Management Ethics: Meaning, Need and

Importance
Meaning of Management Ethics:
‘Management Ethics’ is related to social responsiveness of a firm. It is “the
discipline dealing with what is good and bad, or right and wrong, or with
moral duty and obligation. It is a standard of behaviour that guides
individual managers in their works”.

“It is the set of moral principles that governs the actions of an individual or a
group.”

Business ethics is application of ethical principles to business relationships

and activities. When managers assume social responsibility, it is believed
they will do it ethically, that is, they know what is right and wrong.

Ethical Activities:
Amongst a host of ethical activities that managers can perform, a
study conducted by Barry Posner and Warren Schmidt highlights the
following ethical activities observed by managers:
1. The foremost goal of managers is to make their organizations effective.

2. Profit maximisation and stakeholders’ interests were not the central goals
of the managers studied.

3. Attending to customers was seen as important.

4. Integrity was the characteristic most highly rated by managers at all

levels.

5. Pressure to conform to organisational standards was seen as high.

6. Spouses are important in helping their mates grapple with ethical
dilemmas.

7. Most managers seek the advice of others in handling ethical dilemmas.

Types of Management Ethics:

Three types of management ethics or standards of conduct are
identified by Archie B. Carroll:
1. Immoral management:
It implies lack of ethical practices followed by managers. Managers want to
maximise profits even if it is at the cost of legal standards or concern for
employees.

2. Moral management:
According to moral management ethics, managers aim to maximise profits
within the confines of ethical values and principles. They conform to
professional and legal standards of conduct. The guiding principle in moral
management ethics is “Is this action, decision, or behaviour fair to us and all
parties involved?”

3. Amoral management:
This type of management ethics lies between moral and immoral
management ethics. Managers respond to personal and legal ethics only if
they are required to do so; otherwise there is lack of ethical perception and
awareness.

There are two types of amoral management:

(a) Intentional:
Managers deliberately avoid ethical practices in business decisions because
they think ethics should be followed in non-business activities.
(b) Unintentional:
Managers do not deliberately avoid ethical practices but unintentionally they
make decisions whose moral implications are not taken into consideration.

Guidelines for Ethical Behaviour:

Though every individual and group has a set of ethical values, the
following guidelines are prescribed by James O’Toole in this regard:
1. Obey the law:
Obeying legal practices of the country is conforming to ethical values.

2. Tell the truth:

Disclosing fair accounting results to concerned parties and telling the truth is
ethical behaviour of managers.

3. Respect for people:
Ethics requires managers to respect people who contact them.

4. The golden rule:

The golden business principle is ‘Treat others as you would want to be
treated’. This will always result in ethical behaviour.

5. Above all, do no harm:

Even if law does not prohibit use of chemicals in producing certain products,
managers should avoid them if they are environment pollutants.

6. Practice participation – not paternalism:

Managers should not decide on their own what is good or bad for the
stakeholders. They should assess their needs, analyse them in the light of
business needs and integrate the two by allowing the stakeholders to
participate in the decision-making processes.

7. Act when you have responsibility:

Actions which cannot be delegated and have to be taken by managers only
(given their competence and skill) must be responsibly taken by them for
the benefit of the organisation and the stakeholders.

Approaches to Management Ethics:

There are three approaches to management ethics:
1. Utilitarian approach:
In this approach, managers analyse the effects of decisions on people
affected by these decisions. The action rather than the motive behind the
action is the focus of this approach. Positive and negative results are
weighed and managerial actions are justified if positive effects outweigh the
negative effects. Pollution standards and analysing the impact of pollution on
society is management ethics code under utilitarian approach.

2. Moral rights approach:

In this approach, managers follow ethical code which takes care of
fundamental and moral rights of human beings; the right to speech, right to
life and safety, right to express feelings etc. In the context of business
organisations, managers disclose information in the annual reports
necessary for welfare of the people concerned. The nature, timing and
validity of information is taken into account while reporting information in
the annual reports.

3. Social justice approach:

According to this approach, managers’ actions are fair, impartial and
equitable to all individuals and groups. Employees are not distinguished on
the basis of caste, religion, race or gender though distinction on the basis of
abilities or production is justified. For example, all employees, males or
females with same skills should be treated at par but it is justified to treat
employees who produce more differently from those who produce less.
Need for Business Ethics:
Business ethics is important for the following reasons:
1. Business organisations are economic and social institutions that serve
customers’ needs by supplying them right goods at the right place, time and
price. This is possible if the institutions engage in ethical practices.

2. Business ethics help in long-run survival of the firms. Unethical practices

like paying low wages to workers, providing poor working conditions, lack of
health and safety measures for employees, selling smuggled or adulterated
goods, tax evasion etc. can increase short-run profits but endanger their
long-run survival. It is important, therefore, for firms to suffer short-term
losses but fulfill ethical social obligations to secure their long-term future.

3. Business houses operate in the social environment and use resources

provided by the society. They are, therefore, morally and socially committed
to look after the interests of society by adopting ethical business practices.

4. Ethical business activities improve company’s image and give it edge over
competitors to promote sales and profits.

5. Legal framework of a country also enforces ethical practices. Under

Consumer Protection Act, for example, consumers can complain against
unethical business practices. Labour laws protect the interests of workers
against unethical practices. Legal framework of the country, therefore,
promotes ethical business behaviour. Business houses want to avoid
Government intervention and, therefore, follow ethical practices.

Barriers to Management Ethics:

James A. Waters describe three “organisational blocks” of
management ethics:
1. Chain of command:
If employees know that superiors are not following ethical behaviour, they
hesitate in reporting the matter up the hierarchy for the fear of being
misunderstood and penalized. The chain of command is, thus, a barrier to
reporting unethical activities of superiors.

2. Group membership:
Informal groups lead to group code of ethics. Group members are strongly
bonded by their loyalty and respect for each other and unethical behaviour
of any member of the group is generally ignored by the rest.

3. Ambiguous priorities:
When policies are unclear and ambiguous, employees’ behaviour cannot be
guided in a unified direction. It is difficult to understand what is ethical and
what is unethical.

Solutions to Barriers:
The following measures can improve the climate for ethical
behaviour:
1. Organisational objectives and policies should be clear so that every
member works towards these goals ethically.

2. The behaviour of top managers is followed by others in the organisation.

Ethical actions of top managers promote ethical behaviour throughout the
organisation.

3. Imposing penalties and threats for not conforming to ethical behaviour

can reduce unethical activities in the organisation. Formal procedures of
lodging complaints help subordinates report unethical behaviour of superiors
to the concerned committees.
4. Educational institutions also offer courses and training in business ethics
to develop conscientious managers who observe ethical behaviour.

Values:
Values are a set of principles that people cherish. They enhance the quality
of individual and collective life. They involve personal and community
discipline and sacrifice of immediate gratification needs. Quality of life is a
product of physical, social, environmental, mental and spiritual health and
wholeness. Values refer to intrinsic worth or goodness.

They are the beliefs that guide an individual’s actions. They represent a
person’s belief about what is right or wrong. Values lay standards against
which behaviour is judged. They determine the overall personality of an
individual and the organization he is working for. His family, peer group,
educational institutions, environment and the work place develop values in
him. Values apply to individuals and institutions, both business and non-
business.

Values and Behaviour:

Values remain embedded in our minds since childhood. As children, we are
taught what is good, bad, right or wrong by parents, educational institutions
and social groups. These values become part of our behaviour and
personality when we grow up and are transmitted to future generations,
thus, creating a healthy society.

In the business world, every person, whether manager or non-manager,

whose behaviour is value-based shapes the culture of the organisation.
Organisation is a group of people responsible for its formation, survival and
growth. How good an organisation is depends upon how good are the people
managing it.
Good people are those whose actions and behaviour are based on a sound
value system and ethical principles. Value system is a combination of all
values that an individual should have. Values lay foundation for
organisational success.

They develop the attitudes, perceptions and motives that shape the
behaviour of people working in the organisation. This develops a sound
organisation culture that promotes image of the organisation in the society.
Values in individuals develop a value-based organisation, society, nation and
the world as a whole.

Values in Business Management:

There are many ways in which the basic human values – truth,
righteousness, peace, love and non-violence can be practiced in the day-to-
day conduct of business. There are different aspects of management such as
marketing, finance, industrial relations, etc., but the most important aspect
is “man-management.” Each country has its own historical and cultural
background and Indian managers should not mechanically copy practices
from abroad but should keep in mind the Indian milieu and our national
ethos.

Values of Managers:
Management is a systematic way of doing work in any field. Its task is to
make people capable of joint performance, to make their weaknesses
irrelevant and convert them into strengths. It strikes harmony in working
equilibrium, in thoughts and actions, goals and achievements, plans and
performance, products and markets.

Lack of management will cause disorder, confusion, wastage, delay,

destruction and even depression. Successful management means managing
men, money and material in the best possible way according to
circumstances and environment.

Most of the Indian enterprises today face conflicts, tensions, low efficiency
and productivity, absence of motivation, lack of work culture, etc. This is
perhaps due to the reason that managers are moving away from the concept
of values and ethics.

The lure for maximizing profits is deviating them from the value-based
managerial behaviour. There is need for managers to develop a set of values
and beliefs that will help them attain the ultimate goals of profits, survival
and growth.

They need to develop the following values:

1. Optimum utilization of resources:
The first lesson in the management science is to choose wisely and utilize
optimally the scarce resources to succeed in business venture.

2. Attitude towards work:

Managers have to develop visionary perspective in their work. They have to
develop a sense of larger vision in their work for the common good.

3. Work commitment:
Managers have to work with dedication. Dedicated work means ‘work for the
sake of work’. Though results are important, performance should not always
be based on expected benefits. They should focus on the quality of
performance. The best means for effective work performance is to become
the work itself. Attaining the state of nishkama karma is the right attitude to
work because it prevents ego and the mind from thinking about future gains
or losses.
Managers should renounce egoism and promote team work, dignity, sharing,
cooperation, harmony, trust, sacrificing lower needs for higher goals, seeing
others in you and yourself in others etc. The work must be done with
detachment. De-personified intelligence is best suited for those who
sincerely believe in the supremacy of organisational goals as compared to
narrow personal success and achievement.

Value based managers do the following to discharge their duties

well:
a. Cultivate sound philosophy of life.

b. Identify with inner core of self-sufficiency.

c. Strive for excellence through ‘Work is Worship’.

d. Build internal integrated force to face contrary impulses and emotions.

e. Pursue ethico-moral righteousness.

4. Vision:
Managers must have a long-term vision. The visionary manager must be
practical, dynamic and capable of translating dreams into reality. This
dynamism and strength of a true leader flows from an inspired and
spontaneous motivation to help others.

Vision includes the following:

(a) Forming a vision and planning the strategy to realize such vision.

(b) Cultivating the art of leadership.

(c) Establishing institutional excellence and building an innovative

organization.
(d) Developing human resources.

(e) Team building and teamwork.

(f) Delegation, motivation and communication.

(g) Reviewing performance and taking corrective steps whenever called for.

The management gurus like Lord Krishna, Swami Vivekananda and

Peter F. Drucker assert that managers should develop the following
values:
1. Move from the state of inertia to the state of righteous action.

2. Move from the state of faithlessness to the state of faith and self-
confidence.

3. Their actions should benefit not only them but the society at large.

4. Move from unethical actions to ethical actions.

5. Move from untruth to truth.

6. ‘No doer of good ever ends in misery’. Good actions always produce good
results and evil actions produce evil results.

7. Take the best from the western models of efficiency, dynamism and
excellence and tune them to Indian conditions.