Module 3

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Entrepreneurship and Project Management

Module 3
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Ethical issues in Finance – Ethical issues in Marketing – Ethical issues in HR – Ethical Issues
in Operations – Ethics in Information Technology – Trans-cultural issues.
ETHICAL ISSUES IN FINANCE
Introduction to corporate finance – In order to understand and classify the ethical issues
in finance we need to have a basic understanding of corporate finance. Corporate
Accounting and finance is broadly classified into
 Financial accounting and

 Financial management
Financial Accounting
Financial accounting is the language of business. It measures, translates and sums up

the impact of all business transactions into financial terms, in the form of statements. It
can further be broadly classified into two
 Financial accounting &

1. Management accounting
Financial accounting is defined as reporting of the financial position and performance of

a firm through financial statements issued to external users on a periodic basis. The main
characteristics of financial accounting are as follows
 The financial statements are meant primarily for external users such as investors,
shareholder, analysts etc.
 The financial statements must be prepared in compliance with the Generally
accepted accounting principles( GAAP)
 The financial data provided must be accurate and timely
 These statements portray the company’s past performance
 The statements provide a picture of the business as a whole.
 The financial statements stand by themselves
Business Ethics and Corporate Governance Notes (Pvt Circulation Only) Page 1 of 14
Compiled by Santhosh.S, Associate Professor, SCMS Cochin
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Management Accounting
Management accounting is the process of identifying, measuring analyzing interpreting

and communicating information for the pursuit of an organization’s goals. The
characteristics of management accounting are as follows
 The data involved in the process are meant solely for the use, understanding and
analysis of internal users.
 The preparation of reports etc under this process is not subject to regualtions or
GAAP standards
 The relevance and flexibility of data are completely determined by the users of the
data.
 The use of management accounting techniques is to look into the future
profitability and to make decisions based on existing data
 Management accounting draws heavily on finance, economics and quantitative
methods for decision making.
Financial Management
Financial management encompasses the two core processes of resource management

and finance operations. Broadly speaking financial management involves
 Financial analysis and planning

 Investment decisions
 Financing and capital structure decision a&
 Management of financial resources.
Ethical issues In Finance
The broad themes around which the ethical issues can be classified are
1. Ethics in financial markets

2. Ethics in financial services industry ( including Banking and insurance)
3. Ethics of financial people in the organization
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Ethics in Financial markets
Insider trading – The act of buying or selling a company’s stock on the basis of “inside’
information about the company is called “ Insider trading’. Insider trading is illegal as well
as unethical. The information which is confidential and not available to the general public
outside the company, have a significant impact on the price of the company’s stock. So
the person who is practicing insider trading in true manner steal this information and
enjoys the unfair advantages over the member of the general public.
Fraud and manipulation of markets – Fraud means when a company fails to report proper
information and manipulates buying or selling of securities for the purpose of creating
misleading impression about price to misguide the investors to buy or sell the securities.
Ethics in Financial service Industry
Financial services include services rendered by all financial institutions that are engaged
in some form of borrowing and lending. This would include financial intermediaries such
as commercial banks, hire purchase finance companies, insurance companies, pension
funds, and investment trusts.
Frauds in credit card, cheques, and other types of identity related services and frauds in
Insurance sector that is internal fraud committed by employees against the insurer, fraud
by policy holder and claims fraud, and fraud committed by intermediaries such as
independent brokers/ agents are all examples of frauds in finance services.
Frauds in banks
Losses incurred by banks due to frauds are far larger than losses arising out of robbery,
dacoity, burglary, and theft all put together. The use of high-tech instruments such as the
computer has increased the quality and extent of fraud to an enormous degree.
There are four elements identified as responsible for the commission of bank frauds
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1. Active involvement of the staff- both supervisory and clerical- either independent
of external elements or in connivance with them.
2. Failure on the part of the bank staff to follow scrupulously, the instructions and
guidelines laid down by regulators like the RBI.
3. External elements perpetrating frauds on banks by forgeries or manipulation of
cheques, drafts and other negotiable instruments.
4. Collusion among businessmen, top bank executives, civil servants, and politicians
in power to flout rules and regulations, and to throw banking norms to the winds.
Prevention of money laundering Act 2002 and the banking ombudsman Scheme 2006
are some of the measures taken by the government to combat frauds in banks.
Frauds in Insurance sector

There are three types of fraud in the insurance industry
1. Internal fraud against the insurer perpetrated by an employee
2. Policy holder/ claims fraud committed against insurer, in the purchase and/or
execution of an insurance product by obtaining wrongful coverage or payment and
3. Intermediary fraud committed against the insurer against the insurer or policy
holder by intermediaries- independent broker/ agent.
In insurance sector fraud
Combating frauds in insurance sector
The following measures check the incidence of fraud in insurance sector
1. Collection of proper evidence – the onus of proving a fraud lies on the insurer. As
such it is the insurer who has to collect all tenable evidence of fraud that is capable
of succeeding judicial scrutiny.
2. Need for regulation- Regulation is another aspect relevant to combating fraud. The
insurer has to be equipped with sufficient legal recourses for collection of evidence
from external parties like hospitals, government departments, revenue authorities
etc. in order to make it possible for an insurer to prove fraud “beyond reasonable
doubt in a court of law”.
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3. Regulation of allied services like health, life, etc.
4. Need for judicial cooperation – Lengthy and long drawn out cases taking years for
settlement is another reason for frauds in insurance sector
5. Insurer should aim for conviction – Insurer should show determination to book the
fraudster.
6. Need for transparency and fair play
7. Insurer coalition – The insurers should work closely together with the insurance
regulatory development authority(IRDA) to combat fraud.
8. Building consumer awareness
9. Reward for whistle blowers
10. Effective legislation and judicial action – Insurance fraud deserves special
legislation and judicial attention- a few quick, high-profile and highly publicized
convictions are probably the strongest medicine for potential fraudsters. Without
legislative and judicial support, all the activism of insurers and regulators will be
rendered toothless.
Ethical issues of people in the financial organizations
The financial services industry has several players such as insurance agents, brokers,
individual investors, institutional investors, brokerage firms, mutual funds companies and
so on. The industry churns out several products and services which by the use of
specialized skills and talents are managed efficiently. However while the agents and
brokers owe a critical duty of care and diligence to their clients, they often tend to violate
these.
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ETHICAL ISSUES IN MARKETING
Ethics in marketing is the function and process of marketing keeping to the standard
norms of marketing and achieving the ends through a sound means.
Common unethical practices under the 4 P’s of marketing are
Product Price Place Promotion

Quality promotion List price Channels Sales
Features Discount Location Advertising
Warranty Credit terms Inventory Public relation
Brand name Payment period. Transportation Direct
marketing
Size
Packaging
Design
The common unethical practices are
 Duplication of original brands

 Inadequacy and insufficiency in warranty offering time and service
 Not producing quality product
 Question mark on product safety
 Unauthorized manufacturing of hazardous products.
 Production of non-biodegradable plastic products which causes environmental
pollution.
 Discrimination in pricing
 Excessive mark prices
 Misleading and deceptive advertisement
 False promises
 Lower the dignity of women
 No fairness, transparency in relations with supplier and retailers
 Artificial scarcity
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Why should marketing be ethical?
The following are some of the factors behind ethical practices in marketing
1. To collect the power by society- Society gives power to marketers, which
they earn by their own efforts and influence so they could utilize their power
in socially responsible and acceptable manner, otherwise they might lose it.
2. Goodwill of the organization
3. Government regulation
4. Build up transparency- As unethical practices like misleading ads, low
quality products, misleading package labels etc are spreading rapidly,
buyers become more suspicious while buying, therefore the big marketers
and business leaders must take them into confidence by keeping high
levels of transparency, convince the public that they are aware of their social
responsibility and they will fulfill it because without society business cannot
survive.
Important issues in marketing ethics
1. Ethical product – Product is the first and the foremost important element
of marketing mix. The producers know more about the product than the
buyer, so he should be extra careful as not to break the trust of the buyer.
The following are some of the conditions which should be considered
while product development
a. Initiation of the idea- Who’s creativity is involved behind the idea
to develop the product?
b. Planning and screening product design – Which criteria the firm
follows- only profitability and not safety and utility or keeping a
balance between profitability and safety-welfarre?
c. Development of product- If little attention is paid to the way
consumers would actually use the products, the marketers must
be ready to bear the consequences of failure of the product so
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the crux of marketing ethics says that extra precautions are
required in in product development and evaluation.
d. Marketing Strategy – Which kind of marketing strategy should be
adopted? How much strong is the product to face the
competition?
e. Introducing the product in the market- Should the company go for
test marketing? What should be the sample size? Should the
company be transparent about its policies and strategies? Are
they aware of the risks?
f. Decline stage – How the company should react in product decline
stage? Should they go for some fair treatment try to overcome
with decline stage? Do the companies follow pushing strategy to
push the product by devious means, one a better product is
available in the market?
2. Ethics in pricing
Price is a critical element of marketing mix which produces revenue. It
communicates to the market the company’s intended value positioning
of the product or brand. A firm must set a price for the first time when it
develops a new product or when it introduces its regular product into
new distribution channel. Companies generally do not go for single price,
rather a price structure that has some variation according to purchase
timing, order level, geographical demands. Market ,segment
requirement like – Price discounts, Discriminatory pricing, Geographical
pricing. This is when ethics comes into picture. Four major areas most
common in which unethical practices occur are
a. Price discrimination – It occurs when a company sells a product/
service at two or more prices that do not reflect a proportional
differences in costs but it becomes illegal when sellers offers
different price terms to different people within the same group.
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b. Predatory Pricing- Selling below the cost when just having the
intention to destroy competition
c. Deceptive pricing – Deceive the customer to show them the
wrong picture either by – low price offer or inflated price
d. Price fixation- Prices are fixed at certain levels by firms either by
i. Horizontal price fixing- To fix price at artificially high levels
ii. Vertical price fixing - Price fixing agreements between
manufacturers and retailers or between manufacturers
and distributions. It says that the product will be sold at the
manufacturer’s suggested price and will not be discounted
by the retailer or wholesaler.
3. Ethical promotion
Promotion plays an important role in marketing of any product/service.
It could come up with a perfect outcomes only if the perfect means would
have been adopted. Promotional mix consist of sales promotion,
advertising, sales force, public relation, direct, mail etc. Promotional
claims must be of such type that the reality of the company and its
standard must match. Unethical promotions are those where the
company’s offer varies significantly from its claims.
Ethical issues in Advertisement – Advertisement is multi-dimensional. In
order to be ethical advertisements will have to be truthful. As advertising
is a social process, it must honor time tested norms of social behaviour
and should not affront our moral sense.
4. Ethics in Channel
Marketers use communication channels like radio, tv, newspapers etc.
or Distribution channels or Service channel and this is where the scope
of unethical practices may occur.
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ETHICAL ISSUES IN HUMAN RESOURCES MANAGEMENT
The major issues in the area of human resources management and have great relevance
in India are as follows
1. Discrimination issues
2. Suppression of democracy in the workplace
3. Privacy issues
4. Recruitment and selection
5. Performance tracking
6. Privacy issues of computerized employee records
7. Electronic surveillance
8. Safety and health
9. Performance appraisals
Discrimination issues – Most of the discrimination center around discrimination on the

basis of age, gender, race, religion, disabilities, weight and attractiveness. By seeking
only ‘experienced’ persons, corporations tend to weed out youthful candidates, though
tthey may have the requisite qualification. There are companies that do not recruit lady
candidates as they are likely to resign their jobs after marriage, or when married may
seek maternity leave to which they are legally entitled.
Supplression of demorcratization in the workplace - Corporates often suppress the

democratic rights and representation of employees in bodies that would promote the
latter’scollective interests. Tempting and bribing pliable union leaders, union busting and
strike breaking are normally used by them to defeat the purpose of collective bargaining
and other democratic rights of workers.
Privacy issues- Privacy refers to protecting a person’s private life from intrusive and
unwarranted action by others; in this context employees. Workplace surveillance through
viewing them on close-circuit TV’s, tapping phones, reading of computer files without the
consent of the affected employees are all breaches of privacy of employees.
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Recruitment and Selection- Taking advantage of their vantage position in the

organization and the vulnerability of job seekers, a lot of questions are asked by HRM
personnel from prospective employees which breach their privacy such as requiring them
to disclose confidential information about the past employer, wanting to know whether he
or she has a close friend among the opposite sec, seeking to know his or her financial
status, caste and family matters, showing undue interest in knowing from a prospective
mother when she intends to have baby, asking unwanted details of personal nature in job
application forms and sharing personal information of the employee to a third party for
background reference checking.
Performance tracking - Performance tracking is another area whre the privacy of

employees is often intruded. Though there may be some justification for the employer to
do this, in several cases it is overdose.
Privacy issues of computerized employee records- With increasingly large number o

employees records stored in computers, it is worrisome factor that unauthorized persons
could access employee information of a confidential nature such as home addresses,
salary data, performance appraisals, drug test results etc.
Electronic surveillance – Surveillance o employees using abroad range of electronic tools

by the employer is increasingly becoming a menace to privacy even in advanced
countries. More often than not employees is either unaware of being under surveillance,
or in certain cases is oblivious to how the data gathered about his activities his going to
be used.
Safety and Health- HR executive have the responsibility ot provide a safe and conducive
atmosphere at the workplace, however, in actual practice this is hardly done. It is well
known that much of the industrial work is hazardous. This is due to the extensive use of
high-speed and noisy machinery production processes requiring high temperature, an
increasing reliance on chemical compounds, and the nature of works such as
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construction, underground and underwater tunneling drilling and mining. Accidents,
injuries and illnesses are very common in the very nature of such jobs. Often these are
not even taken seriously, but dismissed perfunctorily as “ occupational hazards”.
Performance appraisals- Another areas which generates unethical practices from the
HRM executive relates to performance appraisals. Even though it is difficult to quantify
an employee’s performance where a number of value judgment are involved, the
evaluators should have an ethical bend to evaluate their personnel. In many cases,
performance review is done based on extraneous factors such as the assesee’s personal
relationship with the assessor, what his or her colleagues have to say, and sometimes
even based on caste, community and religion.
ETHICS IN INFORMATION TECHNOLOGY
Information technology refers to the creation, gathering processing, storage and delivery
of information and the processes and devices that make all this possible.
Ethical issues involved in information technology can be categorized into four groups.
1. Accessibility – Involves the right of accessing the required information as well as

the true payment of charges to access the information
2. Privacy- It deals with the degree of privacy and dissemination of information about
individual.
3. Property – It talks about ownership and value of information
4. Accuracy – The accuracy of the information which is viable and being accessed
and tis authenticity.
5. Other ethical issues may arise by the use of IT in the following areas
a. Health
b. Crime
c. Employment
d. Working conditions
e. Individuality
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Preventing crimes and ethical dimensions
1. Separate the employees functions so that they won’t be able to do any malpractice
in other’s work and rotate the workers from critical positions
2. At the time of recruitment, find trustworthy people, though difficult to be detected
but it is the most natural way to prevent crimes
3. Proper restriction on system uses.
4. Surprise and frequent audits must be conducted to make people scared of doing
crimes
5. Proper protection of resources with passwords
6. Timely monitoring the system like who logged on and off.
Computer ethics institute in Washington DC has proposed the following ten

commandments of computer ethids
1. Thou shalt not use computers to harm others

2. Thous shalt not interfere with other pieople’s computer work
3. Thou shalt not snoop around in other people;s computer files.
4. Thou shalt not copy or use proprietary software for which you have not paid.
5. Thou shalt not use other people’s computer resources without authorization or
proper compensation
6. Thou shalt not use other people’s intellectual output.
7. Thou shalt think about social consequences of the program you are writing or the
system you are designing.
8. Thous shalt always use a computer in ways that demonstrate considerations and
respect for your fellow humans.
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CC16

Entrepreneurship and Project Management

ETHICAL ISSUES IN FINANCE

 Financial accounting and

Financial accounting is the language of business. It measures, translates and sums up

 Financial accounting &

Financial accounting is defined as reporting of the financial position and performance of

Management accounting is the process of identifying, measuring analyzing interpreting

Financial management encompasses the two core processes of resource management

 Financial analysis and planning

Ethical issues In Finance

1. Ethics in financial markets

Ethics in Financial markets

Ethics in Financial service Industry

Frauds in Insurance sector

In insurance sector fraud

Combating frauds in insurance sector

The following measures check the incidence of fraud in insurance sector

Ethical issues of people in the financial organizations

Common unethical practices under the 4 P’s of marketing are

Product Price Place Promotion

The common unethical practices are

 Duplication of original brands

Important issues in marketing ethics

Discrimination issues – Most of the discrimination center around discrimination on the

Supplression of demorcratization in the workplace - Corporates often suppress the

Recruitment and Selection- Taking advantage of their vantage position in the

Performance tracking - Performance tracking is another area whre the privacy of

Privacy issues of computerized employee records- With increasingly large number o

Electronic surveillance – Surveillance o employees using abroad range of electronic tools

ETHICS IN INFORMATION TECHNOLOGY

1. Accessibility – Involves the right of accessing the required information as well as

Computer ethics institute in Washington DC has proposed the following ten

1. Thou shalt not use computers to harm others

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