Business Ethics

MODULE – 3

Ethics in Marketing
 Marketing ethics is not just concerned about bringing out safe
products but also concerned about the process of delivering the
product—namely, how firms advertise, promote, distribute and price
the products and examine areas within marketing, citing examples, of
good and bad ethical practices. It is important to emphasize here how
this is done without taking the consumers for a ride.
 Some products that are good for the society and some are bad. The
issue of marketing ethics is not limited to the provision of ethical or
unethical products alone. Marketing ethics also deals with how such
products are delivered to the customers. Marketing is an
organizational function and a set of processes for creating,
communicating and delivering value to customers, and for managing
customer relationships in ways that benefit the organization and its
stakeholders (our emphasis). Marketing achieves this through various
processes such as the product development, packaging, branding,
advertising, promoting, selling, distributing, pricing and customer
servicing. Determinants of the appropriate value such as
 what the product should be;
 how it is manufactured;
 its appropriate price;
 its appropriate form of packaging;
 how it is distributed and delivered to the customers;
 how it is communicated to the customers;
 the kind of incentives provided to the customers for first trial and
repeat purchase of products; and
 the appropriate division of the realized value among the
stakeholders, etc.
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are all areas in marketing laden with subjective value judgments of what
is right and wrong. Clearly, the scope of marketing ethics encompasses
not only the outcome of the product but also on the process of delivering
the outcome.

 Ethical Issues in Marketing/Advertising

1. PRODUCT DEVELOPMENT
 First, the products and services have to be safe. Then they must be fit
for their intended use. The marketer must disclose all substantial risks
associated with products and service usage. Similarly, extra cost-added
features should be identified. The manufacturers and service customers
must be aware with the same.

 Marketers can also be ‘suggested’ to turn to make current products

safer. In other words, they can be made to resort to alternatives that are
safer. Such ‘suggestions’ can be from consumer opinion, public outcry,
government sanctions, or even competitors moves, etc. For example,

 Safer products from consumer opinion, by way of changes in

preferences. These could be in terms of the lighter Diet Coke,
etc.
 Government imposes higher taxes for non-filtered cigarettes.
This forces firms to focus more on filtered cigarettes that reduce
the chances of lung cancer.
 There are many cases of marketers making products safer or
marketing safer alternatives on their own volition, thus displaying
ethical marketing action:

 Many products have moved from plastic bottles to tetra-packs

that are environmentally safer.
 Star Vijay channel carries a message on the negative effects of
consumption of alcohol or cigarettes whenever any scene on the
air has a person drinking or smoking.

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 Business Ethics

 Safety is a concept that requires constant renewal of its meaning to

understand the full impact in the sense of marketing ethics. For instance,
in India, these marketing actions go on whether it is unethical or illegal
or both:

 Most public and private transport vehicles carry more passengers

than their stipulated capacity.
 Some motorbike brands tout its racing capacity as its unique
selling proposition (USP). It is known that most metropolitan
traffic cannot bear such high speeds—either it is impossible due
to heavy traffic or it is likely to be unsafe for the user.
 Many popular movies carry gory fight sequences by its popular
heroes, treat women in low esteem, popularize stray societal
excesses as if they were the norm, etc. The negative impact of
popular cinema on the society is a subject unto itself.
 Several agricultural products use harmful chemicals. Sometimes
they are also genetically tampered for taste, variety and
abundance in production and marketed without careful study of
its side effects on consumption.
 The same product is sometimes packaged differently for different
distribution channels.
 Banks in India, especially the private banks, have encouraged their
customers to migrate from in-branch banking to automated teller
machines (ATMs) due to the fractional cost of servicing the client
through ATMs. ATM facilities are often free of charge to an account
holder. Due to such encouragement and its relative advantages, customers
have enthusiastically adopted the ATMs. Consider how bundling of such
popular free services with less popular priced products lead to an
unethical practice. ICICI Bank offers its international debit card bundled
with ATM facilities for an annual fee.

 Often, consumers face products that are priced cheap initially but its
spares and consumables are priced high.

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 Business Ethics

2. PRICING
 Cost is a fact, price is a fiction. Price is the money a consumer is to pay
for the value of goods and services received. Not engaging in price
fixing, or practicing predatory pricing, and disclosing the full price
associated with any purchase can be considered ethical marketing. The
following are often considered unethical:

 Increase prices and then discount—engage in bogus ‘sale’.

 Introduction discount for new customers.
 High prices for captive customers or on renewal for existing
customers.
 Low product price but very high service costs.
 Promoting ordinary product as a luxury one.
 High prices during shortages. For example, many vegetable
vendors would charge very high prices on old produce during
transport strike.
 Predatory pricing: To heavily discount the offering, and drive
competitors out of business—then hike prices.
 Many retailers pass off products above MRP.
 Most auto rickshaws demand high fares, regardless of the legal
fares that they are allowed to charge.
 Winner’s curse: auctions are known to elicit higher prices from
the consumers. This is particularly relevant with Internet-based
marketing that involves bidding.

3. PLACING (DISTRIBUTION)
 Distribution of products and services is transporting them from
manufacturing point to the stockiest, wholesalers, retailers and thence to
consumers. Distribution is managing the forward flow of goods and
services to the consumer and reverse flow of money from the consumer.
Recent trends are that with retailing getting more organized, their power
with the manufacturing firms is increasing. For instance, arrival of firms
like Reliance Retail, other Malls etc., has shifted balance of power from
manufacturing firms to retailers.

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 Not manipulating the availability of a product or service for the purpose

of exploitation and not using coercion or undue influence on the
marketing channel are certain norms of ethical marketing action. The
reverse can also be considered: a large channel or retailer can coerce a
manufacturer to consider unethical terms because of its large consumer
base.

 Major firms coercively push a slow moving product along with a

fast moving one to the retailer.
 Firms often have direct sales departments that bypass established
retailers.
 Many retailers sell products that have crossed expiry date.
 Products are moved in unsafe vehicles—for example, cooking
gas cylinders are moved in vehicles that are not designed to carry
them and often they lack fire safety equipment in case of
emergency.

4. PROMOTIONS (ADVERTISING)

Advertising uses media like the print, TV, radio, billboards, etc. Ethical
marketing action is avoiding false and misleading advertising.

a. Surrogate advertising:
 Most liquor firms carry ads of products like golfing equipment,
apple juice, or soda water with prominent display of the name of
the liquor brand without any reference to liquor. ITC withdrew
from sponsoring the India cricket team through its Wills brand;
reasons apparently are of ethics.
 Pan Parag, Chutki, and Ranjigandha are brands of pan masala
(non-tobacco based) and gutkha (tobacco based). These brands
freely air their brands on all media without adequately
differentiating between their tobacco and non-tobacco versions.
Health Ministry does not opine such ads as surrogate advertising.
b. Using irrelevant attributes in ads:
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Nirma used to promote its washing cake with the tagline ‘Zyada
jhaag, zyada safedi’—more froth, more whitening capabilities.
When it was pointed out that frothing in no manner enhances
product performances, Nirma and many other such brands
withdrew those ads. Use of irrelevant attributes in ads abound. The
italicized attributes below are irrelevant:
 Polo, a mint with a hole.
 Pears transparent Soap.
 Fair & Lovely Fairness Soap with fairness beads.
c. False claims:
 Many B-schools claim 100 per cent placements even though in
truth many seats might have been filled through not so ethical
means.
d. Use of deception:
 Advertisers pay the search engine companies to have their
products and services listed ‘high’ in the search results. Thus the
listings look like information from an objective database
selected by an objective algorithm. But really they are paid ads
in disguise and are deception.
 Some opine that IIPM, a B-school with branches in several
cities in India, uses in its ads good rankings of any one of its
branches as if it were rankings for all its branches.
e. Advertising to children:

 Issues here are very complicated and immensely serious.

 Average children under the age of five years cannot distinguish
between commercials and programs.

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 Business Ethics

 Advertisements directed to children under eight are inherently

unfair, as children are unable to evaluate product claims and they
trust the source of the claims.
 Children between eight and 10 years of age can be made anxious
by ads, as they know ads do not always tell the truth. Children
also are aware that they do not always know when ads are
truthful or not.
 Children are vulnerable to ‘host selling’ techniques (i.e., sales
messages by hosts or characters from programs). These
messages have authority for children.
 Children can be misled or deceived by technique (size, shape,
speed, performance) used to display products to best advantage.
f. Racial stereotyping:

 Consider ads that portray Sikhs or Parsis in ways that may

negatively affect their sentiments. Or consider usage of attractive
women in ads that has little connection to the product.
 Affecting values of a society: Consider the ad for Hyundai
Santro’s Zip Drive that featured popular cine actor Shah Rukh
Khan, zipping zig-zag to be ahead of a heavy traffic. Obviously,
the brand fails to convey the importance of orderly and lane
driving.

g. Use of fear appeals:

 Life insurance firms often use fear appeals targeted at women
suggesting dire consequences upon the husband’s death lest
one is not insured.
 A popular fairness cream brand promotes itself by using the
fear of rejection at an interview merely because one is dark
skinned.

 Unethical Marketing Practices in India

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 Business Ethics

A case of Coca-Cola:
 Kala Dera (Jaipur)
 Declared over exploited ground water area (1998)
 Coca-Cola established plant in 2000
 Many difficulties faced by villagers
 University of Michiyan (US)
 Assessment
 Legal Proceedings
 Relocate a plant in water surplus area
 Shut down
 Misrepresented issue (Water harvesting)
 Green Company?????

I-MBA/SEM-V/BE/M-III PROF. NITA MEGHANI

 Business Ethics

Ethics in HRM (Human Resource Management)

 In recent times, with increasing globalization and integration
of global economies with one another, the growing importance of
knowledge management, and the need to find and put in place
cutting-edge brainpower, has placed human resource management
(HRM) on a high pedestal. Human resource with the requisite
qualification, managerial expertise and experience is increasingly
becoming scarce visa-vis the growing demand for it. You can
organize and manage successfully industries without natural
resources, as the Japanese have demonstrated. Capital can be
procured without a problem if you offer safe return with high interest
rates. But to manage all these resources successfully you need an
intelligent, efficient and committed human resource without which
land will be barren, capital unused and the organization rudderless.

 HRM is a management function involving the recruitment of suitable

human resources, training, developing and sustaining their
competencies, motivating them, offering them rewards on a rational
and equitable basis, and ensuring their continued commitment to the
organization for achieving its overall objectives.

HR Related Ethical Issues

 The ethics of HRM revolve around those ethical issues arising out of
the employer-employee relationship, such as the rights and duties
owed between them.
 There is no denying the fact that HR executives have to play an active
role to provide ethical leadership in the organization. Such leadership
arises not only out of their responsibility to keep the organization out

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 Business Ethics

of trouble and away from labour welfare departments of

government, but also to be seen as having a major stake in ensuring
fair and equitable treatment of employees without any bias or
discrimination.
 To achieve this fairness, HR executives should, apart from having an
ethical conscience, follow a well-laid system of procedures that
address the range of human resource issues in the pursuit of
organizational justice.

1. DISCRIMINATION ISSUES

Most of the discrimination issues center around discrimination on the

bases of age, gender, race, religion, disabilities, weight and
attractiveness. These discriminations are clearly exhibited by Indian
corporations in matters of recruitments and promotions. By seeking
only ‘experienced’ persons, corporations tend to weed out youthful
candidates, though they may have the requisite qualification. There are
companies that do not recruit lady candidates as they are likely to
resign their jobs after marriage, or when married may seek maternity
leave to which they are legally entitled.

2. SUPPRESSION OF DEMOCRATIZATION IN THE WORKPLACE

Corporations often suppress the democratic rights and representation

of employees in bodies that would promote the latter’s collective
interests. Tempting and bribing pliable union leaders, union busting
and strike breaking are normally used by them to defeat the purpose of
collective bargaining and other democratic rights of workers.

3. PRIVACY ISSUES

Employees may want their religious, social and political beliefs, and
their personal lifestyles to be private matters and be safe-guarded from
public gaze or from being analyzed. There may be few exceptions
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where employees may grudgingly accept such analysis only when it is

an absolute necessity in the matter of job requirement. There are a few
areas that pose ethical dilemmas to employers pertaining to matters of
privacy of their employees or any prospective employee. For
instance, a firm’s need for personal information of an employee may
militate against his desire for privacy. Workplace surveillance through
viewing them on close-circuit TVs, tapping of phones, reading of
computer files without the consent of the affected employees are all
breaches of the privacy of employees.

4. RECRUITMENT AND SELECTION

Taking advantage of their vantage position in the organization and the

vulnerability of job seekers, a lot of questions are asked by HRM
personnel from prospective employees which breach their privacy
such as requiring them to disclose confidential information about the
past employer, wanting to know whether he or she has a close friend
among the opposite sex, seeking to know his or her financial status,
caste and family matters, showing undue interest in knowing from a
prospective mother when she intends to have a baby, asking unwanted
details of personal nature in job application forms and sharing
personal information of the employee to a third party for
background/reference checking.

5. PERFORMANCE TRACKING

Performance tracking is another area where the privacy of employees

is often intruded. Though there may be some justification for the
employer to do this, in several cases it is overdone. ‘In case of new
age industries like BPOs, call monitoring, desktop tracking, and other
electronic monitoring mechanisms are widely used to track on-job
performance, work habits and client management. These activities
clearly restrict any possible misuse of organizational resources, but
also give the possibility of tracking personal conversations and
messages of employees.’

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 Business Ethics

6. PRIVACY ISSUES OF COMPUTERIZED EMPLOYEE RECORDS

With increasingly large number of employee records stored in

computers, it is a worrisome factor that unauthorized persons could
access employee information of a confidential nature such as home
addresses, salary data, performance appraisals, drug test results, etc.
Another employee records issue is accuracy of information. It will be
ideal if employees are permitted occasionally to view their personnel
records to make sure that they are timely and accurate.

7. SAFETY AND HEALTH

To ensure the productivity of employees, HRM executives have the
responsibility to provide a safe and conducive atmosphere at the
workplace. However, in actual practice this is hardly done. It is well
known that much of the industrial work is hazardous. This is due to the
extensive use of high-speed and noisy machinery, production processes
requiring high temperature, an increasing reliance on chemical
compounds, and the nature of works such as construction, underground
and underwater tunneling, drilling and mining. Accidents, injuries, and
illnesses are very common in the very nature of such jobs. Often these
are not even taken seriously, but dismissed perfunctorily as
‘occupational hazards’. Over the past two decades, new types of
accident and illness have emerged, including the fast-growing job-
safety problem of office injuries.

8. PERFORMANCE APPRAISALS

Another area which generates unethical practices from the HRM

executives relates to performance appraisal. Even though it is difficult
to quantify an employee’s performance where a number of value

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 Business Ethics

judgments are involved, the evaluators should have an ethical mind to

evaluate their personnel. The overall objective of performance review
is not only to offer to the top management an honest and ethical
assessment of employees, but also to help the latter improve their
efficiency and effectiveness to the organization. To ensure a fair
assessment, therefore, calls for a keen observation and judgment of
employees. But then, this is rarely, if at all, done. In many cases,
performance review is done based on extraneous factors such as the
assessee’s personal relationship with the assessor, what his or her
colleagues have to say, and sometimes even based on caste,
community or religion.

Workers’ Rights and Duties in an ethical

environment

 Rights:

Right to privacy:
 This right to privacy applies to the employee's personal
possessions, including handbags or briefcases, storage lockers
accessible only by the employee, and private mail addressed only
to employee. Employees may also have a right to privacy in their
telephone conversations or voicemail messages. However,
employees have very limited rights to privacy in their e-mail
messages and Internet usage while using the employer's computer
system.
Fair compensation
 A skilled, motivated and engaged workforce is essential to
achieving our growth ambition. Five principles underpin our
Framework:

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 Business Ethics

1. Fair and livable compensation

2. Market-based compensation
3. No discrimination in compensation
4. Performance-focused compensation providing alignment to our
business
5. Open and explainable compensation.

Freedom from discrimination

 Those rights include the right to be free from discrimination based
on age, gender, race, national origin, or religion during the hiring
process. For example, a prospective employer cannot ask a job
applicant certain family-related questions during the hiring
process. (Gender, Religion, Age etc)

Other important employee rights include

 Right to be free from discrimination and harassment of all types;
 Right to a safe workplace free of dangerous conditions, toxic
substances, and other potential safety hazards;
 Right to be free from retaliation for filing a claim or complaint
against an employer (these are sometimes called "whistleblower"
rights);
 Right to fair wages for work performed.

Duties:
Workers must:

 take reasonable care for their own health and safety

 take reasonable care for the health and safety of others who may
affected by their acts or omissions

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Job Completion
 When employers perform certain checkups on employees, often
completing regular evaluations and other job-performance checks,
managers cannot keep all employees under watch at the same time.
While some employees choose to put less effort into their work
when they are not being watched, they are ethically compelled to
give 100 percent effort to their job at all times.

Honesty
 Ethical employees are always honest, consistently giving truthful
information to their employers and, in doing so, helping the
employer make informed decisions. Remaining truthful without
fail can present a challenge, particularly when presenting a little
white lie would help an individual advance within her current
position; however, honesty is not only the best policy, but it is also
the morally correct path on which all employees should remain.

Money Usage
 In the world of business, monetary transactions are highly
common, presenting the opportunity for employees with unsavory
motives to mis-allocate funds. While the opportunity to cash in on
some easy money is too tempting for some workers to resist,
ethical employees use money responsibly and in alignment with
company policy even when they know that a monetary misuse will
not be caught.

Conflict of Interest

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 When an individual is an employee of more than one company

simultaneously, conflicts of interest can occur. Some companies
specifically forbid employees from working with competing
companies or in another fashion that could present a conflict of
interest. Even when this prohibition is not in place, employees with
strong ethics should avoid these conflicts of interest. In doing so,
they can ensure that their relationship with their current company
remains strong and their reputations as business people remain
unblemished.

The Act also specifies that in determining whether a worker failed to

take reasonable care, 'regard must be had to what the employee knew
about the relevant circumstances'.

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 Business Ethics

Ethics in Finance
The finance industry is at the center of economy, it enables the flow of
capital between savers and companies. Ethical problems within financial
industry can have disaster consequences for all other areas of economy.

 Importance of Ethics in Finance:

 Ethics is important on the level of individual business within finance

industry.

 For e.g. an accountant has to develop client relationship based on

trust and respect.

 Some profession in finance industry also have specific code of ethics.

They need to put client desires first on priority, need looking after
their financial resources and in they must maintain trust that their
clients’ money is safe because of ethical behavior. Such relationship
get destroyed and results into failure if company does any unethical
behavior. Businesses in finance industry should be transparent with
their customer related to all relevant information to ensure that all
parties understand and conscious about contract.

 They should keep client information confidential by not using their

personal information for personal games.

 As much as possible they should self-regulated, ensuring that their

employees comply with relevant laws and professional codes of
ethics.
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 Scope of ethics in Finance:

1. The financial service industry is highly regulated.

2. Ethical regulation minimizes fraud, theft and misuse of finance.
3. Ethics purifies the industry
4. Ethics sets the standard of excellence for professionals in finance
industry.
5. Ethics in financial services affect everyone even consumers.

 Codes of ethics in Finance:

1. Protecting financial interest of clients.

2. Conduct in business with high transparency.
3. It helps to analyze situations before any product or service
recommendations.
4. Use of completely accurate, compliant state and central government
regulations.

 Responsibilities of Finance manager:

1. Legal issues

2. Balancing Act

3. Whistle blowers

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 Creative Accounting:
 Creative accounting referring to account in practices that may follow
the rules of standard accounting policies, but certainly deviate from
the spirit of that rules’ terms. It’s also called Innovative Accounting.

 The term generally understood or refers to systematic

misrepresentation of the true income and assets of organization.

 Creative accounting is at the root of number of accounting scandals.

 For e.g. Granting of stock options are recorded as executive

compensation.

 Creative accounting refers to the accounting practices that follow

required laws and regulations but deviate from those standards.

Definition:

“Creative Accounting is a process of recording accounts whereby

accountants use knowledge of accounting rules to manipulate figures
reported in the accounts of business.”

 Importance of Creative Accounting:

 It is useful when company is in a difficult financial situation.

 It is useful to state within legal limits even after doing

manipulations in accounts.

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 It is related more and more to managers’ actions. Directors are

increasingly judged on profits growth and EPS of a company.

 Applications of Creative Accounting:

 To hide a particular bad year of a company.

 Force exceptional good year.

 Continue pressure always be the best.

 Smooth out results to give an impression of stability or sustained

improvement.

 How creative accounting results positively in the mind of

customers.

 Tax Reduction Techniques:

i. Tax Evasion (Misrepresentation):

 Tax evasion is illegal method. Here, people pay lesser tax by fraud
and convincing the authority that they are liable to pay only an
amount X instead of Y. whereas X is letter than Y.

 Tax evasion is illegal in almost all countries and invites penalties.

ii. Tax Mitigation:

 Tax mitigation is the method by which people reduce tax liability

by using some techniques that the government is offering.
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 For e.g. If government is giving tax incentive, if you set up a

factory in some rural area where bullocks are used for
transportation and you avail it by setting up your new business of
software and asking for tax incentive is called tax mitigation.

iii. Tax Avoidance:

 Tax avoidance is something that businessman and some salaried

people know very well. Tax avoidance is where you use some
loopholes in a system thereby bringing down your tax liability. In
India if serviceman earns Rs.10 Lacs per year, he has very limited
scope to avoid tax payments. He can at best save some money in
tax saving schemes and reduce tax liability by at most 20 to 30
thousand rupees. He will have to pay income tax of Rs.1-2 Lacs per
year. They cannot avoid tax payment but they can if they like. They
can compensate expense by taking bribes up to any extent.

iv. Tax Planning:

 Now that is what most people do, tax planning is that point where you
reduces tax liability by taking insurance policies, buying bonds etc.

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 Case study: “Satyam Computers Private Limited”

It is about corporate governance and fraudulent auditing practices
allegedly in connivance with auditors and chartered accountants. The
company misrepresented its accounts both to its board, stock exchanges,
regulators, investors and all other stakeholders. Even basic facts such as
revenues, operating profits, interest liabilities and cash balances were
grossly inflated to show the company in good health.

A special CBI court on Thursday sentenced B Ramalinga Raju, his two

brothers and seven others to seven years in prison in the Satyam fraud
case.

The court also imposed a fine of Rs 5 crore on Ramalinga Raju, the

Satyam Computer Services Ltd's founder and former chairman, and his
brother B Rama Raju and Rs 20-25 lakh each on the remaining accused.

Fake invoices and bills were created using software applications such as
'Ontime' that was used for calculating hours put in by an employee
· A secret programme was allegedly planted in the source code of the
official invoice management system creating a user id 'Super User' with
the power to hide or show the invoices in the system.

I-MBA/SEM-V/BE/M-III PROF. NITA MEGHANI