Unit - 5 (B.E)

5.
1 Functional Ethics
5.2 Types of Ethics According to
Functions of Business
5.3 Intellectual Property Right
(IPR) and Business Ethics
5.4 Ethical Challenges for
Managers in 21st Century
Introduction
 Marketing ethics, HRM ethics, purchase, selling and distribution ethics are types of ethics
according to functions of business.
 Salespeople's ethical standards determine how they conduct relationships with their
customers, employers, and competitors.
 Ethical issues in relations with customers involve the use of entertainment and gifts and the
disclosure of confidential information.
 Ethical marketing refers to the application of marketing ethics into the marketing process.
 Ethics have become an organizational priority. Patents, copyrights and trademarks, and
related rights, are collectively called "intellectual property" or IP.
5.1 Functional Ethics
A) Concept:
The small-business reputation is easy to damage when the company focuses on reactive decision
making in terms of ethics, such as doing damage control following a scandal. Small-business
owners must build ethics into business activities to build a respected business reputation.
B) Meaning :
Although many organizations have financial, diversity, personnel, or social responsibility
committees, only a few organisations have committees devoted exclusively to ethics. An ethics
committee might raise ethical concerns, resolve ethical dilemmas in the organization, and create or
update the company's code of ethics.
C) Types of Ethics:
Business ethics are implemented in order to ensure that a certain required level of trust exists
between consumers and various forms of market participants with businesses. According to
functions of business following are the types of ethics.
1) Ethics in Marketing:
The task of marketers is to influence the behaviour of customers. To accomplish this goal,
marketers have a variety of tools at their disposal. Broadly speaking, these tools include the
design of a product, the price at which it is offered, the message used to describe it, and the
place in which it is made available.
a) Concept:
Ethical marketing refers to the application of marketing ethics into the marketing process.
Marketing ethics has the potential to benefit society as a whole, both in the short- and long
term. Study of Ethical marketing should be included in applied ethics and involves examination
of whether or not an honest and factual representation.
Types of Ethics in Marketing :
a) Ethical Practices in Marketing:
Ethical practices in marketing refer to the application of marketing ethics into the marketing process. The
increasing trend of fair trade is an example of the impact of applying ethics in marketing.
a) Ethical Practices in Marketing:
a) Reverse Declining Public Confidence in Marketing :
Periodically one hears about misleading package labels, false claims in ads, phony list prices, and infringements
of well-established trademarks.
b) Avoid Increase in Government Regulation :
Our economic freedoms sometimes have a high price, just as our political freedoms, do. Business apathy,
resistance, or token responses to unethical behavior simply increase the probability of more government
regulation.
c) Regain the Power Granted by Society :
Marketing executives wield a great deal of social power as they influence markets and speak out on economic
issues. However, there is responsibility tied to that power.
d) Protect the Image of the Organisation :
Buyers often form an impression of an entire organisation based on their contact. With one person. More often
than not, that person represents the marketing function.
e) Professional Conduct :
Ethical conduct in sales and marketing means using a professional approach to customers, competitors,
members of regulatory bodies and company colleagues.
f) Competition:
Ethical behavior in a competitive environment includes supporting fair competition, competing on the basis of
accurately representing the products and services in the marketplace and fulfilling the obligations in good faith.
g) Pricing :
Following ethical guidelines in pricing means prices have to be clear without hidden charges. The consumer has
to know how much he is going to pay when he makes the purchase.
h) Products
Supply of the product includes supplying instructions that the customer can follow to make the product work as
intended, providing customer service to resolve problems and dealing with problems objectively by applying
appropriate solutions.
i) Research :
Businesses obtain personal information about their customers during sales activity and marketing research.
Ethical practice means to respect the privacy of customers and safeguard their data.
j) Promotion :
ales and marketing include promoting the products and services to potential customers. Ethical promotion
portrays offers honestly and accurately, without links to attractive lifestyles that are not relevant.
b) Unethical Practices in Marketing: a) Products :
These are not always safe and harmless. They
may be adulterated, qualitatively poor and may
contain some substances whose effect on health
may be dangerous. The buyers may be ignorant
about the long-run impact of the ingredients.
b) Pricing :
Dealers and manufacturers often charge either
too high (skimming or gouging) or too low
pricing. There are many methods of price
fixation but manufacturers often indulge in
charging unethical prices and not just prices.
b) Unethical Practices in Marketing:
c) Packaging :
Packaging does not often mention the safety instruction or level. It is necessary that the package
should have date of manufacture and expiry date.
d) Placing (Distribution) :
May be often uneven but, certain products are not distributed in all the areas and an
artificial scarcity is created by the dealers to charge higher prices. Shoddy and adulterated
goods (like medicines) are also sold by bribing the hospital directors or purchase officers.
e) Market Research :
Some ethical problems in market research are the invasion of privacy and stereotyping.
The latter occurs because any analysis of real populations needs to make approximations
and place individuals into groups.
f) Market Audience :
Selective marketing is used to discourage demand from so-called undesirable market
sectors.
2) Ethics in HRM:
The management of human resources (HR) can involve complex ethical dilemmas. Ethical
dilemmas are broadly defined as situations in which two or more values are in conflict. They
concern four major business areas: human resources, customer confidence, conflicts of interest,
and the use of corporate resources.
a) Fundamental Rights of Employee :
Employees have the fundamental rights to liberty and safety within the workplace including:
freedom of association, the right to organize, collective bargaining, abolition of forced labour
equality of opportunity and treatment, and other standards regulating conditions across the entire
spectrum of work-related issues (ILO 2004).
b) Training for Ethical Behavior to Employees :
Human resource management (HRM) can play an important role in this regard by
communicating the organization's culture and values. Ethical training is needed
for all employees and it should continue throughout the employee's tenure.
c) Ethical Issues in HRM:
Ethical Issues in HRM:
i) Cash and Compensation Plans :
There are ethical issues pertaining to the salaries, executive perquisites and the annual incentive plans etc. The
HR manager is often under pressure to raise the band of base salaries. There is increased pressure upon the HR
function to pay out more incentives to the top management and the justification for the same is put as the need to
retain the latter.
ii) Race, Gender and Disability :
In many organizations till recently the employees were differentiated on the basis of their race, gender, origin and
their disability. Not anymore ever since the evolution flaws and a regulatory framework that has standardized
employee behaviors towards each other.
iii) Employment Issues :
Human resource practitioners face bigger dilemmas in employee hiring. One dilemma stems from the pressure of
hiring someone who has been recommended by a friend, someone from the family or a top executive.
iv) Privacy Issues :
Any person working with any organization is an individual and has a personal side to his existence which he
demands should be respected and not intruded. The employee wants the organization to protect his/her personal
life.
v) Restructuring and Layoffs :
Restructuring and consequent layoffs have become relevant because of poor management, but
incompetence does not become unethical. There are ethical implications in the process by which
termination decisions are made and actions taken.
vi) Ethical Dilemmas :
Several ethical dilemmas comfort an HR manager. The ethical dilemmas arise from three sources
faces to face ethics, policy ethics, and functional area ethics.
vii) Face-to-Face Ethics :
These arise mainly because there is a human element in most business transactions. Business is
composed of this human transaction; it should not be surprising that face to face ethical dilemmas
arise often.
viii) Corporate Policy Ethics :
Companies are often faced with ethical dilemmas that affect their operations
across all departments and divisions.
d) Role of Market System in HR Ethics :
The kind of market system affects business and HR ethics; the latter thus becomes negotiable. In
occupations where the market conditions do not favor the employees it is necessary to have
government and labor union interventions in order to control the possible exploitation. In free market
system, employees and the employer are almost equally empowered, negotiation create win
situations for both the parties.
e) Globalization and Labour :
Globalization has brought about the concept of globalizing labor, trade unions have started to
decline and the role of HR as such in issues like employee policies and practices has become a
debatable topic.
In fact many people are of the opinion that HR is nothing but an arm of the stakeholders through
which major strategic and policy decisions are divulged geared towards profit making. Thought
there can be no single opinion on ethics in HR that is convincing.
3) Ethics in Purchase :
Purchasing and supply management deals with storage, buying and monitoring of goods and
services. Like all areas of business, ethics in purchasing and supply management is critically
important as it can affect a company's bottom line.
A) Ethical Issues in Purchase:
A) Ethical Issues in Purchase:
1) Use Power Appropriately :
Power is a vital component of supply relationships. It is fundamental that purchasing and supply management
professionals know ways to use the purchasing power of their companies in the most appropriate manner.
2) Do Not Indulge in Corruption :
Purchasing and supply management professionals should abstain from any form of corrupt activity. If facing an
ethical dilemma, supply management professionals have an obligation to alert senior management. In most
countries, bribery is an offense.
3) Promote Social Responsibility and Sustainability :
Supply and purchasing professionals should drive sustainability and social responsibility when dealing with
suppliers and other individuals in daily business activities. Associations such as the Institute of Supply
Management (ISM) aim to encourage supply professionals to have supplier agreements that contain more
sustainable language.
4) Act Ethically at all Times :
Carry out all business practices in an ethical manner by making sure business policies conform to the highest
ethical standards.
4)Ethics in Selling and Distribution:
Selling is a profession that has been widely criticized for the unethical dimensions associated with
it. Ethics is the set of rules or standards that govern the conduct of a person or members of a
profession.
Ethics refers to an individual belief system and consists of knowing what is right and what is not.
It forms a very important part of sales and is essential for lending integrity to a salesperson's
behavior.
No discussion on ethics is complete without a reference being made to social responsibility. A
sales manager faces ethical issues that cover the ethical dilemmas of his sales people as well as
the ethical aspects pertaining to his decisions regarding hiring and evaluating of salespersons,
assigning territories, etc.
5.3 Intellectual Property Rights
(IPR) and Business Ethics :
A) Intellectual Property:
Intellectual property is the intangible property created by individuals or corporations, which is
subject to protections under copyright and patent law. Copyright is a statutory grant, which protects
creators of intellectual property against copying by others for any purpose.
a) Concept of Intellectual Property Rights :
Intellectual property rights are like any other property right. They allow creators, or owners, of
patents, trademarks or copyrighted works to benefit from their own work or investment in a creation.
b) Ethical Issue of Intellectual Property Right :
The Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) negotiated in
the 1986 Uruguay Round under the auspices of the General Agreement on Tariffs and Trade
(GATT) incorporated substantial and uniform protections of Intellectual Property Rights (IPRs) into
the international trade system.
B) Patents and Copyright :
Patents protect an invention that is "novel" (new and original) and "no obvious" (to someone with
technical expertise in the field of the invention).
1) Meaning :
Patents :
A patent is an exclusive right granted by a country to the owner of an invention to make, use,
manufacture and market the invention, provided the invention satisfies certain conditions stipulated
in the law.
Copyrights :
Copyright is a right, which is available for creating an original literary, dramatic, musical, or
artistic work. Cinematographic films including sound track and video films and recordings on discs,
tapes, perforated roll or other devices are covered by copyrights.
2) Ethical Practices in use of Copyrights and Patents :
Indian enforcement agencies are now working very effectively and there has been a notable decline
in the levels of piracy in India. There is a well-established statutory, administrative and judicial
framework to safeguard intellectual property rights in India, whether they relate to patents,
trademarks, copyright or industrial designs.
a) Software Piracy :
Computer software companies have successfully curtailed piracy through court orders. Computer
databases have been protected.
b) Copyright Protection in India :
India has one of the most modern copyright protection laws in the world. Major development in the
area of copyright during 1999 was the amendment to the Copyright Act of 1957 to make it fully
compatible with the provisions of the TRIPS Agreement.
c) Commendable Software Copyright Protection in India :
The Indian government has introduced an intellectual property law that protects inventions. This
law, under the Copyright Act, 1957, provides copyright protection to computer software programs as
well.
d) Patent Protection in India :
The Indian Patent laws are neutral in their application to domestic or foreign inventions. Any
disqualification, compulsory licensing, and exclusion from patentability, are provided for only in the
larger interest to provide therein necessary and adequate safeguards for the protection of public
interest, national security, bio-diversity, traditional knowledge, etc.
e) Software Patent Protection in India :
In India, unfortunately, there is no provision for software to be patented. A software program is
an algorithm and patent law does not protect algorithms per se.
f) Cyber Squatting :
Besides copying of software codes, the biggest challenge that law-enforcing authorities face
today is that of cyber squatting, that is, illegal registration of Internet domain names of famous
companies, brands and personalities.
g) Cyber Laws :
Being a new territory, Indian law-enforcing authorities need to address many gray areas. Security
analysts feel that the Indian IT Act merely integrates law and technology and that there is no
coherence between the two.
3) Unethical Practices in Copyrights and Patents :
a) Infringement :
Copyright gives the creator of the work the right to reproduce the work, make copies, translate,
adapt, sell or give on hire and communicate the work to public. Any of these
activities done without the consent of the author or his assignee is considered
infringement of the copyright.
b) Plagiarism :
Plagiarism refers to the act of stealing someone's intellectual property without his/her consent
and due recognition. It is a practice of trying to claim credit for someone else's ideas, writings,
concepts etc.
c) Employee Raiding :
Employee raiding is the practice of unlawfully inducing an employee to leave one employer and
take up employment with another employer. The purpose of employee raiding is usually to gain
access to unique or rare knowledge or skills which the employee may possess.
d) Piracy :
The term piracy is generally used to describe the deliberate infringement of copyright on a
commercial scale. In relation to the music industry it refers to unauthorized copying.
e) In the Information and Communication Technology (ICT) :
The Information and Communication Technology has deepened its roots into our lifestyles and
become an indispensable power churning mechanism, giving one the freedom to do whatever one
wills to, at the click of a button.
C) Trademark :
Trademarks protect brand, i.e., the name of company or a specific product. The scope of trademark
protection is just within one field of business, i.e., a computer company could name their new
computer "Nike", and it (probably) wouldn't be a trademark infringement upon the athletic shoe
company.
1) Trademark Law in India :
India's obligations under the TRIPS Agreement for protection of trademarks, inter alia, include
protection to distinguishing marks, recognition of service marks, indefinite periodical renewal of
registration, abolition of compulsory licensing of trademarks, etc.
2) Trademark and Trans Border Reputation :
India recognizes the concept of the "Well-known Trademark" and the "Principle of Trans Border
Reputation". A well-known Trademark in relation to any goods or services means a mark that has
become so to the substantial segment of the public, which uses such goods or receives such
services such that the use of such a mark in relation to other goods and services is likely to be
taken as indicating a connection between the two marks.
3) Legal Remedies against Infringement and/or Passing Off :
Under the Trade Marks Act, both civil and criminal remedies are simultaneously available against
infringement and passing off.
a) Infringement :
Infringement of trademark is violation of the exclusive rights granted to the registered proprietor
of the trademark to use the same. A trademark is said to be infringed by a person, who, not being a
permitted user, uses an identical/ similar/ deceptively similar mark to the registered trademark
without the authorization of the registered proprietor of the trademark.
b) Passing off :
Passing off is a common law tort used to enforce unregistered trademark rights. Passing off
essentially occurs where the reputation in the trademark of party A is misappropriated by party B,
such that party B misrepresents as being the owner of the trademark or having some
affiliation/nexus with party A, thereby damaging the goodwill of party A.
Managers in 21St Century
1) Diversity :
Corporations in this 21st century are more of a

society composed of many different cultures than it
ever has been in the past. This is just another
complex ethical issue managers confront because
individuals from different cultures, and beliefs
working together could cause many issues including
discrimination, which could end up causing trouble
for the business.
2) Harassment :
The final complex ethical issue managers confront

in the workplace is harassment. Harassment is
morally and ethically wrong, but happens to many
employees, from sexual comments to sexual
advancements of the opposite sex.
Managers in 21St Century
3) Discrimination :
Discrimination is a complex ethical issue managers confront in

the workplace now more than ever before, due to the diversity
in the work force and the chronological discrimination based
on ethnic origin, gender, race, or sexual orientation lawsuits
are serious.
4) Fraud :
Fraud is another complex ethical issue managers confront and

can be very severe ethical violation within the company.
Ethical managers aware of deceitful activities within the
workplace are ethically required to report this to the
appropriate authorities.
5) Social and Environmental Responsibility :
In the 21st century, social responsibility has heightened ethical

Unit - 5 (B.E)

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Unit - 5 (B.E)

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5.

Corporations in this 21st century are more of a

The final complex ethical issue managers confront

Discrimination is a complex ethical issue managers confront in

Fraud is another complex ethical issue managers confront and

5) Social and Environmental Responsibility :

In the 21st century, social responsibility has heightened ethical

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