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Presented by: Subhash Yadav Sanjay Kumar Mallik
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Definition Personal ethics and Business ethics Morality of Law Management and Ethics Normative Theories Some more Normative Theories of Business Ethics Teachings of Church Gandhian Principle of Trusteeship Business and Islam Conclusion
Definition of Ethics: Many ethicists prefer to call ethics as study and philosophy of human conduct , with an emphasis of determining right and wrong.
The American Heritage Dictionary define ethics as
The study of the general nature of morals and specific moral choices; moral philosophy ; and the rules or standard governing the conduct of the members of a profession.
In sum, ethics as a moral and normative science refers to
principles that define human behavior as right, good and proper.
Personal Ethics and Business Ethics
y Personal ethics refers to the set of moral values that form
character and conduct of a person.
y Organization ethics describes what constitutes right and wrong
or good and bad, in human conduct in the context of an organization.
y Organization ethics concerned with the issue of morality that
arises in any situation where employers and employees come together for the specific purpose of producing commodities or rendering services for the purpose of making profit.
y An organization can be defined as a group of people who work
together with a view to achieving a common objective.
the study of what is morally right or morally wrong. y An action can be illegal. . this patriotic deed of freedom loving Indians was no doubt an admirably brave and moral action. y An action that is legal can be morally wrong: It will be legal for an organization which is running in loss to lay off a few employees but it is not morally right to do so. but morally right: During the freedom struggle many wanted freedom fighters had hidden themselves in the houses of patriotic Indians to save themselves from prosecution and imprisonment. Ethics refer to study of human character or behavior in relation to moral values.Morality and Law y Morality refers to human conduct and value. that is. Though this was against the British law in India.
profits. quantity. cost-cutting. . quality. Ethical issues occur in all decision making process.Management and Ethics y Management of any business involves hundreds of decisions. efficiency. y The success of any organization is measured by revenues. These objective of organization may run in direct conflict with its social commitment which is measured in terms of obligation to stakeholders. both within and outside organization.
the organization should ensure that the interests of stakeholders are not adversely impacted. y While doing so. y Cost-cutting may be used as a tool to enhance revenue and profit. .Contd. It should produce useful. y For its own survival.. the company may layoff some workers. safe. and quality products and services at affordable prices. This requires fine balancing act on the part of organization. it is necessary that the organization should maintain its competitive edge in the market. In the process of realizing profit.
. y Normative ethics (also known as moral theory) is the study of what makes actions right and wrong. or what actions are right or wrong.Normative Theory y Ethics is a normative study. and would include sentences like companies should follow corporate governance standards or managers ought to act in a manner to avoid conflicts of interests. These theories offer moral principles one could appeal to in resolving difficult moral decisions. It aims to arrive at conclusions about what things are good or bad. y A normative theory aims to discover what should be.
Normative Theory Consequentialist Non-consequentialist (Deontological-Duty based) Kantian Theories Egoism Utilitarianism .
Kant s ethics. . According to William H Shaw . the theory that a morally right action results in the greatest good to the largest number of people. and prima facie principles. both as an ethical theory and as a psychological theory. Utilitarianism. 4. Other non-consequential themes: duties. with his emphasis on moral motivation and respect for persons. 2. 3. 1. There are consequential and non-consequential normative theory.Normative Theories There are different normative perspectives and ethical principles that often contradict one another . moral rights. They are following: Egoism.
y Philosophers distinguish between two kinds of egoism: personal and impersonal. . y Decision based on egoism mainly are intended to provide positive consequences to a given party s interest without considering the consequences to the other parties. groups or organizations) long term interests. y Egoism contends that an act is morally right if and only if it best promotes an agent s (persons.Ethical Theories in Relation to Business EGOISM: y Egoism is an ethical theory that treats self-interest as the foundation of morality.
They may be able to safeguard their interest without hurting the interest of others. y Impersonal egoists argue that everyone should follow their best long-term interest.. It doesn t mean that an egoist will act against the interest of society. then we can say that the organization acts ethically. y The personalist theory argues that person should pursue there long-term interest . . y When an organization performs or safeguards its interest without hurting the interest of others. and do not dictate what others will do.Contd.
or by top executives. . y According to proponents of psychological egoism. human beings are so made that they must behave selfishly. is an attempt by the whistle blower to either take revenge or become a celebrity. y Whistle-blowing in an organization to bring to the notice of top brass the unethical acts practiced down the line.Psychological Egoism y Ethicists who propose the theory of egoism have tried to derive their basic moral principle from alleged fact that humans are by nature selfish creatures . They asserts that all human actions are motivated by self-interest and there is nothing like unselfish actions.
Ethical egoism ignores blatant wrongdoings. assumes that all actions of men are motivated by self interest: It ignores and undermines the human tendency to rise above personal safety as proved in thousands of examples of personal sacrifices at the times of calamities such as floods. By reducing . irrespective of the nature of issues or circumstances. earthquakes and other natural disasters. 2.Criticism of the theory of Psychological Egoism 1. Psychological egoism is not a sound theory inasmuch as it 3. every human act to self-interest and self-serving. bribery. the theory does not take a clear stand against so many personal or organizational vices such as corruption. pollution. for they wanted to be motivated by their own best interests. Egoism as an ethical theory is not really a moral theory at all: Those who espouse egoism have very subjective moral standard. gender and racial discrimination.
. y Utilitarianism was described by Bentham as "the greatest happiness or greatest felicity principle".Utilitarianism: Ethics of Welfare y Utilitarianism is an ethical mentalist theory holding that the proper course of action is the one that maximizes the overall "good" of the society. The most influential contributors to this theory are considered to be Jeremy Bentham and John Stuart Mill. y It is thus a form of consequentialism. y Ethics is nothing but art of directing the actions of man so as to bring about the greatest possible happiness to all those who are concerned with these actions. meaning that the moral worth of an action is determined by its resulting outcome.
y The utilitarianism principle assumes that we can some how measures and add the quantities of benefits generated by an action and deduct from it the measured quantities of harm that act produced. the utilitarian principle holds that An action is right from an ethical point of view if and only if the sum total of utilities produced by that act is greater than the sum total of utilities produced by any other act. y Summarized. . and determine thereby which action produces the greatest total benefits or the lowest total costs.Contd..
Analysis of Utilitarian Theory When we analyze the utilitarian theory. y . there are certain inferences and implications of the theory that we must take into account: y When utilitarian says that practising the theory will lead to the greatest happiness for the greatest number . One s action will affect other people in different degrees and thus will have different impacts. we should include the unhappiness or pain that may be encountered along with the happiness.
y Maximization of happiness is the objective of utilitarianism not only in immediate situation but in long term as well.. Utilitarianism agree that most of the time we do not know what would be the future consequence of our actions. y y .Contd. Utilitarianism does not expect us to give up our own pleasure while choosing among possible actions.
The theory provides an objective means of resolving conflicts of self interest with the action for common good. . 3. It provides standard for a policy action namely. 2.. more than any other alternative. if it promotes welfare of all. result oriented approach to ethical or moral decision making.Contd. In organizational context it should be understood that: 1. then it is good. The theory provides a flexible.
This lack of clarity creates problems. and time to time. especially with respect to social issues that are given different interpretations by different social or cultural groups. . so the concept of a single utility for all humans is one-dimensional and not useful. it cannot be the basis for a scientific theory. y Karl Marx argues that human nature is dynamic. Hence. y It concerns with lack of predictability of benefits and costs. place to place. Utility is a psychological concept and it differs from person to person. then they cannot be measured. If they cannot be predicted.Problems with the Utilitarian Theory y It concerns the measurement of utility. y It concerns the lack of clarity in defining what constitutes benefit and what constitutes cost.
y Kant stressed that the action must be taken only for duty s sake and not for some other reason. . ii. our actions have no true moral worth. y The core idea of his theory is that an action is right if and only if we can will it to become a universal law of conduct. When we act out of feeling. people must act from duty.Kantianism: Ethics of Duty y Immanuel Kant's theory of ethics is considered deontological for several different reasons: i. Kant argued that it was not the consequences of actions that make them right or wrong but the motives of the person who carries out the action. inclination. This means that we must never perform an action unless we can consistently will that it can be followed by everyone. or self-interest. Kant argues that to act in the morally right way.
To sum up.Organizational Importance of Kantian Philosophy y Kant introduces an important humanistic dimension to business decisions. To act only in ways that one could wish others to act when faced with the same circumstances. Blind beliefs or rituals cannot be the foundation for morality. y The two formulations of Kant are as follows: 1. y For Kant an action has moral worth only when it is done with a sense of duty. reason is the final authority for morality. Kant gives more importance to individuals. . 2. Always to treat other people with dignity and respect. to Kant.
Normative theories y Presently there are three normative theory of business ethics that have evolved over a period of time . Normative Theories of Business Ethics Stockholder theory Stakeholder Theory Social Contract Theory .
also known as shareholder theory . who are the managers running the day-by-day business of the company. businesses are merely arrangements in which one group of people . expresses the business relationship between the owners and their agents. the managers to realize certain ends beneficial to them. the shareholders advance capital to another group namely. y As per the theory. . namely . y The managers are empowered to manage the capital advanced by the shareholders and duty bound by their agency relationship to carry on the business exclusively for the purpose outlined by their principals.Stockholder Theory y The stockholder theory . In this arrangement managers act as agents for shareholders.
y According to the strict interpretation of the stockholder theory. y The stockholder theory has been succinctly summarized by economist Milton Friedman who asserted thus there is one and only one social responsibility of business to use its resources and engage in the activities designed to increase its profits so long as it stays within the rules of the game . which is to stay engaged in open and free competition without deception or fraud .Contd. managers have no option but to follow the dictates of their masters. .. y If the stockholders vote by a majority that their company should not produce any obnoxious product which in the perception of the managers would be profitable business proposition the managers still have to abide by the decision of the owners of the company.
non-deceptive means. guided as it is by Adam Smith s Invisible Hand . One s pursuit of profit .. there is another deontological argument as well to buttress it. even ignoring ethical constraints .Contd. . y The theory stresses that managers should pursue profit only by legal . y Apart from this Consequentialist line of thinking in support of the stockholder theory. A lot of adverse criticism against the theory could have been avoided had the critics appreciated the stockholder theory did not stresses that managers were expected to pursue profit at all costs . The argument runs like this : stockholders provide their capital to managers on the condition that they use it in accordance with their wishes. y The stockholder theory is also associated with the line of utilitarian argument adopted by liberal classical economists. goaded by one s enlightened self interest in a free market economy leads collectively to the promotion of general interest as well .
it is because of its perceived association with the utilitarian supporting argument and neo-classical economists. in his Ethics and Excellence (1992) finds it not only foolish in the theory.Criticism of the Stockholder Theory y Robert C. Solomon . by inference . . y Another criticism of the stockholder theory is based on a false analogy . faith in invisible hand of the market forces. that businesses are also justified in carrying out social welfare activities without the consent of the stockholders . but cruel and dangerous in the practice and misled from its nonsensically one-sided assumption of responsibility to a pathetic understanding of stockholder personality as Homo Economicus . It goes like this : if governments of democratic societies have a moral justification to spend the taxpayer s money for promoting the common welfare of people without taking their consent. then it might mean . y Many ethicists wish to dismiss the theory as impractical and even foolish.
therefore the stakeholder theory argues that a corporate s success in the market place can best assured by catering to the interests of all its stakeholder . customers . y In its empirical form . . employees .suppliers . namely shareholders.Stakeholder theory y In a narrow sense. management and local community . the corporate would have to adopt policies that would ensure the optimal balance among them. y To achieve its objective . the stakeholders are all those identifiable groups or individuals on which the organisation depends for its survival.
y This theory is concerned with how managers and stakeholders actually behave and how they view their actions and roles. y Normative Stakeholder theory contains theories of how managers or stakeholders should act and should view the purpose of organization. Another approach to the stakeholder concept is the so called descriptive stakeholder theory. y In the past view years the concept of stakeholders has boomed a lot and academics wrote a lot about the topic. regulators. In some literature the own interest is conceived as the interests of the organization. . But also nongovernmental organizations (NGOs). media. business and policymakers are thinking about the concept and are trying to implement it in some way or the other. The stakeholder theory deals with how managers should act if they want to flavor and work for their own interests.Contd..
Stakeholders of a firm NGOS Environment Governments Trade unions Suppliers Creditors competito r Firm Customers Judiciary Employees Stockholder Political groups Critics Others Media .
y Too often. y However .. the stakeholder theory unfortunately carries some sort of an unclear label since it is used to refer to both empirical theory of management and normative theory of business ethics often intermixed and without distinguishing one from the other . who gets how much money from the firm). managers sit in an office trying to divine what stakeholders want from their relationship with the organization. y The fact that different people want different things from their relationships with organizations makes it impossible to know with certainty what stakeholders want.. .g.Contd. y Stakeholder discussions often focus on allocating some measure of organizational value or outcome (e.
y If some activist group or competitor threatens the viability of the organization. managers need to know what the stakeholders believe to be in their best interests prior to trying to make this happen-a first priority of sorts. y Normatively legitimate stakeholders (those stakeholders to whom the organization has an obligation) take moral precedence over derivatively legitimate stakeholders. y There is one final way that stakeholder theory can provide some managerial guidance in prioritizing stakeholders. Certainly. managers should expend as much time and effort as necessary to deal with this threat.Contd.. .
y It provides a response to the argument that the interests of stakeholders who are directly involved with the activities of an enterprise are already taken into account because they are engaged in voluntary transactions. . the enterprise must be a moral obligation in order to legitimate the claims of stakeholders. y Running an organization does not license a manager to violate the norms and standards of society. y Stakeholder Theory to claim that . but instead introduces a brand-new set of moral considerations based on stakeholder obligations..Contd.
y It assumes value is produced by the enterprise itself and that stakeholders have a claim on some of this value because the enterprise is a creature of society. Its focus is on the distribution of the outcomes. the harms and benefits. and not on who produced the harms and benefits.Criticisms y The cause of criticism of this theory is that there is comparatively little empirical evidence to suggest a linkage between stakeholder concept and corporate performance . or what. y Stakeholder Theory does not provide an alternative answer to the question of who. . produces economic value.
Contd. the Stakeholder Theory is limited to situations where ownership is weak.. generalizing from corporations to all enterprises. y Stakeholder Theory is limited to the problem of governance and control in large corporations the problem of moral justification of Stakeholder Theory turns on the idea that maximizing stockholder wealth or other interests of owners cannot morally be taken as more privileged than the interests of others who have a stake in the enterprise. At best. this would limit Stakeholder Theory to a very small number of very large corporations. y Stakeholder Theory does not make a clear distinction between enterprise and corporation. it dramatically overstates the separation of ownership and control. y As a normative model. .
and so goes against the fiduciary obligation owed to shareholders (a misappropriation of resources).. rather than effecting change in the organization.Contd. . y Stakeholder Theory becomes a matter of moralizing about. since it offers the opportunity to the agents to divert wealth away from shareholders to others. y In the assessment of Clive Smallman The stakeholder model also stands accused of opening up a path to corruption and chaos . y Thus stakeholder model of corporate governance leads to corrupt practices in the hands of managements with a wide option.
. It is closely related to a number of other theories. y The social contract theory based on the principle of social Contract wherein it is assumed that there is an implicit agreement between the society and any created entity such as business unit. the social contract theory stresses that all business are ethically duty bound to increase the welfare of the society by catering to the needs of the consumers and employees without in any endangering the principles of natural justice. In its most acknowledged form. in which the society recognizes the existence of a condition that it will serve the interest of the society in certain specified ways.The social contract theory y The social contract theory is one of the nascent and evolving normative theories of business ethics.
John Lockeand Jean Jacques Rousseau. All these political philosophers tried to find an answer for a hypothetical situation as to what life would be in a society in the absence of a government and tried to provide an answer by imagining situations of what it might have been the citizens to agree to form one . y The theory drawn from the models of the political-social contract theories enunciated by thinkers like Thomas Hobbes.Contd.. y The social contract theory adopts the same approach as the one adopted by the political theories towards deriving the social responsibilities of a business firm. . y The social contract theory is based on an assumed contract between business and members of the society who grants them the right to exist in return for certain specified benefits that would accrue to them .
. pollute the environment and poison water bodies . ensure that pollution is avoided . benefit consumers to enable them reach maximization of their wants. y Taking into account these respective advantages and disadvantages . 2. 3. y However business firms do not provide an unmixed blessing. benefit employees to enable them secure high incomes and other benefits that accrue by means of employment . The interests of the public as consumers can be adversely affected by business firms when they deplete the natural resources . .Contd. business firms are likely to produce the social welfare element of social contract and enjoin that business firms should act in such a manner so as to: 1. natural resources are not fast depleted and workers interests are protected. help to reduce the personal accountability of its member and misuse political power through their money power .
y So the social contract is more of fiction than a true contract. a contract is an agreement between two or more persons which is legally enforceable provided certain conditions are observed . Legally speaking .Criticism of social cotract theory y Critics argues that the so-called social contract is no contract at all . .
comprises sets of principles. The church s concern for the marginalized is always expressed through their teaching.Teachings of Church y The church always supports and promotes the welfare of the poor. y The less privileged and the marginalized realize the fact that the wealth is in the hands of a few. y The social teaching of the church. based on Christian ethics. This emerging awareness of the mass is supported by the church. guidelines and applications which provide a compelling challenge for individuals as well as corporations in responsible citizenship. .
y Gandhi also advocated Sarvodaya. meaning welfare for all.Gandhian Principle of Trusteeship y The pholosophy of trusteeship implies that an industrialist or businessman should consider himself to be a trustee of wealth he possesses. He was of the firm view that capital and asset should supplement each other. y The wealth belongs to the society and should be used for the greatest good of all. . y It does not recognize capital and assets as individual property. He should think that he is only a custodian of his wealth meant for the purpose of business.
y Be restrict in regard to weights and measures. y No excessive oath in a sale. . y Transaction of things that are forbidden is also forbidden. such as intoxicants. Muzammil H Siddiqi in his article Business Ethics in Islam enumerates the following major principles drawn from the teachings of Prophet Mohammad: y No fraud or deceit. y Hoarding is forbidden. y Need for mutual consent.Business and Islam Dr. y The prophet was very much against monopoly.
They attempt to be coherent and systematic.Conclusion y Ethical theories represent the grand ideas on which guiding principles are based. striving to answer the fundamental practical ethical questions: What should I do? How would I live? .
org/wiki/Utilitarianism accessed on 27 July 2011 http://www. C.(2009).C. Business Ethics Himalaya Publishing House.net/education/familymedicine/biomedical -ethics-theories.medindia.S.wikipedia.htm accessed on 5 Aug 2011 . A.V(2009). New Delhi Murthy. Business Ethics: An Indian Perspective y y y y Pearson.Bibliography y Fernando.wikipedia. Mumbai http:// en.org/wiki/Ethics accessed on 27 July 2011 http://en.
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