COURSE CODE: BDS 311

COURSE TITLE: ETHICS AND DEVELOPMENT

YEAR: 2021

SEMEMSTER/TRIMESTER: 3

MODE OF STUDY: ODEL

CREDIT HOURS:

CONTACT HOURS: 42 Hours

LECTURER: Mrs. Jenipher Otieno

CONTACTS: 0727 277618 E-mail: jotieno@mua.ca.ke

LECTURE HOURS:

CONSULTATION HOURS: Monday by email

Copyright

ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a

retrieval system or transmitted in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise without the prior written permission of the
copyright owner. This publication may not be lent, resold, hired or otherwise disposed of
by any way of trade without the prior written consent of the copyright owner.

©The Management University of Africa

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Acknowledgement

We wish to acknowledge the immense contributions accorded to the author of this

study park, Dr. Leonard Wambua (PhD) by all those involved in manuscript
preparations, typing services, proof reading, and printing work among others.
Specifically, we wish to thank the Director, Open Distance and E-Learning Dr. Peter
Kithae, the ODEL working team and the entire support staff of the Management
University of Africa led by the ICT personnel. We cannot also forget to acknowledge
authors of the core reading materials as well as of the recommended text books from
where most of the materials were sourced. To you all we say big THANKS!

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ABOUT MUA

MUA is a premier University in management, governance and leadership sponsored by

The Kenya Institute of Management (KIM). The University was established on 2nd
September 2011. Since then the University has established itself as a leader and local
hub for Management, Leadership and Governance training in the Higher Education
sector. The University offers market driven courses to spur economic growth and
produce dynamic Managers and Leaders for Africa and the World.

This module has been developed for use in the Management University of Africa ODEL
Programme by Dr. Leonard Wambua

Instructions

Study Approach
This study guide is intended help distance-learning students in their independent
studies. In addition, it is only for the personal use of the student since it is a property of
Management University of Africa. The course has been broken down into twelve
lessons each of which should be considered as approximately one week of study for a
full time student

Each week spent at least three hours to study the lessons and to answer the study
questions meant to help you revise

Continuous Assessment Tests (CAT)

5th week Continuous Assessments one to be delivered 15 Marks

8th Continuous Assessments two to be delivered 15 marks

Final Examination 70%

Total 100%

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Purpose of the Course

1.0 COURSE PURPOSE

The purpose of the course is to bring out those issues of ethics and moral nature so that
student can discuss them in class and it is hoped that a sense of moral values will be
developed in their lives and help them to become more morally mature in their
professional and day today lives.

2.0 COURSE LEARNING OUTCOMES

At the end of the course students should be able to;

1. Define such terms as ethics, moral values and relate them with the day today
business environment
2. Evaluate the various theories of ethic and relate them with their experience in their
lives;
3. Given a case study be able to bring out moral issues and lessons and make moral
decisions
4. Evaluate the global trends in business ethics in relation to business ethics rating in
Kenya
5. Evaluate the role of organizational culture and ethical behavior of employees

3.0 COURSE CONTENT

An introduction to the concept of ethics, Values, Ethics and morality; Moral

development pyramid, Beliefs, Religiousness and Law. Ethical Decision Making -
Normative Framework –Principle of personal benefit, Principle of Social Benefit,
Principle of Neutralization, Categorical Imperative, Principle of Duty, Principle of
Justice and Principle of Lawfulness. Approaches / Theories of ethics – Gandhian
Approach, Friedman’s Economic theory, Kant’s Deontological theory, Mill & Bentham’s
Utilitarianism theory, Aristotle’s Virtue based ethics and Narrative based ethics. Ethics
in Business – Myth & Reality, The Kenyan Business scene, Ethical Concerns, Global
trends in business ethics, Business ethics rating in Kenya. Organizational Ethics –
Organizations & Organization culture,Corporate code of ethics – Formulating,
Advantages, implementation Professionalism and professional ethics code. Whistle
blowing. Business & Society - Business & its stakeholders, Social Responsibility –
Concept of CSR, Public Policy approach & role of NGO, Environmental Ethics –
concerns, issues & case studies. Corporate Governance - Objectives, issues, features,
Corporate Governance codes Corporate Governance for public sector, Corporate
Governance & Investment – ethical investing, Insider trading, Case studies –Enron case.

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Other issues such as Ethical Issues in Marketing, HRM, IT, Industry; Ethics and
Equality; HRM and Employee Well-Being; Ethics Audit.

4.0 TEACHING METHODOLOGY

Teaching will take the form of a three hour lecture per week. The teaching methodology
will combine the use of the lecture style inputs and more participatory methods - small
group discussions, student presentations, among others.

5.0 COURSE TEXT

1. O. C. Ferrell (2010): Business Ethics: Ethical Decision Making & Cases, South-
Western College.
2. Linda K. Trevino (2010): Managing Business Ethics, Wiley.
3. Laura Hartman (2010) Business Ethics: Decision-Making for Personal Integrity &
Social Responsibility, McGraw-hill.

6.0 FURTHER READING

1. O. C. Ferrell (2009): Business Ethics 2009 Update: Ethical Decision Making and
Cases, South-Western College.
2. Terry Halbert (2008): Law and Ethics in the Business Environment, South-Western
College.
3. Acevedo, A. (2001). Of fallacies and curricula: A case of business ethics. Teaching
Business Ethics, 5, 157-170.
4. Cornelius, N., Wallace J. and Tassabehji, R. (2007). An analysis of corporate social.
responsibility, corporate identity and ethics teaching in business schools. Journal of
Business Ethics, 76, 117-135.
5. Dean, K. L. and Beggs, J. M. (2006). University professors and teaching ethics:
Conceptualizations and expectations. Journal of Management Education, 30, 15-44
6. Goshal, S. (2003). Business schools share blame for Enron. Financial Times, July 17,
pg. 21.
7. Jackson, K. T. (2006). Breaking down the barriers: Bringing initiatives and reality
into teaching business ethics. Journal of Management Education, 30, 65-89.
James, C. R. and Smith G. (2007). George Williams in Thailand: an ethical decision-
making exercise. Journal of Management Education, 31, 696-712.

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 TOPIC: 1
INTRODUCTION TO ETHICS AND DEVELOPMENT

Learning objectives
By the end of this topic, the learners should be able to;

a) Define ethical Development and the goals of ethical development

b) Definition of ethics
c) Discuss various ethical theories that guide development practice.

Ethics
Ethics is a discipline which attempts to examine and understand ways in which choices
are made involving issues of right and wrong. The field of ethics uses the "raw material"
of moral discussions to define two approaches which are:
1. Descriptive
Descriptive ethics is concerned with examining and analyzing the reasons people give
for moral beliefs and behavior in different cultures. This documentation describes the
language and reasoning processes which are used by a particular group or individual to
distinguish right from wrong.
2. Prescriptive.
Prescriptive or normative ethics deals with what "ought" to be rather than what "is"
giving reasons which are open to public scrutiny. What "ought" to be reflects the highest
vision for conduct which is not only morally acceptable, but morally best. It is a search
for authoritative standards which govern moral choices. Both of these components,
which lack sharp distinctions, involve a definition of ethics requiring reflection about
moral conventions and reasoning
Ethical Theories
Some philosophers argue that there really are only two systems for determining what is
right or good.
How "right" and "good" are connected through a course of action is the primary
difference between two of the most common ethical systems which are
1. Teleological Theories
Right is defined as that which maximizes what is good or minimizes what is harmful
for the greatest number of people .The focus is on the consequences or end. One
example is utilitarianism which advocates maximizing the amount of "good" for the
largest group. One problem with this system becomes who decides what is beneficial or
harmful for whom? Good can be defined by the results of the final action chosen or by
following a rule which allows for the most favorable outcome. Critics point out that a
utilitarian philosophy can lead to behaviors which are clearly unacceptable. Imagine a

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town where people enjoy watching public hangings so much that the guilt or innocence
of the one hanged is unimportant.

2. Deontological Theories
What is right and good are separated - one is independent of the other.
Right is not defined in terms of what is good. These terms are not related in that
producing a favorable outcome is not the goal. Doing right means avoiding actions
which are said to be wrong by some external standard.

For instance, if lying is wrong, then telling a lie to a person, who wants to kill another, is
wrong even if the lie would prevent a death. Certain things are inherently right or
wrong as often defined by religious tenets or professional codes of behavior.
The Ten Commandments is an example of an external set of rules. One limitation of
these systems is that not much assistance is offered when conflicts in stated principles
arise. If principles have equal weight, how do you prioritize?
The last major system looks at the individual's character and does not rely on an
external ethical set of guidelines

3. Virtue theory
This system focuses on the motives and intentions of the individual and asks what a
"good person" would do in real-life situations.
Virtue is used in the same sense as character traits or integrity. Virtue theory has its
origins in the writings of ancient Greeks, Thomas Aquinas and Kant. Those who favor
virtue ethics complain the other two major theories ignore central and important
questions about personal integrity or character.

2. An Introduction to the Concept of Ethical Development

Development Definition
Development is a complex issue, with many different and sometimes contentious
definitions.
A basic perspective equates development with economic growth.
The United Nations Development Programme uses a more detailed definition-
according to them development is 'to lead long and healthy lives, to be
knowledgeable, to have access to the resources needed for a decent standard of living
and to be able to participate in the life of the community.'
Achieving human development is linked to a third perspective of development which
views it as freeing people from obstacles that affect their ability to develop their own
lives and communities. Development, therefore, is empowerment: it is about local

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people taking control of their own lives, expressing their own demands and finding
their own solutions to their problems.
Definitions of development Ethics
Development Ethics, following Denis Goulet, work is ‘ethical and value questions posed
by development theory, planning and practice’ (Goulet, 1977: 5). I discuss elsewhere,
the scope and boundaries implied by Goulet’s definition; they notably depend on how
we use the term ‘development’, but clearly include both policy ethics and the ethics of
the individual actor.

Ethical Goals of development

Despite the fact that development is a relative good in terms of value issues, Goulet
(1975, 1995) argues that there are three common acceptable universal values ,namely, i)
life-sustenance, ii) esteem, and iii) freedom that societies and individual sought to
investigate within a value based context of the “good life”. Theses universal
accepted values compose the ethical goals of development.
i) Life-sustenance refers to the nurture of life. Goulet (1975, 88) points out that one of
development’s most important goals is to prolong men’s lives and render those men
less ‘stunted’ by disease, extreme exposure to nature’s elements, and defenselessness
against enemies.” The importance of life sustaining goods (e.g. food,
shelter, healing or medicine) is generally acknowledged by all societies (Goulet, 1975,87-
88; 1995, 41-43). Because of life-sustenance as a value of universal significance,
life-sustaining indices are also used as a measurement of development.
ii) Esteem: All human beings in all societies feel the necessity for respect,
dignity, honor and recognition. The discussion involves esteem values and material
prosperity, and, particularly, how esteem contends with “development” (in a sense of
high rate of well-being, economical and technological advance). The more the material
prosperity becomes the centre task of the development of a society the greater is the
subordination of esteem to material affluence. The reaction of a society to the
aforementioned material approach to development and its need for esteem can lead
these societies to opposite directions, either towards “development” or towards
resistance of it. In the first case, society tries to gain esteem via “development”, while at
the latter it try to protect its profound esteem from inward “development”. Both acts
seek to gain esteem. Therefore, esteem is a universal goal whether development” is
accepted or not.
iii) Freedom is valued both from developed and non-developed societies as
one of the components of the “good life”. Development ought to free humans from all
servitudes. Even thought there is a vast philosophical discussion on the term and the
claim that freedom is enhanced by development is not self-evident, freedom is widely
accepted as something beneficial and desirable.

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Ethical Strategies of development
In development ethics, strategic principles are normative judgments which provide
both the notional and practical framework under within which development goals
should be discussed and policy recommendations over those goals ought to be
formulated. Accordingly, three ethical strategic are targeted (Goulet, 1975, 1995):
The abundance of goods in a sense that people need to have ‘enough’ in order to be more
 At any given time man is less than he can become and what he can become
depends largely on what he can have” (Goulet, 1975, pp. 129-30).
 Hence, men need ‘to have enough’ goods in order to be human. This must be
investigated under the notion of a humanistic approach on how much is
‘enough’ for people in order to have a ‘good life’. There is not an absolute answer
to the above issue.
 Nevertheless, it is widely accepted that underdevelopment (poverty, misery,
diseases, mass famine etc) diminishes humanity.
 Thereby, ‘enough’ should be, at the minimum, all these goods that lead to cover
biological needs, and additionally to free part of human energy in order for it to
be allocated to a wider range of life aspects beyond covering first order needs.
Altogether with the concept of enough’ goods there is that of ‘superfluous’
wealth.
 At the same time, whereas underdevelopment hits two thirds of the globe, rich
classes and nations consume with a superfluous way by exploiting nature
recourses. This can be characterized inhuman in twofold: First, the maintenance
of superfluous wealth along with underdevelopment conditions is inhuman both
for those who have it and those who not have it.
 Second, the hyper-consumption manner of life in “developed” nations has
distorted the way that the “good life” is perceived: “having more” (material
goods wealth) leads to the notion of “being more” (successful, attractive,
valuable) (Fromm1999; 2005).
Therefore, with regard to the strategic principle of the abundance of goods, three
distinctive points are noteworthy.
 First, all individuals need to have ‘enough’ goods in order to realize
themselves as human beings.
 Second, enough is not an absolutely relative measure but it can be defined in
an objective basis.
 Third, both underdevelopment situations and superfluous wealth lead to
dehumanization of life.

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2) Universal solidarity. It concerns an ontological and philosophical issue. It
Can be distinctive in three points:
 First, all people be in agreement that beyond differences (in nationality, race,
culture, status etc) a common ‘human-ness’ is present.
 Second, the earth as a cosmic body is governed by identical laws (physical roles)
and all men dwell on this planet. Humans share a common occupation of the
planet. In spite of differences in geography or climate, all humans are linked
directly or indirectly with other people due to the fact of cohabitation into this
cosmic body.
 The third component of the universal solidarity is derived by the all humans’
unity to destiny. Development ethicists assert that no universal solidarity exists
to consolidate unfair social relations. The rebuilding of social relations and in
situations in a basis of equality is more than necessary.
3) Participation. Theories of participation possess an important issue in the
Stud of development. In general, the elite theory (e.g. Burnham 1960; Putnam 1977;
Bottomore 1993) claims that decision making into a society concerns a ‘job’ for
Specialists in each particular field of life.
 Elite theory is made in a basis of “competence” that leads to an alleged efficiency
within a society. For development ethics, participation is a matter for discussion.
 In Goulet (1995, p. 97) words, “participation is best conceptualized as a kind of
moral incentive enabling hitherto excluded non-elites to negotiate new packages
of material incentives benefiting them”.
 Even though development ethicists espouse that different kinds of development
require different forms of participation, they argue that non-elite participation in
decision-making enables people to mobilize and gives them control over their
social destiny (Goulet, 1989).

The philosopher Ivan Illich underlines “Participation is deprofessionalization in all

domains of life…so as to make ordinary people responsible for their own well-being
[cited in (Goulet, 1995, p. 91)].
For ethicists, participation is perceived in the sense that common people are involved
not only as receivers of the privileges of development but also as agents of their destiny,
building their model of development.
To what extent populace participation should takes place is a matter for discussion,
what is certain is that via participation at least three vital actions are performed:
participation
 offers to non-elites the ability to state goals independently of their social
position,

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  (ii) abolishes political patron, in a sense that ordinary people themselves become
problem-solvers in their social environment,
 And (iii) launches individual and social formations toescape of the rationale of
‘do-it-yourself’ problems of micro level gaining access the macro arena of
decision-making (Goulet, 1995, pp. 91-101).

The concept of the Authentic Development

This section puts forth the concept of authentic development and distinguishes it from
the conventional notion of development or otherwise to the way that for many years the
developed nations deal with the problem of underdevelopment.
 The adjective ‘authentic’ is used by Goulet (1996) to endow the term
‘development’ with all those traits that development should entail in order to be
sustainable and human.
 Authentic development refers to the means and ends of human action, or in
other words, to the vision of a better life and the way that this life can be
accessed.
 As it is previously mentioned, development ought to respond to long-standing
philosophical inquiries concerning the meaning of the good life, the foundation
of justice in society and within societies, and the stance of human individual and
societies towards nature.
For all people and any society in the world, authentic development ought to cover at
least three objective aims that correspond to the aforementioned goals of development:

 to pursue more and better life-sustaining goods for all human beings,
 b) to create and improve the conditions that nurture the sense of esteem of
individuals and societies,
 c) to release humans from all forms of servitude (to nature, to others people, to
institutions, to beliefs) (Goulet, 1995, pp. 47-48).
 Any concept of human fulfillment is highly relative and as Goulet (1975, pp. 96-
108) points out, development can be examined as a dialectical process.
 Development goals are usually interactive and no range exists among life
protection, esteem and freedom.
 The essential point is that authentic development should not judge the
abovementioned goals (as is conventionally the case) but these goals must
become the criteria which authentic development itself must be judged (Goulet
1995, p. 48).
 In this mode, grading a nation high economic growth does not mean that it has
followed an authentic development pattern.

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  No authentic development can be achieved if massive consumption leads
societies to an entirely material way of living emphasizing the notion of ‘have’
instead of ‘be’; if structural relations between nations and within them (among
classes and individuals) are competitive and there is not equal distribution of
development proceeds; if the exploitation of material resources leads to the
destruction of ecological balance, if technological advantages are used to abolish
freedom.
Authentic development, namely sustainability and human development is at the center
of discussion for the last decades. In an effort to define it, during the progress of a
seminar entitled “Ethical Issues in Development” that took place at the city of Colombo
in Sri Lanca in 1986 (cited in Goulet, 1996, pp. 197-198), it is agreed that any definition
of development should take into account at least the following six conceptual
propositions :
 Economic component, related with wealth, material life conditions (amenities),
and their equal distribution of them.
 2) Social ingredient, connected with social goods as health, housing, education,
employment etc.
 3) Political dimension, in a sense of the protection of human rights and political
freedom.
 4) Cultural elements, with accord to the idea that cultures cultivate people’s
identity and self-esteem.
 5) Ecological soundness, to promote a type of development that respects natural
resources and forces for the restoration of the environment.
 6) System of meaning, which refers to the way that a society perceives beliefs,
symbols and values concerning the historical process and the meaning of life.
The aforementioned conceptual elements might reflect a consensus on what Goulet calls
authentic development. Important element not fully described within the above
analysis relate to issues of ethical value relativity and popular participation where
overlap the notion of development.
Study Questions

a) Define ethical Development and the goals of ethical development

b) Definition of ethics
c) Discuss various ethical theories that guide development practice.

TOPIC: 2

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 VALUES, ETHICS AND MORALITY

Learning objectives
By the end of this topic, the learners should be able to:

d) Describe various views on moral development

e) Discuss Kohlbergs theory on moral development
f) Define values and the development of values.

The question of morality—what is right and what is wrong in human relations may be
the central issue of our time. Other questions that often are thought to outrank this one
in importance—such as how we should relate to modern technology, or how nations
should act in the interest of maintaining peace and of the future of the civilized world—
also are moral questions. Classes in ethics are
Taught notonly in the undergraduate curriculum but also in the professional schools.
Doctors, lawyers, and school and public administrators attend
seminars about morality.
Our techniques and skills have developed faster than our comprehension
Of our goals and values; perhaps the renewed interest in these ends will help to provide
us with much-needed answers to the crises and anxiety that are part of our lives.
Individuals are continually judging their own conduct and that of their fellows. They
approve of some acts and call them “right” or “good.” They condemn other acts and
call them “wrong” or “evil.” Moral judgments always have to do with the actions of
human beings and, in particular, with voluntary actions—those actions freely chosen.
Involuntary actions—those over which people have no control—are rarely open
to moral judgment, as a person usually is not held responsible for an action that she or
he did not initiate.

Levels of Moral Development

A significant interpretation of three levels of moral development was presented several
years ago. According to this model, people at the preconventional
level make moral decisions based on avoiding punishment by authorities or on
satisfying their own needs; morally right behavior is defined in terms of what brings
satisfaction to oneself.
An example of this level is the choice to behave in a particular way primarily to avoid
punishment; another is generous or kind acts toward others primarily for the resulting
good feelings within oneself. Individuals at the conventional level choose their moral
options according to customary societal norms, in order to obtain
The approval of others, or to preserve social harmony; right action is defined as loyalty
to othersand respect for law and order.

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At the post conventional level of moral development, one relies on internalized
personal principles of responsibility or on principles believed to be universally valid;
right action is defined in terms of general principles chosen independently. The literary
portraits we have of Socrates, Jesus, and Gandhi suggest their highly principled
morality at the third level.
Understood in Kohlberg’s way, we may expect to discover people who make their
moral judgments ranging from reliance upon external authorities to carefully selected,
internalized principles. In fact, a given individual might make social-moral decisions at
the preconventional level, establish business-moral conclusions
at the conventional level, and develop political moral resolutions at the post
conventional level.

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Moral development pyramid

Kohlberg’s stages of moral development

Kohlberg’s stages of moral development (1958) are the stages in thinking about right
and wrong that everyone goes through growing up. Each stage builds on the one before
so you have to go through them in order. You can get stuck at any stage, though most
make it to Stage 4. The first three stages are universally human.

Kohlberg loved to ask questions like the Heinz Dilemma:

Heinz’s wife is dying. The druggist in town has discovered the cure. It cost him $200 to
make but offers it to Heinz for $2000. Heinz asks everyone he knows for money but can
only come up with $1000. He promises to pay the rest later. The druggist says no: he
wants to make money from his discovery. That night Heinz breaks into the shop and
takes the medicine.

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Was Heinz right? Why or why not?

Here is the common sort of thinking at each stage:

Stage 1: Avoiding punishment

 Key concepts: authority, obedience, punishment

 Those at this stage: small children

Heinz was wrong: he will wind up in prison! Punishment is proof that it is wrong.

Stage 2: Self-interest

 Key concepts: fair deal, favors, what’s in it for me?

 Those at this stage: schoolchildren

Heinz was right: he wanted to save his wife. After all, she takes care of his children and
maybe someday she will return the favor. Or: Maybe after a while he will see that going
to prison to save his wife was a raw deal.

Stage 3: Good boy attitude

 Key concepts: motive, character, doing what society expects

 Those at this stage: anyone who lives only in a face-to-face world: early teens,
people who live in small towns or tribes cut off from the rest of the world

Heinz was right: it is what any good husband would do! No judge with his head
screwed on right would put him in prison. If anyone should go to prison it is that
druggist!

Stage 4: Law and order morality

 Key concepts: law and order, duty to society

 Those at this stage: late teens, most people in large, faceless societies

Heinz was wrong: without respect for the law, society would fall apart!

Society has to somehow work even though most people do not know each other. You
see moral action from the point of view of society as a whole,

Stage 5: Social contract

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  Key concepts: rights, democracy, changing unjust laws, revolution
 Those at this stage: Jefferson, some in their middle twenties or later

Heinz was wrong but the judge should go easy on him. The druggist has a right to
profit from his discovery, but the wife has a right to life.

You judge society against your own ideas of right and wrong. After all, societies can be
well-run yet evil, like Nazi Germany and the Jim Crow South.

Stage 6: Principle

 Key concepts: duty to justice, civil disobedience

 Those at this stage: Gandhi, Martin Luther King. No one Kohlberg tested had
clearly reached this stage!

Heinz was right. We have a duty to justice to break unjust laws.

What is a belief?

A belief is an idea that a person holds as being true.

A person can base a belief upon certainties (e.g. mathematical principles), probabilities
or matters of faith.

A belief can come from different sources, including:

 a person’s own experiences or experiments

 the acceptance of cultural and societal norms (e.g. religion)

 What other people say (e.g.education or mentoring).

A potential belief sits with the person until they accept it as truth, and adopt it as part of
their individual belief system.

Each person evaluates and seeks sound reasons or evidence for these potential beliefs in
their own way.

Once a person accepts a belief as a truth they are willing to defend, it can be said to
form part of their belief system.

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What is a personal value?

Values are stable long-lasting beliefs about what is important to a person. They become
standards by which people order their lives and make their choices.

A belief will develop into a value when the person’s commitment to it grows and they
see it as being important.

It is possible to categorize beliefs into different types of values – examples include

values that relate to happiness, wealth, career success or family. 

A person must be able to articulate their values in order to make clear, rational,
responsible and consistent decisions.

What is an attitude?

Attitudes are the mental dispositions people have towards others and the current
circumstances before making decisions that result in behavior. People primarily form
their attitudes from underlying values and beliefs.

However, factors which may not have been internalized as beliefs and values can still
influence a person’s attitudes at the point of decision-making. Typical influences
include the desire to please, political correctness, convenience, peer pressure, and
psychological stressors.

Study Question
a) Describe various views on moral development
b) Discuss Kohlbergs theory on moral development
c) Define values and the development of values.

TOPIC: 3

VARIOUS APPROACHES TO MORAL REASONING

Learning objectives
By the end of this topic, the learners should be able to;

a) Discuss relationship of Religion and Law

b) Evaluate the role of Ganddhian approach in development
c) Discuss the Non-consequentialist Theories:

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Religion and Law
Moral sphere is much larger than the right, because people's behavior in various
standardized social relations, this does not mean that all rules of law are included in the
scope of morality. Procedural rules in civil and criminal or other legal rules do not
include technical and organizational self and moral appreciation. But if moral
requirements are not in all cases corresponding to the normative legal rules, doesn`t
result that legal rules of a technical nature would not have, therefore, in subsidiary, a
significance and a finality, that if they are not moral essence itself, is not, ultimately,
consistent, by their social function, the public, with aspirations and moral norms.24 We
also encounter situations in which some rule of law is at odds with moral principles,
given only on a certain moral that a right may no longer resonate in historical and
evolutionary terms. Thus, legal normativity is part of social normative, involving,
among others, and moral normativity, any malfunctions or contradictions would be
between these two elements of social normative, they, as part of the global system of
social normative, I cannot have the same essence as all organic part.25
Religious values constitute central elements of societal values that shape the rules,
principles and institutions governing society.26 Institutional policies affect those
underlying societal values by reinforcing and entrenching societal beliefs or seeking to
change them.27 Scholars recognize that the multiple interactions between religion and
law are so embedded in particular cultures that broad generalizations have limited
utility.28

In the end, it can be said that justice and truth itself in objective law because human
beings always felt the need to have something tangible to which to report in terms of
establishing the correctness, or and the desire to find themselves in relation to others in
a society governed by relativism.
The unique nature of religion may make it problematic to protect religious liberty
directly by singling out religious activity for special treatment.
Finally, it may be that the nature of law, religion, and religious pluralism needs to be
rethought before we can properly consider the relationship between law and religion.31
“Perhaps their differences rest on more fundamental disagreements regarding their
conceptions of religion, religious pluralism, and the nature and rule of law. What are
these presuppositions and where do they come from? Are there other possible positions
based on different understandings of religion, religious pluralism, and the rule of law?
How do conceptions of religion, religious pluralism, and law shape our thinking about
the proper role of religion in pluralistic democratic society

19
Normative Principles in Applied Ethics

Arriving at a short list of representative normative principles is itself a challenging task.

The principles selected must not be too narrowly focused, such as a version of act-
egoism that might focus only on an action's short-term benefit. The principles must also
be seen as having merit by people on both sides of an applied ethical issue. For this
reason, principles that appeal to duty to God are not usually cited since this would have
no impact on a nonbeliever engaged in the debate. The following principles are the ones
most commonly appealed to in applied ethical discussions:

 Personal benefit: acknowledge the extent to which an action produces beneficial

consequences for the individual in question.
 Social benefit: acknowledge the extent to which an action produces beneficial
consequences for society.

 Principle of benevolence: help those in need.

 Principle of paternalism: assist others in pursuing their best interests when they
cannot do so themselves.

 Principle of harm: do not harm others.

 Principle of honesty: do not deceive others.

 Principle of lawfulness: do not violate the law.

 Principle of autonomy: acknowledge a person's freedom over his/her actions or

physical body.

 Principle of justice: acknowledge a person's right to due process, fair

compensation for harm done, and fair distribution of benefits.

 Rights: acknowledge a person's rights to life, information, privacy, free

expression, and safety.

The above principles represent a spectrum of traditional normative principles and are
derived from both consequentialist and duty-based approaches. The first two
principles, personal benefit and social benefit, are consequentialist since they appeal to
the consequences of an action as it affects the individual or society. The remaining
principles are duty-based. The principles of benevolence, paternalism, harm, honesty,
and lawfulness are based on duties we have toward others. The principles of autonomy,
justice, and the various rights are based on moral rights.

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The Categorical Imperative

 This is Kant's term for the "Moral Law." By this phrase he implies that moral duty
is an obligation binding of all moral agents without exception.

 Formulations of the Categorical Imperative:

1. Always act in such a way that you could will that the maxim of your act become a
Universal Law. This is the requirement of Universalizablity (everyone could act the same
way).

2. Always act in such a way that you treat Humanity, whether in your own person or in
the person of another as an end in itself and never merely as a means.

 Requirement of Human Dignity (don't just use people).

3. Always act in such a way that your are both legislator and legislated in the kingdom of
"Ends."

 Requirement of Reciprocity (would be considered fair from all perspectives).

Gandhian Ethical Approach

Gandhi was killed on Jan. 30, 1948, by a Hindu fanatic who felt that Gandhi was too
accommodating toward India's minority Muslims. Fortunately for humanity, his legacy
did not die with him. Instead, he inspired two generations of leaders, ranging from
Martin Luther King Jr. to Nelson Mandela, to follow his path in their struggles for
justice and freedom.

Gandhi introduced to the world the concepts of ahimsa (nonviolence) and Satyagraha
(peaceful civil disobedience). Within the framework of these concepts, Gandhi
employed a multitude of tactics, such as peaceful noncooperation with the authorities
and massive boycotts of goods and services.

What gave all of this moral legitimacy was Gandhi's unwillingness to stray from his
ideals. For him, the means were inseparable from the ends. When his noncooperation

21
movement to get the British out of India degenerated into violence in 1922, Gandhi
suspended the entire campaign and asked Indians to adhere more firmly to
nonviolence.

To be sure, Gandhi did not invent nonviolence or peaceful civil disobedience. He drew
on a variety of sources for his philosophy, including the Bible, the Bhagavad Gita (the
Hindu holy book) and writers such as Henry David Thoreau and Leo Tolstoy. But he
was perhaps the first person in history to apply these principles to a large political
movement _ bringing the supposedly invincible British Empire to its knees by his
success.

These principles, plus his constant strivings for religious harmony, social justice and
eternal truth, raised the consciousness of millions of Indians. When Gandhi went on a
fast in 1947 in Calcutta to stop deadly riots in the city between Hindus and Muslims, the
killings actually stopped. British historian E.W.R. Lumpy has called the fast ``perhaps
the greatest (miracle) of modern times.''

His influence extended far beyond India's borders. Martin Luther King Jr. was among
Gandhi's biggest disciples. King stated that while Jesus gave him his message, Gandhi
showed him the method. ``The greatest Christian of the modern world was a man who
never embraced Christianity,'' King said. Gandhi, in turn, wrote civil-rights activist
Howard Thurman in the 1930s that the apex of nonviolent direct action would come in
the struggle of black Americans for freedom.

Another American who took inspiration from Gandhi was labor leader Cesar Chavez.
Chavez called Gandhi the most perfect man ever (besides Christ) and repeatedly used
Gandhi's methods, including peaceful civil action, massive boycotts and hunger strikes,
in his struggle for justice for Chicano farm workers.

Sadly, in this age of power politics and sectarian strife, Gandhi's principles have been
neglected. Even in his native India, Gandhi is paid ritual obeisance by most politicians,
put on a pedestal and then promptly forgotten. In an ironic vindication of Gandhi's
assassin, a Hindu fundamentalist party is poised to take power in the country in next
month's general elections.

But Gandhi's spirit has been kept alive by dedicated followers, both inside and outside
India, who continue to use his message and methods in their quest for social justice and
peace.

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Nonviolence, tolerance, truth, and peaceful resistance to injustice: The world could do
worse than follow such ideals. Albert Einstein said about Gandhi, ``Generations to
come will scarce believe that such a one as this ever in flesh and blood walked upon this
earth.'' It is time for us to start to emulate Gandhi's ethics.

Milton Friedman (1912-).

Milton Friedman advocates the classical theory of business, which essentially holds that
businesses should be solely devoted to increasing profits as long as they engage in open
and free competition devoid of fraud. Managers and employees, then, have a
responsibility to serve the company they work for by striving to make money for it. The
very act of seeking profits is, according to Friedman, a moral act. An extreme example
relates his point: If a person invested all of his or her savings into a venture and then the
company gave away the money to the homeless, would that be ethical? No, proffers the
classical theory, because the investor gave the money to the company in good faith for
the purpose of earning a profit.

Adam Smith (1723-1790).

Friedman's views generally support those of Adam Smith, who held that the best
economic system for society would be one that recognized individual self-interest. That
concept seems to conflict with the classical theory of business ethics. In his renowned
Inquiry into the Nature and Causes of the Wealth of Nations (1776), however, Smith stated
that society is best served when each person pursues his own best interests; an
"invisible" hand will ensure that self-interested behavior serves the common social
good. The competition that would result between individuals would be played out
within the confines of government regulations.

Smith's invisible hand concept is based on the theory of psychological egoism, which
holds that individuals will do a better job of looking after their own interests than those
of others. A tenet of that theory is that enlightened egoists will recognize that socially
responsible behavior will benefit them.

Both psychological egoism and the classical theory can be defended by the utilitarian
argument. Utilitarianism maintains that any action or system is good if it results in the
greatest good for the greatest number of people. In summary, if, as Smith contended,
self-interest is a chief motivator and the invisible hand really works, then as companies
seek to maximize profits, the greatest public good will result for the greatest number.

23
Critics of Smith's and Friedman's theories contend that they neglect the need for
cooperation and teamwork in society, and that chaos can be avoided only with heavy
policing of self-interested behavior. Proponents of the invisible hand counter that
individuals will usually pursue cooperation and self regulation because it is in their
own interest.

John Locke (1632-1704).

Although perhaps best known for his advocacy of life, liberty, and property during the
17th century, John Locke is credited with outlining the system of free enterprise and
incorporation that has become the legal basis for American business. His philosophy
was founded on a belief in property rights, which are earned through work and can be
transferred to other people only at the will of the owner. Under Locke's theory, which
now seems intuitive because of its commonality, workers agree by their own will to
work for a company for a wage. Shareholders receive the profits because they have
risked their property. Thus, it is the responsibility of the company's workers to pursue
profits.

Opponents of Locke's system, particularly proponents of socialism, argue that property

rights are not inalienable. For that reason, Locke-style capitalism is morally
unacceptable because it prohibits the public from benefiting from property that actually
belongs to everyone. Indeed, according to socialists, the right to profits is not assumed
because the profits emanate from the surplus value created by the work of the
entrepreneur and laborer. In fact, property ownership itself is unethical. It is merely an
attempt by powerful owners to keep control of their property and to exploit other
people.

To their credit, socialist and Marxist systems do lead to less inequality. Utilitarians,
however, would counter that those more equitable systems do not produce the greatest
good for the greatest number.

Immanuel Kant (1724-1804).

The German philosopher Immanuel Kant believed that morality in all spheres of human
life should be grounded in reason. His renowned "categorical imperative" held that: (1)
people should act only according to maxims that they would be willing to see become
universal norms (i.e., the Golden Rule); and (2) people should never treat another
human as a means to an end. The categorical imperative is easily demonstrated: It
would be unethical for a person to break into a long line at a theater, because if
everyone did the same thing anarchy would result. Similarly, it would be immoral for a

24
person to have a friend buy him or her a ticket under the agreement that he or she
would reimburse the friend, but then fail to pay the friend back.

Kant's theory implied the necessity of trust, adherence to rules, and keeping promises
(e.g., contracts). When people elect to deviate from the categorical imperative, they risk
being punished by the business community or by government enforcement of laws.
More importantly, Kant suggested that certain moral norms that are ingrained in
humans allow them to rise above purely animalistic behavior. People have the capacity
to forgo personal gain when it is achieved at the expense of others, and they can make a
choice as to whether they will or will not follow universal norms

i.) Consequentialist Theories:

The Utilitarian Approach

Utilitarianism can be traced back to the school of the Ancient Greek philosopher
Epicurus of Samos (341-270 BCE), who argued that the best life is one that produces the
least pain and distress.  The 18th Century British philosopher Jeremy Bentham (1748-
1832) applied a similar standard to individual actions, and created a system in which
actions could be described as good or bad depending upon the amount and degree of
pleasure and/or pain they would produce. Bentham’s student, John Stuart Mill (1806-
1873) modified this system by making its standard for the good the more subjective
concept of “happiness,” as opposed to the more materialist idea of “pleasure.”

Utilitarianism is one of the most common approaches to making ethical decisions,

especially decisions with consequences that concern large groups of people, in part
because it instructs us to weigh the different amounts of good and bad that will be
produced by our action. This conforms to our feeling that some good and some bad will
necessarily be the result of our action and that the best action will be that which
provides the most good or does the least harm, or, to put it another way, produces the
greatest balance of good over harm. Ethical environmental action, then, is the one that
produces the greatest good and does the least harm for all who are affected—
government, corporations, the community, and the environment.

The Egoistic Approach

One variation of the utilitarian approach is known as ethical egoism, or the ethics of
self- interest. In this approach, an individual often uses utilitarian calculation to
produce the greatest amount of good for him or herself. Ancient Greek Sophists like
Thrasymacus (c. 459-400 BCE), who famously claimed that might makes right, and early

25
modern thinkers like Thomas Hobbes (1588-1679) may be considered forerunners of this
approach. One of the most influential recent proponents of ethical egoism was the
Russian-American philosopher Ayn Rand (1905-1982), who, in the book The Virtue of
Selfishness (1964), argues that self-interest is a prerequisite to self-respect and to respect
for others. There are numerous parallels between ethical egoism and laissez-faire
economic theories, in which the pursuit of self-interest is seen as leading to the benefit
of society, although the benefit of society is seen only as the fortunate byproduct of
following individual self-interest, not its goal.

The Common Good Approach

The ancient Greek philosophers Plato (427-347 BCE) and Aristotle (384-322 BCE)
promoted the perspective that our actions should contribute to ethical communal life.
The most influential modern proponent of this approach was the French philosopher
Jean-Jacques Rousseau (1712-1778), who argued that the best society should be guided
by the “general will” of the people which would then produce what is best for the
people as a whole. This approach to ethics underscores the networked aspects of society
and emphasizes respect and compassion for others, especially those who are more
vulnerable.  

ii.) Non-consequentialist Theories:

The Duty-Based Approach

The duty-based approach, sometimes called deontological ethics, is most commonly
associated with the philosopher Immanuel Kant (1724-1804), although it had important
precursors in earlier non-consquentialist, often explicitly religious, thinking of people
like Saint Augustine of Hippo (354-430), who emphasized the importance of the
personal will and intention (and of the omnipotent God who sees this interior mental
state) to ethical decision making. Kant argued that doing what is right is not about the
consequences of our actions (something over which we ultimately have no control) but
about having the proper intention in performing the action. The ethical action is one
taken from duty, that is, it is done precisely because it is our obligation to perform the
action. Ethical obligations are the same for all rational creatures (they are universal),
and knowledge of what these obligations entail is arrived at by discovering rules of
behavior that are not contradicted by reason.

Kant’s famous formula for discovering our ethical duty is known as the “categorical
imperative.” It has a number of different versions, but Kant believed they all amounted
to the same imperative. The most basic form of the imperative is: “Act only according to
that maxim by which you can at the same time will that it should become a universal

26
law.” So, for example, lying is unethical because we could not universalize a maxim
that said “One should always lie.” Such a maxim would render all speech meaningless.
We can, however, universalize the maxim, “Always speak truthfully,” without running
into a logical contradiction. (Notice the duty-based approach says nothing about how
easy or difficult it would be to carry out these maxims, only that it is our duty as
rational creatures to do so.) In acting according to a law that we have discovered to be
rational according to our own universal reason, we are acting autonomously (in a self-
regulating fashion), and thus are bound by duty, a duty we have given ourselves as
rational creatures. We thus freely choose (we will) to bind ourselves to the moral law.
For Kant, choosing to obey the universal moral law is the very nature of acting ethically.

The Rights Approach

The Rights approach to ethics is another non-consequentialist approach which derives
much of its current force from Kantian duty-based ethics, although it also has a history
that dates back at least to the Stoics of Ancient Greece and Rome, and has another
influential current which flows from work of the British empiricist philosopher John
Locke (1632-1704). This approach stipulates that the best ethical action is that which
protects the ethical rights of those who are affected by the action. It emphasizes the
belief that all humans have a right to dignity. This is based on a formulation of Kant’s
categorical imperative that says: “Act in such a way that you treat humanity, whether in
your own person or in the person of another, always at the same time as an end and
never simply as a means to an end.” The list of ethical rights is debated; many now
argue that animals and other non-humans such as robots also have rights.

The Fairness or Justice Approach

The Law Code of Hammurabi in Ancient Mesopotamia (c. 1750 BCE) held that all free
men should be treated alike, just as all slaves should be treated alike. When combined
with the universality of the rights approach, the justice approach can be applied to all
human persons. The most influential version of this approach today is found in the
work of American philosopher John Rawls (1921-2002), who argued, along Kantian
lines, that just ethical principles are those that would be chosen by free and rational
people in an initial situation of equality. This hypothetical contract is considered fair or
just because it provides a procedure for what counts as a fair action, and does not
concern itself with the consequences of those actions. Fairness of starting point is the
principle for what is considered just.

The Divine Command Approach

As its name suggests, this approach sees what is right as the same as what God
commands, and ethical standards are the creation of God’s will. Following God’s will is

27
seen as the very definition what is ethical. Because God is seen as omnipotent and
possessed of free will, God could change what is now considered ethical, and God is not
bound by any standard of right or wrong short of logical contradiction. The Medieval
Christian philosopher William of Ockham (1285-1349) was one of the most influential
thinkers in this tradition, and his writings served as a guide for Protestant Reformers
like Martin Luther (1483-1546) and Jean Calvin (1509-1564). The Danish philosopher
Søren Kierkegaard (1813-1855), in praising the biblical Patriarch Abraham’s willingness
to kill his son Isaac at God’s command, claimed that truly right action must ultimately
go beyond everyday morality to what he called the “teleological suspension of the
ethical,” again demonstrating the somewhat tenuous relationship between religion and
ethics mentioned earlier.

iii.) Agent-centered Theories:

The Virtue Approach

One long-standing ethical principle argues that ethical actions should be consistent with
ideal human virtues. Aristotle, for example, argued that ethics should be concerned
with the whole of a person’s life, not with the individual discrete actions a person may
perform in any given situation. A person of good character would be one who has
attainted certain virtues. This approach is also prominent in non-Western contexts,
especially in East Asia, where the tradition of the Chinese sage Confucius (551-479 BCE)
emphasizes the importance of acting virtuously (in an appropriate manner) in a variety
of situations. Because virtue ethics is concerned with the entirety of a person’s life, it
takes the process of education and training seriously, and emphasizes the importance of
role models to our understanding of how to engage in ethical deliberation.

Jeremy Bentham’s (1748-1832

Jeremy Bentham’s (1748-1832) principle of utility is open to the objection that it may well
sacrifice the rights of the minority for the sake of the happiness of the majority .He argued
against "natural law" theory and thought that the classical theories of Plato and
Aristotle as well as notions such as Kant's Categorical Imperative were too outdated,
confusing and/or controversial to be of much help with society's ills and a program of
social reform. He adopted what he took to be a simple and 'scientific' approach to the
problems of law and morality and grounded his approach in the "Principle of Utility."

28
.

As a social reformer, Bentham applied this principle to the laws of England -- for
example, those areas of the law concerning crime and punishment. An analysis of theft
reveals that it not only causes harm to the victim, but, if left unpunished, it endangers
the very status of private property and the stability of society. In seeing this, the
legislator should devise a punishment that is useful in deterring theft. But in matters of
"private morality" such as sexual preference and private behavior, Bentham felt that is
was not at all useful to involve the legislature.

Bentham also thought that the principle of utility could apply to our treatment of
animals. The question is not whether they can talk or reason, but whether they can
suffer. As such, that suffering should be taken into account in our treatment of them.
Here we can see a moral ground for laws that aim at the "prevention of cruelty to
animals" (and such cruelty was often witnessed in Bentham's day).

29
John Stuart Mill (1806-1873)

. John Stuart Mill (1806-1873). In his essay Utilitarianism, Mill argues that respect for
individuals rights as “the most sacred and binding part of morality” is compatible with the idea
that justice rests ultimately on utilitarian considerations

For Mill, it is not the quantity of pleasure, but the quality of happiness. Bentham's
calculus is unreasonable -- qualities cannot be quantified (there is a distinction between
'higher' and 'lower' pleasures). Mill's utilitarianism culminates in "The Greatest
Happiness Principle.

Study Questions

a) Describe various views on moral development

b) Discuss Kohlbergs theory on moral development
c) Define values and the development of values

TOPIC 4

BUSINESS ETHICS’

Learning objectives
By the end of this topic, the learners should be able to:

a) Explain the meaning of business ethics

b) Discuss the three Cs of Business ethics
c) Discuss the significance of Business ethics

30
Business Ethics’ Different meaning is given to business as follows:
• Business ethics are the application of general ethical rules to business behavior.
• Business ethics are rules of business by which propriety of business activity may
Be judged.
By Cater McNamara— “Business ethics is generally coming to know what is right or
Wrong in the workplace and doing what is right—this is in regard to effects of
products/
Services and in relationship with stake holders”
“Attention to ethics in workplace sensitizes managers and staff to know they should
Act so that they retain a strong moral compass. Consequently, business ethics can be
Strong preventive medicine.”
According to John Donaldson- Business ethics in short can be desired as the systematic
Study of ethical matters pertaining to business industry or related activities, institutions
and beliefs. Business ethics is the systematic handling of values in business and
industry.
• Business ethics are the rules of business by which the propriety of business activity
may be judged.
• Business ethics concentrate on moral standard as they apply to business policies,
institutions and behavior. It is a specialized study of moral right or wrong. It is a
form of applied ethics.

Law + Knowledge = Ethics

8 Business Ethics: Theory and Practice

• Business ethics are nothing but the application of ethics in business. It proves
that business can be and have been ethical and still make profits. Today more
and more interest is being given to the application of ethical practices in business
dealings and the ethical implications of business.

The 3 C’s of Business ethics:

1. Compliance: (The need for compliance of rules including):

• Laws
• Principles of morality
• Policy of the company
2. The Contribution (Business can make to the society):
• The core values
• Quality of products/services

31
• Employment
• Usefulness of activities to surrounding activities
• QWL
3. The Consequences of business activity:
• Toward environment inside and outside the organization
• Social responsibility toward shareholders, bankers, customers and employees
of organization.
• Good public image, sound activity- good image.

1.6 Need and Objectives of Business Ethics

Need of business ethics:
1. Business operates within the society.
2. Every business irrespective of size exists more on ethical means or in total regards
to all its social concern to survive long.
3. Business needs to function as responsible corporate citizen in the country.

Objectives of Business Ethics

According to Peter Pratley–Business ethics has a two fold objectives-‘it evaluates human
Practices by calling upon moral standards, also it may give prescription advice on how
to
act morally in a specific kind of situation’.
(A) Analysis and Evaluation
Ethical analysis and ethical diagnosis of past events, happenings, clarifying the
standards,
uncover the moral values, habits of thought.
How to evaluate the situation? Ethics provides rational methods for answering the
Present situation and related future issues. a well equipped information is a must to
achieve
this second objective, a careful assessment of relevant information will lead to balanced
judgments.
(B) Approaches to Resolve Ethical Dilemmas
It provides therapeutic advice when facing the present dilemmas and future dangers.
Only the condition which requires a true identification of relevant stakeholder and a
clear-cut understanding of crucial issues at stake.

1.7 Significance of Business Ethics

“Good business ethics promotes good business”

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This statement is supported by the research findings of some well known authorities–
Raymond, Baumhart, Brener and Molander, and Strom and Ruch. It was clear from
their findings that only those businesses can develop on a long term bases which
conducts activities on ethical grounds. Once ‘Robert Day’ has said that good ethics not
only promotes professionalism in Management but it purify the inner mind of every
business man. Another writer Thomas Donaldson (Ethics in business- a new look) has
observed that-“there are some key reasons why business ethics is vital and why ethics
plays a key role in business.”

(1) Positive Consequences

Business depends on the approval of the society, acceptance of rules, mutual trusts and
confidence. Prof. Robert Day writes—“when ethical conduct is displayed, it puts some
kind of trust and confidence in relationship.” So business with ethics always leads to
positive consequences.

(2) Goodwill of the Business and Businessman

Good ethical behavior will increase the goodwill of both business as well as the
businessman. Strong public image is a symptom of success in the long run. On the other
hand, once an Organization’s image is tarnished it would have direct consequences on
sales, profits, morale or day-to-day running of the business.

(3) Protection—Both Sides

If ethical implications are there in organization businessmen act more sincerely and the
level of commitment would be higher. Ethics protects people in dealing with each other.
Prof. Robert Day writes “Good ethics is sound business insurance.”

(4) Self-satisfaction
In the dynamic world, businessmen are seeking self satisfaction, mental relief, free from
anxiety, release tension. To attain the inner satisfaction certain people consider only
good ethics can promote good business. As a businessman is first a member of the
society than a businessman, so some do not implement a decision which stands on
unethical ground because it wouldn’t provide the satisfaction to their sub-conscious
mind.

(5) Encourage Others

When a few people start following ethics side by side to profit making, they encourage,
Motivate others and set examples for them. As Prof. Learned and Associates writes—
“Businessman who follows the ethical principles in the conduct of business, motivates
Others also, to follow the same principles.”

33
(6) Success and Development
Ethical conduct of business leads to development and series of success. Learned writes
— ‘A sincere person who does hard work becomes ethical and always succeed in his
efforts but an unethical person cannot’.

(7) New Management

In the era of global economy, new principles are required in new management. Prof.
‘Day’ Writes that management cannot become a profession so far as it does not follow
good ethics. An important feature of a profession is that it has a laid down code of
conduct which remains on all the principles of “service to humanity. So to run the good
business in modern scenario you have to develop and follow ethics.

Study Questions

a) Explain the meaning of business ethics

b) Discuss the three Cs of Business ethics
c) Discuss the significance of Business ethics

TOPIC 5:

ORGANIZATIONAL CULTURE

Learning objectives
By the end of this topic, the learners should be able to;

a) Define organizational culture

b) Discuss Functions of organizational culture
c) Explain how Culture is Developed, Reinforced, and Changed

What is Organizational Culture?

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A single definition of organizational culture has proven to be very elusive. No one
definition of organizational culture has emerged in the literature. One of the issues
involving culture is that is defined both in terms of its causes and effect. For example,
these are the two ways in which cultures often defined.

Outcomes

Defining culture as a manifest pattern of behavior- Many people use the term culture to
describe patterns of cross individual behavioral consistency .For example, when people
say that culture is “The way we do things around here,” they are defining consistent way is
in which people perform tasks, solve problems, resolve conflicts, treat customers, and
treat employees.

Process

Defining culture as a set of mechanisms creating cross individual behavioral

consistency- In this case culture is defined as the informal values, norms, and beliefs
that control how individuals and groups in an organization interact with each other and
with people outside the organization.

Both of these approaches are relevant to understanding culture. It is important to know

on what types of behavior culture has greatest impact (outcomes) and how culture
works to control the behavior of organizational members. We will address these two
questions later in the module.

Functions of organizational culture

Like all social mechanisms, an organization's culture performs certain social functions,
some of them intended and some of them unintended. Like organizational structure,
culture is difficult to observe, measure or map. In some cases, culture supports or
reinforces structure, in others it conflicts with structure. in yet other situations, cultures
acts as a functional alternative to reducing behavioral variability in organizations. These
are the most commonly discussed functions of organizational culture.

Behavioral Control

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Most systems of social organization attempt to control the variability of member
behavior. Whether it is a business organization, a club, community or nation, social
systems need to limit certain behaviors and encourage others. At one level
organizations setup rules, procedures and standards along with various consequences
for compliance and non-compliance. This system of formalization is part of the
organization's formal structure. However, we often find a high degree of behavioral
regularity (cross individual behavioral consistency) in system without strong formal
systems of rules and regulations. In these cases, it is often the organizational or group
culture that provides informal direction. We will see in the Cultural Control Mechanisms
section how the culture performs this control function

Encourages stability

Turnover and transitions exists in most all social systems. Despite changes in
membership and leadership many organizations maintain certain characteristics,
problems are handled essentially the same way, and behavior continues to be directed
toward the same mission and goals. An organization's culture is often passed on from
"generation" to "generation" creating a relatively high level of stability over time.

Provides source of identity

Individuals continually search to define their social identities. Sometimes identities are
defined by roles or professions and in other cases people define themselves through
their organizational membership. When taking on an organization as a source of
identity, people are taking on the values and accomplishments of that organization.

Liabilities of culture

When looking at functions of culture, it is easy to see these in positive terms and assume
that a strong culture would lead to an organization's success. While this is often true,
we often find that a strong culture impedes some of the actions taken by managers. This
often happens in unexpected and unpredictable ways. Remember that while cultural
control mechanisms direct individual behavior, they do not always direct is in manner
consistent with the organization's mission or managerial goals. For example, employees
may set production norms and enforced these on group members. These norms or
limits are often lower than production standards desired by managers. Groups often
exert powerful influences on their members in an effort to protect each other from
managerial action. In theses can formal structure and group norms may be in conflict.
Here are some other situations where a strong culture may be an impediment to action.

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Barrier to change and improvement

The very fact that cultural derived norms, values and mental models are often
internalized by members often makes them resistant to change when they see these
changes in conflict with these values. This is especially true when organizational change
is implemented through structural change. For example, while a new reward or
incentive system is implemented in support of the change in direction or strategy,
employee values and other cultural mechanisms supporting the former direction are
still deeply imbedded which conflict with the new structure. This becomes a battle over
the relative strengths of the structure and culture. Even if the structure ends up being a
more powerful force, the implementation of the change is slowed as multiple forms of
resistance emerge.

Barrier to diversity

Strong company cultures create uniformity and consistency of behavior among

employees. This is known as cross individual behavioral consistency. While this may be
desirable in many ways, it works against a company's goals of creating a diverse
workplace and utilizing this diversity for competitive advantage in at least two ways.
The first is that one of way in which strong cultures are created is through selection of
new employees based on person-organization fit, that is applicants are selected who are
believed to "fit" into the organization. This practice tends to limit diversity of any kind.
A related issue is that when potential employees are choosing employers, they tend to
avoid companies with strong cultures not aligned with their values.

The second way in which strong cultures acts as a barrier to diversity has to do with the
way in which a strong culture acts to homogenize the workforce. One the reasons why
companies desire increased diversity is based on the assumption that more diverse
decision-making teams will be more creative and make decisions more inline with a
diverse marketplace. Any benefits achieved through diversity hiring can be lost as the
mechanisms of a strong culture as new employees attempt to fit in with the team.

Barrier to cross departmental and cross organizational cooperation

While we often use the terms organizational culture or company culture, most large
organizations have sub-cultures associated with different geographic locals or different
functional units. For example the culture of an engineering department is often very
different than the culture of a marketing department. When communication and
coordination is essential between units with very different sub-cultures, messages are

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often misinterpret and conflict in priorities hampers the ability of these units to work
cooperative on a project of solve a problem.

Barrier to mergers and acquisitions

One of the factors cited from the high percentage failure of merged organizations to
meet their goals, is the change process did not account for or do anything to deal with
conflict in cultures between the two original organizations. This is especially true when
the merger plan seeks to merge different departments into one and requiring them to
operate as a single unit. This may be as simple as dress codes or a fundamental as
leadership style and team decision-making protocols (see section: What Types of Behavior
Does Culture Control?

Cultural Attributes

While there are a number of models that attempt to define the dimensions or
characteristics that differentiate one culture from another, the model that I find the most
useful was developed by Kilmann, Saxton, M. J., and Serpa (1986).

Direction

The Direction of impact is the course that culture is causing organizations to follow.
Does culture influence behavior so that organizational goals are accomplished, or does
culture push members to behave in ways that are counter to the formal mission and
goals of the organization?

Pervasiveness

The Pervasiveness of impact is the degree to which the culture is widespread, or

shared, among the members of a group.

Strength

The Strength of impact is the level of pressure that culture exerts on the members in the
organization, regardless of direction. How strongly held or the social values? How
committed our members to the shared mental models? How vigorously enforced other
social norms?

What Types of Behavior Does Culture Control?

Using the outcome approach, cultures are described in terms of the following variables.
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 Innovation versus Stability-The degree to which organizational members are
encouraged to be innovative, creative and to take risks.
 Strategic versus Operational Focus- The degree to which the members of the
management team focus on the long term big picture versus attention to detail.

 Outcome versus Process Orientation- The degree to which management focuses

on outcomes, goals and results rather than on techniques, processes, or methods
used to achieve these results.

 Task versus Social Focus- The relative emphasis on effect of decisions on

organizational members and relationships over task accomplishment at all costs

 Team versus Individual orientation- The degree to which work activities are
organized around teams rather than individuals

 Customer Focus versus Cost Control- The degree to which managers and
employees are concerned about customer satisfaction and Service rather than
minimizing costs

 Internal verses External Orientation- The degree to which the organization

focuses on and is adaptive to changes in its environment

 Basis for commitment of organizational members- What is the dominant source

of motivation that characterize organizational members and on which managers
focus? Is there a strong:

1. Instrumental Orientation- focus is on pay and equity

2. Status Orientation- focus is on titles, status symbols, allocation of credit

and recognition

3. Internal Standard Orientation- focus is on achievement, challenge and

individual growth

4. Goal Orientation- focus is on service to customers, clients, and quality

 Power Distance- The psychological distance between organizational members at

various levels. The degree of deference to authority, the rigidity of chain of
command, and the formality of interaction.

 Conformity versus Individuality- The degree to which individuality is

encouraged and tolerated

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  Ad hockery versus Planning- Focus on emergent versus deliberate development
of mission and strategy.

 Centralized versus Decentralized decision making- The degree to lower level

employees are encouraged to make and implement decisions without approval
from top management

 Cooperation versus Competition- Degree to which cooperativeness and team

spirit is encouraged versus individual competition and political posturing

Cultural Control Mechanisms

How does organizational culture control the behavior of organizational members? If

consistent behavioral patterns (CIBC) are the outcomes or products of a culture, what is
it that causes many people to act in a similar manner? There are four basic ways in
which a culture, or more accurately members of a reference group representing a
culture, creates high levels of cross individual behavioral consistency. There are:

Social Norms

Social norms are the most basic and most obvious of cultural control mechanisms. In its
basic form, a social norm is simply a behavioral expectation that people will act in a
certain way in certain situations. Norms (as opposed to rules) are enforced by other
members of a reference group by the use of social sanctions. Norms have been
categorized by level.

 Peripheral norms are general expectations that make interactions easier and
more pleasant. Because adherence of these norms is not essential to the
functioning of the group, violation of these norms general results in mild social
sanctions.
 Relevant norms encompass behaviors that are important to group functioning.
Violation of these norms often results in non-inclusion in important group
functions and activities

 Pivotal norms represent behaviors that are essential to effective group

functioning. Individuals violating these norms are often subject to expulsion
from the group.

Why do individuals comply with social norms? What explains the variance among
individuals with a group in the degree of compliance with norms, that is, why do some
members comply with all norms, while others seem to ignore them?

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The Role of Self-Concept

Individuals more dominant in self-concept external source of motivation (those

motivated primarily by means of acceptance, worth and status and other forms of
external validation) would be most likely to comply with social norms. Since social
sanctions involve the withholding of acceptance, these individual are most likely to
comply.
Likewise, those characterized by high/week self-concepts would be more likely to
comply with social norms than with those with strong self-concepts. Those with strong
self-concepts are less likely to need the acceptance and other forms of affirmation
contingent upon compliance with norms.

Identification

Individuals who identify with the group, that is to define their social identity in terms
of the group, are more likely to comply with the group's norms.

Internalization of Norms

One of the most powerful bases of compliance or conformity is internalization that,

believes that the behavior dictated by the norm is truly the right and proper way to
behave. Over time, many group members began to internalize pivotal and relevant
norms. This represents the development of a cognitive schema?

High status members of a group are often exempt from peripheral norms, as are those
with high amounts of what is called idiosyncratic credit. Idiosyncratic credit is generally
awarded to group members who have contributed a lot to the group and have earned
the freedom to violate the norms free from sanctions.

Shared Values

As a cultural control mechanism the keyword in shared values is shared. The issue is
not whether or not a particular individual's behavior can best be explained and/or
predicted by his or her values, but rather how widely is that value shared among
organizational members, and more importantly, how responsible was the
organization/culture in developing that value within the individual. What is a value?
Any phenomenon that is some degree of worth to the members of giving groups: The
conception of the desirable that establishes a general direction of action rather than a
specific objective. Values are the conscious, affective desires or wants of people that
guide their behavior.

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How do values influence individual behavior? Private/internal values- When
individuals have internalized values, compliance with values are based on eliminating
naked kids affect (e.g., guilt feelings) associated with noncompliance with values. For
example, individuals internalizing the value of honesty, feel guilty when cheating or
stealing. This negative affect state stops them from acting in a way inconsistent with
their internalized value.

Public/espouse values- When we believe that everyone around us holds a certain value
(social value), we often acting ways consistent with that value even though we don't
personally hold that value. This is done to gain acceptance and support from the group.

How are values formed/developed within individuals? We like to think that our
values are unique to us and an essential part of who we are. The critical question here
is, how much of our values are derived from our reference group affiliation? We find
that for most people, their values are generally consistent with the values of the
reference group in which they were socialized. There are two kinds of values:

Instrumental values represent the “means” an individual prefers for achieving

important “ends.”

Terminal values are preferences concerning “ends” to be achieved. When an individual

can no long answer the question of “why” with “because...”, a terminal value has been
reached. Terminal values are often formed when instrumental values become
“internalized,” such that individuals no longer see the cause and effect relationship
between the instrumental object and positive end state?

The affective components of values- Terminal values are actually affective in nature,
while instrumental values are cognitive.

Shared Mental Models & Consensual Schema

What is a mental model? Going back to our discussion of, theories and dole we defined
a mental model or theory in use as a causal relationship between two variables. The
belief structure of managers can be represented as a complex set of mental models,
which they use for diagnosing problems and making decisions. During this course, you
have explored many of your mental models about satisfaction and motivation, about
pay and performance and about attitudes and behavior. In organizations with strong
cultures, members of the organization began to share common mental models about
employees, competition, customers, unions, and other important aspects of managerial
decision-making. Mental models are often called basic underlying assumptions. How

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does a mental model impact on the behavior of individual? Every time to make a
decision is based on one more of our mental models. For example, if a manager believes
that increasing satisfaction will increase employee performance, he or she is likely to do
things that eliminate dissatisfaction among employees and work hard to increase their
levels of satisfaction. When all managers of the organization share the same mental
models or theories, they are likely to make very similar decisions when solving
problems. This leads to a consistent way of doing things and solving problems in an
organization. What are cognitive schema? Cognitive schema is mental representations
of knowledge. Cognitive scripts are types of schema involving action or the way to do
something. Schema are generally enacted subconsciously, that is, we enact a script
without much thought or deliberation. In other word cognitive scripts are like programs
(like macros) we store and call upon when certain stimuli are present. We develop
scripts over time by performing a certain task many times (like driving home from
work). The first time we perform a task, we tend to think about every step and
deliberate about the many alternative ways we can perform each step. Over time, as we
learn the best way to perform the task, we “lock in” the script, or program, and do not
think about each step again (unless we experience a significant problem). This is called
direct schema development. In some cases, we do not go through this deliberate step by
step learning process, we simply copy (or are told) how to perform a certain task from
members of the reference group (culture). This is called indirect schema development.
In either case, when schema become widely shared they are called consensual schema
or they account for a large amount of cross individual behavioral consistency. For more
on schema click

Social Identities

The establishment of one's identity is a matter of individual choice and acceptance of

that choice by the reference group. This implies that individuals select among their
variety of social identities (high school kids selecting among jocks, preppies, boarders,
and a host of other identities). Likewise, members of these established reference groups
act to either affirm or disaffirm these social identities of individuals. Existing members
can accept or reject individuals from these groups based on the degree to which they
comply with norms and behave in ways consistent with the shared values of the group.
The important point is that to understand/predict one's behavior, it is important to
understand the identity to which the individual claims. How does the social identity of
an individual impact his or her behavior? Once an individual establishes his or her
social identity they often word hard to affirm and reinforce this identity in the minds of
others.  This requires behaving in way consistent with the expectations of others with
respect to this identity or role. How does a culture control behavior through social

43
identities? What is the relationship between organizational culture and social identities?
Members of a reference group representing a culture do three things to establish social
identities:

 A culture establishes a set of roles (social identities)

 A culture establishes a set of role expectations (traits, competencies, & values)
associated with each identity

 A culture establishes the status or value/worth to the reference group of each

social identity.  This tends to establish the attractiveness of an identity/role to
members (Think of how the status of firefighters and police officers has recently
increased).

How is Culture Developed, Reinforced, and Changed?

It is often said in organizations that, “we need to change the culture around here.” What is
usually meant is that someone desires a behavioral change. In other words, then
defining the culture by its results (see: What Types of Behavior Does Culture Control
above). What they mean is that they want to change a behavioral pattern such as getting
employees to pay more attention to customers, or that they want managers to come to
meetings on time, or some other set of behaviors. While these patterns of behavior can
be changed by changing the organization's structure (rule, regulations, rewards
systems), changing these behaviors through culture involves changing the underlying
mechanisms that drive these behavioral patterns: namely norms, social values, identify
structure, or mental model. Since these underlying culture control mechanisms are
often taken for granted and subconscious in nature, they are difficult to change.
Changing structure by changing a rule and its enforcement mechanism is rather simple
when compared to changing a social value. Culture is resistant to change because many
of the cultural control mechanism become internalized in the minds of organizational
members, that is, what makes culture such strong control mechanism. Changing culture
often means that members have to change their entire social identify. Sometimes the
statuses of various roles or identities change causing even more resistance on the part of
high status role holders.

While changing behavior by changing structure may have more appeal because it
appears easier, in many cases this type of change is not successful because managers
have not changed the underlying culture and they find that the culture and structure
are in conflict. So how can a manager attempt to change culture? While it is difficult, the
key lies in symbolic action, that is, dealing with important symbols of values, norms
and assumptions. Here are some general guidelines:

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Changing Social Values

Role Modeling

People look to leaders for queues about what is important in an organization. The most
important thing a leader can do is act in a manner consistent with the desired social
value. When it comes to instilling culture values, “do as a say not as I do” does not work
very well. When organizational members observe a leader making a personal sacrifice
for a value, it sends a strong message that this value is important.
Culture is often transited through stories and myths that extol certain virtues held to be
important to the organization. These stories are told in informal setting as well as
published in company newsletters.

Symbolic Action

In reacting to crises, leaders can send strong messages about values and assumptions.
When a leader supports new values in the face of crisis, when emotions often run high,
he or she communicates that this value is very important.
In addition to motivating behavior directly, a reward system can send powerful
messages regarding what is important. For example, about 15 years two faculty
members being evaluated for full professor were denied promotion. What was
interesting is that both of these faculty members won the university wide Outstanding
Teaching award. This sent a message to the rest of us that teaching was not valued and
only research productivity is really valued.

Important and public decisions also communicate the importance of certain values. If
the first thing to be cut in budget crunches is training, it sends the message the training
is not valued. The criteria for allocation of resources often become what are valued in an
organization. For example, budgets are determined by steady past performance it sends
a different message than if they were determined by past innovation and risk taking.
Leaders communicate the importance of values by what they praise and what they
criticize. It is important to pay attention to what is said.

Selective Hiring

Social values are often changed through the selection process. As new members are
hired and effort is made to hire new members that hold the new value

Well Being

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There are generally two broad categories of wellbeing – subjective and objective
wellbeing.
 Subjective wellbeing considers an individual's satisfaction with their own life
whereas
 objective wellbeing is concerned with the material conditions that affect a
person's life such as access to education, employment opportunities, etc.

Subjective wellbeing can then be broken down further. Daniel Kahneman (the 2002
Nobel Prize winner for economics) and Angus Keaton distinguish between:
i. Emotional wellbeing – the emotional quality of a person’s everyday experience; and
ii. Life evaluation – the thoughts people have about their life.

The Commission on the Measurement of Economic Performance and Social Progress

identified two categories of objective wellbeing – capabilities and fair allocations.
i). capabilities – an individual's ability to pursue and realize the goals that he or she
values. It involves questions of whether society is doing well and whether people are
living well; or
ii). fair allocations – this measures the various non-monetary dimensions of quality of
life in a way that respects people's preferences, and thus determining whether people
have the quality of life they want.

The French Commission on Economic Performance and Social Progress defined

wellbeing as involving the simultaneous consideration of dimensions of:
Material living standards (income, consumption and wealth); health; education;
personal activities including work; political voice and governance;
social connections and relationships; environment (present and future conditions); and
insecurity, of an economic as well as a physical nature.

Study Question
a) Define organizational culture
b) Discuss Functions of organizational culture
c) Explain how Culture is Developed, Reinforced, and Changed

TOPIC 6:

CODE OF ETHICS

46
Learning objectives
By the end of this topic, the learners should be able to;

a) Define Code of ethics

b) Explain the need for code of ethics
c) Define whistle blowing.

Definition
A Code of Ethics (also known as a Code of Conduct) is a formal document that
establishes behavioral expectations
For the company and the people who work there.

Why Have a Code of Ethics?

• To define accepted/acceptable behaviors;
• To promote high standards of practice;
• To provide a benchmark for members to use for self evaluation;
• To establish a framework for professional behavior and responsibilities;
• As a vehicle for occupational identity;
• As a mark of occupational maturity;

Generic Template/Outline:
Codes can take various forms. We’ve included here a generic outline that can be
customized. A more detailed template is available at about the company.

Preface or Introduction
(signed by the Chairman or Chief Executive Officer or both)
Start with a sentence on the purpose of the Statement - mention the values that are
important to the top management in the conduct of the business such as integrity,
responsibility and reputation. Describe the leadership commitment in maintaining high
standards both within the organization and in its dealings with others.
Set out the role of the company in the community and end with a personal endorsement
of the code and the expectation that the standard set out in it will be maintained by all
involved in the organization.

2. Key areas to include

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A. The Purpose and Values of the Business
The service which is being provided - a group of products, or set or services - financial
objectives and the business’ role in society as the company sees it.

B. Employees
How the business values employees. The company’s policies on: working conditions,
recruitment, development and Training, rewards, health, safety & security, equal
opportunities, diversity, retirement, redundancy, discrimination and harassment and us
of company assets by employees.

C. Customer Relations
The importance of customer satisfaction and good faith in all agreements, quality, fair
pricing and after-sales service.

D. Shareholders or other providers of money

The protection of investment made in the company and proper ‘return’ on money lent.
A commitment to accurate and timely communication on achievements and prospects.

E. Suppliers
Prompt settling of bills; Co-operation to achieve quality and efficiency; No bribery or
excess hospitality accepted or given.

F. Society or the wider community

Compliance with the spirit of laws as well as the letter; The company’s obligations to
protect and preserve the environment; The involvement of the company and its staff in
local affairs; The corporate policy on sponsorship as well as giving to education and
charitable appeals.

G. Implementation
The process by which the code is issued and used. Means to obtain advice on potential
breaches. Awareness raising examples (Q & As) Training programs for all staff.

H Assurance, reporting and reviews

Suggest ways of knowing if the code is effective. Report to the board or board
committee at least annually. Review procedures for updating the code.

IV. How to Implement a Code of Ethics

How you engage your employees in the writing and implementation of your Code is as
important as what you put “Developing a Code of Business Ethics.”

48
Twelve Steps for Implementing a Code
1. Endorsement
Make sure that the code is endorsed by the Chairman and CEO
2. Integration
Produce a strategy for integrating the code into the running of the business at the time
that it is issued.
3. Circulation
Send the code to all employees in a readable and portable form and give it to all
employees joining the company.
4. Personal Response
Give all staff the personal opportunity to respond to the content of the code. An
employee should know how to react if he or she is faced with a potential breach of the
code or is in doubt about a course of action involving an ethical choice.
5. Affirmation
Have a procedure for managers and supervisors regularly to state that they and their
staff understand and apply the provisions of the code and raise matters not covered by
it.
6. Contracts
Consider making adherence to the code obligatory by including reference to it in all
contracts of employment and linking it with disciplinary procedures.
7. Regular Review
Have a procedure for regular review and updating the code
8. Enforcement
Employees and others should be aware of the consequences of breaching the code
9. Training
Ask those responsible for company training programs at all levels to include issues
raised by the code in their programs.
10. Translation
See that the code is translated for use in overseas subsidiaries or other places where
English is not the principal language
11. Distribution
Make copies of the code available to business partners (suppliers, customers etc.), and
expect their compliance
12. Annual Report
Reproduce or insert a copy of the code in the Annual Report so that shareholders and a
wider public know about
the company’s position on ethical matters

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Whistle blowing

Guiding Definition
Whistle blowing – the disclosure of information related to corrupt, illegal, fraudulent or
hazardous activities being committed in or by public or private sector organisations1 –
which are of concern to or threaten the public interest – to individuals or entities
believed to be able to effect action.

Guiding Principle
Protected individuals and disclosures – all employees and workers in the public and
private sectors need:
• Accessible and reliable channels to report wrongdoing;
• Robust protection from all forms of retaliation; and
• Mechanisms for disclosures that promote reforms that correct legislative, policy or
procedural inadequacies, and prevent future wrongdoing.

Scope of Application
Broad definition of whistle blowing – whistle blowing is the disclosure or reporting of
wrongdoing, including but not limited to corruption; criminal offences; breaches of
legal obligation;2 miscarriages of justice; specific dangers to public health, safety or the
environment; abuse of authority; unauthorized use of public funds or property; gross
waste or mismanagement; conflict of interest;3 and acts to cover up of any of these.

Broad definition of whistleblower – a whistleblower is any public- or private sector

employee or worker who discloses information covered in Principle 3 (above) and who
is at risk of retribution.
These include:
1 including perceived or potential wrongdoing;
2 Including fraudulent financial disclosures made by government agencies/officials and
publicly traded corporations;
3 Could also include human rights violations if warranted or appropriate within a
national context.

International Principles for Whistleblower Legislation

Includes individuals who are outside the traditional employer relationship, such as
consultants, contractors, trainees/interns, volunteers, student workers, temporary
workers and former employees

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Threshold for whistleblower protection: “reasonable belief of
Wrongdoing” – protection shall be granted for disclosures made with a reasonable belief
that the information is true at the time it is disclosed.5 Protection extends to those who
make inaccurate disclosures made in honest error, and should be in effect while the
accuracy of a disclosure is being assessed.

Protection
Protection from retribution – individuals shall be protected from all forms of retaliation,
disadvantage or discrimination at the workplace linked to or resulting from whistle
blowing. This includes all types of harm, including dismissal, probation and other job
sanctions; punitive transfers; harassment; reduced duties or hours; withholding
of promotions or training; loss of status and benefits; and threats of such actions.

Preservation of confidentiality – the identity of the whistleblower may not be disclosed

without the individual’s explicit consent.

Burden of proof on the employer – in order to avoid sanctions or penalties, an employer

must clearly and convincingly demonstrate that any measures taken against an
employee were in no sense connected with, or motivated by, a whistleblower’s
disclosure.

Knowingly false disclosures not protected – an individual who makes a disclosure

demonstrated to be knowingly false is subject to Protection shall extend to attempted
and perceived whistleblowers; individuals who provide supporting information
regarding a disclosure; and those who assist or attempt to assist a whistle blower.
“Reasonable belief” is defined as when a person reasonably could suspect wrongdoing
in light of available evidence.

International Principles for Whistleblower Legislation possible

employment/professional sanctions and civil liabilities. Those wrongly accused shall be
compensated through all appropriate measures.

Waiver of liability – any disclosure made within the scope of whistleblower legislation
shall be immune from disciplinary proceedings and liability under criminal, civil and
administrative laws, including those related to libel, slander, copyright and data
protection. The burden shall fall on the subject of the disclosure to prove any intent on
the part of the whistleblower to violate the law.

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Right to refuse participation in wrongdoing – employees and workers have the right to
decline to participate in corrupt, illegal or fraudulent acts. They are legally protected
from any form of retribution or discrimination (see Principle 6, above) if they exercise
this right.

Preservation of rights – any private rule or agreement is invalid if it obstructs

whistleblower protections and rights. For instance, whistleblower rights shall override
employee “loyalty” oaths and confidentiality/nondisclosure agreements (“gag orders”).

Anonymity – full protection shall be granted to whistleblowers who have disclosed

information anonymously and who subsequently have been identified without their
explicit consent.

Personal protection – whistleblowers, whose lives or safety are in Jeopardy, and their
family members, is entitled to receive personal protection measures. Adequate
resources should be devoted for such protection.

The burden shall fall on the subject of the disclosure to prove that the whistleblower
knew the information was false at the time of disclosure.

International Principles for Whistleblower Legislation

Disclosure Procedures

Reporting within the workplace – whistleblower regulations and procedures should be

highly visible and understandable; maintain confidentiality or anonymity (unless
explicitly waived by the whistleblower); ensure thorough, timely and independent
investigations of whistleblowers’ disclosures; and have transparent, enforceable and
timely mechanisms to follow up on whistleblowers’ retaliation complaints (including a
process for disciplining perpetrators of retaliation).

Reporting to regulators and authorities – if reporting at the workplace does not seem
practical or possible, individuals may make disclosures to regulatory or oversight
agencies or individuals outside of their organization. These channels may include
regulatory authorities, law enforcement or investigative agencies, elected officials, or
specialized agencies established to receive such disclosures.

52
Reporting to external parties – in cases of urgent or grave public or personal danger, or
persistently unaddressed wrongdoing that could affect the public interest, individuals
shall be protected for disclosures made to external parties such as the media, civil
society organizations, legal associations, trade unions, or business/professional
organisations.

Disclosure and advice tools – a wide range of accessible disclosure channels and tools
should be made available to employees and workers of government agencies and
publicly traded companies, including advice lines, hotlines, online portals, compliance
offices, Employees are encouraged to utilize these internal reporting channels as a first
step, if possible and practical. For a guide on internal whistle blowing systems, see PAS
Code of Practice for Whistle blowing Arrangements, British Standards Institute and Public
Concern at Work, 2008.

If these disclosure channels are differentiated in any manner, the disclosure process
in any event shall not be onerous and must allow disclosures based alone on
reasonable suspicion (e.g. UK Public Interest Disclosure Act).

International Principles for Whistleblower Legislation and internal or external

ombudspersons.
Mechanisms shall be provided for safe, secure, confidential or anonymous disclosures.

National security/official secrets – where a disclosure concerns matters of national security,

official or military secrets, or classified information, special procedures and safeguards
for reporting that take into account the sensitive nature of the subject matter may be
adopted in order to promote successful internal follow-up and resolution, and to
prevent unnecessary external exposure. These procedures should permit internal
disclosures, disclosure to an autonomous oversight body that is institutionally and
operationally independent from the security sector, or disclosures to authorities
with the appropriate security clearance. External disclosure (i.e. to the media, civil
society organizations) would be justified in demonstrable cases of urgent or grave
threats to public health, safety or the environment; if an internal disclosure could lead
to personal harm or the destruction of evidence; and if the disclosure was not intended
or likely to significantly harm national security or individuals.

Individuals seeking advice shall also be fully protected.

In accordance with relevant data protection laws, regulations and practices.

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“Classified” material must be clearly marked as such, and cannot be retroactively
declared classified after a protected disclosure has been made.

International Principles for Whistleblower Legislation

Relief and Participation
Full range of remedies – a full range of remedies must cover all direct, indirect and future
consequences of any reprisals, with the aim to make the whistleblower whole. This
includes interim and injunctive relief; attorney and mediation fees; transfer to a new
department or supervisor; compensation for lost past, present and future earnings and
status; and compensation for pain and suffering.12 A fund to provide assistance for
legal procedures and support whistleblowers in serious financial need should be
considered.

Fair hearing (genuine “day in court”) – whistleblowers who believe their rights have been
violated are entitled to a fair hearing before an impartial forum, with full right of
appeal. Decisions shall be timely, whistleblowers may call and cross-examine witnesses,
and rules of procedure must be balanced and objective.

Whistleblower participation – as informed and interested stakeholders, whistleblowers

shall have a meaningful opportunity to provide input to subsequent investigations or
inquiries. Whistleblowers shall have the opportunity (but are not required) to clarify
their complaint and provide additional information or evidence. They also have the
right to be informed of the outcome of any investigation or finding, and to review and
comment on any results.

Reward systems – if appropriate within the national context, whistleblowers may receive
a portion of any funds recovered or fines levied as a result of their disclosure. Other
rewards or acknowledgements may include public recognition or awards (if agreeable
to the whistleblower), employment promotion, or an official apology for retribution.
This may also include medical expenses, relocation costs or identity protection.

International Principles for Whistleblower Legislation

Legislative Structure, Operation and Review

Dedicated legislation – in order to ensure clarity and seamless application of the

whistleblower framework, stand-alone legislation is preferable to a piecemeal or a
sectoral approach.

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Publication of data – the whistleblower complaints authority (below) should collect and
regularly publish (at least annually) data and information regarding the functioning of
whistleblower laws and frameworks (in compliance with relevant privacy and data
protection laws). This information should include the number of cases received; the
outcomes of cases (i.e. dismissed, accepted, investigated, validated); compensation and
recoveries (maintaining confidentiality if the whistleblower desires); the prevalence of
wrongdoing in the public and private sectors; awareness of and trust in whistleblower
mechanisms; and time taken to process cases.

Involvement of multiple actors – the design and periodic review of whistleblowing laws,
regulations and procedures must involve key stakeholders including employee
organizations, business/employer associations, civil society organizations and
academia.

Whistleblower training – comprehensive training shall be provided for public sector

agencies and publicly traded corporations and their management and staff.
Whistleblower laws and procedures shall be posted clearly in public and private sector
workplaces where their provisions apply.

Enforcement

Whistleblower complaints authority – an independent agency shall receive and investigate

complaints of retaliation and improper investigations of whistleblower disclosures. The
agency may issue binding recommendations and forward relevant information to
regulatory, investigative or prosecutorial authorities for follow-up. The agency shall
also provide advice and support, monitor and review whistleblower frameworks, raise
public awareness to encourage the use of whistleblower provisions, and enhance
cultural acceptance of whistleblowing. The agency shall be provided with
adequate resources and capacity to carry out these functions.
Penalties for retaliation and interference – any act of reprisal for, or interference with, a
whistleblower’s disclosure shall be considered misconduct, and perpetrators of
retaliation shall be subject to employment/professional sanctions and civil penalties.13
30. Follow-up and reforms – valid whistleblower disclosures shall be referred to the
appropriate regulatory agencies for follow-up, corrective actions and/or policy reforms.

Study Question
a) Define Code of ethics
b) Explain the need for code of ethics
c) Define whistle blowing .

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 TOPIC 7:

BUSINESS & SOCIETY

Learning objectives
By the end of this topic, the learners should be able to;

a) Define Stake holder

b) Explain the meaning of corporate social responsibility
c) Common Roles of CSR in Community Development

Definition
The term "stakeholder" appears to have been invented in the early '60s as a deliberate
play on the word "stockholder" to signify that there are other parties having a "stake" in
the decision-making of the modern, publicly-held corporation in addition to those
holding equity positions. Professor R. Edward Freeman, in his book Strategic

Management: A Stakeholder Approach (Pitman, 1984), defines the term as follows:

A stakeholder in an organization is (by definition) any group or individual who can
affect or is affected by the achievement of the organization's objectives.
Examples of stakeholder groups (beyond stockholders) are employees, suppliers,
customers, creditors, competitors, governments, and communities.
Exhibit 1 illustrates one way of picturing the conventional stakeholder groups along
with the two principal channels through which they often affect the corporation, law
and markets. Another metaphor with which the term "stakeholder" is associated is
that of a "player" in a game like poker. One with a "stake" in the game is one who plays
and puts some economic value at risk. Much of what makes responsible decision-
making difficult is understanding how there can be an ethical relationship between
management and stakeholders that avoids being too weak (making stakeholders mere
means to stockholders' ends) or too strong (making stakeholders quasi stockholders
in their own right). To give these issues life, a case example will help. So let us consider
the case of General Motors and Pole town.

The Poletown Case"^

In 1980, GM was facing a net loss in income, the first since 1921, due to intense foreign
competition. Management realized that major capital expenditures would be required
for the company to regain its competitive position and profitability. A $40 billion five

56
year capital spending program was announced that included new, state-of-the-art
assembly techniques aimed at smaller, fuel-efficient automobiles demanded by the
replaced. Their closure would eliminate 500 jobs. Detroit in 1980 was a city with a black
majority, an unemployment rate of 18% overall and 30% for blacks, a rising public debt and a
chronic budget deficit, despite high tax rates. The site requirements for a new assembly plant
included 500 acres, access to long-haul railroad and freeways, and proximity to suppliers for
"just-in time" inventory management. It needed to be ready to produce 1983 model year cars
beginning in September 1982. The only site in Detroit meeting GM's requirements was heavily
settled, covering a section of the Detroit neighborhood of Poletown. Of the 3,500 residents, half
were black. The whites were mostly of Polish descent, retired or nearing retirement. An
alternative "green field" site was available in another midwestem state. Using the power of
eminent domain, the Poletown area could be acquired and cleared for a new plant within the
company's timetable, and the idea. The Poletown Neighborhood Council strongly opposed the
plan, but was willing to work with the city and GM. The new plant would employ 6,150
workers and would cost GM $500 million wherever it was built. Obtaining and preparing the
Poletown site would cost an additional $200 million, whereas alternative sites in the
midwest were available for $65-80 million. The interested parties were many—stockholders,
customers, employees, suppliers, the Detroit community, the midwestern alternative, the
Poletown neighborhood. The decision was difficult. GM management needed to consider its
competitive situation, the extra costs of remaining in Detroit, the consequences to the city of
leaving for another part of the Midwest, and the implications for the residents of choosing the
Poletown site if the decision was made to stay. The decision about whom to talk to
and how was as puzzling as the decision about what to do and why. Ethical values enter
management decision-making; it is often suggested, through the gate of stakeholder analysis. But
the suggestion that introducing "stakeholder analysis" into business decisions is the same
as introducing ethics into those decisions is questionable, lb. make this plain, let me first
distinguish between two importantly different ideas: stakeholder analysis and stakeholder
synthesis. I will then examine alternative kinds of stakeholder synthesis with attention to ethical
content. The decision-making process of an individual or a company can be seen in terms of a
sequence of six steps to be followed after an issue or problem presents itself for resolution.

For ease of reference and recall, I will name the sequence PASCAL, after the six letters
in the name of the French philosopher-mathematician Blaise Pascal (1623-62), who once
remarked in reference to ethical decision-making that "the heart has reasons the reason
knows not of."
(1) PERCEPTION or fact-gathering about the options available and
their short- and long-term implications;
(2) ANALYSIS of these implications with specific attention to affected
parties and to the decision-maker's goals, objectives, values, responsibilities,

57
etc.;
(3) SYNTHESIS of this structured information according to whatever
fundamental priorities obtain in the mindset of the decision-maker;
(4) CHOICE among the available options based on the synthesis;
(5) ACTION or implementation of the chosen option through a series
of specific requests to specific individuals or groups, resource allocation,
incentives, controls, and feedback;
(6) LEARNING from the outcome of tbe decision, resulting in either
reinforcement or modification (for future decisions) of the way in
which the above steps have been taken.

We might simplify this analysis, of course, to something like "input,

"decision," and "output," but distinguishing interim steps can often be
helpful. The main point is that the path from the presentation of a problem
to its resolution must somehow involve gathering, processing, and
acting on relevant information.

Now, by stakeholder analysis I simply mean a process that does not go

beyond the first two steps mentioned above. That is, the affected parties
caught up in' each available option are identified and the positive and
negative impacts on each stakeholder are determined. But questions having
to do with processing this information into a decision and implementing
it are left unanswered. These steps are not part of the analysis but of
the synthesis, choice, and action.

Stakeholder analysis may give the initial appearance of a decision making process, but
in fact it is only a segment of a decision-making process. It represents the preparatory or
opening phase that awaits the crucial application of the moral (or non moral) values of
the decision maker.

So, to be informed that an individual or an institution regularly makes stakeholder

analysis part of decision-making or takes a "stakeholder approach" to management is to
learn little or nothing about the ethical character of that individual or institution. It is to
learn only that stakeholders are regularly identified—not why and for what purpose, lb
be told that stakeholders are or must be "taken into account" is, so far, to be told very
little. Stakeholder analysis is, as a practical matter, morally neutral. It is therefore a
mistake to see it as a substitute for normative ethical thinking.

Corporate Social Responsibility

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Corporate Social Responsibility (CSR) is a concept whereby enterprises integrate social
and environmental concerns into their mainstream business operations on a voluntary
basis1. While the Government provides a regulatory framework governing issues such
as employment rights, environmental protection, equality and fair trading, CSR goes
beyond compliance with legislative requirements and creates shared value through
collaboration with all stakeholders. It ensures that the interests of enterprises and
interests of wider society are mutually supportive.

The European Commission3 suggests that CSR can have a positive influence on the
competitiveness of enterprises and can bring real benefits in terms of:

 Customer relations: consumers are increasingly paying more attention to the

environmental and social credentials of the products and services they buy and
the activities of companies in the sourcing and production of the goods they sell.
 Risk management: as a means of anticipating and reducing potential sources of
risk and a means to enhance reputation.
 Cost savings: particularly in the area of the environment and resource efficiency.
 Human resources: through its effect on employee relations, the capacity to
attract and retain talent, and its positive impact on staff motivation and
productivity.
 Improving innovation capacity: engaging with customers enables businesses to
keep close to emerging market trends and can lead to the development of new
business models or products.
 Investment: Investors are increasingly looking at the ethics and practices of
companies they are considering investing in.

Common Roles of CSR in Community Development (CD)

From the above meaning of CSR, it is undeniable that CSR has implications on
community and Community Development in many ways. Based on the report of
Towers Perrin (2009) CSR is the third most important driver of employee engagement
overall. For companies in the U.S. for instance, an organization's stature in the
community is the second most important driver of employee engagement, and a
company's reputation for social responsibility is also among the top 10 drivers. The role
of CSR in CD used in this paper is any direct and indirect benefits received by the

59
community as results of social commitment of corporations to the overall community
and social system.

The common roles of CSR in CD are discussed as follows:

1. To share the negative consequences as a result of industrialization. This is related to
increasing conscience-focused marketplaces necessitating more ethical business
processes. E.g. higher UK road tax for higher emission vehicles, thus reducing the
burden of small vehicle owners in a community (Wikipedia, 2009). By doing so, small
vehicle owners share less the tax burden, hence could re-channel the money for more
productive uses in the community.

2. Closer ties between corporations and community. Through CSR the existence of
corporations in the social system is felt beyond a perception that corporation is a place
just to get employment and producers of goods and services. By doing so, corporations
and community would stay in peace and harmony. This becomes a social capital that is
essential in community development.

3. Helping to get talents. Organizations with a reputation for CSR can take advantage of
their status and strengthen their appeal as an attractive employer by making their
commitment part of their value proposition for potential candidates. It is also found
that when employees view their organization's commitment to socially responsible
behavior more favorably, they also tend to have more positive attitudes in other areas
that correlate with better performance. They believe their organizations recognize and
reward great customer service, act quickly to address and resolve customer concerns,
and are led by people in senior management who act in the best interest of customers.
Confidence in senior management is higher in other areas, too, when employees give
their company high marks for being socially responsible. For example, if a large number
of employees perceive that their organization's senior management supports new ideas
and new ways of doing things, this would result on better perception of employees to
the organization, hence their trust and loyalty to the organization. There is a correlation
between a company's success in the marketplace is often influenced by its capacity for
innovation, the perception of the employees to the organization. It is also a factor in
attracting and retaining talents. In relating to CD, good employees’ perceptions on a
corporation would lead to the community that treats the corporation as an important
economic asset in the community.

4. Role in transfer of technology (TOT). Closer ties help in TOT between MNCs that give
concerns on CSR and communities in the host countries. MNC is a corporation that has
its facilities and other assets in at least one country other than its home country. Such

60
companies have offices and/or factories in different countries and usually have a
centralized head office where they coordinate global management. Very large
multinationals have budgets that exceed those of many small countries. Barton (2007)
focuses on three mechanisms of international technology transfer: the flow of human
resources; the flow of public-sector technology support; and the flow of private
technology from MNCs to developing countries. He argues for greater mobility within,
and globalization of, the world’s scientific enterprise and reasserts an economic
rationale for investing in public-sector research in the developing countries. Through
TOT coupled with CSR processes, the targeted community would gain in the various
aspects of product development and marketing, such as better price and quality, as well
as concern for people’s wellbeing.

5. CSR helps to protect environment. Some of the world's largest companies have made a
highly visible commitment to CSR, for example, with initiatives aimed at reducing their
environmental footprint. These companies take the view that financial and
environmental performance can work together to drive company growth and social
reputation. This attitude can only serve to enhance the employment value proposition
such as interest in "going green" gains traction (Towers Perrin, 2009). “We green the
earth” slogan made by some MNCs in Malaysia who own large golf areas within the
vicinity of residential areas is another CSR initiative seems to protect environment.
Many non-profit organizations have been involved in learning and advocacy of
environmental protection of CSR such as those reported by the United Nations. They
are for example a) “Friends of the Earth” who highlights the environmental impact of
some MNCs and campaign for stronger laws on environmental responsibility; b)
“Green Peace mission” is another example of CSR initiative that gives benefit to society
and community in preserving the latter’s rights towards reaping healthy environment
(Wikipedia, 2009). Green Peace is an independent global campaigning organization that
acts to change attitudes and behavior, to protect and conserve the environment and to
promote peace by many ways, one of which is campaigning for sustainable agriculture
and environment by encouraging socially and ecologically responsible farming
practices. Green Peace utilizes direct action, lobbying and research to achieve its goals.
This influential non-governmental organization has its presence in 42 countries with
national and regional offices, are largely autonomous in carrying out jointly agreed
global campaign strategies within the local community context.

6. CSR is for human right corporate sustainability. The United Nations have launched the
“Global Compact” – an initiative to convince international companies to commit
themselves to universal principles in relation to protection of human rights (UN
Global Compact, 2009). Being the world's largest voluntary corporate responsibility

61
 initiative, the UN Global Compact is also seen a strategic policy for businesses that
are committed to aligning their operations and strategies within the areas of human
rights, labor, and environment. By doing so, business, as a primary agent driving
globalization, can help ensure that markets, commerce, technology and finance
advance in ways that benefit economies and societies everywhere. Never before
have had the objectives of the international community and the business world been
so aligned. Common goals, such as building markets, combating corruption,
safeguarding the environment and ensuring social inclusion, have resulted in
unprecedented partnerships and openness among business, government, civil
society, labor and the United Nations. This ever-increasing understanding is
reflected in the growth of the Global Compact, which today stands as the largest
corporate citizenship and sustainability initiative in the world -- with over 4700
corporate participants and stakeholders from over 130 countries.

7. Interdependency between a corporation and community. The close link between a

corporation and community is another aspect of CSR role in CD because in long run
it creates sustainable development. This could be seen e.g. Shell Foundation
involvement in the Flower Valley in South Africa and Marks and Spencer in Africa.
The CSR projects give aids to local organization and impoverished communities.
This certainly leads to sustainable community development (Wikipedia, 2009).

8. A CSR program can be seen as an aid to alleviate poverty. An example is a Malaysian

reality program Bersamamu of TV3 which is sponsored by Syarikat Faiza Sendirian
Berhad (SFSB), a local enterprise-cum-philanthropist who responds to government’s
appeal to help impoverished community to improve their livelihoods (SFSB, 2009).
SFSB gets help from the local media company TV3 for publicity and audience
support. This TV program is focused on the life reality of the poor, helpless and
misfortune people in their survival. Every purchase of Faiza's Product, will entitle
the buyer to make a donation to Tabung Bersamamu TV3 (a fund of the broadcasting
agency). Through this collaboration it may trigger other corporations to help the
nation in its effort to alleviate poverty and, hence, in developing communities.

9. A CSR program helps in data gathering for other public organization function. For instance
in the United States, Intel and IBM (examples of mega ICT firms) assisted under-
staffed police departments with information gathering and processing by installing
cameras with video processing abilities in areas where there are high rates of crimes.
Intel has also conducted initiatives to educate local communities on how they can

62
 use technology to prevent crime or at least to use it to detect who committed the
crime This is an example of technology companies implement CSR initiatives that
both benefit community and support business objectives.

10. For corporate sustainability goals. In Europe and elsewhere outside the U.S., companies
have been taking their social role seriously for years, often under the banner of
corporate sustainability. The EU has developed a corporate sustainability framework,
which identifies a progressive set of economic, social and environmental objectives that
companies are encouraged to achieve. At Towers Perrin (2009), for instance, they have
developed a methodology to assess the employee perspective on sustainable business
practices (SBP). These practices represent a continuing commitment by a company to
behave ethically and contribute to economic development while improving the quality
of life of its workforce and family members, as well as the local community and society
at large. Towers Perrin's SBP index specifically covers five areas: awareness and
perceived importance among employees, employee sustainable behaviors, social and
community performance, environmental performance, and ethical and legal
performance.

TOPIC 8:

PUBLIC POLICY APPROACHES AND THE ROLE OF NGOs

Learning objectives
By the end of this topic, the learners should be able to;

a) Explain the meaning of public policy

b) Discuss the process of policy making and implementation
c) Identify the common bottlenecks in policy

Public Policy Approaches and the Role of NGOs

Policies can be regarded as political, management, financial, and administrative

mechanisms that are arranged to achieve explicit goals. Policies may apply to
government, to private sector organizations and groups, and to individuals. In this
paper, we focus on public policy. However, the insights provided by this paper are also
applicable to other policy making domains.

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1.1. Public Policy Making
We define public policy as ‘a choice that government makes in response to a political
issue or a public problem.’ This choice is based on values and norms. Policies are aimed
at bridging the gap between these values and norms and a situation. The term ‘public
policy’ used in this context always refers to the decisions and actions of government
and the intentions that determine those decisions and actions. Policy guides decisions
and actions towards those decisions and actions that are most likely to achieve a desired
outcome. The process of public policy making is a decision-centric and goal-driven
process. Decision centric means that the process is focused on the decisions that must be
taken. Goal-driven means that the process must have the desired outcome and that
iterations are performed until the outcome has been produced. The final outcome can
be a compromise between the targeted result and the imposed constraints.
The process of policy making is characterized by the coexistence of a political and a
production dimension and the interaction between the elements in these dimensions.
The political dimension includes activities such as proposing initiatives, practicing
advocacy, mobilizing stakeholders, holding consultations, building opinions and taking
positions. There are multiple stakeholders and participants and they vary according to
the policy intention.

Policy bottlenecks

Although more bottlenecks can be discussed, we will focus on the six bottlenecks.

Political and administrative

The first bottleneck is of a political and administrative nature and relates to the tasks
and responsibilities of public authorities. Governments are confronted with issues of a
scale that is clearly out of proportion to their administrative responsibilities. The impact
of globalization is affecting traditional claims and prerogatives. In a network society,
political institutions are bargaining agencies rather than sites of power 15.
Governments and government actors are finding it hard to adjust to this situation. They
must accept that for more and more topics the only choice is to become inactive or to
engage in distributed policy making across organizational and geographical
boundaries. On the other side, we are witnessing a growing appeal for new tasks and
responsibilities for governments. Government seems to be the panacea for all perceived
problems. The burden of this increase in tasks and responsibilities is becoming too high.
And finally, the gap between bureaucratic opinions and positions and societal
rationality is growing too large. Common sense and ‘norming sense’ no longer match.
Policy makers are regarded as being out of touch with reality.

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Organizational
The second bottleneck is organizational. First of all, the multitude of stakeholders in the
policy making process is very difficult to oversee and to manage due to changing roles,
interests and coalitions. In addition, the personal, organizational and political context of
the actors is unstable. Diffusion and continuous change prevail over fusion and
stability. Secondly, due to managerial deficits, there is a natural tendency to implement
old solutions to resolve new problems. This results in organizational frustration and
cynicism. Fear for failure and risk adversity act as powerful disincentives to real
innovation. One reason for this type of managerial behavior may be that public
organizations and their leaders are not used to or empowered to deal with uncertainty.
The powerful trio of the ability to visualize, to perform and to execute is incomplete. It
is simply easier to command and control than it is to influence and generate. Thirdly,
there is a great divide between policy making and policy execution. Formulated and
formalized policies frequently have unintended consequences. Because the
environments that policies seek to influence are typically complex adaptive systems, a
policy choice can have counter-intuitive results. The policy formulation process
typically includes an attempt to assess as many areas of potential impact as possible. It
wants to lessen the chances that a given policy will have unexpected and unintended
consequences. This is not possible with a silo approach to policy formulation. It requires
timely and open collaboration with the execution authorities and the inclusive
participation of knowledgeable bodies and persons. Although one would expect the
policy chain to be regarded and treated as an integrated chain, in reality we often see a
significant division between the separate aspects of this chain (policy making, execution
and enforcement, and evaluation). It is even possible for policy formulation and
implementation to still be treated as separate aspects that are not integrated
into a single, seamless, flexible process. And, last but not least, policy makers
themselves will always point to ‘insufficient time’ as a major bottleneck. Policy makers
show a genuine concern that the adoption of modern approaches requires time to think,
read, visit and network. New approaches to policy making are often deemed to make
much heavier demands on resources than traditional models, and yet for many there
are no additional resources to cope 16. It is a major challenge for management to put
this objective in the right perspective of goals, outcomes, priorities and benefits across
the whole policy chain. Management must select methods and tools that lever
modernization and do not block it. It will have to take ownership and show leadership.

Knowledge
The third bottleneck is knowledge-based. Policy statements are extremely diverse and

65
relate to many different disciplines. This means there is a significant risk of applying
identical semantics in different contexts. Governments are very reluctant to organize a
knowledge position that enables them to manage the vocabulary, definitions, semantics
and rules that are used during policy formulation and policy implementation. Policy
makers also lack efficient mechanisms to be able to rapidly identify dependencies
between regulations and to simulate and verify effects. Although there is a tendency to
use Impact assessments and apply policy modeling in the formulation process (in the
sense of impact and forecasting models), this is not being done in an integrated and
consistent way. Assessment instruments are often used on an incidental basis and are
not an integrated part of a continuous feedback loop. There is also an interesting lack of
legal impact instruments that enable the ex-ante, ex-post and adhoc analysis of policies
in the existing and evolving legislative framework. Finally, access to relevant
documents is often quite cumbersome and laborious. Policy makers have no easy access
to the integrated collection of documents created during the policy making process and
the resulting ‘end product’, e.g. a rule. In addition, the status, version and character
(formal or informal contribution) may be unclear. This is quite problematic, since very
few rules are generated from a policy void. Many new rules build upon and refer to
prior rules by means of modification, supplementation, or references to related subject
matter. In such cases, meaningful contributions require meaningful access to the prior
final rules and actions that are the factual and policy predicate for the rule under
consideration. All these deficits sometimes make it difficult for policy makers to
distinguish between facts and opinions. It is obvious that there is a high potential for
modernization in this knowledge domain, which has to be mobilized to enable policy
makers to deal with the challenges they face.

Communication
The fourth bottleneck is of a communicative nature. Many of the ‘products’ of public
administration are nothing but acts of communication. They are generated for the
purpose of informing their addressees about a decision that affects, or might affect, their
situation or their status. These addressees can be ‘consumers’ of the intended policy or
participants and stakeholders in the policy making process. Communication with
‘consumers’ is mainly situated at the end of the policy making process. Experience has
shown that policies and communication are difficult to match almost by definition.
Communication programs tend to be mass-oriented, skipping the middleman and
specific target groups. They also find it difficult to achieve a balance between ratio and
perception. This results in publication-driven communication. The level of interaction is
low and the communication approach lacks incentives for a broader form of
participation in earlier phases of the process. Communication directed at participants
and stakeholders in the policy making process has its own ‘disconnectors’. On the one

66
hand, this is caused by the autonomy of every part of the process. Although public
policy making is in principle an open process, it is common practice for all parties to
reserve some room for internal considerations and to determine their position. In
addition, there can be a difference between communicated and factual intentions and
considerations. On the other hand, the interactions in policy making are asynchronous
and every interaction from one of the actors can lead to adjustments in the position of
other actors communicated earlier. This makes it difficult for policy makers to stay in
touch with the latest version of reality.

Media
The fifth bottleneck is the media in general. Political scientists and media specialists
accept the commonplace assumption that the mass media have a profound and direct
impact on virtually every aspect of the political process. Mass media are playing an
increasingly central role in modern political life that goes beyond their traditional
function as mediators between the world of politics and citizens. A TV broadcast can set
off a whirlwind of questions and emergency debates in Parliament.

A newspaper article results in the formation of an inquiry committee to investigate the

problem at hand. The media play not only a part in these events as agenda setters but
also as accusers. The relationship between media and government and politics in
general is therefore a specific one. There is a mutual dependency, but also a constant
risk of misinterpretation or exaggeration. Sensible and urgent modernization efforts can
be made ridiculous with a few words or images. Non-issues can become mainstream
topics. The emergence of new media, such as social media, is amplifying this trend.
Each medium is an integrated system of invention, composition, presentation and
delivery that may affect the work of a policy maker. Policy makers are not just the
victims of the media, however; they can also influence the media and look for support
for modernization programs. However, if publicity has been the only trigger for
modernization, then it is often hard for policy makers to maintain their course of
modernization after the risk has been managed and the publicity has diminished. After
all, new issues are emerging every day.

Information and Communications Technology

The sixth and last bottleneck for modernization is Information and Communications
Technology (ICT). ICT has traditionally focused on the automation of administrative
and registration processes. These processes are highly structured and relatively stable
and are allowed to put specific rules into code. However, policy making and execution
deals with knowledge-intensive processes that are characterized by continuously
changing rules and potential semantic ambiguity. They are less structured and more

67
human-centric. This requires solutions in which the business stays in control and
domain specialists are supported and not impeded by ICT. In the past, ICT solutions
attempted to standardize and minimize exceptions at the cost of flexibility, adaptively
and user orientation. In the end, the system became the determining factor.
Unpredictable events and continuous change did not fit into this view and led to the
construction of customized solutions. These solutions were created on the basis of an
overemphasis of formal requirements, neglecting how users really acted in daily
practice.

These customized solutions were generally too late, too expensive and too difficult to
Public Policy Making: The 21st Century Perspective maintains. Coupled with the
organizational constructs needed to operate these solutions, it led to the evolution of a
self-constructed complicated system, which, in its turn, made further change even more
difficult. Furthermore, traditional systems are often based on the document paradigm
dating from the pre-ICT era. In a modern administration, the target outcome of a
process is not a document, it is a decision. And in policy making it is often an
incremental decision that has been reached through courses of human action. The
content of these courses of action can be processed and ‘materialized’ in many ways. A
document is just one of these ways.

In addition, the way in which ICT supports processes is more driven by a logistical
workflow concept with sequential steps than by concepts that match the dynamics of
policy processes and their political and social dimension. Finally, new insights with
respect to dialogue, participation and interaction in general require functions that
traditional systems find hard to deliver. ICT has therefore become more of a disqualifier
than an enabler for modernization in many sectors and domains, including the domain
of policy making.

Impact for the policy maker

These bottlenecks in the modernization of public policy making and in the environment
in which public policy must be formulated and implemented place constraints on the
capacity to empower policy makers. Policy makers are trapped in their own system.
They are obliged to perform in multiple arenas at the same time and must (re)prioritize
constantly. There seems to be hardly any room for a fundamental discussion about the
essence and the goal of government that also addresses the consequences for the core
policy process and ways of modernizing this process. It is also obvious that some of the

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aforementioned bottlenecks, such as adjusting and adapting to the administrative scale,
will require a great deal of time to change and are certainly not perfect candidates for
supporting policy makers in the short term. However, there remain opportunities in
abundance to support policy making, especially with regard to eliminating isolation
and fragmentation and enhancing participation in all its variants.

These opportunities are concentrated around support for the dynamic policy process
and for the knowledge needed in this process - a type of support that crosses
boundaries and makes it possible to create a synthesizing type of policy making. In the
following chapters, we first look in more detail into the policy making process and its
opportunities for improvement. Then we describe how the deficiencies can be resolved
and how policy makers can be supported in the context in which they operate, as well
as the type of technology that is required to empower policy makers. Although more
bottlenecks can be discussed, we will focus on the six bottlenecks displayed in the
illustration above.

Political and administrative

The first bottleneck is of a political and administrative nature and relates to the tasks
and responsibilities of public authorities. Governments are confronted with issues of a
scale that is clearly out of proportion to their administrative responsibilities. The impact
of globalization is affecting traditional claims and prerogatives. In a network society,
political institutions are bargaining agencies rather than sites of power 15.
Governments and government actors are finding it hard to adjust to this situation. They
must accept that for more and more topics the only choice is to become inactive or to
engage in distributed policy making across organizational and geographical
boundaries. On the other side, we are witnessing a growing appeal for new tasks and
responsibilities for governments. Government seems to be the panacea for all perceived
problems. The burden of this increase in tasks and responsibilities is becoming too high.
And finally, the gap between bureaucratic opinions and positions and societal
rationality is growing too large. Common sense and ‘norming sense’ no longer match.
Policy makers are regarded as being out of touch with reality.

Organizational
The second bottleneck is organizational. First of all, the multitude of stakeholders in the
policy making process is very difficult to oversee and to manage due to changing roles,
interests and coalitions. In addition, the personal, organizational and political context of
the actors is unstable. Diffusion and continuous change prevail over fusion and
stability. Secondly, due to managerial deficits, there is a natural tendency to implement
old solutions to resolve new problems. This results in organizational frustration and

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cynicism. Fear for failure and risk adversity act as powerful disincentives to real
innovation. One reason for this type of managerial behavior may be that public
organizations and their leaders are not used to or empowered to deal with uncertainty.
The powerful trio of the ability to visualize, to perform and to execute is incomplete. It
is simply easier to command and control than it is to influence and generate.
Thirdly, there is a great divide between policy making and policy execution.
Formulated and formalized policies frequently have unintended consequences. Because
the environments that policies seek to influence are typically complex adaptive systems,
a policy choice can have counter-intuitive results. The policy formulation process
typically includes an attempt to assess as many areas of potential impact as possible. It
wants to lessen the chances that a given policy will have unexpected and unintended
consequences. This is not possible with a silo approach to policy formulation. It requires
timely and open collaboration with the execution authorities and the inclusive
participation of knowledgeable bodies and persons. Although one would expect the
policy chain to be regarded and treated as an integrated chain, in reality we often see a
significant division between the separate aspects of this chain (policy making, execution
and enforcement, and evaluation). It is even possible for policy formulation and
implementation to still be treated as separate aspects that are not integrated into a
single, seamless, flexible process. And, last but not least, policy makers themselves will
always point to ‘insufficient time’ as a major bottleneck. Policy makers show a genuine
concern that the adoption of modern approaches requires time to think, read, visit and
network. New approaches to policy making are often deemed to make much heavier
demands on resources than traditional models, and yet for many there are no additional
resources to cope 16. It is a major challenge for management to put this objective in the
right perspective of goals, outcomes, priorities and benefits across the whole policy
chain. Management must select methods and tools that lever modernization and do not
block it. It will have to take ownership and show leadership.

Study Question

a) Explain the meaning of public policy

b) Discuss the process of policy making and implementation
c) Identify the common bottlenecks in policy

TOPIC 9:

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 CORPORATE GOVERNACE

Learning objectives
By the end of this topic, the learners should be able to;

a) Define corporation
b) Essential characteristics of the corporate form
c) Principles of Good Corporate Governance Practices

What is a corporation?
As its name suggests, corporate governance is primarily concerned with the study of
the governance of corporations. However, there are many alternative definitions of
what exactly a corporation is. In this manner, corporations mean different things to
different people

An example illustrates how the corporation is viewed by different classes of

stakeholders. Take the case of investors, managers and workers:
Investors are mainly concerned with access to the corporation’s profits. They have no
responsibility for operational matters. This responsibility is delegated to managers.
Managers run the company on behalf of investors. They have no responsibility for
personally providing funds. Providing funds is the responsibility of investors.
For workers, the corporation represents a job opportunity and a wage.
They have no responsibility for providing funds or for running the business.

Essential characteristics of the corporate form

This section examines essential characteristics of the corporation:
a) Limited liability
b) Transferability of investor interests
c) Legal personality
d) Centralized management

Limited liability
One of the key features of the modern corporation is limited liability. Limited liability
has its origins in the separation of ownership and control. The corporation is separate
from its owners and employees. If a corporation goes bankrupt, its individual members
are not individually liable.

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This is important for investors, as whatever happens, the risk of loss is
limited to the amount of their investment. The downside of limited liability
is that it comes with limited control. Remember how we noted in the introduction that
the separation of ownership and control led to a specialization in risk bearing and
management. Limited liability comes with limited authority: shareholders’ low-level
risk corresponds to the low level control by shareholders.

Transferability of investor interests

A second important characteristic of the corporate form is the ability of the investor to
exit the company with ease.
In listed corporations, stock is almost as liquid as cash. In other words, investors can
easily sell their investment for cash. Because of this, shareholders possess exit rights:
they can ‘vote with their feet’ and sell their shares.
Legal personality
Not only is the corporation separate from its owners and employees, it also
has a legal entity of its own. The following points are important:
A corporation lives on for as long as it has capital.
Corporate structure protects its individual participants from direct legal responsibility
in its business operation.
Shareholders own shares, not the corporation’: this enables limited collective control by
shareholders.
A corporation owns its own assets and property.
Centralized management
In partnerships, each partner has an equal say in the management of the company.
In a corporation, shareholders delegate this responsibility to the board of directors and
management. It would be difficult, if not logistically impossible, to find consensus
among dispersed individual shareholders on issues concerning the day-to-day affairs of
the corporation. Delegation of responsibility works in the following manner:
The power to determine the company’s overall direction is given to the board of
directors. The power to control the company’s day-to-day operation is given to the
managers. In order to allow the company to operate with maximum efficiency, the
shareholders give up the right to make decisions on all but the most general issues
facing the company.

What is corporate governance?

As defined the by Organization for Economic Cooperation and Development (OECD) –

“Corporate governance is the system by which business corporations are directed and controlled.
The corporate governance structure specifies the distribution of rights and responsibilities

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among different participants in the corporation, such as, the board, managers, shareholders and
other stakeholders and spells out the rules and procedures for making decisions in corporate
affairs. By doing this, it also provides the structure through which the company objectives are set
and the means of attaining those objectives and monitoring performance”.

Corporate Governance is concerned with the systems of laws, regulations, and practices
which will promote enterprise, ensure accountability and trigger performance. (World
Council for Corporate Governance) Today, corporate governance is increasingly
concerned with the role of stakeholders, and its impact on the collective welfare of
society.

The OECD views the role of corporate governance as twofold:

firstly, it covers the manner in which shareholders, managers,
employees, creditors, customers and other stakeholders interact with one another in
shaping corporate strategies. Secondly, it relates to public policy, and an adequate legal
regulatory framework, which are essential for the development of good systems of
governance. Taking these points into account, corporate governance is viewed as a key
element in improving the microeconomic efficiency of a firm, affecting the functioning
of capital markets and influencing resource allocation. Megginson (2001) thus defines
corporate governance as a nation’s ‘set of laws, institutions, practices and regulations
that determine how limited liability companies will be run and in whose interest’
(Megginson, 2001: 43). From an academic perspective, a corporate governance system is
the complex set of socially defined constraints that affect expectations for how authority
in firms will be exercised or how the system affects the willingness to make investments
in corporations in exchange for promises (e.g. Williamson, 1985).

A ‘good’ governance system supports a c continual process of mobilizing scarce

resources to their most promising uses. The major components of the governance
system are the legal, political, economic and social institutions that either constrain or
enable the corporation.

Less academically defined, corporate governance encompasses the combination of laws,

regulations, listing rules and voluntary private sector practices that enable the
corporation to: attract capital, perform efficiently, achieve the corporate objective to
meet both legal and obligations and general societal expectations.

Narrowly defined, corporate governance concerns the interactive relationships between

corporate managers, directors and the providers of equity capital. However, such a
narrow interpretation is not enough to take account of the complex relationships

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between the corporation and its various stakeholders. Stakeholders include workers,
suppliers, creditors and investors. In fact, stakeholders can, in a broad sense, refer to
anyone whose life is affected in one way or another by the existence of the corporation.
A more constructive or long-term approach to defining corporate governance should
therefore take account of the relationship of the corporation to stakeholders and society.
Such an approach should take account of the interests of both shareholders and
stakeholders. Corporate governance deals with the rights and responsibilities of a
company’s management, its board, shareholders and various stakeholders.

How well companies are run affects market confidence as well as company
performance. Good corporate governance is therefore essential for companies that want
access to capital and for countries that want to stimulate private sector investment. If
companies are well run, they will prosper. This in turn will enable them to attract
investors whose support can help to finance faster growth.

Poor corporate governance on the other hand weakens company’s potential and at
worst can pave the way for financial difficulties and even fraud.

Why has Interest in Governance Issues Exploded?

Scandal certainly arouses interest, and the following quotation gives one
answer to this question: Spectacular business failures, the buildup of huge excess
capacities, unscrupulous managers expropriating shareholders by paying themselves
fantastic salaries, and the roles played by the market for corporate control and
institutional investors in generating apparently short-term investment objectives has led
to a renewed interest in corporate governance. (Gugler, 1999: 6)

The International Economy

The global expansion of the market economy has meant that many large corporations
now operate in an international environment, which is often very different from the
domestic market. The transition of former centrally planned economies has also created
significant opportunities for further expansion. Consequently, corporations are much
more exposed to the institutional structures and practices of the international economy.

The Growth of Corporations

Some of multi-nationals have a global reach and economic and political
power that transcend the reach and power of governments. Corporations
can use this political power to influence regulators and governments.

Deregulation and Globalization

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The deregulation of markets has meant that corporations can now compete across
borders with much greater ease. Deeper and broader cross-border business
relationships between nations signal significant changes to all aspects of society.
Establishing international business relationships means corporations must exhibit a
greater understanding of international governance systems and practices. Corporations
can also raise funds on international capital markets. This provides the corporation with
more diverse funding opportunities, but also increases the distance between
shareholders and directors.

Shareholder Activism
One of the features of recent developments in corporate governance has
been the rise of institutional investors. Institutional investors have more
influence than small shareholders, as they tend to control larger shareholdings.
Emerging trends suggest that institutional investors see a link between
sound corporate governance and lower investment risk. Smaller shareholders
also have become more active in voting against executive compensation
of their Chief Executive Officers (CEOs).

Corporate Scandals and Financial Crises

The systematic failure of investor protection mechanisms, combined with
weak capital market regulation, can lead to failure of confidence. As suggested
at the beginning of this section, the significant coverage given in the media to such
corporate scandals as Enron and WorldCom, and their consequent effect on investor
confidence, has effectively raised interest in the issue of corporate governance.

Lessons from the financial crises

The Asian Financial Crisis in 1997/98 provided the following lessons:
Weak corporate governance system characterized by cronyism and
corruption distorts the efficient allocation of resources. It undermines opportunities to
compete on a level playing field. It leads to failure of confidence, which spreads rapidly
from individual companies to entire economies. It ultimately hinders investment and
economic development. Although the long term implications of the Global Financial
Crisis have yet to be fully understood, some early lessons that might be considered
include the following:
a) Increasing complexity and interconnectedness of financial institutions meant that
they became in effect “too big to fail.”
b) Increasing complexity also meant that regulators were willing to tolerate a
certain amount of moral hazard in financial regulation.

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 c) A moral hazard is typically understood as one where a responsible party, such as
a bank making a loan, has an incentive to put their own interests above those of
other stakeholders.
d) Because the bank is “too big to fail”, moral hazard is said to lead to excessive risk
taking. It was assumed that banks and their boards were best placed to manage
this risk.
e) Incentives within the financial system were distorted at both the individual and
institutional levels. At both levels private rewards and social returns were
misaligned (Stiglitz, 2010).
f) Firms with more independent directors and greater institutional ownership,
features often regarded as the cornerstone of good corporate governance under
the Anglo Saxon system, did not necessarily perform any better than those that
did not meet these criteria (Erkens et al, 2010).
g) Boards of directors and shareholders may have placed too much emphasis on
maximizing shareholder returns which in turn led to excessive risk taking, while
the importance of corporate culture, ethics and professionalism were routinely
overlooked as valuable characteristics of corporate governance.
We will examine the implications of the recent financial crisis on areas such as executive
compensation and global reforms in later units.

The contribution of Effective Corporate Governance

There are number of ways in which we believe better corporate governance can
contribute to economic improvements.
These include the following:
a) Good corporate governance promotes the efficient use of resources both within
the company and the economy.
b) It helps debt and equity capital flow to the most efficient users.
c) It is capable of the timely replacing of those managers who do not put scarce
resources to efficient use, or are incompetent, or corrupt.
d) It helps to boost both domestic and international investors’ confidence, and thus
assists companies (and economies) to attract lower-cost investment capital (both
debt and equity).
e) It provides incentives to the board to ensure compliance with the laws,
regulations and societal expectations.

Although better governance does not guarantee improved performance at the

individual firm level, it makes companies more actively respond to changes in business
environment. It is a check on the power of the relatively few individuals within the

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corporation who control large amount of other people’s money, thus reducing the
likelihood of corrupt behavior.
Enron
As of early 2005, charges had been brought against thirty-three people or firms
connected to the Enron case:
● fifteen of these people had pleaded guilty;
● five people and one firm had been convicted;
● one person had been acquitted; and
● eleven people had been charged, of whom eight were awaiting trial and three
(British bankers) were fighting extradition.

Among these, a number are of particular interest because of their prominent roles
in events that have been the subject of special attention in commentary on the
Enron case. Of Enron’s senior managers, Kenneth Lay, Jeffrey Skilling and Richard
Causey were awaiting trial. Lay was Chief Executive Officer (CEO) and Chairman of
the Board of Directors of Enron from its formation in 1986 until February 2001, when
he stepped down as CEO but continued as Chairman. On the resignation of
Skilling in August 2001, he resumed his position as CEO. Skilling was either a
consultant to or an employee of Enron from the late 1980s until December 2001. First
hired in 1990, he held various management positions until being appointed
President and Chief Operating Officer (COO) in 1997. In February 2001, he
became President and CEO, positions from which he resigned in August 2001.
Causey was a certified public accountant who joined Enron from Arthur Andersen
in 1991 and became the firm’s Chief Accounting Officer (CAO) in 1998.
● Lay, Skilling and Causey have all been indicted on charges related to the
manipulation of the firm’s reported financial results, and making false and
misleading statements about Enron’s financial performance and results;
● Causey also faces charges of money laundering (participation in financial
transactions involving the proceeds of unlawful activity);
● Skilling and Causey also face charges of insider trading in Enrons stock; and
● Lay also faces charges of bank fraud in the form of misrepresentations to banks
in connection with borrowing to finance securities operations.
Other senior Enron managers who have pleaded guilty under plea agreements
include Andrew Fastow, Ben Glisan, Michael Kopper and David Delainey. Fastow
was Enron’s Chief Financial Officer (CFO) during most of 1998–2001, having previously
served as a Managing Director. Glisan was Treasurer of Enron from the
spring of 2000 until October 2001. Kopper was a financial officer of Enron from
1994 until July 2001. From the beginning of 2000 until July 2001 he was involved
in the management of one of the SPEs controlled by Enron and used for transactions

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designed to manipulate its financial statements. On his resignation from
Enron he bought Fastow’s interest in this SPE. Delainey was a former head of two
large Enron divisions, Enron North America and Enron Energy Services.
● Fastow pleaded guilty to charges related to his involvement in the manipulation
of Enron’s financial statements through transactions with SPEs under his control, and to
self-enrichment in violation of his duties to Enron’s shareholders
through transactions with such SPEs. Fastow’s guilty plea was conditioned upon
that of his wife, Lea Fastow, to tax fraud in connection with profits received
by the Fastow family from an SPE controlled by Enron (which led to a one-year
prison sentence).
● Kopper pleaded guilty to charges related to transactions arising out of his
involvement in the SPE controlled by Enron (see above).
● Glisan pleaded guilty to involvement in the creation and use of an SPE for illegal
transactions intended to manipulate Enron’s financial statements, and was
sentenced to a prison term of up to five years.
● Delainey pleaded guilty to charges that he used profits from Enron’s energy
trading to conceal losses in other activities that the firm was promoting to
investors, and that he engaged in insider trading in the firm’s stock.
With the exception of Glisan and Lea Fastow, those who have pleaded guilty are
still at the time of writing awaiting sentencing. Such sentences generally include a
fine and forfeiture of the proceeds of illegal acts of which the accused are found
guilty or plead guilty. The latter sums can be large. For example, Andrew Fastow
forfeited approximately US$24 million, and in the case of Skilling the prosecution
is seeking more than US$50 million. In the case of Lay, forfeitures sought include
‘a sum of money equal to the amount of the proceeds obtained as a result of the
conspiracy, and securities and wire fraud offenses, for which the defendants
[Skilling and Causey as well as Lay] are jointly and severally liable’, an amount for
which no estimate is given but which will also be large.
Daniel Bayly, James Brown, William Fuhs, and Robert Furst, bankers from Merrill
Lynch, and Daniel Boyle, an Enron Vice-President in Global Finance, were found
guilty of involvement in parking Enron’s interest in some Nigerian barges
mounted with electricity generators which Enron had been planning to sell to
another investor in a deal that fell through. The parking enabled Enron to record
US$12 million in earnings and US$28 million in cash flow required to meet the
firm’s 1999 targets. Merrill Lynch participated in this transaction on the basis of a
secret oral promise that within six months it would be able to sell its interest at a
profit – in the event to an SPE controlled by Enron.
Arthur Andersen, auditor and provider of consultancy services to Enron, was
convicted in a June 2002 jury trial of the single felony count of obstruction of

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Justice by impeding the government’s investigation of Enron. The fine imposed
Was less damaging than the obstruction-of-justice indictment itself in mid-March
2002, which led to the hemorrhaging of Andersen’s client list. David Duncan, the
Andersen partner in Houston in charge of the firm’s Enron account, had earlier, in
April 2002, pleaded guilty to a charge of obstruction of justice and agreed to
Co-operate in the case against Andersen. The Supreme Court has agreed to hear
Andersen’s appeal, in which a key issue is likely to be whether the destruction of
documents before the receipt of a subpoena from the SEC provided valid grounds for
the firm’s conviction.

Study Question
a) Define corporation
b) Essential characteristics of the corporate form
c) Principles of Good Corporate Governance Practices

TOPIC 10:

CODE OF PRACTICE CORPORATE GOVERNANCE PRACTICES BY PUBLIC

LISTED COMPANIES IN KENYA

Learning objectives
By the end of this topic, the learners should be able to;

A. Explain the process of supply and disclosure of information as stipulated

in the capital market ACT (Cap. 485A)
B. Discuss the guidelines of Capital market ACT (Cap. 485A) in regard to re-
election of directors.
C. Explain the process of implementing the annual general meeting rule

Principles of Good Corporate Governance Practices

There are a number of principles that are essential for good corporate governance practices
of which the following have been identified as representing critical foundation and virtues
of good corporate governance practices:

Directors
Every public listed company should be headed by an effective board to offer strategic
guidance, lead and control the company and be accountable to its shareholders.

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The Board and Board Committees
(i) The board should establish relevant committees and delegate specific mandates
to such committees as may be necessary.
(ii) (ii) The board shall specifically establish an audit and nominating committee.
Directors Remuneration
(i) The directors’ remuneration should be sufficient to attract and retain directors to run the
company effectively and should be approved by shareholders.

(ii) The executive directors remuneration should be competitively structured and linked
to performance.
(iii) The non-executive directors’ remunerations should be competitive in line with
remuneration for other directors in competing sectors.
Companies should establish a formal and transparent procedure for remuneration of
directors, which should be approved by the shareholders.

Supply and disclosure of Information

(i) The board should be supplied with relevant, accurate and timely information to enable
the board discharge its duties.

(ii) Every board should annually disclose in its annual report, its policies for remuneration
including incentives for the board and senior management, particularly the following:
(a) Quantum and component of remuneration for directors including non executive
directors on a consolidated basis in the following categories;
(aa) executive directors fees;
(bb) executive directors emoluments;
(cc) non executive directors fees;
(dd) non executive director’s emoluments;

(b) A list of ten major shareholders of the Company;

(c) Share options and other forms of executive compensation that have to be made or
have been made during the course of the financial year; and
(d) Aggregate directors’ loans

Board Balance
The board should compose of a balance of executive directors and non-executive
directors (including at least one third independent and non-executive directors) of
diverse skills or expertise in order to ensure that no individual or small group of
individuals can dominate the boards’ decision-making processes.

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Appointments to the Board

There should be a formal and transparent procedure in the appointment of directors to the
board and all persons offering themselves for appointment, as directors should disclose
any potential area of conflict that may undermine their position or service as director.

Multiple Directorships

Every person save a corporate director who is a director of a listed company shall not
hold such position in more than five public listed companies at any one time to ensure
effective participation in the board and in the case where the corporate director has
appointed an alternate director, the appointment of such alternate shall be restricted to
three public listed companies, at any one time, subject to the requirements under the
Capital Markets (Securities) (Public Offers, Listing and Disclosures) Regulations, 2002.

Re-election of Directors

(a) All directors except the managing director should be required to submit themselves for
re-election at regular intervals or at least every three years.

(b) Executive directors should have a fixed service contract not exceeding five years with a
provision to renew subject to:

(i) Regular performance appraisal; and

(ii) Shareholders approval.

(c) Disclosure should be made to the shareholders at the annual general meeting and in the
annual reports of all directors approaching their seventieth (70 th) birthday that respective
year.

Resignation of Directors

Resignation by a serving director should be disclosed in the annual report together with
the details of the circumstances necessitating the resignation.

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Role of Chairman and Chief Executive
There should be a clear separation of the role and responsibilities of the chairman and
chief executive, which will ensure a balance of power of authority and provide for
checks and balances such that no one individual has unfettered powers of decision
making. Where such roles are combined a rationale for the same should be disclosed to
the shareholders in the annual report of the Company.

Every person who is a Chairperson of a public listed company shall not hold such
position in more than two public listed companies at any one time, in order to ensure
effective participation in the board, subject to the requirements under the Capital
Markets (Securities) (Public Offers, Listing and Disclosures) Regulations, 2002.

Shareholders

Approval of Major Decisions by Shareholders

There should be shareholders participation in major decisions of the Company. The board
should therefore provide the shareholders with information on matters that include but are
not limited to major disposal of the Company’s assets, restructuring, takeovers, mergers,
acquisitions or reorganization.

Annual General Meetings

(i) The board should provide to all its shareholders sufficient and timely information
concerning the date, location and agenda of the general meeting as well as full and timely
information regarding issues to be decided during the general meeting;

(ii) The board should make shareholders expenses and convenience primary criteria when
selecting venue and location of annual general meetings; and
(iii) The directors should provide sufficient time for shareholders questions on matters
pertaining to the Company’s performance and seek to explain to the shareholders their
concern.

Accountability and Audit

Annual Reports and Accounts

The board should present an objective and understandable assessment

of the Company’s operating position and prospects. The board should
ensure that accounts are presented in line with International
Accounting Standards.

Internal Control

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 The board should maintain a sound system of internal control to
safeguard the shareholders investments and assets.

Independent Auditors

The board should establish a formal and transparent arrangement for

shareholders to effect the appointment of independent auditors at each
annual general meeting.

Relationship with Auditors

The board should establish a formal and transparent arrangement for

maintaining a professional interaction with the Company’s auditors.

Public disclosure

There shall be public disclosure in respect of any management or business agreements

entered into between the Company and its related companies, which may result in a
conflict of interest.

The fundamental relationship between a director and the public sector organization on
which the director serves should be one of trust; essential to trust is a commitment to
honesty and integrity. Ethical conduct within this relationship imposes certain
obligations.

1. COMPLIANCE WITH THE LAW

2. Directors should act at all times in full compliance with both the letter and the
spirit of all applicable laws.

 In his/her relationship with the organization, no director should commit or

condone an unethical or illegal act or instruct another director, employee, or
supplier to do so.
 Directors are expected to be sufficiently familiar with any legislation that applies
to their work to recognize potential liabilities and to know when to seek legal
advice. If in doubt, directors are expected to ask for clarification.
 Falsifying any record of transactions is unacceptable.
 Directors should not only comply fully with the law, but should also avoid any
situation which could be perceived as improper or indicate a casual attitude
towards compliance.

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2. CONFLICTS OF INTEREST

 In general, a conflict of interest exists for directors who use their position at the
organization to benefit themselves, friends or families.
 A director should not use his or her position with the organization to pursue or
advance the director's personal interests, the interests of a related person 1, the
director's business associate, corporation, union or partnership, or the interests
of a

NB
“related” person means a spouse, child, parent or sibling of a director who resides with that
Director.

Person to whom the Director owes an obligation

 A director should not directly or indirectly benefit from a transaction with the
organization over which a director can influence decisions made by the
organization.
 A director should not take personal advantage of an opportunity available to the
organization unless the organization has clearly and irrevocably decided against
pursuing the opportunity, and the opportunity is also available to the public.
 A director should not use his or her position with the organization to solicit
clients for the director's business, or a business operated by a close friend, family
director, business associate, corporation, union or partnership of the director, or
a person to whom the director owes an obligation.
 Every director should avoid any situation in which there is, or may appear to be,
potential conflict which could appear to interfere with the director’s judgment in
making decisions in the organization's best interest.
 There are several situations that could give rise to a conflict of interest. The most
common are accepting gifts, favors or kickbacks from suppliers, close or family
relationships with outside suppliers, passing confidential information to
competitors or other interested parties or using privileged information
inappropriately. The following are examples of the types of conduct and
situations that can lead to a conflict of interest:

NB
“conflict” means a conflict of interest or apparent conflict of interest

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 “Apparent” conflict of interest means any situation where it would appear to a reasonable
person that the Director is in a conflict of interest situation.

(i) Influencing the organization to lease equipment from a business owned

by the director's spouse;

(ii) Influencing the organization to allocate funds to an institution where

the director or his or her relative works or is involved;

(iii) Participating in a decision by the organization to hire or promote a

relative of the director;

(iv) Influencing the organization to make all its travel arrangements

through a travel agency owned by a relative of the director;

(v) Influencing or participating in a decision of the organization that will

directly or indirectly result in the director's own financial gain.

 A Director should fully disclose all circumstances that could conceivably be

construed as conflict of interest.

3. DISCLOSURE

3.1 Full disclosure enables directors to resolve unclear situations and gives an
opportunity to dispose of conflicting interests before any difficulty can arise.
3.2 A director should, immediately upon becoming aware of a potential conflict
of interest situation, disclose the conflict (preferably in writing) to the board
chair. This requirement exists even if the director does not become aware of
the conflict until after a transaction is complete.
3.3 If a director is in doubt whether a situation involves a conflict, the director
should immediately seek the advice of the board chair. If appropriate, the
board may wish to seek advice from the organization’s ethics advisor or legal
advice.
3.4 Unless a director is otherwise directed, a director should immediately take
steps to resolve the conflict or remove the suspicion that it exists.
3.5 If a director is concerned that another director is in a conflict of interest
situation, the director should immediately bring his or her concern to the
other director's attention and request that the conflict be declared. If the
other director refuses to declare the conflict, the director should immediately
bring his or her concern to the attention of the board chair. If there is a

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 concern with the board chair, the issue should be referred to the governance
committee or equivalent committee of the board that deals with board
governance issues.
3.6 A director should disclose the nature and extent of any conflict at the first
meeting of the board after which the facts leading to the conflict have come
to that director's attention. After disclosing the conflict, the director:

(i) Should not take part in the discussion of the matter or vote on any
questions in respect of the matter (although the director may be
counted in the quorum present at the board meeting);

(ii) if the meeting is open to the public, may remain in the room, but shall
not take part in that portion of the meeting during which the matter
giving rise to the conflict is under discussion, and shall leave the
room prior to any vote on the matter giving rise to the conflict;

(iii) should, if the meeting is not open to the public, immediately leave the
meeting and not return until all discussion and voting with respect
to the matter giving rise to the conflict is completed; and

(iv) Should not attempt, in any way or at any time, to influence the
discussion or the voting of the Board on any question relating to
the matter giving rise to the conflict.

4. OUTSIDE BUSINESS INTERESTS

4.1 Directors should declare possible conflicting outside business activities at the
time of appointment. Notwithstanding any outside activities, directors are
required to act in the best interest of the organization.

4.2 No director should hold a significant financial interest, either directly or

through a relative or associate, or hold or accept a position as an officer or
director in an organization in a material relationship with the organization,
where by virtue of his or her position in the organization, the director could
in any way benefit the other organization by influencing the purchasing,
selling or other decisions of the organization, unless that interest has been
fully disclosed in writing to the organization.

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4.3 A “significant financial interest” in this context is any interest substantial
enough that decisions of the organization could result in a personal gain for
the director.

4.4 These restrictions apply equally to interests in companies that may compete
with the organization in all of its areas of activity.

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4.5 Directors who have been selected to the board as a representative of a stakeholder
group or region owe the same duties and loyalty to the organization and
when their duties conflict with the wishes of the stakeholder or constituent,
their primary duty remains to act in the best interests of the organization.

5. CONFIDENTIAL INFORMATION

5.1 Confidential information includes proprietary technical, business, financial, legal, or

any other information which the organization treats as confidential.

5.2 Directors should not, either during or following the termination of an appointment,
disclose such information to any outside person unless authorized.

5.3 Similarly, directors should never disclose or use confidential information gained by
virtue of their association with the organization for personal gain, or to benefit
friends, relatives or associates.

5.4 If in doubt about what is considered confidential, a director should seek guidance
from the board chair or the CEO.

6. INVESTMENT ACTIVITY

6.1 Directors should not, either directly or through relatives or associates, acquire or
dispose of any interest, including publicly traded shares, in any company
while having undisclosed confidential information obtained in the course of
work at the organization which could reasonably affect the value of such
securities.

7. OUTSIDE EMPLOYMENT OR ASSOCIATION

7.1 A director who accepts a position with any organization that could lead to a conflict
of interest or situation prejudicial to the organization interests should discuss
the implications of accepting such a position with the board chair recognizing
that acceptance of such a position might require the director’s resignation
from the organization’s board.

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8. ENTERTAINMENT, GIFTS AND FAVOURS

8.1 It is essential to fair business practices that all those who associate with the
organization, as suppliers, contractors or directors, have access to the
organization on equal terms.

8.2 Directors and members of their immediate families should not accept entertainment,
gifts or favors that create or appear to create a favored position for doing
business with the organization. Any firm offering such inducement should be
asked to cease.

8.3 Similarly, no director should offer or solicit gifts or favors in order to secure
preferential treatment for themselves or the organization.

8.4 Under no circumstances should directors offer or receive cash, preferred loans,
securities, or secret commissions in exchange for preferential treatment. Any
director experiencing or witnessing such an offer should report the incident to
the board chair immediately.

8.5 Gifts and entertainment should only be accepted or offered by a director in the
normal exchanges common to established business relationships for the
organization. An exchange of such gifts should create no sense of obligation
on the part of the director.

8.6 Inappropriate gifts received by a director should be returned to the donor.

8.7 Full and immediate disclosure to the board chair of borderline cases will always be
taken as good-faith compliance with these standards.

9. USE OF THE ORGANIZATION’S PROPERTY

9.1 A director should require the organization’s approval to use property owned by the
organization for personal purposes, or to purchase property from the
organization unless the purchase is made through the usual channels also
available to the public.

9.2 Even then, a director should not purchase property owned by the organization if
that director is involved in an official capacity in some aspect of the sale or
purchase.

10. RESPONSIBILITY

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10.1 The organization should behave, and be perceived, as an ethical organization.

10.2 Each director should adhere to the minimum standards described herein and in the
organization’s code of conduct, and to the standards set out in applicable
policies, guidelines or legislation.

10.3 Integrity, honesty, and trust are essential elements of the organization’s success.
Any director who knows or suspects a breach of the organization’s code of
conduct and ethics has a responsibility to report it to the board chair.

10.4 To demonstrate determination and commitment, each director should review and
declare compliance with the organization’s code of conduct and ethics
annually.

11. BREACH

11.1 A director found to have breached his/her duty by violating the minimum
standards set out in this document may be liable to censure or a
recommendation for dismissal to the Government.

12. WHERE TO SEEK CLARIFICATION

Normally, the board chair or the governance committee chair should be responsible to
provide guidance on any item concerning standards of ethical behavior

Governance and Investment Efficiency

There is a relationship between governance and investment efficiency and the following
factors also do count
 The relationship between ownership type and firm-level capital government and
foreign institutional owners are associated with different levels of information
 government (foreign)ownership weakens (strengthens) investment-Q sensitivity,
thereby increasing investment inefficiency (efficiency)
 the relation between foreign ownership and investment efficiency is stronger
when governments relinquish control and country-level governance institutions
are weaken
 Important role of ownership type in determining firms’ investment behavior and
efficiency.

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Key Aspects of the Public Investment Management Index (PIMI)
1. Strategic Guidance and Project Appraisal
 Nature of strategic guidance and availability of sector strategies
 Transparency of appraisal standards
 Observed conduct of ex ante appraisals
 Independent review of appraisals conducted
2. Project Selection and Budgeting
 Existence of medium term planning framework and its integration to the budget
 Inclusion in budget (or similar) for donor funded projects
 Integration of recurrent and investment expenditures in budget
 Nature of scrutiny and funding supplied by legislature, including its committees
 Public access to key fiscal information
3. Project Implementation
 Degree of open competition for award of contracts
 Nature of any complaints mechanism relating to procurement
 Funding flows during budget execution
 Existence and effectiveness of internal controls, such as commitment controls
 Effectiveness of system of internal audit
4. Project Evaluation and Audit
 Degree to which ex-post evaluations are conducted
 Degree to which external audits are produced on a timely basis and scrutinized by
the legislature The maintenance of asset registers, and/or asset values.

Study Question

A. Explain the process of supply and disclosure of information as stipulated

in the capital market ACT (Cap. 485A)
B. Discuss the guidelines of Capital market ACT (Cap. 485A) in regard to re-
election of directors .
C. Explain the process of implementing the annual general meeting rule

TOPIC 11:

WELL BEING

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Learning objectives
By the end of this topic, the learners should be able to:

a) Explain the meaning of wellbeing

b) Identify the core issues related to wellbeing at community level
c) Discuss major issues in international aid ethics

Wellbeing at Community Level

The material concerns practical welfare and standards of living.

 age distribution;
 health status;
 education levels;
 income levels;
 housing quality; tenure status
 employment and livelihoods opportunities
 availability of information and communications
 availability/quality of services
 and amenities: water, sanitation,
 electricity, credit, shops; schools, colleges; clinics, hospitals; sports centres, play
areas; places of worship...
 infrastructure and accessibility (eg public transport)
 quality of environment

The relational concerns personal and social relations.

 community formation: main majority/minority groups; in-/out- migration; lines

of solidarity/conflict; household composition/stability
 Organizational belonging: churches, mosques, temples, clubs, sports, political
parties, gangs, action groups....
 informal association: where (different groups) get together
 relations with state – law, politics, welfare
 violence, crime and (in)security
The subjective concerns values, perceptions and experience.
 understandings of ‘a good community’, ‘a good society’
 community self-concept
 community fears and aspirations
 levels of (dis)satisfaction

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  trust and confidence in each other
 sense of alienation or connectedness with wider society

Material lack/want
 Food, livelihood, housing, shelter
Physical wellbeing
 Hunger, pain
Bad Social relation, care for children, self respect, harmony with community
Insecurity,
 Vulnerability fear, risk and access to justice, security in old age, physical safety,
civil peace
Freedom of choice and action in all aspects of life

Justice and Well Being

Perceived justice needs to be considered on three levels (Greenberg 1987; Colquitt,

2008):
1. Distributive justice – the fairness associated with decision outcomes or distribution of
resources
2. Procedural justice – the fairness of processes in determining outcomes, including
consistency, accuracy and lack of bias
3. Interactional justice – the fairness associated with communicating outcomes, ensuring
that it is timely, truthful and respectful of sensitivities

Building Well-being Literacy

Formal and informal education provided by our community institutions and
conversations through print and electronic media needs to focus on improving well-
being literacy for us all.

Investing in Education of Girls and Women

There are many parts of the world where girls and young women do not have
educational opportunities. There are many different reasons for this, but, whatever the
reason, the consequences for the family’s motional and cognitively well-being can be
detrimental.

Reducing Inequalities
One of the biggest determinants of our well-being is inequalities, whether measured by
income, assets or educational level, and stigma and social exclusion. In any given

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society, individuals, families and communities with less financial and educational
resources are worse off in terms of health and well-being than those with better
financial and educational resources (Wilkinson & Pickett, 2009).

Benefiting from Social Networks

Humans are social beings, and thus it is no surprise that we both influence and are
influenced by our social networks. In this sense, happiness and social cooperation can
be infectious. A wealth of studies undertaken as part of the Framingham Heart Study
found that people who are surrounded by many happy people and those who are
central in social networks are more likely to become happy in the future (Fowler &
Chistakis, 2008). It seems that clusters of happiness result from the spread of happiness
and not just a tendency for people to associate with similar individuals.

AID

Aid is not the most important topic in development ethics, compared to assessing policy
goals, or commerce and debt, child labour, democracy and human rights, or the
exertion of power by the rich through means other than concessional finance. But it
remains important, and difficult.

Issues in Aid Ethics

Major issues in international aid ethics have included at least the following: first,

 whether and why such aid should exist, and in what circumstances, if any;,
 the quantities of aid to be offered by, or required from, specific richer agents, and
from which agents;
 Third, for which countries;
 fourth, for which sectors and uses;
 Fifth, questions of how to conduct aid work, about the manner and
 conditions under which aid is provided;
 Sixth, how to evaluate aid projects and programmes.
Before concentrating on questions of the manner and conditions of operation, we need
to look selectively at other issues which influence them.
Has international aid to poorer countries the right to exist at all? The following set of
viewpoints indicates most of the spectrum of opinion.
 An obligation exists, the same as intra-nationally: International aid is seen as morally
identical to resource transfers to poorer regions, groups and individuals within
national boundaries (and domestic transfers are considered legitimate and

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 desirable). A family of positions exists here, according to the perceived moral
basis for intra-national transfers (needs/utility/rights/historical debt or
connection/...). Sometimes it is held that aid should as a consequence be
organized in a similar way to domestic transfers, routilized and with little space
for discretion, as one part of welfare policy. But factual constraints differ in the
international case and might profoundly affect and limit how and how far the
rich can actually help.
 (2) Lesser obligation: International aid is considered a moral obligation upon richer
countries, groups and individuals, but subject to certain major conditions (for
example concerning its urgency and potential efficacy; or whether there exist
past and present North-South links), and thus in general has less priority than
obligations closer to home.
 (3) Charity: International aid is beyond obligation. While to give it is an act of
superogatory virtue and commendable, not giving it cannot be condemned. For
example, the former Soviet bloc held that it had no historical links with the South
and hence no present obligations to give aid.
 (4) My country first and only: Aid to people in other countries is a betrayal of co-
community members at ‘home’ who have unsatisfied needs and/or other claims
– except when international aid furthers their interests better than would
domestic uses.
 (5) A matter solely for individuals to decide: Charity is commendable and national
boundaries insignificant, but individual self ownership makes both intra- and
inter-national obligatory (tax derived) transfers immoral. This is the implication of
the influential possessive-individualist philosophy of Robert Nozick (1974),
presented for consideration in development policy by Deepak Lal (1976.) Tax-
based aid provided by a donor government is deemed illegitimate, unlike
voluntary trans-national aid provided by individuals.
 (6) Morally indifferent: Whether a person or group of persons (e.g. an
organization) chooses to help others, either in their country or another, is
considered an entirely optional consumer matter. To do so is no better or worse
than any other (legal) use of their wealth.

 (7) Culturally relative: Here the ‘consumer’, the entity that adopts life-style
options, is an entire culture. Some cultures are ‘into’ helping others, others are
not, and, it is claimed, there are no defensible ways of saying one value position
is better than the other.
Condition-less or condition-light aid transfers seem to be rejected by donor
governments in part because of the following assumptions:

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(1) Condition-less transfers are sometimes perceived as an admission of historic guilt,
and/or as an open-ended statement of obligation within a world community. Donors
have exempted themselves from historical responsibility by postulating

 a dark view and/or extreme uncertainty as to what would have happened

without colonization; or
 (ii) the alleged irrelevance now of events of fifty
 to five hundred years ago; or because of
 (iii) not having held colonies themselves, with the subsidiary assumption that
none colonized/ non-colonizers did not benefit from the colonial system and its
supply of labour and goods (Gasper, 1986: 168-79, reviews these debates).

(2) Aid is charity, so that donors can impose on it whatever requirements they see fit.

(3) Aid is donors’ money, given out of kindness to non-citizens; hence it must be used
well (and donors will say what is fit and well); it is not ‘pocket money’/’spending
allowance’, and should be exhaustively accounted for.
(4) So it must be exhaustively pre-planned, and the degree of achievement of pre-set
objectives must be checked ex post. Constituent assumptions here include assumptions
5, 6, 7 and 8 below.
(5) Recipients are unreliable and if left to themselves will not use funds effectively for
desirable purposes.
(6) Donors know better than recipients; and donors know enough.
(7) While structural transfers are dependence-creating (though not if in the European
Union’s Regional Fund?), tight project-, programme- and policy- conditionalities do not
have important adverse effects on trust and recipient ownership and learning.
Implicitly it might be held either that these are unimportant, or that:
(8) a passive and indebted recipient has no better options and so – regardless of liberal
and democratic language in other parts of aid policy – can be dictated to, steered and
driven, and will yet continue wholeheartedly trying and learning.

Study Questions

a) Explain the meaning of wellbeing

b) Identify the core issues related to wellbeing at community level
c) Discuss major issues in international aid ethics
d) Discuss the controversy surrounding condition less Aid

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