A Project on ‘CHARACTER

ETHICS’

Submitted By-

Swati Agrawal
BBA gen. 3rd SEM
0351341708

Under the guidance of

Dr. Nigar Fatima

Ideal Institute of Management

and Technology
Affiliated to
Guru Gobind Singh Indraprastha
University (GGSIPU)
 PREFACE
Initial in the one module of the
project, which is allotted to me,
“CHARACTER ETHICS” is covered
in this project report.
The report contains very nice
and well arranged topics related
to the subject “CHARACTER
ETHICS”. The main contents of
this project describes that ‘That
what are ethics’, Code of Ethics’,
‘Business Ethics’ and many other
topics which is countable in the
“CHARACTER ETHICS”.
The project report also
contains a description of
“Business Ethics “which is very
important for an organization to
work fairly in an environment.
Overall this reports my work like
a guide for the subject
“CHARACTER ETHICS”.

ACKNOWLEDGEMENT
Perseverance, inspiration and
motivation have always played a
key role in the success of any
venture. Working on this project
was a challenge and made us a bit
filters in the beginning.
At this level of understanding,
it is often difficult to understand
a wide spectrum of knowledge
without proper guidance and
advice .Hence, we take this
opportunity to express our heart
felt gratitude to Dr. NIGAR
FATIMA, for her round o’clock
enthusiastic support and
commentaries which made this
project successful, we are
thankful to her for making
impossible look easy for us.
We also extend our sincere
gratitude to MR. ANIL SHARMA
our principal sir for his
inspiration, encouragement and
for the impetus obtained
throughout the course of our
project.

1. Introduction on Ethics

2. Introduction on Business Ethics

3. Comparing Business with

environment

4. Code of conduct

5. Company’s profile
 Introduction on
Ethics
The term ethics refers to value
oriented decisions and behavior.
It comes from the Greek word
‘Ethos’ which means character,
guiding beliefs, standards or
ideals that pervade a group,
community or people. Today,
ethics is considered as the study
of morals behavior. Terms such as
business ethics, corporate ethics,
medical ethics or legal ethics are
used to indicate the particular
area of application. Ethics
involved in such area must still
refer to value – oriented decisions
and behavior of individuals. A
famous saying is there –
“If a man violates some rules he
is wrong according to law, but in
ethics he is wrong only if he
thinks of doing so.”
According to Dale S. Beach –
“Ethics refers to asset of moral
principles which should play a
very significant role in guiding the
conduct of managers and
employees in the operation of any
enterprise.”
Ethics is concerned with what is
right and what is wrong in human
behavior. It is normative and
prescriptive, not neutral. Ethics
refers to the body of moral
principles governing a particular
society or group and to the
personnel moral percepts of an
individual. Some people subscribe
to a utilitarian reference in
determining what is right and
what is wrong. From this point of
view, there are few absolute
standards and each issue must be
judged by studying its impact
upon all affected parties.
The tem ‘ethics’ and ‘morals’ are
often used interchangeably. But
ethics is broader than morals.
Moral refers to any generally
accepted customs of conduct and
right living in a society. They are
customs having a high degree of
social acceptance. They indicate
what people do, while ethics
represent what people should do.
Some Definitions of
Ethics
1. Ethics are kind of like
morals and common sense. it is
what you think is right or
wrong. Being "ethical" means
trying to be reasonable and
doing what you think is right

2. Ethics can be considered as

moral philosophy. It deals with
critical analysis of morality.
Ethics searches a reasonable
ground to our moral standards.
It deals with answering
questions such as `what ought
to be`, not `what is`.
3. The science of moral
obligation; a system of moral
principles, quality, or practice.
The moral obligation to render
to the patient the best possible
quality of dental service and to
maintain an honest
relationship with other
members of the profession and
mankind in general. By dental
dictionary
4. Ethics is the science of
morality or the systematic
study of moral rules and
principles. The term "morality"
refers to rules which prescribe
the way people ought to
behave and principles which
reflect what is ultimately good
or desirable for human beings.
By encyclopedia of Judaism
5. The study of the concepts
involved in practical reasoning:
good, right, duty, obligation,
virtue, freedom, rationality,
choice. Also the second-order
study of the objectivity,
subjectivity, relativism, or
skepticisms that may attend
claims made in these terms.
For the kinds of problems
encountered, see under the
special terms. For a possible
distinction between ethics and
morality, see morality. By
philosophy dictionary

6. There is no Buddhist term

which exactly corresponds to
‘ethics’ as a branch of
philosophy concerned with the
analysis and evaluation of
conduct in the way the subject
is classified in the West.
Instead, the various rules of
 moral conduct are subsumed
under the rubric of śīla, which
denotes internalized moral
virtue and its expression in
practice as abstention from
immoral conduct. By Buddhism
dictionary

7. .The study and evaluation of

human conduct in the light of
moral principles. Moral
principles may be viewed
either as the standard of
conduct that individuals have
constructed for themselves or
as the body of obligations and
duties that a particular society
requires of its members. By
Columbia encyclopedia
 Features of Ethics
• It contains principles of
personnel and professional
conduct.
• Existing norms and judgments
may contain valuable insights
but ethics sets out to criticize
and test them in terms of
ultimate norms.
• It does not rest on feelings of
approval or disapproval but in
the careful examination of the
reality around us.
• It is not a law. Even though law
enshrines many ethical
judgments. It criticizes law and
customs to obtain more perfect
rules for the conduct of life. Law
may permit things which are
unethical.
• What constitutes ethical
behaviors in one society may be
unethical in others.
• Ethics is involved in all human
activities including business.
There is need for a science of
ethics in every human
Endeavour.

Values
Values are convictions and a
framework of philosophy of an
individual on the basis of which
he judges what is good or bad,
desirable or undesirable, ethical
or unethical.
Rokeach defines values as –
“Values represent basic
convictions that a specific mode
of conduct is personally or
socially preferable to an opposite
mode of conduct”
It has some characteristics like –
1. Part of culture
2. Learned Responses
3. Inculcated
4. Social Phenomenon
5. Gratifying Responses
6. Adaptive Process

Values are even classified into

various categories that are –
1. Allport’s Values Classification
2. Grave’s Classification
3. England’s Classification
4. Rokech’s Classification
Values System is even adopted
by Indian Managers in their own
way. Various researchers have
attempted to identify the value
systems of Indian managers.
These researchers have used
Allport –Vernom –Lindzey model,
Graves’s model and England’s
model. The major findings are
given below –
1. Managers tend to have value
orientation towards
economic, theoretic, political,
social, aesthetic and religious
in that order.
2. Managerial Values tend to be
existential, conformistic,
manipulative, sociocentric,
tribalistic and egocentric.
3. Indian managers are more
pragmatist than moralist.
There are generally some
acceptable unethical
practices in business.
 4. In term of work values, Indian
managers tend to money
orientation during early days
of their career and later
shifts to matters like job
satisfaction.
5. Indian mangers give
importance to various
occupational values in the
order to be free from
supervision.

Ethics, Values and

Morals
Values are our fundamental
beliefs. They are the principles we
use to define what is right, good
and just. Values provide guidance
in determining the right versus
the wrong, the good versus bad.
They are our standards. Another
way to characterize values is that
they are what an individual
believes to be having worth and
importance to their life. Values do
not encompass all beliefs, but
only those beliefs that define
importance.
Morals are values that we
attribute to a system of beliefs
that help the individual define
right versus wrong, good versus
bad. These values typically get
their authority from something
outside the individual – a higher
authority.
In business world we often find
ourselves avoiding framing our
ethical choices in moral terms for
fear that doing so might prove
offensive to someone whose
moral frame of reference might
be different. The moral concept of
justice has one meaning
concerned with developing
rational normative claims and
theories.
Ethics is the study of what we
understand to be good and right
behavior and how people make
those judgments. When one’s
action are not congruent with our
moral values – our sense of right,
good and just – we will view that
are acting unethically. Defining
what is ethical is not an individual
exercise. However, if it were then
one could have argued that what
Hitler did was ethical since his
action conformed to his definition
of right, wrong or just.
Ethics is the discipline that
examines one’s moral standards
or the moral standards of the
society. It asks how these moral
standards apply to our lives and
whether these standards are
reasonable or unreasonable.
Ethics is not the only way to study
morality. The social sciences –
such as anthropology, sociology
and psychology – also study
morality, but do so in a quite
different way from the approach
to morality that is characteristics
of ethics. A descriptive study is
one that does try to attain any
conclusions about what things are
truly good or bad.

Business Ethics
In business, ethics can be defined
as the capacity to reflect on
values in the corporate decision
making process, to determine
how these values and decision
affect various stakeholders
groups, and to establish how
managers can use these
observations in day to day
company management. Ethical
managers strive for success
within the confines of sound
management practices that are
characterized by fairness and
justice.
Business Ethics refers to the
moral principles which should
govern business activities. It
provides a code of conduct for the
managers. The purpose of
business ethics is to guide
managers and employees in
performing their jobs. Ethics are
concerned with what is right and
what is wrong in human behavior.
They lay down norms of human
behavior by the business. A few
examples of ethics are:
1. To charge fair prices.
 2. To use fair weights for
measurement of
commodities.
3. To pay taxes to government.
4. To earn reasonable profits.
5. To give fair treatment to
workers.

The purpose of business ethics is

to regulate both objectives of
business and the means adopted
to achieve these objectives.
Ethics covers all possible areas of
business ends and means must be
justifiable as per norms of the
society.
A business is an integral part of
the society. It is in fact, a trustee
of the resources of the society. So
the business must observe the
ethical standards of the society
while using the resources. If a
business fails to observe the
social norms it will loose its public
image.
In the increasingly conscience-
focused marketplaces of the 21st
century, the demand for more
ethical business processes and
actions (known as ethics) is
increasing Simultaneously,
pressure is applied on industry to
improve business ethics through
new public initiatives and laws
(e.g. higher UK road tax for
higher-emission vehicles).
Business ethics can be both a
normative and a descriptive
discipline. As a corporate practice
and a career specialization, the
field is primarily normative. In
academia descriptive approaches
are also taken. The range and
quantity of business ethical
issues reflects the degree to
which business is perceived to be
at odds with non-economic social
values. Historically, interest in
business ethics accelerated
dramatically during the 1980s and
1990s, both within major
corporations and within
academia. For example, today
most major corporate websites
lay emphasis on commitment to
promoting non-economic social
values under a variety of
headings (e.g. ethics codes, social
responsibility charters). In some
cases, corporations have
redefined their core values in the
light of business ethical
considerations (e.g. BP's "beyond
petroleum" environmental tilt).
 Definition on
business Ethics
Business ethics is a form of
applied ethics that examines
ethical principles and moral or
ethical problems that arise in a
business environment.
Features of Business Ethics -

• It is an umbrella term which

covers all business practices
which are desirable from the
point of view of the society.
• Ethics co–exists with law, but
has a much broader coverage.
Ethics aims at perfection in the
conduct of life. Thus it guides
law markets to have perfect
rules for human behaviors.
• The concept of equity is
implied in ethics. It aims at fair
and reasonable treatment to all.
• Business ethics emphasize
making a businessman honest,
just and responsible citizen.
• It creates self imposed
discipline on the part of
managers.

General business
ethics
• This part of business ethics
overlaps with the philosophy of
business, one of the aims of
which is to determine the
 fundamental purposes of a
company. If a company's main
purpose is to maximize the
returns to its shareholders,
then it could be seen as
unethical for a company to
consider the interests and
rights of anyone else.[3]
• Corporate social responsibility
or CSR: an umbrella term
under which the ethical rights
and duties existing between
companies and society is
debated.
• Issues regarding the moral
rights and duties between a
company and its shareholders:
fiduciary responsibility,
stakeholder concept v.
shareholder concept.
• Ethical issues concerning
relations between different
companies: e.g. hostile take-
overs, industrial espionage.
 • Leadership issues: corporate
governance.
• Political contributions made by
corporations.
• Law reform, such as the ethical
debate over introducing a
crime of corporate
manslaughter.
• The misuse of corporate ethics
policies as marketing
instruments.

Professional ethics
Professional ethics covers the
myriad practical ethical problems
and phenomena which arise out of
specific functional areas of
companies or in relation to
recognized business professions.
Ethics of accounting
information
• Creative accounting, earnings
management, misleading
financial analysis.
• Insider trading, securities
fraud, bucket shops, forex
scams: concerns (criminal)
manipulation of the financial
markets.
• Executive compensation:
concerns excessive payments
made to corporate CEO's and
top management.
• Bribery, kickbacks, and
facilitation payments: while
these may be in the (short-
term) interests of the company
and its shareholders, these
practices may be anti-
competitive or offend against
the values of society.
Ethics of human resource
management
The ethics of human resource
management (HRM) covers those
ethical issues arising around the
employer-employee relationship,
such as the rights and duties
owed between employer and
employee.
• Discrimination issues include
discrimination on the bases of
age (ageism), gender, race,
religion, disabilities, weight
and attractiveness. See also:
affirmative action, sexual
harassment.
• Issues surrounding the
representation of employees
and the democratization of the
workplace: union busting,
strike breaking.
• Issues affecting the privacy of
the employee: workplace
 surveillance, drug testing. See
also: privacy.
• Issues affecting the privacy of
the employer: whistle-blowing.
• Issues relating to the fairness
of the employment contract
and the balance of power
between employer and
employee: slavery,[4]
indentured servitude,
employment law.
• Occupational safety and
health.
Ethics of sales and
marketing
Marketing which goes beyond the
mere provision of information
about (and access to) a product
may seek to manipulate our
values and behavior. To some
extent society regards this as
acceptable, but where is the
ethical line to be drawn?
Marketing ethics overlaps
strongly with media ethics,
because marketing makes heavy
use of media. However, media
ethics is a much larger topic and
extends outside business ethics.
• Pricing: price fixing, price
discrimination, price skimming.
• Anti-competitive practices:
these include but go beyond
pricing tactics to cover issues
such as manipulation of loyalty
and supply chains. See: anti-
competitive practices, antitrust
law.
• Specific marketing strategies:
green wash, bait and switch,
shill, viral marketing, spam
(electronic), pyramid scheme,
planned obsolescence.
• Content of advertisements:
attack ads, subliminal
messages, sex in advertising,
 products regarded as immoral
or harmful
• Children and marketing:
marketing in schools.
• Black markets, grey markets.
Ethics of production
This area of business ethics deals
with the duties of a company to
ensure that products and
production processes do not
cause harm. Some of the more
acute dilemmas in this area arise
out of the fact that there is
usually a degree of danger in any
product or production process
and it is difficult to define a
degree of permissibility, or the
degree of permissibility may
depend on the changing state of
preventative technologies or
changing social perceptions of
acceptable risk.
• Defective, addictive and
inherently dangerous products
and services (e.g. tobacco,
alcohol, weapons, motor
vehicles, chemical
manufacturing, bungee
jumping).
• Ethical relations between the
company and the environment:
pollution, environmental
ethics, carbon emissions
trading
• Ethical problems arising out of
new technologies: genetically
modified food, mobile phone
radiation and health.
• Product testing ethics: animal
rights and animal testing, use
of economically disadvantaged
groups (such as students) as
test objects.
Ethics of intellectual
property, knowledge and
skills
Knowledge and skills are valuable
but not easily "own able" as
objects. Nor is it obvious that has
the greater rights to an idea: the
company who trained the
employee or the employee
themselves? The country in which
the plant grew or the company
which discovered and developed
the plant's medicinal potential?
As a result, attempts to assert
ownership and ethical disputes
over ownership arise.
• Patent infringement, copyright
infringement, trademark
infringement.
• Misuse of the intellectual
property systems to stifle
competition: patent misuse,
 copyright misuse, patent troll,
submarine patent.
• Even the notion of intellectual
property itself has been
criticized on ethical grounds:
see intellectual property.
• Employee raiding: the practice
of attracting key employees
away from a competitor to take
unfair advantage of the
knowledge or skills they may
possess.
• The practice of employing all
the most talented people in a
specific field, regardless of
need, in order to prevent any
competitors employing them.
• Bioprospecting (ethical) and
biopiracy (unethical).
• Business intelligence and
industrial espionage.
International business ethics
While business ethics emerged as
a field in the 1970s, international
business ethics did not emerge
until the late 1990s, looking back
on the international
developments of that decade.[5]
Many new practical issues arose
out of the international context of
business. Theoretical issues such
as cultural relativity of ethical
values receive more emphasis in
this field. Other, older issues can
be grouped here as well. Issues
and subfields include:
• The search for universal values
as a basis for international
commercial behavior.
• Comparison of business ethical
traditions in different
countries.
• Comparison of business ethical
traditions from various
religious perspectives.
• Ethical issues arising out of
international business
transactions; e.g.
 bioprospecting and biopiracy in
the pharmaceutical industry;
the fair trade movement;
transfer pricing.
• Issues such as globalization
and cultural imperialism.
• Varying global standards - e.g.
the use of child labor.
• The way in which
multinationals take advantage
of international differences,
such as outsourcing production
(e.g. clothes) and services (e.g.
call centers) to low-wage
countries.
• The permissibility of
international commerce with
pariah states.

Ethics of economic systems

This vaguely defined area,
perhaps not part of but only
related to business ethics, is
where business ethicists venture
into the fields of political
economy and political philosophy,
focusing on the rights and wrongs
of various systems for the
distribution of economic benefits.
The work of John Rawls and
Robert Nozick are both notable
contributors.

Conflicting interests
Business ethics can be examined
from various perspectives,
including the perspective of the
employee, the commercial
enterprise, and society as a
whole. Very often, situations arise
in which there is conflict between
one and more of the parties, such
that serving the interest of one
party is a detriment to the
other(s). For example, a
particular outcome might be good
for the employee, whereas, it
would be bad for the company,
society, or vice versa. Some
ethicists (e.g., Henry Sedgwick)
see the principal role of ethics as
the harmonization and
reconciliation of conflicting
interests.

Ethical issues and

approaches
Philosophers and others disagree
about the purpose of a business
ethic in society. For example,
some suggest that the principal
purpose of a business is to
maximize returns to its owners, or
in the case of a publicly-traded
concern, its shareholders. Thus,
under this view, only those
activities that increase
profitability and shareholder
value should be encouraged,
because any others function as a
tax on profits. Some believe that
the only companies that are likely
to survive in a competitive
marketplace are those that place
profit maximization above
everything else. However, some
point out that self-interest would
still require a business to obey
the law and adhere to basic moral
rules, because the consequences
of failing to do so could be very
costly in fines, loss of licensure,
or company reputation. The noted
economist Milton Friedman was a
leading proponent of this view.
Other theorists contend that a
business has moral duties that
extend well beyond serving the
interests of its owners or
stockholders, and that these
duties consist of more than
simply obeying the law. They
believe a business has moral
responsibilities to so-called
stakeholders, people who have an
interest in the conduct of the
business, which might include
employees, customers, vendors,
the local community, or even
society as a whole. They would
say that stakeholders have
certain rights with regard to how
the business operates, and some
would suggest that this includes
even rights of governance.
Some theorists have adapted
social contract theory to business,
whereby companies become
quasi-democratic associations,
and employees and other
stakeholders are given voice over
a company's operations. This
approach has become especially
popular subsequent to the revival
of contract theory in political
philosophy, which is largely due
to John Rawls' A Theory of Justice,
and the advent of the consensus-
oriented approach to solving
business problems, an aspect of
the "quality movement" that
emerged in the 1980s. Professors
Thomas Donaldson and Thomas
Dunfee proposed a version of
contract theory for business,
which they call Integrative Social
Contracts Theory. They posit that
conflicting interests are best
resolved by formulating a "fair
agreement" between the parties,
using a combination of
i) macro-principles that all
rational people would agree upon
as universal principles, and,
ii) micro-principles formulated by
actual agreements among the
interested parties. Critics say the
proponents of contract theories
miss a central point, namely, that
a business is someone's property
and not a mini-state or a means of
distributing social justice.
Ethical issues can arise when
companies must comply with
multiple and sometimes
conflicting legal or cultural
standards, as in the case of
multinational companies that
operate in countries with varying
practices. The question arises, for
example, ought a company to
obey the laws of its home
country, or should it follow the
less stringent laws of the
developing country in which it
does business? To illustrate,
United States law forbids
companies from paying bribes
either domestically or overseas;
however, in other parts of the
world, bribery is a customary,
accepted way of doing business.
Similar problems can occur with
regard to child labor, employee
safety, work hours, wages,
discrimination, and environmental
protection laws.
It is sometimes claimed that a
Gresham's law of ethics applies in
which bad ethical practices drive
out good ethical practices. It is
claimed that in a competitive
business environment, those
companies that survive are the
ones that recognize that their
only role is to maximize profits.

Corporate ethics policies

As part of more comprehensive
compliance and ethics programs,
many companies have formulated
internal policies pertaining to the
ethical conduct of employees.
These policies can be simple
exhortations in broad, highly-
generalized language (typically
called a corporate ethics
statement), or they can be more
detailed policies, containing
specific behavioral requirements
(typically called corporate ethics
codes). They are generally meant
to identify the company's
expectations of workers and to
offer guidance on handling some
of the more common ethical
problems that might arise in the
course of doing business. It is
hoped that having such a policy
will lead to greater ethical
awareness, consistency in
application, and the avoidance of
ethical disasters.
An increasing number of
companies also requires
employees to attend seminars
regarding business conduct,
which often include discussion of
the company's policies, specific
case studies, and legal
requirements. Some companies
even require their employees to
sign agreements stating that they
will abide by the company's rules
of conduct.
Many companies are assessing
the environmental factors that
can lead employees to engage in
unethical conduct.
Not everyone supports corporate
policies that govern ethical
conduct. Some claim that ethical
problems are better dealt with by
depending upon employees to use
their own judgment.
Others believe that corporate
ethics policies are primarily
rooted in utilitarian concerns, and
that they are mainly to limit the
company's legal liability, or to
curry public favor by giving the
appearance of being a good
corporate citizen. Ideally, the
company will avoid a lawsuit
because its employees will follow
the rules. Should a lawsuit occur,
the company can claim that the
problem would not have arisen if
the employee had only followed
the code properly?
Sometimes there is disconnection
between the company's code of
ethics and the company's actual
practices. Thus, whether or not
such conduct is explicitly
sanctioned by management, at
worst, this makes the policy
duplicitous, and, at best, it is
merely a marketing tool.
To be successful, most ethicists
would suggest that an ethics
policy should be:
• Given the unequivocal support
of top management, by both
word and example.
 • Explained in writing and orally,
with periodic reinforcement.
• Doable....something employees
can both understand and
perform.
• Monitored by top management,
with routine inspections for
compliance and improvement.
• Backed up by clearly stated
consequences in the case of
disobedience.
• Remain neutral and nonsexist.

Ethics officers
Ethics officers (sometimes called
"compliance" or "business
conduct officers") have been
appointed formally by
organizations since the mid-
1980s. One of the catalysts for
the creation of this new role was
a series of fraud, corruption and
abuse scandals that afflicted the
U.S. defense industry at that
time. This led to the creation of
the Defense Industry Initiative
(DII), a pan-industry initiative to
promote and ensure ethical
business practices. The DII set an
early benchmark for ethics
management in corporations. In
1991, the Ethics & Compliance
Officer Association (ECOA) --
originally the Ethics Officer
Association (EOA)-- was founded
at the Center for Business
Ethics(at Bentley College,
Waltham, MA) as a professional
association for those responsible
for managing organizations'
efforts to achieve ethical best
practices. The membership grew
rapidly (the ECOA now has over
1,100 members) and was soon
established as an independent
organization.
Another critical factor in the
decisions of companies to appoint
ethics/compliance officers was the
passing of the Federal Sentencing
Guidelines for Organizations in
1991, which set standards that
organizations (large or small,
commercial and non-commercial)
had to follow to obtain a
reduction in sentence if they
should be convicted of a federal
offense. Although intended to
assist judges with sentencing, the
influence in helping to establish
best practices has been far-
reaching.
In the wake of numerous
corporate scandals between 2001-
04 (affecting large corporations
like Enron, WorldCom and Tyco),
even small and medium-sized
companies have begun to appoint
ethics officers. They often report
to the Chief Executive Officer and
are responsible for assessing the
ethical implications of the
company's activities, making
recommendations regarding the
company's ethical policies, and
disseminating information to
employees. They are particularly
interested in uncovering or
preventing unethical and illegal
actions. This trend is partly due to
the Sarbanes-Oxley Act in the
United States, which was enacted
in reaction to the above scandals.
A related trend is the introduction
of risk assessment officers that
monitor how shareholders'
investments might be affected by
the company's decisions.
The effectiveness of ethics
officers in the marketplace is not
clear. If the appointment is made
primarily as a reaction to
legislative requirements, one
might expect the efficacy to be
minimal, at least, over the short
term. In part, this is because
ethical business practices result
from a corporate culture that
consistently places value on
ethical behavior, a culture and
climate that usually emanates
from the top of the organization.
The mere establishment of a
position to oversee ethics will
most likely be insufficient to
inculcate ethical behavior: a more
systemic programmed with
consistent support from general
management will be necessary.
The foundation for ethical
behavior goes well beyond
corporate culture and the policies
of any given company, for it also
depends greatly upon an
individual's early moral training,
the other institutions that affect
an individual, the competitive
business environment the
company is in and, indeed, society
as a whole.

Religious views on business

ethics
The historical and global
importance of religious views on
business ethics is sometimes
underestimated in standard
introductions to business ethics.
Particularly in Asia and the Middle
East, religious and cultural
perspectives have a strong
influence on the conduct of
business and the creation of
business values.
Examples include:
• Islamic banking, associated
with the avoidance of charging
interest on loans.
 • Traditional Confucian
disapproval of the profit-
seeking motive.[7]
• Quaker testimony on fair
dealing

Related disciplines
Business ethics should be
distinguished from the philosophy
of business, the branch of
philosophy that deals with the
philosophical, political, and
ethical underpinnings of business
and economics. Business ethics
operates on the premise, for
example, that the ethical
operation of a private business is
possible -- those who dispute that
premise, such as libertarian
socialists, (who contend that
"business ethics" is an oxymoron)
do so by definition outside of the
domain of business ethics proper.
The philosophy of business also
deals with questions such as
what, if any, are the social
responsibilities of a business;
business management theory;
theories of individualism vs.
collectivism; free will among
participants in the marketplace;
the role of self interest; invisible
hand theories; the requirements
of social justice; and natural
rights, especially property rights,
in relation to the business
enterprise.
Business ethics is also related to
political economy, which is
economic analysis from political
and historical perspectives.
Political economy deals with the
distributive consequences of
economic actions. It asks who
gains and who loses from
economic activity, and is the
resultant distribution fair or just,
which are central ethical issues

Relationship
between business
 ethics and
managerial values

Ethics refers to the entire body of

moral values that society attaches
to the actions of human being.
Ethics are interrelated with
values. In fact values are
considered the language of
ethics. Ethics in business emanate
from the values of top
management which are in turn
shaped by social, cultural and
national values.
Values can be moral, immoral or
amoral, depending upon whether
they conform to, go against or are
different towards certain norms
of morality. But ethics represent
only moral values. The value
judgments do have ethical
content when they are linked with
the element of morality. Values
help to establish proper
relationship between ends and
means. If the management of a
business is pursuing sound
values, and it will follow those
business practices that are ethical
and socially justifiable. And in
absence of sound value system,
the management of a business
may be tempted to pursue
unethical business practices.

Unethical behaviors
constitutes of

1. Bribing public officials to

obtain undue favors.
2. Using false claims in
advertisements.
3. Keeping two sets of books to
evade taxes.
4. Using co. property for
personal use.
 5. Overlooking safety violations
to get the job done.
6. Revealing confidential
information or trade secrets
to competitors.
7. Artificially inflating profits to
get re- elected as directors.

Unethical Business Practices

• Against Employees
1. Paying salaries lower than
those fixed by the
government to the
employees.
2. Poor working conditions like
dirty water, poor lightning.
3. Lack of safety measures for
workers.

• Against Government
1. Evasion of excise duty, sales
tax, income tax etc.
2. Smuggling of goods.
3. Offering bribes to
government officials and
politicians for getting favors.

• Against consumers and society

1. Adulteration of goods like
mixing of papaya seed with
black pepper.
2. Sale of spurious goods
3. Sale of duplicate products
under popular brand names.
4. Sale of products injurious to
public health like charas,
heroine.
5. Pollution of environment.
6. Deceptive advertisements
and false claims in
advertisements.
 Conceptual model of
Business ethics

Business Ethics

Managerial Moral
problems that
Beliefs
manager face in decision making

Managerial beliefs concerning:

1. Illegal acts
2. Unethical or questionable
practices

Examples:
1. Fraud, Bribery
 2. Dumping of pesticides

Micro level problems:

1. Fairness in performance
appraisal
2. Accepting Gifts
3. Confidentiality of company
4. Treatment of problem
employees
5. Confronting expense account
Levels of Ethical
Decisions in
business
Level 4
Individual

Level 3
Internal policy

Level 2
Stakeholders
 Level 1
Society

1. Societal level
2. Stakeholders level
3. Internal policy
4. Individual Level

1. Societal Level:
At this level, ethical
questions about the basic
institutions in society are
asked. These represent an
ongoing debate among major
competing institutions
including business.
2. Stakeholders Level:
In a business enterprise
include employees, suppliers
etc. Here they ask about how
they deal with external
groups. For example, should
a company inform its
customers about the
potential dangers of its
product?

3. Internal Policy Level:

At this level we ask questions
about the nature of
enterprise relations with
employee both managers and
workers. So also questions of
motivation techniques,
leadership roles, work rules
etc. are involved at this level.

4. Individual Level:
At this level, we ask
questions concerning how
individual person should treat
one another within the firm.
These questions deal with
day to day issues of life in
any enterprise but in the
ultimate analysis, they set
the tone of ethical behavior
of business at higher levels.
 Need and
Importance of
Business Ethics
More important is the fact that
today a businessman is
pressurized by various
environmental factors to follow a
business practice which is ethical
from society’s point of view
irrespective of its impact on
business profits. Such a
significance of business ethics is
attributable to following reasons:

1. Environmental Pressures:
As apart of overall economic
system, a business
organization is pressurized by
various environmental factors
to act credibly and behave
ethically. Thus a business
 enterprise may have no
option but to desist from
undesirable trade practices
like hoarding and profiteering
due to pressure from
consumer forums.

2. Enlightened self interest:

Today’s businessman firmly
believes that business ethics
are in their own self interest.
That is if business enterprise
follows business practices, it
will lead to higher profits and
prosperity in the long run.

3. Moral consciousness:
It would not be an
exaggeration to say that
most business people behave
ethically because of their
moral consciousness. Like
any other member of the
society business people also
believe that ethical business
 conduct is good business as
well as good citizenship.

4. Legal Requirements:
In almost every sphere of
business activity laws have
been enacted which declare
certain business practices. In
short, obedience to such laws
is ethical.

Elements of
business ethics
Business Managers must come to
appreciate the key elements that
comprise making ethical
judgments. There are six major
elements that are essential
ethical judgments:

1. Ethical Imagination:
Developing ethical imagination
means being sensitive to
ethical issues in business
decision making and the ability
to identify those situations
where people are likely to be
detrimentally effected by
decision making.

2. Ethical Identification and

Ordering:
It refers to the ability to judge
the relevance or non relevance
of ethical factors in decision
making situations. In addition
to their identification, ethical
issues must be ranked.
3. Ethical Evaluation:
To evaluate ethical factors
business persons have to
develop clear principles, basis
of weighing those factors and
the ability to make out the
likely ethical as well as
economic outcomes of a
decision.
4. Sense of Ethical Obligation:
This refers to the intuitive or
learned understanding that
ethical fibers – a concern for
fairness, justice and due
process to people, groups and
communities should be woven
into the fabric of managerial
decision making.
 Determinants of
Business Ethics
1. Social Factors – Ethics are
basically concerned with social
morality. In other words,
ethical business conduct is
that which is socially moral.
Accordingly, it is the social
 values, norms, traditions and
customs.

2. Economic Factors – The level

of economic development also
influences the nature and
spread of business ethics. In
general Business ethics
assume liberal character with
the development in economic
spheres, particularly business
activities.

3. Cultural Factors – The code of

conduct for individuals as well
as organizations develops
under constant influence of
cultural values. And the
sources of these cultural
values are historical heritages,
family system, religion etc.

4. Political Factors – Business

Ethics are also influenced by
the ideology and philosophy of
 the political party in power.
Through appropriate
legislative measures
government enforces business
ethics and regulates the
behavior of business firms.

5. Organizational Factors – like

philosophy and policy of the
firms, attitudes of managers
and superior subordinate
relations have great impact on
ethical perception.

Implications for
Business Ethics
 When the mechanism of moral
disengagement are at work in
corporations, business ethics is
difficult to manage, especially
when the sanctioning practices
are surreptitious and the
responsibility for policies is
diffused. Numerous exonerative
strategies can be enlisted to
disengage social and moral
sanctions from detrimental
practices with a low sense of
personal accountability.

APPROACHES TO
BUSINESS ETHICS
When business people speak
about “business ethics” they
usually mean one of three things:
(1) avoid breaking the criminal
law in one’s work-related activity;
 (2) avoid action that may
result in civil law suits against the
company; and
(3) avoid actions that are bad
for the company image.
Businesses are especially
concerned with these three things
since they involve loss of money
and company reputation. In
theory, a business could address
these three concerns by assigning
corporate attorneys and public
relations experts to escort
employees on their daily
activities. Anytime an employee
might stray from the straight and
narrow path of acceptable
conduct, the experts would guide
him back. Obviously this solution
would be a financial disaster if
carried out in practice since it
would cost a business more in
attorney and public relations fees
than they would save from proper
employee conduct. Perhaps
reluctantly, businesses turn to
philosophers to instruct
employees on becoming “moral.”
For over 2,000 years philosophers
have systematically addressed
the issue of right and wrong
conduct. Presumably, then,
philosophers can teach employees
a basic understanding of morality
will keep them out of trouble.

However, it is not likely that

philosophers can teach anyone to
be ethical. The job of teaching
morality rests squarely on the
shoulders of parents and one’s
early social environment. By the
time philosophers enter the
picture, it is too late to change
the moral predispositions of an
adult. Also, even if philosophers
could teach morality, their
recommendations are not always
the most financially efficient.
Although being moral may save a
company from some legal and
public relations nightmares,
morality in business is also costly.
A morally responsible company
must pay special attention to
product safety, environmental
impact, truthful advertising,
scrupulous marketing, and
humane working conditions. This
may be more than a tight-
budgeted business bargained for.
We cannot easily resolve this
tension between the ethical
interests of the money-minded
businessperson and the ideal-
minded philosopher. In most
issues of business ethics, ideal
moral principles will be checked
by economic viability. To
understand what is at stake, we
will look at three different ways
of deriving standards of business
ethics.
 Deriving Business
Ethics from the
Profit Motive
Some businesspeople argue
that there is a symbiotic relation
between ethics and business in
which ethics naturally emerges
from a profit-oriented business.
There are both weak and strong
versions of this approach. The
weak version is often expressed
in the dictum that good ethics
results in good business, which
simply means that moral
businesses practices are
profitable. For example, it is
profitable to make safe products
since this will reduce product
liability lawsuits. Similarly, it may
be in the best financial interests
of businesses to respect
employee privacy, since this will
improve morale and thus improve
work efficiency. Robert F.
Hartley's book, Business Ethics,
takes this approach. Using 20
case studies as illustrations,
Hartley argues that the long-term
best interests of businesses are
served by seeking a trusting
relation with the public (Hartley,
1993). This weak version,
however, has problems. First,
many moral business practices
will have an economic advantage
only in the long run. This provides
little incentive for businesses that
are designed to exclusively to
seek short-term profits.
As more and more businesses
compete for the same market,
short-term profits will dictate the
decisions of many companies
simply as a matter of survival.
Second, some moral business
practices may not be
economically viable even in the
long run. For example, this might
be the case with retaining older
workers who are inefficient, as
opposed to replacing them with
younger and more efficient
workers. Third, and most
importantly, those moral business
practices that are good for
business depend upon what at
that time will produce a profit. In
a different market, the same
practices might not be
economically viable. Thus, any
overlap that exists between
morality and profit is both limited
and incidental.

The strong version of this

profit approach takes a reverse
strategy and maintains that, in a
competitive and free market, the
profit motive will in fact bring
about a morally proper
environment. That is, if customers
demand safe products, or workers
demand privacy, then they will
buy from or work for only those
businesses that meet their
demands. Businesses that do not
heed these demands will not
survive. Since this view maintains
that the drive for profit will create
morality, the strong version can
be expressed in the dictum that
good business results in good
ethics, which is the converse of
the above dictum. Proponents of
this view, such as Milton
Friedman, argue that this would
happen in the United States if the
government would allow a truly
competitive and free market. But
this strong view also has
problems, since it assumes that
consumers or workers will
demand the morally proper thing.
In fact, consumers may opt for
less safe products if they know
they will be saving money. For
example, consumers might prefer
a cheaper car without air bags,
even though doing so places their
own lives and the lives of their
passengers at greater risk, which
is morally irresponsible. Similarly,
workers may forego demands of
privacy at work if they are
compensated with high enough
wages. In short, not every moral
business practice will simply
emerge from the profit principle
as suggested by either the weak
or strong views.

Business Ethics
Restricted to
Following the Law
 A second approach to business
ethics is that moral obligations in
business are restricted to what
the law requires. The most
universal aspects of Western
morality have already been put
into our legal system, such as
with laws against killing, stealing,
fraud, harassment, or reckless
endangerment. Moral principles
beyond what the law requires – or
supra-legal principles -- appear
to be optional since philosophers
dispute about their validity and
society wavers about its
acceptance. For any specific issue
under consideration, such as
determining what counts as
responsible marketing or
adequate privacy in the
workplace, we will find opposing
positions on our supra-legal moral
obligations. It is, therefore,
unreasonable to expect
businesses to perform duties
about which there is so much
disagreement and which appear
to be optional.

The unreasonableness of such

a moral requirement in our
society becomes all the more
evident when we consider
societies that do have a strong
external source of morality. Islam,
for example, contains a broad
range of moral requirements such
as an alms mandate, prohibitions
against sleeping partners that
collect unearned money, and
restrictions on charging interest
for certain types of loans,
particularly for relief aid. Thus, in
Muslim countries that are not
necessarily ruled by Islamic law,
there is a strong source of
external morality that would be
binding on Muslim businesses
apart from what their laws would
require. Similarly, Confucianism
has a strong emphasis on filial
piety; thus, in Chinese and other
Confucian societies, it is
reasonable to expect their
businesses to maintain a respect
for elders even if it is not part of
the legal system. In Western
culture, or at least in the United
States, we lack a counterpart to
an external source of morality as
is present in Muslim or Confucian
societies. One reason is because
of our cultural pluralism and the
presence of a wide range of belief
systems. Even within Christianity,
the diversity of denominations
and beliefs prevents it from being
a homogeneous source of
Christian values. In short, without
a widely recognized system of
ethics that is external to the law,
supra-legal moral obligations in
our society appear to be optional;
and, it is unreasonable to expect
business people to be obligated
to principles which appear to be
optional.
In our culturally pluralistic
society, the only business-related
moral obligations that are
majority-endorsed by our national
social group are those obligations
that are already contained in the
law. These include a range of
guidelines for honesty in
advertising, product safety, safe
working conditions, and fair
hiring and firing practices. In fact,
the unifying moral force of
businesses within our diverse
society is the law itself. Beyond
the law we find that the moral
obligations of businesses are
contextually bound by subgroups,
such as with a business that is
operated by traditional Muslims
or environmental activists. In
these cases, the individual
businesses may be bound by the
obligations of their subgroups,
but such obligations are
contingent upon one's association
with these social subgroups. And,
clearly, the obligations within
those subgroups are not binding
on those outside the subgroups. If
a business does not belong to any
subgroup, then its only moral
obligations will be those within
the context of society at large,
and these obligations are in the
law.
Corporations that assume an
obligation beyond the law, either
in their corporate codes or in
practice, take on responsibilities
that most outsiders would
designate as optional. A good
example is found in the mission
statement of Ben & Jerry's Ice
Cream, which includes the
following:
• Social Mission -- To operate the

company in a way that actively

recognizes the central role that
 business plays in the structure
of society by initiating
innovative ways to improve the
quality of life of a broad
community -- local, national,
and international.

Consistent with this mission, the

highest paid employees of Ben &
Jerry's would not earn more than
seven times more than the lowest
paid full-time employees. "We do
this," they explain, "because we
believe that most American
corporations overpay top
management, and underpay
entry-level employees -- and
because everyone who works at
Ben & Jerry's is a major
contributor to our success." In
spite of the merits of this pay
scale policy, it clearly lacks
majority endorsement in our
national social group, and would
not be a binding obligation. In
fact, it is not even binding on Ben
& Jerry’s itself since, in recent
years, Ben & Jerry’s had to
abandon its own ideal pay scale in
an effort to attract a CEO with the
right skills to expand their
company.
Strictly following this legal
approach to business ethics may
indeed prompt businesses to do
the right thing, as prescribed by
law. Nevertheless, there are two
key problems with restricting
morality solely to what the law
requires. First, even in the best
legal context, the law will lag
behind our moral condemnation
of certain unscrupulous, yet legal
business practices.
For example, in the past, drug
companies could make
exaggerated claims about the
miraculous curative properties of
their products. Now government
regulations prohibit any
exaggerated claims. Thus, prior to
the enactment of a law, there will
be a period of time when a
business practice will be deemed
immoral, yet the practice will be
legal. This would be a continuing
problem since changes in
products, technology, and
marketing strategies would soon
present new questionable
practices that would not be
addressed by existing legislation.
A second problem with the law-
based approach is that, at best, it
applies only to countries such as
our own whose business-related
laws are morally conscientious.
The situation may be different for
some developing countries with
less sophisticated laws and
regulatory agencies.
 Deriving Business
Ethics from General
Moral Obligations
The third approach to business
ethics is that morality must be
introduced as a factor that is
external from both the profit
motive and the law. This is the
approach taken by most
philosophers who write on
business ethics, and is expressed
most clearly in the following from
a well known business ethics
essay:

Proper ethical behavior exists

on a plane above the law. The law
merely specifies the lowest
common denominator of
acceptable behavior. (Gene
Laczniak, "Business Ethics: A
Manager's Primer," 1983)
The most convenient way to
explore this approach is to
consider the supra-legal moral
principles that philosophers
commonly offer. Five fairly broad
moral principles suggested by
philosophers are as follows:

• Harm principle: businesses

should avoid causing
unwarranted harm.
• Fairness principle: business
should be fair in all of their
practices.
• Human rights principle:
businesses should respect
human rights.
• Autonomy principle:
businesses should not infringe
 on the rationally reflective
choices of people.
• Veracity principle: businesses
should not be deceptive in
their practices.

The attraction of these

principles is that they appeal to
universal moral notions that no
one would reasonably reject. But,
the problem with these principles
is that they are too general.
These principles do not tell us
specifically what counts as harm,
unfairness, or a violation of
human rights. Does all damage to
the environment constitute harm?
Does it violate an employee's
right to privacy if an employer
places hidden surveillance
cameras in an employee lounge
area? Does child-oriented
advertising mislead children and
thus violate the principle of
veracity?
 The above principles are
abstract in nature. That is, they
broadly mandate against harm,
and broadly endorse autonomy.
Because they are abstract, they
will be difficult to apply to
concrete situations and
consequently not give clear
guidance in complex situations.
An alternative approach is to
forget the abstract, and focus
instead on concrete situations
that affect the particular interests
of consumers, workers,
stockholders, or the community.
The recent stakeholder approach
to business ethics attempts to do
this systematically. It may be
expressed in the following:

• Stakeholder principle:
businesses should consider all
stakeholders' interests that
are affected by a business
practice.
 A stakeholder is any party
affected by a business practice,
including employees, suppliers,
customers, creditors,
competitors, governments, and
communities. Accordingly, the
stakeholder approach to business
ethics emphasizes that we should
map out of the various parties
affected by a business practice.
But this approach is limited since
proponents of this view give us no
clear formula for how to prioritize
the various interests once we map
them out. Should all stakeholders'
interests be treated equally –
from the largest stockholder
down to the garbage man who
empties the factory dumpster?
Probably no defenders of the
stakeholder approach would
advocate treating all interests
equally. Alternatively, should the
stockholders' interests have
special priority? If we take this
route, then the stakeholder
principle is merely a revision of
the profit principle.
Another way of looking at
concrete moral obligations in
business is to list them issue by
issue. This is the strategy behind
corporate codes of ethics that
address specific topics such as
confidentiality of corporate
information, conflicts of interest,
bribes, and political contributions.
Consider the following issues
from Johnson and Johnson's
Credo:

We are responsible to our

employees, the men and women
who work with us throughout the
world. Everyone must be
considered as an individual. We
must respect their dignity and
recognize their merit. They must
have a sense of security in their
jobs. Compensation must be fair
and adequate, and working
conditions clean, orderly and
safe. We must be mindful of ways
to help our employees fulfill their
family responsibilities.

Although corporate codes of

ethics are often viewed cynically
as attempts to foster good public
relations or to reduce legal
liability, a corporate code of
ethics is a reasonable model for
understanding how we should
articulate moral principles and
introduce them into business
practice. The practical advantage
of this approach is that it directly
stipulates the morality of certain
action types, without becoming
ensnared in the problem of
deriving particular actions from
more abstract principles, such as
the harm principle. But, the
limitation of the corporate code
model is that the principles
offered will appear to be merely
rules of prudence or good
manners unless we can establish
their distinctly moral character.
And this requires relying on more
general principles of ethic
described above, which, we’ve
seen, comes with its own set of
problems.
 Conclusion
We’ve looked at three
approaches to business ethics,
and we’ve seen that all three
have limitations. If we hope to
find an approach to business
ethics that is free from
conceptual problems, we will not
likely find any. Ethics is a complex
subject and its history is filled
with diverse theories that are
systematically refuted by rival
theories. So, we should expect to
find controversies when applying
ethics to the specific practices of
business. However, following any
of the above three approaches to
business ethics will bring us
closer to acceptable moral
behavior than we might otherwise
be. Close attention to one’s profit
motive and the moral interests of
consumers might in fact generate
some morally responsible
business decisions. We can
indeed find additional moral
guidance by looking at the laws
that apply specifically to
businesses. In gray areas of moral
controversy that are not
adequately addressed profit
motives and the law, we can turn
for guidance to a variety of
general and specific moral
principles.
In addition to the above three
approaches to business ethics, it
also helps to examine stories of
businesses that have been
morally irresponsible. By citing
specific cases deceptive
advertising, environmental
irresponsibility, or unsafe
products, we can learn by
example what we should not do.
Such cases often reveal blatantly
crude, insensitive, or reckless
attitudes of businesses, which we
can view as warning signs of
unethical conduct.

Study Questions for “Approaches

to Business Ethics”
Introduction
(1) What three things do
business people usually mean
by “business ethics”?
(2) Why can’t philosophers
“teach” people to be ethical?
Deriving Business Ethics from
the Profit Motive
(3) What is the weak version of
theory that connects business
ethics to the profit motive?
(4) What are problems with the
weak version?
(5) What is the strong version
of theory that connects
business ethics to the profit
motive?
 (6) What are problems with
this?
Business Ethics Restricted to
Following the Law
(7) Define “supra-legal”
principle.
(8) Why is it unreasonable to
expect businesses to follow
supra-legal moral principles?
(9) What are some supra-legal
moral principles that are
binding in Muslim countries?
(10) What are the problems
with restricting business ethics
to what the law requires?
Deriving Business Ethics from
General Moral Obligations
(11) Give an example of a
broad moral principle
suggested by philosophers.
(12) What is the problem with
deriving business ethics from
broad moral principles?
(13) What is a stakeholder?
 (14) What is the problem with
articulating good business
behavior in corporate codes of
ethics?
Conclusion
(15) What are some benefits of
all three approaches to
business ethics?
(16) What can we learn by
looking at case studies in
business ethics?

DOING BUSINESS IN
FOREIGN COUNTRIES
 The moral challenge for
businesses here in the United
States it difficult enough when
balancing one’s profit interests
against the needs of employees,
consumers, governments and
special interest groups. The moral
challenge is even more intense
for multinational companies who
need to live up to moral
expectations both in the US and
in host foreign countries. In
developed countries, the moral
expectations of the host country
are as stringent as our own. With
third world host countries,
though, the moral expectations
often more lax, and
multinationals are tempted to
lower their standards when
situations permit. In this chapter
we will look at three areas of
moral concern for multinationals:
bribery, influencing foreign
governments, and exploiting third
world countries.

Bribery in Third World

Countries - When we think of
moral dilemmas that
multinationals face we usually
think of the pressure on
companies to bribe government
officials in third world countries.
Although bribery of government
officials also takes place in the
United States, it is rare and
severely punished. By contrast,
bribery happens with greater
frequency in third world
countries, and there is a feeling
that it is normal practice to bribe
government officials. We may
succinctly define a bribery as
condition in which a person, such
as a government offical, agrees to
be paid to act as dictated by an
interested party, rather than
doing what is required of him in
his official employment. What is
central to the notion of a bribe is
that an agreement is made, even
if the act itself is never performed
and the payment is never made. It
is also central that the person
being bribed implicitly agreed to
abide by the rules of his
government, organization, or
legal system. We need to
distinguish bribery from
extortion, which is where an
official requires payment to
perform his otherwise normal
duties. For example an agent of
the FDA may extort a company by
approving of a product that
passes approval standards
anyway. Extortion has a victim,
whereas bribery has no victim.
We also need to distinguish
bribery from gift giving, which
includes neither implicit nor
explicit agreements, even if the
giver intends the gift as an
inducement. An official may
accept a gift innocently, and
sometimes genuine friendships
are formed that involves
exchanging gifts. Further, gift
giving in foreign countries is
often part of a needed business
ceremony. To avoid doing wrong,
the receiver of a gift needs to be
confident that he remains
impartial in conducting his official
duties. In some occupations, such
as law enforcement, established
codes often forbid gifts since it is
too important to risk losing
impartiality through gift giving.

Although few business people

publicly defend bribing officials in
third world countries, there is a
common attitude within
multination organizations that
condones bribery on several
grounds. First, there are strictly
financial considerations. Payoffs
can prevent delays that might
otherwise throw a company into
financial ruin. In a truly
capitalistic environment, we need
an even playing field, and if
foreign businesses engage in
bribery and US firms do not, then
US firms will be at a competitive
disadvantage and will ultimately
lose to foreign business. Second,
there are practical considerations
owing to what appears to be the
universal nature of bribery in
third world countries. Often
foreign government officials are
so corrupt that it is virtually
impossible to do business without
playing by the unspoken rules.
Thus, there’s nothing morally
wrong with participating in
bribery, especially if the
institution itself is in question,
such as a government like Nazi
Germany.
 Both the financial and practical
arguments above reflect a naïve
view of doing business in third
world countries. Bribery is in fact
outlawed in every country around
the world and, although bribery is
more common in some foreign
countries than in the United
States, law enforcement officials
in those countries do take bribery
violations seriously and punish
offenders. Americans in particular
are naïve about his, as seen from
the fact that, in middle east
countries, American companies
are involved in bribery scandals
twice as often companies from
other countries. The US
government also takes oversees
bribery seriously. Under US law,
the Foreign Corrupt Practices Act
of 1977 establishes that, if
caught bribing, a company may
be subject to a 1 million dollar
fine, and executives may be
subject to $10,000 in fines and
five years in prison. These
penalties are so severe that
critics contend that it restricts
ordinary well-intentioned
business activity because of the
fear business people might have
of entering a gray area of activity
that is actually legal. In any
event, it is reasonably clear that
the legal penalties of
international bribery outweigh
the possible business benefits.
A dramatic example of bribery
naivete involves the Lockheed
Corporation, which in the 1970s
was caught offering a quarter of a
billion dollars in bribes overseas.
A major US defense contractor,
Lockheed fell on hard times for
both economic and technological
reasons. The US government
commissioned the company to
design a hybrid aircraft, but, after
one crashed, the government
canceled orders. Lockheed
received other contracts based on
bids that they made that were far
lower than the cost of producing
the project. As a consequence,
they lost money on the projects.
They tried to move into the
commercial jet aircraft market by
making planes with engines built
by Rolls Royce. Rolls Royce went
bankrupt, and Lockheed lost 300
million in canceled orders. They
believed that the solution to their
financial woes was to expand
their oversees sales. To get the
contracts, they made a series of
payoffs to middlemen from
various countries, including the
Netherlands, Japan, Saudi Arabia,
Iran, Italy, and Spain. Still on the
verge of bankruptcy, they
requested a loan of 200 million
dollars from the US government,
which meant opening their
records for scrutiny. Government
investigators discovered the
extent of Lockheed’s bribery.
They also discovered that
Lockheed offered bribes that
totaled 10 times more than the
bribes made by other US
companies. Lockheed’s chairman
and president were forced to
resign. However, to avoid
compromising national defense
the US government chose not to
cancel its contracts with
Lockheed.

Endorsing, Influencing, and

Opposing Foreign Governments.
Whether in the US or in foreign
countries, big businesses have an
intimate relation with
governments. Businesses lobby
for fewer regulations, lighter
taxes, governmental subsidies,
and access to natural resources.
Businesses also depend on
government offices, such as law
enforcement agencies, court
systems, permit offices, and
transportation networks. So,
when a US company sets up base
in a foreign country, its
interaction with government
creates the possibility for
unpleasant situations.
Multinationals often locate in
countries with repressive right
wing governments since these
tend to be more politically stable.
By doing so, they implicitly
support these governments,
which would otherwise not be
supported by socially conscious
people. At the other end of the
spectrum, sometimes
multinationals find themselves in
left wing countries that are
hostile to the business’s
capitalistic interests. In these
cases, the business might be
tempted to oppose or even
undermine that government,
irrespective of the benefit that
local people derive from that
government’s left-wing policies.
Between these two extremes,
there is the normal course of
doing business in developing
countries, which involves the
normal lobbying efforts that we
have here in the US. This involves
at least attempting to influence
governments of third world
countries.

An example of the first

extreme – businesses endorsing
right wing governments – is the
presence of American
multinationals in South Africa,
especially during the 1970s and
1980s. The white Apartheid
government at the time endorsed
a policy of what amounted to
institutionalized slavery of its
black citizens. Although
constituting less than 10% of the
country’s population, the white
Afrikaners controlled the vast
majority of the country’s
economic wealth. Blacks were
segregated, restricted in their
speech, jobs, and movements,
and constantly under threat from
white policing forces. The white
Afrikaners justified their
Apartheid policy by arguing that
it was God's plan that Afrikaners
are in Africa, and it is God’s plan
to divide people into groups. US
multinationals all recognized the
inherently immoral nature of the
Apartheid government and that,
at minimum US businesses in
South Africa needed to be
sensitive to the oppressed
condition of the blacks. The
harshest critics, though, called for
complete divestment of American
business interests from South
Africa. Politically, U.S. business in
South Africa offered legitimacy to
the Apartheid government.
Economically, whatever helped
South Africa's economy helped
Apartheid, and divestment would
cripple the South African
economy. Also, American
companies in South Africa had a
history of civil rights abuses
towards blacks.

More moderate critics

maintained that companies whose
products directly benefit the
government should divest, such
as those the make police
weapons. However, companies
whose products directly benefit
Blacks should not divest.
Companies whose products
directly benefit both can go either
way. For example, the Polaroid
Company chose to leave South
Africa since they could not control
the flow of their product into
government hands, such as use in
passbook pictures that regulated
the movement of the black South
Africans.

However, other businesses

argued that continued American
involvement in South Africa was
actually a good thing. The
Apartheid government was
making some progress toward
racial integration, and American
companies would be vital sources
of peaceful change. Further, US
presence in South African would
bolster its economy, which would
be good for blacks since it would
reduce overall unemployment and
inflation, and improve education.
Severing ties with South Africa
would at best be a symbolic act,
with little or no economic clout
since all products made by U.S.
firms could be bought elsewhere.
In this vein, Leon Sullivan, an
Afro-American on General Motors
board of directors, recommended
several principles for operating in
South Africa. They are, (1) non-
segregation in eating, restroom,
and work facilities; (2) equal
employment practices; (3) equal
pay; (4) training programs for
blacks; (5) more blacks in
management; and (6) improving
employees lives outside work,
including housing, transportation,
schooling, recreation, and health.

The situation of South Africa

illustrates what can happen when
American businesses set up camp
in countries with oppressive right-
wing governments. At the other
extreme, we noted that problems
also emerge when American
businesses locate in countries
with left-wing countries of
communist leanings that are
hostile to capitalist ventures. A
vivid illustration of this is
International Telephone and
Telegraph’s interference in the
Chilean government during the
1970s. At the time, ITT was the
8th largest fortune 500 company,
with 350,000 employees in 80
countries, including Chile. The
South American country of Chile
was poor, but politically stable
politically. A presidential
candidate named Salvador
Allende campaigned on a
communist platform, emphasizing
the issue of land reform, and
indicating a desire to take control
of privately owned Chilean
telephone companies because of
their inefficiency. Government
acquisition policies work two
ways. First, a government might
buy controlling shares of private
companies, paying them at a fair
market price. Alternatively, a
government might nationalize or
simply take ownership of the
company with no compensation,
as happened with private
businesses in Cuba and Peru
during their communist
takeovers.

ITT feared the worst and tried

to stop Allende from being
elected, part of which involved an
offer of 1 million dollars to the
CIA for support. The scandal
surfaced, and critics world wide
attacked ITT for interfering in the
activity of a foreign government.
Some of ITT’s property was even
bombed in protest. Allende was
elected anyway, and in
retaliation, he nationalized ITT’s
Chilean property. Allende did not
nationalize other firms, however,
even though some had to sell the
government shares of its stock.
Allende was assassinated shortly
after, and ITT later sued for
losses.
The actions of American
multinationals in foreign markets
have a direct effect on the image
on the U.S. itself. People around
the world see the United States
as an economic imperialist, ready
to gobble up the resources of
small foreign countries. The
situation is made worse when
multinationals coerce foreign
governments especially in Third
World countries.

Exploiting Third World

Countries - Critics frequently
accuse multinational corporations
of exploiting the resources and
workers of third world countries.
Agricultural businesses often take
the best land and use it for export
crops, which diminishes the
amount of good land that the
locals can use for their own food
needs. Drug companies and
hazardous chemical industries
take advantage of more lax safety
regulations, which often results in
disaster. Mining industries exploit
the wealth of the country for only
a few rich landowners.
Since many of these natural
resources are in finite supply,
developing countries have little
hope of relying on them for future
security once they are used up.
Banks and financial institutions
do not hire the local people, yet
these businesses benefit by
bringing in local money.
Manufacturing and service
industries introduce poverty to
many areas by attracting more
people to a factory than they can
employ. They typically pay much
less to third world employees
than to Americans, which suggest
a double standard of labor value.
If they pay wages to third world
employees that are higher than
what indigenous businesses can
pay, then they attract the best
workers, which hurts employers in
surrounding businesses. Also, all
of the above types of businesses
destroy the local culture by
introducing an American climate.
Two cases illustrate the
disastrous effects of exploiting
third world countries. In 1984, a
pesticide factory owned by Union
Carbide in Bhopal India exploded
killing 2,500 people and injuring
and additional 300,000 people.
With a population of 700,000
people, Bhopal is the capital of
Madhya Pradesh, one of India’s
poorest and least developed
states. The city is geographically
divided between rich and poor
sections, with the factory located
in the poor section. Although it
was a multinational, Indian
investors owned almost half of
the shares of the Indian plant,
and Indians operated the plant.
The active ingredient for the
pesticide was stored in 600 gallon
tanks. The size of the tanks
themselves was a problem. Larger
tanks are economically efficient
since they hold more gas, but
they pose greater risks in case of
a tank leak. For his reason,
regulations in Germany required a
similar Union Carbide plant in that
company to restrict its tank size
to 100 gallons. The tank that
exploded in the Indian plant was
supposed to be refrigerated to
zero degrees centigrade; instead
the refrigeration unit was not
working and it was at room
temperature. Although the Indian
factory had safety features to
prevent disasters, several of the
safety systems were not
functioning. The temperature
alarm was shut down; the gas
scrubber was shut off, which was
supposed to neutralize escaped
gas; and a flare tower was out of
service, which was supposed to
burn escaped gas.
The explosion started when
someone added water to a 600
gallon tank of the chemical,
perhaps done as an act of
sabotage by a disgruntled
employee. The temperature in the
tank rose in a chain reaction, and
the tank blew up. A fog of the gas
drifted through the streets of
Bhopol, killing people on the
spots that they stood. Long term
medical problems for the
survivors included respiratory
ailments and neurological
damage. The Indian government
quickly arrested plant managers
and eventually spent 40 million
on various disaster relief projects.
Union Carbide Stock plummeted
with losses totaling almost a
billion-dollars; Union Carbide
sales were also impacted for
several years. The company
eventually paid half a billion
dollars to victims. Although the
US parent company acted quickly
and compassionately to the
disaster, the tragedy raised
serious questions about the
parent company’s views on safety
in third world countries. Even
though Indians ran the Bhopal
plant, Union Carbide’s laissez-
faire policy of decentralizing
subsidiaries was not appropriate
in matters of safety. The tragic
lesson is that multinational
should follow U.S. safety
standards worldwide, and should
not give cost cutting the highest
priority.
A second case illustrating
exploitation in third world
countries concerns the tobacco
industry. Information about the
atrocious activities of US tobacco
companies over the years is
continually being made public. As
deceptive and uncaring as they
have been in the US, they are
even worse in third world
countries. In developed countries,
tobacco tar levels have
decreased, but in third world
countries they have increased.
Almost all developed countries
have tobacco legislation, and less
than half the third world
countries do, which is partly the
result of cigarette companies’
heavy lobbying efforts. Without
restrictions to cigarette
production, advertising and sales,
cigarette companies expand the
bounds of third world markets
with no thought of the health
hazards they create for
consumers. In Argentine, for
example, tobacco companies buy
20% of all advertising time. Thus,
although cigarette smoking is on
a decline in developed countries,
it is on a rise in third world
countries and, globally, cigarette
consumption is growing faster
than population. US tobacco
companies create strong
incentives for local growers to
shift to tobacco production by
paying startup costs to farmers,
underwriting loans, and
guaranteeing purchases. By
growing tobacco, less acreage is
available for domestic food
production, which particularly bad
in countries with large numbers of
people living at subsistence
levels. There are also ecological
effects of flue-cured tobacco
production that requires fire. In
third world countries, wood fires
are a main method for curing
tobacco, which requires one tree
for every 300 cigarettes. This bad
since firewood accounts for 90%
of the heating and cooking fuel in
developing countries.
There are three basic positions to
take on the problem of businesses
exploiting third world countries.
The harshest critics of third world
exploitation argue that we should
just stay out of third world
countries altogether, and let
those countries manage their
resources as they see fit for
themselves. Although well
intended, this position is
unrealistic especially in view of
the growing economic
interdependence of countries
around the world. Most large
companies today have
multinational interests, and, if
anything, these interests will
increase. This position is also
undesirable from the standpoint
of the interests of the third world
countries themselves. Isolationist
economic policies are typically
ineffective. If a third world
country blocks off outside
capitalist ventures, outside
countries are less inspired to
support the business ventures of
that third world country.
On the other extreme, some
business people argue that,
although issues of exploitation
are sociologically interesting,
they are not moral issues. On this
view, we should not equate US
standards with universal moral
standards. For example, FDA,
OSHA, and minimum wage
standards are good, but not
morally required of all businesses
around the world. Further, local
governments in the host country
must also accept responsibility
for what happens, especially
when they require some control of
the company. Governments by
and large set the agenda for what
businesses can and cannot do. By
accepting control, they also
accept responsibility.
A third and middle ground
position on exploitation is that
multinationals from rich countries
can operate effectively in third
world countries when adhering to
basic moral principles. In the next
section we will look at some
suggested moral principles for
multinationals.

Cultural Relativism and

Universal Moral Principles -
The above-discussed problems of
interference in foreign
government, bribery, and
exploitation all raise a range of
ethical questions, perhaps the
most important is whether
companies should adopt the
attitude that “When in Rome, do
as the Romans.” This is the issue
of cultural relativism, namely,
whether moral values vary from
society to society. Cultural
relativism implies that moral
values are completely defined by
cultural contexts, and there is no
universal standard of morality
that applies to all people at all
times. As long as we stay within
our own cultural environment,
this is no problem since we simply
act morally as our society
dictates. However, multinationals
face the problem of relativism
directly by placing one foot in the
moral context of American
culture, and another foot in the
moral context of a foreign culture.
Driven by the profit motive,
multinationals will be tempted to
adopt the least costly moral
principles that a given cultural
context will allow.
Is cultural relativism true?
Philosophers have debated this
question for over two thousand
years. Many cultural practices are
unquestionably shaped by
cultural environments, such as
rules requiring women to covering
their heads in public, and
prohibitions against drinking
alcohol or eating types of meat.
However, there seem to be some
foundational principles that
appear uniformly, such as
obligations to care for one’s
children and elderly parents,
prohibitions against assault, rape,
stealing, and murder. Some
philosophers argue that these
principles appear universally in
societies since, without them, a
society simply could not continue.
For example, if a society
permitted murder, we would all
move out of town and live in
seclusion. Also, philosophers
point out that many seemingly
diverse standards of behavior in
fact reflect common values. For
example, some cultures kill their
elderly, which is a practice that
we find abhorrent. However,
putting the elderly to death is
based on the principle that
children should see to the
happiness of their parents, and
this is a principle that we too
have.
So, if we grant that there is
some commonality to moral
values around the world, then, to
that extent, multinationals have
moral responsibilities that cross
cultural boundaries. Philosopher
Norman Bowie recommends three
universal moral standards that
are appropriate to the activities
of multinationals. First,
multinationals should follow the
norms that constitute a moral
minimum, which are advocated in
all societies. Second,
multinationals should follow
principles of honesty and trust,
which are moral norms of the
market place. These are required
as foundational for any business
operations, and the systematic
violation of moral norms of the
marketplace would be self-
defeating. Third, multinationals
should not violate human rights,
such as basic liberty rights.
Business depends on economic
liberty, which is part of political
and civil liberty in general. So, if
we accept economic liberty, we
must accept the whole liberty
package. This means that
businesses should not operate in
countries with human rights
violations unless they can be
catalysts for democratic reform.

Philosopher Richard T. De
George offers a more specific set
of guidelines for the following:
· Do no intentional direct
harm to the host country
· Produce more good than
bad for the host country
· Contribute to the host
country's development
· Respect the human rights of
its employees
· Pay one’s fair share of taxes
· Respect the local culture
and work with it
· Cooperate when local
governments reform social
institutions, such as land and
tax reform.

De George believes that third

world countries lack adequate
background institutions, such as
regulatory agencies, which makes
it all the more necessary for
businesses to adherence to moral
standards.
In view of how strong the profit
motive is to businesses, we may
wonder how realistic many of
these cross-cultural moral
principles are. Until a few
hundred years ago, most
philosophers believed that moral
principles were pretty useless
unless people believed in God and
were afraid that God would
punish them for evil deeds. In
more recent times, social contract
theorists argue that fear of
punishment from governments is
the only thing that will motivate
us to follow moral principles.
Perhaps we can generalize from
these views and say that we may
not follow even the best moral
principles unless an external
authority monitors our actions
and punishes us when we go
wrong. We can see the moral
responsibility of multinationals in
the same light. There are
reasonable moral guidelines that
multinationals should follow, such
as those offered by Bowie and De
George, which managers of
multinationals can probably figure
out on their own. Without an
external monitoring authority,
though, businesses may set them
aside for reasons of profit.
Fortunately, several external
mechanisms are already in place
to punish irresponsible
multinationals. News
organizations, the United Nations,
international human rights
groups, and environmental
groups all take special interests
in seeing that multinationals live
up to high standards. All of these
organizations have limited clout,
though, and rely mainly on the
threat of bad publicity to bring
about change. But even this is
effective since most large
businesses believe that their
reputation is their biggest asset.
 Study Questions for “Doing
Business in Foreign Countries”
Bribery in Third World Countries
(1) What is the definition of
bribery, and how does it differ
from extortion and gift giving?
(2) What are the two main
arguments usually given in
favor of bribery?
(3) What is the main problem
with both of the arguments for
bribery?
(4) What penalty did Lockheed
pay when it was caught in a
bribery scandal?
Endorsing, Influencing, and
Opposing Foreign Governments
(5) What problems might arise
when a multinational sets up in
right-wing country and left
wing foreign countries
respectively?
(6) During the 1970s and
1980s, some critics argued
that US companies should
 leave South Africa. What were
some of their reasons?
(7) What were the negative
consequences of ITT
interfering in Chile’s
government in the 1970s?

Exploiting Third World

Countries -
(8) What are some ways that
multinationals exploit third
world countries?
(9) What were the principal
irresponsible actions of Union
Carbide in the Bhopal
explosion?
(10) What actions of the
Tobacco companies in third
world countries are especially
exploitive?
(11) What reasons do some
multinationals give for not
abiding by US standards in
third world countries?
 Cultural Relativism and
Universal Moral Principles
(12) Define cultural relativism
(13) What are some moral
values that seem to be held by
all cultures?
(14) What are Norman Bowie’s
three recommended moral
principles for multinationals?
(15) What external monitoring
organizations help assure that
multinationals act responsibly?

BUSINESS AND THE

ENVIRONMENT
The greatest damage done to
the environment is inflicted by
business and industry, and not
from domestic activities.
Businesses extract the greatest
tolls in terms of energy
consumption, toxic waste, air and
water pollution, and
deforestation. Increasing amounts
of industrial toxic waste
contaminates ground water,
which in turn becomes harmful for
human consumption. Oil spills
from petroleum industries destroy
shorelines and kill millions of sea
animals. The burning of fossil
fuels such as oil, gas and coal
produces excess carbon dioxide,
which adds to global warming
through a greenhouse effect.
Fluorocarbon gasses used in
making domestic products such
as refrigerators and styrofoam
depletes the earth's ozone layer,
which shields the earth from the
sun’s life-destroying ultraviolet
rays. Some of these problems are
expensive nuisances, such as oil
spills and toxic waste. Others,
though, threaten the survival of
life on our planet, such as carbon
dioxide production and the
release of fluorocarbon gasses. In
this chapter we will look at some
of the causes of environmental
irresponsibility in businesses, and
some theories about why
businesses should be more
responsible.

Businesses’ Resistance to
Environmental Responsibility.
Although businesses don’t
consciously set out to harm the
environment, several factors
create an unfortunate situation,
which in many cases is worse than
it needs to be. First, large
businesses and industries are
inherently imposing on nature.
They take pieces of nature and
reshape them into things that
didn’t exist before, such as
automobiles, skyscrapers,
television sets and shopping
malls. Not only are the end
products artificial, and in that
sense unnatural, but the means of
producing these things are taxing
on natural resources. Second, it is
easy to disregard natural
resources that are held in
common and seem abundant,
such as air and water. It doesn’t
seem wrong to pollute the air if,
technically, no one owns the air
and the particular damage that I
do isn’t too noticeable.
Environmentalists sometimes
refer to this phenomenon as a
tragedy of the commons, that is,
a disaster that happens to things
that are held in common. Given
the size and complexity of
businesses in industrial countries,
such as the US, it is not surprising
that they contribute heavily to
this tragedy.
Third, businesses are driven by
the motive to make a profit.
Stockholders demand a return on
their investment, and this
mandate transfers down through
the management hierarchy. Part
of making a profit is to reduce
costs, and environmental
responsibility is highly costly,
with few immediate financial
rewards. Finally, government
environmental watchdog
agencies, such as the
Environmental Protection Agency,
are limited in what they can do in
imposing restrictions on
businesses. To protect their
financial interests, businesses
lobby for support at all levels of
government, and agencies such
as the EPA must be politically
compromising. Agencies such as
the EPA say that they know that
they do their jobs correctly when
everyone is angry with them. That
is, businesses feel that the EPA
restricts them too much, and
environmental advocates such as
the Sierra Club will feel that the
EPA does too little to protect the
environment.
On a global level, many of the
environmental offenders are
businesses in third world
countries. Underdeveloped
countries are trying to catch up to
the economic level of
industrialized countries, and
certainly have a right to do so.
However, they cannot play catch
up in a way that is both
economically feasible and
environmentally responsible.
Maintaining a balance between
economic development and
energy conservation is far more
difficult for poorer countries than
it is for wealthier ones. For
example, developed countries can
shift to energy sources that give
off less pollution, but developing
countries cannot do so easily.
Environmental problems are
intensified in third world
countries because of growth in
population, which doubles about
every 70 years. Increased
population places increased
demand on the utilization of land,
which, in turn, leads to
deforestation. It is not effective
to simply encourage developing
countries to do better.
Recommendations from world
organizations, such as the United
Nations, have only limited
leverage. Sometimes developed
countries, such as the United
States, try to assist developing
countries by offering them free
technology. But this is only
partially effective.

Since the 1960’s, our society

has become increasingly more
environmentally conscious, and
now we simply take it for granted
that we all are responsible for
maintaining the integrity of the
environment. However,
conservative businesses people
commonly feel that their
responsibility to the environment
is limited. Typically, they give two
distinct arguments for their
views. First, they argue that
businesses do not have an
obligation to protect the
environment above what the law
requires. Although laws are strict
concerning environmental
regulation, they are not perfect
and they allow for many kinds of
environment judgement calls. If
businesses showed special
concern for the environment
beyond what the law requires,
then this would interfere with
their ability to compete.
Ultimately, they argue,
environmental responsibility rests
with consumers. If consumers are
not interested in favoring
businesses that have
environmentally friendly policies,
then it is not up to businesses to
champion environmental policies
on their own. The problem with
this view is that environmental
responsibility cannot be left to
what consumers are willing to
tolerate. Most consumers will be
attracted to the least expensive
consumer products, irrespective
of moral considerations
surrounding the manufacturing of
those products. Even if I knew
that a pair of tennis shoes was
manufactured in a third world
sweatshop, my purchase decision
might still be motivated only by
the price tag. This is so too with
my motivation to purchase
products that are manufactured
by environmentally unfriendly
companies. In a sense, businesses
need to save consumers from
succumbing to their most thrifty
inclinations.
 Second, if businesses agree
that they have an environmental
responsibility beyond what the
law requires, they often take a
“good ethics is good business”
approach and emphasize areas of
environmental responsibility that
will generate a profit. For
example, they might push
recycling, which they can indicate
on their packaging and thereby
attract environmentally conscious
consumers. They might also
update older energy-hungry
heating or production units if the
investment has the right payoff.
However, as noted above, what is
best for the environment is not
always financially best for
business. When cases of conflict
arise between the environment
and profit motive, the “good
ethics is good business” approach
quickly appears deceptive and
shallow.

Examples of Environmentally
unsound Business Practices -
Although most companies are
guilty of varying degrees of
environmental irresponsibility,
some extreme cases vividly
illustrate irresponsibility at its
worst. A first case involves
resistance to air pollution control
measures. In the early 1950s,
Union Carbide built a series of
metal and chemical plants in the
Ohio valley, between Ohio and
West Virginia. Mountains on both
sides of the valley trap in soot,
ash, and other air pollutants,
which resulted in increased
incidents of respiratory disease
among local residents. During the
1960s, Union Carbide refuse to
participate public discussions
about the problem and ignored a
governmental request for an on
site inspection. The company
soon became a symbol of
corporate resistance to pollution
control. Part of their resistance
owes to the fact that the
environment was not an issue in
the 1950s and new pollution
control measures were both
expensive and untested. Also,
Union Carbide was less
susceptible to consumer boycotts
since only 20% of its products
were direct consumer goods that
we might purchase in a
department store, such as
antifreeze. In 1970s they became
the target of the investigation by
the newly formed Environmental
Protection Agency, which
instructed Union Carbide on
several pollution control
measures. Union Carbide
responded by shutting down a
boiler plant and laying off
workers, claiming that was the
only way they could comply with
the required pollution reduction.
Critics charged that Union
Carbide’s tactics amounted to
environmental blackmail,
threatening to cut jobs if they had
to be environmentally
responsible. Ultimately, Union
Carbide restructured their
company and adhered to pollution
control standards.
A second case of
environmental irresponsibility
involves nuclear power accidents.
There are currently around 400
nuclear power plants world wide,
providing about 15% of the
world’s electricity. For the past
few decades, the nuclear power
industry has been under attack by
environmentalists and few new
plants have been started.
Ironically, the original intent of
nuclear power was to provide a
safe, clean, and cheap alternative
to coal and oil, which are
notoriously damaging to the
environment. Nuclear power
produces no smoke or carbon
dioxide, and only harmless steam.
It also doesn’t require
environmentally intrusive mining
or drilling efforts. Two major
disasters contributed to the now
tarnished image of the nuclear
power industry, both the result of
safety violations and human
error. First occurred at the Three
Mile Island nuclear power plant in
Harrisburg, Pennsylvania. In
1979, a series of mechanical and
human failures contributed to a
partial core meltdown to one of
its reactors. Radiation was
released into the local
community, and, although
connections with health problems
were difficult to prove, a family of
a Down’s Syndrome child received
1 million dollars in compensation.
A much more serious nuclear
power disaster occurred in 1986
in the Ukrainian city of Chernobyl,
then part of the Soviet Union.
Partly from negligence and partly
from design problems, a steam
explosion and fires threw tons of
radioactive material into the
environment. 31 people were
killed and 1,000 injured from
direct exposure to radioactive
material by means of inhaling
radioactive gasses and dust, and
ingesting contaminated food or
water. 135,000 people were
evacuated from the surrounding
area, hundreds of square miles of
land was contaminated, and the
long term health effects of the
accident are still being assessed.
Financial losses reached $3
billion, and countries throughout
Europe claimed losses into the
hundreds of millions of dollars.
Although the Soviet government
owned the Chernobyl plant -- and
not private industry -- the
disaster had a decisive impact on
the entire nuclear power industry.
In addition to the risks of
catastrophic disasters such as
Chernobyl, nuclear power plants
create other environmental
problems that involve nuclear
waste disposal. Nuclear waste is
deadly to animal life, and remains
toxic for a very long time. After
Three Mile Island and Chernobyl,
critics called for a moratorium on
the construction all future nuclear
power plants, and a systematic
closing of the ones currently in
use. Defenders, though, argue
that nuclear energy is necessary
in view of the limitations of
alternative energy sources, such
as coal, oil, and solar technology.
They also argue that nuclear
waste sites need to confine
wastes for only a few thousand
years since after 1,000 years the
ingestion toxicity is comparable
to that of the original uranium
from which the wastes were
derived. Finally, defenders say
that we can reasonably expect a
decrease in nuclear accidents
even if we increase nuclear power
use, similar to how airline travel
has increased while their accident
rate has decreased. Defenders
recommend that clustered
reactors provide better
operational support, security, and
handling of wastes.

A third and final case of

environmental disaster involves
large-scale oil spills. In 1989, an
Exxon oil tanker called the Valdez
struck a reef in Alaska’s Prince
William Sound and created the
largest crude oil spill in US
waters. The captain of the ship,
42 year old Joseph Hazelwood,
was with Exxon for 20 years. He
had a reputation as a drinker,
which some departments at Exxon
knew about, and at the time of
the disaster his blood alcohol
level was .06. The tanker trip was
part of a routine convoy from
Alaska to Long Beach California
that was successfully made by
other tankers over 8,000 times.
Hazelwood assigned the piloting
of the vessel to a less
experienced officer and then
retired to his quarters. Icebergs
were in the path of the ship,
which an ineffective radar system
failed to detect earlier. The ship
was so large that it took a full
minute to respond to steering
changes. Attempting to navigate
around an iceberg, the piloting
officer miscalculated and ran the
ship into a reef. Oil poured from
the ship and, when the weather
changed, it sloshed onto the
beaches for hundreds of miles.
Initially viewing it as only a public
relations problem, Exxon was
slow to respond with cleanup
efforts, which made the situation
worse. The spill had a terrible
impact on plant and animal life in
the area, which the news media
vividly captured in pictures and
on television. The cleanup was
also expensive; the average cost
of rehabilitating a seal was
$80,000. Hazelwood was
ultimately fired for not being on
the bridge at the time of the
disaster and was convicted of
negligent discharge of oil, with a
punishment of 1000 hours of
community service in the cleanup.
Exxon paid in excess of 2 billion
dollars in the cleanup efforts and,
just as significantly, suffered an
almost irreplaceable loss of
reputation because of the
disaster. 40,000 Exxon credit card
holders destroyed their cards.

Three Philosophical Theories

of Environmental
Responsibility - As noted
earlier, some businesses argue
that their environmental
responsibility is confined to what
the law requires and what will
yield a profit.
However, ethicists typically
argue that businesses need to
look beyond profit motive and
legal regulations to find more
persuasive reasons for
environmental responsibility. We
will consider three of these
theories, each of which yields
substantially different
conclusions about the
environmental responsibility of
businesses.

The first of these theories is

anthropocentric, or human
centered. Environmental
anthropocentrism is the view that
all environmental responsibility is
derived from human interests
alone. The assumption here is
that only human beings are
morally significant persons and
have a direct moral standing.
Since the environment is crucial
to human well-being and human
survival, then we have an indirect
duty towards the environment,
that is, a duty that is derived
from human interests. This
involves the duty to assure that
the earth remains
environmentally hospitable for
supporting human life, and that
its beauty and resources are
preserved so human life on earth
continues to be pleasant. Some
have argued that our indirect
environmental duties derive both
from the immediate benefit which
living people receive from the
environment, and the benefit that
future generations of people will
receive. But, critics have
maintained that since future
generations of people do not yet
exist, then, strictly speaking, they
cannot have rights any more than
a dead person can have rights.
Nevertheless, both parties to this
dispute acknowledge that
environmental concern derives
solely from human interests.

A second general approach to

environmental responsibility is to
base it on the moral consideration
that we owe to animals, a position
that we will call the animal rights
view. On this view, higher animals
qualify as morally significant
creatures, such as dogs, cats,
cows, horses, pigs, dolphins, and
chimpanzees. Animal rights
advocate Peter Singer goes a step
further and argues that even
lower animals, such as chickens,
deserve equal moral
consideration insofar as they are
capable of experiencing physical
pleasure and pain, just as humans
are. For Singer, the mistreatment
of animals is analogous to racism
and slavery since it gives unequal
treatment to beings with equal
interests. Singer describes this
inequity toward animals as
speciesism. Our responsibility
toward the environment, then,
hinges on the environmental
interests of animals, either higher
or lower, as well as the
environmental interests of
humans. Thus, environmental
responsibility derives from the
interest of all morally significant
persons, which includes both
humans and at least some
animals.
The third theory is that of
ecocentrism, which is that we
have direct responsibilities to
environmental collections, such
as animal species and rain
forests, just as we have direct
responsibilities to humans. Even
if there is no direct human
consequence of destroying
environmental collections, we still
have a moral responsibility to
those collections anyway.
Ecocentrists use various terms to
express this direct responsibility
to the environment. They suggest
that the environment has direct
rights, that it qualifies for moral
personhood, that it is deserving
of a direct duty, and that it has
inherent worth. Common to all of
these claims, though, is the
position that the environment by
itself is on a moral par with
humans. Aldo Leopold first
articulated econcentrism in his
highly influential essay "The Land
Ethic" (1949). Leopold explains
that morality evolved over the
millennia. The earliest notions of
morality regulated conduct
between individuals, as reflected
in the Ten Commandments. Later
notions regulated conduct
between an individual and
society, as reflected in the Golden
Rule. Leopold argues that we are
on the brink of a new advance in
morality that regulates conduct
between humans and the
environment. He calls this final
phase the land ethic. For all three
of these phases in the evolution
of ethics, the main premise of
morality is that the individual is a
member of a community of
interdependent parts. For
Leopold, "The land ethic simply
enlarges the boundaries of the
community to include soils,
waters, plants, and animals, or
collectively: the land." This
involves a radical shift in how
humans perceive themselves in
relation to the environment.
Originally we saw ourselves as
conquerors of the land. Now we
need to see ourselves as
members of a community that
also includes the land.

Implications for Businesses -

Each of the above theories has
different implications on
business’s responsibility to the
environment. From the
anthropocentric perspective,
businesses have an obligation not
to damage the environment in
ways that negatively impact on
human life. From the animal
rights perspective, businesses
have an obligation to avoid
harming animals either directly or
indirectly. They need to avoid
harming animals directly, such as
they might do through animal
testing, or inhumane food
production techniques. They need
to avoid harming animals
indirectly, such as they might do
by destroying animal
environments. For example, we
should not control pests through
poisoning, since this causes
animals to suffer; instead we
should prefer a sterility chemical.
This is especially pertinent given
that the environment is the
immediate habitat of animals, and
damage to the environment
harms animals more than it harms
humans. Finally, from the
ecocentrist perspective,
businesses have a direct
obligation to protect the
environment since it is wrong to
harm members of the moral
community, and the environment
is a member of the moral
community.
In many cases the
anthropocentric, animal rights,
and ecocentric interests overlap.
For example, toxic waste, air and
water pollution, excess carbon
dioxide, and release of
fluorocarbons equally affect
humans, animals, and
environmental collections. In
many cases, though, the interests
of the three do not overlap. For
example, sometimes when
businesses are found legally
responsible for polluting a
stream, several corrective options
may be open to them. First, they
may restore the stream, which
costs a lot of money, or they may
pay off a community in
compensation for living with the
polluted stream, which might cost
them less money. Although the
anthropocentrist will be satisfied
with paying off the community,
this would not touch the concerns
of the animal rights and
ecocentrist. To use another
example, suppose that a business
considered building a factory on a
site that, if constructed, would
destroy a breeding ground for
birds. Typically, from the
anthopocentrist position, the
business would only need to take
into account the recreational
value that the bird breeding
ground would have to human bird
watchers. For the animal rights
advocate and ecocentrist, though,
this reasoning ignores the needs
of animals and the integrity of the
ecosystem itself.
In view of these various
theories of environmental
obligation, what should
businesses do? First, businesses
will automatically be bound by
the environmental regulations
that are required by law.
Although this covers much
ground, it doesn’t cover
everything. Second, businesses
should at least be sensitive to
environmental concerns from
both the anthropocentric and
animal rights perspectives.
Animal rights and environmental
lobby groups today are becoming
increasingly more influential, and,
as a matter of good public
relations and even survival,
companies need to take this into
account. Many environmental
problems lend themselves to
graphic portrayal by the media --
such as sea animals covered in oil
-- which intensifies negative
public opinion towards a
company. If companies don’t
respond properly, they appear
arrogant and uncaring, which
greatly harms their reputation.
Study Questions for “Business
and the Environment”
Introduction
(1) What are some of the life
threatening environmental
issues connected with business
and industry?
Businesses’ Resistance to
Environmental Responsibility
(2) What are the four reasons
why businesses have such a
negative impact on the
environment?
(3) Why do many businesses in
third world countries pose big
environmental problems?
(4) What is wrong with
businesses saying that their
environmental responsibility is
confined to what the law
requires?
(5) What is wrong with
businesses saying that their
 environmental responsibility is
linked with what will generate
a profit?

Examples of Environmentally
unsound Business Practices
(6) What is “environmental
blackmail”?
(7) What are some of the
environmental problems
associated with nuclear power
plants?
(8) What reasons do some
people give in defense of
nuclear power plants?
(9) What were some of the
negative consequences for
Exxon resulting from the
Valdez accident?
Three Philosophical Theories of
Environmental Responsibility
(10) What is the basis of our
environmental responsibility
according to
anthropocentrism?
 (11) What is speciesism?
(12) What is the basis of our
environmental responsibility
according to ecocentrism?
Implications for Businesses
(13) On what environmental
issues do anthropocentism,
animal rights, and ecocentrism
overlap?
(14) Why should businesses be
sensitive to environmental
concerns from the
anthropocentric and animal
rights perspectives?
 Code of Conduct

Characteristics
The codes of conduct or codes of
practice adopted by a number of
mainly multinational enterprises
include a variable number of
principles which define the ethical
standards of the enterprise.
These may be general principles
such as, for example, the concept
of non-discrimination while, in a
number of cases, there is a
detailed description of the social
practices which the enterprise
wishes to see respected in the
production and sale of the goods
and services which it markets.
Some enterprises make a
distinction between the basic
principles which regulate its
internal activity and those which
it wants to apply in the selection
and monitoring of activities of its
subcontractors. A number of
codes make explicit reference to
ILO Conventions, in particular
those concerning the respect of
human rights at work. In other
cases, the reference is more
indirect, even if the principles
established are often based on
fundamental ILO Conventions.
The agrofood, forestry, chemicals
and consumer products sectors
are amongst those which have
progressively introduced a
number of codes of practice.
However, while the concept of
ethical practice has made a
remarkable comeback in recent
years in the strategic policy of
industrial and commercial
enterprises, it is above all in the
textile sector, and in particular in
clothing and footwear, that the
trend is the most evident. United
States enterprises have played a
pioneering role in this respect.
Since Levi Strauss adopted in
1992 a code entitled "Business
partner terms of engagement and
guidelines for country selection",
many other enterprises producing
apparel and footwear as well as
major retail groups have followed
suit. In Europe, the trend has
been longer in coming, although
increasing attention is now being
given at the headquarters of the
major European enterprises in the
TCF sectors to the specific
application of codes of "good
practice" and codes of conduct. In
the developing countries,
practically no initiatives of this
kind have been taken; on the
other hand, a growing number of
production enterprises working
under subcontracting
arrangements for the
multinational enterprises of the
industrialized countries must
respect the codes established by
the latter, which significantly
affects their activities.

Origin and rationale of the

phenomenon
In the 1970s, considerable
criticism was levelled against
multinational enterprises
concerning their activities in the
developing countries. National
and international trade unions as
well as a number of host
countries accused them of
carrying out their activities
without consideration of the
harmonious social and economic
development of the countries in
which they operated. It was such
criticism which led to the
establishment, by a number of
government international
organizations, of draft codes of
conduct some of which, such as
that of the United Nations, have
remained a dead letter. In the
social sphere, the International
Labour Organization adopted in
1977 a Tripartite Declaration of
Principles on Multinational
Enterprises and Social Policy
which is still in force and to which
trade unions in the TCF sector
attach considerable importance,
as can be seen from a draft
resolution tabled by the Workers'
group at the recent ILO Tripartite
Meeting on the Globalization of
the Footwear, Textiles and
Clothing Industries: Effects on
Employment and Working
Conditions, held in Geneva
between 28 October and 1
November 1996.
To some extent the codes
drawn up by intergovernmental
international organizations, and
in particular that of the ILO in this
sphere of social policy, which
were of a voluntary kind can be
seen as the forerunners of
subsequent initiatives taken
unilaterally by individual
enterprises.
Other external factors have
contributed to the recent
publication of codes of conduct.
The pressure brought to bear by
the international trade union
movement has without doubt
played an important role in this
process. In the TCF sectors the
International Textile, Garment
and Leather Workers' Federation
has for many years been calling
for a greater sense of social
responsibility by enterprises in
the sectors and has provided
support to national federations in
their campaign for the respect of
human rights at work. Of the
progress made in this sphere,
mention may be made, for
example, of the United States
where in May 1995 the Clothing
Manufacturers' Association of the
United States of America
(employers) and the
Amalgamated Clothing Textiles
Workers' Union (workers) signed
for the first time a national
branch collective agreement
which included, amongst other
aspects, a code of conduct
applicable to enterprises and
their subcontractors which
established minimum standards
regarding wages, hours of work,
forced labour, child labour,
freedom of association, non-
discrimination as well as
occupational safety and health.
Consumers' associations as
well as a number of non-
governmental organizations have
also endeavoured to draw the
attention of consumers, the public
authorities and the enterprises
concerned to the need to respect
a number of minimum rules
regarding human rights.
Although in a large number of
cases attention has been focused
on the specific problem of child
labour, associations and
organizations have taken their
campaign further either by trying
to promote social labels for one or
more categories of TCF products,
or by organizing campaigns to
sensitize the public to the general
problems of basic workers' rights
or by trying to draw up standard
codes which enterprises could
adopt and tailor to their particular
needs. The following chapter
contains a summary of some of
these initiatives which clearly
show the increasing awareness of
the international community
about the social problems raised
by globalization in the TCF
sectors.
Governments have also played
a significant role in the promotion
of standards concerning the
respect of human rights and
codes of conduct. In Europe some
governments, such as that of
France, are calling for greater
respect of human rights in the
sphere of international trade and
are actively participating in
national studies as well as
research carried out by the
European Commission on the
social aspect of international
subcontracting in the TCF sectors.
In the United States, the so-called
"No Sweat" campaign introduced
by the Clinton Administration in
the fight against sweatshops has
led to the establishment of a
Trendsetter List of enterprises in
the TCF sectors which respect
labour legislation and human
rights in general in their
production and marketing
activities and ensure that these
rights are respected by their
subcontractors. The Department
of Labor, which had identified a
number of deficiencies concerning
the respect of human rights and
labour legislation in the TCF
sectors, in particular in
subcontracting of apparel
production, and which has been
faced with a number of cases
involving the exploitation of
immigrant workers in sweatshops
set up on the United States
territory, has taken steps to clean
up the sector. At the same time
as it stepped up its inspections, it
adopted a positive approach by
drawing up and distributing to the
media a list of socially responsible
enterprises in the sectors
producing and marketing TCF
articles.
In 1996, this list, reproduced
below, included a large number of
enterprises which had adopted a
code of conduct.
Enterprises participating in the
"No Sweat" campaign
Abercrombie Galyans Mast
& Fitch Trading Industries
Baby GapKids NFL
Superstore Propertie
s
Banana Gerber Nicole
Republic Childrens Miller
wear
Bath & Body Guess Inc. Nordstro
Works m
Bergners Henri Old Navy
Bendel Clothing
 Store
Bryland Lands End Pantaloon
’s
Boston Jessica Patagonia
Stores McClintoc
k
Cacique Lane Structure
Bryant
Carson Pirie Lerner Superior
Scott New York Surgical
Mfg.
Dana Levi The
Buchman Strauss Limited
Elisabeth Limited The Gap
Too
Express Liz Victoria's
Claiborne Secret
Source:
Department
of Labor, 25
Mar. 1996.
It is undeniable that this
campaign, with the help of the
media, has given enterprises an
added impetus to adopt codes of
conduct.
In the specific sphere of child
labour, the United States
Government has been particularly
active. Between 1994 and 1996,
the Bureau of International Labor
Affairs of the Department of
Labor organized three public
hearings on international child
labour issues which outlined the
conditions of child exploitation in
the world in all industries which
export products to the United
States. Its 1996 session offered
the opportunity to a number of
enterprises and employers'
associations in the TCF sectors
(Levi Strauss, Sporting Goods
Manufacturers' Association,
International Mass Retail
Association) to show what
progress had been achieved in
this sphere, in particular through
codes of conduct. A number of
representatives of non-
governmental organizations and
trade unions also described their
activities in this sphere, including
in the promotion of codes. The
presence of members of
Congress, and in particular
Senator Harkin who is responsible
for a number of Bills to prohibit
the import of products made by
children, reflected the growing
concern of political circles in the
United States about this delicate
problem. In 1996, the Department
of Labor also published, at the
request of Congress, a study on
the influence of codes of conduct
adopted by United States apparel
enterprises on child labour.1 The
study, which examined a
representative sample of some 48
enterprises selected from the
major firms in the production and
marketing of clothing in the
United States, clearly confirmed
that the adoption and application
of codes of conduct which
contained a reference to the
prohibition of child labour (in 42
out of 48 enterprises) had
reduced child labour in the
subcontracting enterprises
established in the developing
countries. The drop was
particularly significant in Central
America. The report believes that
although it is likely that a number
of other factors also contributed
to this improvement (greater
awareness of consumers of the
problems of child labour; concern
by exporters about possible
legislative measures to boycott
products made with child labour,
etc.), there is no doubt that the
most significant impact is due to
the increasing number of codes of
conduct established over the last
five years.
By strengthening the role
played by the developing
countries in international trade,
the globalization of the economy
has also encouraged greater
awareness of the commercial
importance of the respect or non-
respect of basic standards
relating to human rights. It is no
longer possible for the developing
countries which want to increase
or maintain their penetration of
the markets of industrialized
countries to ignore the existence
of various kinds of pressure which
exist in this sphere. As a result, in
recent years, a number of
governments have endeavoured,
often with assistance from the
ILO, to reduce the obstacles to
the ratification of these
fundamental standards and their
effective application. The most
dramatic progress has been made
in this sphere of child labour,
which benefits from broad media
coverage and against which
pressure is greatest in the
context of the liberalization of
trade. Here once again the ILO
has played an important role as
catalyst, in particular through its
International Programme for the
Elimination of Child Labour (IPEC).
In the TCF sectors, it is for
example within the framework of
this programme and in
collaboration with UNICEF that
the Bangladesh Garment
Manufacturers' and Exporters'
Association signed, with the
support of governments and local
non-governmental organizations,
an agreement to discontinue the
employment of children of school
age in apparel enterprises and to
provide for their participation in
special education programmes.
Social progress of this kind is
without doubt the first step
towards the establishment of
more elaborate codes of conduct
which take account of the new
social requirements of
international trade.
In the industrial countries, the
motivations of enterprises which
have adopted codes of conduct
are often more complex. It is true
that pressure brought to bear by
trade unions and consumer'
associations or non-governmental
organizations play an important
role. Furthermore, as noted
above, some government
campaigns may have a significant
influence on industrialists and
encourage them to give greater
attention to social matters.
However, the decisive factor for
the adoption of such codes is
probably the public image which
the enterprise wants to project to
its clients, employees, suppliers
and shareholders. The
construction of a positive public
image, in which the concept of
the socially responsible employer
has acquired a new importance, is
a long-term and increasingly more
complex task in which
management teams are much
more involved in the past. An
enterprise's public image is now
an asset which must be protected
and developed to the maximum.
In the textile and footwear
sectors, a company's public image
is particularly important and
often determines a decision
whether the public will buy its
goods. On these highly
competitive markets, it is
therefore important for a
company to project a positive
image and to retain a good
reputation over the long term.
To the extent that the media
highlight certain conditions of
work which are particularly
deplorable both in the
sweatshops of the industrialized
countries as well as in the
developing countries, the
adoption by a global enterprise of
a code of conduct is an attempt to
provide a kind of guarantee for
the final consumer that the
products made or marketed by
the company have not involved
any kind of exploitation of
workers concerned. It is therefore
up to the enterprise to implement
the principles established in the
code, at the risk of using its
credibility. Given the importance
of subcontracting practices in the
TCF sectors, it is clear that an
enterprise which adopts a code of
conduct takes a number of risks
because any failure to respect the
code which is noted by trade
unions or the media will have
greater impact and a
correspondingly negative effect.
This explains the importance of
application conditions and helps
explain why some enterprises
prefer to keep a low profile and
refrain from giving too much
publicity to their codes of
conduct. The press, and in
particular the Anglo-Saxon press
which is more sensitive to the
subject, includes many examples
of enterprises which have been
singled out for their non-respect
of their code of conduct. The most
frequent examples in the apparel
and footwear sectors concern the
non-respect of human rights in
factories working under
subcontracting arrangements for
large international brands, most
often in the developing countries.
However, celebrities who use
their fame to promote a given
brand of clothing or shoes are
also subject to criticism in the
media if the products bearing
their name have been
manufactured in conditions which
do not respect the fundamental
rights of workers. The recent
scandal in the United States
caused by the Kathie Lee Gifford
case is symptomatic of the
influence of the media on the
social image of an enterprise. This
leading television presenter had
to explain why she had agreed to
let the Wal-Mart enterprise use
her name and her fame to
promote a line of clothing some of
which had apparently been
produced in sweatshops in
Honduras and even New York. The
combination of factors concerning
the person in question and the
fact that the Wal-Mart enterprise
had its own code of conduct
considerably tarnished the image
of both parties, and it is by no
means sure that the numerous
statements of good intentions on
both sides have managed fully to
re-establish consumer confidence.
In the same way, the many
articles which have appeared in
the press on the cost of
manufacturing sport shoes in the
developing countries compared
with their selling price in the
industrialized countries morally
penalize leading enterprises in
the sector which are furthermore
trying to promote good social
practice through their codes of
conduct.
In their search for a balance
between the lowest possible
production costs, to protect their
competitiveness, and the
maintenance of a good social
image likely to satisfy consumers
and pressure groups,
multinational enterprises in the
TCF sectors have little room for
manoeuvre. Hence the extreme
sensitivity to the subject in the
context of globalization. It should
however be pointed out that
although theoretically the
importance of the ethical aspect
in the management of enterprises
has been widely recognized (since
the beginning the 1980s, chairs in
business ethics have been
established in a large number of
universities and business schools)
it is only recently that a number
of financial analysts have noted
that enterprises which applied
codes of conduct performed
better than average on the stock
exchange.2 Of course, conclusions
cannot be drawn about the
existence of a direct link of cause
and effect between these two
factors since it is generally the
most productive enterprises in a
given sector which have the
human and financial resources
enabling them to develop an
ethical approach. It can however
be noted that the existence of a
responsible social attitude is not
detrimental to the image which
financial markets have of a given
enterprise. Some investment
consultancy firms now take
account of ethical elements in
their criteria for the composition
of stock exchange portfolios.3
The large majority of trade
unions favour the generalization
of codes of conduct, provided that
their application is not subject to
restrictions. In their view, the
main weakness of the codes lies
in the fact that they are applied
and monitored by the enterprise
itself which is thus both judge and
jury. Furthermore, they believe
that even when the enterprise
tries to apply, at all levels, its
ethical principles, it rarely has the
necessary human resources to do
so. It is in fact often the
employees responsible for
product quality and the
commercial agents of the firm
who control the application of the
codes by subcontractors. This
twofold responsibility restricts
their effectiveness. Trade unions
therefore favour a new approach
in which the control of the
application of codes would be
entrusted to independent and
trustworthy persons or
associations. This would involve
developing a kind of "social audit"
function comparable to that of a
financial audit. Of course, the
generalization of such a system
raises a number of problems
which go beyond the purely
financial aspect of the cost of an
additional audit and is still a long
way off. However, it is worth
noting that the case of The Gap
enterprise, which accepted the
external monitoring of its
application of its code (this case
will be examined below), is a
major precedent which could
become standard practice in the
future.

Notes:
1
US Department of Labor, Bureau
of International Labor Affairs:
"The apparel industry and codes
of conduct: A solution to the
international child labor
problem?", Washington, DC, 1996,
242 pp.
2
A conclusion reached, for
example, in a study published in
1996 by Peter Prowse
Associatives on the annual
reports of the 100 main
companies quoted on the stock
exchanges in Europe.
3
In Switzerland the branch of a
Scandinavian bank (Edouard
Constant bank) has had an ethical
portfolio since 1 January 1997. It
is therefore the first Swiss private
bank to propose ethical criteria.
 HDFC PROFILE

HDFC Bank was incorporated in

August 1994, and, currently has
an nationwide network of 1229
Branches and 2526 ATM's in
444 Indian towns and cities.
The Housing Development
Finance Corporation Limited
(HDFC) was amongst the first to
receive an 'in principle' approval
from the Reserve Bank of India
(RBI) to set up a bank in the
private sector, as part of the RBI's
liberalisation of the Indian
Banking Industry in 1994. The
bank was incorporated in August
1994 in the name of 'HDFC Bank
Limited', with its registered office
in Mumbai, India. HDFC Bank
commenced operations as a
Scheduled Commercial Bank in
January 1995.
Promoter
HDFC is India's premier housing
finance company and enjoys an
impeccable track record in India
as well as in international
markets. Since its inception in
1977, the Corporation has
maintained a consistent and
healthy growth in its operations
to remain the market leader in
mortgages. Its outstanding loan
portfolio covers well over a
million dwelling units. HDFC has
developed significant expertise in
retail mortgage loans to different
market segments and also has a
large corporate client base for its
housing related credit facilities.
With its experience in the
financial markets, a strong
market reputation, large
shareholder base and unique
consumer franchise, HDFC was
ideally positioned to promote a
bank in the Indian environment.

Business Focus
HDFC Bank's mission is to be a
World-Class Indian Bank. The
objective is to build sound
customer franchises across
distinct businesses so as to be
the preferred provider of banking
services for target retail and
wholesale customer segments,
and to achieve healthy growth in
profitability, consistent with the
bank's risk appetite. The bank is
committed to maintain the
highest level of ethical standards,
professional integrity, corporate
governance and regulatory
compliance. HDFC Bank's
business philosophy is based on
four core values - Operational
Excellence, Customer Focus,
Product Leadership and People.
Capital Structure
The authorised capital of HDFC
Bank is Rs550 crore (Rs5.5
billion). The paid-up capital is
Rs424.6 crore (Rs.4.2 billion). The
HDFC Group holds 19.4% of the
bank's equity and about 17.6% of
the equity is held by the ADS
Depository (in respect of the
bank's American Depository
Shares (ADS) Issue). Roughly 28%
of the equity is held by Foreign
Institutional Investors (FIIs) and
the bank has about 570,000
shareholders. The shares are
listed on the Stock Exchange,
Mumbai and the National Stock
Exchange. The bank's American
Depository Shares are listed on
the New York Stock Exchange
(NYSE) under the symbol 'HDB'.

Management
Mr. Jagdish Capoor took over as
the bank's Chairman in July 2001.
Prior to this, Mr. Capoor was a
Deputy Governor of the Reserve
Bank of India.

The Managing Director, Mr. Aditya

Puri, has been a professional
banker for over 25 years, and
before joining HDFC Bank in 1994
was heading Citibank's operations
in Malaysia.
The Bank's Board of Directors
is composed of eminent
individuals with a wealth of
experience in public policy,
administration, industry and
commercial banking. Senior
executives representing HDFC are
also on the Board.
Senior banking professionals
with substantial experience in
India and abroad head various
businesses and functions and
report to the Managing Director.
Given the professional expertise
of the management team and the
overall focus on recruiting and
retaining the best talent in the
industry, the bank believes that
its people are a significant
competitive strength.

Technology
HDFC Bank operates in a highly
automated environment in terms
of information technology and
communication systems. All the
bank's branches have online
connectivity, which enables the
bank to offer speedy funds
transfer facilities to its
customers. Multi-branch access is
also provided to retail customers
through the branch network and
Automated Teller Machines
(ATMs).
The Bank has made substantial
efforts and investments in
acquiring the best technology
available internationally, to build
the infrastructure for a world
class bank. The Bank's business is
supported by scalable and robust
systems which ensure that our
clients always get the finest
services we offer.
The Bank has prioritised its
engagement in technology and
the internet as one of its key
goals and has already made
significant progress in web-
enabling its core businesses. In
each of its businesses, the Bank
has succeeded in leveraging its
market position, expertise and
technology to create a
competitive advantage and build
market share.
Business
HDFC Bank offers a wide range
of commercial and transactional
banking services and treasury
products to wholesale and retail
customers. The bank has three
key business segments:

Wholesale Banking Service

The Bank's target market ranges
from large, blue-chip
manufacturing companies in the
Indian corporate to small & mid-
sized corporates and agri-based
businesses. For these customers,
the Bank provides a wide range of
commercial and transactional
banking services, including
working capital finance, trade
services, transactional services,
cash management, etc. The bank
is also a leading provider of
structured solutions, which
combine cash management
services with vendor and
distributor finance for facilitating
superior supply chain
management for its corporate
customers. Based on its superior
product delivery / service levels
and strong customer orientation,
the Bank has made significant
inroads into the banking consortia
of a number of leading Indian
corporates including
multinationals, companies from
the domestic business houses and
prime public sector companies. It
is recognised as a leading
provider of cash management and
transactional banking solutions to
corporate customers, mutual
funds, stock exchange members
and banks.
Retail Banking Service
The objective of the Retail Bank is
to provide its target market
customers a full range of financial
products and banking services,
giving the customer a one-stop
window for all his/her banking
requirements. The products are
backed by world-class service and
delivered to customers through
the growing branch network, as
well as through alternative
delivery channels like ATMs,
Phone Banking, NetBanking and
Mobile Banking.

Corporate Governance -
HDFC Bank recognizes the
importance of good corporate
governance, which is generally
accepted as a key factor in
attaining fairness for all
stakeholders and achieving
organizational efficiency. This
Corporate Governance Policy,
therefore, is established to
provide a direction and
framework for managing and
monitoring the bank in
accordance with the principles of
good corporate governance.
• Code of Corporate Governance
• Corporate Governance Rating
• Composition of the Board
• Profiles of Directors
• Board Committees
• Ownership Rights
• Promoters Rights( HDFC LTD.)
• Key Shareholders Rights
• Listing
• Registrars and transfer agents
• Grievance Redressal
• Dividend Policy
• Memorandum of Association
• Articles of Association
• Board Meetings
• Quarterly Updates
• Fair Practice Code for Lending
• Code of Ethics / Conduct

Fair Practices for

lending

1. The bank would have loan

application forms for retail
advances and credit cards.
These would include
information about the
fees/charges, if any, payable
for processing, the amount of
such fees refundable in the
case of non acceptance of
application, pre-payment
options and any other matter
which affects the interest of
 the borrower, so that a
meaningful comparison with
that of other banks can be
made and an informed
decision can be taken by the
borrower.

2. As part of the wholesale

banking business, the bank
has various segments to which
credit facilities are provided
for their business
requirements. These include a
wide range of customers and
range from small & medium
enterprises to large corporate
borrowers. The bank has a
process for identification of
target customers to whom
facilities can be provided
based on customer selection
and risk assessment for that
segment. Thus, the focus is on
contacting prospective
 customers and encouraging
them to avail of banking
services from HDFC Bank
based on the incremental
value we can add to a
customer's business, rather
than customers making
applications to the Bank for
facilities / services.

Thus, for the wholesale

banking segment, we do not
have any standardized
application forms to be
submitted by prospective
customers.

Code of Ethics

1. Be aware of frauds
2. Security tips
3. Security Meaasures of HDFC
4. Code of Corporate
Governance
5. Code of corporate Rating
6. Composition of board
7. Committee of Directors
8. Profile of Directors
9. Ownership Right
10. Promoters Rights
11. Keyshareholders Right
12. Dividend Policy
13. Memorandum of Association
14. Articles of Association
15. Fair Practices
16. Code of Lending
17. Internet Browsing
18. Money mules

Introduction:
 The Board members / Officials
shall engage in and promote
honest and ethical conduct of
business, including the ethical
handling of actual and / or
apparent conflicts of interest
between personal and
professional relationships.

Applicability:

This Code of Ethics/Conduct is

applicable to the following
persons.
1. The Board Members
2. Officials of the Bank one level
below the Board

Ethical Conduct:
The Board members / Officials
shall engage in and promote
honest and ethical conduct of
business, including the ethical
handling of actual and / or
apparent conflicts of interest
between personal and
professional relationships.
Conflict of Interest:
The Board members / Officials
shall avoid conflict of interest and
disclose to the Board any material
transaction or relationship that
reasonably could be expected to
give rise to such a conflict.
Confidentiality of
Information:
The Board members / Officials
shall ensure and take all
reasonable measures to protect
the confidentiality of non-public
information about the Bank, its
business, customers and other
materially significant information
obtained or created in connection
with any activities with the Bank
and to prevent the unauthorised
disclosure of such information
unless required by applicable laws
or regulations or legal or
regulatory process.

Disclosure of Information:
The Board members / Officials
shall endeavor to produce full,
fair, accurate, timely and
understandable disclosures in
reports and documents that the
Bank files with or submits to the
Securities and Exchange
commission and other regulators
and in other public
communications made by the
Bank.Compliance with
Governmental Laws, Rules and
Regulations:
 The Board members / Officials
shall comply with all the
applicable governmental laws and
the applicable rules and
regulations.
Variation of the Code and
Waivers:
The Code shall be reviewed
from time to time for updation
thereof. Any variation in the Code
or any waivers from the provisions
of the Code shall be approved by
the Board and shall be disclosed
on the Bank's website.
Contract or Term of
Employment:
Nothing in this Code or other
related communications by itself
creates or implies an employment
contract or terms of employment.
Violation of the Code:
 The Board shall have the
powers to take necessary action
in case of any violation of the
code.

Dividend Policy
Your Bank has had a track
record of moderate but steady
increases in dividend declarations
for the last 10 years and dividend
payout ratio in the last few years
has been in the range of 20-25 %.
Your Bank's dividend policy is
based on the need to balance the
twin objectives of appropriately
rewarding shareholders with cash
dividends and of retaining capital
to maintain a healthy capital
adequacy ratio to support future
growth. In line with this policy
and recognisation of healthy
performance during 2007-08, your
directors pleased to recommend a
dividend of 85% for the year
ended on March 31,2008 as
against 70% for the year ended
March 31, 2007. This dividend
shall be subject to distribution tax
to be paid by the Bank but will be
tax-free in the hands of the
members.

Details of dividend declared by

the Bank:
2007-2008 85%
2006-2007 70%
2005 - 2006 55%
2004 - 2005 45%
2003 - 2004 35%
2002 - 2003 30%
2001 - 2002 25%
2000 - 2001 20%
1999 - 2000 16%
1998 - 1999 13%
1997 - 1998 10%
1996 - 1997 8%

OWNERSHIP RIGHTS
Certain rights that a shareholder
in a company enjoys :
To transfer the shares.
To receive the share certificates
upon transfer within the
stipulated period prescribed in
the Listing Agreement.
To receive notice of general
meetings, annual report, the
balance sheet and profit and
loss account and the auditors'
report.
To appoint proxy to attend and
vote at the general meetings. In
case the member is a body
corporate, to appoint a
representative to attend and
vote at the general meetings of
the company on its behalf.
To attend and speak in person,
at general meetings. Proxy
cannot vote on show of hands
but can vote on a poll.
To vote at the general meeting
on show of hands wherein every
shareholder has one vote. In
case of vote on poll, the number
of votes of a shareholder is
proportionate to the number of
equity shares held by him.
As per Banking Regulation Act,
1949, the voting rights on a poll
of a shareholder of a banking
company are capped at 10% of
the total voting rights of all the
shareholders of the banking
company.
To demand poll along with other
shareholder(s) who collectively
hold 5,000 shares or are not less
than 1/10th of the total voting
power in respect of any
resolution.
To requisition an extraordinary
general meeting of any company
by shareholders who collectively
hold not less then 1/10th of the
total paid-up capital of the
company.
To move amendments to
resolutions proposed at
meetings .
To receive dividend and other
corporate benefits like rights,
bonus shares etc. as and when
declared / announced.
To inspect various registers of
the company.
To inspect the minute books of
general meetings and to receive
copies thereof after complying
with the procedure prescribed in
the Companies Act, 1956.
To appoint or remove director(s)
and auditor(s) and thus
participate in the management
through them.
To proceed against the company
by way of civil or criminal
proceedings.
To apply for the winding-up of
the company.
To receive the residual proceeds
upon winding up of a company.
The rights mentioned above are
prescribed in the Companies Act,
1956 and Banking Regulation Act,
1949, wherever applicable, and
should be followed only after
careful reading of the relevant
sections. These rights are not
necessarily absolute.
PROMOTERS RIGHTS

The Memorandum and Articles

of Association of the Bank
provides the following rights to
HDFC Limited, promoter of the
Bank:
The Board shall appoint non-
retiring Directors from amongst
the Directors nominated by HDFC
Limited with the approval of
shareholders, so long as HDFC
Limited and its subsidiaries,
singly or jointly hold not less than
20% of the paid-up share capital
of the Bank.
HDFC Limited shall nominate
either a part-time Chairman and
the Managing Director or a full
time Chairman, with the approval
of the Board and the shareholders
so long as HDFC Limited and its
subsidiaries, singly or jointly hold
not less than 20% of the paid-up
share capital of the Bank.
Under the terms of Bank’s
organisational documents, HDFC
Limited has a right to nominate
two directors who are not
required to retire by rotation, so
long as HDFC Limited, its
susbsidiaries or any other
company promoted by HDFC
Limited either singly or in the
aggregate holds not less than
20% of paid up equity share
capital of the Bank. At present,
the two directors so nominated by
HDFC Limited are the Chairman
and the Managing Director of the
Bank.
 Bibliography
References
1. ^ "Ethics the easy way".
H.E.R.O.. Retrieved on 2008-
05-21.
 2. ^ "Miliband draws up green tax
plan". BBC (2006-10-30).
Retrieved on 2008-05-21.
3. ^ Friedman, Milton (1970-09-
13). "The Social Responsibility
of Business is to Increase Its
Profits", The New York Times
Magazine.
4. ^ Hare, R. M. (1979). "What is
wrong with slavery".
Philosophy and Public Affairs
8: 103–121.
5. ^ Enderle, Georges (1999).
International Business Ethics.
University of Notre Dame
Press, 1. ISBN 0-268-01214-8.
6. ^ George, Richard de (1999).
Business Ethics.
7. ^http://www.stthom.edu/acade
mics/centers/cbes/jonachan.ht
ml
Further reading
• Albertson, Todd. (2007). The
Gods of Business: The
 Intersection of Faith and the
Marketplace. Los Angeles, CA:
Trinity Alumni Press.
• Behrman, Jack N. (1988).
Essays on Ethics in Business
and the Professions.
Englewood Cliffs, NJ: