Business Ethics, Governance

& Risk: Session 1

Chapter 1: Concept of Business Ethics

Prof. Anita Chouhan

Session. Chapter No Topic
No

1 Chapter 1 Concept of Business Ethics

2 Chapter 2 Values, Norms, Beliefs and Standards in Business Ethics

3 Chapter 3 Indian Ethos

Chapter 4 Ethical Issues in Functional Areas of Management
4 Chapter 5 Introduction to Corporate Governance

5 Chapter 6 Corporate Governance: Ownership Structure

6 Chapter 7 Corporate Governance Mechanism

7 Chapter 8 Corporate Governance in India: Statutory Perspective

8 Chapter 9 Enterprise Risk Management

9 Chapter 10 Identification and Management of Risk
10 Chapter 1-10 Case Studies & Query Solving across syllabus
 1. Introduction to Ethics
§ Ethics is moral principles that governs a person’s behavior, it helps
individual’s decide ;
§ what is wrong or right,
§ good or bad and
§ what comprises desirable behaviour
§ youtube.com/watch?v=zPsoFhUDLuU&t=12s
§ It is a formal study of moral standards and conduct.
§ Two fold objective: evaluation & prescription
§ Practical- act, choose, behave & do things
§ The word ethics is derived from the Greek word ethos, which implies
character.
§ ‘The obedience of the un enforceable’ - The Institute of Global Ethics
§ Sources of Ethics: religious belief, family & friends, culture, legal
system, organizations, reading & discussions with others, ethical
philosophers
§ Ethics, Morality & Law
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 2. Introduction to Ethics

Deontological ethics

Normative ethics Teleological ethics

Branches of ethics Metaethics Virtue ethics

Applied ethics

Conventionalism
Ethical Relativism
Subjectivism

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 3. Introduction to Ethics
Ethical Dilemmas
§ defined as complex situations that involve conflict of moral interests while
choosing from available alternatives. An individual in an ethical dilemma
may have a number of questions in his/her mind. Some of them are:
• What should I do?
• What is right and what is ethical?
• What will be the consequences of my actions and decisions?
• What kind of damage or benefit will result from the chosen way?
• Would I be individually accountable if something went wrong?
• Who will protect me in case of any legal complications?

Typical dilemmas:
• Groups vs individual
• External vs internal / business vs society
• Imposed vs self driven

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 1. Introduction to Business Ethics

Business Case for Ethics – some considerations

§ Ethical decision making is inevitable at all levels of management
§ Decisions that set precedents & affect all stakeholders as they have
organizational & social consequences
§ Direct cost of unethical decisions more visible as they are responsible for
half of all quality costs or 5-15 % of operating cost & lead to huge cost/
loss/ liability
§ Critical to know which values & principles should guide business
decisions

§ Caselet : The Rajat Gupta Insider Trading Case

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 2. Introduction to Business Ethics
§ According to Andrew Crane, business ethics is the study of business
situations, activities, and decisions where issues of right and wrong are
addressed.
§ “The ethics of business is the ethics of responsibility. The business man
must promise that he will not harm knowingly.” Raymond Baumhart
§ According to Peter F. Drucker, there is only one ethics, one set of rules of
morality, one code: that of individual behaviour in which the same rules
apply to everyone alike.
§ We do not act rightly because we have virtue or excellence, but we
rather have those because we have acted rightly. Aristotle 384 B.C.-322 B.C.,
Greek philosopher and scientist, student of Plato and teacher of Alexander the Great

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 3. Introduction to Business Ethics
Characteristics of Business Ethics
• Discipline of moral values
• Relative term
• Study of objectives and means
• Interest of society
• Greater than law
• Ambiguous, different in each country
• Minimum starting point
• Can prevent harm - not effective at promoting good
• Over regulation
• Cannot anticipate every new dilemma

§ Competitive managerial decision making becomes a balance of risk

assessment, cost benefit analysis & ethics
§ Even those committed to strictly obeying the law will be confronted regularly
with fundamental ethical questions

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 4. Introduction to Business Ethics

Relevance of Business Ethics

§ Creating a good image
§ Stopping business malpractices
§ Improving customers’ confidence
§ Safeguarding consumers’ rights
§ Protecting other stakeholders
§ Competing with healthy approach
§ Developing good relations

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1. Creating Ethical Environment in Organizations
Steps to embedding ethics in Guidelines for ethical behaviour
organizational culture • Making managers as role models
• Getting commitment from top • Taking disciplinary actions for
management unethical behaviour
• Setting a code of ethics • Rewarding ethical behaviour
• Communicating ethics • Encouraging & rewarding ethical
• Providing training on ethics leadership
• Designating an ethics officer
• Checking response and
ensuring enforcement
• Performing audits, revisions
and refinement
• Eg, Tata Chemicals

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2. Creating Ethical Environment in Organizations

• Eg, Tata Chemicals

• Multiple initiatives to inculcate Tata
code of conduct in young/new
joinees
• Lets go through the explicitly
expressed code below:
Tata Code Of Conduct.pdf

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3. Creating Ethical Environment in Organizations

Ethical Leadership
• Lays emphasis on ethical beliefs and values of individuals, like integrity,
honesty, fairness and so on.
• Known for their honesty, principles and impartial approach to decision
making.
• Clearly communicate the codes of ethics to their followers and use
rewards and punishments to maintain ethical standards

Characteristics of Ethical leaders:

• Promoting development of leadership skills in others
• Taking accountability for the accepted roles & responsibilities
• Taking into account the interests of organization, people & society
• Encouraging & inviting feedback, opinions & suggestions from followers

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4. Creating Ethical Environment in Organizations

The 4-V Model of Ethical Leadership

• Values: These are the core standards of an organization. Ethical
leadership can be developed easily by understanding core values.
• Vision: It implies planning actions to achieve organizational objectives.
• Voice: Communicating the vision is necessary for its effective
implementation. A strong, convincing and motivational approach is
required from an ethical leader for articulating the vision to others.
• Virtue: An ethical leader can achieve a common goal by identifying what
is right and what is wrong. He/she should practice virtuous behaviour
that depicts moral excellence.
• Suggested Reading: Article: Heskett, J. (2015). How Ethical Can We Be?
– HBS Working Knowledge. hbswk.hbs.edu

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 Caselet: Rajat Gupta Insider Trading Case

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 Caselet: Rajat Gupta Insider Trading Case
Rajat Gupta is a business man of Indian origin
• Was associated with Goldman Sachs, American Airlines, Procter & Gamble, The
Global Fund, International Chamber of Commerce & The Gates Foundation
• Highly admired & respected in professional circles and was MD at McKinsey &
Company in USA in 2012 when the scandal broke
• In 2008 Warren Buffet & Goldman Sachs made an agreement of 5 mio USD for
preferential shares to lift up GS
• Post very confidential board meeting Rajat called his friend Raj Rajratnam
sharing this news – Raj is billionaire & founder of Galleon Group Hedge Fund
• He instantly bought GS shares and made a profit of nearly 1.2 mio USD based
on this information (as calculated by SEC)
• SEC estimated an overall profit/loss avoidance of approx 23 mio USD. The court
convicted him to 2 yrs of imprisonment & fine of 5 mio USD
• Raj Rajratnam was sentenced 11 years jail term, the longest imposed for insider
trading in New York in 20 yrs
• Rajat Gupta Case: youtube.com/watch?v=OgyhuA44JUE
• His book: Mind Without Fear

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 Caselet: Rajat Gupta Insider Trading Case…
Discussion Points:
• Who all were –vely impacted?

• What about other investors of Goldman Sachs ?

• What are the ethical issue/s involved here?

• What is the role of ethics here?

• Any questions?
• Next Session: Watch the documentary film: The Inside Job (Lehman Brothers collapse
– Interviews & analysis of events) Available on Netflix, Google Play movies & Youtube.
Youtube link: youtube.com/watch?v=RovJxNJNHx8
- Student volunteers who will present the case as in textbook and/or movie analysis

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