Why should I act ethically

“ When I do good – I feel good : When do I bad, I feel bad.

 This is my religion ”

Abraham Lincoln

Why is Ethics Important?

• Ethical decision making fosters organizational resilience
• Ensures that businesses operate within legal and ethical boundaries
• By avoiding unethical practices, organizations are protected from reputational damage, legal repercussions, and financial losses
• Developed by Ken Blanchard and Norman Vincent Peale, consists of three simple questions:
  • Is it Legal
  • Is it Fair
  • How will I feel after the action?

Examples: 

1. Taking company supplies for personal use.
2. Accepting gifts or favors as a means to gain financial advantage.
3. Inaccurate reporting numbers.

Any opportunity where a personal gain could be made unfairly at the expense of others is considered an ethical issue.

 Key points

• We often make unethical decisions not because we are ‘bad people’ but because psychological biases, social and organizational factors, and situational influences affect our decision making.
• These biases, organizational factors, and situational influences lead to weaknesses in how we process information and make decisions. This is what can lead to unethical behaviour.

 Situational vs dispositional

Some studies have shown that situational influences have more to do with a person’s behaviour than a person’s character.

“ Under the right conditions good people can be induced, seduced and initiated to act unethically ”

Prof Philip Zimbardo – Stanford Prison experiment.

Ethics in HR  - 26 November 2008

• Ratan Tata, the then Chairman,  taught the world some lessons in business ethics.
• Every single person who was affected, including the pav bhaji vendor outside the hotel, was offered compensation
• Education of children of those affected, 
• Free medical facilities for those survivors and dependents at Tata hospitals for the rest of their lives,
• Total education of the 46 children who were affected by the bomb blast but survived, 
• Formation of a Trust for the rehabilitation of the families of the victims. 
• Tata himself visited the families of each of the 80 employees affected by the bomb blast, and offered compensation running into several lakhs of rupees.
• Salaries were paid  to all staff  till the  hotel  was  repaired 

Decision-making can be regarded as the mental processes (cognitive process) resulting in the selection of a course of action among several alternatives. 

• Every decision-making process produces a final choice. The output can be an action or an opinion of choice.

 Ethical Dilemma

• An ethical dilemma is a conflict between alternatives where, no matter what a person does, some ethical principle will be compromised.
• Analysing the options and their consequences provides the basic elements for decision-making.

 Facing Ethical Dilemma

3 Simple questions we must ask ourselves

1. Does this violate law?
2. Is this honest?
3. What if I were on the other side?

   (would I cry out, “ that’s not fair”?

Careless Mistake

• Your name is Prasad –Finance Director in the company. U have just finished finalizing the accounts for the financial year.  Before accounts are published  – U received information that goods worth Rs 25 crores are returned by overseas client.
• If that is taken into account – the sales performance will come down.
• When checked up with Sales Department – the Sales Director  says – their staff made a careless mistake – they supplied 50000 units as against order of 5000 units – he reprimanded the concerned staff – advises the finance director(you) to make adjustments in the next financial year – as the sales performance will be affected and accordingly bonus etc will get diminished – he threatens to take up with CEO.

 Learning points

• Self interest threat – bonuses will get reduced including that of finance director.
• Intimidation threat – matter to be escalated to CEO.
• Finance director insisted on having the adjustment passed to reflect “ true and fair” accounts.
• CEO may put pressure – consult with Audit Committee or those responsible with governance.
• May have to consider resigning – as a last resort.

 CONFLICT OF INTEREST

• Conflict of interest - a situation - one is torn between one’s professional duties and one’s personal interests, in making a business decision.
• A situation that has potential to undermine the objectivity of a person because of the possibility of a clash between the person’s self interest and the person’s duties & responsibilities.
• A situation that may impair or appear to impair an individual’s objectivity.

 Example  - widely reported in press

A well known Pvt bank & its former CEO – was at the centre of controversy regarding a loan given to Videocon.

• bank decided to lend ₹3,250 crore to the Pvt sector in 2012.
• Spouse of CEO of bank, had business ties – promoter of the company, prior to the grant of the loan.
• They had jointly operated a business venture called NuPower Renewables in 2008. 
• The company had financed the venture and later transferred full ownership in it, to a trust helmed by spouse of CEO of bank, through a complicated deal.
• The Bank Board denied allegations of irregularity. 
• The  Bank was only one of the consortium of banks which lent ₹40,000 crore to the Company - the terms at which it lent were not very different from its peers. 
• MD - one of the 12 members of the investment committee that sanctioned the loan.

 Examples of conflict of interest

• Say you are a judge – one related to you is coming for the trial – where you are required to hear the case and deliver judgement – normally judges recuse themselves.
• Conflict of interest situations crop up almost in every facet of our daily life, 
  • doctor who accepts expensive gifts from pharmaceutical companies, 
  • a journalist who goes on sponsored covers 
  • school-teacher who runs expensive tuitions. 
• As a director – you had to allot a contract for supply of 1 lakh cement bags for construction of a bridge.  Coincidentally a company owned by a family member is also bidding for the said contract.
• Allegations may be made that you have influenced the decision making by  circumventing the process to allot the contract to family interest.
• Cooling of period - explain 

 The team

Your are a part of Wealth Management Vertical, who works as part of a team that invests the assets of HNI. The members of your team tell you, in confidence, that they plan to resign from the vertical to start their own firm. They invite you to join them, but you decline. You know that their actions will, at least temporarily, affect the performance of the investments of your clients. However, you decide to say nothing to your superiors.  Your actions are:

1. Ok because you are respecting the confidentiality of your colleagues.
2. Probably Ok, because personnel turnover is a commonplace occurrence that is to be expected.
3. Probably not OK, because client performance will be affected when they leave.
4. Not ok.

 Boss

You are responsible for submitting the travel and entertainment expense reports for your boss, Sri Murali.  Recently you have encountered problems collecting receipts from Murali to support some of his expenses.  Because the missing receipts are for small amounts, you have learned how to manage the accounting system & submit his expense report without the receipts.  Recently, Murali returned from a business trip with large expenses that he does not have receipts for.  When you inquire about the receipts, Murali responds “ I paid cash for these expenses and I don’t know here I put the receipts. Please manage like you have done in the past.” So you submit Murali’s expense without the missing receipts Your actions are:

1. Ok because you are following Murali’s instructions.
2. Probably ok, because Murali has often lost receipts before.
3. Probably not ok, because you may be overriding the accounting system.
4. Not ok.

 Incrementalism : the slippery slope

• The first dishonest act is the most important one to prevent – Dan Ariely.
• It is easier to be ethical 100% of the time than 98% of the time, because that 2% leeway you give yourself becomes 3% and then 5% and then 10% and so on” – Clayton Christensen.
• It began with adjusting returns for weak performance in one quarter with plans to correct the “manipulation” in the following quarter.  However, performance did not improve, escalating the manipulation (Bernie Madoff)

 Situational influences

• Obedience to authority
• Conformity with others/following group decisions
• Incrementalism 
• Overconfidence in ability to act appropriately.

 RATIONALIZATIONS

• Avoid or reduce the negative affect that accompanies performing an unethical act.
• Used to justify behaviour that is inconsistent with one’s opinion.
• Changes one’s perception of a situation or social environment to justify their behaviour.

There’s never been an act done since the beginning, from a kid stealing candy to a dictator committing genocide, that the person doing it didn’t think he was fully justified.  That’s a mental trick called rationalizing, and its done the human race more harm than anything else you can name”.

eg: Robin Hood 

- Leigh Brackett

Rationalization unethical behaviour

• Everybody else does it, so it must be ok.
• That is the way they do it at Firm X.
• If we do not do it, someone else will.
• This is the way it has always been done.
• It doesn’t really hurt anyone.
• It's not a big deal.
• It’s not my responsibility.
• I want to be a team player, I want to be loyal.

 Look at the situation with suspicion

Your boss asks U to do something and then says one of the following:

1. “No one will ever know”
2. “This conversation never happened”
3. “It doesn’t matter, how it gets done, as long as it gets done.”

Conclusion: The Importance of Acting Ethically

Ethics are fundamental to creating a workplace where trust, respect, and resilience thrive. Acting ethically builds a strong foundation for long-term success, while unethical behavior—no matter how minor—can jeopardize both individual and organizational reputation. By striving to act ethically, we contribute to a positive culture that values honesty and integrity, ultimately leading to healthier organizations and a more trusted industry.