MANAGERIAL MYOPIA REGARDING ETHICAL BEHAVIOR IN BUSINESS

MANAGEMENT MYOPIA

Management myopia reflects a limited or narrow view of organizational capabilities, environmental forces, and strategies that may lead to major errors in judgment by senior executives

(Levinthal et al., 1993; Levitt, 1960; Miller, 1993; Miller, 2002; Richard, Womack, & Allaway, 1993). Levinthal and March (1993) identified three forms of myopia that arise from simplifying experience and specializing adaptation.

Spatial Myopia:

It is the lack of awareness of other technologies, processes and routines available within or outside the organization (Miller, 2002). Learning favors technologies and routines near to the learner (Levinthal et al., 1993). Spatial myopia limits the set of alternatives considered for implementation. Spatial myopia is consistent with a focus on dominant technologies, core competencies, and the exploitation and development of existing firm capabilities.

Temporal Myopia:

It is the lack of awareness of, or interest in opportunities and investments beyond the near term (Levinthal et al., 1993; Miller, 2002). It involves sacrificing the long run for the short term (Laverty, 1996). Temporal myopia will

often be reflected in a preference for low risk, near term, relatively certain ventures and projects. Moreover, an excessive interest in the short-term is often associated with a financial approach to strategic decisions. Temporal myopia may contribute to spatial myopia through a focus on the more certain near technologies and opportunities. Temporal myopia, however, will likely discourage long-term investments in the current business, an outcome consistent with decisions made under spatial myopia.

Hubris Myopia:

It is unjustified overconfidence in an individual’s or an organization’s capabilities. Webster's Dictionary definition of hubris is "exaggerated pride or self-confidence, often resulting in retribution" (Hayward et al., 1997). Hubris encourages senior executives to over-estimate their ability to manage uncertainty and risk, to reinterpret historical results in a more favorable light, and to attribute success to abilities and failure to luck or external factors (Hayward et al., 1997; Kahneman & Lovallo, 1993).

ETHICAL PROBLEMS MANAGER’S FACE IN DECISION MAKING LEADING TO MYOPIC BEHAVIOUR

1) MICRO LEVEL PROBLEM

a) Confronting expense account cheatingb) Confidentiality of companyc) Continuing harmful environmental practices and

failing or exceeding in managerial roled) Accepting Gifts

EXAMPLE:

The obnoxious practice of drug companies giving costly gifts such as gold chains, cars and foreign junkets to doctors may come to an end if the government accepts recommendations made by the parliamentary standing committee on health. The department of pharmaceuticals has in place a code of conduct for drug companies to restrict such unethical practices, but it is voluntary in nature. The parliamentary panel has recommended that this code by made mandatory.

The Medical Council of India (MCI) too had formulated rules for doctors to oversee marketing of drugs in 2009.

But despite such codes, "there is no let up this evil

practice and pharma companies continue to sponsor foreign trips of many doctors and shower them with high value gifts like air conditioners, cars, music systems, gold chains etc to obliging prescribers who then prescribe costlier drugs as quid pro quo", the report says.SOURCE FROM:(12th MAY,2012, INDIA TODAY)

2) MACRO LEVEL PROBLEM a) Corporate Social Responsibility

By laying Corporate mission / objectives , purpose.

EXAMPLE:

Punjab Deputy Chief minister Sukhbir Singh Badal has taken action on the chemist shops in Patiala selling banned drugs. While raids are being conducted on the shops, the state government is set to cancel licences of all those found guilty of selling banned drugs.SOURCE FROM:(6th JULY ,2011 HEADLINES TODAY)

HOW MANAGERS CAN OVERCOME MYOPIC BEHAVIOUR

a) Young managers should understand & be aware of the reasons that underline ethical principles. These are helpful in forecasting ability to reason when applying these principles. It is vital part of ensuring compliance by managers with company standards of conduct.

b) Managers should be made to realize their social responsibility.

c) Managers have to inculcate proper ethical knowledge & develop mind create awareness through training.

d) Managers should be made awrae of state-of the – art legal matters. Attention to ethics ensure highly ethical policies & procedures in the workplace. Managers should be made understood that its far better to incur the cost of mechanisms to ensure ethical practices now than to incur costs of litigation later to overcome myopic behaviour of managers.

CONSEQUENCES OF MYOPIC BEHAVIOUR OF MANAGERS

a) Devaluating TQM (TOTAL QUALITY MANAGEMENT).TQM includes high priority on certain operating values. Example: Trust among shareholders, performance , reliability, measurement.

EXAMPLE

Trust Bank is a small financial services provider in Zimbabwe. As of December 2011, the bank's total asset valuation was reported as US$38.5 million, with shareholder's equity of $14.8 million. The bank was founded in 1996 as Trust Merchant Bank. It transformed its banking licence to commercial banking licence in 2000, paving the way for its transition to Trust Banking Corporation. The bank grew rapidly, and by 2003, it had become the largest bank in Zimbabwe by balance sheet size. However, its growth came with several problems. As the Zimbabwean economy deteriorated, managers of the bank started in engaging in non-core activities. In 2004, it was closed down by the Reserve Bank of Zimbabwe (RBZ), the national banking regulator. The major reason was that the bank was illiquid and its managers had been irresponsible in managing depositors's funds. Prior to this corrective action, Trust has suffered a ZW$7 billion fraud committed by its own staff. This was attributed to weak controls and risk management systems. This worsened its liquidity position, which had hitherto started to deteriorate. In

December 2003, banks such as Standard Chartered Zimbabwe and Stanbic Bank Zimbabwe began rejecting to settle Trust Bank cheques because of its precarious liquidity position. It was kicked out of the central clearing system several timesSOURCE FROM:(www.ZimbabaweTrust_Banking_Corporation)

b) unethical practices by myopic behavior tarnishes company image in long run

HOW MYOPIC BEHAVIOUR CAN BE AVOIDED?

Managers can avoid myopic behavior if they ascertain ethical behavior in following concerns:

a) Environmental issuesb) Product & work place safetyc) Security of company recordd) Shareholder interests

TYPE OF ETHICALLY QUESTIONABLE MANAGERIAL RULE RELATED ACTS

LEADING TO MYOPIA

1) MANAGERIAL ROLE DISTORTION FOR THE ADVANTAGE OF FIRM ARE:

a) Briberyb) Price fixingc) Manipulation of suppliers

2) MANAGERIAL ROLE OVER EXERTION:

a) Unauthorized high-risk investmentb) Continuing harmful environmental practicesc) Failure to cooperate with regulatory agencies

FACTORS LEADING TO MYOPIC BEHAVIOUR BY MANAGERS

a) Managers deviate when they are trying to meet goals and have to cut corners to do it. Competition

b) Pressure of budget systemc) Promotion system or merit pay system under which

they workd) They feel that management wants them to save

money even at the price of unethical behaviore) They follow orders of someone , who himself may

not know what is going on.f) They take poor decisions without thinking of

implicationsg) Ambiguous situations create problem in integrity.

However, ethical codes can satisfy this need for guidelines.

EXAMPLES OF FEW COMPANIES THAT HAD OVERCOME MYOPIC BEHAVIOUR:

a) IBM cultivated a tradition of ethical treatment of employees. So employees are loyal to company. They are not likely to engage in theftsand frauds. IBM management do not have monitoring & keeping watch on them.

b) Hewlett-Packard maintains high ethical standards in their treatment of customers. This has helped them to get more business share and raise in prices. They provided high quality of product and services

c) Johnson & Johnson : Several persons died after consuming TYLENOL capsules contaminated with poison. Their managers felt to protect the public & took over all the capsules from all places world over. A crisis incident that might have destroyed the company became a catalyst that boosted its image in eyes of millions of consumers

SOURCE FROM: (BUSINESS ETHICS AND MANAGERIAL VALUES BY S.K BHATIA . PAGE60)

EXAMPLES OF FEW COMPANIES THAT WERE ENTANGLED BY MYOPIC

BEHAVIOUR:

SAMSUNG AND APPLE CASE:

The judge in the US Apple-Samsung case has banned of eight or more Samsung Android smartphones.

A hearing which was held on 20 September, banned Galaxy Tab 10.1 tablet andSamsung's smartphones to be infringing on Apple's patents.As for the meat of that verdict — the $1.05bn in damages that Samsung has to pay Apple for past infringements — Samsung has filed  to have that put on hold while the court decides on its appeal.Apple has said it has the right to ask for bans on all 28 of the Samsung Android phones that were found to be infringing. At the moment, though, it is only targeting eight: the Galaxy S 4G, Galaxy S II AT&T, Galaxy S II Skyrocket, Galaxy S II T-Mobile, Galaxy S II Epic 4G, Galaxy S Showcase, Droid Charge and Galaxy PrevailSOURCE FROM:(David Meyer | August 29, 2012; zdnet.com)

FAILURE OF MTNL

Mahanagar Telephone Nigam Limited (MTNL) is a state-owned telecommunications service provider in the metro cities of Mumbai and New Delhi in India and in the island nation of Mauritius in Africa. The company had a monopoly in Mumbai and Delhi until 1992, when the telecom sector was opened to other service providers. MTNL was set up on 1 April 1986 by the Government of India with the aim of upgrading the quality of telecom services, expanding the telecom network, introducing new services and raising revenue for the telecom development needs of India's key metros - Delhi and Mumbai but ever since 2002 its shares started declining in the market. This was the result of the short- sightedness of the managers & the management.

FOLLOWING ARE THE REASONS FOR FAILURE:a) came up with 2G & 3G long after other companiesb) broadband connection problemc) high pricesd) poor services.e) Late entry in tablets.

SOURCE FROM:(MTNL LINK)

Bhopal Gas Leakage Tragedy

Shortly after midnight on December 3, 1984 outside Bhopal, India a cloud of deadly methyl isocyanate gas leaked from a pesticide owned by the Indian subsidiary of Union Carbide. The choking gas covered the town, quickly killing hundreds-including many children, who were less resistant to gas than adults-and forcing Bhopal’s 6, 70,000inhabitants to flee in panic. By the end of the week more than 2000 people had died from inhaling the gas, and 1,50,000 more had to be hospitalized for respiratory and eye damage, making Bhopal’s ‘night of death’ the worst industrial disaster in history. Images of stunned families burying or burning their dead and blaming Union Carbide for their agony were broadcasted worldwide.There were immediate repercussions for Union Carbide and for the chemical industry as well. The Indian Government accused the plant management of failing to take adequate safety precautions and indicated that it held the parent company ultimately responsible. Lawsuits brought by American lawyers on behalf og the victims asked for billions of dollars in compensatory and punitive damages and threatened to send the company into bankruptcy. Union carbide’s stock price plumtered; it halted production of methyl isocyanate at the one west Virginia plant that produced the chemical in United States.Officers in the United States and India called for increased regulation and inspection of chemical processing plants. Many U.S localities considered passing “right-to-know” laws that would require chemical companies to provide detailed information

about hazardous materials to the employees who make them and to residents living near the plants. Several companies countered with voluntary right-to-know programs to head off public sentiment for government regulation. In the wake of protests against Union carbide in the other parts of the world, some multinational corporations claimed that the Bhopal disaster had chilled the international climate for U.S business.Union Carbide, which had earned an above-average record for industrial safety over the decade preceding the disaster, appeared paralyzed by the magnitude of Bhopal’s suffering. Corporate chairman Warren Anderson rushed to India to inspect the site and was briefly arrested by Indian authorities. Union Carbide’s one hundred thousand employees observed a moment of silence for the dead and injured; many donated money for disaster relief. Top management spent sleepless nights grappling with the company’s crushing problems and uncertain future. Morale at the company was low; production at many plants temporarily dropped. However, while expressing profound sympathy for the Bhopal’s victims and promising to make a fair restitution, Union Carbide maintained its essential innocence. “There’s no criminal responsibility here”, said Anderson.

SOURCE FROM:(BUSINESS ETHICS AND MANAGERIAL VALUES BY DR. ABAD AHMAD)

THE TOBACOO COMPANIES

On May 24, 2004, U.S. District Judge Gladys Kessler ruled the big Tobacoo Companies- Phillip Morris, Reynolds, Liggett- would be liable to pay $280 billion- almost all their profit during the last 50 years.- if the U.S Department of Justice(DOJ) proved that since 1953 they knowingly conspired to deceive the public about the risks of smoking and its addictive nature.The DOJ claimed that in1953 the companies met in New York and formed a group called the Tobacoo Industry Research Committee that began a “ conspiracy to deny that smoking caused diseases and to maintain that whether smoking caused diseases was an ‘open question’ despite having actual knowledge that smoking did cause diseases”. In1950s , despite published research showing that smoking causes cancer, the group advertised “ there is no proof that cigarette smoking is one of the causes” of lung cancer and from the 1960s to 1990s advertised that “ a cause and effect relationship between smoking and disease has not been established” .Finally DOJ claimed that while companies had a uty to test their product, to design a safe product, and to warn users of all dangers, the company instead did no research and tried to suppress research on smoking risks, designed “low nicotine” cigarettes whose risk were same as regular cigarettes, failed before 1969 to warn of the risks and addictive nature of smoking and targeted children who could not know true risks of smoking.SOURCE FROM:(BUSINESS ETHICS CONCEPTS AND CASES BY MANUEL G. VELASQUEZ)

BIBLIOGRAPHY

1) Business Ethics Concepts and Cases, 6th Edition- Manuel G. Velasquez; 274-275

2) Business Ethics and Managerial Values- S.K Bhatia; 11-19; 48,60,81

3) India today- (12th MAY,2012, INDIA TODAY)

4) Headline today- (6th JULY ,2011 HEADLINES TODAY)

5) MTNL Link

6) (David Meyer | August 29, 2012; zdnet.com)

7) (www.ZimbabaweTrust_Banking_Corporation)