Business Ethics and Corporate Governance

Answer Key:

Part A (6 marks each)

Q1. What do you mean by business ethics? Are business and ethics compatible?

Ans: Business ethics is the application of ethical ideas to business behavior. Ethical business behavior
facilitates and promotes good to society, improves profitability, fosters business relations and employee
productivity. Applying ethics in business makes good sense because it induces others also to follow
ethics in their behavior. Further ethics is closely related to trust and trust leads to predictability and
efficiency of business. Hence business and ethics are compatible and the slogan of ‘Business of business
is ethical business” is very apt in the current business environment.

Q2. Write a note on ‘values’ indicating the test to accept those expressions as values.

Ans: A value is a view of life and judgment of what is desirable and that is very much a part of a person’s
personality and group’s morale. Personal values refer to conception of what and an individual or group
regards as desirable e.g. honesty, reliability, loyalty etc. Personal values are imbibed from parents,
teachers and elders, and as an individual grows, values are adapted and refined in the light of new
knowledge and experience. Values are personal in nature while ethics is a generalised value system.
Values vary among managers and such a variance may be a source of conflict at the time of business
strategy formulation and implementation. Managers have to reconcile divergent values and modify
values, if necessary. A judicious use of politics and power, redesigning of corporate culture, and systemic
changes can help to modify values gradually.

Concept of values may differ from person to person. In order to test whether a value is good in itself the
philosopher Immnuel Kant propounded the categorical imperative to act in a way that is right and just
for any other person in the similar situation. In other words, it is a test of whether the rule/decision if
applied universally would be desirable for the society. There could be other tests in different cultural
and social settings which can also be considered.

Q3. What are the two important conflicting objectives in decision-making?

Ans: One of the important conflicting objectives in decision making from the ethical perspective is the
choice of values (means) applied to achieve the purpose(ends). Another conflicting objectives would be
between consequentialism (teleological/Utilitarianism) and decisions emanating from ones
duty/motive (deontologism). Other conflicting objectives viz. short term versus long term, self interest
vs. stakeholder interest etc. may also be considered for awarding marks based on the logic explained

Q4. What are the charateristics that make the decision ethical?

Ans: Ethical decisions must be legal, balanced and right.

An ethical decision should not lead to violation of civil and criminal laws of the land or appear being
improper/ immoral or harm or embarrass the customers or company.

It should be balanced and be fair to all parties concerned- in the short-term and long-term, fair to the
competition and should not cause customers to view the industry negatively.

It should make the decision maker feel right and proud of the decision, even if the decision happens to
appear in the front page of the news papers.

Q5. What are the main moral duties of a business to its customers? Describe.

Ans: The moral duties of business:

 Protect its own self interest

 Protect the interests of the business community and create trust
 Keep its commitment to the society to act ethically
 Meet stakeholder expectations
 Prevent harm to the general public
 Build trust with key stakeholder groups
 Protect t from abuse of unethical employees and competitors
 Protect their own reputation
 Protect employees
 Create and environment in which workers can work in ways consistent with their values etc.

Q6. What is Corporate Governance? Why is the concept of Corporate Governance essential in
conducting business?

Ans: Corporate Governance is the system by which companies are directed and controlled. It involves a
set of relationships between a company’s management, board, shareholders and other stakeholders.

Good Corporate Governance can lead to improved/sustainable company performance, higher firm
valuation and share performance, better access to external finance, lower costs of capital – interest
rates on loans and reduced risk of corporate crisis/scandals etc.

Good corporate governance can also create trust and reputation among stakeholders through proper
accountability, fairness, transparency and independent decision making.

Q7. Explain the role of International commission on Corporate Governance

Ans: If the question is genuinely attempted, marks may be liberally awarded. If the roles of any of the
international agencies involved/facilitating in establishing good governance/code of conduct viz. UN
Commission on Transnational Corporations (UNCTC), OECD, GATT, WTO, IMF, UNDP, CRT,SAI,GRI, UN
Global compact etc. , additional weightage may be given.

Q8. Briefly mention the social responsibilities of business towards its shareholders.

Ans: Four dimensions of the social responsibility can be envisaged in a pyramidal structure, starting with
the economic consideration at the base level and voluntary/philanthropic considerations at the highest
level .

a) Economic – earn profit. Business ethics embodies standards, norms, and expectations that
reflect concerns of major stakeholders.Social responsibility is associated with Increased profits,
increased employee commitment and greater customer loyalty.
b) Legal – comply with the law
c) Ethical - Not just “for profit” only
d) Voluntary & Philanthropic – Promote human welfare and goodwill

Part B ( 10 Marks)

Q9. What do you understand by the following word ethics, morals and values? Explain the nature and
objective.

Ethics can be defined as the study of values and customs of a person or group. It covers the analysis and
employment of concepts such as right and wrong, good and evil, and responsibility.

Morals are principles of right and wrong. Morality is the moral code of an individual or of a society.

A value is a view of life and judgment of what is desirable that is very much a part of a person’s
personality and group’s morale. Personal values refer to a conception of what and an individual or group
regards as desirable e.g. honesty, reliability, loyalty etc. Personal values are imbibed from parents,
teachers and elders, and as an individual grows, values are adapted and refined in the light of new
knowledge and experience.

Values are personal in nature while ethics is a generalized value system. Ethics can be seen as a set of
moral principles guiding behavior and action. Business ethics can provide the general guideines within
which management can operate.

Values vary among managers and such a variance may be a source of conflict at the time of business
strategy formulation and implementation. Managers have to reconcile divergent values and modify
values, if necessary.

Q10. Discuss about importance of ethics in decision making

Ethics can:
  Provide rationale for ethical behavior
 Provide intellectual weapons to support ethical standards.
 Enable associates to recognize issues that may result in ethical dilemmas.
 Sharpen sensitivity and conscientiousness of moral issues and moral solutions.
 Strengthen moral courage.
 Help associates make sense of abstract ethical priorities (policies, procedures, ethical
performance standards).
 Improve the moral climate of the organization.
 Strengthen the pursuit of better ways to guide employee decisions and behavior.
 Increases awareness and sensitivity to ethical differences across cultures.
 Coincide with legal and social pressures.
 Ensure that all organizational participants understand and are in close touch with
organizational/ethical values.
 Influence the personality, reputation, and image of the organization etc.

Q11. Discuss the issues connected with the intellectual property rights and stealing of trade secrets
with illustration

Ans: Intellectual property rights include patents, copyright, industrial design rights, trademarks,
plant variety rights, trade dress and trade secrets etc. The main purpose of intellectual property law
is to encourage the creation of a large variety of intellectual goods for which, the law gives people and
businesses property rights to the information and intellectual goods they create, usually for a limited
period of time.

Trademark infringement is the unauthorized use of a trademark or service mark on or in connection

with goods and/or services in a manner that is likely to cause confusion, deception, or mistake about the
source of the goods and/or services. Eg:- manufacture and sale of fake and spurious goods.

Typically, a party (other than the patentee or licensee of the patentee) that manufactures, imports,
uses, sells, or offers for sale patented technology without permission/license from the patentee, during
the term of the patent and within the country that issued the patent, is considered to infringe the
patent rights . Eg: sale and use of pirated softwares

Copyright law gives creators of original material, the exclusive right to further develop them for a given
amount of time, at which point the copyrighted item becomes public domain. Violation of copy rights
include unauthorisedly copying the published materials of others.

A trade secret is a formula, practice, process, design, instrument, pattern, commercial method, or
compilation of information not generally known or reasonably ascertainable by others by which a
business can obtain an economic advantage over competitors or customers. In some jurisdictions, such
secrets are referred to as confidential information. Infringements include industrial spying, copying the
trade dress, stealing know how or unauthorisedly using them without paying license fee/royalty come
under this category.
Relevant, contemporary and specific examples of violations/infringements of copy right/patents can
be considered and suitably rewarded.

Q12 Corporate Social responsibility can’t be separated from economic efficiency of any business
organization

Corporate Social Responsibility is the continuing commitment by business to behave ethically and
contribute to economic development while improving the quality of life of the workforce , their families
as well as of the local community and society at large. CSR encompasses the economic, legal, ethical and
discretionary (philanthropic) expectations that society has of organizations at a given point in time.

First and foremost, businesses exist to make profit, and this isn’t meant to change as a goal. The reality
is that no organization operates in isolation. There is interaction with employees, customers, suppliers
and stakeholders. CSR is about managing these relationships to produce an overall positive impact on
society, whilst making money.

CSR isn’t just good for the environment and communities – it’s likely to significantly influence business
success. Enabling employees to participate in charitable initiatives could actually deliver returns to
businesses by reducing training and development costs. Giving employees a sense of pride by
empowering them to make a difference to their communities can help in staff retention.

Hence CSR cannot be separated from economic efficiency of business organisations.

Part C 10 Marks

Q13. ‘A code of ethics specifies the rules of operation’. Defining the statement discuss how the code
of ethics are ethical tools? How would you develop them?

Ethics can also be defined as the study of values and customs of a person or group. It covers the analysis
and employment of concepts such as right and wrong, good and evil, and responsibility.

A code of ethics can provide the general guidelines for ethical behavior and action within which
management can operate and in that sense they are ethical tools.

The development of a code of ethics is a dynamic process that can be developed by:

 Conducting an ethical audit, which can provide a critical assessment of functioning of

business, type of training necessary for employees, the need to enhance, measure and
promote the quality that increases business performance and the quality of governance viz.
structure, policies, systems ,procedures, prevailing code of ethics etc.
 Establishing proper structures and systems viz. ethical leadership, ethics committee, ethics
officers as well as proper policies and procedures for implementation of the code of conduct .

 Establishing a code of ethics that is concise and easy to understand that espouses the values,
that need to be consistently operated, by taking broad inputs and support from the employees
all levels.

 Providing access to a copy of the corporate code of conduct to the employees and get their
acknowledgement of having read and understood the same.

 Conducting ethics training through a comprehensive ethics education program to encourage

employees to act responsibly, ethically and principle-based. Employees should be made aware
of the sanctions/penalties for infractions of the code of conduct.

 Setting examples by communicating the code of conduct and actively using it in the decision
making.

 Seeking feedback from employees and provide feedback to the employees on the corporate
values and code of conduct and ensure that that the work environment does not create conflict
with the code of ethics.

 Measuring the extent to which the activities and business conduct comply with the standards it
has publicly declared to its stakeholders as well as against the varied moral standards of the
community and making modifications if necessary etc.