ETHICS

• Values: guiding constructs or ideas, representing deeply held generalized behaviors, which are
considered by the holder, to be of great significance.
• Morals: a system or set of beliefs or principles, based on values, which constitute an individual or
group’s perception of human duty, and therefore which act as an influence or control over their
behavior. Morals are typically concerned with behaviors that have potentially serious consequences
or profound impacts. The word “morals” is derived from the Latin mores (character, custom or habit)
• Ethics: the study and assessment of morals. The word "ethics" is derived from the Greek word,
ethos (character or custom).
Morality
“The most important human endeavor is the striving for morality in our actions. Our inner balance and even
our very existence depend on it. Only morality in our actions can give beauty and dignity to life.
Absolutism vs. Relativism
• Ethical Absolutism: What is right or wrong is consistent in all places or circumstances. There are
universally valid moral principles. (“… only by obedience to universal moral norms does man find
full confirmation of his personal uniqueness and the possibility of authentic moral growth.” - Pope
John Paul II
• Ethical Relativism (also called “Situational Ethics”): What is right or wrong varies according to the
individual/society/culture or set of circumstances. There are no universally valid moral principles.

OVERVIEW OF ETHICS VALUE SYSTEM

Ethics correspond to basic human needs , Values create credibility with the public ,Values give the
management credibility with its employees ,Values help in better decision making ,Ethics and profit go
together ,Law cannot protect the society & ethics .

ETHICS & SOCIAL RESPONSIBILITY

What are ETHICS ??
“ It’s the study of who is and should be benefited/ harmed by an action, is called ethics.”
• Ethics deals with both conflict & opportunity in human relationship. ( right & wrong)
• It is also the study of people’s rights & duties, the moral rules that people apply in making decisions
and nature of the relationships among people.
• Ethics provide the glue that holds our relationships and the larger society, together.

Ethical questions fall under one or more of following levels:

Level 1: Society
Level 2: Stake holders
Level 3: Internal policy
Level 4: Individual
• Individual level: personal level interactions, obligations and rights as human beings
• Internal policy: ethics in practices of organization w.r.t. employment, rights of employees, etc.
• Stake holders: suppliers, creditors, customers, etc.
• Society: External agencies, social institutions, etc.

Tools of Ethics:
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 • Values : Corporate values: quality services, employee development, etc.
• Rights & Duties : Right:- entitlement for an action
Duty: other person’s duty or obligation on the other person
• Moral Rules : To solve disagreements, become internalized as values
• Human Relationships : Exchange of mutual support & accomplishment of goals through
relationships- relationships are imp. Aspect of moral life- these relationships reflect our values.

Common Morality
Morality is body of rules governing the ordinary ethical problems
Promise keeping
Non- malevolence (prevent violent conflicts)
Mutual aid (among people, societies, nations)
Respect for persons (regard other people as an end in themselves)
Respect for property ( obtain consent of owners before using their property.
Ethics in business
• Ethical Audits, Ethics committees, judicial boards, Ethics training programmes, etc., :- to have
ethical policies in business
• Groups to whom corporate ethics codes apply??
* Employees & their families
* Local communities
* Suppliers
* Share holders
* Country Govt.
* Foreign Govt.s

SOCIAL RESPONSIBILITY
• Change in corrupt practices, unethical practices, exploitation of employees, imbalance of nature,
following rules of Govt., etc.
• Change: sharing profits of business with the society, needy/ backward section of society, following
principle of charity, social undertaking (Stewardship principle)
• Self- interest of the organizations to be socially responsible
• Corporate social responsiveness:- Awareness of social responsibility & response to it.
Concept of CSR
• Originated in 1950s in USA & came into public debate during 1960s & 1970s
• During 1980s to 2000, corporations recognized a responsibility towards society
• Answerable to Employees, Customers, Suppliers, Communities & Society.
Social Responsibility & Ethics:
Social responsibility of corporates: what an organization does to influence the society in which it exists,
such as through volunteer assistance programmes, charitable assistance, donating for cause, scholarships,
etc.

LEADERSHIP & ETHICS

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Ethics includes …
• Responsibility
• Putting things in right order
• Accountability
• Empathy
• Courage
• Imagination
• Balanced priorities

Some triggers of Unethical behavior

Poor Leadership
 Work hours, work load
 Lack of management support
 Little or no recognition
 Company politics
 Poor internal communications
 Excessive task orientation
Principles of Ethics
• Self interests
• Personal virtues
• Religious / Community affinity
• Governmental / Legal needs
• Societal benefits
• Universal rules
• Individual rights
• Economic efficiency
• Distributive justice
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 • Contributive liberty
The Ethics Check
IS IT LEGAL
Will I be violating either any law of the country or policy of the company?
IS IT BALANCED
Is it fair to all concerned in the short and long term?
Does it promote win-win relationships?
HOW WILL IT MAKE ME FEEL ABOUT MYSELF
Will it make me proud? Would I feel good if my decision was published in the newspaper?
Would I feel good if my family knew about it?
Cost of being unethical in business

Five P’s of Ethical Power

PURPOSE:
I see myself as being an ethically sound person. I let my conscience be my guide.
No matter what happens, I am always able to face the mirror, look straight in the eye, and
feel good about myself.
PRIDE:
I feel good about myself. I don’t need the acceptance of other people to feel important.
A balanced self-esteem keeps my ego and my desire to be accepted from influencing my decisions.
PATIENCE:
I believe that things will eventually work out well. I don’t need everything to happen right now. I am
at peace with what comes my way!
PERSISTENCE:
I stick to my purpose, especially when it seems inconvenient to do so. My behaviour is consistent
with my intentions.
PERSPECTIVE:

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 I take time to enter each day quietly in a mood of self-reflection.This helps me to get myself focused
and allows me to listen to my inner self and to see things more clearly.
Creating an Ethical Organisation
 Make the decision to commit yourself to ethics
 Recognise that you are a role model by definition, by your actions and by your values
 Assume the responsibility for instilling ethical behaviour
 Determine what you consider to be ethical practice
 Articulate your values; train your employees
 Encourage open communication
 Be consistent

BUSINESS ETHICS
Carter McNamara has defined: “Business ethics is generally coming to know what is right and wrong in the
workplace and doing what is right-this is in regard to efforts of products/ services and in relationships with
stakeholders.”
“Attention to ethics in the workplace sensitizes managers and staff to how they should act so that they retain
a strong moral compass.
• Interest in business ethics has been increasing since 1960’s
• Interest has been spurred by headlines of business scandals
• A 1982 study reported that of the Fortune 500 companies,115 companies (23%) had been convicted
of at least one major crime or paid penalties of serious misbehavior
• Is the importance of business ethics declining in business and government practices?
• Greater focus on ethics, morals and values.

Objectives of Ethics
• To define the highest good of man and set a standard for the same, i.e: deal with complex problems
like psychological, legal, commercial, political in nature.
• To study human behavior, making evaluative assessment about them as moral or immoral
• To establish moral standards and norms of behavior
• To make judgement upon human behavior based on these standards/norms.
• To prescribe moral behavior and making recommendations about how to behave or vice versa
To express an opinion or attitude about human conduct in general.
Global Ethical Issues
• Wages and hours
• Child labour
• Discrimination
• Legal and ethical business practices
• Product safety and quality
Environment
Culture & Ethics
FACTORS THAT AFFECT ETHICAL BEHAVIOUR

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What causes unethical behavior
• Stress
• Confusion
• Pressure to perform at expected levels
• Competition within the industry
• No knowledge
Some of the Unethical Business practices are :
 Cutting corners on quality
 Covering up incidents
 Abusing or lying
 Lying customers
 Stealing from the company
 Taking credits from co-workers ideas/work
 Taking or giving bribe
 Government corruption
 Financial scandals
 Product safety
 discrimination
 Sexual harassment
 Firing an employee for whistle blowing
 Divulging confidential information

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 Mahatma Gandhi said that 7 things will destroy us

1. Wealth Without Work

 This refers to the practice of getting something for nothing - manipulating markets and assets so you
don't have to work or produce added value, just manipulate people and things. Today there are
professions built around making wealth without working, making much money without paying taxes,
benefiting from free government programs without carrying a fair share of the financial burdens, and
enjoying all the perks of citizenship of country and membership of corporation without assuming any
of the risk or responsibility.
 How many of the fraudulent schemes that went on in the 1980s, often called the decade of greed,
were basically get-rich-quick schemes or speculations promising practitioners, "You don't even have
to work for it"? That is why I would be very concerned if one of my children went into speculative
enterprises or if they learned how to make a lot of money fast without having to pay the price by
adding value on a day-to-day basis.
 Justice and judgement are inevitably inseparable, suggesting that to the degree you move away from
the laws of nature, your judgement will be adversely affected. You get distorted notions. You start
telling rational lies to explain why things work or why they don't. You move away from the law of
"the farm" into social / political environments
2. Pleasure Without Conscience
 The chief query of the immature, greedy, selfish, and sensuous has always been, "What's in it for
me? Will this please me? Will it ease me?" Lately many people seem to want these pleasures without
conscience or sense of responsibility, even abandoning or utterly neglecting spouses and children in
the name of doing their thing. But independence is not the most mature state of being - it's only a
middle position on the way to interdependence, the most advanced and mature state. To learn to give
and take, to live selflessly, to be sensitive, to be considerate, is our challenge. Otherwise there is no
sense of social responsibility or accountability in our pleasurable activities.
 The ultimate costs of pleasures without conscience are high as measured in terms of time and money,
in terms of reputation and in terms of wounding the hearts and minds of other people who are
adversely affected by those who just want to indulge and gratify themselves in the short term. It's
dangerous to be pulled or lulled away from natural law without conscience. Conscience is essentially
the repository of timeless truths and principles - the internal monitor of natural law.
3. Knowledge Without Character
 As dangerous as a little knowledge is, even more dangerous is much knowledge without a strong,
principled character. Purely intellectual development without commensurate internal character
development makes as much sense as putting a high-powered sports car in the hands of a teenager
who is high on drugs. Yet all too often in the academic world, that's exactly what we do by not
focusing on the character development of young people.
 The people who are transforming education today are doing it by building consensus around a
common set of principles, values, and priorities and debunking the high degree of specialization,
departmentalization, and partisan politics.
4. Commerce (Business) Without Morality (Ethics)
 In his book Moral Sentiment, which preceded Wealth of Nations, Adam Smith explained how
foundational to the success of our systems is the moral foundation : how we treat each other, the

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 spirit of benevolence, of service, of contribution. If we ignore the moral foundation and allow
economic systems to operate without moral foundation and without continued education, we will
soon create an amoral, if not immoral, society and business. Economic and political systems are
ultimately based on a moral foundation.
 To Adam Smith, every business transaction is a moral challenge to see that both parties come out
fairly. Fairness and benevolence in business are the underpinnings of the free enterprise system
called capitalism. Our economic system comes out of a constitutional democracy where minority
rights are to be attended to as well. The spirit of the Golden Rule or of win-win is a spirit of morality,
of mutual benefit, of fairness for all concerned. Paraphrasing one of the mottos of the Rotary Club,
"Is it fair and does it serve the interests of all the stakeholders?" That's just a moral sense of
stewardship toward all of the stakeholders.
5. Science Without Humanity
 The majority of the scientists who ever lived or living today, and they have brought about a scientific
and technological explosion in the world. But if all they do is superimpose technology on the same
old problems, nothing basic changes. We may see an evolution, an occasional "revolution" in
science, but without humanity we see precious little real human advancement. All the old inequities
and injustices are still with us.
 About the only thing that hasn't evolved are these natural laws and principles - the true north on the
compass. Science and technology have changed the face of most everything else. But the
fundamental things still apply, as time goes by.
6. Religion Without Sacrifice
 Without sacrifice we may become active in a church but remain inactive in its gospel. In other
words, we go for the social facade of religion and the piety of religious practices. There is no real
walking with people or going the second mile or trying to deal with our social problems that may
eventually undo our economic system. It takes sacrifice to serve the needs of other people - the
sacrifice of our own pride and prejudice, among other things.
 If a church or religion is seen as just another hierarchical system, its members won't have a sense of
service or inner workship. Instead they will be into outward observances and all the visible
accoutrements of religion. But they are neither God-centered nor principle-centered.
7. Politics Without Principle
 But if you get a sick social will behind the political will that is independent of principle, you could
have a very sick organization or society with distorted values. For instance, the professed mission
and shared values of criminals who rape, rob and plunder might sound very much like many
corporate mission statements, using such words as "teamwork," "cooperation," "loyalty,"
"profitability," "innovation," and "creativity." The problem is that their value system is not based on
a natural law.
 Figuratively, inside many corporations with lofty mission statements, many people are being mugged
in broad daylight in front of witnesses. Or they are being robbed of self-esteem, money, or position
without due process. And if there is no social will behind the principles of due process, and if you
can't get due process, you have to go to the jury of your peers and engage in counterculture sabotage.

CORPORATE SOCIAL RESPONSIBILITY

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 Corporate Social Responsibility: The concept that corporations can and should act ethically and be
accountable to society for their actions.
 Profit Maximization: Corporate directors and officers have a paramount duty to act in the
shareholders’ best interest. Because of the special relationship between the directors and officers of
a corporation and its shareholders, the law holds directors and officers to a high standard of care in
performing these fiduciary duties. One compromise may be to pursue optimal (i.e., “best”) profits,
rather than maximum (i.e., “most”) profits.
 Stakeholder Theory: Corporations must also consider the effects of their actions and policies on
their employees, retirees, creditors, suppliers, customers, and the communities in which the
corporation does business.
 Corporate Citizenship: As receptacles of vast wealth and power, corporations should act to further
societal interests at the expense of the corporation’s own profit interest.
LEGAL VS. ETHICAL
 Legal Behavior: While certain actions are clearly legal or illegal, many decisions faced by
businesses fall within one or more “gray areas” of the law, where probability, rather than certainty,
will guide the decisionmakers.
 Ethical Behavior: Even where a contemplated action is clearly legal (or, in some circumstances,
illegal), business decisionmakers should also consider whether the action is “ethical.”
 While personal ethics are (or can be) subjective, certain guides are available to businesses trying to
meet or exceed the moral minimum (i.e., the minimally acceptable standard for ethical business
behavior): corporate and professional codes of ethics and compliance programs;
 public opinion and sentiment; and, of course, personal morality.
 For businesses operating in more than one place, the moral minimum may vary from place to place –
particularly when businesses operate abroad.
DUTY VS. OUTCOME
 Duty-Based Ethics: Ethics based upon an underlying concept of duty regardless of the
consequences of action taken or foresworn in keeping with duty. Duty-based ethics generally arise
from religious belief or philosophical reasoning.
 Categorical Imperative: In deciding whether an action is ethical, one should consider what the
effect would be if everyone similarly situated acted in the same way.
 Principle of Rights: In deciding whether an action is ethical, one should consider what effect her
actions would have on the fundamental rights of others.
 Outcome-Based Ethics (a.k.a. “situational ethics”): Ethics based upon the consequences of action
taken or foresworn, without regard to any underlying concept of duty or morality.
 Utilitarianism dictates that a decision to act or not act should be directed to producing the greatest
good for the greatest number of people.
 Applying utilitarianism (or any outcome-based ethical rule) requires a cost-benefit analysis of the
negative and positive effects of the proposed act or omission on the individuals who are likely to be
affected by it.
FOREIGN CORRUPT PRACTICES ACT
 In response to numerous scandals involving U.S. companies paying bribes to foreign government
officials in order to gain strategic concessions, Congress passed the Foreign Corrupt Practices Act
(FCPA) in 1977, which:

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 (1) prohibits any U.S. company, director, officer, shareholder, employee, or agent from bribing any
foreign government official if the purpose of the payment is to get the official to act in her official
capacity to provide business opportunities to the party offering the bribe;
 The FCPA does not prohibit bribery of minor officials whose acts are purely ministerial, as long as
such payments are legal in the foreign country.
(2) requires U.S. companies to keep detailed accounting records that “accurately and fairly” reflect all
foreign activities;
(3) prohibits anyone from making false statements or false entries in said records; and
(4) provides sanctions against both companies and individual agents who violate the FCPA.

CORPORATE GOVERNANCE

 Contemporary corporate governance started in 1992 with the Cadbury report in the UK
 Cadbury was the result of several high profile company collapses
 Cadbury report is concerned primarily with protecting weak and widely dispersed shareholders
against self-interested Directors and managers
Four Pillars of Corporate Governance
 Accountability
 Fairness
 Transparency
 Independence
Accountability : Ensure that management is accountable to the Board ,Ensure that the Board is
accountable to shareholders.
Fairness : Protect Shareholders rights ,Treat all shareholders including minorities, equitably ,Provide
effective redress for violations.
Transparency : Ensure timely, accurate disclosure on all material matters, including the financial
situation, performance, ownership and corporate governance.
Independence : Procedures and structures are in place so as to minimise, or avoid completely
conflicts of interest , Independent Directors and Advisers i.e. free from the influence of others.

Purpose of corporate governance is to have a demonstrable IMPACT on a corporation’s FINANCIAL

PERFORMANCE. “Corporate Governance is the application of best management practices, Compliance of
law in true spirit and adherence to ethical standards for effective management and distribution of wealth and
discharge of social responsibility for sustainable development of all stakeholders”.
Principles of Corporate Governance
• Rights and Equitable treatment of Shareholders
• Role and Responsibility of the Board
• Integrity and Ethical Behavior
• Disclosure and Transparency
• Following CII’s initiative, the Securities and Exchange Board of India (SEBI) set up a committee
under Kumar Mangalam Birla to design a mandatory-cum-recommendatory code for listed
companies The Birla Committee Report was approved by SEBI in December 2000
• Became mandatory for listed companies through the listing agreement, and implemented according
to a rollout plan
• 2000-01: All Group A companies of the BSE or those in the Nifty index… 80% of market cap.
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• 2001-02: All companies with paid-up capital of Rs.100 million or more or net worth of Rs.250
million or more.
• 2002-03: All companies with paid-up capital of Rs.30 million or more
Suggestions of the Kumaramangalam Birla Committee
• In the early 1999, Securiities And Exchange Board of India(SEBI) had set up a committee under Shri
Kumaramangalam Birla, a member of SEBI Board, to promote and raise the standards of good
governance . The report submitted by the committee is the first formal and comprehensive attempt to
evolve a ‘CODE OF CORPORATE GOVERNANCE’ in the context of prevailing condition of
governance in Indian Companies, as well as the state of capital markets.
Committee’s terms of reference
• To improve the standards of CG in the listed companies, in areas such as continuous disclosure of
material information, both financial & non-financial, manner and frequency of such disclosures,
responsibilities of independent & outside directors.
• Draft a code of corporate best practices
• Suggest safeguards to be instituted within the companies to deal with insider information.
• The sole and primary objective of the committee was to view Corporate Governance from the
perspective of the investors & shareholders and to prepare a ‘code’ to suit the Indian corporate
environment.
• The committee had identified the Shareholders, the Board of Directors and the management as the
three key constituents of CG.
• It attempted to identify in respect of each of these constituents; their roles & responsibilities & their
rights in context of good CG.
MANDATORY & NON-MANDATORY RECOMMENDATIONS
• The committee divided recommendations into two broad categories, namely mandatory and non-
mandatory. The recommendations which are absolutely essential for CG can be enforced by
classifying as ‘mandatory’.
• Others which are either desirable or may, for time being require change of laws, may for time being
classified as non-mandatory.
MANDATORY RECOMMENDATIONS
• Applies to listed companies with paid up capital of Rs.3 crore & above
• Composition of Board of Directors– optimum combination of executive & non-executive directors.
• Audit committee- with 3 Independent Directors with one having Financial & Accounting Knowledge
• Board procedures- Atleast 4 meetings of the Board in a year with maximum gap of 4 mnths between
2 meetings.
• To review operational plans, capital budgets, quarterly results, minutes of committee’s meeting,
director shall not be a member of more than 10 committees and shall not act as chairman of more
than 5 committees across all Companies.
• Information sharing with shareholders.
NON-MANDATORY RECOMMENDATIONS
• Role of Chairman
• Remuneration Committee of Board
• Shareholder’s right for receiving half yearly financial performance, covering critical matters like
alteration in memorandum etc.
• Sale of whole or substantial part of the undertaking
• Further use of capital
• Venturing into new business
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 • Infosys Technologies: The Best among Indian Corporates As per the Credit Lyonnais Securities
Analysis (CLSA), the corporate governance ratings of the Software firms are higher than those of
other Indian firms. Infosys, based in Bangalore, is a publicly held, ISO 9001 certified company
offering information technology consulting & software services. The software offered include
application development, E-Commerce & Internet Consulting, Software Maintenance. Respected
across the country, with very strong systems, high ethical values & a nurturing working atmosphere.
Net income of US 1,155 million and revenue of US 4,176 million. At present having US 20.4 billion
market capitalisation.
Narayana Murthy’s Global Strategy :
• Narayana Murthy’s Global Strategy Global Delivery Model – Producing where it is most cost
effective to produce & selling where it is most profitable to sell. Moving up the Value Chain –
Getting involved in a software development project at the earliest stage of its life cycle. PSPD Model
– Predictability of Revenues, Sustainability of Revenues, Profitability, De-risking.

Ethics in Corporate Culture

Ethical Problems
Ethics must be a part of a corporation's culture, simply because it is such a problematic issue in the
business world. According to John Schermerhorn's "Management," 56 percent of American workers
have felt pressure at work to act unethically, and 48 percent report committing questionable acts in the
recent past. Because ethical issues are so pervasive, a corporation must work to build a morally
responsible culture.
Ethics Training
Ethics training is the foundation of an ethical corporate culture. It gives workers the knowledge they
need to identify ethical dilemmas and ways to make morally responsible decisions. Ethics training
should also address problems such as peer pressure in the workplace, as well as common issues like
harassment and discrimination.
Enforcement
After providing workers with ethics training, a company then must enforce its policies. If reports of
unethical behavior go unchecked, employees will soon get the message that the company is only paying
lip service to the concept of ethics. Therefore, human resources must investigate all claims vigorously,
and companies must have a zero-tolerance policy toward those who have been found guilty of engaging
in unethical behavior. Punishments should be in proportion to the problem, but repeat offenders may
need to be let go.
Consequences
Companies may think they have more pressing issues to deal with, like earning profits and gaining
market share. But, in fact, those that ignore or neglect ethics often wind up paying a very high price in
terms of monetary damages and loss of good will. For example, many companies, including behemoths
such as Wal-Mart, FedEx and Morgan Stanley, have faced costly lawsuits alleging gender
discrimination. In another example, in 2008, French financial giant Societe Generale had to pay a $7
billion tab racked up by a single rouge trader.
Corporate Citizenship
Ethical operations go hand in hand with giving back. A company with an ethical culture should also be a
good corporate citizen. This means acting responsibly toward the communities it operates in, from
making sure its business does not harm the environment to sponsoring charitable programs like health
clinics and after-school services. A company whose employees are well-schooled in ethics will easily be
able to recognize its responsibilities as a good corporate citizen

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TRUSTEESHIP MGT
• Membership based organizations and charities are usually controlled by a governing body i.e
Management committee or Board of trustees
• The advancing process of globalization has been accompanied by deepening divisions & conflicts –
both between and within societies.
• Situation has aggravated recently over natural resources crisis.
• The conflict over competing claims have given rise to resistance in many forms
• Its appropriate to revitalize the Gandhian ideology of the trusteeship system
• Trusteeship visualized as a means of bringing about a change and eliminating class conflict from the
social horizon
• Certain sources like land, water, forests have such a great importance that it cannot be subjected to
private ownership. These resources being a gift of nature should be made available and free to
everyone irrespective of status in life
• Doctrine of Gandhian trusteeship calls for protecting the resources for the enjoyment of general
public rather than to permit their use for private ownership or commercial purpose
• Though Gandhiji had state ownership of land and other means of production, in his opinion, there is
no room for private property as he emphasized concept of “NON POSSESSION”
• His ideology stressed on considering a sin to amass wealth and consequently there should be no
famine or starvation.
• In the trusteeship system, Gandhiji provides a peaceful alternative to state ownership and
expropriation,
• His theory aims at solving conflicts in its two forms- interpersonal & inter-group i.e by CO-
OPERATION, PEACE & HARMONY.
• Trusteeship alone provides a practical soln for the abolition of conflict over natural resources.

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