreneurship Development Board, devising comprehensive plan for
promotion of rural entrepreneurship, fostering close linkages with
premier institutions engaged in management and entrepreneurial training
may be considered on priority basis. Access and integration into local,
national and global markets require substantial investments.
Partnerships between various stakeholders, viz., Government, society and
industry, foster such investment (Sinha, 2005).
IMPORTANCE OF AN ETHICAL BUSINESS ENVIRONMENT IN SMEs
Business ethics is a form of applied ethics that examines ethical
principles and moral or ethical problems that arise in a business
environment. In the increasingly conscience-focused marketplaces of the
21st century, the demand for more ethical business processes and actions
in SMEs (known as ethicism) is increasing (2). Simultaneously, pressure
is applied on industry to improve business ethics through new public
initiatives and laws (e.g. higher UK road tax for higher-emission
vehicles). (3) Businesses can often attain short-term gains by acting in
an unethical fashion; however, such antics tend to undermine the economy
over time. SME Owners and managers can often encounter ethical
challenges in the form of questions like Do I meet a deadline with my
customer and ship out products even though I know there is a possibility
they might be faulty?, Do I openly discuss my difficulties with the
customer?, How do I ensure that my employees do their work properly?,
How do I deal with my employees' desire to balance their work
obligations with their personal ones?, How do I respond when securing an
important contract seems to require the payment of a kickback?, Do I
delay payment to suppliers when my cash flow is currently limited? There
are several ethical issues related to the various business processes of
SMEs (Torzewski, 2004). There is an overlapping of business ethics with
the philosophy of business, one of the aims of which is to determine the
fundamental purposes of a company. If a company's main purpose is
to maximize the returns to its shareholders, then it should be seen as
unethical for a company to consider the interests and rights of anyone
else (Friedman, 1970). Corporate social responsibility or CSR is an
umbrella term under which the ethical rights and duties existing between
companies and society is debated. There are also issues regarding the
moral rights and duties between a company and its shareholders that is
fiduciary responsibility, stakeholder concept vs. shareholder concept.
Ethical issues concerning relations between different companies like
hostile take-over, industrial espionage, leadership issues concerning
corporate governance, political contributions made by corporations, law
reform such as the ethical debate over introducing a crime of corporate
manslaughter, and the misuse of corporate ethics policies as marketing
instruments all plague the management of SMEs. The desire to build
trusting internal and external relationships, as well as growing
pressures from wider society, should lead SME owners and managers to
consider to what extent ethical values and principles guide their
business behaviour. What does 'doing the right thing' mean?
While laying down the definitions for SMEs, business values may include
customer service, quality, innovation, reliability, efficiency and value
for money. Ethical values for SMEs may include integrity, honesty,
openness, respect, fairness and responsibility.
SMEs are characterized by informal understandings and shared
expectations among the workforce of how business is done. Any values and
ethical principles will usually be implicit rather than formally
expressed through ethics policies, codes and programmes that are
familiar in large companies. The ethics of a small organisation is
typically influenced by the owner-manager or managing director (Harrison
& Freeman, 1999). Through their very visible presence, their
personal attitudes and behaviours will set the tone of the business and
have the potential to signal to employees how seriously ethical
behaviour is to be taken in the organisation. SMEs are not typically
able to devote as many resources to building an ethical workplace
culture as larger organizations. However, there are advantages to having
a somewhat more formal ethics policy in place. Firstly, it reinforces
and makes explicit the values and principles that are part of the
organizational culture, so allowing them to be communicated to
stakeholders. Secondly, a policy will provide guidance and support to
employees on how they are expected to conduct their business. Tablet
sets out some benefits of an explicit ethics policy.
RATIONALE OF THE STUDY
Traditional business standards have begun to fade. Right over wrong
and our sense of values and fair play are more frequently superseded by
the urge to take shortcuts to monetary success where possible. The
justification seems to be, if no one catches us, it did not happen. In
the increasingly monitory focused marketplaces of the twenty-first
century, the demand for more ethical business processes and actions is
required. They are important because others will copy them from us. In
today's globalized economy business ethics act as mediators while
dealing with international and cross-cultural systems and societies.
Laying down acceptable and unacceptable behavior in conducting business
helps in fast delivery of business without taking the legal route. It is
due to these reasons it becomes important to conduct this study.
REVIEW OF LITERATURE
Traditionally, most of the literature on business ethics has
focused on larger companies and multi-national corporations (MNCs) with
the assumption that business ethics in MNCs is the same as business
ethics in SMEs (Steel & Webster, 1992). However, there have been
contributions to better understand business ethics in SMEs from a number
of scholars such as; Storey, 1985; Shleifer & Vishny, 1997 and
others (Mayer, 1997). It is suggested by the work of those that business
ethics as enacted in MNCs is far different than for SMEs; this is not
just because of their differences in size but also in nature, because
unlike MNCs, in SMEs, control of the company and the decisions depend on
personal decision making of a single person (Gompers et al, 2003;
McNulty & Pettigrew, 1999).
Given the fact that most of the SMEs are family-owned businesses
and in South Asia region, family-owned businesses are an important
component of the economy (Rana, 2003), there are several issues that
plague them, including absence of clear policies and long term planning,
lack of outside opinions on strategic direction, not clearly defined
benefits and compensation for family members, obligation to hire family
members who are not qualified or lack the skills and abilities for the
organization, not having a succession plan and access to finance and
equity (Mahmood, 2008). SMEs because of their flexible structure are in
a better position to forge international linkages. In many countries,
SMEs have been able to forge stronger linkages with domestic
export-oriented large farms. However, it is now important that SMEs
develop linkages with Multinational Corporations (MNCs) perhaps entering
through subcontracting linkages or supply the finished products (Zaman,
2008). Developing countries with cheap labor force can be particularly
useful for this partnership. These international linkages are important
as they give access to International Markets, access to latest
technology, access to international investors and higher exports which
leads to greater exposure. International investors are often reluctant
to invest in developing countries because their institutions do not
provide an adequate level of security for their investment particularly
in terms of enforceability of legal rights and governance framework.
MNCs and international investors will be willing to forge partnership
with SMEs only when their level of confidence and trust increases
regarding transparency and governance of the local partner (Hankinson et
al, 1997). In other words how the firm is being governed is critical to
raise investment.
For SMEs, corporate governance is about the respective roles of the
shareholders as owners and the managers. It is about establishing rules
and procedures to manage and run the enterprise. Corporate Governance is
also about setting up a system of checks and balances to prevent abuses
of authority and to ensure the integrity of financial statements. Good
governance does not guarantee business success but it is one of the main
factors which can help in long-term success. The symptoms of poor
governance may not be immediately visible and in the long-run it can
cause serious problems (Mahmood, 2008). In case of SMEs, governance
frameworks determine the capacity of small firms to raise capital.
Financial markets are faced with the problem of information asymmetry
i.e. the difficulty of evaluating the quality of the firm's
management framework and protection against moral hazards; hence
corporate governance is important (Rana, 2003). It provides resources to
the firms and also helps them to organize these resources. Other key
benefits to SMEs include better and stronger system of internal control
and accountability, transparency, strategic vision through participation
of outside experts on the board, owner to focus more on strategic
directions and expansion of business than day to day operations and
ability to attract better managers. Corporate governance can therefore
be viewed as a mechanism to mobilize and combine resources and
competentes (Mahmood, 2008).
Directors of small and medium sized enterprises (SMEs) will not
deny the importance of good, trusting relationships with customers,
employees, suppliers and the community (Spence, 2000). The success of
their company depends on it. Also, due to requirements higher up supply
chains, smaller firms are increasingly asked about their social and
environmental credentials during tendering processes with large
corporations. SME owners and managers will also recognize the importance
of trust and ethics in business when on the receiving end of unethical
business practice; for example, when suppliers deliberately do not meet
agreed terms and conditions etc.
Ethics is not just about doing what is legally right--more
important, it is about what is morally right. Unfortunately, we live in
a time when traditional business standards have begun to fade. Right
over wrong and our sense of values and fair play are more frequently
superseded by the urge to take shortcuts to monetary success whenever
possible. The justification seems to be, if no one catches us, it did
not happen. In the increasingly conscience-focused marketplaces of the
twenty-first century, the demand for more ethical business processes and
actions is increasing. Simultaneously, pressure is being applied on the
industry to improve business ethics through new public initiatives and
laws. Companies need to understand that only by maintaining the
strongest possible code of ethics they would be able to attract the best
employees and capital on the most favorable terms. This study has been
undertaken to measure the Ethical Quotient of SMEs in India.
OBJECTIVES
--To study the areas of ethical concern in Small and Medium
Enterprises (SMEs) located in Delhi region.
--To measure the Ethical Quotient in the SMEs.
RESEARCH METHODOLOGY
Research Design
This study is based on random sampling. Total sample size is 70.
Research Instrument used was a two-part questionnaire developed by the
author. The data analysis tools consisted of t-tests and developing a
scoring table on the basis of which the Ethical Quotient was arrived at.
SPSS was used for the analysis.
The total sample consisted of 100 working professionals employed in
25 Small and Medium Enterprises located in Delhi and NCR (National
Capital Region), India. Organizations from the service sector were
randomly selected, based on convenience sampling. Out of 100, only 70
employees from 23 organizations returned the questionnaires with valid
responses, which is a return rate of 70%. The participating
organizations included DOT Communications (Advertising), Simbhaoli
Sugars Ltd (Agriculture), Sona Koyo Steering Systems Limited (Auto
Components), Comptaax e Software Pvt Ltd, A R Consultancy and Empyrean
Partners (Consultancy Services), Nirulas Corner House P Ltd
(Hospitality), Vserv Insurance Services (Pvt) Ltd (Insurance), Real Time
Systems Ltd., Comnet Vision India Pvt Ltd, RR Systems Pvt Ltd,
BrainPulse Technologies Pvt Ltd, SITA India and Abacus Softech Ltd (IT),
Grail Research (KPO), Eastern Medikit Limited and Bi Biotech India Pvt.
Ltd (Pharmaceuticals), A K Technic Power Pvt Ltd (Power), Shyam Telecom
Ltd and Tulip Telecom Ltd. (Telecom), Anish India Export Pvt Ltd and
Orient Craft Limited (Textiles), and Atlanta Travels (Travel Services).
A two-part questionnaire was developed with the first part
dedicated to the profile of the respondents. The second part was
developed on a five-point Likert scale (Completely Fa1se.... Completely
True). It consisted of statements related to the Organizational Ethical
Standard, Employees' Ethical Perception, and ethical considerations
towards Finance, HR, Marketing, Production and Intellectual Property
related matters in the companies. In this study, the Ethical Quotient of
organizations is seen as a combination of the following parameters:
ORGANIZATIONAL ETHICAL STANDARD is wherein the code of ethics is
clearly laid down by the management. It is communicated to all employees
and there is a monitoring system in place to take care of any breach in
the code.
EMPLOYEES' ETHICAL PERCEPTION talks about the different
perceptions the employees have about the code of ethics and the
expectations of ethical behaviour of the organization from the
employees.
ETHICS OF FINANCE AND ACCOUNTING INFORMATION is related to creative
accounting, earnings management, misleading financial analysis, insider
trading, securities fraud, bucket shops, foreign exchange scams
[concerning (criminal) manipulation of the financial markets], executive
compensation which concerns excessive payments made to corporate
CEO's and top management, bribery, kickbacks, facilitation payments
(while these may be in the (short-term) interests of the company and its
shareholders, these practices may be anti-competitive or offend against
the values of society). There have been several accounting scandals like
Enron, WorldCom and off late, Satyam in India.
ETHICS OF HUMAN RESOURCE MANAGEMENT It covers those ethical issues
arising around the employer-employee relationship, such as the rights
and duties owed between employer and employee. Majorly in this fall the
discrimination issues including discrimination on the bases of age
(ageism), gender, race, religion, disabilities, weight and
attractiveness. Sexual harassment plagues employees in some form or the
other. Then there are issues surrounding the representation of employees
and the democratization of the workplace including union busting and
strike breaking. Issues affecting the privacy of the employee like
workplace surveillance and drug testing affect employees to a great
extent. Issues affecting the privacy of the employer taking the form of
whistle-blowing are also critical concerns the organizations face in
current times. There are issues relating to the fairness of the
employment contract and the balance of power between employer and
employee. Finally, the concern by the organization for the employees
related to occupational safety and health.
ETHICS OF SALES AND MARKETING refers to the case of marketing which
goes beyond the mere provision of information about (and access to) a
product may seek to manipulate our values and behavior. To some extent
society regards this as acceptable, but where is the ethical line to be
drawn? Marketing ethics overlaps strongly with media ethics, because
marketing makes heavy use of media. However, media ethics is a much
larger topic and extends outside business ethics. There are pricing
issues related to price fixing, price discrimination and price skimming.
There are anti-competitive practices which include but go beyond pricing
tactics to cover issues such as manipulation of loyalty and supply
chains. There also are specific marketing strategies like viral
marketing, spam (electronic) and planned obsolescence. The content of
advertisements which includes attack ads, subliminal messages, sex in
advertising and products regarded as immoral or harmful is also under
scrutiny. There are concerns related to children and marketing whereby
companies do marketing in schools or use children in advertisements to
increase the product sale. The concept of black markets and grey markets
is another area of concern.
ETHICS OF PRODUCTION is the area of business ethics deals which
with the duties of a company to ensure that products and production
processes do not cause harm. Some of the more acute dilemmas in this
area arise out of the fact that there is usually a degree of danger in
either the product or the production process and it is difficult to
define a degree of permissibility, or the degree of permissibility may
depend on the changing state of preventative technologies or changing
social perceptions of acceptable risk. Defective, addictive and
inherently dangerous products and services (for example tobacco,
alcohol, weapons, motor vehicles and chemical manufacturing) are of
grave concern to the corporations. Ethical relations between the company
and the environment with respect to pollution, environmental ethics and
carbon emissions trading have assumed more significance in the current
environment. Ethical problems that need to be taken care of are those
arising out of new technologies like genetically modified food, mobile
phone radiation and health need to be taken care of There are product
testing ethics especially related to animal rights and animal testing,
use of economically disadvantaged groups (such as students) as test
objects. There are several cases in the history of business environment
like Ford Pinto scandal, Peanut Corporation of America and Bhopal Gas
Tragedy in India which have made corporations to sit up and take notice
of their production processes like never before.
ETHICS OF INTELLECTUAL PROPERTY, KNOWLEDGE AND SKILLS is also
important. Knowledge and skills are valuable but not easily ownable as
objects. Nor is it obvious whoever has the greater rights to an idea:
the company who trained the employee or the employee themselves? The
country in which the plant grew or the company which discovered and
developed the plant's medicinal potential? As a result, attempts to
assert ownership and ethical disputes over ownership arise. Patent
infringement, copyright infringement, trademark infringement, misuse of
the intellectual property systems, patent misuse, copyright misuse,
patent troll and submarine patent to stifle competition are all serious
concerns. Employee raiding which is the practice of attracting key
employees away from a competitor to take unfair advantage of the
knowledge or skills they may possess is also confronted by
organizations. The practice of employing all the most talented people in
a specific field, regardless of need, in order to prevent any
competitors employing them is also seen in today's times.
RESULTS AND DISCUSSION
The Services Sector constitutes a large part of the Indian economy
both in terms of employment potential and its contribution to national
income. The Sector covers a wide range of activities from the most
sophisticated in the field of Information and Communication Technology
to simple services pursued by the informal sector workers. In this
study, all the participants are a part of one of the following service
sectors, namely Auto components, Agriculture, Consultancy Services,
Advertising, Hospitality, Power, Telecom, Textiles, Travel Services,
Pharmaceuticals, Information Technology, Insurance and KPO with focus on
research activities. Of these, Information Technology, Pharmaceuticals,
Insurance and KPOs have been categorized as High Intellectual Soft
Services while the remaining industries have been classified as Low
Intellectual Soft Services. High Intellectual Soft Services are defined
as those in which there is an increased risk of security of data, thus
requiring a strong ethical culture in the organization. It is imperative
to develop the Ethical Quotient in these industries. They are highly
vulnerable to situations which require a strong ethical climate in the
organizations. This need is not as high comparatively in Low
Intellectual Soft Services (including Trade, Hospitality, Tourism and
Recreation, Communication, Real Estate, Health and Consultancy
Services). The Ethical Quotient was developed using the scoring scheme
given in Table3.
The scoring of the responses gave the Ethical Quotient of the High
Intellectual Soft Services and Low Intellectual Soft Services based on
all the ethical parameters. Table4 clearly indicates that while High
Intellectual Soft Services are only in the Medium range for Organization
Ethical Standard, Employees' Ethical Perception and HR Ethics, they
fall in the Low category with respect to Financial Ethics, Marketing
Ethics, Production Ethics and IPR Ethics. This is very alarming and
needs to be addressed immediately. It is a serious issue since it is all
these four parameters which are highly sensitive with respect to the
High Intellectual Soft Services. In the case of Low Intellectual Soft
Services, while all the parameters come in the Medium level, the
critical Financial Ethics fall in the Low category. This is a poor sign
since it is these very ethical considerations that need to be at least
medium if not high, for organizations to operate in today's
turbulent times. Overall the Ethical Quotient for these organizations is
in Medium range for all the sectors.
Then t-tests were conducted to find out the level of significance
of each of the parameters viz. both High Intellectual Services and Soft
Services. The results indicated that there was a significant level of
difference with respect to the parameters of the Financial Ethics,
Marketing Ethics and Production Ethics. The table (Tables) summarizes
the results of the t-tests.
The t-test values show significant difference on mean scores of the
critical functions of finance, marketing and production in the High
Intellectual Soft Services. There is a need to sensitize and standardize
the Ethical practices. The general ethical standards laid down are only
falling in the medium range. The perception of the employees towards the
ethical practices is also in the medium range, implying that the
communication of the Ethical code in the organizations to the employees
is average. It is for this reason that SMEs in India have not been able
to graduate to higher levels. Even though they play a critical part in
the Indian economy, they have not themselves been able to grow as much
and the main reason for this is their lackadaisical response towards
business ethics and adoption of ethical practices in their business
operations.
CONCLUSION AND THE WAY FORWARD
The above results call for implementation of a robust policy
related to Ethics and the following steps are proposed for the same:
Identify and define core values of the business: An effective
ethics policy will be based on a set of values. In SMEs, these values
will inevitably be influenced by the personal and professional values
and principles of the owner-managers. However, it is considered good
practice to consult employees about this, asking them what they think
the values of the organisation are. Employee involvement can increase
the effectiveness of an ethics policy; it is the first stage in
embedding values in the culture.
Draw up a code of ethics: A code of ethics is the main tool for
implementing an ethics policy. It translates core values into specific
commitments and expected behaviours in relation to the
organization's key stakeholder groups (i.e. customers, employees,
suppliers and contractors, providers of finance and community). A code
will also be a good place to address environmental responsibilities and
to state how the company seeks to relate to its competitors. When
drawing up a code it is also helpful to ask employees about ethical
issues that concern them and on which they would like guidance.
Embedding the Code: The code needs to be communicated throughout
the company. All employees should be made aware of the code, the
commitments the organisation has made and the ethical behaviours that
are expected of them as members of the organisation and how they can get
support. It will be good practice if owner-managers themselves introduce
the code to new employees and remind existing staff of the importance of
responsible behaviour on a regular basis, e.g. in staff meetings. Owners
or senior managers need to be aware that their behaviour sets an example
to their employees.
External standards and guidelines: External codes and standards
will complement and strengthen the ethics policy and culture of an SME.
Informal and formal professional codes of practice may inform their
business practices and greatly enhance the business's reputation.
The above steps can help formulate the Ethical policy of the SMEs, which
is a business requirement in current times.
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Published by the Forum on Public Policy
(1) www.eximbankindia.com
(2) http://www.hero.ac.uk/uk/business/archives/2003/ethics the easy
way5043.cfm
(3) http://news.bbc.co.uk/1/hi/uk/6095680.stm
Anu Singh Lather, Professor and Dean, University School of
Management Studies, Guru Gobind Singh Indraprastha University, Delhi
Table 1: The contribution and impact of SMEs on the economy
Important vehicle for poverty reduction Contribute to exports
through employment generation
Foster an entrepreneurial culture Generate higher levels
of competition and mobility
Fosters higher levels of learning Useful for diversification
among firms of the economy
Contribute to reducing inequalities Provide resilience in the
in the economy by distribution of wealth economy
An instrument for alleviating regional Flexible in production
Disparities in development
Has the potential to be a training A source of technological
ground for managerial skills innovations in
industrialized economies
Encourages rich personal relations Promotes individual
initiatives
Table2: Impact of presence of Ethical Values
Increased employee loyalty, higher Attraction of high-quality staff
commitment and morale as well as
lower staff turnover
Enhanced Reputation (customers More open and innovative culture
and suppliers)
Decreased cost of borrowing Generation of good-will in the
and insurance communities in which the
business operates
Table3: Scheme & Score Range
Min. Max. Range for Average Score
Statements Items Score Score Low Medium High
Organizational
Ethical Standard 16 16 80 16-40 41-65 66-80
Employee's
Perception 26 26 130 26-65 66-105 106-130
Financial Ethics 5 5 25 5-12 13-19 20-25
HR Ethics 8 8 40 8-18 19-30 31-40
Marketing Ethics 7 7 35 7-16 17-26 27-35
Production Ethics 9 9 45 9-21 22-34 34-45
IPR Ethics 4 4 20 4-9 10-15 16-20
Total 75 75 375 75-175 176-275 276-375
Here, N=32 (High Intellectual Soft Services), N=38 (Low Intellectual
Soft Services)
Table4: Ethical Quotient for SMEs
High Intellectual Low Intellectual Soft
Soft Services (n=32) Services (n=38)
EtQ Level EtQ Level
Organizational Ethical
Standard 49.41 Medium 45.84 Medium
Employee's 86.84 Medium 86.45 Medium
Financial Ethics 9.81 Low 12.08 Low
HR Ethics 19.69 Medium 21.03 Medium
Marketing Ethics 14.28 Low 17.87 Medium
Production Ethics 17.25 Low 23.37 Medium
IPR Ethics 8.81 Low 9.58 Medium
Total Ethics Score 206.09 Medium 216.21 Medium
Total
EtQ Level
Organizational Ethical
Standard 47.47 Medium
Employee's 86.63 Medium
Financial Ethics 11.04 Low
HR Ethics 20.41 Medium
Marketing Ethics 16.23 Low
Production Ethics 20.57 Low
IPR Ethics 9.23 Low
Total Ethics Score 211.59 Medium
Table5: t-Test values of all parameters
Std.
Std. Error
Group Statistics Sector N Mean Deviation Mean
Total Organizational H.I.S.S. 32 49.40 15.77 2.78
Ethical Standard L.I.S.S. 38 45.84
Total Employees' H.I.S.S. 32 86.84 19.31 3.41
Ethnical Perception L.I.S.S. 38 86.44
Total Financial Ethics H.I.S.S. 32 9.81 3.35 0.593
L.I.S.S. 38 12.07
Total HR Ethics H.I.S.S. 32 19.68 5.40 0.95
L.I.S.S. 38 21.02
Total Marketing Ethics H.I.S.S. 32 14.28 4.87 0.86
L.I.S.S. 38 17.86
Total Production Ethics H.I.S.S. 32 17.25 7.11 1.25
L.I.S.S. 38 23.36
Total IPR Ethics H.I.S.S. 32 8.81 2.76 0.48
L.I.S.S. 38 9.57
Total Ethics Score H.I.S.S. 32 206.09 38.54 6.81
L.I.S.S. 38 216.21
Sig. (2-
Group Statistics t tailed)
Total Organizational 0.87 0.38
Ethical Standard
Total Employees' 0.09 0.92
Ethnical Perception
Total Financial Ethics -2.89 0.005
Total HR Ethics -1.03 0.30
Total Marketing Ethics -3.13 0.003
Total Production Ethics -3.92 0.000
Total IPR Ethics -0.99 0.32
Total Ethics Score -0.97 0.33
