Business Ethics and Corporate Governance

Understanding Ethics

Ethics
• Ethics was considered as irrelevant by corporate loyalists


Now it is seen as critical for success of business
Factors forcing towards Ethical practices – Consumer Movement

– Awareness in stakeholders – They are not indifferent to
unethical practices like • Financial Irregularities,

• Tax evasion,
• Kick-backs, • Poor Quality products

• Hazardous working conditions
• Non-compliance with environmental issues

Ethics
• New Norms are

– Integrity,
– Transparency – Open communication

• They result in long run in economic gains like market
capitalization

Ethics • Ethics from – Latin word Ethicus & – Greek word Ethikos • Meaning character or manners • Ethics is a science of Moral. Moral principles & recognized rules of conduct • Ethics deals with right or wrong behavior of individual .

Moral or immoral – These are judgments • Now-a-days ethical guidelines are often transferred into law or regulations .Ethics • Ethics deals with values relating to human conduct with respect to – Right or wrong of actions – Good or bad motives of actions • Actions can be good or bad. right or wrong.

Ethical Concepts Some of the concepts that are frequently used when discussing the subject of ethics are:  Ethical Absolutism  Ethical Subjectivism  Ethical relativism  Consequnetialism  Ethics of virtue .

Ethical Absolutism
• Ethical absolutism is a view that certain actions are
absolutely right or wrong, regardless of other contexts such as their consequences or the intentions behind them and are independent of human opinion and have a common or universal application • Thus stealing, for instance, might be considered to be always immoral, even if done to promote some other good

• Objectivism is another name for absolutism.

ETHICAL CONCEPTS
• Ethical Subjectivism – What is ethically right or wrong is entirely personal

matter
– Principles chosen by a person may be unethical • Ethical Relativism

– There is no universal set of principle to judge morality
– Each society has its rules – It is possible that ethical practices are based on false

beliefs, illogical reasoning

ETHICAL CONCEPTS
• Consequentialism – It is a concept of value and maximization of that value

Ethics of virtue
– Emphasized role of individual traits – Virtues are like Courage, Tolerance, Generosity, Honesty – Virtuous acts are not done out of self- interest or to maximize pleasure In business it is a conflict between Economic performance and Social Performance

To resolve this conflict it is important to have people with ethical behavior

ETHICAL THEORIES • Ethical theories are divided in three subject areas– Metaethics – Normative ethics – Applied ethics • Metaethics – It is a study of the origin and meaning of ethical concepts .

Metaethics • • It is a study of the origin and meaning of ethical concepts Meta-ethics addresses questions such as "What is goodness?" and "How can we tell what is good from what is bad?" Deals with 3 issues• Metaphysical issues that deal with the question whether the moral values exist independently of human or they are simply human inventions. • Psychological issues that deal with psychological basis of the moral actions-How may moral judgments be supported or defended? • Linguistic issues that deal with the meaning of the key moral terms we use-What is the meaning of moral terms or judgments? .

• Sets moral standards helping to determine what is right & what is wrong. • Example is Golden Rule that is We should treat others the way we want others to treat us. . • Golden Rule lays down one single principle to adjudge right or wrong.Normative Ethics • Guides human conduct.

Normative Ethics
• If moral principle is to be accepted it must be

– Prescriptive – emphasizing that a proposed action is
obligatory. – Universal – applicable to any person

– Overriding – should be primary consideration in action
assessment. – Public – presupposes social interaction.

– Practical – achievable by average person in ordinary
circumstances.

Normative Ethics
• Three theories to resolve normative question,
„How one should act in particular situation‟ 1. Teleological Ethical Theory – thinking rationally about ends. Also called as consequentialist theories. • Action is considered normally correct, if consequences are more favorable than unfavorable. • The drawback is that consequences are required to

be quantified and quantitative terms like good depend
on perception by a person.

Three definitions of good by consequentialist • Egoism – consequences are more Favorable than unfavorable to person performing action then

Normative EthicsTeleological Theory

action is morally right.
• Utilitarianism- morally right, if more Favorable

to everyone.
• Altruism – morally right if more Favorable to everyone except the individual

Normative EthicsDeontological Theory • Deontological Ethical Theory focuses on certain fundamental duties that we have as human being. • Duties are classified under 3 headings- Duties to god Duties to oneself Duties to others .

. The theory is concerned with attaining these qualities and Hence calls for character development.Normative EthicsVirtue Ethics • Virtue ethics – virtues are qualities and character individual considers to be good.

• Moral standards based on ethical theories are reference point for judging the moral value of decision. often controversial moral issues. .Ethical Theories • Applied Ethics – deals with specific.

Traditional Ethical Theories
• Consequentialism
– It holds that the rightness or wrongness of actions and institutions is a function of the goodness or badness of

their consequences.
– Utilitarianism • Right actions and institutions maximize aggregate happiness – Happiness is experiencing pleasure or not experiencing pain – Happiness is achieving integrated satisfaction of desires, plans

Traditional Ethical Theories
• Non-consequentialism
– It holds that the rightness or wrongness of actions and institutions is a function of something other than the goodness or badness

of their consequences.
– Three approaches
• Ethics of Rights

• Kantian ethics
• Virtue theories

Ethics of Rights
• If a person has right to something then it is wrong to deprive him of that thing on Utilitarian grounds • A right is a justified claim on others • The "justification" of a claim is dependent on some standard acknowledged and accepted not just by the claimant, but also by society in general • Moral rights – Justified by moral standards that most people acknowledge, – But not necessarily codified in law – These standards can be interpreted differently by different people

Ethics of Rights • Legal Rights – Enshrined in law or in a system of formal rules – Enforceable through courts • Negative rights – Such rights are a claim by one person that imposes a "negative" duty on all others • Positive rights – Provide something that people need to secure their well being – Impose a positive duty on us .

Kantian Ethics • Persons as ends-in-themselves – Always treat persons as ends-in-themselves and never merely as means to your ends • Social contract theory – The right moral rules are those which persons would freely choose to have govern them • Universalizability .

Kantian Ethics • Universalizability – Act only on universalizable maxims – A maxim is an explicitly stated principle of practical reason. and • a statement of the circumstances under which acting that way will help you to achieve your goal. . A fully stated maxim would include: – A maxim is universalizable if and only if you could effectively achieve your goal by acting on it in a world where everyone else was pursuing the same goal by acting similarly in similar circumstances • a statement of the goal you propose to achieve. • a description of the action by which you propose to achieve it.

Categorical Imperative • In order for an act to be categorically imperative – It must be thought to be good in itself and in conformity to reason – As a categorical imperative. it asks us whether or not we can "universalize" our actions – That is. whether it would be the case that others would act in accordance with the same rule in a similar circumstance .

– which is what moral education should focus on developing . nor principles.Virtue Ethics • Virtue ethics – The key ethical concept is – neither utility. – but virtue. rights. or good character traits.

– When issues of Distributive Justice are inadequately addressed and the item to be distributed is highly valued." – Deals with moral choices through a measure of rights of the people involved and chooses the solution that seems to damage the least number of people – Supposed to ensure that all members of society receive fair treatment. – Concerns what is considered to be socially just allocation of goods in a society – A society in which incidental inequalities in outcome do not arise would be considered a society guided by the principles of distributive justice – Concerned with giving all members of society a "fair share" of the benefits and resources available.Ethics of Justice • JUSTICE – The most fundamental principle of justice is that "equals should be treated equally and unequals unequally. conflicts frequently result. • Distributive justice .

Ethics of Justice • Retributive Justice – People deserve to be treated in the same way they treat others • Compensatory Justice – Refers to the extent to which people are fairly compensated for their injuries by those who have injured them – Just compensation is proportional to the loss inflicted on a person .

The Ethics of Care • Emphasize the importance of relationships. • The basic beliefs of the theory are: – All individuals are interdependent for achieving their interests – Those particularly vulnerable to our choices and their outcomes deserve extra consideration to be measured according to • the level of their vulnerability to one's choices • the level of their affectedness by one's choices and no one else's • It is necessary to attend to the contextual details of the situation in order to safeguard and promote the actual specific interests of those involved .

Gilligan's Model • Based on Ethics of Care • Moral development is the development of a self-in-relation • Morality is understood in terms of the preservation of valuable human relations • Progress from stage to stage is motivated by increasing understanding of human relationships .

Search for equilibrium. • Illogic of the inequality between self and others becomes evident. • Goodness is caring for others. • Focus on the dynamics of relationships.GILLIGAN'S SIX STAGES OF MORAL DEVELOPMENT (ETHICS OF CARE) • Caring for the self. accompanied by a universal condemnation of exploitation and hurt . frequently equated with self-sacrifice. to eliminate the tension between self and others. • Care is extended beyond personal relationships to a general recognition of the interdependence of self and other. • Caring for self is judged to be selfish.

Kohlberg‟s Model of Cognitive Moral Development • • The model is necessary for study and understanding the process of Ethical Decision making People pass through six stages of moral development – Punishment and Obedience • Obedience of rule out of fear of possible punishment • Good or bad is considered purely in terms of potential panalty – Individual Instrumental Purpose and exchange • Individual evaluates behavior on the basis of fairness to him/her • Behavior is based on what one gets in return – Mutual Interpersonal Expectations. relationships and Conformity • Individual considers the well-being of others • People live up to what is expected of them by those close to them .

Social Contract or Utility – Universal Ethical Principles • Individual realizes that there are certain universal principles that are to be respected • Person at this stage favours social ethics to organizational ethics for ethical direction .Kohlberg‟s Model – Social System and Conscience Maintenance • Individual considers his duty to society as right thing to do • People tend to uphold law s except when they conflict with fixed social duties • Individual is concerned with the maintenance of values of society and recognizes the legal or moral view that may conflict • Arrive at arational decision by calculating overall utilities – Prior Rights.

have aims.Law and Morality • Law. is made by someone • So it may. or morally justified as it applies to one action and not as it applies to another • There is distinction between what is legally or conventionally right and what is naturally (or as we would say today morally) right. unlike morality. not all law has aims • Is there a moral obligation to obey the law? – A legal rule may be morally justified as it applies to one person and not as it applies to another. . because not all law-making is intentional. which are the aims of its makers (either individually or collectively) • However. unlike morality.

• Laws can state what overt offenses count as wrong and therefore punishable. • Law can be a public expression of morality which codifies in a public way the basic principles of conduct which a society accepts. --prove that the two can work together. governs conduct without compulsion • Morality can influence the law in the sense that it can provide the reason for making whole groups of immoral actions illegal. malicious defamation of character. when it becomes habit-like or second nature. bribery. Although law courts do not always ignore a person's intention or state of mind • Laws govern conduct at least partly through fear of punishment.Relationship between Morality and Law • The existence of unjust laws proves that morality and law are not identical and do not coincide. etc. • The existence of laws that serve to defend basic values--such as laws against murder. . fraud. Morality.

Managing Business Ethics Organization & its Customers .

Customer and Ethical Issues • Marketing concepts are becoming synonymous with consumer orientation • Code of ethics is required to frame marketing policies at every level for employees to follow uniform standards towards all customers • Marketers should be fair and just .

misleading not in accordance with law are not allowed • Communication about offered product should not be deceptive .Issues with 4 P‟s Product • Product should be safe and fit for intended use • Disclose the risks associated with product‟s use if any • Any changed feature that might have effect on buying decision should be informed • Updating of consumer product is one more issue. Price • Higher than normal price should not be charged for a product with high demand • No undercutting or Price fixation • Disclose full price associated with any product Place • No manipulation about availability of product for exploitation • No use of coercion in the marketing channel Promotion • Advertisements which are offensive.

Consumer Protection • Although consumer is regarded as king. there are many problems in realizing such state of condition • Most of the consumers are not aware of their rights and most of those who are aware are not ready to fight to execute their rights • Consumer has been exploited systematically in all walks of life • So consumer needs protection which can come from three different parties – The business – The government – The consumer himself .

The Business and Consumer Responsibilities of corporate towards Consumers are 5 R‟s – Right Quality Right Quantity Right Time – Right Place Right Price • Some more responsibilities are – Producing goods according to specific needs of consumers and their purchasing power – Providing prompt and adequate service – Improving standard of living by providing goods and services of high quality – Treating customers fairly in all business transactions – Ensuring health and safety of customers • .

The Government and Consumer • Consumer protection laws designed to ensure fair trade competition and the free flow of truthful information in the marketplace • Consumer Protection laws are a form of government regulation which aim to protect the rights of consumers • Consumer is defined as someone who acquires goods or services for direct use or ownership rather than for resale or use in production and manufacturing • Consumer interests can also be protected by promoting competition in the markets • Consumer protection can also be asserted via nongovernment organizations and individuals as consumer activism .

ingredients. operational requirements. wherever possible to have access to have variety of goods and services at competitive prices • Right against exploitation by unfair trade practices – Right to be heard of grievance – Right to Redressal – Right to Consumer Education .Consumer Rights • Consumer Protection Act 1986 of India recognizes six Consumer Rights – Right to Safety . freshness. possible adverse side effects and other relevant facts of the product or service that consumer buys – Right to Choose – Right to be assured.Right to protection of health and safety from goods and services the consumers buy or offered free • Right to physical environment that will protect and enhance the quality of life – Right to Information .Right to be informed about quality and performance standards.

Product liability law. distributors. . also called “products liability”. while holding manufacturers. and vendors for injury to a person or property caused by dangerous or defective products – The goal of product liability laws is to help protect consumers from dangerous or defective products. wholesalers.Product Liability • LIABILITY FOR MANUFACTURING OR DISTRIBUTING A DEFECTIVE PRODUCT IN INDIA – In India. distributors. governs the liability of manufacturers. and retailers responsible for putting into the market place products that they knew or should have known were dangerous or defective.

1952 to formulate a number of standards for different products by ISI – The Bureau of Indian Standards Act . in India. 1937 for marking and grading of commodities like vegetables. 2006 – The Drug & Cosmetics Act.Product Liability • Civil Product liability in India is. 1930 – c) The Monopolies and Restrictive Trade Practices Act. 1986 • . etc. 1860 – The Standards of Weights and Measures Act. 1954 – The Food Safety and Standards Act. 1986 – b) The Sales of Goods Act. butter. governed by – a) The Consumer Protection Act. 1956 – The Agricultural Produce (Grading and Marking) Act. – The Indian Standards Institution (Certification Marks) Act . also imposes criminal liability in case of non-compliance with the provisions of each of the below mentioned Acts – The Foods Adulteration Act. essentially. – e) special statuates pertaining to specific goods The product liability law. 1940 – The Indian Penal Code. 1969 – d) The law of Torts.

labels. or if the product does not perform as stated – Strict liability.Product Liability • Claims regarding product liability usually fall under one of the following categories – Negligence. or other information misrepresent material facts concerning the character or quality of the product . false advertising. such as using deficient labels. and so on – Warranty. This occurs when advertising. It involves being negligent in the way a product is presented to a client. Extends to all parts of the production and marketing process. Consumers may sue if advertising or information overstate the benefits of a product. a consumer is suing because the product in question was defective before its receipt – Misrepresentation. In this action.

owners are granted certain exclusive rights to a variety of intangible assets such as musical. and artistic works. and designs . discoveries and inventions. and words. literary. phrases.Intellectual Property • Intellectual property (IP) is a term referring to creations of the mind for which a set of exclusive rights are recognized • Under intellectual property law. symbols.

industrial designs and geographical indications and – Copyright and related rights which cover literary and artistic expressions (e. and broadcasters in their radio and television broadcasts which are also referred to as neighboring rights. plus the rights of performing artists in their performances. . music. architecture. books.Intellectual Property Rights (IPR) • Intellectual property rights as a collective term includes the following independent IP rights – – – – – – – Patents Copyrights Trademarks Registered ( industrial) design Protection of IC layout design Geographical indications Protection of undisclosed information • Intellectual property is divided into two categories – Industrial property which includes patents for inventions. art). films.g. producers of phonograms in their recordings. trademarks.

use.IPR & Acts • Patents – A patent is an exclusive right granted by a country to the owner of an invention to make. provided the invention satisfies certain conditions stipulated in the law – In India there is “The Indian Patent Act” The first Indian patent laws were first promulgated in 1856. These were modified from time to time Recent amendment were made in 2005 . manufacture and market the invention.

make copies. sell or give on hire and communicate the work – Under the Indian Copyright Act there is a provision to register copyright although this is voluntary .IPR & Acts • Copyrights – Copyright is a right. perforated roll or other devices are covered by copyrights – Copyright gives the creator of the work the right to reproduce the work. adapt. which is available for creating an original literary or dramatic or musical or artistic work – Cinematographic films including sound track and video films and recordings on discs. translate. tapes.

letters.IPR & Acts • Trademarks – A trademark is a distinctive sign. and numerals – They may also consist of drawings. which identifies certain goods or services as those produced or provided by a specific person or enterprise – Trademarks may be one or combination of words. symbols. or to authorize others to use it in return for some consideration (payment) – Enactment of the Indian Trademarks Act 1999 is a big step forward from the Trade and Merchandise Marks Act 1958 and the Trademark Act 1940 . or colours used as distinguishing feature – A trademark provides to the owner of the mark by ensuring the exclusive right to use it to identify goods or services. three dimensional signs such as shape and packaging of goods.

reputation or other characteristic of such goods is essentially attributable to its geographical conditions – In the case where such goods are manufactured goods. one of the activities of production or of processing or preparation at goods concerned takes place in such territory or locality as the case may be – The legislation will be administered through the Geographical Indications Registry under the overall charge of the Controller General of Patents. Designs and Trademarks .• The Geographical Indications of Goods Act. 1999 affords protection to goods IPR & Acts – that can be identified as originating or manufactured in the territory of a country or a region or locality in that territory – where a given quantity.

the prominent.Advertisement and Regulations • • Advertisement is often described as commercial speech and enjoys protection under Article 19(1)(a) of the Indian Constitution Under the Indian legal system. Supply and Distribution) Act. – Advertisements relating to prenatal determination of sex uner the Prenatal Diagnostic Techniques (Regulation and Prevention of Misuse) Act. 1940. 1954. prohibitory legal provisions that regulate advertising are: – Obscene publication or advertisement of a lottery under the Indian Penal Code – Harmful publication under the Young Persons (Harmful Publications) Act. 1956 – The indecent representation of women under the Indecent Representation of Women (Prohibition) Act. – Advertisement of magical remedies of diseases and disorders under Drugs and Magical Remedies (Objectionable Advertisements) Act. 1994. – Advertisements of cigarettes and other tobacco products under tah Cigarettes and other Tobacco Products (Prohibition of Advertisement and Regulation of Trade and Commerce. 1994. – Any political advertisement forty hours prior to polling time under the Representation of People Act. – Inviting transplantation of organs under the Transplantation of Human Organs Act. Production. 1951 . 1986 – Use of report of test or analysis for advertising any drug or cosmetic under the Drugs and Cosmetics Act. 2003.

a non statutory tribunal • The key objectives of ASCI code is to ensure that advertisements must – – Make truthful and honest representations and claims which is essential to prohibit misleading advertisements.• In 1985. a self regulatory mechanism of ensuring ethical advertising practices was established in the form of the Advertising Standards Council of India (ASCI). and – Observe fairness in competition keeping in mind consumer‟s interests. complaints against the advertisements can be made by any person who considers them to be false. • Under the ASCI Code. – Not be offensive to public decency or morality. – Not promote products which are hazardous or harmful to society or to individuals. or unfair THE CODE FOR SELF-REGULATION IN ADVERTISING . misleading. offensive. particularly minors.

Managing Business Ethics Organization & its Employees .

• Usually. permanent employees are more loyal as they have job security. • Ethics in HR deals with all the issues in relationship between the employees and business. a sense of belongingness and expect support at the time of difficulty .ETHICAL ISSUES IN HR • Manner in which Organizations deal with its employees is an indication of its ethical characteristics. • Employees should be given their due reward.

Responsibilities towards Employees • To listen to and where possible act on employees‟ suggestions. requests and complaints • To engage in negotiations when conflict arises • To avoid discriminatory practices and guarantee equal treatment and opportunity regardless of gender. race and religion • To protect employees from avoidable injury and illness at the workplace • To encourage and assist employees in developing skills and knowledge that are required for accomplishing the tasks . ideas. age.

non-coercive. legal and conveys clearly requirements & benefits to all candidates • Unethical selection Wrong candidates Dissatisfaction • Unethical practices are – Discrimination based on • Age • Gender • Religion • Nationality .Ethical Issues in HIRING • Right principle is to select one who is perceived to have ability to contribute most to the long-term owners‟ value. • Ethical selection is honest. fair.

selection on credentials and test • Age criterion is unreliable measure of ability to contribute towards maximizing owners‟ value. hence unethical • Credentials may not always reflect an applicants functional ability • Test that challenges applicants right to privacy are considered unethical .Discrimination in Hiring • It can be ethical only if criterion for selection is Functional qualities / abilities required to do the job • By discrimination pool of talent is limited • Referrals – beneficial for business but unethical • Discrimination over qualification. age.

Ethical Issues in HIRING Ethical Practice is • Equality of Opportunity – – Rules should apply equally to all No applicant should be rejected for reasons beyond the rules laid down for hiring Reservation is termed as Reverse Discrimination – .

his effort. seniority and loyalty are of no importance in deciding remuneration unless they play a role in achieving results .Ethics in Remuneration • Remuneration is considered ethical when it is just and equitable • Ethical remuneration is rewarding any action that contributes to long-term owners‟ value. • Employee‟s needs. ability.

unfair or vindictive • Ethical issue in lay-offs or retrenchment is who should be fired first . • Firing affects reputation of business • Reputation is affected particularly when firing is discriminatory. business reduces its size and overhead cost by reducing manpower • Firing – Employers include “at will” clause in employment contract.ETHICS IN RETRENCHMENT • At times of recession.

Discrimination – Compliance with Applicable Laws .Ethics and Working Conditions • Should deal with the issues like – Forced Labor – Child labor – Working Hours and Compensation – Health and Safety – Abuse.

usually as a means to counter the effects of a history of discrimination • Affirmative action is intended as an attempt to promote equal opportunity • It is often instituted in government and educational settings to ensure that minority groups within a society are included in all programs . color. religion.Affirmative Action • Affirmative action refers to policies that take factors like race. national origin into consideration in order to benefit an underrepresented group. gender.

Structuring Ethics in Organization • To be considered Ethical Organisation should ensure that its Corporate code incorporates Company‟s values. which ensure Ethical behaviour of its employees • These are policy statements laying down company‟s ethical standards to govern the conduct of employees. • They have freedom to address any issue • Top management formulate the corporate codes . • Corporate codes are voluntary.

Corporate Code / Code of Conduct Corporate Code enhances • Clarity of strategy • Better decision – making • Clearer communication • Ease in delegation • Inspiration to have greater commitment & loyalty .

Corporate Code Three formats of corporate code • Compliance code – Directive statements • Corporate Credos – Broad general statements of commitments • Management philosophy statements – formal statement of company‟s vision of the business Formats used while formulating the corporate code • Special documents reflecting company‟s values. principles and guidelines • Circulated letters reflecting company‟s policies on certain issues • Compliance Certificates designed for suppliers. contractors • Purchase Orders .

Corporate Code • Code of Conduct can be successful if it is credible and To be credible it must be • Transparent – by communication and training • Easy to enforce – Positive enforcement involving retention of current contracts Negative enforcement involving monetary fines. corrective acts • Easy to monitor – Implies validation of code .

• Communicate the code – to every employee • Update – at least once in a year .Development of Corporate Code • Initiative to be taken by top management Guidelines to be followed – • Identification of the key behaviors – relating to the areas that are crucial for achieving the corporate goals • Review by key members of the organisation – like Legal dept.

Implementation of Corporate Code Approach by Ferrell and Fraedrich is based on four aspects • Organisational Structure – based on this appropriate authority should be delegated to ensure ethical behavior • Coordination – ensures different departments follow same ethical code • Motivation – of employees through quality of ethical performance of company • Communication – aims at maintaining ethical climate in company .

Implementation of Corporate Code Another approach by Mac Donald and Zepp based on three perspectives • Individual dimension • Group influence • Organisational strategies • Their opinion is that recruit candidates with ethical standards rather than attempting to change behaviour Their should be ethical leadership rather than policies .

supervisors. and property Teamwork – Work openly and supportively with others. aiming toward common goals Leadership – Show leadership in areas where you are strong Citizenship – Build a workplace that protects health and welfare of employees.Employee‟s Responsibilities • • • • • • • • • • Respect – Respect laws. and the community. and your environment Value – Build a profitable company that will have stability and prosperity Honesty – Believe that honesty IS the best policy Integrity – Always take the high road Responsibility – Take responsibility for your actions Quality – Strive for quality in every aspect of your work Trust – Work to build the trust of employees. customers. . people. your community.

Managing Business Ethics Organization & Natural Environment .

• Environmental Responsibilities are to be weighed against responsibilities to stakeholders and benefits to society. Environmental issues • Toxic Waste • Contamination of ground water • Oil spills • Use of fluro carbons • Air Pollution • Burning of fossil fuel • Noise Pollution • Destroying of forest and seashore .BUSINESS ETHICS & ENVIRONMENT • Environmental Ethics examines moral basis of environmental responsibilities.

ENVIRONMENTAL ISSUES • As business expands. environmental issues start gaining importance • Most of the times chemical industries create maximum pollution European legislation has proposed more than 120 acts based on • Promoting the benefits of pollution prevention • Customizing legislation to meet requirements of members • Developing and enforcing „Polluters pay policy‟ aiming at imposing fines on defaulters .

the standards of quality of air. the procedures and safeguards for the handling of hazardous substances 4. 1986 • By the Act Central government has power to make rules pertaining to all or any of the following matters 1. the prohibition and restrictions on the handling of hazardous substances in different areas 5. the prohibition and restriction on the location of industries and the carrying on process and operations in different areas 6. the maximum allowable limits of concentration of various environmental pollutants (including noise) for different areas 3.The Environment (Protection) Act. the procedures and safeguards for the prevention of accidents which may cause environmental pollution and for providing for remedial measures for such accidents . water or soil for various areas and purposes 2.

it is said to be „Going Green‟. Reasons for Green initiative • Economic benefits from increased efficiency • Competitive advantage through innovation • Public Image GREEN INITIATIVES – • Environmentally friendly technological innovation • Green tourism • Green Community • Environmental campaigning • Environmental counselling Environmental issues are many times handled by Safety/ R&D / Maintenance departments GREENING .• When a company adopts an anti-pollution environment policy.

Green Marketing • Green marketing is the marketing of products that are presumed to be environmentally safe • It incorporates a broad range of activities like – product modification – changes to the production process – packaging changes – as well as modifying advertising • Other similar terms used are – Environmental Marketing and – Ecological Marketing .

vegetables from regional farms is more easy to be marketed “green” than products imported.The Green Marketing Mix • Product – Ecological products not contaminating the environment – Should protect environment and even liquidate existing environmental damages – Prices may be a little higher than conventional alternatives • Price • Place • Promotion – Main focus is on ecological packaging – Marketing local and seasonal products e.g. – Should put stress on environmental aspects – Company‟s expenditures on environmental protection should be advertised – Sponsoring the natural environment is also very important – Ecological products will probably require special sales promotions .

– Make efforts to identify. evaluate. environmental degradation and promote development • We should strive for – Changing Unsustainable Patterns of Consumption and Production – Evaluate and make development decisions which lead to a more sustainable society. introduce and use the technologies through which substantial reduction in consumption of resources is possible .Sustainable Development • Sustainable Development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs • It calls for a broad-based alliance between industry and society to combat poverty.

increasing shareholder value and creating wealth whilst aggressively pursuing opportunities for growth – achieving high rates of economic growth in order to enable all sections of society enhance their quality of life and live with dignity – pursuing economic growth whilst preserving and enhancing our natural resources.Sustainable Development – Triple Bottom Line • The economic dimension – enhancing profitability. • The social dimension • The environmental dimension .

Sustainable Development • Sustainable Development has become a priority for businesses • Since corporations are vital organs of society. corporate interests must serve societal concerns • Such a focus of corporate interest will eventually transform into multifold business advantages .

Sustainable Development Advantages • Cost and Risk Reduction – Adopting principles of eco-efficiency such as reducing the use of materials and energy. recycling materials and increasing product durability will enhance profitability whilst simultaneously reducing damage to the environment • Reputation and Legitimacy – Being recognised by society and stakeholders as businesses committed to practices that promote sustainability across the Triple Bottom Line • Innovation and Respositioning – Retaining leadership in a highly competitive business environment through continuous repositioning • Clean Technologies – Giving businesses a competitive edge by optimising use of natural resources and deploying clean technologies to reduce damage to the environment . minimising toxic dispersion and service intensity.

Ethics in Marketing ?????????? .

Ethics and Marketing • Ethical issues in marketing strategy – marketing strategies are required to achieve higher standards of ethics as it is in public scrutiny. • Issue involved are – stance adapted by company towards its competitors – Ethics in Marketing Mix – • Product • Price • Promotion • Place • Marketing mix also includes the service aspect – Ethics in Information Acquisition – Ethics in Marketing Research .

• No undercutting or Price fixation • Disclose full price associated with any product . • Product should be safe and fit for intended use • Disclose the risks associated with product‟s use if any • Any changed feature that might have effect on buying decision should be informed Price – Higher than normal price should not be charged for a product with high demand. alcohol • Updating of consumer product is one more issue.Ethics and Marketing Mix Product –– Product has an identity and personality of its own like cigarettes.

• Communication about offered product should not be deceptive People. misleading not in accordance with law are not allowed • Attacking competitors‟ product is not allowed • Spreading unfounded and damaging rumors about competitor is not allowed. • No manipulation about availability of product for exploitation • No use of coercion in the marketing channel Promotion – is subjected to closed scrutiny. Part at which customer is able to access the information. Physical evidence and Process – Service aspects Ethics and Marketing Mix . Also includes process of distribution and type of delivery service. • Advertisements which are offensive.Place – by place marketers refer to the sum of location Through which the product moves from the supplier to customer.

• Do not collect information which is not related to your business • Do not collect data indirectly • Tell your plans about using data to respondents and use data only for those plans • Act as per respondent‟s direction .Ethical issues in Information Acquisition • How much of a sensitive information a customer shares with a firm is a powerful signal of their assessment of the firm.

Ethics and Marketing Research The research profession in business has to ensure certain rights to the society • Right to be informed of critical research results • Issue involving rights to the researcher • Protection against improper solicitation of proposals • Misrepresentation of findings • Ethical behaviour of respondents .

to anonymity and confidentiality. privacy and safety • Client – has right to anonymity.has right to be informed. confidentiality. protection against improper solicitation of proposals The issues are excessive requests or reneging on promises. availability of funds • The Research Profession – Issues are appropriate use of marketing research techniques. quality research. use of accepted research procedures. protection against abuse of position • Researcher – Has right to expect ethical subject behaviour. ethical behaviour Ethics and Marketing Research . protection against misleading presentation of data.Five entities affected by Market research process – • Society – has right to be informed • Respondents . avoiding unnecessary research. to choose.

Ferrell and Gresham have identified three factors that determine code of ethics for marketing. • Individual factor Moral values inculcated in a person by family education and culture. top management and peers influence the marketer • Opportunity factors Ethical codes and standards that are promoted in organisation. . • Significant factors Extent to which reference groups. • The above factors play a major role in deciding ethical status of an organisation .

Ethics and Finance $$$$$$$$$$$$$$ .

ETHICAL ISSUES IN FINANCE • Most of the issues are concerned with Financial Reporting. • Importance of Financial Statements • For effective performance of an organization. Fair and Reliable • Companies are often tempted to falsify the accounts. reporting should be Honest. • Ethics becomes important here .

• Companies usually maintain two sets of accounts – One for shareholders and Other for the internal management accounts. Management Accounts give details about • Functioning of different departments. • The cost involved and the earnings. Financial Statements. • the work they perform. .

Financial Statements For true fair and reliable Management Accounting • Determine the key elements like objectives of the firm. Other aim is to track progress of the company. their definition and measurements • Ensure that funds are allocated to different activities on the basis of their importance • Projected earnings of activity are in accordance with the funds allocated to it The objective of Ethical audit is to bring in accountability and transparency in the company‟s operations. .

Ethical Issues in Mergers and Acquisitions Mergers and acquisitions help company • To develop a competitive advantage and • Thereby increase shareholder value. . • Suppliers and • Customers. But takeovers harm the interest of stakeholders • Like employee.

• Takeovers are looked upon as involving breach of trust by – Isolating contracts with other stakeholders – Suppliers or employees lose security of their work • While going in for takeovers or mergers – Each group must agree to respect certain contracts or promises – Management should not encourage expectation which it may not be in a position to fulfill – If impractical obligations are abandoned after acquisition. then the change is not unethical .Mergers and Acquisitions • Takeovers are criticized by employees whose personal interests are harmed.

Mergers and Acquisitions . • Reasons for opposition may be • a) Protecting their own interest • b) Disagreement over price • One criticism for hostile takeovers is it does not consider the interest of Target Company. • In such cases resource misallocation takes place by divesting resources • Hostile Takeovers – These elicit opposition from the boards or the employees of the target company.• Takeovers which take place to satisfy management ambitions or just to follow trend are unethical.

• Insider Trading that is performed with the full support & knowledge of shareholders is not unethical . • The information is not disclosed to other market participants. • Insider Trading / Dealing is considered unethical • As it violates equality of opportunity.Insider Trading Insider Trading refers to • Trading on price sensitive information • By people who are closely connected with the firm.

Money laundering involves three basic steps – • Physical disposal of cash • After the funds have entered the financial system (Layering stage ).Money Laundering • Involves hiding. moving and investing the proceeds of criminal transactions. they are distanced from the original source • Make the wealth derived appear as legitimate .

5 lakhs to 25 crores or three times the amount of profit made out of insider trading . offender can be fined fro Rs.New Companies Bill • Introduced on 14/12/2011 to replace Companies Act 1956 • Seeks to bring Insider Trading under ambit of criminal law • Insider Trading punishable upto maximum of 5 years imprisonment • Depending upon quantum of damage.

Business Ethics in Global Contexts ooooooooooooooooo .

GLOBAL BUSINESS Multinational Companies can be described as either – • Having substantial investment in other countries deriving income from foreign operations • Substantial number of shareholders in other country • Top and senior managers are recruited from different countries • Have subsidiaries in many countries .

• Reasons for companies going global Multinational Companies – Reduce sourcing and distribution cost – Lower wage rates – Reduced transportation cost – Opportunity to be close to supplier or customer – Saturation of local market – To maintain growth rate – To exploit opportunities in new market – Recession or domestic completion .

Advantages from MNCs to host country • Agent of change and progress • Bring in plant & machinery which otherwise would have been difficult to acquire • Bring in skills & technology to run the operations • Bring in ideas and practices that improve R & D infrastructure .

• Political Activities • Supporting repressive regime • Paying bribes to secure political influence • Not respecting human rights • Paying protection money to terrorist groups • Destabilizing national government which they do not approve • MNC‟s subsidiaries may act as de-facto instrument of foreign economic policy of other state .Ethical Issues in MNCs MNCs have been accused of indulging in unethical practices in several areas.

Ethical Issues in MNCs Sales. Marketing & Advertising • Their advertising and marketing methods sometimes undermine ancient cultures and traditions • Some engage in misleading and deceitful advertising in the third world countries • Some of the marketing practices promote goods that waste valuable resources in poorer nations • Many MNCs provide products which are inappropriate to local needs • MNCs do not always accept responsibilities for unsafe product • Environmental degradation .

• Depleting natural resources • Polluting the environment • Not paying compensation for environmental damage • Causing harmful changes in local living conditions • Paying little regard to the risk of accidents and causing major environmental catastrophe Ethical Issues in MNCs . • MNCs cause more damage to environment than domestic business.Environmental – MNCs are accused of using developing countries as dumping grounds for environmentally hazardous goods.

Technology – MNCs normally transfer existing or even sometimes outdated technology rather than developing new suitable for local conditions. • Not engaging in research and development in host countries • Encouraging „Brain Drain from poor countries • Making host country technologically dependent on home Country • Not giving local employees access to information about key technologies • Not training local nationals in the use of imported technologies • Not transferring latest technologies • Dumping old or outdated technologies to earn revenues Ethical Issues in MNCs .

they import it which may be surplus in other country or at higher price. • Lower import prices in advanced countries further stimulate their economic development • Instead of using local raw material. . • Foreign owned sectors export most of their output at lower price.Ethical Issues in MNCs Economic Activities – MNCs operations in underdeveloped countries have led to „Dual‟ economic structures • Foreign owned capital-intensive industry operating in parallel with local labor-intensive industry.

Personnel Management & Industrial Relations • Refuse to recognize trade unions who engage in collective bargaining • Not ensuring Equal opportunity policies for all in the workplace • Using expatriate staff for all significant managerial positions • Ignoring the occupational health and safety needs of local workers • Exploiting host country labor • Not involving local employees in management decision making Ethical Issues in MNCs .

Japan are making efforts to carryout social obligation • They are assisting by way of loan.Regulatory Actions in Acquisitions of Global Business • Many countries require MNCs to obtain government clearance before establishing a new operation or purchasing an on-going business • EC is imposing a new regulation on MNCs making it difficult for them to enter Europe Social Obligations in Global Business • US. grants • Their assistance is helping these countries to improve their economic condition to some extent and also encourage other countries to fulfill their social obligation Global Business .

Ethical Issues in Other Countries
• Japan – Rocked by number of scandals. • France and Germany – Study shows that French and German managers are more concerned with maintaining a successful business posture rather than ethical or legal questions • China – Ranked among the world‟s gravest violators of human rights; but Chinese officials do not view their actions as unethical

Corporate Social Responsibility
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What is CSR?
• Business exists and operates within society; so it should contribute towards its welfare • Corporate Social Responsibility is the continuing commitment by business – to behave ethically and – contribute to economic development while – improving the quality of life of the workforce and their families as well as of the local community and society at large”. • CSR is the deliberate inclusion of public interest into corporate decision-making, and the honouring of a Triple Bottom Line: – People, Planet, Profit

regardless of legality .Corporate Social Responsibility • Companies are now expected to perform well in nonfinancial areas such as – human rights – business ethics – environmental policies – corporate contributions – community development – corporate governance and – workplace issues • CSR-focused businesses would proactively promote the public interest by encouraging – community growth and development and – voluntarily eliminating practices that harm the public sphere.

respecting the integrity of local culture • Encouraging charitable donations. workplace safety and economic well-being • Promoting and stimulating sustainable development and playing a leading role in preserving and enhancing the physical environment and conserving the earth‟s resources • Supporting peace. education. . security. educational and cultural contributions and employee participation in community and civic affairs.Responsibilities towards Community • Respect human rights and democratic institutions • Supporting public policies and practices that promote human development through harmonious relations between business and other segments of the society • Collaborating with such activities that aim at improving the standard of health. diversity and social integration.

Trusteeship • The philosophy of Trusteeship believes in inherent goodness of human beings • Resources are for everybody and wealth is for those who generate it • Thus one who controls the resources is not the owner but the trustee .

.Trusteeship Concept of Mahatma Gandhi • Trusteeship as the sole means of continuously redistributing wealth and simultaneously assuring generation and intelligent use of wealth. • Social order is based on social necessity and not personal greed • The workers realise their importance in society and shed the fear of and distrust of the rich while the latter will no longer feel their existence threatened but would realise their great responsibility towards upliftment of society • the trusteeship concept could be achieved by implementing in degrees • By looking for a equitable balance or balance of all the stakeholders the today‟s entrepreneur takes the first step towards tomorrow‟s trustee.

Multiple Stakeholder Theory • Stakeholder Concept – Business wanted to strike a balance between social responsibilities & economic value • Social responsibilities arise from stakeholders • Stakeholders are those who are interested or affected by the business and those who are vital for the survival and success of organization – Internal Stakeholders – External Stakeholders .

Employees and Management – Any decision taken by them has direct impact on them.Multiple Stakeholder Theory • Internal Stakeholders – Shareholders. • External Stakeholders – Consumers. Creditors. Suppliers. Competitors and Community • Multiple Stakeholder theory suggests that business has responsibilities to all these stakeholders and not only to shareholders • These responsibilities can be achieved through Triple bottom line with – The economic dimension represented by Profit – The social dimension represented by People – The environmental dimension represented by Planet • CSR is towards People & Planet .

Social Responsibilities of Business • There are two schools of thought on this issue: • In the Free Market View. the job of business is to create wealth with the interests of the shareholders as the guiding principle • The Corporate Social Responsibility View is that business organization should be concerned with social issues • The Free Market case against Corporate Social Responsibility – The only social responsibility of business is to create shareholder wealth – The efficient use of resources will be reduced if businesses are restricted in how they can produce – The pursuit of social goals dilutes businesses‟ primary purpose – Corporate management cannot decide what is in the social interest – Costs will be passed on to consumers – It reduces economic efficiency and profit – Directors have a legal obligation to manage the company in the interest of shareholders – and not for other stakeholders – CSR behavior imposes additional costs which reduce competitiveness – CSR places unwelcome responsibilities on businesses rather than on government or individuals .

Social Responsibilities of Business • Arguments for Corporate Social Responsibility – It is the ethical thing to do – It improves the firm‟ public image – It is necessary in order to avoid excessive regulation – Socially responsible actions can be profitable – Improved social environment will be beneficial to the firm – It will be attractive to some investors – It can increase employee motivation – It helps to corrects social problems caused by business – Being good is good for business” .

The LBG model enables CCI (Corporate Community Investment) professionals to measure their company's overall contribution to the community. and what is not. taking account of cash. time and in-kind donations.London Benchmarking Group Model • • • • The London Benchmarking Group was formed in September 1994 The LBG produced the London Benchmarking Group Model in 1997 The model provides a basis to decide what is. as well as management costs The model also records the outputs and longer-term community and business impacts of CCI projects • • • . Corporate Community Investment It is devised around three main motives for corporate community investment – charitable gifts – community investment and – commercial initiatives in the community Model distinguishes between "input" costs and "output" benefits.

Commercial initiatives in the community – How do we contribute? • Cash. Management costs – What do we contribute? – Where do we contribute? . In Kind. • The LBG model in essence covers four critical questions: – Why do we contribute? • Charity.London Benchmarking Group Model • LBG focuses more on what companies achieve as opposed to how much they spend. Commercial investment. Time.

• Improve management information to guide future strategy.London Benchmarking Group Model • Benefits of the LBG – The LBG model provides a comprehensive and consistent set of measures for CSI (Corporate Social Investment) professionals to determine their company's contribution to the community – The model also captures the outputs and longerterm impacts of CSI projects on communities and the business itself. • Shift the debate from cash contributed to benefits achieved. in-kind giving and management cost . such as time. • Capture and value all inputs. – The LBG Model encourages community managers to: • Account for their total community spend. • Analyse the costs and benefits of community programs consistently.

Ackerman‟s Model • Robert Ackerman tried to show how individual companies can be more socially responsible He described three phases through which companies commonly tend to pass in developing a response to social issues • .

Ackerman Model • • • Phase I: Chief Executive will identify the social problem. Phase II: Company hires the staff to study the problem and suggest the solution. Being responsive may well be the only responsible course of action. . Where the „enlightened companies‟ can make best information available. Phase III: Division managers implement the solution. .

Organisational level Phase I Issue: Corporate Obligation Action: Write and Communicate Policy Outcome: Enriched purpose. increased awareness Phase II Phase III Chief Executive Staff Specialists Issue: Technical Problem Action: Design Data System and Interpret environment Outcome: Technical and Informational groundwork Issue: Management Problem Action: Commit Resources and Modify Procedures Outcome: Increased Responsiveness Division Management .

.Carroll‟s Four-Part Model Economic Responsibilities Legal Responsibility Ethical Responsibility Discretionary Responsibility This Model suggests: • Firm must produce the goods and/or services that society wants and must sell them at a profit. . • Legal responsibilities are also basic. Firms should operate within the law.

where in specific situations they are clear • Discretionary responsibilities encompass voluntary activities undertaken for the public good – It refers to the voluntary contribution of the business to the social cause like involvement in community development or other social programmes . .Carroll‟s Four-Part Model • Ethical responsibility refers to behavior by the firm that is expected by society but not codified into law – These responsibilities are not well defined.

STOXX Limited and SAM Group-Sustainable Asset Management – Since that time more than a dozen various indices have been created for the world.Indices for CSR • There are number of indices (commonly called as “benchmarks”). regions or industries – The DJSI methodology is based on positive selection and aims at identification of best in class companies – The basic criterion considered during selection of companies for indices is the analysis of three aspects: • Economy • Environmental protection and • Social responsibility . with the overriding objective to describe economic situation of the companies meeting certain CSR requirements • Dow Jones Sustainability Index series (DJSI) – Launched in September 1999 by Dow Jones.

benchmarked companies against their peers. and against all companies that participated in the Index. now known as the Environment Index. . universally and by sector – The BiE Index. the Environment Index – They detail the environmental management and performance of the UK‟s leading companies individually. on the basis of their environmental performance in key impact areas.Indices for CSR • BiE Index of Corporate Environmental Engagement – The BiE Index of Corporate Environmental Engagement Reports analyse the results of Business in the Community‟s leading environmental benchmark.

Business of Mohammad Yunus • Social Business is a cause-driven business • In a social business. housing for the poor. – healthcare for the poor. no personal gain is desired by the investors • The company must cover all costs and make profit. financial services for the poor. introducing renewable energy. in a business way. but cannot take any dividend beyond that point • Purpose of the investment is purely to achieve one or more social objectives through the operation of the company. the investors/owners can gradually recoup the money invested. . nutrition for malnourished children. rather the amount of profit made in a given period measures the success of social business • The objective of the company is to achieve social goal/s. etc. at the same time achieve the social objective. providing safe drinking water. • The impact of the business on people or environment. such as.

• Type II: Can take up any profitable business so long as it is owned by the poor and the disadvantaged. who can gain through receiving direct dividends or by some indirect benefits. – Eg. – Eg.Types of Social Businesses • Type I: Focuses on businesses dealing with social objectives only. The product produced is for the benefit of the poor. The product could be produced by the poor but exported to an international market while net profits would go towards workers benefits .

. technology access.. not profit maximization • Financial and economic sustainability • Investors get back their investment amount only.Do it with joy . No dividend is given beyond investment money • When investment amount is paid back. health. company profit stays with the company for expansion and improvement • Environmentally conscious • Workforce gets market wage with better working condition • . and environment) which threaten people and society.Seven Principles of Social Business • Business objective will be to overcome poverty. or one or more problems (such as education.

Complexity of Ethical Issues 000000000000000000000 .

ETHICAL DILEMMAS AT WORK PLACE • Business runs on decisions by choosing between alternatives • But in many cases choice is difficult resulting in ethical Dilemma • Ethical dilemma involves range of actions and their consequences • Problem arises due to involvement of value judgment • So prioritize values and violate least possible .

Confidentiality and Loyalty Ethical Dilemmas . Child Labour Ethical Dilemmas in Business relate to • Power. Trust and Authority • Secrecy.Frequently occurring Ethical Dilemmas at Workplace – • To do right thing or go in line with company policy • Whether to spend more time on quality job • Use short-cut for quick job or follow procedures • Help colleague who is being harassed or ignore it • To hide a mistake or admit and rectify • Bribery.

legal. Trust and Authority – Managers enjoy these because of their position in the organization. • They are expected to use power and authority in equitable manner so trust is not destroyed. . maintaining confidentiality is essential for building trust with customers. consultants. Secrecy. Confidentiality and Loyalty – In organizations we have to know “who is entitled to know what “ • In professions like medical. • Even business has right to protect information whose disclosure to competitors would threaten their survival. • The decisions should be fair and impartial.Ethical Dilemmas Power.

Resolving Ethical Dilemma • To resolve ethical dilemma ask three questions – Utility : Does benefit exceed cost (shareholder) – Rights : Does it respect human rights (society) – Justice : Does it distribute benefits and burdens evenly (employees) .

integrity. justice • Action that produce more benefits than harms are right . equality. like – Teleological (Result oriented) • Right to fairness. honesty.Resolving Ethical Dilemma • Two approaches : Deontological & Teleological – Deontological (Action oriented) considers duties to protect fundamental moral rights of human beings.

• According to Gellerman four major rationalizations are • Resolving dilemma needs skill and experience – Actions are within reasonable ethical and legal limits – Actions are aimed at best interest of individual or firm – Actions will not be disclosed. so no danger to him or his firm – He will be protected by is company .Resolving Dilemmas Manager – Generally adopt different ethical standards while performing different tasks. • They provide rationalization for their behavior.

family and society • What is symbolic potential of your action if understood. can you discuss the problem with affected parties • Are you confident that your decision will be valid for a long-period of time • Could you discuss without qualm your decision with higherups. if misunderstood • Under what circumstances would you allow exception to stand Resolving Dilemmas .Questions to be asked by managers to take ethical decisions • How would you define the problem if you are on the other side of the fence • To whom and to what do you give your loyalty as a person • What is your intention in making this decision • Whom would your decision or action injure • Before making a decision.

Check for the reasonability Whom does the decision benefit/ harm? How much? How long? Would you be allowing everyone to do what you are considering now? Have you sought the opinion of others who are more knowledgeable and would be more objective? Would your action be embarrassing to you if it were made known to your family. friends. co-workers or superiors? Ethical Decision-making .• • • • • • • Is the problem / dilemma really what it appears to be Is the action that you are considering is legal? Ethical? Understand the position of those who are opposing you.

Factors in Ethical Decision-making • Magnitude of consequence – magnitude of impact of decision on employees • Probability of effect • Social agreement /acceptance • Time interval • Proximity – of the persons affected • Concentration of effect – Decision that affect large number of people • Final decision on ethical issue should be in line with greatest social benefit .

Resolving Dilemmas • Employees – In many organizations. the absence of commonly held beliefs and values can give rise to ethical dilemma. • As a result employees have to decide themselves. what is acceptable behavior • Training Employees to deal with ethical Dilemmas – • Step-by-step process known as BELIEVE is one way of resolving ethical dilemma .

BELIEVE • B – Background – of the case • E – Estimate – the ethical dilemma present • L – List – the possible solutions to the problem • I – Impact – Consider the likely impact of each of the possible solutions • E – Eliminate the totally unacceptable solution • V – Values – Assess which values of the company are held or violated by each solution • E – Evaluate – Considering their likely impact and the values that will be upheld or violated • This approach enables organizations to achieve a uniform approach to problem solving. .

Ethical Leadership ^^^^^^^^^^^^^^^^^^^^^^^^^^ ^^^ .

Ethical Leadership • Leadership is ability – To influence other people – Shape their attitudes and behavior To achieve goals • Rightness of goal is ethical issue • Ethical Leadership is for moulding the people for right goals • Three qualities of Ethical Leadership are – Character – Knowledge – Action .

adapt and innovate • This happens only through people who bring to work all knowledge & creative potential • But people may not make them necessarily available at work • How they are applied depends on leadership .Leadership • Leadership is critical factor in determining overall effectiveness • Organizations have to be quick to respond.

Power of a Leader • Managers become effective leader because of power conferred upon them by their followers • Leaders do not use any official authority • Leader‟s power over his followers is personal which we call as Moral authority • Moral authority does not flow from temptations (rewards) or threats (punishment) • Leaders have to earn respect .

then growth of individual and cohesiveness becomes irrelevant .Responsibilities of a Leader • To achieve a Task • Motivating people to put in best efforts by showing path for growth Let people know – Why they are doing what they are doing (objectives) – How they are doing (feedback) – Helping them to do better (training) • Ensure that group functions as a cohesive unit as a team • Achievement of task is most important • If that is not met.

Qualities for Ethical Leader • Leaders must have integrity • Integrity is consistency between thought. speech and action • Leaders act as head of family • Leadership needs character to inspire confidence and command respect • Six pillars of character – Trustworthiness – Responsibility – Justice and fairness Respect Caring Civic values .

compassion and forbearance .Attributes of Effective Leader • Effective Leaders – Mean what they say and know what they say – Become available for consultation and advice – Become available for support and help at times of difficulty – Treats sub-ordinates as worthy individuals – Come across as genuine and authentic – Show concern.

or play favorites – Disown responsibility – Panic in difficult situations . encourage cliques.Attributes of Effective Leader • Effective Leaders do not – Try to bluff – Ridicule or insult either the person or his knowledge – Hesitate to point out errors or deficiencies of sub-ordinates – Carry prejudices.

and innovative thinking. . intelligence. keen discernment. experience. and cultural broad-mindedness.Wisdom-based Leadership • Guiding ethics for global business is wisdom leadership – where wisdom is – more than the sum of our knowledge. and sound judgment” – that draws from a level of self-insight. • True wisdom is – the “deep understanding. personal and organizational values.

Four contexts for Wisdom Leadership 1. it has two limitations: Honouring the experience and wisdom of "those who have paved the way before us.” Using resources efficiently Discounting the inherent capability and motivation of people to do good and be good Believing that life (including people and nature) can and should be used and controlled for achieving one's own (self-centred) goals.” and competition is a win-lose game • Business leaders adopt the military model of command-and-control to serve the overall goals for efficiency and productivity • This context offers the wisdom of: – – • – However. Paternal-mechanistic • From this view. business is “survival of the fittest. – .

for their own sake and the organization‟s • People are considered a resource to be managed sensitively. • “Win-win" problem-solving is prominent in this context. Wisdom Leadership . but with a win-win mentality • With this “enlightened self-interest” supplants “selfish-interest. Humanistic • From this view. the purpose of business and leadership is still wealth-creation.2.” • The leader's job is to help employees become self-actualized “intra-preneurs” who invest both their emotions and their minds.

which includes self-actualisation as well as work abilities and aspirations. • However. and other stakeholders such as society and nature . where the "win-win" solutions are to promote individual interests.Wisdom Leadership Humanistic • Inherent in this context is the wisdom to fulfil the potential of the paternal-mechanistic context by: – – Recognizing the essential goodness and work ethic of people. – And do not necessarily include the interest of the organization as a whole. where motivation occurs when something is perceived as missing – Focusing on individualism. Providing opportunities for individuals to actualize their potential. it too has two limitations: – Focusing on needs.

in fact. learning organizations • The holistic context is increasing in strength through initiatives such as "corporate social responsibility. the goal of business and leadership evolves beyond "wealth-creation for shareholders" to "wealth-creation for the optimal benefit of all stakeholders“ • Leadership "control" lies more in having a common purpose and value-system rather than the “command-convince” or even “participative empowerment” leadership styles • This view recognizes that people are. Holistic • From this view." .Wisdom Leadership 3. the principal assets of wealth-creation. especially in the knowledge-intensive.

rather than taking into consideration the spiritual life that is both "in this world and transcends it. – Emphasizing the holistic nature of values and principles from which to operate harmoniously and creatively – Basing motivation primarily on self-oriented achievement." • But again. even while it might benefit the larger whole – Focusing personal and business goals only on having a better "in-this-world” life. nature.Holistic • Inherent in this context is the wisdom to fulfil the potential of the humanistic worldview by: – Recognizing the interconnectivity of people. it has two limitations: .Wisdom Leadership . and business enterprises.

along with “gifts” to help fulfil that purpose • Leadership in this context focuses on assisting people to fulfil their life purpose while integrating that with the organization‟s “life purpose” • The emerging spiritual-based context for business leadership provides its own particular wisdom: – Focusing first on a relationship with a transcendental Source of consciousness – Basing motivation primarily on selfless service – intending first and foremost to give and benefit the larger whole. with a particular spiritual purpose in life.Wisdom Leadership 4. with the skill and conscious attention to do this in a sustainable Manner . Spiritual-based • Sees people as spiritual in nature.

Spiritualbased .Wisdom Leadership .

Ethical Leadership • The science of Yogas also suggests four margas or paths to attain ultimate objective of bliss • Dnyan Yoga – Path of knowledge (Rational) • Bhakti Yoga – Path of devotion (Emotional) • Karma Yoga – Path of action (Action) • Raj Yoga – Path of comprehension or concepts • In the same way manager can attain managerial goals all by himself or leading his men .

Four Yogas or Paths DNYAN BHAKTI KARMA Based on Concern Analysis Emotion Activity RAJ Vision Data Relationship Doing Mission Asks Orientati on What Who How Why Intellectual Devotional Practical Idealistic .

CORPORATE GOVERNANCE **************************** ** .

• Then came Joint-stock company act in U. Unlimited or Unincorporated company • First two had limitations in tapping the capital • In case of unincorporated companies owners were personally liable for debt when the business failed. Partnership – under partnership act 3.K. Sole Proprietorship – under contract act 2.CORPORATIONS – AN OVERVIEW • Earlier business was carried out in three ways 1. • This act became framework for company law in India. in which liability was limited to the amount invested. • It also forms basis for corporate governance. .

• The management runs the company on behalf of the shareholders. skills and labor for pursuing their own interest. • Individual who invest in business have an opportunity to take profit without actively participating in company operations.Definitions of Corporations • Corporation is a mechanism that enables different groups to contribute capital. .

development and expansion of business .Definitions of Corporations • There are many definitions • Notable points are – – Corporation is artificial. privileges and liabilities distinct from those of its members – According to Devil‟s dictionary it is device for obtaining individual profit without individual responsibility – In general corporation facilitates tapping of large amount of capital. invisible entity existing only in the contemplation of law – It possesses property of immortality – Corporation is separate entity having its own rights.

.  It was designed to meet certain needs of society that were not met by earlier business models.Evolution of the corporate structure • Corporate structure was developed gradually through Darwinian process. • In the early Anglo-Saxon form. perpetual existence was given to municipal and educational corporations. • Various stages of corporate evolution processes were aimed at the corporation‟s own perpetuity and growth.

states created corporations for specific purposes.Evolution of the corporate structure contd… • They exercised control over their own functions to ensure themselves freedom from the power of the kings. . • By the seventeenth century. The limited liability of these corporations attracted huge investments. • The corporations created in Britain were aimed at colonies in India and America.

Characteristics of corporations – 1. What is owed to the corporation is not owed to the individual and what is owed to the individual is not owed to the corporation. Shareholder in corporation enjoys lower level of risk 2. Limited liability – The risk of loss is limited to the amount invested. It enables to minimize the level of risk.CHARACTERISTICS OF THE CORPORATE STRUCTURE • In every stage of development. This attracts investment . corporate structure was made stronger and more inaccessible to outside control. Transferability – facility of free transfer of shares.

Centralized Management – Limited authority is given to investors in day-to-day operations.Characteristics of Corporations 3. Board of directors is empowered to plan company‟s overall directions and managers are empowered to manage day-to-day operations . Legal Personality – Corporations is a legal person enjoying following rights – • Corporation give reasonable protection to individuals working for it • Corporations can make donations to political parties and thus can push their agenda in favor of it • Corporations can own property • Corporations can continue to exist as long as it has capital to run its business 4. They exercise their rights to take decision on general issues.

Corporations as social structure brought in clear financial goal behind these structures. success and fulfillment of human beings by enabling them to market their skills and experience. Helps individual to create more wealth • Social Structure – earlier social structures were created to develop co-operation and specialization. It shifted the power from hereditary rules .PURPOSE OF CORPORATION • Human Satisfaction – corporations help satisfy basic needs of security.

Efficiency is productivity whereas Efficacy implies ability to produce desired result • Ubiquity and Flexibility – Ubiquity is to do business or carry out activities anywhere. Corporations also provide flexibility to individuals to perform better • Identity –They have identity with rights and powers like normal citizens .PURPOSE OF CORPORATION • Efficiency and Efficacy – Corporations are sometimes created to achieve efficiency and efficacy.

CORPORATIONS AS A „ PERSON • Over the years attempts have been made to establish corporation as person and gain complete rights of citizen like political and voting rights • To qualify as Moral Person corporation needs to adopt moral decision-making process which includes – Ability to use moral in decision-making The ability of the decision-making policy to control not only the explicit corporate act but also the structures of policies and rules .

• Government intervention is needed only when system of corporate governance fails to safeguard the interests of society • In practice government and corporate influence each other . customers. shareholders.CORPORATIONS – EXPECTATIONS OF SOCIETY • Goods and services to satisfy their needs • Good employment and business opportunities • Society seeks assurance of growth and progress from corporations Two sets of laws governing corporation and its employees. suppliers and creditors. First set involves laws enacted by the legislators • They form basis for establishing minimum standards.

CORPORATIONS – EXPECTATIONS OF THE MARKET • Laws of marketplace influence the operations of corporation • These are laws of economics .

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