BUSINESS ETHICS &
GOVERNANCE
Building Trust with Righteous Governance
Nasuha Nordin UKM-Graduate School of Business
MODULE 1:
MATTERS OF THE
HEART
Trust, Relationships, and Ethics
Nasuha Nordin UKM-Graduate School of Business
Module 1
Credo
Relationship
theories
Ethical
Philosophies
Moral
Philosophies
Ethical Dilemma
/ Decision
Making
Ethical Culture
Nasuha Nordin UKM-Graduate School of Business
“LOOKING back on my career at GE, one of the things I wish I
could do over is to talk more about what kind of company I
envisioned us to be … what our values were and what we
really stood for.” — Jack Welch, legendary CEO of GE
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TRUST
Nasuha Nordin UKM-Graduate School of Business
Trust
Trust is like the air we breathe –
when it’s present, nobody really
notices; when it’s absent, everybody
notices1
Warren Buffet
1 Smart Trust. 2012. Covey,S.M., Link,G. & Merill,R.
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Trust Index
■ Edelman Trust Barometer
■ Transparency International Corruption
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Nasuha Nordin UKM-Graduate School of Business
Edelmen Trust Baromeeter
Country
Malaysia
Japan
Indonesia
2016
51
N
38
D
62
T
2017
48
D
35
D
69
T
Nasuha Nordin UKM-Graduate School of Business
2018
53
N
37
D
71
T
2019
59
N
39
D
73
T
Trust vs Distrust
Trust
Willingness of a party to be vulnerable
to the actions of another party based
on the expectation that the other will
perform a particular action important to
the trustor, irrespective of the ability to
monitor or control that other party
(Mayer et al 1995, Notre Dame
University)
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Distrust
The exact opposite?
Trust
RELATIONSHIP
VULNERABLE
CONTROL
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MONITOR
Trust
elements
In your own perception
and/or beliefs, what would
be the precedent to trusting
a new party (person)?
Personal Activities
– One to one
relationship
MBA Group
Assignments
Business
Transactions
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School of Business
CASE STUDY
Personal Trust
vs Business Trust
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Story of Trust
Personal Trust
Group Trust
■ The railway story my daughter or the
8 other kids
– Kill 8 and retain trust
– Kill 1 to save 8 lives
■ Mayor and fellow citizen
– Be silent to attract tourist and
gain township confidence
(trust)
– Disclose and risk losing
confidence (trust)
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Principles and Values
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RELATIONSHIP
THEORIES
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Principal – Agent Theory
AGENT
PRINCIPAL
Hire & Monitor
GOVERNANCE
Perform & Control
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Stewardship Theory
STEWARD
PRINCIPAL
Empowerment & Trust
Ability
GOVERNANCE
Benevolence
Integrity
Protect & Maximize wealth & Trust
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ETHICS
Stakeholder Theory
Empowerment & Trust
Institutional
Shareholders
Delegate & Hire
Block Shareholders
Principal
Agent/ Steward
Other Stakeholders
Performance
Governing Bodies
Individual
Shareholders
Protect & Maximize shareholders’ Wealth
Supplier
Customer
Government
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Society
Employees
Financier
BOD
Management
Associations
Minority Shareholders
Stakeholders’ Interest
STAKEHOLDER
INTEREST
SHAREHOLDERS
•
•
•
•
•
EMPLOYEES
Dividend
Growth in stock price
Stable employment
Safe working environment
High compensation
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Stakeholders’ Interest
STAKEHOLDER
INTEREST
CUSTOMERS
•
•
•
•
•
SUPPLIERS
CREDITORS
Fair exchange
Sale, quality and reliable product
Prompt payment
Regular orders
Prompt, on time and complete payment
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Stakeholders’ Interest
STAKEHOLDER
INTEREST
FEDERAL
GOVERNMENT
•
•
•
•
•
•
•
•
•
•
FINANCIAL
INSTITUTIONS
COMMUNITY
Tax
Compliance
Assisting government
Valuable stocks
Creditworthy
High transactions
Employment
Economic growth
SDG
Protect social and environment wellbeing
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Activity - Who’s who?
Sime Darby
UKM
Principal – Agent ?
Principal – Agent ?
Agent – Steward ?
Agent – Steward ?
Stakeholders ?
Stakeholders ?
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ETHICAL THEORIES
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8 Ethics
Philosophies
Ethical
Theories
Ethical
Organization's
Challenges
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5 Ethical
Dilemma
Processing
BEHAVIOR
How does individual
behaves or decides to
react to a situation may
vary when that
individual is put in
situation when it has to
interact with another
individual (i.e. collective
behavior)
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School of Business
MORAL : Person’s personal
philosophies about what is right /
wrong
VALUE : are set on a group's
beliefs. People evaluate situations
to decide their beliefs and then
separate what is important and
acceptable
ETHICS
Ethics consists of those
unwritten rules we have
developed for our
interactions with each other
Nasuha Nordin UKM-Graduate
School of Business
Personal Ethics : behavior or
decisions made within a group’s
values
BUSINESS ETHICS : comprises
organizational principles, values,
and norms that may originate from
individuals, organizational
statements, or from the legal
system that primarily guide
individual and group behaviour in
business
Social Environment and Ethical
Concerns
■ 1960s: Environmental issues; Civil rights issues; Work
place; Drug use. Modern consumer movement
■ 1970s: Employee militancy; Human rights issues; Cover-ups;
Transparency. CSR
■ 1980s: Bribes etc; Influence peddling; Deceptive
advertising; Financial fraud. Stakeholders theory
■ 1990s: Sweatshops; Corporate liabilities; Financial
mismanagement. Self regulation and Globalization
■ 2000s: Cybercrime; Financial misconduct/ Accounting
fraud; Intellectual property; Sustainability – WTO; NAFTA;
ASEAN.Nasuha Nordin UKM-Graduate School of Business
8 ETHICAL PHILOSOPHY
Divine
Command
Theory
Ethical Egoism
Theory
Utilitarian
Theory
Categorical
Imperative and
Immanuel Kant
Contractarian
and Justice
Moral
Relativists
Virtue Ethics
(back to Plato &
Aristotle)
Golden Rule
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Ethical Philosophy…
Divine Command Theory
•resolution of dilemmas is based upon religious beliefs.
Ethical Egoism Theory (Teleology)
•everything is determined by self-interest
•act in our own self-interest and that all of us should limit our
judgment to our own ethical egos and not interfere with the
exercise of ethical egoism by others
Utilitarian Theory (Teleology)
•Resolve ethical dilemmas by bringing the greatest good to the
greatest number of people
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…Ethical Philosophy…
Categorical Imperative and Immanuel Kant
• you not only have to be fair but also have to want to do it for all the right
reasons.
• Kant wants you to adopt and accept these ethical standards because you don’t
want to use other people as a means to your enrichment at their expense.
Contractarian and Justice
• theory of justice and sometimes referred to as the social contract
• to have us step back from the emotion of the moment and make universal
principles that will survive the test of time
• putting the rules into place via a social contract that is created under
circumstances in which we reflect and imagine what it would be like if we had
no rules or law at all
• started with a blank slate
Nasuha Nordin UKM-Graduate School of Business
…Ethical Philosophy…
Rights Theory (Deontology)
•also known as an Entitlement Theory
•two big elements
•(1) everyone has a set of rights, and
•(2) it’s up to the governments to protect those
rights
•because governments protecting those rights are
put into place by Egoists, Kantians, and Divine
Commandment Theory followers
Nasuha Nordin UKM-Graduate School of Business
…Ethical Philosophy…
Moral Relativists
•believe in time-and-place ethics
•Moral Relativists do not believe in absolute
rules, virtue ethics, or even the social
contract.
•Their beliefs center on the pressure of the
moment and whether the pressure justifies
the action taken.
Nasuha Nordin UKM-Graduate School of Business
…Ethical Philosophy…
Virtue Ethics (back to Plato & Aristotle)
•Aristotle taught the importance of cultivating virtue in
his students and then having them solve ethical
dilemmas using those virtues integrated into their
thoughts through their virtue training.
•learn those virtues by studying the history of business
through individual case studies, historical perspective
readings, and insights into economic cycles.
•contrast the different outcomes and impacts, you will
be able to develop your list of virtues.
Nasuha Nordin UKM-Graduate School of Business
…Ethical Philosophy…
Virtue Ethics (back to Plato & Aristotle)
•Acceptance - Making the best of a bad situation
•Charisma - Inspiring others
•Integrity - Being a model of trustworthiness
•Trustworthiness - Fulfilling one’s responsibilities
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…Ethical Philosophy
Golden Rule
•Trusting
•Do unto others as you want
others to do unto you
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ETHICAL THEORIES
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“One ought only to act such that the principle of one’s
act could become a universal law of human action in a
world in which one would hope to live.” - Immanuel
Kant (philosopher)
Nasuha Nordin UKM-Graduate School of Business
5 ETHICAL DILEMMA PROCESSING
Acid Test
Sleep Test
Dobre 6 steps
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Dobre 3 steps
Kohlberg 6
stages Ethical
Reason
Ethical Dilemma Processing…
Acid Test
•Personal Value
•Governance
•Newspaper Headline
Sleep Test
•Research shown individual that made right decision is able to
sleep better than those that didn’t
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…Ethical Dilemma Processing…
Dobre 3 steps
• Analyse consequences
• Analyse actions (options available)
• Make decision
Dobre 6 steps
• What are the facts?
• What can you guess about the facts that you don’t know?
• What do facts mean?
• What will happen if you choose one thing rather than another?
• What do your feelings tell you?
• What will you think of yourself if you decide one thing or another?
• Can you explain and justify your decision to others?
Nasuha Nordin UKM-Graduate School of Business
…Ethical Dilemma Processing
Kohlberg 6 ethical reasoning
•Obedience and punishment
•Individualism, instrumentalism and
exchange
•Good boy / nice girl
•Law and order
•Social contract
•Principal conscience
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Ethical
Challenges by
Organizational
Function
R&D
Manufacturing
Marketing
HR
Finance
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School of Business
CASE STUDY
Personal Ethics
vs Business Ethics
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Scenario –
Personal Ethics
THE CASE FOR
CANNIBALISM
Adapted from Harvard Ethics Class:
Justice Series
•
a famous nineteenth century legal
case involving a shipwrecked crew of
four
•
After nineteen days lost at sea, the
captain decides to kill the weakest
amongst them, the young cabin boy, so
that the rest can feed on his blood and
body to survive.
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School of Business
Scenario – Personal Ethics
THE CASE FOR CANNIBALISM
Captain Dudley
Brookes
Sailor
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Stevens
First Mate
Parker
Cabin Boy
Divine
Command
Ethical
Egoism
Virtue Ethics
Moral
Relativist
Ethical
Dilemma
Utilitarian
Theory
Categorical
Imperative
(Immanuel
Kant)
Rights Theory
Contractarian
and Justice
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Scenario –
Business Ethics
PUTTING A
PRICE TAG
Adapted from Harvard Ethics Class: Justice
Series
Czech Republic government wanted to
increase the excise on smoking.
What happens if the citizens smokes more
due to lower excise?
Nasuha Nordin UKM-Graduate
School of Business
GOVERNMENT COST BENEFIT ANALYSIS
COST
Increase in Healthcare
Cost
BENEFIT
Tax Revenue from
Cigarettes Sales
Healthcare savings
(from early death)
Pension savings (from
early death)
Savings on Housing Cost
(from early death)
Net Gain if citizens
smokes $ 147million
Savings from pre-mature
deaths $ 1,227.00 per
person
Divine
Command
Ethical
Egoism
Virtue Ethics
Moral
Relativist
Ethical
Dilemma
Utilitarian
Theory
Categorical
Imperative
(Immanuel
Kant)
Rights Theory
Contractarian
and Justice
Nasuha Nordin UKM-Graduate School of Business
FORUM 1
What is the Value, Trust, and Ethical Dilemmas?
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Scenario I – Thank you for the training
■ You work in IT, you would like to be Certified Software Development Professional
(CSDP). You current employer is sponsoring for your certification training and on
field work for the next year. However, your pay increment for the next 2 years will be
minimal. There will be no bond, and there is no guarantee for any position
promotion.
■ You went on searching for the new jobs, and the one particular employer is willing to
payment much higher than your current employer and will pay even higher if you
have CSDP. The new employer will not bear the cost of CSDP. The vacancy will be
there waiting for you at anytime you wish to join.
■ OPTION 1 : Quit and bear the cost yourself
■ OPTION 2 : Stay and join the new company later
■ What would you do and why?
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Scenario II – KPI
■ Company A is a chain of well known café and restaurants operating more than 10
years successfully. Offering tasty delicacies with premium price.
■ Recenly, the BOD decided that there should be a change of menu in line with SDG 3
Good health and wellbeing. Hence, there will be change of menu from limited
number of items with high price to more options on the menu with lower price. On
top of that, the BOD expects the management to meet the usual KPI to meet
shareholders’ interest.
■ Value chain of the company consists of Supply Chain Management, Operations,
Sales & Marketing, Services and other supporting activities. Sales Director has
assigned budgeted sales to respective outlet.
■ OPTION 1 : Offer current menu alongside new menu
■ OPTION 2 : Offer only new menu
■ As the branch manager, what would you do and why?
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FORUM
What is the Value, Trust, and Ethical Dilemmas?
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Scenario III PepsiCo
Group 1 – Personal Ethics
■ As a potential employee, would you
work with a company such as
PepsiCo?
■ As a CONSUMER, would you
purchase products from a company
such as PepsiCo?
Group 2 – Business Ethics
■ Does PepsiCo corporate social
responsibilities performed, justifies
the business model the company is
in? Why?
■ As a junior member, how would you
convince your superordinate to
change unethical business model
By using the theories discussed today, you are required both individually (and
collectively) present the format of a forum to discuss these two scenarios.
This is part of 5% individual marks + 5% group marks under “Class Participation”
assessment.
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Scenario – Business
Ethics
Does giving back
justify your negative
action?
PepsiCo
Sugar drink and other “junk food”
producer
PepsiCo is also an advocate of
environment protection.
Does doing good is acceptable even
though the means could potentially harm
health of some people in the world?
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School of Business
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Criticisms
■ India
■ Health
■ Aquafina Tap Water
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Criticism
–
–
–
–
Unhealthy product – sugar, calories, tooth decay
Packaging – a large amount of waste
India – water quality (36x the level of toxins!)
India – heavy use of groundwater
Nasuha Nordin UKM-Graduate School of Business
Criticism
–
–
–
–
Snack items – high calorie and fatty
Investors – decreasing ROC
Aquafina – use of tap water?
Naked Juices – untruthful advertising?
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Social Responsibility and Sustainability
Sustainability
Employee Commitment
PepsiCo Foundation
Dream Machine
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Sustainability
■ Going green:
– Reduce energy usage
– water conservation: reduce usage and recycle.
– Restore watershed
– “Think outside the bottle”
– PackTrackPlus
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Employee Commitment
■ Diversity and the Collaborative Culture
■ Talent sustainability – Pepsi University
■ Code of Conduct – Compliance Officer
■ Internal Audit Hotline – 24 hrs anonymous
ethics hotline
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Pepsi Foundation
■ 1962: philanthropic contributions to a variety of nonprofits
■ Gives back to community via grants, employee programs
and disaster relief.works with:
– United Way – post secondary educaation
– ExCEL awards – prizes for excellent children of employees
– Save the Children – assisting children in India and
Bangladesh
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Dream Machine
■ Kiosks that give redeemable consumers points
when they recycle their bottles.
■ Will also assist army veterans via money
generated.
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CASE STUDY
Core Value of Leaders
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Steps of Social Responsibility
PHILANTHROPIC
Giving back to society
ECONOMIC
(maximizing
shareholder
value)
LEGAL
(abiding by
laws and
regulations)
Nasuha Nordin UKM-Graduate School of Business
ETHICAL
(following
standards
of ethical
behavior)
Activity
Group 1 – Individual
Leaders Core Value
Group 2 – Corporate Core
Value
Each group will analyze the core values
of renown leaders whom is:
Each group will analyze the core values
of renown corporation which is:
a) Successful but practice unethical
behavior
a) Successful but practice unethical
behavior
OR
a) Successful and believes in ethical
behavior
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OR
a) Successful and believes in ethical
behavior