PROGRAMME: S.Y.B.M.S.

SEMESTER – IV,
UNIT - II
COURSE: FOUNDATION COURSE- IV
[ETHICS AND GOVERNANCE]
SIGNIFICANCE OF MARKETING ETHICS
 ETHICAL ISSUES IN MARKETING MIX
• 1) Ethical Issues in Market Research: Apossible threat to consumer’s
right to privacy. There can be a systematic collection/ analysis of
consumer data (prospective/ existing) leading to possible threat to
privacy. Consumer’s Personal Information can be sold/ compromised.
• 2) Product Policy Issues: MNC’s dump their products in third world
countries (even though they are banned in the host country eg.
Pharmaceuticals). Logic is: how can a drug can be declared harmful in
one country but allowed to be sold in another. Eg. Deceptive/ misleading
labels is a concern.
• 3) Targeting Vulnerable Customers: Some consumers cannot take
informed decisions owing to their age, experience, level of education,
access to information, medical issues etc. Ex. Pharma companies charge
excessive price for their life saving medications.
• ASCI (self regulatory body) invites complaints from public and has a
code of conduct which advertisers have to allow or face ban.
 ETHICAL ISSUES IN MARKETING MIX
• 4) Predatory Pricing and Price Fixing: Predatory pricing (lower entry level
prices) adopted by MNC’s to wipe out competition is an ethical issue as it
affects the population employed in the small/ medium sector.
The Western Discount Stores also threaten the existence of the millions
employed in the traditional mom & pop stores.
• 5) Perpetuating Undesirable Social Stereotypes: Marketers exploit the social
paradigms which are typical to a Nation. Ex. In India there is a Social Premium
on fair skin. Ex. Women being exhibited as objects of desire/ beauty.
Ex. Minorities being excluded from the picture of normal life.
 ETHICAL ISSUES IN MARKETING MIX
• 6) Surrogate Advertising: Alcohol and cigarette ads using the medium of
surrogate advertising to push their products. This is unethical as the brand
names and logos remain unchanged.
• 7) Inserting Subliminal Messages: in advertisements is a misleading action as
it amounts to manipulating a person’s thinking without the person even
realising it
• 8) False and Misleading Advertising: Ex. Comparing and running down the
competitor’s products or, citing the opinion of experts. Misleading ads are
unethical, and they’re illegal, too. Marketers should make accurate statements
in their advertising campaigns, back claims with scientific evidence.
 ETHICAL ISSUES INVOLVED IN MARKETING

1.Privacy: Organizations today collect, store and process information relating to

customers to be used for targeted advertising. In such cases the concerns for
privacy require an effort for informing the customers and acquiring their consent.
2.Stereotyping: Marketing campaigns based on generalized studies or common
perceptions about behavior and values of certain demographic groups raise
important ethical issues.
3.Objectivity: The concern for objectivity is a vital issue in marketing. The lack of
objective research on part of the market researcher may legitimize profiting from
poverty, cultural stereotypes and racial tensions.
4.Vulnerable Targeting: Targeting an audience such as children involves ethical
consideration. Children have always been an important marketing target for
certain kinds of products.
5.Unethical Market Exclusion: The absence of minority groups in marketing in a
multi-ethnic society can create image and identity problems among those that are
excluded. For instance the adverse industry attitudes to the homosexual,
transgender and ethnic minority.
 ETHICAL ISSUES INVOLVED IN MARKETING:
1.UnintendedAdvertising Channels: Direct marketing is the most controversial
of advertising channels, particularly when approaches are unsolicited.
2.MisleadingAdvertising: Many advertising are misleading. For example,
misleading the public by showing turning a black face into white by using
fairness creams which may have side effects but are not communicated
accordingly.
3.Negative Advertising Techniques: The advertiser highlights the disadvantages
of competitor’s products rather than the advantages of their own.
4.Anti-Competitive Practices: For instance, Predatory pricing which is practice
of selling a product or service at a very low price, intending to drive
competitors out of the market, or create barriers to entry for potential new
competitors.
5.Use of BrandAmbassadors: Ambassadors endorsing products they don’t use
or whose authenticity they don’t cross check, making profits out of public’s
reverence of a person, high cost of celebrity eventually extracted from public,
puts newer and smaller brands at a disadvantage hurting fair competition
 UNETHICAL MARKETING PRACTICES IN INDIA
• 1) Distortion of Facts leading to Confuse Customers/ Mislead them : A typical
example is when a food processing company claims that its products are sugar-
free or calorie-free when indeed they contain sugar or calories.
• 2) Exploiting the Vulnerable to Manipulate them Emotionally
• 3) Making False, exaggerated Claims : In a desperate bid to compel potential
and existing customers to buy their products or services, some marketers use
false statements, exaggerated benefits, or make unverifiable claims about their
offers.
• 4) Greed to make Excessive Profits
• 5) Falsification of Documents to show Increased Profits
• 6)Avoiding Penalty or Compensation for UnlawfulActs
 UNETHICALMARKETING PRACTICES IN INDIA

• 7) Lack of Transparency: Withholding relevant Information from

customers which can influence their buying decision is unethical.
• 8) Harming the Environment: Producing Goods that Flout
Environmental Norms
• 9) Invasion of Privacy used as a Leverage for Obtaining Personal/
Professional Gains.
• 10) Using Women to attract and influence Customers for products
that are completely not related with women is unethical
• 11) Stereotyping: Portraying an ideal body, weight/ physical
appearance can lead to low self-esteem issues among the
impressionable customers. Ex. Casting in Stereotypical Roles like
washing powder advertisements showing housewives dealing with
daily laundry.
 UNETHICAL MARKETING PRACTICES IN INDIA
12) Concealing dark sides or side effects of products or services:
13)Bad-mouthing rival products: Emphasizing the dark sides of your
rival’s products in a bid to turn potential customers towards your own
products is another common but unethical marketing practice.
14) Using fear tactics: “This price is a limited-time offer. If you don’t
buy now, you might have to pay much more to buy it later because the
offer will end up in two days time, and the price will go up.” The only
motive behind those statements is to prompt the potential buyer to make
a decision on the spot.And that’s wrong. Why subject someone to undue
pressure because you want to make money off him?
15) Plagiarism of marketing messages
16) Exploitation
17) Demeaning references to races, age, sex, or religion
 EXAMPLES OF UNETHICALMARKETING PRACTICES SEEN
IN INDIA
• 1) Duplicate Goods
• 2) Gender Determination and Female Foeticide
• 3) Prescribing Expensive Medicines to Patients
• 4) Ethics and Health Care
• 5) CD/ DVD Piracy Market
• 6) Child Labour
• 7) FoodAdulteration
ETHICALDILEMMAS IN MARKETING:
1: How Far Can You Go in Stealth Marketing?
Scenario: An actor hired by a particular company poses as an ordinary Joe and strikes up a
conversation with a potential consumer to praise the company’s product or service. Is this fair?
Ethical Dilemma 2: Can You Sell Customer Information?
Scenario: When customers shop your online store, they leave an electronic trail that provides
lots of information -- from their name and address to the types of goods that interest them
when they search the site.Apartner company would like to buy the data from you. Should you
make the sale? Do you even have the right to use that information in house?
Ethical Dilemma 3: Should You Recall a Flawed Product?
Scenario: You discover a flaw in one of your products, but telling the public might affect sales.
What should you do?
Ethical Dilemma 4: What’sAppropriate in Comparison Marketing?
Scenario: You’d like to put out an ad for your client that compares his product to the
competition. How far can you go?
 ADVERTISING
• American MarketingAssociation defines advertising as:
“Any paid form of non-personal presentation and promotion
of ideas, goods, and services by an identified sponsor”.

•Derived from the Latin Word ADVERTERE –

“TO TURN THE MIND TOWARD”.
Advertising contributes to have both negative & positive influence on
society. It is criticized for encouraging materialism, manipulating
consumer to buy things they do not need; stereotyping, fraudulent etc.
 Impact ofAdvertising on Children:

• Advertising has adverse impact on children as given below:

• (a) Children are more susceptible to deception because they lack
the conceptual defense of adults.
• (b) They are unable to assess the advantages and disadvantages of
advertising.
• (c) Children enjoy seeing commercial advertisements. They are
easily attracted towards using food products which are playfully
advertised.
• (d) Children recall the commercial messages and slogans and ask
for the products when they go for shopping with parents.
• (e)Advertisements showing violence, anxiety, sex, fever, etc.
creates emotional disturbances in children.
 Guidelines for Advertising to Children:
• 1. Young children have limited ability for evaluating the merits of the
advertisements. Therefore, advertisers should protect children from
adverse messages.
• 2. The advertiser should not exploit the curiosity and imaginative quality of
children. They should not make tall claims that may lead to unreasonable
expectations of product performance.
• 3. Information should be communicated in a truthful and accurate manner
for the benefit of the children.
• 4. The advertisement message could focus on friendship, kindness, honesty
and respect for elders to influence social behaviour of children.
Advertisement could communicate positive relationship between children
and parents.
 Advertising Standards Council of India (ASCI):
Registered in Oct. 1985, u/s 25, as a Not-For-Profit Co., under the CompaniesAct 1956

• The main objects to be pursued by the Company on its incorporation are:

• 1. To monitor, administer and promote standards of advertising practices in
India with a view to-
• i. Ensuring the truthfulness and honesty of representations and claims made
through advertising and safeguarding against misleading advertising;
• ii. Ensuring that advertising is not offensive to generally accepted norms and
standards of public decency;
• iii. Safeguarding against the indiscriminate use of advertising for the promotion
of products or services which are generally regarded as hazardous to society or
to individuals or which are unacceptable to society as a whole;
• iv. Ensuring that advertisements observe fairness in competition and the canons
of generally accepted competitive behaviour.
 ASCI
• 2. To codify, adopt and from time to time modify the code of advertising
practices in India and implement, administer and promote and publicise such a
code;
• 3. To provide facilities and machinery in the form of one or more Consumer
Complaints Councils having such composition and with such powers as may
be prescribed from time to time to examine complaints against advertisements
in terms of the Code ofAdvertising practices and report thereon;
• 4. To give wide publicity to the Code and seek adherence to it of as many as
possible of those engaged in advertising;
• 5. To print and publish pamphlets, leaflets, circulars or other literature or
material, that may be considered desirable for the promotion of or carrying out
of the objects of the Company and disseminate it through any medium of
communication.
 ETHICAL ISSUES IN ADVERTISING
• Advertising is a highly visible business activity and any lapse in
ethical standards can often be risky for the company.
• Some of the common examples of ethical issues in advertising are
given below:
• Vulgarity / Obscenity used to gain consumers’attention
• Misleading information and deception
• Puffery
• Stereotypes
• Racial issues
• Controversial products (e.g. alcohol, gambling, tobacco etc)
 IMPORTANCE OF ETHICS INADVERTISING
• 1)AllAdvertisements should be legal, decent, honest &
truthful and not mislead any prospective customers.
• 2) NoAdvertisement should impair public confidence in
advertising
• 3)Advertisements should not offend prevailing standards of
decency or harm any religion, caste, creed or culture
• 4)Advertisements should be made in a socially responsible
way according to fair competition
• 5)Advertisements should not promote any unlawful behaviour
 Ethical Issues inAdvertising
• Advertising is a highly visible business activity and any lapse in ethical standards
can often be risky for the company. Some Issues are:
• 1. PUFFERY/ FRAUDULATION: Very often we hear that advertisement
exaggerates about the product qualities. Now a days ‘puffery’ i.e. “metaphor of
idea” forms to be main element in advertising. On the one hand critics accuse it,
while on the other defenders i.e. advertisers and advertising professionals opined
it as a helping agent to differentiate their brands from the competitors. Puffery is
considered to be an ‘opinion’and not a ‘factual information’.
• Advertisers claim that the consumers are intelligent enough to distinguish
between truth and exaggeration. Moreover they are not blindly going to believe
everything as such presented in an advertisement.
• Puffery does not intend to deceive.
• Eg: Stating you make a better pizza is puffery. Saying two out of three people
prefer your pizza when you have no studies to substantiate the claim crosses the
line to deception.
 Ethical Issues in Advertising
• 2. UNTRUTHFUL OR DECEPTIVE:
• Deceptiveness is defined as not only as false and misleading statements
but also as false impressions conveyed, whether intentional or not.
• Advertisement should be informative and should be use puffery or
embellished messages.
• The following acts are considered unfair or deceptive practices : a) False
promises b) Incomplete Descriptive c) Misleading Comparisons d) Bait
and Switch Offers e) Visual Distortions f) False Testimonials g) False
Comparisons h) Partial Disclosures i) Small – Print Qualifications j)
LaboratoryApplication
• 3. Surrogate Advertising- Surrogate advertising is used to promote
banned products, like cigarettes and alcohol, through another products
carrying the same brand name.
 SURROGATE ADVERTISING
• Promote banned products, like cigarettes and alcohol, in the disguise of
another product.
• • Surrogate advertisements are used to promote and advertise products
of brands when the original product cannot be advertised on mass
media.
• • The surrogate or substitute could either resemble the original product
or could be a different product altogether but it is marketed under the
established brand name of the original product.
• • Bagpiper Soda, Cassettes and CDs, Royal Challenge GolfAccessories
and Mineral Water, Imperial Blue Cassettes and CDs etc.
 Ethical Issues in Advertising
• 4. OFFENSIVE OR IN BAD TASTE: The type of appeal or the manner of
presentation often irritates consumer.
• 5. CREATES MATERIALISTIC DEMAND : Advertising provides a
variety of alternatives to choose. Advertising creates derives and fantasies
for the consumers. Some people crave for material possessions and others
for cultural and spiritual enhancement. HereAdvertisers at the both end of
the spectrum.
• 6. Subliminal messages in advertising are designed to engage people
subconsciously. These ads use various colors, shapes, and words that
enable customers to make small but powerful associations between a brand
and an intended meaning.
 Ethical Issues in Advertising
• 7. COMPARATIVEADVERTISING :
 Ethical Issues in Advertising
• 8. Stereotype :
• Advertising is often criticized of creating & perpetuating stereotypes
through portrayal of women, ethnic minorities & other groups. It involves
presenting a group of people in a pattern or manner that lacks individuality.
• 9) Exaggeration- Advertisers make tall claims about products in ads.
Advertisers “puff up” a product to make it seem like more then what it is.
• Example: TheAxe ad showed angels falling from the sky after smelling the
deodorant.
• Misrepresentations -Misrepresentation mean to give false information
about the product so that consumers agree by their message and their
product easily. Now these days advertisement become the simple way to
mislead the people.
SOME OF THE ADS WHICH WERE DEEMED AS UNFIT BY
ASCI

The Ad claims, “ A firmer &

younger skin in just 7 days”, “ In 4
weeks 96% of users have agreed
that effects of ageing are almost
gone “, were inadequately
substantiated

The ad was pulled up on the

grounds of having misleading
content for the claim ‘the fastest
network ever’& ‘if your network is
faster, we will pay your mobile
bills for free’
 ETHICS IN HUMAN RESOURCE MANAGEMENT
• Human resources can be understood in terms of employing people,
developing them, utilizing, maintaining and compensating their services
and in tune with the job and organizational requirements with the view to
contribute to the goals of the organization goal ,individuals goals.

• Ethics in HRM:
Ethics in HRM indicates the treatment of employees with ordinary decency
and distributive justice. The ethical business contributes to the business
goals as the employees will feel motivated and they will work efficiently
and effectively. Ethics in HRM basically deals with the affirmative moral
obligations of the employer towards employees to maintain equality and
equity justice.
 WORKPLACE ETHICS
• Privacy. Do Not over control the employees
• Justifiable treatment of employees (Eg:-Equity and Equal Opportunity).
Rules and Regulations to be same for everyone
• Respect, fairness and honest processes at the workplace.
• Company’s policies need to be communicated clearly to each and every
one
• An organisation ought to respect its employees to expect the same in
return
• Organisation should not expect employees to attend office 365 days in a
year
• Give employees the space they require
• Give employees good compensation and appraisal opportunity
• WORKPLACE ETHICS:
Rules and regulations ought to be same for everyone.
Company’s policies need to be communicated clearly to each and every
one.
An organization ought to respect its employees to expect the same in
return.
Organization should not expect employees to attend office 365 days a
year.
Give employees the space they require
Salaries should be decided in the presence of the employee and also
keeping in mind an individual’s role in the organization, his/her gross
salary in the previous organization, responsibilities within the current
system and of course his/her years of experience.
Do not be too strict with your employees
 IMPORTANCE OF WORKPLACE ETHICS
• 1) Legal Considerations
• 2) Company Reputation & Public Image
• 3) Employee Loyalty
• 4) Productivity & Teamwork
• 5) Protection ofAssets
• 6) Promoting Ethics
• 7) Better Decision Making
• 8) For the Betterment of Society
• 9) Positive Work Environment
 EXAMPLES OF UNETHICAL HRM PRACTICES

• 1) Off Shoring and Exploiting Cheap Labor Markets

• 2) Using Child Labor
• 3) Harassment
• 4) Reneging on company pension agreements
• 5) Longer Working Hours
• 6) Increasing Work Stress
• 7) Use of Disputed and Dubious Practices in hiring and firing personnel
• 8) Workplace Discrimination
 ETHICS IN HRM- SCOPE
• 1) Human Rights
• 2) Civil & Employment Rights
• 3) Safety at the Workplace
• 4) Employee Privacy
• 5) Equity and Equal Opportunity
• 6) Respect, fairness and honesty
WORKPLACE DISCRIMINATION
Discrimination at the workplace can be in different forms: example: on the
grounds of age, gender, qualification, disability, pregnancy, national origin,
race, color, religion, caste or, ethnicity
Indian Constitution of India guarantees Equality of opportunity for all
citizens in matters relating to employment or appointment to any Office
under the State.
 WORKPLACE DISCRIMINATION
• No Citizen on the grounds of Religion, race, caste, gender, descent, place of birth,
residence be ineligible for, or discriminated against in respect of any employment or
office under the State
• Title VII prohibits Discrimination based on race color, religion, gender or National
origin. It makes it illegal for employers to discriminate based upon protected
characteristics regarding terms, conditions & privileges of employment.
• Equal Remuneration Act forbids discrimination in hiring, pay and conditions of
employment between male and female workers engaged in the same work, except
where dissimilar treatment is permitted under law.
• Article 14 of Indian Constitution guarantees Equality before Law.
• Article 15 of Indian Constitution prohibits State from Discrimination on the grounds
of religion, race, caste, gender and place of birth.
• Article 16 empowers the State to make reservations with respect to appointment for
posts in favour of backward classes if in the opinion of the State such classes are
under-privileged.
 Types of Discrimination at the Workplace & Legal Protection
Constitution of India has several provisions which grant fundamental rights
to its citizens:
• 1)Article 14 guarantees Equality before Law
• 2) Article 15 prohibits State from Discrimination on the grounds of
Religion, Race, Caste, Sex and Place of Birth
• 3) Article 16 empowers the State to make Reservations with respect to
appointment for posts in favour of Backward Classes if in the opinion of
the State such classes are under privileged
• 4) Article 39 in Part IV of the Constitution urges the State to ensure that
the Citizens, men and women equally have the right to an adequate means
of livelihood, right to shelter, food, education and work
• 5) Discrimination on the grounds of Pregnancy- Safeguarding against
Discrimination under the Maternity Benefit Act, 1961- No deduction will
be made from the normal wages under the provisions of thisAct.
 DISABILITY
• Disability Discrimination occurs when an Employer or an entity treats a Qualified
Individual with disability who is an applicant or employee unfavourably due to his
disability. This unfavourable behaviour can be experienced during pay, hiring and
promotion.
• The Person with disabilities (Equal Opportunities, Protection of Rights and Full
Participation) Act, 1995 for safeguarding and protecting the disabled in India.
Section 24 A guarantees No Discrimination in Employment. Section 24 C provides
an Environment free from Discrimination in promotion by reason of disability.
Section 24 D is focussed towards an equal opportunity policy and Section 24 F
provides for No Removal or Reduction in rank on acquiring disability.
REMUNERATION
It is the Duty of the Employer to pay equal remuneration to the men and women
workers for same work or work of a similar nature as per the Equal RemunerationAct,
1976. Section 5 of this Act prohibits the employer from formulating a hiring process
putting women at a disadvantage on account of their gender which is in reference to
the work that is similar/ same to that which is offered to men and even in respect of
Transfers and Promotions.
 GUIDELINES TO PROMOTE WORKPLACE ETHICS
• 1) Ethical Recruitment and Selection of its Employees
• 2) Ethics Training
• 3) Proper Policy for Wages, Rewards and Promotions
• 4) Freedom from Harassment
• 5) Ethics Compliance Officer or an Ethics Committee
• 6) No Favouritism
• 7) Maintain Work-Life Balance
• 8) Walk the Talk an lead by Example
 EMPLOYEE CODE OF CONDUCT
• A Code of Conduct: is a set of Organisational Rules and standards regarding the
Organisational Values, beliefs and ethics, as well as matters of legal compliance that
govern the conduct of the organisation and its members. Members are responsible for
adhering to the Code and are liable to be held accountable for failure to do so.
• Many Companies require the Employee to sign the code of conduct wherein it
becomes a legal agreement between the employer and the employee.
• Purpose: To Develop and maintain a Standard of Conduct that is acceptable to the
Company, its Vendors, Customers and other Employees. It differs from Industry to
Industry but contains guidelines that are Consistent with the Company Policies and
Reflect how the Company perceives its image. It reminds the employee of what is
expected of them, and that their actions, appearance, conduct and demeanour will
affect the company and their career.
• Examples: Confidentiality Expectations, procedure for calling in sick, dress
code, reporting procedure for emergency situations
 Employee Code of Conduct
• 1) The Global Compact (United Nations, July 2000): encourages companies to
incorporate 9 Human Rights into their strategies and business dealings and consider broad
range of stakeholders in setting strategy.
• 2) International Labour Organisation (ILO): has prepared Declaration of Fundamental
Principles and Rights at Work (1998). This focuses on Eliminating Forced Labor, child labor,
freedom of association and the right to work free from discrimination.
• 3) Organisation for Economic Co-operation & Development (OECD) Guidelines: for
Multinational Corporations cover standards of behaviour in Employment and Industrial
Relations, Environmental Impact, combating bribery, consumer interests, science &
technology, competition and taxation.
BENEFITS OF ETHICALCULTURES
CompetitiveAdvantage, Greater Accountability, Better Company Image, Increased Firm
Valuation in the Stock Market and Investment Community, Increased Cultural Diversity and
Increased Firm Performance.
 Importance of Employee Code of Conduct
• 1) Provides a Framework for Ethical Decision making
• 2) It is a Communication tool informing internal and external stakeholders
about what is valued by the organisation, employee and management
• 3) It is the heart and soul of the organisation which defines the Boundaries
for acceptable and unacceptable behavior.
• 4) Creates Safe Working Environment as employees feel at ease if it is
written and documented. Employees are assured that they judged only on
merit and performance
• 5) To help Employees Growth and Development by setting a strong value
base
• 6) To build a Reputable Sustainable Business in the Long Run leading to
higher productivity, increased perceived image, lower turnover/
absenteeism and long term benefits
• 7) To Act as a Legal Tool: as it is signed by the employees, it becomes a
legal document which can be used as legal action tools if necessary
 FEATURES OF ETHICAL LEADERSHIP
• 1) Ethical Behavior reflects a Value System that grows out of a coherent view of the
World, based on Equity, Justice, the Needs and Rights of Others as well as oneself, a
sense of obligation to others and to the society and the legitimate needs and standards of
the society.
• 2) Ethical Leadership has 2 Elements: i) Such Leaders should make decisions ethically
and ii) They should lead ethically in the ways they treat people in everyday interaction,
in their attitudes, in their encouragement and the directions in which they steer their
organisation’s initiatives.
• 3) Ethical Leadership both Visible (how the leader works and treats others and behavior
in public sphere) and Invisible (leader’s character & in his decision making process,
mindset, values, principles and courage to make ethical decisions in tough situations).
• 4) Ethical Leaders are Ethical all the Time proving that ethics is an integral part of the
philosophical and intellectual framework.
 BENEFITS OF ETHICAL LEADERSHIP
• 1) Ethical Leadership Models Ethical Behavior to the Organisation and the Community
• 2) It Builds Trust
• 3) It brings Credibility and respect both for the leader and the organisation
• 4) It can lead to Collaboration
• 5) It creates a Good Climate within the organisation
• 6) It builds Self Respect
COMPONENTS OF ETHICALLEADERSHIP
1) Put the larger good of the organisation before self interest and ego
2) Encourage Discussions on Ethics as an ongoing feature
3) Institutionalise ways to Question yourAuthority
4) Treat everyone with fairness, respect and dignity
5) Collaborate
6) Have an Inclusive and Open Communication Culture
7) Continuously re-examine your ethics and ethical leadership
 The 4-V Model of Ethical Leadership- by Bill Grace
• The 4-V model helps align the internal beliefs and values with the external
behaviors and actions for the purpose of the common good. The four V’s
stand for Values, Vision, Voice and Virtue, the characteristics that help create
a strong ethical leader. In the end, the main goal of an ethical leader is to
create a world in which the future is positive, inclusive and allows the
potential for all individuals to pursue and fulfill their needs and meet their
highest potential.
 The 4-V Model of Ethical Leadership
• According to this model, leaders make the difference. The first step begins with self-knowledge and the
discovery of one’s own core values. Only then can the ethical leader share his core values with others and
connect himself to society in doing so.
• Values
• In order to develop good Ethical Leadership, the leader needs to first go in search of his own core values.
• Vision
• Here it is about the leader’s ability to implement his actions in such a way that they lead to a certain goal
(vision).
• Voice
• The ethical leader must have a voice, in order to formulate the vision for others and to make it clear in a way
that motivates them to act.
• Virtue
• Ethical leaders are role models because of their virtuous behaviour and will strive to do the right things and act
appropriately.
Grace added three extra key elements to his 4-V model, in order to achieve ethical leadership:
• Service connects the vision to the values. From the values, the vision will be revealed through the service.
• Polis stands for politics. It indicates that an organisation deals with the art of politics when the vision has to be
communicated to public groups.
• Renewal stands for innovation.Although the voice can be expressed in different ways, the ethical leader will
have to regularly consider whether actions are in accordance with values and vision.
 ETHICS IN FINANCE

The ethical issues in finance that companies and employees are confronted
with include:
• InAccounting – window dressing, misleading financial analysis.
• Related party transactions not at arm length
• Insider trading
• Executive compensation.
• Securities fraud leading to manipulation of financial markets
• Bribery, kickbacks, over billing of expenses and facilitation payments.
• Fake reimbursements.
Fundamental Principles to be followed for ethics in Finance
Fundamental Principles to be followed for ethics in Finance
 Importance of Ethics in Financial Management
• The finance manager must provide competent, accurate and timely information to the company
fairly presents it at any time potential disclosure issues, such as legal ramifications. The manager is
ethically responsible for protecting the confidence of employer and staying within the boundaries of
law.
• Legal issues: Some laws are specifically designed to address unethical actions of finance managers.
For example, if a finance manager is aware of business activity that will affect a stock price and uses
that information to buy or sell stocks for financial again, he has broken a trust with his employer and
broken laws established by the Securities and Exchange Commission (SEC). A finance manager
who is aware that his company may be breaking the law may be held legally responsible for a crime.
• Balancing Act: The dilemma faced by many finance managers comes in balancing the need to act
ethically while fulfilling the needs of the employer. The employer’s ultimate goal is to maximize
earnings, and the drive to make money may cause an employee to act unethically. If a manager
believes his company may have crossed an ethical line, his first step should be to take it up with his
employer. If he feels the actions warrant legal intervention, he should do so without fear of
repercussion.
• Whistleblowers: If a discussion with an employer does not resolve the ethical issues facing a
finance manager, he can report the activity to the appropriate government agency for investigation.
This is known as whistle blowing. Under current laws, an employee has the right to report
suspicious activity without fearing for his job. While the activity may put a strain on his working
relationship, he is protected by law.
 WHISTLE-BLOWER
• Whistleblower is a person who publicly complains concealed misconduct on the part of
an organization or a body of people, usually from within that same organisation. This
misconduct may be classified in many ways: for example, a violation of a law, rule,
regulation and/or a direct threat to the public interest, such as fraud, health/ safety
violations, and corruption.
• It is in this context whistleblowers are often protected under law from employer
retaliation. In India, Revised Clause 49 of the Equity Listing agreement provides as
under with regard to Whistle Blower policy:
• 1. The company shall establish a vigil mechanism for directors and employees to report
concerns about unethical behaviour, actual or suspected fraud or violation of the
company’s code of conduct or ethics policy.
• 2. This mechanism should also provide for adequate safeguards against victimization of
director(s) / employee(s) who avail of the mechanism and also provide for direct access
to the Chairman of theAudit Committee in exceptional cases.
• 3. The details of establishment of such mechanism shall be disclosed by the company
on its website and in the Board’s report.
 Whistle Blower Policy
• This has been made a mandatory requirement for all the listed company with effect from
October 01, 2014. The company should devise an effective whistle blower mechanism
enabling stakeholders, including individual employees and their representative bodies, to
freely communicate their concerns about illegal or unethical practices. The audit committee
is responsible to review its functioning, and a disclosure be made in the Annual Report
about the Whistle Blower policy and affirmation that no personnel has been denied access
to the audit committee.
• ICSI Recommendations to strengthen Corporate Governance Framework
recommends – adoption of Whistle Blower Policy should be made mandatory, to begin
with, for listed companies. A model policy in this regard may be specified covering
important clauses that protect employees’interests.

Corporate Governance Voluntary Guidelines, 2009 suggest for Institution of

Mechanism for Whistle Blowing
• I. The companies should ensure the institution of a mechanism for employees to report
concerns about unethical behaviour, actual or suspected fraud, or violation of the
company’s code of conduct or ethics policy.
• II. The companies should also provide for adequate safeguards against victimization of
employees who avail of the mechanism, and also allow direct access to the Chairperson of
theAudit Committee in exceptional cases.
 1. Tax Planning for Long-Term benefits
• Tax planning, like tax avoidance, is totally legal.
• Tax planning involves using tax reliefs for the purpose for which they were
intended, for example, claiming tax relief on capital investment, or saving via
ISA’s or for retirement by making contributions to a pension scheme. However,
tax reliefs can be used excessively or aggressively, by others than those
intended to benefit from them or in ways that clearly go beyond the intention of
Parliament’.
• Tax planning is the process of elaborating the company’s financial related
matters to maximize the tax benefits under eligible provisions of the tax
framework. The planning assists taxpayers to lessen their tax liability through a
variety of means, namely deductions, credits, rebates and exemptions provided
under the Income TaxAct or the corresponding tax laws.
• To give an example, one may look for incentives from tax planning by saving
via retirement plans. They can also make investments in fixed deposit, mutual
funds, provident funds or other similar accounts for the reduction of tax
liability.
 2. Tax Avoidance is totally Legal
• Tax avoidance is the act of minimizing tax liability within the limits of the law or
without breaking the law. In other words, taxpayers can use legitimate methods to
reduce the amount of tax payable in association with their financial activities.

Such methods to allow taxpayers to avoid paying tax to the government may include
the followings:
• Using tax deductions for decreasing business expenses and business tax bill
• Delaying the payment of tax until a later date with an appropriate tax deferral plan
• Taking advantage of tax credits for legal purposes like business purchases, benefiting
the company’s employees for sick leave and family leave
• Sheltering revenue from tax liability through the establishment of employee
retirement plans.
• Employing practices of tax avoidance if inappropriate in some cases may lead the
taxpayer to step beyond the line to tax evasion, hence a violation of the jurisdiction
regulations.
3. Tax evasion is deemed as Tax Fraud
• Tax evasion is any illegal method or unlawful attempt to reduce tax liability of
taxpayers. It is highly attached to techniques or illicit practices which results in
showing fewer profits to minimize the individual or company’s tax burden.
• Examples of tax evasion usually are the followings:
• Making false statements and information
• Inflating deductions without legal proof
• Hiding related documents to prove the actually earned business profits like records of
transactions or report of cash income
• Concealing or transferring assets illegally
• Magnifying tax credit
• Claiming excessive expenditure
• Tax evasion can be deemed as a form of tax fraud which indicates illegitimate and
deliberate actions for not paying tax. Due to the fact that employing such unfair
means is fraudulent, any taxpayers regardless of individual or business committing
tax evasion behaviors would be prosecuted for offence and must be subject to
stringent punishments of a heavy fine or imprisonment.
 CORPORATE CRIME
• Corporate Crime refers to crimes committed either by a Corporation (ie. A Business
Entity having a separate legal personality from the natural persons that manage its
activities), or by individuals acting on behalf of a corporation or other business entity.
• 1984 Union CarbideAccident, Bhopal is a case of extreme Corporate Malfeasance.
• Corporate Crimes are called Quiet Acts because people not only don’t know whom to
blame but may not even know they have been victimised. They are dealt with by civil
and administrative laws with penalties such as fine but not prison.
TYPES OF CORPORATE CRIMES
I) Corporate Violence: Violence against Workers :It may include workers getting
affected due to long term effects of occupational diseases and violation of health and
safety standards.
Violence against Consumers: Unsafe products injure or kill the consumers, disable
them. Included here is the dumping of banned products in another country.
Corporate Pollution: Green Crimes in the form of pollution of the environment for the
sake of cost cutting are also considered.
 CORPORATE CRIME
• II) ECONOMIC CORPORATE CRIMES:

• Price Fixing: Tacit Price Fixing occurs when a limited number of controlling companies
in a particular market follow the lead of their competitors in price increases.
• Overt Price Fixing involves secret meetings and subtle communications between
competitors in given industries. Example: Setting prices at predetermined, similar levels;
Dividing the market into regions, with each firm agreeing to stay out of the other’s territory
agreeing to take turns submitting winning competitive bids for contracts, often from
government agencies.

• FalseAdvertising: When Companies use FalseAdvtg. to entice consumers to buy products

or services that offer few, if any, of the publicised benefits. Example: Making blatantly
false statements and puffery
 WHITE-COLLAR CRIME
• White-collar crime is a non-violent crime where the primary motive is typically
financial in nature. White-collar criminals usually occupy a professional position
of power and/or prestige, and one that commands well above average
compensation.
• The term “white-collar crime” was coined in the 1930s by sociologist and
criminologist Edwin Sutherland. He used the phrase to describe the types of
crimes commonly committed by “persons of respectability” – people who are
recognized as possessing a high social status.
• White-collar crime generally involves financially motivated offenses perpetrated
by business and government employees or officials. The crimes are not violent,
and are usually committed by persons in whom some level of trust or autonomy
is placed. They frequently cause significant losses for companies, investors and
employees.
 WHITE COLLAR CRIME
• 1) Fraud:
• By far, the most common type of white-collar crime is fraud. Fraud involves the intentional misrepresentation or
omission of a material fact. That misrepresentation must be reasonably relied on, and someone must suffer a monetary
loss as a result. The most prevalent types of fraud include:
• Computer fraud: The act of stealing bank, credit card, or proprietary information from a computer.
• Bankruptcy fraud: The concealment of assets, misleading creditors, or illegally pressuring debtors.
• Health care fraud: The acceptance of kickbacks or billing for services not performed, unnecessary equipment, and/or
services performed by a less qualified person. This type of fraud applies to all areas of health care, including hospitals,
home health care, ambulance services, doctors, chiropractors, psychiatric hospitals, laboratories, pharmacies, and
nursing homes.
• Telemarketing fraud: The use of the telephone as the primary means of communicating with potential victims.
• Credit card fraud: The use of someone’s credit card information to make unauthorized purchases.
• Insurance fraud: The falsification, inflation, or “padding” of insurance claims.
• Mail fraud: The use of the U.S. mail to commit a crime.
• Government fraud: The act of engaging in fraudulent activities in relation to public housing, agricultural programs,
defense procurement, educational programs, or other government activities, including bribery in contracts, collusion
among contractors, false or double billing, false certification of the quality of parts, and substitution of bogus parts.
• Financial fraud: The act of engaging in fraudulent activities relating to commercial loans, check forgery, counterfeit
negotiable instruments, mortgage fraud, check-kiting, and false applications.
• Securities fraud: The act of manipulating the market and stealing from securities accounts.
• Counterfeiting: The act of printing counterfeit money or manufacturing counterfeit designer apparel or accessories.
 WHITE COLLAR CRIME
2) Theft
• Embezzlement or Misappropriation of Property: The theft of money, goods, or services by an employee.
• Blackmail: The act of demanding money in exchange for not causing physical harm, damaging property,
accusing someone of a crime, or exposing secrets.
3) Violation of Statutory Law
• Anti-trust violations: The act of fixing prices and building monopolies.
• Environmental law violations: The act of discharging a toxic substance into the air, water, or soil that harms
people, property, or the environment, including air pollution, water pollution, and illegal dumping.
• Tax Evasion: The act of filing false tax returns or not filing tax returns at all.
• Kickbacks: The act of compensating an individual or company in order to influence and gain profit. Kickbacks
result in an unearned advantage, benefit or opportunity, even if others are more qualified or offer better prices.
Kickbacks hurt business by interfering with competition in the marketplace.
• Insider Trading: The act of trading stock or other securities with knowledge of confidential information about
important events that is unavailable to the general public.
• Bribery: The act of offering money, goods, services, or information with the intent to influence the actions or
decisions of the recipient.
• Money Laundering: The act of concealing income raised through illegal activity in order to evade detection.
Illicit proceeds are laundered to appear as though the funds were generated through legitimate means.
• Public Corruption: The act of breaching the public trust and/or abusing a government position, usually in
connection with private-sector accomplices.Agovernment official violates the law when he or she asks for or
agrees to receive something of value in return for being influenced in the performance of official duties.
 Meaning of Organized Crime
• Organised crime is defined as “those involved, normally working with others, in continuing
serious criminal activities for substantial profit, elsewhere”. Organised criminals that work
together for the duration of a particular criminal activity or activities are what we call an
organised crime group.

• Organised crime group structures vary. Successful organised crime groups often consist of a
durable core of key individuals.Around them, there’s a cluster of subordinates, specialists,
and other more transient members, plus an extended network of disposable associates.

• Many groups are in practice loose networks of criminals that come together for the duration
of a criminal activity, acting in different roles depending on their skills and expertise.
Collaboration is reinforced by shared experiences (such as prison), or recommendation from
trusted individuals. Others are bonded by family or ethnic ties – some ‘crime families’are
precisely that.

• Organised criminals make use of specialists who provide a service, sometimes to a range of
crime gangs. Services include transport, money laundering, debt enforcement, or the
provision of false documentation (identity crime underpins a wide variety of organised
criminal
 Types of Organised Crime

A. DrugAbuse and Drug Trafficking

B. Smuggling:
C. Money Laundering & Hawala:
D. Terrorism & Narco-Terrorism:
E. Contract Killings:
F. Kidnapping for Ransom:
G. Illegal Immigration, Flesh Trade:
 Organised Crime and White Collar Crime
• The two crimes have significant differences in that white-collar crime occurs as
a deviation from legitimate business activity, whereas organized crime occurs as
a continuing criminal enterprise that exists to profit primarily from illicit
activity.
• White-collar crime can be carried out by an individual whereas organized crime
requires more people and planning in order to carry out offences on a more
systematic basis. White-collar crime can also be carried out by organized
criminal groups.
• Not only individuals but also legal persons, such as corporations, can carry out
crimes during the course of business. Serious crime is frequently committed
through or under the cover of legal entities.
• Complex structures can effectively hide the true ownership, clients or particular
transactions. Legal persons may also be used to shield natural persons from
liability, and complex structures may be used to conceal illegal activity.
• Terrorism is another form of "organized" criminal behaviour, but it is distinct
from organized crime. In general terms, terrorism involves crimes committed
with the objective of intimidating a population or compelling a government or
international organization with a view to achieving political or social objectives.
 Role of SEBI in ensuring Corporate Governance
• Role of Audit Committee: The role of the audit committee shall include the
following:
• 1. Oversight of the company’s financial reporting process and the disclosure of its
financial information to ensure that the financial statement is correct, sufficient and
credible.
• 2. Recommending the appointment and removal of external auditor, fixation of audit
fee and also approval for payment for any other services.
• 3. Reviewing with management the annual financial statements before submission to
the board, focusing primarily on; a. Any changes in accounting policies and
practices. b. Major accounting entries based on exercise of judgment by
management.
Review of information by Audit Committee (i) The Audit Committee shall
mandatorily review the following information: 1. Financial statements and draft audit
report, including quarterly / half financial information; 2. Management discussion and
analysis of financial condition and results of operations; 3. Reports relating to
compliance with laws and to risk management; 4. Management letters / letters of
internal control weaknesses issued by statutory / internal auditors; and 5. Records of
related party transactions 6. The appointment, removal and terms of remuneration of
the Chief internal auditor shall be subject to review by theAudit Committee
 Audit Committee.
• Qualified and IndependentAudit Committee:
A qualified and independent audit committee shall be set up and shall comply
with the following:
• i. The audit committee shall have minimum three members. All the members of
audit committee shall be non-executive directors, with the majority of them
being independent.
• ii. All members of audit committee shall be financially literate and at least one
member shall have accounting or related financial management expertise.
• Disclosure ofAccounting Treatment :
• In case it has followed a treatment different from that prescribed in an
Accounting Standards, management shall justify why they believe such
alternative treatment is more representative of the underlined business
transactions.
• Management shall also clearly explain the alternative accounting treatment in
the footnote of financial statements.
Whistle Blower Policy :
• (A) Internal Policy on access toAudit Committees:
i. Personnel who observe an unethical or improper practice (not necessarily a
violation of law) shall be able to approach the audit committee without
necessarily informing their supervisors.
ii. Companies shall take measures to ensure that this right of access is
communicated to all employees through means of internal circulars, etc.
The employment and other personnel policies of the company shall contain
provisions protecting "whistle blowers" from unfair termination and other
unfair prejudicial employment practices.
iii. Company shall annually affirm that it has not denied any personnel access
to the audit committee of the company (in respect of matters involving
alleged misconduct) and that it has provided protection to "whistle
blowers" from unfair termination and other unfair or prejudicial
employment practices
• (A) Basis of Related party transactions: (i)Astatement of all transactions
with related parties including their basis shall be placed before the Audit
Committee for formal approval/ratification. If any transaction is not on an
arm’s length basis, management shall provide an explanation to the Audit
Committee justifying the same.
• Board Disclosures –Risk management (i) It shall put in place procedures to
inform Board members about the risk assessment and minimization
procedures. These procedures shall be periodically reviewed to ensure that
executive management controls risk through means of a properly defined
framework. (ii) Management shall place a report certified by the compliance
officer of the company, before the entire Board of Directors every quarter
documenting the business risks faced by the company, measures to address
and minimize such risks.
• Proceeds from Initial Public Offerings (IPOs) :
• (i) When money is raised through an Initial Public Offering (IPO) it shall
disclose to the Audit Committee, the uses / applications of funds by major
category (capital expenditure, sales and marketing, working capital, etc), on a
quarterly basis as a part of their quarterly declaration of financial results.
Further, on an annual basis, the company shall prepare a statement of funds
utilized for purposes other than those stated in the offer document/prospectus.
• Remuneration of Directors : a.All pecuniary relationship or transactions of the
non-executive director vis-à-vis the company shall be disclosed in the Annual
Report. (ii) Further the following disclosures on the remuneration of directors
shall be made in the section on the corporate governance of the annual report. a.
All elements of remuneration package of all the directors i.e. salary, benefits,
bonuses, stock options, pension etc. b. Details of fixed component and
performance linked incentives, along with the performance criteria. c. Service
contracts, notice period, severance fees. d. Stock option details, if any – and
whether issued at a discount as well as the period over which accrued and over
which exercisable.
• Non Executive Directors’compensation and disclosures:
(i) All compensation paid to non-executive directors shall be fixed by the
Board of Directors and shall be approved by shareholders in general
meeting. Limits shall be set for the maximum number of stock options that
can be granted to non-executive directors in any financial year and in
aggregate.
• Board of Directors: A. Composition of Board (i) The board of directors
of the company shall have an optimum combination of executive and
non-executive directors with not less than fifty percent of the board of
directors comprising of non-executive directors. The number of
independent directors would depend on whether the Chairman is
executive or non-executive. In case of a non executive chairman, at least
one-third of board should comprise of independent directors and in case
of an executive chairman, at least half of board should comprise of
independent directors
 The Cadbury Committee
• The Cadbury Committee was set up in May 1991 by the Financial Reporting Council,
the London Stock Exchange and the accountancy profession to address the financial
aspects of corporate governance.
• Its chairman was SirAdrian Cadbury. The sponsors were concerned at the perceived low
level of confidence both in financial reporting and in the ability of auditors to provide
the safeguards which the users of company reports sought and expected.
• The underlying factors were seen as the absence of a clear framework for ensuring that
directors kept under review the controls in their business, together with the looseness of
accounting standards and competitive pressures, both on companies and on auditors,
which made it difficult for auditors to stand up to demanding boards.
• These concerns about the working of the corporate system were heightened by some
unexpected failures of major companies and by criticisms of the lack of effective board
accountability for such matters as directors' pay.
• It Included Separating the roles of CEO and chairman, having a minimum of three non-
executive directors on the board and the formulation of audit committees.
• The Code also advocated that a more active role be taken by institutional investors in the
promotion of good practice in corporate governance.