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Business Ethics


Presented by:
Mohammad Bilal
Raza Ayoub
Syed RIzwan Ali
Zohair Ahmed Sariyo
Salient Features
 Introduction (THE ROLE OF FINANCE)

 Investment Ethics

 Corporate Corruption & Governance

 Individual Financial Corruption

 Conflict of Interests
 Fraud & Theft
 Insider Trading

 The Two Islamic Perspectives

Investment Ethics
 Capitalist order has a conception of what is good

 Capitalism is concerned with the maximization of


 Freedom for Kantians is liberty

 For utilitarians it is welfare

 “Good life” can be achieved through rationality and


 Aristotelians argue that there is a social cost and 3

sacrifice of virtue
Investment Ethics (Cont…)

 Enron violated the “principle of the best interests of the


 Enron’s executives were cheating its shareholders and the

corporation is an instrument for the maximization of
shareholder’s value.

 That is why the corporations are need to be governed and

regulated by the capitalist state through law.

Investment Ethics (Cont…)

 Investors within capitalist order behave ethically


o They seek the maximization of long run profit for

the corporation in which they invest.

o Take appropriate account of social,

environmental consequences likely to impact on
the long term profitability of the corporation.

o Obey laws established by the capitalist state.

Corporate Corruption
 Corporations behave unethically when they seek
the maximization of their profits in violation of the
rules that legitimately constrain profit maximizing
behavior within the capitalist order.

 It is extremely difficult to avoid ‘unfair’ market

manipulation and ‘unethical’ price fixing in practice
for the ‘true’ fair price is unknowable.

 The immorality of price fixing is an unavoidable ‘sin’

in mature capitalist order.

Corporate Corruption (Cont…)
 It has been argued that corporation do not have the
responsibility of maximizing the general welfare
within capitalist order, it is the responsibility of the
capitalist state.

 Therefore, corporation cannot be said to be acting

unethically if it employs child labor in a country such
as Pakistan, where it is legal to do so.

 If corporations decide not to employ child labor than

it will only be ethical if it contributes to the
maximization of profits.
Corporate Laws

 The laws corporations should follow:

o They must respect human rights even when
capitalist governments violate them and non-
capitalist governments legislate against them.
o They are not ethically obliged to practice/provide
welfare rights when a capitalist government
does not require them to do so.

 Therefore, corporate corruption may thus be

defined as either violation of human right and/or
violation of laws sanctioned by capitalist states. 8
Corporate Ethics
 As the corporation is singularly self-interested, it is ethical for
the CEO to:

o Put others at risk and manipulate them.

o Avoid social responsibility.
o Present an exaggeratedly appealing image of themselves
and of their products (marketing).
 All of these are traits of a human psychopath.

 Downsizing is unethical not because it causes anguish to

those being dismissed, but because it may leave the firm with
few technicians to ensure safety of the corporation.

Corporate Corruption (Cont…)
 Regulations tend to reduce profits, therefore
corporations have started giving ‘donations’ to
political parties.

 ‘We are dangerously close to the co-option of

government by corporations” (Deitz).

 Charters of major corporations are never revoked,

only small and weak corporations suffer this fate.

Corporate Governance
 After the revelation of serious scandals in leading
multinational companies, attention was focused on
the need of strengthened “corporate governance”.

 However, it had to settle with liberalization,

privatization, and de-regulation.

 “Regulation is an unnecessary barrier to trade in

services.” (WTO)

Individual Financial Corruption
 Business Ethics basic focus is to promote

 Corporate Crimes

 An employee & the Corporation

 An Example (Financial Managers)
 Ethics & Legal Status

Conflict of Interest
 Bad Faith:

“When an employee has a self-interest in the

outcome of a task that he is performing for the long
run profit of the Corporation”

 An employee’s power to indulge in the acts of ‘bad faith’ is

significantly dependent upon the type of job and the financial
access the employ has in the Corporation.

 These acts of ‘Bad Faith are definitely unethical (irrespective

of being legal or otherwise).
Conflicts of Interests
 These acts of ‘Bad Faith’ are often tackled by Rules
& Regulations

 These Rules & Regulations prohibit the

employees to:
 Maximize Self-interest at the cost of the
Corporation’s Interest
 Bribe
 Disallow acceptance of gifts (in fear that it may
lead to unethical behavior)

Conflicts of Interests
 Why & Where do these acts of ‘Bad Faith’ take

 The feel of the job being unimportant

 The struggle for the maximization of self-interest
 The Bureaucratic Organizations

 What are the measures taken by the organizations

to stop such acts?

 Promotions
 Empowerment of Role Models
 Special Incentives
Fraud & Theft
 Fraud:

“Act of deception which intentionally imposes

material injury on a specific victim.”

 Who commits fraud?

 Fraud can only be committed by a person who

has a right or authority to certain assets of the
Corporation. 16
Fraud & Theft
 How are frauds controlled then?

 Internalization
 Motivating the employees in the higher authority
 Audit & Risk Management Systems
 Special Incentives
 Punishments

 Do these measures bring frauds to a complete halt?

 Almost Yes!! But there is very little that can be done for the
negatively motivated ones.
Fraud & Theft
 Theft:

“Stealing or misuse of property – in this case the Capitalist

or the Corporation’s property”

 What is treated as property?

 Funds
 Equipment
 Machinery
 Fuel etc. &
 The Information
Fraud & Theft
 Why Information is treated as the Corporation’s
property & does not share it?

“Corporations prefer not to share information because it has

produced information itself”

 How is the information kept safe?

 Patents
 Copyrights

 Sharing this information & giving out the strategic

plans & records with other corporations is
considered unethical.
Insider Trading
 Insider Trading:

“It is the trading of information (about a corporation) that is not

available to the general public.”
Example: Managing Director as an Inside trader

 This mode of trading is extremely unethical & illegal.

 Why is it unethical & illegal?

“This is considered unethical & illegal because it violates the property

rights and conceals information form the general public (who is
the one suffering the greatest losses) and since the insider is not
the owner of the information so he has not rights to sell it out.

Insider Trading
 What are the Disadvantages that Insider
Trading brings?

 It reduces the liquidity of the stock market i.e.

the shares that do not increase in terms of price
are not traded frequently.

 Risk & costs become different for various

stakeholders on the basis of Insider information.

Insider Trading
 Could it be curtailed?

“Yes, it could be curtailed through strict vigilance,

Laws & State Policy but it can not be completely
eliminated since it is very difficult to find out the
inside trader and to punish him.”

Example: The KSE Crisis of March 2005

The Islamic Perspectives
 The Orthodox Approach

 Does not consider the capitalist system at all acceptable.

 It rejects both Interest & Speculation as they are the main
ingredients of Capitalism & Accumulation.
 Rejects the Capitalist Property form completely.
 Promotes ideas such as Fuqr, Ghina, Sabar, Shukar etc.
 Restricts a person not to choose professions based on
Interest & Brokerage.
 Encourage to spend the least possible time in the
 Greatly discourages Competition & Acquisitiveness.
 Promotes Charity in the Way of God.
 In a nut shell “It completely rejects Capitalism.”
The Islamic Perspectives
 The Revisionist Approach
 Partly accepts the Capitalism as natural & rational.
 Support Islamic legitimacy of holdings such as shares,
bonds & banking.
 Provides ‘Islamic Banking’ as an alternative for the
Conventional Banking (with a little or almost negligible
 Provides with alternatives for Interest earnings with

On the whole “Islamic Banking is rising & Revisionists

are becoming more & more liberal.”
Queries & Confusions

Thank You