401- BE & CSR

Unit 2 Management of Ethics

UNIT 2 MANAGEMENT OF ETHICS (30%)

Every year, studies report that a large percentage of people think that they themselves are highly ethical, while
they also think that a large percentage of the rest of the world is not.

A. Ethics Analysis (Hosmer Model)

B. Ethical Dilemma
C. Ethics in Practice
D. Ethics for Managers
E. Role and Function of Ethical Managers
F. The organisational size
G. Profitability and Ethics
H. Cost of Ethics in Corporate ethics Evaluation
I. Business and ecological/ environmental issues in the Indian Context and
J. Case Studies

MANAGEMENT OF ETHICS
As seen earlier business ethics is concerned with corporate ethics and managing ethics. Managing ethics mainly
concern with the ethical quality of the decisions and actions taken by managers of an organization. Its main
objective is to ensure that the managers especially executive managers behave ethically and take decisions that
are ethically correct.

On one hand where corporate ethics ensures that the corporate objectives and decisions at corporate level are
ethical and that there is ethical code of conduct prescribed for employees of the organisation, the management
of ethics ensures that every employee of the organisation behaves according to the corporate ethical standards.

1. ETHICS ANALYSIS (HOSMER MODEL)

Hosmer has suggested a model for ethical analysis of management decisions. It is helpful in analysing the ethical
dilemmas of international managers.

HOSMER STUDY
The model was developed on the basis of research conducted on HR problem relates to employee drug testing
issue of a company that faces the problem of low productivity and low quality. It is suspected that it is due to
drug and alcohol abuse. The testing for chemical depending is an invasion of personal privacy and the test does
not always give accurate result. The management has information that less than 20 percent of the workforce
uses drugs and alcohol. However, if the test is carried out, the other 80 percent will also have to go through the
indignity of tests. The managerial dilemma is whether to go for drug test or not.

Based on this research Hosmer proposed a model of ethical Analysis which is now applied generally. Hosmer
model has financial, legal, organizational, social and personal aspects as parts of content of managerial dilemma.
It may lead to better working environment once the problem is solved.

THE SIX STEPS OF HOSMER’S MORAL REASONING PROCESS (“ HMRP”) :

1. Identify the Moral Issue
2. Identify Additional Facts Helpful to Making a Decision
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3. Identify the Alternatives Available to Apply to the Problem

4. Identify the Personal Impacts to the Decision Maker
5. Apply Three Leading Contemporary Theories of Business Ethics: Shareholder, Stakeholder, and
Virtue
6. Conclude with a Decision

HMRP STEP 1: IDENTIFY THE MORAL PROBLEM

A quick and dirty way of identifying the moral issue is asking who has been harmed and whether they
have been harmed in a significant way.

Of course, people are harmed all the time. People lose all the time. It’s one thing to lose; it’s another thing
to create an ethical dilemma. Just because your favorite team loses a game, or you lose a job or an other
company or another individual wins a bid does not mean that there is an ethical dilemma. In a capitalist
society, there are winners and losers. Fair or not, the free market system is the one we find ourselves in, and
this decision-making framework assumes that to be the case.

In identifying a moral issue, one is looking at a situation where there has been harm to a vulnerable party
who has been unable to protect him or herself.

HMRP STEP 2: ADDITIONAL FACTS

Business students and business people tend to do quite well in finding many additional facts and identifying
questions that they want to have answers before they make a conclusion. That’s healthy. One of the best
things one can do in making an ethical analysis is to find additional facts so th at there will no scope for
gossiping. This step thus becomes the opportunity to recognize the additional facts that would be helpful to
know. One still must often make a decision based on insufficient information; life tends to require that. But this
is an opportunity to identify three or four additional facts that would be helpful to know in making a moral
decision. Of course, these facts need to be relevant. Additional facts need not be determinative, but they do need
to be appropriate.

HMRP STEP THREE: AVAILABLE ALTERNATIVES

Step three looks at alternatives. Sometimes, we may think of an ethical issue as an either-or choice. You must
either do the saintly thing or risk selling your soul. Frequently there are a lot of options in between.

1. What are the best economic alternatives?

2. What are the legal alternatives?
3. Does the given decision results in greater benefits than damages for society as a whole, not just
for our organization as part of that society?
4. Is the decision self-serving, or would we be willing to have everyone else take the same action when
faced with the same circumstances?
5. We understand the need for social cooperation; will our decision increase or decrease the willingness
of others to contribute?
6. We recognize the importance of personal freedom; will our decision increase or decrease the liberty of
others to act?
7. Lastly, we know that the universe is large and infinite, while we are small and our lives are short; is our
personal improvement that important, measured against the immensity of that other scale?

HMRP STEP 4: IDENTIFY PERSONAL IMPACTS

Personal impacts are not the impacts on the various human beings that are affected by a corporate decision. It is
how far the decision is affecting the decision-maker. Personal impacts apply to the following:

 Assume that you are in the position of being the decision-maker or a person who’s making a
recommendation to the decision-maker. In that position, what are the consequences to you as a person
and what are the consequences to your career resulting from the decision you make? Recognize that from
a career standpoint, it can cut both ways. So, recognize that in many situations, the personal impacts
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could go in a couple of different directions.

HMRP STEP 5: APPLYTHREE MORAL FRAMEWORKS

Professor Hosmer’s Step Five applies ten ethical principles drawn from thousands of years of philosophy. The
modification is to reduce these to three leading, contemporary business ethics frameworks which capture the
historical philosophies and place them into a business application.

SHAREHOLDER THEORY:
The correct way to state the legal duty of managers to shareholders is that managers should carry out the lawful
directives of shareholders.

Shareholders are the principals and agents are the managers.

To be sure, shareholders will be interested in profit. But shareholders may also hold non-economic directives
(aadesh) as well such as adhering to standards of journalistic excellence, or employing a percentage of individuals
with disabilities, or commitment one’s business to fostering peace.

There are companies that do each of these things and if their shareholders are comfortable with these objectives,
there is nothing illegal about them. So, don’t just assume that the only thing that matters in a corporation is profit;
there may be more.

Moreover, what is in the short-term interest of the shareholders and what is in the long-term interest may be two
different things, even just in terms of making money.

Finally, because corporations are creatures of the law, they should obey the laws that govern them.

STAKEHOLDER THEORY:
Derived from Kantian principles (right Theory) of human dignity, the stakeholder position is that businesses
should be run for the benefit of anyone affected by the action because we ourselves would like to be treated as an
end rather than a means to an end. To prioritize what stakeholders to consider, evaluate whether a basic right has
been affected; whether vulnerable parties are protected; and whether there is a way to great a greater good for a
greater number.

VIRTUE THEORY:
Rather than just considering what duties people in business might have (both shareholder and stakeholder
theories are deontological theories of ethics), virtue theory asks what would be exemplary.

Because people seem to think that everyone has different virtues, you might take time to “elect” the virtues
that a class thinks are most important.

One has to prepare a list of virtues, define them and apply them to the cases at hand.

HMRP STEP SIX: CONCLUSION

Step six calls for a conclusion. This could be to choose the Justice approach in the Stakeholder Theory. It could
be to choose maximizing profitability in the short term. It could be a mix of a variety of the frameworks. For
example, one would design a solution based on respecting rights and protecting the vulnerable because in the
long term, such attention is going to create the greatest good for the greatest number, which will also equate with
long-term shareholder value.

Example:
your best friend is asking you to show an answer to a question in the examination.
Q whether you will tell the answer or not.
Step 1 identify moral issues: what will be the harm if you tell the answer and what will be the harm if
you do not tell the answer.
 Risk of being caught in act that will result in suspension and punishment.
 Eventually ur friend will not learn and will remain incompetent
 It will create a burden on you as he will then always expect u to show answer in other
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Unit 2 Management of Ethics
future exam.
 My friend will get more marks than me.
 Examination will lose its essence/purpose.
 This will motivate other to do the same.
 Friendship will end.
 Friend will fail exam.
 I will be socially rejected.

Step 2 collect information Additional

Step 3

Sr. No. Question Alternative 1 Alternative 2

show deny
1 What are the best economic alternatives? 1
2 What are the legal alternatives? 1
3 Does the given decision results in greater benefits 1
than damages for society as a whole, not just for our
organization as part of that society?
4 Is the decision self-serving, or would we be willing to 1
have everyone else take the same action when faced
with the same circumstances?
5 We understand the need for social cooperation; will 1
our decision increase or decrease the willingness of
others to contribute?
6 We recognize the importance of personal freedom; 1
will our decision increase or decrease the liberty of
others to act?
7 Lastly, we know that the universe is large and infinite, 1
while we are small and our lives are short; is our
personal improvement that important, measured
against the immensity of that other scale?
Sr. Question Alternativ Alternati Weightage according
No. e1 ve2
show deny personal Sharehold Stake virtue Step
impact er 6
step 4 step 5
1 What are thebest economic 1 90% 90% 180
alternatives?
2 What are thelegal alternatives? 1 4% 4% 25 33

3 Does the given decision results 1 2% 2% 50 10 64

in greater benefits than
damages forsociety as a whole,
not just for our
organization aspart of that
society?
4 Is the decision self-serving, or 1 1% 1% 10 12
would we be willing to have
everyone else take the same
action when faced with the
same
circumstances?
5 We understandthe need for 1 1 1 10 25 36
social cooperation; will our
decision increase or
decrease the willingness of
others to
contribute?
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Unit 2 Management of Ethics
6 We recognizethe importanceof 1 1 1 30 10 42
personal freedom; will our
decisionincrease or
decrease the
liberty of
others to act?
7 Lastly, we know that the 1 1 1 10 10 22
universe is large and
infinite, while we are small and
our lives are short; is our
personal improvement that
important, measured against
theimmensity of that other
scale?

2. ETHICAL DILEMMA

MEANING OF DILEMMA
Dilemma is from a Greek for "double proposition." It was originally a technical term of logic, but we use it now
for any time you have a problem with no satisfactory solution.

A dilemma is a tough choice. When one is in a difficult situation and each option looks equally bad or equally
good, you're in a dilemma.

MEANING OF ETHICAL DILEMMA

A tough choice when in a given situation each option looks equally ethical and unethical.

Ethical dilemma occurs when the decision-maker has to chose among actions that looks equally good or equally
bad on the grounds of ethical analysis.

Thus ethical dilemma occurs when ethical analysis fails.

A dilemma is described as a grim problem apparently incapable of a satisfactory solution or a situation involving
choice between equally unsatisfactory alternatives (Davis, Aroskar, Liaschencko, and Drought, 1997). It is
concept appraised by Sletteboe (1997) who recognized three circumstances that can give rise to a dilemma.
These include two or more alternatives to choose between; a wanted option leads to unwanted consequence;
and a choice where one does not know what is the right thing to do. He also suggested five defining features of
dilemma as there were engagement, equally unattractive alternatives, awareness of the alternatives, the need
for a choice, and uncertainty of actions.

TYPES OF ETHICAL DILEMMAS IN ORGANISATION

1. FACE-TO-FACE ETHICAL DILEMMAS

This arises mainly because of human element at work. People make social interaction and relation at work. These
informal relations create certain type of expectations. However, organisation have specific expectation from
each employee. When expectation of organisation and of social relations oppose each other, we say there is
face-to-face dilemma.

For example:
Suppose you are a purchase manager.

Suppose you are a Recruiting officer in a reputed organisation. Your uncle (kaka) asks you to recruit his son in
your company. What you will do?
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Friends have started business together as partners. If there is a disagreement regarding business processes and
one wants to break partnership. Than it might create a difficult choice whether to break partnership or not.

CORPORATE-POLICY DILEMMAS

Managers have to make certain policy decisions based on the corporate policy or corporate directive that might
seem to be unethical or that might increase the scope of being mis-used. However, manger has to make policy
decision. At the time when manager feels that the policy made by him is unethical or which might result in an
unethical practice in future than such is known as corporate-policy ethical dilemmas.

 Eg. Your R&D department has modemized one of your products. It is not really •new and improved you
know printing these statements on the package and using it in advertisement will increase its sales.
What would you do?
 You are interviewing a former product manager who just left a competitor's company. You are thinking
of hiring him. He would be more than happy to tell you the coming years. What you will do?
 You have a chance to win a big account that will mean a lot to you and your company assistant
recommends sending a i-phone to him, What would you do?
 You produce an anti- dandruff shampoo that is effective with one application. The purchasing agent
hinted that he would be influenced by a gift. Your assistant says that the product would turn over faster
if the instructions on the label two applications. What would you do?
 You work for a cigarette company and till now you have not been convinced that smoking cigarettes
causes cancer but now there is an report across your desk that clearly establishes the connection
between smoking and cancer. What would you do?

FUNCTIONAL AREA ETHICAL DILEMMA

Manager perform wide rage of functions in the organisation. These functions sometimes have unethical choice
associated with them, or the choice is equally bad at that time what manager feels is called functional area
dilemmas.

Example

Suppose you an accounts manager and being accounts manger you have prepare and maintain accounts in such
a way that they would used by investors, auditors, tax collectors, trade union, etc. to make respective decision.

Investor would invest in a company whose balance is showing higher profit. Thus, being accountant, you would
be interest to show the account in such a way that your company seems sound. However, at the same time you
want that your account book should as such that it results in less tax as possible. What to do?

DILEMMA OF LEADER
Being a leader one has to make difficult choices that will have great say on the effectiveness of organisation.
Often leader has to make unethical choices in order to have greater good for greater number of people
(organisation) that time he/she faces dilemmas of being leader.

Some of them are as follows:

 Identifying the conflict issues in the organization and trying to avoid them

 Deciding different methods to motivate employees

 Managing fairness in subordinates performance appraisals

 Protecting secret information of the organization

 Identifying the areas of interest of customers, employees, suppliers, owners and the staff
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 Taking action against the reports of complaints in the organization

 Handling different problems of employees

 Taking corrective action against employees

2. ETHICS IN PRACTICE
There is difference between optimum usage and practical usage of any given element. It is not possible to apply
ethics at maximum/idealistic manner in organisation however one applies ethics in practical manner.

There are several theories of ethics. They may result into opposing decision each claiming to be ethical.
Moreover, it would be very tedious for individual to assess action on each theory and approach and then make
a choice. Thus, being organisation one has to develop a single set of principles that might guide managers to
understand which principle to apply when so that the objectives of business are achieved. This single set of
principles is termed as ethics in practice. Ethics in practice is based on following rationale.

1. There are many approaches and theories of ethics. Thus, there is a confusion in mind of employee which
one to apply. Hence, organization require ethics in practice.
2. Each employee will choose approach to ethics based on his/her personality and attitude. Organisation
does not want such thing it want certain amount of uniformity.
3. Organisations are entities aimed for specific goal (eg. growth, profit, etc.) these goals can not be
compromised. Thus, organisation has to device ethics in practice that would allow organisation to be
ethical without compromising their fundamental goals.

PRINCIPLES OF ETHICS IN PRACTICE

1. HUMAN DIGNITY
Those thing or decision or actions that violates human dignity are unethical in an organisation. The manger of
the organisation has to choices in accordance with human dignity.

Eg.

1. Harassment at work is unethical as it is against human dignity.

2. Verbally abusing employees of competitor’s firm.

2. HUMAN RIGHTS
In practice it is expected that organisation or the members of organisation perform action such that no human
right should be denied or violated.

Eg.
1. Adulteration in food. Completely against human right and has be treated as unethical activity.
2. Putting hazardous affluents in river.

3. JUSTICE
Manager will make sure that there is no injustice done to employee, customer or stakeholder. In case of ethical
dilemmas manager has to see to it that there is greater justice to greater number of people.

Eg.

1. In Fisher industry 50% of the catch is wasted and not used for consumption as food. One of the reason
is lack of technology. So is it ethical , no.
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Unit 2 Management of Ethics

4. BENEFICENCE
It is concerns human welfare, reducing the harms and optimizing the benefits of greater number of people.
Whatever action a manger makes whether it is benefiting organisation, employee and society at large.

Eg. The working condition is very harsh and the appropriate care is not taken of employee and more over not
compensated for such harsh condition then it is unethical.

5. CULTURAL DIVERSITY
Customers or employees or stakeholder come different cultural background having different moral standards.
And being organisation on has accept to the point that it is not affecting organisation’s process; it induce
pluralism, and there should be certain amount tolerance for these differences.

6. SOLIDARITY, EQUITY AND CO-OPERATION

Organisation believes that employee has to display feeling of solidarity (unit) accompanied with co-operation
there has to be equity. If organisation is treating employees with equity there will be no co-operation.

7. RESPONSIBILITY TOWARDS ENVIRONMENT

3. ETHICS FOR MANAGERS

Managers have the responsibility of doing ethical things from a business perspective and ensuring everything is
thought and executed in the best interest of all the stakeholders and the company in general. Following are
ethics for manager across various classes of managers:

A. ETHICS FOR MANAGERS AT ALL LEVELS AND FUNCTIONS

1. Honesty: Managers, when given the responsibility of leading a team, need to be truthful and honest in
their dealings. They are expected to provide correct statements and guide the team in the right
direction.
2. Integrity: Managers who are ethical usually demonstrate high levels of personal integrity. They tend to
follow their convictions and do what they feel is right even when they are tempted to do otherwise.
Managers who have high personal integrity are upright, honorable, and principled.
3. Loyalty: The role of ethics in management is immense. And this can be gauged from the fact that ethical
managers are loyal and never disclose any information they have gained from confidence for their
personal advantage. These managers usually demonstrate fidelity and remain worthy of trust. They also
remain loyal to their colleagues and companies, all through their contractual period.
4. Fairness: Managers who are fair do not exercise their power arbitrarily. They treat all individuals with
fairness and have high tolerance levels. These managers are generally open-minded and admit if they
are wrong and change their beliefs and positions when required.
5. Respect: Ethical managers tend to exhibit various qualities including autonomy, human dignity, and
interest in all those who have contributed to the success of the company, rights, and privacy. These
managers tend to be courteous and treat all employees with equal dignity and respect, irrespective of
their national origin, race, or sex.

B. ETHICS FOR LEADER

The ethical role of managers, or what the business ethicist Linda Treviño and her colleagues call ethical
leadership, is a combination of being a moral person and being a moral manager. Being a moral person
rests on a combination of key traits such as integrity, honesty, and trustworthiness. Integrity involves
not only forthrightness and honesty or truthfulness but also consideration for the soundness of the
whole entity that one manages as well as of the society in which the organization is located. Integrity
also means firm adherence to a code, such as an ethical code of conduct. Thus, being a moral person
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suggests that the individual has integrity and can be trusted.

Thus Ethics of Manager+ Personal Moral Principle = Ethics for leader.

C. ETHICS FOR MARKETING MANAGER

Marketing function comprise of sales, advertisement and promotion, after-sales services and market
research. Each of the function has unique ethical issues that has to be addressed by marketing manager
and organisation. Following are some actions that are considered to be unethical and should be avoided
by marketing manager.

 Not supplying the products made by the company as per the order
 Not accepting responsibility for the defective product
 Not giving details about the hidden costs, such as transportation cost, while making the contract with
the client
 Making false commitments to the customers about the benefits of the product
 Giving wrong prices to the customers during advertising
 Using outmoded service equipment which can be harmful for the
 Overbilling the service charges, when the customer is not aware of the actual rates
 A biased research report is prepared to suit the marketing manager.

D. ETHICS FOR HR MANAGER

HR manager have to perform several functions viz. recruitment, trining, administration, IR, OD, HRD,
etc. there are several ethical issues concerning HR. being an ethical HR manager one should avoid
following actions or activities:

 Recruitment on the basis of financial favours

 Recruitment of the relatives of other employees
 Recruitment of less acceptable men when there are better suited women available for the job.
 Employing children below fourteen years for the job
 Giving less than minimum wages fixed by the government
 Arranging training only for favourite employees, whether they deserve it or not
 Experimenting with trainees by asking them to set their own timetable for Training
 Tampering leave records of the employees
 Giving leaves continuously to favourite employees

E. ETHICS FOR FINANCIAL MANAGER

Finance manager have to perform several functions viz. accounts, costing, finance, audit, etc. there are
several ethical issues concerning Financial manager. Being an ethical Finance manager, one should
avoid following actions or activities:

 Overestimating promoters’ capital utilization

 Overbudgeting project costs
 Showing inflated salaries and getting receipts from employees for an amount larger than what they
actually get
 Playing inflated vendor bills in order to get discounts or commissions
 Ignoring major deviations from the budgets
 Rejecting the tender having lowest cost among all due to personal
 reasons
 Helping in hiding black money in order to reduce the tax payable amount

F. ETHICS FOR PRODUCTION MANAGER

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Production manager has to perform several function viz. production planning, material handling,
purchase, quality control, etc. being ethical production manager one has to avoid following activities:

 Taking commission from vendor.

 Giving purchase order to firm friend or relative.
 Undue wastage or conscious wastage of material and other resources.
 Adulteration in product.
 Untreated soild and liquid effluents are discharged in environment that leads to environmental
pollution.

4. ROLE AND FUNCTION OF ETHICAL MANAGERS

Managers in both large and small enterprises face difficult ethical situations daily as they attempt to do their
jobs.
Since management decisions inherently involve ethical considerations, however, it is important that managers
recognize the ethical elements that are embedded in their day-to-day job functions.

They need to be able to reason through ethical decisions, just as they would reason through any managerial
problem facing them.

Many times, ethics- laden situations involve issues that are clearly right or wrong when judged by the managers
or organization’s values or code of conduct.

Sometimes Ethical decision-making problems arise for managers and leaders when decisions involve amoral
conflict—that is,

 a moral situation in which a person must choose between at least two equally bad choices, or
 when there are multiple ethical considerations, some of which conflict with each other.

In such circumstances, the manager has to make the best possible decision based on implications, and ethical
considerations. If the decision itself cannot be reframed as a situation in which all parties can benefit—that is, a
win-win situation—then the manager needs a decision-making framework to help.

To help this kind of decision-making role and function of ethical manager comes handy.

According to Gerald Cavanagh and his colleagues role of ethical manager is to make ethical decision. And to
make ethical decision there is a stipulated decision-making framework. This framework includes following
aspects thathelp manger to take ethical decisions

1. DUTIES ( DEONTOLOGICAL APPROACH)

From chapter 1 notes

2. RIGHTS
From chapter 1 notes

3. UTILITARIANISM (TELEOLOGICAL APPROACH)

From chapter 1 notes

4. JUSTICE
From chapter 1 notes

5. ETHICS OF CARE
In addition to assessing a moral conflict from the perspective discussed above, ethical managers and
leaders also need to look at the impact of a decision on the network of relationships that will be
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affected. This perspective is called the ethic of care. Based on feminist writings, the ethic of care
proposes that one's moral responsibilities vary according to how closely one is linked to other people.
That is, if a person is very close to another person, say, a family member, there will be more moral
responsibility for ensuring the well-being of the family member than the well-being of an unrelated
person. In an organizational context, using an ethic of care, more consideration might be given to the
impact of a decision on long-term employees, who are more tightly connected to the organization and
its goals, than to its impact on newly hired employees

5. THE ORGANISATIONAL SIZE

An organization's structure is important to the study of business ethics. In a Centralized organization, decision-
making authority is concentrated in the hands of top- level managers, and little authority is delegated to lower
levels. Responsibility, both internal and external, rests with top management. This structure is especially suited
for organizations that make high-risk decisions and whose lower- level managers are not highly skilled in decision
making. It is also suitable for organizations in which production processes are routine and efficiency is of primary
importance.

These organizations are usually extremely bureaucratic (managing through elaborate rules, policies and
stipulated procedures) , and the division of labour(high specialization) is typically very well defined. Each worker
knows his or her job and what is specifically expected, and each has a clear understanding of how to carry out
assigned tasks. Centralized organizations stress formal rules, policies, and procedures, backed up with elaborate
control systems. Their codes of ethics may specify the techniques to be used for decision making.

Because of their top-down approach and the distance between employee and decision maker, centralized
organizational structures can lead to unethical acts.

If the centralized organization is very bureaucratic, some employees may behave according to "the letter of the
law" rather than the spirit of the law.

In a decentralized organization, decision-making authority is delegated as far down the chain of command as
possible. Such organizations have relatively few formal rules, and coordination and control are usually informal
and personal. They focus instead on increasing the flow of information. As a result, one of the main strengths of
decentralized organizations is their adaptability and early recognition of external change. With greater flexibility,
managers can react quickly to changes in their ethical environment. Weakness of decentralized organizations is
the difficulty they have in responding quickly to changes in policy and procedures established by top
management. In addition, independent profit centers within a decentralized organization may deviate from
organizational objectives. As they have authority to make decision they may exercise it unethically. Such
structure also promotes unethical behavior among organizational members because there are independent
profit centers which make their own decisions and sometimes these units deviate from organizational objectives
and serve their individual interests. Decentralized structures run on employee empowerment but if the
employees misinterpret their power; this may lead to immoral acts by employees. There are also chances that
middle-level managers when get pressure from the top may exert unnecessary pressure on lower level
employees and this may again lead to unethical behavior in the organization.

Thus both centralized or decentralized structures have scope of unethical activity however the nature of
operations of unethical activities differ and so as the management of ethics differs with difference in structure.

For managing ethics there are several measures that an organisation can take raging from legality to
compassionate behavior. All the bellow mentioned aspects are important for both centralized and decentralized
organisation. However, certain aspects are more important for centralized organisation rather than
decentralized organisation, vice versa, and they are as under:

Centralized Decentralized
Maximum Legality Maximum Rationality
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Maximum responsibility Maximum accountability
Maximum Work Commitment Maximum engagement
Maximizing responsiveness Maximum Resilience
Maximum Deontological approach Maximum Teleological approach
Maximum Transparency Maximum Integrity
Maximum loyalty Maximum Compassion

6. PROFITABILITY AND ETHICS

The words mentioned in this topic fall as some of the important terms to be understood while working on any
business strategies. While profit is something that can be measured in monetary terms (quantitative) while,
ethics is measured subjectively or by the actions taken. But the relationship of these terms is something which
has raised a controversy in the minds of people.

Ultimately, both of these terms end up resulting in one point viz., Reputation. It is considered to be one of the
most prominent factors to measure an organization’s corporate success. Many companies end up performing
some unethical tasks which show them at good numbers on the ‘success ladder’. But this success is temporary
and leads to the creation of controversies.

PROFIT OVER ETHICS:

Profit is one of the missions for any business. Profits are needed to pay back investors as well as give salaries to
employees. That should not lead to unethical practices. Profits can be earned along with practicing ethically.

There have been many scenarios where unethical practices have caused the organization to go into serious
controversies. Some of the examples are given below:

 Maggi instant noodles ban in the year 2015: Occurred due to excessive quantities of Mono Sodium
Glutamate aka MSG, despite writing “No MSG” on the packet.

 Volkswagen scenario in 2016: It was noticed that the car company was cheating on the emission tests
for more than seven years after it failed a Federal Trade Commission (FTC) test

 Nirav Modi and Geetanjali jewels: The jewelry giants which had created a huge buzz nationally as well
as globally due to unethical practices done by their owners in Punjab National Bank. This scam also gave
a bad mark on PNB’s reputation.

So, overall, before these scams came into a scenario, these companies were having a successful path and were
earning huge profits. Still unethical practices in marketing prevail to earn more profits in this market.

ETHICS OVER PROFITS:

An investor will look at the financial performance of a company, whereas the customer will look at the reputation
of the company before purchasing. Sometimes, customers also look at the social cause of the company. It is
necessary to maintain a reputation in the market to grow.

Having ethical practices in our business can offer you good employees, customers who come to you because of
the ethical practices as well as good productivity in the long run. Ethical practices can create a holistic
environment to work.
Many organizations like Tata, Starbucks, Wipro, Walmart, are known for their ethical practices all over the world.
These companies have good profits but are ethical. They are successful because they have developed a balance
between ethics and profits.

BALANCED APPROACH
Consider this balance between profits and ethics to be "ethical profitability." Well-balanced companies not only
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consistently reward owners, investors and employees with profitable performance, they also genuinely focus on
these five key areas of ethics:

1. LEADERSHIP BY EXAMPLE
The organisations having balanced approach often leads by example. The top management especially
the founding members of the organisation exercise high level of ethical standards. They act as role
model for others employees. Company owners, executives and managers sets the highest examples of
attitude and ethical conduct for their employees. "Do what I say, not what I do," is a parental
anachronism with no value in management.

2. COMPANY-WIDE ETHICAL AWARENESS

The organisations having balanced approach invest lot of time, energy and efforts in generating
awareness towards ethical principles and benefits of ethical behavior to not only the employees but
also to other stakeholders.

3. STRONG MANAGEMENT OF REVENUE GENERATION AND REPORTING

Maximum unethical practices occurs where there are chances of financial gain i.e. at revenue
generation centers. Organisations having balanced approach exercises strong managerial controls on
revenue generation centers so as to put check on any possibility of unethical practices. Corporate
temptation to stretch ethical behavior in revenue generation and reporting is universal.

4. HIGH LEVEL OF INTERNAL TRUST

The level of trust within a company should reflect the level of trust the company solicits from
customers. Balanced approach organisation encourages customers to put their complete trust in the
product or service. this is possible when organisation and employees trust one another. These type of
organisation invest in behavioural training that leads to increased trust among employees. teams must
do the same with each other. Management must guide this internal process. An increase in trust is a
reduction in risk and uncertainty, which in turn will keep the revenue generation process flowing
smoothly. Another advantage of running a high-trust organization is improved internal flexibility and
creativity. Instead of being constantly monitored, the person to whom a task is assigned can accomplish
it the best way possible. The outcome is never in doubt because of the trust the team shares.

5. FORMAL AND ACTIVE COMPLIANCE PROGRAM

Ethical profitability (balanced approach) organisation always tries to operating within the boundaries
of the law. Legal compliance limits unethical behavior, but it does not define ethical behavior. An
organizational ethics doctrine does have legal benefits. Properly written, published and disseminated
ethical codes will reduce corporate risk if an employee creates a criminal or civil problem because of
poor ethical behavior. (Even federal sentencing guidelines recommend lower fines if such violations
occur contrary to the existence and enforcement of compliance codes.)

6. COST OF ETHICS IN CORPORATE

Operating in an ethical way may incur additional costs to a business when compared with other organisation
and companies who may not do business in the same way.

Additional cost an ethical company has bear in comparison to unethical company.

1. Direct Cost:
a. Higher raw material cost:
i. ethical organisation would not prefer adulterated raw material.
ii. Will give preference to renewable material.
iii. Organic material.
iv. Like purchase from ethical vendor.
b. Human resource Cost:
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i. Labour cost per unit will be higher.
ii. Labour welfare cost will be higher.
iii. Labour safety and security cost will be higher.
c. Effluent treatment cost
d. Marketing Cost
i. Rejected product cost
ii. Better quality cost
e. R&D Cost
2. Indirect cost:
a. Tax evasion
b. CSR activity
c. Audit rigorous audit and will higher ethical auditors.
d. Legalities compliance cost
e. Ethical marketing
f. Ethical R&D
g. Transparency Cost eg. in Australia the origin of the product has to mentioned on the packet

CASE STUDY OF PRIMARK: COST OF ETHICS

For example, Primark bears the cost of carrying out all audits. Then there are its costs associated with working
with ethical partners.

Cost-benefit analysis (CBA) involves the practical application of modern welfare economics to public policy. It
aims to account for the positive and negative consequences (benefits and costs) of economic activities by
converting them into monetary flow to determine which activity yields the greatest gain for society.

The focus is on cost-benefit analysis as applied to environmental, safety, and health regulation. Issues that limit
with pricing decisions

o Unfair trade practices ▪ Laws that prohibit wholesalers and retailers from selling below cost.

o Price Fixing ▪ Price Fixing An agreement between business competitors to sell the same product or service at
the same price.

o Price Discrimination ▪ A seller price discriminates when it charges different prices to different buyers. The
Legality and Ethics of Price Strategy

Transparency in business:
Transparency is an important part of this process. Transparency means the business is open to people seeing
how it manages its relationships with suppliers. In turn, supplier’s practices also need to be transparent. The
alternative would be for an organization to ignore ethical behaviour. However, this would rapidly lead to a
decline in brand reputation and consumers could move to purchasing from competing retailers behaving more
ethically. Operating in the 'right way' is therefore not just appropriate for ethical reasons, but is also good
business practice.

7. ETHICS EVALUATION
Ethical — Evaluation should not reflect personal or sectoral interests. Evaluators must have professional
integrity, respect the rights of institutions and individuals to provide information in confidence, and be sensitive
to the beliefs and customs of local social and cultural environments. When considering an ethical issues it is
advised that you follow a stepwise approach in your decision-making process

 Recognize there is an issue Identify the problem

 who is involved Consider the relevant facts, laws and principles
 Analyze and determine possible courses of action
 Implement the solution
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 Evaluate and follow up

8. BUSINESS AND ECOLOGICAL/ ENVIRONMENTAL ISSUES IN THE INDIAN CONTEXT AND

There are many environmental issues in India.

Air pollution, water pollution, garbage domestically prohibited goods and pollution of the natural environment
are all challenges for India.

Nature is also causing some drastic effects on India. The situation was worse between 1947 through 1995.
According to data collection and environment assessment studies of World Bank experts, between 1995 through
2010, India has made some of the fastest progress in addressing its environmental issues and improving its
environmental quality in the world. Still, India has a long way to go to reach environmental quality similar to
those enjoyed in developed economies. Pollution remains a major challenge and opportunity for India.
Environmental issues are one of the primary causes of disease, health issues and long term livelihood impact for
India. Major environmental issues are forests and agricultural degradation of land, resource depletion (such as
water, mineral, forest, sand, and rocks), environmental degradation, public health, loss of biodiversity, loss of
resilience in ecosystems, livelihood security for the poor.

The major sources of pollution in India include

the rapid burning of fuelwood and biomass such as dried waste from livestock as the primary source of energy,
lack of organised garbage and waste removal services, lack of sewage treatment operations, lack of flood control
and monsoon water drainage system, diversion of consumer waste into rivers, cremation practices near major
rivers, government mandated protection of highly polluting old public transport, and continued operation by
Indian government of government-owned, high emission plants built between 1950 and 1980.

The environmental issues can be classified into

1. Air pollution
2. Water pollution
3. Land Pollution and
4. Noise pollution

Air pollution, poor management of waste, growing water scarcity, falling groundwater tables, water pollution,
preservation and quality of forests, biodiversity loss, and land/soil degradation are some of the major
environmental issues India faces today.

India's population growth adds pressure to environmental issues and its resources. Rapid urbanization has
caused a buildup of heavy metals in the soil of the city of Ghaziabad, and these metals are being ingested through
contaminated vegetables. Heavy metals are hazardous to people's health and are known carcinogens.

• Acidification (includes algal bloom, coral reef loss, etc.)

• Air quality (air pollution, ozone pollution, ties to human health with asthma, diesel emissions, etc.)

• Biodiversity (conservation of biological diversity)

• Climate change (encompasses "global warming", greenhouse effect, loss of glaciers, climate refugees, climate
justice, equity, etc)

• Conservation (nature and animal conservation, etc.)

• Consumerism (linking the state of consumers within the economy to environmental degradation and social
malaise, planned obsolescence)

• Deforestation (illegal logging, impact of fires, rapid pace of destruction, etc.)

• Desertification
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• Eco-tourism

• Endangered species / threatened species (CITES, loss of species, impact of chemical use on species, cultural
use, species extinction, invasive species, etc.)

• Energy (use, conservation, extraction of resources to create energy, efficient use, renewable energy, etc.)

• Environmental degradation

• Environmental health (poor environmental quality causing poor health in human beings, bioaccumulation,
poisoning)

• Environmental impact assessment (one major current form of assessing human impact on the environment)

• Food safety (including food justice, impacts of additives, etc.)

• Genetic engineering or modification (includes GMOs)

• Global environmental issues (in recognition that environmental issues cross borders)

• Global Warming

• Habitat loss (destruction, fragmentation, changed use)

• Intergenerational equity (recognition that future generations deserve a healthy environment)

• Intensive farming

• Invasive species (weeds, pests, feral animals, etc.)

• Land degradation

• Land use planning / Land use (includes urban sprawl)

• Natural catastrophes (linked to climate change, desertification, deforestation, loss of natural resources such
as wetlands, etc.)

• Nuclear power, waste and pollution

• Over-exploitation of natural resources (plant and animal stocks, mineral resources (mining), etc.)

• Overfishing (depletion of ocean fish stocks)

• Ozone depletion (CFCs, Montreal Protocol)

• Pollution (air, water, land, toxins, light, point source and non-point source, use of coal/gas/etc., reclaimed land
issues)

• Population issues (overpopulation, access to reproductive control (reproductive health), etc.)

• Reduce, reuse, recycle (and refuse) (ways to reduce impact, minimise footprint, etc.)

• Soil conservation (includes soil erosion, contamination and salination of land, especially fertile land; see also
desertification and deforestation)

Toxic chemicals (persistent organic pollutants, prior informed consent, pesticides, endocrine disruptors, etc.) •

Waste (landfills, recycling, incineration, various types of waste produced from human endeavors, etc.)

• Water pollution (fresh water and ocean pollution, Great Pacific Garbage Patch, river and lake pollution,
riparian issues)
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• Water scarcity

SOME OTHER ENVIORNMENTAL ISSUES

➢ Bio diversity : The number of living things in an environment  More bio diversity leads to stronger ecosystem.
When biodiversity is not preserved, animals become threatened, endangered or extinct.

Solution to protect biodiversity is to pass laws which can protect species and endangered species

➢ Over population: The current population in India as on 2020 is 13.80 crores approximately. Larger population
leads to more scarcity of resources .

Solution to avoid overpopulation and Education Fight against poverty

➢ Acid Rain : Acid rain, or acid deposition, is a broad term that includes any form of precipitation with acidic
components, such as sulfuric or nitric acid that fall to the ground from the atmosphere in wet or dry forms. This
can include rain, snow, fog, hail or even dust that is acidic.

Issues in acid rain: Acid rain destroys crops and plant life. It can affect drinking water. Acid breakdown carbonate
on tombstones and statues.

Solution : Burn less sulfur coal, Develop alternative energies

8. CASE STUDY –

ENVIRONMENTAL ISSUES VISAKHAPATNAM GAS LEAK CASE STUDY

A gas leak has affected five villages in Visakhapatnam in Andhra Pradesh.

▪ The source of the gas leak was a styrene plant owned by South Korean electronics giant LG located in the area.
▪ The possible reason for gas leak is stagnation and changes in temperature inside the storage tank that could
have resulted in auto polymerization (chemical reaction) and vapourisation of the styrene. Styrene o

Description: Styrene is an organic compound with the formula C8H8. o It is a derivative of benzene (C6H6). o It
is stored in factories as a liquid, but evaporates easily, and has to be kept at temperatures under 20°C.

Sources: Styrene is found in vehicle exhaust, cigarette smoke, and in natural foods like fruits and vegetables. o
Uses: It is a flammable liquid that is used in the manufacturing of polystyrene plastics, fiberglass, rubber, and
latex.

Risk of Exposure:

 Short Term Exposure: It can result in respiratory problems, irritation in the eyes, irritation in the mucous
membrane, and gastrointestinal issues.
 Long-Term Exposure: It could drastically affect the central nervous system and lead to other related
problems like peripheral neuropathy. It could also lead to cancer and depression in some cases.

State of Chemical Disaster Risk in India

According to the National Disaster Management Authority (NDMA), in the recent past, over 130 significant
chemical accidents have been reported in the country. ▪ Further, there are thousands of registered hazardous
factories and unorganised sectors dealing with numerous ranges of hazardous material posing serious and
complex levels of disaster risks. o There are over 1861 Major Accident Hazard (MAH) units spread across 301
districts and 25 states and three Union Territories in all zones of the country.

The Major Accident is defined as an incident involving loss of life inside or outside the site or ten or more injuries.
Further it also involves the release of toxic chemical or explosion or fire of spillage of hazardous chemical
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resulting in ‘on-site’ or ‘off-site’ emergencies leading to adverse effects to the environment.

Laws to Protect Against Chemical Disasters in India

o Laws Before and During Bhopal Gas Tragedy (1984):At the time of the Bhopal gas tragedy, the Indian Penal
Code (IPC) was the only relevant law specifying criminal liability for such incidents.

o Laws After Bhopal Gas Tragedy (1984):Bhopal Gas Leak (Processing of Claims) Act, 1985 : It gives powers to
the central government to secure the claims arising out of or connected with the Bhopal gas tragedy.Under the
provisions of this Act, such claims are dealt with speedily and equitably

o The Environment Protection Act, 1986: It gives powers to the central government to undertake measures for
improving the environment and set standards and inspect industrial units.

o The Public Liability Insurance Act, 1991: It is an insurance meant to provide relief to persons affected by
accidents that occur while handling hazardous substances.

o The National Environment Appellate Authority Act, 1997: Under this Act, the National Environment Appellate
Authority can hear appeals regarding the restriction of areas in which any industries, operations or processes or
class of industries shall not be carried out or shall be carried out subject to certain safeguards under
the Environment (Protection) Act, 1986.

• National Green Tribunal, 2010: It provided for the establishment of the National Green Tribunal for effective
and expeditious disposal of cases related to environmental protection and conservation of forests.

• According to PRS legislative, any incident similar to the Bhopal gas tragedy will be tried in the National Green
Tribunal and most likely under the provisions of the Environment (Protection) Act, 1986.

• If an offence is committed by a company then every person directly in charge and responsible will be deemed
guilty, unless he proves that the offence was committed without his knowledge or that he had exercised all due
diligence to prevent the commission of such an offence.

Action:

LG Polymers has been booked under several sections of the Indian Penal Code:

 Negligence
 Causing hurt and
 Endangering the life of others
 Culpable homicide not amounting to murder.

Suo-Motu cognizance of the case:

 The Andhra Pradesh High Court

 The National Human Rights Commission (NHRC)
 The National Green Tribunal (NGT)

All three have taken Suo-motu cognizance of the case. The NGT has constituted a special committee to inquire
into the matter in addition to imposing a penalty of Rs 50 crore (Rs 500 million) on LG Polymers.The National
Green Tribunal (NGT) applied the principle of “Strict Liability” instead of “Absolute liability” which would have
been more appropriate, we can check it out here by distinguishing both two.
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Conclusion

The centre may decide to act as a representative of the victims especially in the LG polymers gas tragedy as done
in the Bhopal gas tragedy, such as Union Carbide, which is owned by the foreign firm, as compensation and
prosecution logistics are more difficult for foreign companies. The concept of Absolute liability which, in addition
to public liability insurance, is also implemented into the regulatory system would mean that a substantial
amount of money would have to be paid to the victims. Exemplary damage beyond and beyond costs may occur
when LG polymers violate the Environmental Protection Act 1986 and the Manufacture, Import, storage of
Hazardous Chemical Rules, 1989. LG Polymers controversy is no stranger. A reactor blast shook the surrounding
villages in the year 2000, fueling their anxiety. People ran away, and there were no lives lost. One such attempt
is the Cartagena Protocol to hold operators accountable for damage from the forthcoming threat as well as from
real threats arising from the use of new technology. In 2017, villagers made representation through Rajya Sabha
MP Subbarami Reddy, after repeated complaints to the Andhra Pradesh Pollution Control Board failed to
provoke any reaction. “Predictably the PCB arrived, inspected, and gave LG (Polymers) a clean chit.” Coming as
it does at a time when labour and environmental laws are being diluted for the convenience of doing business,
the Vizag disaster should teach us that more democracy, more public participation, and more security for
workers are the only way to make businesses truant.

Bhopal should have been the driving force behind this counter-globalization, and Vizag is shameful in building
collective guilt. If we fail to learn our lessons from the never-ending misery of Bhopal.Case Studies