Busi ness Ethics

MODULE – 2

Ethical Dilemma
An ethical dilemma is a moral situation in which a choice has to be
made between two equally undesirable alternatives.

An advertising agent may be asked by the director of a mediocre B-

school to draft an advertisement for admission stating that since its
inception, the institute has 100 per cent placement. The advertiser’s
refusal to release the advertisement would mean loss of business,
income and loss of a big client, all of which would affect the bottom-
line of the company’s business. Personally, the advertiser may also be
affected if he or she disagrees with the boss, which might adversely
impact his or her career and income. This decision might be unethical
though the agent knows it is morally wrong. Such wrong decisions
may lead to a feeling of guilt in a person.

 Sources of Ethical Problems:

1. F AILURE OF P ERSONAL CHARACTER

A major source of ethical problems is failure of personal character.

Companies, through no fault of their own, may recruit workers whose
personal values are not desirable, without knowing the workers’
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background. When they recruit their employees, they look for people
with educational qualifications and experience that will match their
job profiles. Without such knowledge if recruiters take them in, those
employees ‘may embezzle funds, steal supplies from the company,
pad expense accounts, take unjustified leave, shirk obligations to
fellow-workers, take bribes for favoring suppliers, use inside
information for their personal benefit and to the detriment of
others’. Such unethical persons reflect the manner of their upbringing,
early family and childhood experience, the type of schools they
attended, the friends they had, and values of their immediate society.

2. CONFLICT OF P ERSONAL VALUES AND ORGANIZATIONAL

GOALS

Another source of conflict that gives rise to an ethical dilemma is

when the company uses methods or pursues goals unacceptable to the
manager or an executive. In most cases, companies resort to unethical
practices due to the following two reasons:

 Intensive competitive pressures; and

 Exclusive focus on economic goal of making profit.

3. ORGANIZATIONAL GOALS VERSUS SOCIAL VALUES

Activities of a company may be considered unethical by the
stakeholders, due to changing social scenario. In a fast-changing
situation, a company may find itself at odds against changing social
values. For instance, the social and cultural mores that prevailed in
India before 1991 when the economy was shackled by controls and
licenses, were very orthodox and conservative. Organizations
followed a hierarchical set up. Senior executives could be addressed
only as ‘Sirs’. Hours of work were generally fixed from 9 am to 5 pm.
Employees were expected to come to office well dressed. Men and
women employees rarely mixed, kept a respectable distance from one
another. Women rarely, if ever, worked during nights. But can we
visualize such a situation today in many of our modern offices? The
situation has now totally changed.

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4. P ERSONAL B ELIEFS VERSUS ORGANIZATIONAL P RACTICES

In recent times, ethical dilemmas in organizations arise when they
employ multi-racial and multi-religious employees. Several
organizations are accused of racial discriminations and gender bias in
the work place and have been paying fines of billions of dollars or as
out-of-court settlements. Infosys Technologies paid its former
employee Reka Maximovitch $3 million in compensation in an out-
of-court settlement ‘for unlawful termination of employment’ against
the company and Phaneesh Murthy, the highest paid America-based
executive of Infosys.

5. P RODUCTION AND SALE OF HAZARDOUS BUT P OPULAR

P RODUCTS
n our society, there are a number of harmful products that is produced
and sold to their users notwithstanding the fact that a vast majority of
people is aware of their harmful effects. People know that smoking
cigarettes causes cancer, excessive drinking causes accidents and liver
problems, use of drugs causes both psychological and mental
problems, and yet these products are being produced and
consumed. If due to ethical considerations, these products are banned,
it will create a black market. Additionally, it will cause
unemployment and loss of incomes to families. Therefore, it calls for
strong social controls on businesses that produce and sell these risk
items such as alcohol, cigarettes and harmful drugs.

6. OTHER ETHICAL CHALLENGES

There are other unethical practices that are too many to enumerate.
Some of the sample practices are:

 Price fixing, often artificially created scarcity;

 Shifting unfair shares to the producer stakeholders and
employees;
 Discriminatory wage structure;
 Shifting or locating business at the cost of society; and

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 Over working women and children.

 Managing ethical dilemmas:

Organizations have started to implement ethical behaviour by

publishing in-house codes of ethics that are to be strictly followed by
all their associates. Most of these corporations conduct an ethics audit
and at the same time they are continually looking for more ways to be
more ethical.

Most company codes list the following values that are expected from
their employees:

 Respect confidential information to which you have access.

 Maintain high standard of professional responsibility.
 Avoid being placed in situations involving conflict of interest.
 Act with integrity.
 Do not discriminate against anybody or anything on any bias.
 Maintain professional relations based on mutual respect for
individuals and organizations.
 Be committed to the goals of the organization.
 Do not give up your individual professional ethics.

 How to Resolve an Ethical Problem?

STEP 1: ANALYZE THE CONSEQUENCES

Assuming that the resolution to the ethical dilemma is to be found

within the confines of law—ethical dilemmas that arise in business
should be resolved at least within the minimum time of law and legal
framework. One has to look at the consequences that would follow
one’s proposed actions. And when one has several options to choose
from, there will be an array of consequences connected with each of
such options, both positive and negative.

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Before one acts, answers to the following questions will help find the
type of action that can be contemplated:

1. Who are the beneficiaries of your action?

2. Who are likely to be harmed by your action?
3. What is the nature of the ‘benefits’ and ‘harms’?
4. How long are these benefits and harms likely to exist?
Some ‘harms’ are less harmful than others.

After finding answers for each of one’s actions, one should identify
the best mix of benefits or harms.

STEP 2: ANALYZE THE ACTIONS

Once you identified the best possible option, concentrate on the

actions. Find out how your proposed actions measure against moral
principles such as ‘honesty, fairness, equality, respect for the dignity
and rights of others, and recognition of the vulnerability of people
who are weak, etc.’ Then there are questions of basic decency and
general ethical principles and conflicts between principles and the
rights of different people involved in the process of choice of the
options that have to be considered and answered in one’s mind.

After considering all these possible factors in the various options, it is

sensible to choose the one which is the least problematic.

STEP 3: MAKE A DECISION

Having considered all factors that lead to choices among various

options, analyze them carefully and then take a rational decision.

This three-step strategy should give one at least some basic

understanding to resolve an ethical dilemma.

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Ethical Decision-making in Business

Managers and executives make hundreds of decisions in an
organization every day in their business dealings. Many of these
decisions may be morally and ethically justifiable, while some of
them, often taken in the context of exigencies of business or
compulsions of competitive pressures, may be unethical and even
illegal. However, social thinkers, ethicists and academicians would
like businessmen to improve their ethical standards, notwithstanding
the pressures and compulsions of competitive business.

 Theories/Principles/Influences of Ethical Decision-making

1. RIGHT
The proponents focused on the entitlements of individual as
person with dignity and held the view that ethical decisions
should protect the legal and moral rights that an individual is
entitled to. According to ethicists individual rights would include
the rights to (i) free consent; (ii) freedom of conscience; (iii)
privacy; (iv) free speech; and (v) due process. Legal rights are
protected by law, moral rights have to be protected by society.

2. JUSTICE
This theory advocate that all persons should be guided by fairness,
justice, equity and by a sense of impartiality. In the modern context,
ethical decisions should result in a situation where all human beings
are treated equally, and in case some are treated unequally, it must
be based on some defensible reasons. It is in the nature of things
that all persons cannot, and should not be, treated equally. A
Supreme Court judge and a daily wage-earner working in the
construction industry cannot be treated equals in terms of salary,
accommodation, protocol and status in the society. That will be
grossly unfair to the judge who has to maintain higher status to
command respect from those on whose issues, he or she sits on
judgement. Moreover, treating unequals as equals is unjust in itself.
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So, people should be treated equitably, that is, equality based on

justice.

3. UTILITARIANISM

Utilitarianism as an ethical theory holds the view that an action or

decision is right if it maximizes utility or produces the greatest good
for the largest number of people. The utilitarian approach has a
double-edged focus to an ethical problem: to increase the good done
and to reduce the harm done.

4. F AIRNESS

Fairness implies one’s tendency to view persons or events distinctly

from oneself and one’s interests, opinions, likes or dislikes, so as to
achieve a proper balance of conflicting interests. To achieve such a
balance, one should be impartial, equitable, dispassionate, open, and
follow due process. Fairness also means adherence to a balanced
standard of justice without relating to one’s own personal feelings
or attachments or inclinations.

5. CARING

Since ethics is related to one’s good relations with others, caring for
others is the cornerstone of good ethical practice. ‘Caring is the
heart of ethics, and ethical decision making.’ 40 People who do not
possess the sense of caring, may not care to be fair, honest, loyal or
respectful towards others. When one cares for a cause or a person,
one strikes an emotional cord with it or with him or her. When you
care for others you feel an emotional response to both the pain and
pleasure of others.

6. WORK P LACE ETHICS

When a person works in an organization, he or she has to reckon to

a set of values that are part of the workplace—corporate culture, the
set of beliefs, values, goals, norms, and the manner of solving
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problems that workers of the organization share. If the corporate

culture is one that is straightforward, as per the mission and vision
statements, well-laid out policies, and procedures and reflects a
strong desire for protection of stakeholders, then it will not create
any problem to an ethically sensitive employee during his or her
day-to-day business. On the contrary, if the organizational culture is
one of haughtiness, one-upmanship, or do-what-you-like, but-bring-
us-business-and-profit type of attitude as it was in cases of Enron
and Reliance, conflicts between personal and professional roles are
bound to arise.

7. PERSONAL VALUES AND ETHICAL DECISION MAKING

An ethical decision maker needs to build and develop certain

values. The Josephson Institute of Ethics34 has identified ethical
values such as trustworthiness, respect, responsibility, fairness,
caring and citizenship as being the most important of these values.
These are called The six pillars of character. According to them,
these universal ethical values could be used to guide our choices.
‘The standards of conduct that arise out of these values constitute
the ground rules of ethics, and therefore, of ethical decision
making.’

8. TRUSTWORTHINESS
When people trust us that is the greatest asset we can earn for
ourselves from the society. When they repose their trust in us, it
means they believe in us and hold us in high esteem. They believe
that we are worthy of their trust and meet our obligations without
any external prodding. This trust of others casts on us a great moral
responsibility, where we must live up to their expectations and not
let them down. Earning the trust of others may take a long time,
while it can be destroyed in no time, if we are not careful enough to
ensure that we do not commit any untrustworthy act.

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9. RESPECT

We expect people to treat us with respect whatever be our status in

life and society. It is only natural that others would equally expect
us to treat them with respect, whoever they are and whatever they
have done. Even when we deal with unpleasant and unreliable
people we have to give them respect. Respect for others implies
avoidance of violence, humiliation, insults, manipulation and
exploitation. It also calls for such societal values as civility,
courtesy, decency, dignity, autonomy, tolerance and acceptance of
others as equals. A world where people accept and follow such
values will be a better place to live in with lesser ethical dilemmas
to face and solve.

10. RESPONSIBILITY

The other elements of responsibility include pursuit of excellence,

as others who follow a responsible person expect that person to
have the knowledge, willingness and capability to perform the
assigned tasks safely and effectively. Responsibility would also
imply other values such as diligence, perseverance, and continued
improvement in what one does and self-restraint, that is, exertion of
self-control to the extent required by restraining passions and
appetites that are likely to make persons deflect from their ethical
path.

11. CITIZENSHIP

A good citizen knows and obeys the laws of the place, stays
informed of the issues of the day, observes the rules and regulations
and also enjoys the privileges as are entitled to a citizen. Likewise,
a good corporate citizen is a legally incorporated entity, which even
while enjoying the protection of the State and the privileges entitled
to it, also discharges its duties and responsibilities to all its
stakeholders—stockholders, employees, creditors, dealers and
distributors, competitors, the public and the government. Such a

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responsibility to the public may have different facets including

conservation of resources, maintenance of ecological balances and,
to the extent necessary, promoting the overall welfare of the
society.

 The Process of Making Good Ethical Decisions:

To make good ethical decisions, we should have a belief in the
importance of ethics, an ethical sensitivity to the implications of the
various choices we have, the ability to evaluate facts at our disposal
which may be incomplete, complex, contentious and even ambiguous
and the skill to implement effectively the ethical decisions we make.

STEP : 1 RECOGNIZE AND IDENTIFY THE K IND OF ETHICAL ISSUE

YOU NEED TO RESOLVE

First and foremost, we have to recognize the ethical issue and then
seek answers to questions relating to it such as the nature of the issue,
the conflict it has raised and how the decision could have impact on
the people around us or the larger community. For instance, a
corporate that wants to expand its operations, may want to go for the
manufacture of heavy chemicals and put up a factory in the 20 acres
of land it owns in the heart of the city. The manufacture of heavy
chemicals may let out obnoxious gases and fumes that may adversely
impact the health and welfare of thousands of poor residents who may
still reside without any alternative arrangement. What should the
company that is committed to make high profits to its shareholders
who have not received a fair dividend for a long time do? The
management of the company is in the horns of an ethical dilemma.
They have to consider all aspects of the issue. Does the issue of
putting up a chemical factory go beyond legal, institutional and
environmental concerns? What does it do to the poor inhabitants in
and around the proposed factory? What about their rights to
livelihood and peaceful life, dignity and hope for a better life in a
place they have chosen as home? On the other hand, what happens to
the rights of investors who expect a decent return on their
investments? The company has to reconcile these conflicting interests
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before they make any decision for or against putting up the chemical
factory.

STEP -2 P AUSE AND THINK

Before one proceeds further with an ethical issue on hand, one should
pause for some time, think ahead and reflect on the consequences that
are likely to follow. Pausing to think offers several advantages. It will
enable the management in our example to think calmly and quietly of
the consequences of either decision, consult legal and environmental
experts, prepare them for ‘thoughtful discernment,’ gather enough
information and more importantly, avoid what could lead to a costly
and hasty decision.

STEP -3 MAKE SURE OF YOUR GOALS

Before jumping into what could turn out to be a hasty decision, the
management of the company should be clear of its goals, both short
term and long term. The decision makers should weigh their options
clearly. Putting up a heavy chemicals factory in the heart of the
densely populated city may solve their immediate goal of earning a
high profit in the short term. But will that situation prevail for a long
time? Will the company earn the goodwill of the population
surrounding the factory? What happens if they get agitated and create
problems? What about the possibility of environmental groups
spearheading agitations and pressurizing the government to withhold
clearances? What about the reaction of the media on this issue? Will it
be a better option for the company to sell this piece of precious land at
a premium and move the proposed factory away, ‘far from the
madding crowd’, so as to enable them to make high profit for its
shareholders without ruffling the feathers of so many? Will not the
company be able to achieve its goal, both short term and long term, by
this well though out decision?

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STEP -4 GET YOUR F ACTS RIGHT

To make important decisions, that too when these are likely to impact
others, we should know all the facts concerning the issue, verify those
which we are not very sure about, and get additional information that
may throw some more light on various aspects of the issue to be
decided. Once we begin to probe deeply, we may come across several
facts unknown to us in the beginning, different versions of them and
what they mean. We should try to weigh the collected facts
dispassionately and evaluate their authenticity.

There are some guidelines that would help us get reliable facts:

 What are the ‘facts’ of the situation? What are the root causes?
What are the risks involved in the situation?
 Is it likely that some of the stakeholders may have different
perceptions of the facts?
 Are they reliable, credible and logically consistent?
 We may come across any number of assumptions, gossip. But
we should realize that these are no substitutes for facts.
 Truth has three sides. What I hold as truth, what you hold as
truth, and what is the real truth. This is because people believe
unverified half-truths as truths.
 We can take the opinion of people we respect, for their
knowledge, expertise and experience.
 Having obtained all these inputs, we should evaluate the
available information in terms of accuracy, reliability and
completeness.

STEP -5 EVALUATE CHOICES F ROM DIFFERENT ETHICAL

P ERSPECTIVES

Before one plunges into decision making, one should make a list of
options that attempts to accomplish the goal. Ask yourself whether
you have exhausted all the options. Have you, for instance, critically
examined the availability of other options? While choosing the most
appropriate option, one should test it against various ethical
perspectives such as rights, justice, virtue or common good and also

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find out which option will produce the most good and do the least
harm to others. You can also consult persons whom you trust to give
you correct advice on the choice of appropriate action.

STEP -6 CONSIDER CONSEQUENCES

Ethicists offer two techniques to find out the possible consequences of

our proposed options; First, ensure that you do not hold on to any
unethical option; see that your option is consistent with all core
ethical values such as ‘trustworthiness, respect, responsibility,
fairness, caring and citizenship’. You should also analyze the possible
consequences of each of the options for each stakeholder. Also think
in terms of those stakeholders who are likely to be for and those
against, and the possible grounds on which their decisions are based.
Ensure that the option does not involve any lying, breaking a promise,
being disrespectful to others, generating unfair or uncaring attitudes
or breaking any rule of law. Also ensure that the end result causes
better than any harm.

Second, identify the stakeholders who are likely to be impacted by the

decision. Find out what important stake individuals and groups have,
in the outcome. Also find out whether some have a greater stake
because they have a special need or because we have special
obligations to them. In the example that was given earlier, the
stakeholders may be the people who live close to the proposed
chemical factory; but there may be schools and hospitals located
nearby. Inhabitants of these institutions may be considered special
stakeholders whose need for clean air and safe environment is more
important than those of others.

STEP -7 MAKE A DECISION

Having gone through all these steps honestly and sincerely, we have
now come to the most important aspect of decision making—to make
a decision. It should be the best and right option that is available.
Before you make the ultimate decision, it would be better to prepare a
checklist or rather a criteria derived from the facts gathered.
Additionally, you can also create a decision criterion including the
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financial outcome, if any. When you are ready to choose the

appropriate action, you should rate it against your list of criteria.
However, if you are still in a dilemma as to what is the best option, try
to talk to persons whose judgment you respect. What would they
say? The process of decision making is not complete unless you chart
out the communication issues involved with the decision and also the
strategy to face possible objections from some of the adversely
affected stakeholders.

STEP -8 ACT, THEN REFLECT ON THE DECISION LATER

Once you have made and implemented your decision, try to evaluate
the consequences. How did it turn out to all stakeholders? Would you
take the same decision or act differently if another opportunity
presents itself again? This way, decision makers monitor the outcome
of their choices, since no foolproof option is available for the
successful resolution of an ethical issue. If the decision produced, for
instance, an unintended or undesirable consequence, it may be
necessary to reassess the choice and options and proceed to make new
decisions.

The foregoing analysis tries to trace the step by step process by which
an ethical decision is made by persons in a business environment. We
may wonder whether individuals go through what appears to be a
tortuous process for arriving at a simple ethical decision. The analysis
provides a sort of framework within which ethical decisions are
sought to be arrived at for complex ethical issues in a business
environment.

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Business Competition and Ethics

Business managers must recognize new business ethics and

opportunities—clean products and clean technologies to create a
competitive advantage. Thus company managers’ roles and
responsibilities are undergoing fast transformation not only in the area
of maximizing return on investment, but also in the real-life
proposition of social responsibility and social accountability.
To show the own talent competition prevails between people and
organizations.
For example, between students; result comparison
Between companies; performance comparison

Objectives of Competition:
1. Mean of checking efficiency of organization
2. Improvement in knowledge, skills and performance.
When Competition is fair?
1. No immoral/illegal means should be used to face competition
2. Free entry in market.
3. Rules are same for everyone.
4. Every player believes in developing performance
Advantages:
1. More firms; more varieties
2. Competitive prices; benefit to customers
3. High standard of living
4. Balanced economy (Tax regulations)

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Rights and Obligations of Individuals in

the organization

A corporation is a creation of law as an association of persons

forming part of the society in which it operates. Its activities are
bound to impact the society as the society’s values would have an
impact on the corporation. Therefore, they have mutual rights and
obligations to discharge for the benefit of one another.

1. National interest: A company (and its management) should be

committed in all its actions to benefit the economic development of
the countries in which it operates and should not engage in any
activity that would militate against such an objective. A company
should conduct its business in consonance with the economic
development of the country and the objectives and priorities of the
nation’s government and must strive to make a positive contribution
to the realization of its goals.

2. Political non-alignment: A company should be committed to and

support a functioning democratic constitution and system with a
transparent and fair electoral system and should not support directly
or indirectly any specific political party or candidate for political
office. The company should not offer or give any of its funds or
property as donations directly or indirectly to any specific political
party candidate or campaign.

3. Legal compliances: The management of a company should comply

with all applicable government laws, rules and regulations. The
employees and directors should acquire appropriate knowledge of the
legal requirements relating to their duties sufficient to recognize
potential dangers. Violations of applicable governmental laws, rules
and regulations may subject them to individual criminal or civil
liability. Legal compliance will also mean that corporations should
abide by the tax laws of the nations in which they operate such as
corporate tax, income tax, excise duties, sales tax, cesses and other

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levies imposed by respective governments. These should be paid on

time and as per the required amount.

4. Rule of law: Good governance requires fair, legal frameworks that

are enforced impartially. It also requires full protection of rights,
particularly those of minority shareholders. Impartial enforcement of
laws require an independent judiciary and regulatory authorities.

5. Honest and ethical conduct: Every officer of the company

including its directors, executive and non executive directors,
managing director, CEO, CFO and CCO should deal on behalf of the
company with professionalism, honesty, commitment and sincerity as
well as high moral and ethical standards. Such conduct must be fair
and transparent and should be perceived as such by third parties as
well. Honest conduct is a conduct that is free from fraud or deception.
Ethical conduct is an ethical handling of actual or apparent conflicts
between personal and professional relationship.

6. Corporate citizenship: A corporation should be committed to be a

good corporate citizen not only in compliance with all relevant laws
and regulations, but also with the objective of making them self-
reliant and enjoy a better quality of life.
Such social commitment consists of initiating and supporting
community initiatives in the field of public health and family welfare,
water management, vocational training, education and literacy. It
should encourage volunteering amongst its employees and help them
to work in the communities. The company should develop social
accounting systems and carry out social audit of its operations
towards the community, employees and shareholders.

7. Social concerns: Corporations exist beyond time and space. So

they have to set an example to their employees and shareholders. New
paradigm is that the company should not only think about its
shareholders but also think about its stakeholders and their benefit. A
corporation should not give undue importance to shareholders at the
cost of small investors. They should treat all of them equally and
equitably. The company should have concerns towards the society. It

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can help the needy people and show its concern by not polluting the
water, air and land. The waste disposal should not affect any human
or other living creatures.

8. Corporate social responsibility: Accountability to stakeholders is a

continuing topic of divergent views in corporate governance debates.
In line with the developing trends towards an integrated model of
governance toward the creation of an ideal corporate, the emphasis
should be laid on corporate social responsiveness and ethical business
practices seeking what might well turn out to be not only the first
small steps for better governance on this front but also the promise of
a more transparent and internationally respected corporates of the
future.

9. Environment-friendliness: Corporations tend to be intervening in

altering and transforming nature. For corporations engaged in
commodity manufacturing, profit comes from converting raw
materials into saleable products and vendible commodities. Metals
from the ground are converted into consumer durables. Trees are
converted into boards, houses, and furniture and paper products. Oil
is converted into energy. In all such activities, a piece of nature is
taken from where it belongs to and processed into a new form. So
companies have a moral responsibility to save and protect the
environment. All the pollution standards have to be followed
meticulously and organizations should develop a culture having more
concern towards environment.

10. Healthy and safe working environment: A company should be

able to provide a safe and healthy working environment and comply
with the conduct of its business affairs with all regulations regarding
the preservation of environment of the territory it operates in. It
should be committed to prevent the wasteful use of natural resources
and minimize the hazardous impact of the development, production,
use and disposal of any of its products and services on the ecological
environment.

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11. Competition: A company should market its products and services

on its own merits and should not resort to unethical advertisements or
include unfair and misleading pronouncements on competitors’
products and services. Any collection of competitive information
shall be made only in the normal course of business and shall be
obtained only through legally permitted sources and means.

12. Trusteeship: Corporates have both a social purpose and an

economic purpose. They represent a coalition of interests, namely,
those of the shareholders, other providers of capital, business
associates and employees. This belief, therefore, casts a responsibility
of trusteeship on the company’s board of directors. They are to act as
trustees to protect and enhance shareholder value, as well as to ensure
that the company fulfills its obligations and responsibilities to its
other stakeholders.

13. Accountability: Accountability is a key requirement of good

governance. Not only governmental institutions but also the private
sector and civil society organizations must be accountable to the
public and to their institutional stakeholders. Who is accountable to
whom varies depending on whether decisions or actions taken are
internal or external to an organization or institution. In general, an
organization or an institution is accountable to those who will be
affected by its decisions or actions. Accountability cannot be enforced
without transparency and the rule of law.

14. Effectiveness and efficiency: Good governance means that

processes and institutions produce results that meet the needs of
society while making the best use of resources at their disposal. The
concept of efficiency in the context of good governance also covers
the sustainable use of natural resources and the protection of the
environment.

15. Timely responsiveness: Good governance requires that institutions

and processes try to serve all stakeholders within a reasonable
timeframe. They should also address the concerns of all stakeholders
and the society at large.

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16. Corporations should uphold the fair name of the country: When
companies export their products or services, they should ensure that
these are qualitatively good and are delivered in time. They have to
ensure that the nation’s reputation is not sullied abroad during their
deals, either as exporters or importers. They have to ensure
maintenance of the quality of their products, which should be the
brand ambassadors for the country.

Whistle-Blowing

“Whistle-blowing can be defined as the release of information by a

member or a former member of an organization that is evidence of
illegal and/or immoral conduct in the organization that is not in the
public interest”.
A whistle-blower is a “person who informs on another or makes
public disclosure of corruption or wrong-doing”.
The misconduct is a violation of law, rule, regulation and/or a direct
threat to public interest, fraud, health, safety violations, and
corruption are just a few examples.

 Types of Whistle-Blowers:
Basically there are three types of whistle-blowers. They are:

1. Internal to internal whistle-blowers

2. Internal to external whistle-blowers
3. Extrinsic to external whistle-blowers

1. Internal to Internal

Internal people such as the staff who report misconduct or non-

compliance to internal people such as supervisors, managers,
employees engaged in company’s service and supply, procurement
and purchasing and human resources; executives and directors, CEOs,

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CFOs, board of directors, shareholders, investors and business

owners.

2. Internal to External

Internal people (staff) who report misconduct or non-compliance to

external people such as the clients, the suppliers and sub-suppliers
(includes companies, contractors, consultants, lawyers), the
competitors, government departments and agencies, and police.

3. Extrinsic to External

Extrinsic people (those who have intimate knowledge of the business)

who report misconduct or non-compliance to external people such as
the clients, the suppliers, the consultants, and government
departments and agencies.

 Guidelines for Whistle-Blowing:

Though whistle-blowing in general promotes better governance, it
would not be productive all the time. It depends on the situation and
circumstances in which it was brought to light. There are certain
guidelines that would determine if a situation merits whistle-blowing
in which case it would really help better governance. Lizabeth
England lists the following guidelines for whistle-blowing:19

1. Magnitude of Consequences

Before whistle-blowing, an employee should find answers to these

two questions: “How much harm has been done or might be done to
the victims?” Victim may indicate a person, a value or an ethical
issue. “Will the victim be really benefited by the whistle-blowing?”
Moreover, if only one person is going to be adversely affected by the
situation, there is no justification for the whistle-blowing.

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2. Probability of Effect

The whistle-blower should consider the probability that the particular

action about which he intends to blow the whistle would definitely
take place causing harm to many people. He should be very positive
that the action will really take place. If he does not know that the
action is bound to happen and has proof to the effect that it would
harm people (or the environment), the employee should reconsider his
or her plan to blow the whistle.

3. Temporal Immediacy

An employee must consider two things before he blows the whistle:

(i) The length of time between the present and the time when the
harmful event is likely to occur; and (ii) the urgency of the problem in
question. He will have a strong case for whistle-blowing, if the
problem is immediate, i.e., the consequences of the potentially
unethical practices are likely to happen in the immediate future. For
instance, if he comes to know that (i) a toxic waste is likely to be
dumped near a village surrounded by water bodies by his organization
within a week; and (ii) the company is going to discharge 100
employees by next year, then he should consider the former more
urgent than the latter.

4. Proximity

The potential whistle-blower should evaluate the proximity of the

potential victims. For instance, “A company that is depriving workers
of medical benefits in a nearby town has a higher proximity than one
thousands of miles away. The question arises about matters of
emotional proximity or situations in which the ethical question relates
to a victim with some emotional attachment to the whistle-blower.”20

5. Concentration of Effect

The whistle-blower should determine the intensity of the unethical

practice or behaviour. The question is how much the specific
infraction carries. For example, a person is considered more unethical

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when he steals INR 10,000 from one person than stealing INR 10
from 1,000 people.

Thus, though whistle-blowing helps promote better governance,

certain guidelines should be followed by the whistle-blowers.
Besides, whistle-blowing should be used only as a last resort.

 Whistle Blowing Protection Law

As noted earlier, a whistle blower is someone who exposes
wrongdoing, fraud, corruption or mismanagement in which he is
associated as an employee or consultant. The organisation may be the
government owned or funded, or a private sector firm.

In the interest of good and honest governance, the law that a

government enacts to protect whistle blowers is called a
whistleblowers protection law. As of now, India does not have any
law to protect whistle blowers, but the government is contemplating
passing of such a law. The Public Interest Disclosure (Protection of
Informers) Bill, 2009 was prepared by the Department of Personnel
and Training (DoPT). As per the draft law, any person can make a
complaint of corruption or disclosure against any central government
employee or central government-backed institution to the Central
Vigilance Commissioner (CVC). The CVC, who would be designated
as the competent authority for complaints, would have the powers of a
civil court, including powers to summon anybody, order police
investigation and provide security to the whistleblower.

Whistle blowing as a legitimate and public interest activity is little

recognized in India, though in less corrupt jurisdictions, it is given
legitimacy and protection under the thumb of law. The legislation to
protect whistle blowers in India started in 2001 when the Law
Commission of India studied earlier attempts to make such law in the
UK, USA and other advanced countries. The Law Commission also
submitted to the government a rather weak draft bill. In the meantime,
the government of India created a mechanism for its employees and
those employed in its PSEs to blow the whistle on wrongdoings. In
2004, the government notified “The Public Interest Disclosure and
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Protection of Informers Resolution” to enable employees of PSUs to

make disclosures of fraud and such wrongdoings to the Central
Vigilance Commission in confidence. Since this did not cover
employees of state governments a new draft bill called “The Public
Interest Disclosure and Protection to Persons Making the Disclosure
Bill 2010” was approved by the central government cabinet on 9th
August of that year. The draft whistleblowers bill being an important
policy initiative of the central government ought to have been placed
before the public and media for a public debate on its contents and
implications as is normally done, though the media has been
speculating about major disagreement among ministries over its
contents.

I-MBA/SEM-V/BE/M-II PROF. NITA MEGHANI