Measuring the Ethical Quotient of Corporations: The Case of Small And

Medium Enterprises in India

Ethical business values translated into management behaviors can make the difference between employee satisfaction
and frustration—with the consequent impact on results. (Maister, 2008)

This paper presents an overview of issues in business and professional ethics along with the whole extent of practical
ethical problems and phenomena which arise out of specific functional areas of companies including ethics of
accounting information, human resource management, sales and marketing, production, etc. A study has been carried
out to measure the Ethical Quotient of small and medium size enterprises located in the National Capital Region of
Delhi, India. The research instrument included a two–part questionnaire with the profile of the organization and a five-
point Likert scale consisting of statements related to Organizational Ethical Standard, Employee Ethical Perception,
ethical considerations towards Finance, HR, Marketing, Production and IPR.

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.
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.

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. 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. 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.

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.

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. 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 ethics) is increasing2. Simultaneously, pressure is applied on industry to improve business
ethics through new public initiatives and laws. 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?.
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.

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
organization 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 behaviors 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 organization has made and the ethical behaviors that are expected of them as
members of the organization 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 behavior on a regular
basis, e.g. in staff meetings. Owners or senior managers need to be aware that their behavior 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.

The results indicate that companies such as IT, Pharmaceuticals have scored lower on financial ethics, marketing ethics,
production ethics and IPR ethics. This is alarming for the economy and needs to be addressed immediately. It is an issue
of concern since Indian economy is driven by and large by SMEs especially for exports. The results are used to develop
a framework called the Ethics Strategy, which incorporates concerns related to both policy and action that needs to be
taken by companies so as to remove any ethical deficiencies, if they exist.

Q1: What do you understand by term ETHICS & VALUES?

Q2: How the core values of business that is profit maximization is different from business ethics?