Module - 2: Ethics in Functional Areas of Buiness

Content
2.1 Introduction ............................................................................................................... 19
2.2 Ethics in marketing.................................................................................................... 20
2.3 Unethical Practices in Marketing .............................................................................. 20
2.4 Ethics in Advertising, Promotion and Distribution ................................................... 23
2.5 Ethics in Human Resources: ..................................................................................... 25
2.5.1 Ethical HRM Practices: .................................................................................. 28
2.5.2 Ethical Issues in HR: ...................................................................................... 29
2.6 Ethics in Finance ....................................................................................................... 31
2.6.1 What is Financial Ethics or Ethics in Finance? .............................................. 32
2.6.2 Need for Ethics in Finance ............................................................................. 33
2.6.3 Scope and Codes of Ethics in Finance ........................................................... 34
2.6.4 Implementation of Ethics in Finances ............................................................ 35
2.6.5 Unethical Practices in Finance: ...................................................................... 36
2.6.6 Unethical Behavior in Financial Markets....................................................... 37
2.7 Case study ................................................................................................................. 38
2.8 Suggested Readings / Reference Books: ................................................................... 39

Learning Objectives:
1. Understand the importance of ethics in marketing and its impact on businesses and
consumers.
2. Identify unethical practices in marketing and advertising, and the potential consequences
they can have on stakeholders.
3. Explore the ethical considerations in human resources management and the impact of
ethical HRM practices on organizational culture and employee well-being.
4. Examine the concept of ethics in finance and recognize the need for ethical behavior in
financial decision-making.
5. Analyze case studies to apply ethical principles and make informed decisions in
marketing, human resources, and finance contexts.

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2.1 Introduction
Ethics in functional areas of business refers to the application of moral principles to the
different aspects of a business, such as marketing, finance, human resources, and production.
Ethical issues can arise in any functional area of a business, but some of the most common
areas include:
Marketing: This area is concerned with the promotion and sale of products or services.
Ethical issues in marketing can include misleading advertising, deceptive pricing, and the use
of harmful or deceptive marketing practices.
Finance: This area is concerned with the management of a business's financial resources.
Ethical issues in finance can include insider trading, financial fraud, and the failure to
disclose material information to investors.
Human resources: This area is concerned with the recruitment, hiring, and management of
employees. Ethical issues in human resources can include discrimination, harassment, and the
failure to provide fair wages and working conditions.
Production: This area is concerned with the creation of products or services. Ethical issues in
production can include the use of child labor, the pollution of the environment, and the
violation of workers' rights.

2.1 Marketing - Ethical dilemmas

Ethical Dilemma

Every person may encounter an ethical dilemma in almost every aspect of their life, including
personal, social, and professional

An ethical dilemma (ethical paradox or moral dilemma) is a problem in the decision-making

process between two possible options, neither of which is absolutely acceptable from an
ethical perspective. Although we face many ethical and moral problems in our lives, most of
them come with relatively straightforward solutions.

On the other hand, ethical dilemmas are extremely complicated challenges that cannot be
easily solved. Therefore, the ability to find the optimal solution in such situations is critical to
everyone.

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In other words An ethical dilemma in the workplace is defined as a decision-making situation
where employees or stakeholders are provided with various options that may violate industry
or organizational moral and ethical standards.

Although navigating certain ethical dilemmas during day-to-day business operations can be
extremely difficult, your business must have clearly established rules and regulations to
ensure as much transparency and visibility as possible. Ethical operational standards can not
only help ensure that your business is following legal regulations set by regulatory bodies but
can also strengthen customer relationships and trust.

Ethical Dilemmas’ Business Teams Should Avoid

 Overselling To Prospective Leads

 Prioritizing Revenue Over Customer Experiences
 Deceptive and Inaccurate Marketing Strategies
 Ambiguous and Unclear Auto-Renewal Clauses

2.2 Ethics in marketing

Ethical marketing is a term that refers to how businesses sell their products or services not
just for the benefit of the customer, but also for the benefit of social and environmental
concerns. Its objective is to develop long-term customer-brand partnerships based on
common values and objectives.

Additionally, you might conceive of ethical marketing as the application of ethics to the
marketing process. Businesses can accomplish this by thoroughly studying marketing
challenges via a moral lens. This includes developing transparent and trustworthy marketing
campaigns and content, supporting ethically worthwhile causes, and continually making
morally correct corporate decisions. Businesses, large or small, that grasp the power of social
responsibility cannot only attract clients but also make substantial contributions to society.

2.3 Unethical Practices in Marketing

Exploiting Social Paradigms

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Certain groups may find certain forms of marketing offensive due to cultural and ethnic
sensitivity. For instance, advertising for a luxury car that portrays the driver as a man capable
of charming an attractive woman conveys several potentially offensive societal remarks.
These include the notion that a woman is exclusively concerned with financial success, the
notion that a guy requires a luxury car to attract the woman of his dreams, and the promise
that if the customer purchases such a car, he would instantly become desirable.

Manipulating Vulnerable Audiences

Similar to how the inclusion of racial or ethnic groups in advertising might serve to
stereotype them; the exclusion of these groups from marketing in a multiethnic society can
result in image and identity issues for those who are excluded. Marketing to children, in
particular, has the potential of exposing ethical issues in marketing. The marketing of fast
food and unhealthy snacks to children may cause them to refuse to eat anything else, resulting
in childhood obesity.

Post-Purchase Dissonance

Often, what you see is not what you receive. Post-purchase dissonance arises when a buyer
purchases anything by mail order and discovers that the quality falls short of his expectations
upon receipt of the products. He can typically return the merchandise for a refund, but the
marketer is banking on the fact that returning the item and incurring postal and insurance
costs would deter purchasers.

Deceptive Marketing Policies and Ethics

Deceptive marketing policies are not contained in a specific limit or to one target market, and
it can sometimes go unseen by the public. There are numerous methods of deceptive
marketing. It can be presented to consumers in various forms; one of the methods is one that
is accomplished via the use of humor. Humor offers an escape or relief from various types of
human constraints, and some advertisers may take the advantage of this by applying
deceptive advertising methods for a product that can potentially harm or alleviate the
constraints using humor.

Anti-Competitive Practices

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There are various methods that are anti-competitive. For example, bait and switch is a type of
fraud where customers are "baited" through the advertisements for some products or services
that have a low price; however, the customers find in reality that the advertised good is
unavailable and they are "switched" towards a product that is costlier and was not intended in
the advertisements.

Another type of anti-competitive policy is planned obsolescence. It is a method of designing

a particular product having a limited useful life. It will become non-functional or out of
fashion after a certain period and thereby lets the consumer to purchase another product
again.

A pyramid scheme is also an anti-competitive process. It is a non-sustainable business model

that promises the participants payment or services, mainly for enrolling other people into the
scheme; it does not supply any real investment or sell products or services to the public.

This business practice demands the initial investor or the "captain" to enroll other people for
a fee to them who again will further enroll more people in order to be paid by the company.

Pricing Ethics

There are various forms of unethical business practices related to pricing the products and
services.

Bid rigging is a type of fraud in which a commercial contract is promised to one party;
however, for the sake of appearance several other parties also present a bid.

Predatory pricing is the practice of sale of a product or service at a negligible price, intending
to throw competitors out of the market, or to create barriers to entry.

Unethical pricing. These are practices that are rampant in India nowadays, and include tender
bid rigging. Dumping, predatory pricing, price fixing, price war and variable pricing.
Advertising and promotion. Since advertising tobacco products and liquor is banned in India,
companies freely resort to surrogate advertising, where some other harmless products like
soda or CDs are advertised using the brand name of former products. Eg:-Bagpiper Soda or
Bagpiper CDs. This is also known as puffery. Hazardous stunt actions by celebrities used for
promoting motor cycles, and the use of violence, sex and profanity in advertising, are totally
unethical. Aggressive promotion of birth-control pills in India was recently objected to by the
government as it might promote promiscuity among the younger generation. Negative

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advertising, like disparaging competitors and their products is another unethical tactic of
marketers.
8. ‘Greenwash' is yet another example of an unethical marketing strategy where the company
appears to be ethical when its unethical practices continue.

2.4 Ethics in Advertising, Promotion and Distribution

1. Truthfulness and Deception: Advertising has a responsibility to be honest and

transparent. However, one ethical dilemma is the use of misleading or deceptive practices.
This includes exaggerating product benefits, making false claims, or omitting important
information that could influence consumer decisions. Honest advertising ensures that
consumers can make informed choices and trust the information they receive.

2. Targeting Vulnerable Groups: Advertising should be mindful of vulnerable or

susceptible populations, such as children, the elderly, or individuals with limited cognitive
abilities. Ethical concerns arise when advertising takes advantage of these groups'
vulnerabilities or exploits their lack of understanding. Protecting vulnerable groups means
avoiding manipulative tactics and ensuring that advertising messages are appropriate for their
age and comprehension level.

3. Stereotyping and Discrimination: Advertising has been criticized for perpetuating

stereotypes and promoting discriminatory practices. This includes reinforcing gender roles,
racial or ethnic stereotypes, or portraying certain groups in a demeaning or offensive manner.
Ethical advertising should strive to avoid reinforcing harmful biases and promote inclusivity
and diversity.

4. Invasion of Privacy: The collection and use of personal data for targeted advertising
have raised privacy concerns. Ethical issues arise when advertisers collect and utilize
personal information without proper consent, infringing on individuals' privacy rights.
Respecting privacy means obtaining explicit consent, providing transparent information about
data collection practices, and protecting consumers' personal information.

5. Manipulation and Manipulative Techniques: While advertising aims to persuade

consumers, ethical concerns arise when manipulative techniques are used. This includes
tactics involving manipulation, coercion, or exploiting psychological vulnerabilities. Ethical

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advertising respects individual autonomy, avoids deceptive or manipulative tactics, and
provides accurate and balanced information.

6. Unhealthy or Unethical Products: Ethical dilemmas arise when advertising

promotes products that are harmful, unethical, or encourage unhealthy behaviors. This
includes promoting tobacco, alcohol, or excessively sugary foods to vulnerable populations
or misrepresenting the potential risks associated with certain products. Ethical advertising
promotes responsible consumption and ensures that consumers' well-being is prioritized.

7. Environmental Impact: With increasing concerns about environmental

sustainability, advertising practices that contribute to wasteful consumption, promote
environmentally damaging products, or engage in greenwashing are seen as unethical. Ethical
advertising strives to promote environmentally friendly products and practices, encourages
sustainable behavior, and avoids misleading environmental claims.

8. Cultural Sensitivity and Offense: Ethical advertising respects diverse cultural,

religious, and social values. Advertisements that disrespect or offend these values can be
considered unethical. Cultural sensitivity means understanding and acknowledging different
perspectives, avoiding stereotypes, and ensuring that advertising messages are inclusive and
respectful.

9. Endorsements and Influencer Marketing: Ethical issues can arise in advertising

when endorsements or influencer marketing lack transparency or authenticity. Failing to
disclose paid partnerships or using influencers who do not genuinely endorse the products
they promote can deceive consumers. Ethical advertising ensures transparency in influencer
partnerships and maintains the integrity of endorsements.

Ethical practices need to be followed are as follows.

 Be honest and transparent about your products or services.

 Avoid targeting vulnerable groups.
 Avoid using stereotypes or discriminatory messages.
 Respect consumers' privacy rights.
 Avoid using manipulative techniques.
 Do not promote harmful or unethical products.
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  Consider the environmental impact of your promotion campaigns.
 Be culturally sensitive and avoid offending people.

2.5 Ethics in Human Resources:

Ethics in HR is responsible for channelizing the human resources of an organization via a

code of ethical and professional standards to get immaculate solutions to all ethical issues and
ensure the ethical success of the organization.

Ethics in Human Resource Management is a subset of business ethics, and it is dedicated to

professional development, professional responsibility, ethical leadership, fairness, justice,
ethical handling of conflicts of interests, the right use of information sorts of practices.

Role of Ethics in Human Resource Management

Today, Human Resource teams are tasked with several responsibilities to maintain a smooth
fostering of good diversity at the workplace, setting the proper standards for people in the
organization, etc.
Such practices have to strictly follow the ethical rule motivation, as they are necessary for the
organization’s positive drive. These professionals have to go after a good working
environment for everyone in the company and raise the bars for the current and upcoming
employees.

Ethics in Human Resources basically deals with the affirmative moral obligations of the
employer towards employees for ensuring equality and equity justice.

The role of HR in promoting ethics is to encourage the best code of ethics and lead by
example for smooth business operations. Note that there are different types of ethics in HRM,
and below, we have shared some of the significant ones to help you effectively manage your
business.

 Guide, encourage, and mentor your employees to be on their best workplace

behavior.
 Be respectful and always talk to them privately whenever they conduct themselves
unethically.

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  Keep communication as honest and transparent as possible to gain your workers’
trust.
 Encourage social responsibility.
 Do not take advantage of your position for any gain whatsoever, whether financial,
personal, or material. Simply put, avoid being biased.

1. Abide by Employment Law

HR ethics helps you conduct business in line with the employment law due to fair
employment practices. For instance, policies related to minimum wage and employee
overtime pay show that your company compensates employees in accordance with the law. In
addition, policies against discrimination attract applicants from diverse groups, thus
indicating that you engage in fair employment practices.

2. Protecting Your Employer Brand/Reputation

Conducting business unethically can ruin your reputation since word will spread everywhere
about your misdeeds. These can include sexual harassment, discrimination, unfair
employment policies, etc. As a result, not only will you be able to lose important clients, but
attracting quality talent for various positions will be a challenge. That being said, build your
reputation with the best HR ethics activities and keep your business ahead of the competition.

3. Promotes Employee Retention

HR ethics and compliance in the organization promote trust among the employees. As a
result, your workers will be loyal and strive to impress you by putting more effort into work.
In addition, they will work in your organization for more extended periods, thus gaining more
experience that contributes to increased production. More importantly, hiring and recruiting
costs will be reduced.

4. Better Decision Making

Business ethics in human resource management encourages collaboration and accountability.

As a result, employees will be able to be accountable for their actions, allowing you to easily
make the best organizational decisions. What’s more, workplace conflicts that tend to occur

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more frequently will also reduce since no employee will want to be in the spotlight as a
troublemaker at all times.

HRM ethics is responsible for-

 Basic human rights

 Civil and employment fight
 Safety in the workplace
 Privacy
 Justifiable treatment to employees like equity and equal opportunity
 Respect, fairness, and honesty based process

Basic Human Rights: HRM ethics ensures the protection of basic human rights within the
workplace. This includes respecting employees' rights to freedom of expression, association,
and privacy. It also involves promoting a work environment that is free from harassment,
discrimination, and any form of abuse.

Civil and Employment Rights: HRM ethics upholds civil and employment rights by
ensuring fair treatment and equal opportunities for all employees. This includes protecting
employees from unfair practices, such as discrimination based on race, gender, age, religion,
or disability. HRM ethics promotes inclusivity, diversity, and equal access to employment
and advancement opportunities.

Safety in the Workplace: HRM ethics places a strong emphasis on ensuring a safe and
healthy work environment for employees. This involves identifying and addressing potential
workplace hazards, implementing safety protocols and procedures, providing necessary
training and protective equipment, and promoting a culture of safety. Ethical HRM practices
prioritize employee well-being and minimize the risk of work-related accidents or illnesses.

Privacy: HRM ethics acknowledges and respects employees' right to privacy. This includes
safeguarding personal information, ensuring secure data management practices, and only
collecting and using employee information for legitimate business purposes. Ethical HRM
practices maintain confidentiality and transparency when handling employee data and protect
against unauthorized access or disclosure.

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Justifiable Treatment to Employees: HRM ethics ensures that employees are treated with
fairness, equity, and equal opportunity. This includes establishing and enforcing policies and
procedures that prevent favoritism, nepotism, or any form of unjustifiable treatment. Ethical
HRM practices promote meritocracy, transparency in decision-making, and provide
employees with avenues for raising concerns or grievances.

Respect, Fairness, and Honesty-Based Processes: Ethical HRM practices promote a work
environment built on respect, fairness, and honesty. This includes fostering positive employee
relations, open communication, and creating a culture that values integrity and ethical
behavior. Ethical HRM processes involve fair performance evaluations, objective decision-
making, and transparent communication regarding policies, procedures, and organizational
changes.

By upholding these principles, HRM ethics contributes to a positive work environment,

employee satisfaction, and organizational success. Ethical HRM practices not only protect
employees' rights but also enhance employee engagement, trust, and loyalty. They also help
organizations attract and retain top talent and promote a positive reputation in the
marketplace.

2.5.1 Ethical HRM Practices:

1. Staffing and Selection
a. Fostering the perception of fairness in the process of recruitment and selection
i. Understanding the employment law
ii. Formal procedures
iii. Interpersonal communication
iv. Providing information through Induction
v. Reference Validating
2. Training
a. Recognise the ethical issues
b. Ethical guidelines to be followed
c. Targets and methods of training
3. Performance Appraisal
a. Cultural dimensions of collectivism and power distance make objective
appraisals a challenge
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 b. Supervisors and Subordinates develop close relationships
c. Organisation Loyalty
d. Seniority based appraisal system
e. Annual performance appraisals
f. Interpersonal relationships affecting appraisal
4. Compensation and Benefits
a. Different compensation systems used in organisations
i. HRA – House rental allowance
ii. DA – Dearness Allowance
iii. LTA – Leave Travel Allowance
b. Leave Benefits
i. Sick Leave
ii. Casual Leave
iii. Annual Leave
iv. Holiday
5. Equal Opportunity Laws
6. Ethical Discipline

2.5.2 Ethical Issues in HR:

1. Issues related to Privacy
2. Employment Issues
3. Issues related to Safety and Health
4. Issues related to Restructuring and Layoff’s
5. Issues related to discrimination of the employees
6. Issues related to cash and incentive plans
7. Issues related to Performance Appraisal
8. Issues related to forced labour and Child Labour
9. Issues related to Employees responsibility and accountability

1. Issues related to Privacy: In the workplace, privacy concerns arise when employers collect,
monitor, or use employees' personal information without their knowledge or consent. Ethical
issues emerge when there is unauthorized surveillance, invasive monitoring of

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communications, or sharing of personal data without proper safeguards. Respecting employee
privacy rights is crucial to maintain trust and ensure a fair work environment.

2. Employment Issues: Ethical concerns can arise during the entire employment lifecycle,
including recruitment, hiring, training, and termination. These issues include fair and
unbiased hiring practices, equal opportunities for advancement, providing a safe and
inclusive work environment, and ensuring fair compensation and benefits for employees.
3. Issues related to Safety and Health: Employers have a moral and legal responsibility to
provide a safe and healthy work environment. Ethical issues arise when companies fail to
address workplace hazards, neglect safety protocols, or disregard employee well-being.
Prioritizing employee safety, providing appropriate training, and maintaining occupational
health standards are essential ethical obligations.
4. Issues related to Restructuring and Layoffs: Companies may face ethical dilemmas when
implementing restructuring measures or conducting layoffs. Ethical considerations include
transparency in decision-making processes, fair treatment of affected employees, providing
adequate notice, offering support for reemployment or retraining, and minimizing the
negative impact on employees' lives and livelihoods.
5. Issues related to Discrimination of Employees: Discrimination based on factors such as
race, gender, age, religion, or disability is ethically unacceptable. Employers should strive to
create an inclusive work environment that values diversity, prohibits discriminatory practices,
and provides equal opportunities for all employees. Addressing and preventing discrimination
is vital to ensure fairness and equity.
6. Issues related to Cash and Incentive Plans: Ethical concerns arise when companies design
compensation and incentive plans that encourage unethical behavior or prioritize short-term
gains at the expense of long-term sustainability. Ensuring that compensation plans are fair,
transparent, and aligned with ethical principles promotes employee motivation, engagement,
and organizational integrity.
7. Issues related to Performance Appraisal: Ethical issues can arise during performance
appraisal processes if they lack fairness, objectivity, and transparency. Biased evaluations,
favoritism, or inadequate feedback can demotivate employees, create conflicts, and
undermine trust. Ethical performance appraisal practices should be based on clear criteria,
unbiased assessment, and constructive feedback.

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8. Issues related to Forced Labor and Child Labor: Businesses must ensure that their supply
chains are free from forced labor and child labor. Ethical concerns arise when companies
knowingly or unknowingly source products or services from suppliers that engage in
exploitative labor practices. Ensuring responsible sourcing, conducting thorough supply chain
audits, and supporting fair labor standards are vital to address these ethical issues.
9. Issues related to Employee Responsibility and Accountability: Ethical responsibilities
extend to employees as well. Employees should uphold ethical standards, adhere to company
policies, and act responsibly in their roles. Ethical concerns can arise when employees engage
in misconduct, such as fraud, dishonesty, or conflicts of interest. Promoting a culture of
ethics, providing training, and establishing mechanisms for reporting ethical concerns help
foster responsible employee behavior.
Addressing these ethical issues in the workplace is essential for creating a fair, inclusive, and
sustainable work environment. Employers should establish clear policies, provide training,
and foster a culture that values ethical conduct, ensuring the well-being and dignity of
employees while promoting organizational success.

2.6 Ethics in Finance

Finance talks about money about the market or other financial resources for example
financial markets, investment, insider trading, etc.

The field of finances is diverse, and it is mainly about the definition and interrelation of many
factors such as money, risk, and time. These are assets that take the form of money, where
banks serve as the primary facilitators.

In the domain of financial markets, there are a plethora of activities that deal with the
management of monetary funds. This backbone can help and direct companies in conducting
their business.

Companies can use this as a metric to know their position in the market and leverage it to win
a position over others. The knowledge of finances is also essential for making future

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investments, acquisitions, and other decisions. It is the heart and brain of any organization
and has to be carefully followed.

Ethics in Finance talks about financial behavior or activities that are ethically right or wrong.
The ethics in finance incorporate truthfulness, integrity, honesty, justice, and fairness in all
sorts of financial activities.

Business ethics that are followed by financial institutions, financial services, or financial
markets are the integral parts of ethics in finance.

It is generally used for describing finance which takes into account the ethical channelization
of financial returns along with ESG (environmental, social, and governance) factors.

Financial ethics or business ethics are actually subsets of general ethics. It is crucial for
maintaining harmony and stability in financial services where people interact with one
another and do any sort of financial or monetary transactions.

To understand it more properly, let us dive deep into both the terms separately-

2.6.1 What is Financial Ethics or Ethics in Finance?

Ethics governs the course of action taken by a human that can be right or wrong.

Generally speaking, ethics form the person’s attitude to do right; and they can be specified in
terms of a profession or even an organization in the form of business ethics.

Since a company is primarily based on financial needs and directives, it must follow the
ethics route towards the future. This can be achieved both internally and externally, thereby
resulting in a suitable environment for employees, stakeholders as well as market position.

Ethics is one of the most critical and intricate aspects of an organization, especially in
domains like finances. There is either “right” or “wrong” associated with any human action
based on the organization’s conventional morality and business ethics.

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Finance ethics is highly crucial because of the countless scandals and ethical issues of the
financial industry. Ethics in the finance sector mainly revolves around the handling of
material non-public information and reporting of the unethical act.

Upholding ethical standards in finance-related activities by being aware, educated, and

holding high moral standards in economic, corporate, business or finance activities. It
resolves all sorts of unethical act and interests.

2.6.2 Need for Ethics in Finance

1. Provides a moral code of standard
In the financial market, some barriers range from unequal information, misuse of power and
resources, etc. In such cases and those which involve third-party connections, there is a dire
need for a proper code to be followed in the industry. From investment to trading to stock to
economical activities of the corporate or finance system, all follow an ethical code in all their
transactions

2. Ethics in finance channelizes confidence in business/corporate dealings

The main objective of the financial industry is to have direct dealings with the industry.These
directly connect to their clients in the form of product or service delivery where they look
forward to winning their confidence.

Despite the primary objective to maintain a competitive stature in the industry, they must do
so on ethical grounds. In addition to such practices, being ethically right will gives businesses
good returns in the long term.

3. Ethics makes business/corporate behavior and activities harmonious

In the financial industry, we can expect many people to be part of an organization.Since these
have to work together at different levels and towards a similar core objective, there has to be
a set of ethical rules and guidelines that have to be followed. This will help in proper
management and higher productivity from the employees.

The ethics of finance refers to the values and principles that influence financial behaviour and
decision-making. It is an essential component of the financial sector because finance is so

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important to the world economy. To keep investors’ confidence and preserve the long-term
viability of financial markets, ethical behaviour in finance is crucial.
Transparency is one of the main moral issues in finance. Investors must get accurate and
concise information from financial institutions regarding the risks and rewards of making
investments. Failing to do so may result in investment losses and harm the institution’s
reputation.
Conflicts of interest are a significant ethical issue. Financial professionals need to steer clear
of circumstances when their own interests conflict with those of their clients. They must
ensure that their choices are purely motivated by what is in their clients’ best interests by
disclosing any potential conflicts of interest.
Last but not least, financial ethics also includes a duty to society as a whole. Financial
institutions have a duty to make sure that their investments don’t have a negative impact on
society or the environment. They must also follow rules and legislation that support social
welfare.

In conclusion, maintaining the integrity and sustainability of financial markets depends on

financial ethics. Financial professionals can make sure they are making moral choices that are
advantageous to both their clients and society at large by adhering to transparency principles,
avoiding conflicts of interest, and encouraging social responsibility.

2.6.3 Scope and Codes of Ethics in Finance

Different moral codes that are supposed to be followed the finance-related behavior of a
company towards its employees, customers, public and other stakeholders-

1. Acting with honesty and integrity while handling dilemmas of the world of
finances
2. Not associating with any real/clear conflicts of interest in personal, or company
relationships
3. Providing information that is full, accurate, fair, complete, relevant, objective,
understandable, and timely in and for different documents and reports
4. Acting in accordance with all the applicable rules, laws, and regulations of
governments along with other relevant public/private regulatory agencies

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 5. Acting responsibly and in good faith with due care, carefulness, and
competence without any sort of misrepresentation of material facts
6. Respecting the confidentiality of information which is acquired in the business
course and such information should not be used for the personal benefit
7. Promoting ethical behavior among all the associates and stakeholders of a
company
8. Adhering and promoting a code of ethics in the company

2.6.4 Implementation of Ethics in Finances

To deal with ethical problems in finances like those ranging from ethical codes in place for
financial professionals to the replacement of the egoistic theory, there are a large variety of
domains covered in business ethics.

It is not an uncommon practice of applying ethical means in contemporary businesses. These

codes adhering to a morally established financial set of ethics are regulated and maintained
by self-regulating agencies and official regulating authorities.

These are kept in place to ensure ethically and morally responsible behaviour from the
various operatives that operate in the financial market.

Example of ethical violations in the financial market includes insider trading, investor
management, campaign financing, and stockholder interest vs stakeholder interest.

Businesses in both financial and general markets have to be wary of loyalty and trust
violations in both private and public dealings.

Over the years, there have been multiple cases of whistleblowing in the world. People have
been involved in cases where just the knowledge of such practices landed them in problems.
No one prefers to blow a whistle on their fellow worker or the organization.

Still, it is also an essential and ethical duty to ensure that fair practices are being followed in
the financial industry or society.

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For instance, take the example of Harshad Mehta in the 20th century. It was the morally
responsible ethics of a news reporter to make sure such practices were reported.

The examples discussed above are just a handful compared to the various ethical situations
and dilemmas faced by finance-professionals every day.

Over these years, these professionals’ involvement in countless various allegiances and
scandals has given these professionals a black eye and completely rocked the industry.

With proper knowledge of the guidelines that have to be followed, encouragement of ethics-
driven behavior in the workplace, and following the highest standards of applied ethics is
crucial for every finance professional today.

2.6.5 Unethical Practices in Finance:

The unethical practices in accounting are more in proprietary, partnership and private limited
companies. It is at lower levels in public limited companies and MNCs.

Some of the unethical practices in financing and accounting are as under:

i. Deliberate abnormal delays in payments to (a) Vendors, (b) Dealers commissions and
promotion costs.

ii. Delays in paying wages, interest to financiers, incentive, bonus to employees.

iii. Holding up bills of vendors on silly reasons and ultimately buying from others to avoid
payment to earlier vendors.

iv. Not prompt in statutory payments of ESI, PF, Sales Tax and Excise Duties.

v. Cheating employees of their dues towards medical expenses, leave travel assistance,
children education fees etc.,

vi. Opening of current accounts in different banks to avoid adjustments against loans by
earlier banker.
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vii. Creating bogus bills of purchase to show higher costs and hence losses to avoid bonus
payment to employees.

viii. Collecting loans from private financiers at higher rate of interest to help kith and kin and
to get kick-backs.

ix. Quick release of payments to known or adjustment parties and delaying payment to others.

x. Taking private finance only from those who are ready to do personal favours to the finance
department head.

2.6.6 Unethical Behavior in Financial Markets

1. Faking the Numbers
In the reporting and analysis of finances, economics, investment, or business activities,
“faking the numbers” is one of the common unethical behaviors.

2. Asset Misappropriation
When funds of an organization are used for the things that are not related to the organization
then it is an unethical act.

3. Disclosure Concerns
Disclosing information (public or private) overly or disclosing too little is also unethical in
different situations. For instance, hiding a loss from potential investors is unlawful.

4. Executive Focusing
Another unethical concern is focussing too much upon the executives and giving them too
much power, as it may give power to the executive to pressure the reporting and analysis
team.

5. No Direct Chain of Command

Every company should incorporate a proper chain of command for offering reporting and
analysis of the finances, and if it is not there, it would be unethical.

Conclusion

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Ethics is one of the most important factors in the world of finances.

In the financial industry, the participating organizations must follow a proper ethics code.
This is necessary for the internal functioning of the organization as well as external decisions
that affect it.

Since finance is the backbone of any business and ethics are of similar importance, ethics in
finance must be followed religiously without any discrepancy.

Terminal Questions
5 Marks Questions
1. Explain role of ethics in functional areas of business.
2. Describe the unethical practices in marketing
3. Discuss ethical issues in advertising
4. Summarize the unethical practices in HRM.
5. Discuss HRM and ethics
6. Describe the need of ethics in business.
7. Explain code ethics in business
9 Marks questions
1. Describe ethics in marketing and unethical practices in advertising
2. Discuss Role of ethics in HRM
3. Discuss the code of ethics in finance and unethical practices in finance.
12 Marks
1. Discuss roles ethics in Finance and HRM
2. Describe the role of Ethics in Marketing and advertisement.
2.7 Case study

On February 17, 2016, Ringing Bells Pvt. Ltd. (Ringing Bells), a Noida-based start-up,
launched India’s most affordable smartphone dubbed as ‘Freedom 251’ at a price of Rs.251
(less than US$4). With its promising price, the smartphone had the potential to disrupt India’s
smartphone market. However, after the highly publicized launch of the smartphone, the
cheapest in the world, the company was caught up in a series of controversies. While the
introduction of the device could revolutionize the smartphone scenario in India, analysts
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pointed out that its unsustainable price, the ambiguity of design information in newspapers
and on the website, and its weak communication with the media-fueled suspicion over the
availability of the device in the market. Industry players questioned the viability of ‘Freedom
251’ at such a cheap price, its uncanny iPhone-like design, and its website glitches. Despite
severe criticism and scrutiny from several quarters, Ringing Bells claimed that it would never
close down the project and would keep its promise of delivering the handsets to customers
within the stipulated time period.

Questions

1. What are the ethical issues in the above case.

2. What are suggestions to the consumers.
3. What is the role of government in preventing such scams.

2.8 Suggested Readings / Reference Books:

 Andrew Crane & Dirk Matten (2010). Business ethics, Oxford
 Dean A. Bredeson, Applied Business Ethics, Cengage Learning
 Bajaj P. S & Raj Agarwal, Business Ethics, Biztantra
 Richard Luecke (2003), Harvard Business Essentials: Negotiation, Harvard Business
Press.

Web Links:
https://www.geeksforgeeks.org/ethical-issues/
https://www.michiganstateuniversityonline.com/resources/leadership/common-ethical-issues-
in-the-workplace/

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