BMM 2417: ETHICS IN PROCUREMENT AND LOGISTICS - 45 Contact Hours

Prerequisite: None

Purpose of the Course

The aim of this course is to equip students with knowledge on ethical principles and concepts.

Course Objectives

By the end of this course, students should be able to:

1. Discuss procurement ethical principles and concepts

2. Identify ethical dilemmas in procurement
3. Explain the role of code of conduct and ethics in an organisation

Course Description

Meaning of ethics; purchasing ethics. ethics as a general field of study, Development of business
ethics; professional ethics, Ethical concepts; principles of ethics, impartiality and objectivity,
openness and full disclosure, confidentiality, due diligence, fidelity to professional responsibility,
The role and application of ethics in purchasing and supplies management; Ethics and social
responsibility; Ethical dilemmas in modern business environment; Developing an ethical culture
in purchasing and supplies; Corruption and its impact on purchasing and supplies; Developing
value systems; Ethical codes in purchasing and supplies; Rules and laws governing professional
purchasing and Supplies; Ethics in Kenyan society; Role of code of work ethics in organizations.
TIME TOPIC SUBTOPIC
m Introduction  Meaning of ethics;
 purchasing ethics
 ethics as a general field of study
 Development of business ethics
  professional ethics,
 Ethical concepts
 principles of ethics

Week 5 The role and application  The role and application of ethics in
&6 of ethics purchasing and supplies management;
 Ethics and social responsibility
 Ethical dilemmas in modern business
environment;
CAT
Week Developing an ethical  Developing an ethical culture in purchasing
8&9 culture in purchasing and and supplies
supplies  Corruption and its impact on purchasing and
supplies
 Developing value systems
 Ethical codes in purchasing and supplies;
Week Rules and laws governing  Rules and laws governing professional
10,11 professional purchasing purchasing and Supplies
&12 and Supplies  Ethics in Kenyan society
 Role of code of work ethics in organizations.
CAT
Revision

Teaching Methodologies

Lectures, Class discussions, Group activities, Case studies

Instruction Materials/Equipment

LCD Projector, Whiteboard, Textbooks, Computers

Course Assessment
Continuous Assessment 30%
Examination 70%
Course Textbooks

1. Day, M. (2004). Gower handbook of purchasing management. Chartered Institute of

Purchasing & Supply.
2. Handy, C. (1999). Understanding business ethics in procurement (4th Ed.). London: Penguin.
ISBN 978-131735422, 013173542X
3. Raftery, J. (1991). Principles of building an ethical procurement business. UK: Blackwell.

Course Reference Textbooks

1. Pooler, V. and Pooler D. (1997). Purchasing and supply management book. Creating the
vision. NY: International publishing house. ISBN 041210609
2. Hansen, K. (1999). Sustainable procurement.’ UK: CIPS Publishers. 10: 1861241704, 978-
1861241702
3. Lamming (1993). Beyond partnership. New York: Prentice Hall ASIN: B009FD3BU.

Course Journals

1. Supply Chain Management: An International Journal Volume: 16 Issue: 2 2011

2. Insurance Ethics for a More Ethical World Journal .Primeaux, William Ferguson.
3. International Journal of Procurement Management (IJPM)

Course Reference Journals

1. ISM-PRINCIPLES of purchases and social responsibility Journal ( Institute for supplies

management - ISM)
2. Inside supply management Journal by ISM.
3. Journal of supply management by ISM 1478-4092ss
 1. OVERVIEW OF ETHICS

1.1 Definition of Ethics/Moral Philosophy

The term ethics is derived from a Greek word ‘ethos’ which generally refers to “character’ or
‘custom’.
From this, one can state that ethics is a discipline that is concerned first and foremost, with the
character of individuals and secondly, the overall character of an entire society.
Ethics, therefore, is the study of the values and moral guidelines by which we ought to live, as
well as the justification of these values and moral guidelines.

From the above definitions, we are able to get a good but general idea that ethics is the study of
moral behaviour, it’s underlying moral principles and their rational justification. In ethics, we
evaluate what is good or bad, what should or should not be, and how we ought or ought not
conduct ourselves if we want a good society. It tells us what modes of conduct or actions are
good or bad and gives us the standards or criteria we can use in determining moral right and
wrong. It also gives us ethical principles and theories which work as frameworks for discussing
and solving real life moral issues and problems.

1.2 The Concept of Morality

Morality is the ability to distinguish right from wrong, the ability to experience pride when we
do the right things and guilt or shame when we do something wrong. It also refers to the
goodness of people as reflected in their beliefs and behavior. Morals are the standards of
behavior based on certain values by which people assess the rightness or wrongness of behavior.
Morality has three basic components:
(i) The affective/emotional component which emphasizes feelings of guilt and concern for
others feelings that emanate from actions of right or wrong.
(ii) The cognitive component – This deals with how we conceptualize right and wrong and
how we make decisions as how to behave.
(iii) The behavioral component deals with how we behave when we are faced with challenging
situations e.g. being tempted to cheat or being called upon to help a needy person.
 1.3 Key terms and concepts used in the study of ethics
1.3.1 Morality
The term morality is derived from a Latin word ‘moralis’ and Greek word ‘mores’ which mean
customs or manners. The term morality can be used in two senses: In the first sense to refer to
the quality or moral status of an ethical action. In the second sense, it is used to refer to a
society’s system of rules, attitudes, beliefs, principles or practices that prohibit or require an
individual or members of a society to act in certain ways. It is an organized system of rules of
conduct which tell us what we ought to do or be and what we ought to avoid doing or being.
Morality, in fact, refers to a collection of moral rules designed to guide us in the living of our
lives. Its main goal is to establish appropriate constraints on our behaviour so as to make social
life better.
1.3.2 Ethics and Morality
From the above definitions we can attempt a distinction between ethics and morality. Mappes
and Degrazia (1996) did define ethics as a philosophical study of morality. This definition helps
us immediately to have an idea of the difference between ethics and morality.
This means that ethics is a discipline that studies morality (actual moral rules) and their rational
justification. Morality is the material or object of study by ethics, while ethics is the objective
inquiry into morality. We can, therefore, conclude that whereas ethics is a discipline or branch
of study, morality, is the material or object studied.
1.3.3 Moral agent
A moral agent is any human being who is normal, with a stable mental capacity and therefore
capable of understanding the consequences of his or her actions. Such an individual can be
praised or blamed, rewarded or punished for his or her actions or conduct because he or she is
seen to be a responsible person.
Human beings who are mad, very young and senile can be said not to be full moral agents.
1.3.4 Ethical action/Moral action
An ethical or moral action is any action that satisfies the following conditions:
i) Should be performed by a moral agent
ii) Should be an action – that can be blamed or praised or said to be bad or good
All actions which are performed by responsible human beings and which are liable to be blamed
or praised are ethical actions. Any other actions that fall outside the above descriptions are non-
ethical actions.
1.3.5 Ethical terms
These are words which are used in evaluating ethical actions. They include such words as good,
right, beautiful, fine, bad, wrong, evil, awful, etc. An ethical statement or judgement must have
an ethical term.
Example: i) It is good to help people in need.
iii) It is good that you helped your sick neighbor.
1.3.6 Ethical Judgement
This is any ethical statement that makes a judgement on the moral status of an ethical action. It is
a statement on whether or not an ethical action is moral. E.g
- You did the right thing to donate to the needy.
- What Kamau did was awful
- It is good that you kept your promise.
1.3.7 Virtue
This is a functional excellence in an individual that makes the individual morally or intellectually
superior or excellent. Moral virtues make a person’s character and actions morally upright. The
term virtue has been used to mean righteousness or excellence in moral character or disposition.
A virtue is a kind of character trait whose possession improves an individual character or
disposition. The opposite of virtue is vice.
1.3.8 Value
The term is used to refer to anything –material or immaterial to which human beings attach
desirability or importance and which they attempt to promote, sustain or acquire.
1.3.9 Amoral
This term is used to refer to an individual who has no moral sense or who is indifferent to right
and wrong. This term has been used in reference, for example, to criminals who appear to have
no sense of remorse, regret or concern for what they have done.
1.3.10 Non-moral
This term is used to mean ‘out of the realm of morality all together’. Non-moral beings are those
that can neither be said to be moral or immoral. Many areas of specialization such as
mathematics, Logic, Chemistry, Physics can also be described as non-moral, as they do not have
morality as their concern. Morality is completely out of their area of concern.
1.3.11 Law and Morality
The law of a state consists of those rules of conduct and standards prescribed by the people in
authority for governing and regulating peaceful relations among the citizens. These rules
originate from acts of parliament and customs, and are enforced by state agencies and constituted
courts of law.

1.4 Relationship of Ethics with other Disciplines

The Science of Ethics is greatly concerned with the study of the human conduct and how man
behaves or acts in accordance with morality. For this reason it is evident that the Ethical science
is also related to some other sciences that also deal with the study of the human nature as well as
in human living. Among of this sciences are Sociology, Psychology, Logic and Economics.

1.4.1 Relationship with Sociology

Ethics and sociology have a close relation because ethics is the science which discusses the good
or bad of human conduct and conduct is not possible without society which is studied by
sociology.
There being relation between the individual and society, ethics and sociology become related.
Man cannot even be imagined outside society since he acquires his thoughts of good and bad,
duty or non-duty, virtue, vice and convention from society.

The evolution of society is dependent on the ethics of the people because, ultimately, society is
only a web of relationships among the people. Great men have affected many improvements in
society.

Thus, the relation between man and society is very intimate. Due to this reason again, ethics and
sociology are inter-related. Ethics is concerned with ethical ideal, the right and wrong of actions,
the development of conduct and the character of the individual.
Sociology is the study of the nature of human society, its origin and development. It makes a
study of the development and convention's of the different groups.
 1.4.2 Relationship with Psychology
Ethics is also related to the science of Psychology. The relation between these two sciences is
based upon the comparison on their basic aim that is to study man, its nature and its behavior.
However, there is a basic difference between Ethics and Psychology. The science of Psychology
is not concerned with the morality of man’s action; this science is only concern of how man
ought to behave.
1.4.3 Relationship with Logic
The science of ethics is somehow related to the science of Logic which is defined as the science
of correct thinking. The reason for this is that when an individual thinks right it means that
he/she will do the right thing. This is how Logic is related to Ethics. Logic tells us how to think
right so that an individual can do the right and doing the right with the basis of morality is what
is considered as Ethics.
1.4.4 Relationship of Ethics with economics
Ethics is related to the field of Economics in that as economics deals with labor, wages,
production, as well as distribution of wealth, Ethics as a science somehow acts in the different
relations in the business processes. This would be based on justice, charity as well as moral
principles that would eventually create a prevailing harmony in the community. Man can also be
considered as an economic being. This consideration involves man in different economic
activities which should be guided with the norms and principles of Ethics.

Importance of studying Business and Social Ethics

Isn’t ethics something you feel, not something you think? Can it be taught? Instilled? Will
studying ethics change behavior? Isn’t character formed in early childhood, and not during a
lecture?

If the suggestion is that college-level study of ethics does not change behavior, we should
shut down the entire university, not only the ethics course. Presumably the claim, then, is
that studying finance and marketing can influence one’s conduct, but studying ethics cannot.
This is again a curious view, since ethics is the one field that deals explicitly with conduct.
Where is the evidence for this view? The early origins of character do not prevent finance and
marketing courses from influencing behavior. Why cannot ethics courses also have an effect?
1. Ethics courses have a number of features that seem likely to influence behavior. They
provide a language and conceptual framework with which one can talk and think about
ethical issues.
2. Their emphasis on case studies helps to make one aware of the potential consequences of
one’s actions.
3. The ethical theories help define what a valid ethical argument looks like. They teach one
to make distinctions and avoid fallacies that are so common when people make decisions.
4. They give one an opportunity to think through, at one’s leisure, complex ethical issues
that are likely to arise later, when there is no time to think.
5. They introduce one to such specialized areas as product liability, employment,
intellectual property, environmental protection, and cross-cultural management.
6. They give one practice at articulating an ethical position, which can help resist pressure
to compromise.
7. The study of ethics helps learners think more critically and apply moral reasoning to
specific situations and defend the conclusions of that reasoning
8. It fosters scholarly investigation that recognizes ethics as an empirical reality
9. An understanding of ethical issues is valuable for a wide variety of careers in business
10. The skills acquired in the course unit are not only vital to the workplace but are an
excellent preparation for life after university. Graduates will be better equipped to behave
ethically not only at the workplace and also at the family level.
11. Provides the learners with the knowledge and attitude necessary to recognise and address
ethical issues in their day to day lives and in future careers
12. Though none of this convinces one to be good, it is useful to those who want to be good
as it may generally improve business conduct .
13. To prepare students to succeed in the business world by instilling a sense of
ethics/morality so as to prevent them and by extension businesses from maximizing their
own well being at the expense of others.

Business is almost always a repetitive game. Optimal behavior in repetitive games is

often vastly different than one-time games where reputation is less important. In a
 repetitive game the value of one’s reputation (which will be lost if you behave
unethically) disciplines behavior and generally leads to more ethical actions.

The differences between repetitive and single-time transactions are well known in
business and have shaped the way business is done.

Consider the following two scenarios

Person X is 500 miles from home and his car breaks down. After sitting on the side of the road,
a tow truck comes along with a mechanic who promises to fix the car.
Person Y is a wealthy civic leader whose car will not start one morning. Y calls a local
mechanic.
If you were forced to predict Who will get better service? And who will have to pay more?
What would you say?
If you said person Y will get better service and pay less you are probably correct Why?
Traveler X will probably have to pay more for the repair because the mechanic realizes that the
customer is desperate (X has few options and a high opportunity cost). Moreover, X will likely
never come back to the same mechanic again no matter how well or cheaply the car is repaired.
This is an example of a one-time game. Reputation is not important. The traveler essentially has
no choice in who will fix the car and will probably never need the mechanic to fix another car.

Civic leader Y on the other hand is playing a different game. Because Y’s car broke down at
home, Y was in a better bargaining position (he was able to shop around) and he may need a car
repaired in the future and very well may give the mechanic future business if Y is happy with
the price and performance this time.

Business people are very smart and over the course of time, the business environment has
evolved in multiple ways to lessen the problems associated with single-time games. For
example, the problems of the traveler above are partially alleviated through nationwide auto
repair services (such as AAA). By insuring many drivers, these service have the ability to turn a
single-time game into a repetitive play game where reputation is important and the mechanic has
less of an incentive to behave unethically because while the individual traveler may never need a
mechanic in that town again, another member of the travel service will.

Another way this problem is solved is by having chains of auto-repair shops. Here the idea is
that while you may not do business with that exact repair shop, you will with another in the same
chain. Again the incentive to take advantage of the customer is reduced because if you are
treated unfairly once you are less likely to return to another location of the same chain.

Food for thought

How many of the recent business scandals would have occurred if subordinates had possessed
the skills, vocabulary and conceptual equipment to raise an ethical issue with their coworkers?

Ethics should not only be studied alongside management, but the two fields are closely
related. Business management is all about making the right decisions. Ethics is all about making
the right decisions. So what is the difference between the two? Management is concerned with
how decisions affect the company, while ethics is concerned about how decisions affect
everything. Management operates in the specialized context of the firm, while ethics operates in
the general context of the world. Management is therefore part of ethics. A business manager
cannot make the right decisions without understanding management in particular as well as
ethics in general. Business ethics is management carried out in the real world. This is why
business students and managers should study ethics.
 2. SOURCES OF ETHICS/MORALITY
2.1 Religion (Group assignment)
Write a term paper on religion as a source of Ethics/Morality (20 Marks)
2.2 Society
2.2.1 African Cultural Values
(a) Sense of Community
The African idea of security and its value depends on personal identification with and within the
community.
Community also offers the African the psychological and ultimate security as it gives its
members both physical and ideological identity. In the African mentality, the community as an
entity remains, while individuals, as persons, come and go. Therefore the Africans emphasize
community life and communalism as a living principle of which the basic ideology is
community-identity. Its aim is to produce and present an individual as a community-culture-
bearer. Culture is a community property and must therefore be community-protected.
(b) Sense of Good human relations
Life in the African community is based on the philosophy of live-and-let-live. This principle is
based on the concept of the ‘Clan vital’ and applies to a concrete community. Inter-community
relationship realized in the interaction between individuals of different communities is different
from the intra-community relationship based on interpersonal relationship realized in a definite
community, among its members, to express the practical traditional African concept of humane
living.
(c) Sense of the sacredness of Life
The African does not like violence because shedding of blood is despised. People who were
killed were those whose continued existence was a threat to the life of others and to the peace of
the community. In such cases, the principle that it is better for one man to die than for all the
community to perish, applied.
(d) Sense of hospitality
This is one of the African values that is still quite alive. The Africans easily incorporated
strangers and gave them lands to settle hoping that they would go one day, and the land would
revert to the owner. For the Africans, one cannot opt out of his original community completely.
Africans have symbolic ways of expressing welcome. These are in forms of presentation of
gruel, mursiq, food, etc in various communities.
(e) Sense of the sacred and of religion
In traditional African societies there were no non-believers. This is because religion, in the
indigenous African culture, was not an independent institution. It was an integral and inseparable
part of the entire culture. Religion in the African sense was practical. One's entire action is
reflective of one's religious concepts and practices as is seen in the ordering of society.
(f) Sense of time
It must be pointed out that on the one hand, Africans do have and conceive of time in the
punctual sense. That is, at a particular time things must happen, have effect, or must be done.
This can easily be discovered in African religious concepts. There are specific times sacrifices
must be offered and no more. On the other hand, the African use of time does not sacrifice social
duties and human relations on the altar of the clock time punctuality.
(g) Sense of Respect for Authority and elders
Africans generally have deep and ingrained respect for old age, and even when we can find
nothing to admire in an old man, we will not easily forget that his grey hairs have earned him
right to courtesy and politeness. Though it is natural for the African to respect, an elder, this
respect in some cases, can be relative to what "we can find" and admire in an elder. It is true that
respect for elders starts within one's immediate family.
(h) Sense of Language and proverbs
Language expressed in speech is an important vehicle of thought and culture. People express
their thoughts in speech and both are determined, to a great extent, by their culture. Different
languages organise the world differently, and that no individual is free to describe with absolute
impartiality what he observes in other cultures because he must be constrained by certain modes
of interpretation. Proverbs, riddles and idioms of a community determine the norms of action in
that community and above all, they are educational in nature.

2.2.2 Customary Law

Law can be imposed from above by some coercive authority, such as a king, a legislature, or a
Supreme Court or law can develop "from the ground" as customs and practice evolve. Law
imposed from the top — authoritarian law — typically requires the support of a powerful
minority; law developed from the bottom up — customary law — requires widespread
acceptance.
Customary law is recognized, not because it is backed by the power of some strong individual or
institution, but because each individual recognizes the benefits of behaving in accordance with
other individuals' expectations, given that others also behave as he expects. .

2.3 Constitution
 The present constitution of 2010 has shifted its emphasis from law and is replete with values
and principles (ethics) that guide our conduct as individuals, family, communities, groups
and as a nation.
 Article 2 (1) - states that the constitution is supreme law that binds all persons and organs of
Government.
 Article 2 (4) Any law including customary law that is inconsistent (goes against) with this
constitution is void-the constitution supersedes all. Any act or omission that contravenes the
constitution is also invalid.
 Article 3(1) obligates every person including organizations and businesses to respect, uphold
and defend the constitution (it is supreme and cannot be challenged by anyone not even
businesses)
 Article 260-The term person includes company, Association or other body of persons
incorporated or otherwise.
 Article 10-creates national values and principles of Governance. We are expected to
be….social justice, equity, integrity, good governance, transparency, accountability and
sustainable development.
Chapter 4-Bill of Rights and Chapter 6 on Leadership and Integrity contains the ethics
(values and principles) that all Kenyans including those in businesses are supposed to live
by
Article 26 to article 51 contains specific Bills of rights. Those that involve businesses include
– Article 27-Equality and freedom from discrimination(vital for those in HR- equal
opportunities in jobs and promotion irrespective of religion, sexual orientation, political
beliefs etc
– Article 28- Human dignity must be respected (HR-don’t wash peoples’ dirty linen in
public, putting peoples’ names on papers without giving reason as this exposes them to
imaginations, innuendos, harms ones standing in society, all manner of interpretation,
affects self esteem, social standing. Applies also to the police who should not manhandle
you, even when eating, they should wait till you finish then request to arrest you politely,
identify yourself, not to hold you by belt.HR-give employees notice, explain to them,
take them through a process not call security to enable them leave.
– Article 30-Freedom from slavery, servitude, -working without pay (HR)
– Article 31-Privacy of Peoples’ communications should not be infringed –don’t tap
peoples phones, intercept emails, open letters(cant search ones desk, home property
without search warrant…..right not to have information relating to their families and
private affairs unnecessary required or revealed(don’t be too intrusive on employees
records or even reveal private records like medical records….how much loan employees
have picked. No physical or psychological torture eg boss not talking to you, not getting
information
– Article 32-Freedom of conscience (don’t force people to do things they don’t believe in
eg signing sacking letters for good staff), religion (SDA- can’t deny one a job on this
basis), belief and opinion—(eg in management meetings, those of contrary opinion
punished)-must be respected.
– Article 33- Freedom of expression (HR, Marketers-to seek, receive or impart
information or ideas---employees have a right to seek info, they can share, as long as not
hate/ propaganda…..research dissemination encouraged
– Article 34- freedom of media-as long as 33 observed
 – Article 35-access to information-HR-every person has a right to access information held
by another person/company and required for exercise of protection of any right, right to
recorrection, deletion of untrue or misleading information that affects the person eg if
one had accused you wrongly and HR is aware, they should delete the wrong
information.
– Article 36-Freedom of Association-HR-right to join groups and even people the
organisation doesn’t like
– Article 37- right to assembly, demonstration, picketing but peacefully and unarmed -
to present petitions to authority eg use of placards, twigs….don’t punish them if in HR
– Article 41-labour relations-right to fair labour practices, reasonable working conditions,
fair remuneration, trade unions, strike
– Article 42-Right to a clean and healthy environment (Hr and Marketing)
– Article 43-economic and social rights- highest attainable standards of health eg health
care services, housing, food, clean and safe water, social security and education
– Article 46- Right to goods and services of reasonable quality, information necessary
for them to gain full benefits from the goods and services (Marketing, IT, Sales,
lawyers) Must update their clients of their consumer rights- ( ingredients, expiry dates of
products), protection of their health, safety and economic interests, to compensation for
loss, injury arising from defects of goods and services
– Article 47- Right to fair administration (HR, MDs)-must be expeditious, efficient,
lawful, reasonable, procedurally fair eg don’t cancel employees’ contracts, sack them
unfairly. They have a right to get written reasons for such administrative actions that are
likely to negatively affect them eg no summary dismissal in current constitution.
– Article 50- Right to fair hearing-Every person has a right to have any dispute that can
be resolved by the application of law decided in a fair and public hearing before a court
or if appropriate, another independent and impartial tribunal or body, to be presumed
innocent till proved guilty, adequate time and facilities to prepare defence given, right to
chose and be represented by an advocate not necessarily another employee, must be told
his crimes in writing beforehand and be given a chance to respond.
Chapter 6 leadership and integrity
Article 73 (2)-principles of leadership and integrity include
  selection on bases of personal integrity, competence , suitability or elections that are free
or fair
 Objectivity and impartiality in decision making and in ensuring that decisions are not
influenced by nepotism, favoritism, other improper motives
 Selfless service based on public interest demonstrated by
a) honesty in execution of public duty,
b) declaration of any personal interest that may conflict with public duties/ conflict
of interest
c) accountability to public for decisions and actions,
d) discipline and commitment in service to the public (lack of discipline seen in
Barazas case, lack of commitment seen in Matemos KACA case where he was
accused of failing to secure a loan by failing to charge the title when he was legal
officer of Agricultural Finance Corporation (AFC) so people raised protest when
he was nominated so court ruled that he may not have been guilty but issue was
unresolved so can not hold public office)
Article 201 chapter 12 on public finance-openness., accountability, don’t use public money
carelessly
Article 232-values and principles of public service outlined as;
 high standards of professional ethics,
 efficient, effective use of resources,
 responsive, prompt, effective, impartial and equitable provision of services,
 involvement of people in process of policy making
 Accountability of administrative acts
 Transparency and provision of timely, accurate information
 Fair competition and merit as bases of appointment and promotions
 Representation of Kenyans of diverse communities(face of Kenya in public service)
 adequate and equal opportunities in appointments, training and advancement for all even
with disabilities
SESSION THREE: BASIC PRINCIPLES OF MORALITY
Morality of Human Acts
(a) The Nature of Morality
The concept of morality revolves around the problem of good and evil and its sole basis is
human actions. Human actions are good, bad or indifferent, depending on the relationship of the
act having moral perfection and fullness required by the object of the actions. An act is good
when it agrees to the dictates of right reason or the rules of morality. An act is bad when it
disagrees with the dictates of right reason or the rules of morality. An act is indifferent when it
stands no positive or negative relation to the dictates of the right reason or the rules or morality.

Ethics is the normative science which teaches man how to distinguish good from evil with the
special emphasis of overcoming evil and the practice of good. It uses morality as a tool which is
the quality of human acts by which we judge them right or wrong, good or evil.

(b) The Sources of Morality

The sources or principles of morality are the determinants of the human acts in connection with
the moral character. Human reason evaluates the goodness and wrongness of the human act by
taking into consideration the object (what of the act?), the end (why of the act?), and the
circumstances (who, where, when, how?) of the act.

(i) WHAT – The Object

This is the first quality describing the human act which is the basic factor of morality, the
substance of the moral act. By our human reason and standards of morality, we judge a particular
act, in itself, as good, bad or indifferent.

Human Acts versus Acts of Man

Human Acts are deliberate free acts that involve intellect and will.
Acts of Man are acts performed without deliberation or knowledge or free will.

Constituents of the Human Acts

 Knowledge and Deliberation: This is the attention of what the moral agent is doing, thinking
or willing.
 Freedom: This is the absence of constraint from within and outside of man.
 Voluntariness: This is a formal quality of human acts whereby any action or omission results
from a principle within the agent and from some knowledge which the agent possesses in the
end.

(ii) WHY – The Motive

This is the purpose or intention for the sake of which something is done i. e. the reason behind
our acting. Man usually puts an act as a means to accomplish an end, different from the act itself.
The end or intention can modify human actions in four ways:
a.) An indifferent act may become morally good or evil. (Ex.: To study medicine is in itself
an indifferent action. It becomes good when inspired by the thought of alleviating human
sufferings or making a decent living. It becomes bad if it is intended to perform illegal or
immoral actions.)
b.) An objectively good act may become morally evil. (Ex.: When a senior manager employs
a jobless poor lady with the intention of seducing her.)
 c.) An objectively good act may receive more goodness. (Ex.: A senior manager may employ
a poor jobless lady not only to help her but also for the love of God.)
d.) An objectively evil act can never become good in spite of the good motive. (Ex. To steal
money with the good intention of giving it to charitable institutions or to the poor).
As a principle, “the end does not justify the means.”

(iii) WHO, WHERE, WHEN, HOW

Circumstances are conditions modifying human actions, either by increasing or by diminishing
the responsibility attending them. They play an important role in affecting the morality of our
actions because man’s acts are performed at a definite time and place, in a particular manner, for
a certain reason, etc., all of which in one way or another, increase or diminish the responsibility
of the action.

PRINCIPLE OF INTEGRAL CAUSE

A human act, in order to be morally good, must be perfect according to the three elements: The
object, end, and circumstances. Any deficiency will make a human act morally evil. Therefore,
the principle of integral cause states that good results from the whole perfection while the evil
results from any defect.

MODIFIERS (IMPEDIMENTS) OF VOLUNTARY ACT

Since knowledge and freedom are necessary conditions for the voluntary act, it follows that
human actions performed without perfect knowledge and full freedom are not perfect voluntary,
and no person can be held wholly responsible for such actions. Since knowledge and freedom
admit various degrees, it follows that moral responsibility is in proportion to the degree of
knowledge and freedom. And so, the greater the knowledge and freedom, the greater the
voluntariness and moral responsibility
To determine the moral responsibility of human actions, various degrees of components of the
voluntary act must be considered, i. e the modifiers or the impediments of voluntary act which
include:
1. Ignorance: Lack of knowledge which man should have of his moral duties. This is of
two dimensions:
Positive Ignorance: Lack of knowledge that is required of the person.
Negative Ignorance: Lack of knowledge for it has no importance to the person
2. Passion : Strong tendencies towards the possession of something good or towards the
avoidance of something evil.
11 chief passions: love hatred
joy sadness
desire horror or dread
hope despair
courage fear
anger

3. Fear: This is a disturbance of the mind caused by the thought of a threatening evil.
4. Violence: Refers to the application of external force on a person by another free agent
for the purpose of compelling him to do something against his will.
5. Habits - a constant and easy way of doing things acquired by the repletion of the
same act
Human Conscience, freedom and choice
Human Conscience
This refers to an aptitude, faculty, intuition or judgment of the intellect that distinguishes right
from wrong. It is closely related to the concepts of free-will, the self, the mind, or the spirit/soul
and it leads to feelings of remorse when a human commits actions that go against his/her moral
values and to feelings of integrity when actions conform to such norms. Moral judgment may
derive from values or norms (principles and rules).

Human Freedom
One of the most important principles of natural law has to do with the definition of human
freedom. How we use our freedom ultimately determines what kind of person we become.
Therefore, we need to be very careful how we define human freedom. Natural law defines
human freedom according to laws of reason applied to human nature, and also guides us to use
our freedom in accord with our nature and destiny.
Simply defined, freedom is the function of the will that empowers rational beings (humans,
angels, etc.) to choose their actions. Freedom allows us to:
 Act contrary to our instincts, emotions and desires
 Control our emotions and desires
 Choose among various potential goods
 Choose who we want to become

The Purpose of Freedom is to enable people to choose among possible goods, so as to meet
the other goals of natural law hence making people more human, enabling them to choose and
protect authentic human goodness, to be true to their physical and spiritual nature, and to enrich
human society.

For human freedom to fulfill its purpose, we need to have not only the ability to choose, but the
ability to choose what can do the greatest good for us as human beings. Put simply, true human
freedom is the ability to choose the best possible good.
The Human Choice
This refers to the process where an individual uses his partly awakened mind to explore the
immense possibilities that are open to it and choosing to avail of a few of the opportunities it
discovers, i. e. it is the mind that sees and the individual who chooses. When the mind awakens,
it becomes open to the freedom of choice (the human choice).

Determinism and Free will

Free will: the ability to make free, unhindered choices.
Determinism: the idea that all actions are governed by laws outside of our control.
Hard determinism: the teaching that denies that humanity has free will and believes that all
actions have a prior cause. It removes moral responsibility for actions.
Libertarianism (incompatibilism): this theory claims that we are morally responsible for all our
actions and are free to make choices.
Soft determinism (compatibilism): the teaching that says we can be both determined and free,
as some of our moral choices are free but aspects of our nature are determined.

SOURCES OF ETHICS/MORALITY

African Cultural Values

1. Sense of Community
The African idea of security and its value depends on personal identification with and within the
community. Community also offers the African the psychological and ultimate security as it
gives its members both physical and ideological identity. In the African mentality, the
community as an entity remains, while individuals, as persons, come and go. Therefore the
Africans emphasize community life and communalism as a living principle of which the basic
ideology is community-identity. Its aim is to produce and present an individual as a community-
culture-bearer. Culture is a community property and must therefore be community-protected.

2. Sense of Good human relations

Life in the African community is based on the philosophy of live-and-let-live. This principle is
based on the concept of the ‘Clan vital’ and applies to a concrete community. Inter-community
relationship realized in the interaction between individuals of different communities is different
from the intra-community relationship based on interpersonal relationship realized in a definite
community, among its members, to express the practical traditional African concept of humane
living.

3. Sense of the sacredness of Life

The African does not like violence because shedding of blood is despised. People who were
killed were those whose continued existence was a threat to the life of others and to the peace of
the community. In such cases, the principle that it is better for one man to die than for all the
community to perish, applied.

4. Sense of hospitality
This is one of the African values that is still quite alive. The Africans easily incorporated
strangers and gave them lands to settle hoping that they would go one day, and the land would
revert to the owner. For the Africans, one cannot opt out of his original community completely.
Africans have symbolic ways of expressing welcome. These are in forms of presentation of
gruel, mursik, food, etc in various communities.

5. Sense of the sacred and of religion

In traditional African societies there were no non-believers. This is because religion, in the
indigenous African culture, was not an independent institution. It was an integral and inseparable
part of the entire culture. Religion in the African sense was practical. One's entire action is
reflective of one's religious concepts and practices as is seen in the ordering of society.

6. Sense of time
It must be pointed out that on the one hand, Africans do have and conceive of time in the
punctual sense. That is, at a particular time things must happen, have effect, or must be done.
This can easily be discovered in African religious concepts. There are specific times sacrifices
must be offered and no more. On the other hand, the African use of time does not sacrifice social
duties and human relations on the altar of the clock time punctuality.

7. Sense of Respect for Authority and elders

Africans generally have deep and ingrained respect for old age, and even when we can find
nothing to admire in an old man, we will not easily forget that his grey hairs have earned him
right to courtesy and politeness. Though it is natural for the African to respect, an elder, this
respect in some cases, can be relative to what "we can find" and admire in an elder. It is true that
respect for elders starts within one's immediate family.

8. Sense of Language and proverbs

Language expressed in speech is an important vehicle of thought and culture. People express
their thoughts in speech and both are determined, to a great extent, by their culture. Different
languages organize the world differently, and that no individual is free to describe with absolute
impartiality what he observes in other cultures because he must be constrained by certain modes
of interpretation. Proverbs riddles and idioms of a community determine the norms of action in
that community and above all, they are educational in nature.

9. Customary Law
Law can be imposed from above by some coercive authority, such as a king, a legislature, or a
Supreme Court or law can develop "from the ground" as customs and practice evolve. Law
imposed from the top — authoritarian law — typically requires the support of a powerful
minority; law developed from the bottom up — customary law — requires widespread
acceptance.
Customary law is recognized, not because it is backed by the power of some strong individual or
institution, but because each individual recognizes the benefits of behaving in accordance with
other individuals' expectations, given that others also behave as he expects. .

10. Constitution-Constitution of Kenya (COK)

 The present constitution of 2010 has shifted its emphasis from law and is replete with values
and principles (ethics) that guide our conduct as individuals, family, communities, groups
and as a nation.
 Article 2 (1) - states that the constitution is supreme law that binds all persons and organs of
Government.
 Article 2 (4) Any law including customary law that is inconsistent (goes against) with this
constitution is void-the constitution supersedes all. Any act or omission that contravenes the
constitution is also invalid.
 Article 3(1) obligates every person including organizations and businesses to respect, uphold
and defend the constitution (it is supreme and cannot be challenged by anyone not even
businesses)
 Article 260-The term person includes company, Association or other body of persons
incorporated or otherwise.
 Article 10-creates national values and principles of Governance. We are expected to
be….social justice, equity, integrity, good governance, transparency, accountability and
sustainable development.

COK CHAPTER 4-BILL OF RIGHTS AND CHAPTER 6 ON LEADERSHIP AND

INTEGRITY CONTAINS THE ETHICS (values and principles) that all Kenyans
including those in businesses are supposed to live by

Article 26 to article 51 contains specific Bills of rights. Those that involve businesses include
i. Article 27-Equality and freedom from discrimination(vital for those in HR- equal
opportunities in jobs and promotion irrespective of religion, sexual orientation, political
beliefs etc
ii. Article 28- Human dignity must be respected (HR-don’t wash peoples’ dirty linen in
public, putting peoples’ names on papers without giving reason as this exposes them to
imaginations, innuendos, harms ones standing in society, all manner of interpretation, affects
self esteem, social standing. Applies also to the police who should not manhandle you, even
when eating, they should wait till you finish then request to arrest you politely, identify
yourself, not to hold you by belt.HR-give employees notice, explain to them, take them
through a process not call security to enable them leave.
iii. Article 30-Freedom from slavery, servitude, -working without pay (HR)
iv. Article 31-Privacy of Peoples’ communications should not be infringed –don’t tap
peoples phones, intercept emails, open letters (cant search ones desk, home property without
search warrant…..right not to have information relating to their families and private affairs
unnecessary required or revealed (don’t be too intrusive on employees records or even reveal
 private records like medical records….how much loan employees have picked. No physical
or psychological torture e.g. boss not talking to you, not getting information
v. Article 32-Freedom of conscience (don’t force people to do things they don’t believe in e.g.
signing sacking letters for good staff), religion (SDA- can’t deny one a job on this basis),
belief and opinion—(e.g. in management meetings, those of contrary opinion punished)-must
be respected.
vi. Article 33- Freedom of expression (HR, Marketers-to seek, receive or impart information or
ideas---employees have a right to seek info, they can share, as long as not hate/
propaganda…..research dissemination encouraged
vii. Article 34- freedom of media-as long as 33 observed
viii. Article 35-access to information-HR-every person has a right to access information held
by another person/company and required for exercise of protection of any right, deletion of
untrue or misleading information that affects the person e.g. if one had accused you wrongly
and HR is aware, they should delete the wrong information.
ix. Article 36-Freedom of Association-HR-right to join groups and even people the
organization doesn’t like
x. Article 37- right to assembly, demonstration, picketing but peacefully and unarmed - to
present petitions to authority e.g. use of placards, twigs….don’t punish them if in HR
xi. Article 41-labour relations-right to fair labour practices, reasonable working conditions, fair
remuneration, trade unions, strike
xii. Article 42-Right to a clean and healthy environment (Hr and Marketing)
xiii. Article 43-economic and social rights- highest attainable standards of health e.g. health
care services, housing, food, clean and safe water, social security and education
xiv. Article 46- Right to goods and services of reasonable quality, information necessary
for them to gain full benefits from the goods and services (Marketing, IT, Sales, lawyers)
Must update their clients of their consumer rights- ( ingredients, expiry dates of products),
protection of their health, safety and economic interests, to compensation for loss, injury
arising from defects of goods and services
xv. Article 47- Right to fair administration (HR, MDs)-must be expeditious, efficient, lawful,
and reasonable, procedurally fair e.g. don’t cancel employees’ contracts, sack them unfairly.
 They have a right to get written reasons for such administrative actions that are likely to
negatively affect them e.g. no summary dismissal in current constitution.
xvi. Article 50- Right to fair hearing-Every person has a right to have any dispute that can
be resolved by the application of law decided in a fair and public hearing before a court or if
appropriate, another independent and impartial tribunal or body, to be presumed innocent till
proved guilty, adequate time and facilities to prepare defense given, right to chose and be
represented by an advocate not necessarily another employee, must be told his crimes in
writing beforehand and be given a chance to respond.

CHAPTER 6 LEADERSHIP AND INTEGRITY

Article 73 (2)-principles of leadership and integrity include
 selection on bases of personal integrity, competence , suitability or elections that are free
or fair
 Objectivity and impartiality in decision making and in ensuring that decisions are not
influenced by nepotism, favoritism, other improper motives
 Selfless service based on public interest demonstrated by
e) honesty in execution of public duty,
f) declaration of any personal interest that may conflict with public duties/ conflict
of interest
g) accountability to public for decisions and actions,
h) discipline and commitment in service to the public (lack of discipline seen in
Barazas case, lack of commitment seen in Matemo’s KACA case where he was
accused of failing to secure a loan by failing to charge the title when he was legal
officer of Agricultural Finance Corporation (AFC) so people raised protest when
he was nominated so court ruled that he may not have been guilty but issue was
unresolved so cannot hold public office)
Article 201 chapter 12 on public finance-openness., accountability, don’t use public money
carelessly
Article 232-values and principles of public service outlined as;
 high standards of professional ethics,
 efficient, effective use of resources,
  responsive, prompt, effective, impartial and equitable provision of services,
 involvement of people in process of policy making
 Accountability of administrative acts
 Transparency and provision of timely, accurate information
 Fair competition and merit as bases of appointment and promotions
 Representation of Kenyans of diverse communities(face of Kenya in public service)
 adequate and equal opportunities in appointments, training and advancement for all even
with disabilities

BASIC PRINCIPLES OF MORALITY

Morality of Human Acts
(a) The Nature of Morality
The concept of morality revolves around the problem of good and evil and its sole basis is
human actions. Human actions are good, bad or indifferent, depending on the relationship of the
act having moral perfection and fullness required by the object of the actions. An act is good
when it agrees to the dictates of right reason or the rules of morality. An act is bad when it
disagrees with the dictates of right reason or the rules of morality. An act is indifferent when it
stands no positive or negative relation to the dictates of the right reason or the rules or morality.

Ethics is the normative science which teaches man how to distinguish good from evil with the
special emphasis of overcoming evil and the practice of good. It uses morality as a tool which is
the quality of human acts by which we judge them right or wrong, good or evil.
(b) The Sources of Morality
The sources or principles of morality are the determinants of the human acts in connection with
the moral character. Human reason evaluates the goodness and wrongness of the human act by
taking into consideration the object (what of the act?), the end (why of the act?), and the
circumstances (who, where, when, how?) of the act.

(iv)WHAT – The Object

This is the first quality describing the human act which is the basic factor of morality, the
substance of the moral act. By our human reason and standards of morality, we judge a particular
act, in itself, as good, bad or indifferent.
Human Acts versus Acts of Man
Human Acts are deliberate free acts that involve intellect and will.
Acts of Man are acts performed without deliberation or knowledge or free will.
Constituents of the Human Acts
 Knowledge and Deliberation: This is the attention of what the moral agent is doing, thinking
or willing.
 Freedom: This is the absence of constraint from within and outside of man.
 Voluntariness: This is a formal quality of human acts whereby any action or omission results
from a principle within the agent and from some knowledge which the agent possesses in the
end.

(v) WHY – The Motive

This is the purpose or intention for the sake of which something is done i. e. the reason behind
our acting. Man usually puts an act as a means to accomplish an end, different from the act itself.
The end or intention can modify human actions in four ways:
e.) An indifferent act may become morally good or evil. (Ex.: To study medicine is in itself
an indifferent action. It becomes good when inspired by the thought of alleviating human
sufferings or making a decent living. It becomes bad if it is intended to perform illegal or
immoral actions.)
f.) An objectively good act may become morally evil. (Ex.: When a senior manager employs
a jobless poor lady with the intention of seducing her.)
 g.) An objectively good act may receive more goodness. (Ex.: A senior manager may employ
a poor jobless lady not only to help her but also for the love of God.)
h.) An objectively evil act can never become good in spite of the good motive. (Ex. To steal
money with the good intention of giving it to charitable institutions or to the poor).
As a principle, “the end does not justify the means.”

(vi)Who, where, when, how

Circumstances are conditions modifying human actions, either by increasing or by diminishing
the responsibility attending them. They play an important role in affecting the morality of our
actions because man’s acts are performed at a definite time and place, in a particular manner, for
a certain reason, etc., all of which in one way or another, increase or diminish the responsibility
of the action.

PRINCIPLE OF INTEGRAL CAUSE

A human act, in order to be morally good, must be perfect according to the three elements: The
object, end, and circumstances. Any deficiency will make a human act morally evil. Therefore,
the principle of integral cause states that good results from the whole perfection while the evil
results from any defect.
Modifiers (impediments) of voluntary Act
Since knowledge and freedom are necessary conditions for the voluntary act, it follows that
human actions performed without perfect knowledge and full freedom are not perfect voluntary,
and no person can be held wholly responsible for such actions. Since knowledge and freedom
admit various degrees, it follows that moral responsibility is in proportion to the degree of
knowledge and freedom. And so, the greater the knowledge and freedom, the greater the
voluntariness and moral responsibility

To determine the moral responsibility of human actions, various degrees of components of the
voluntary act must be considered, i. e the modifiers or the impediments of voluntary act which
include:
6. Ignorance: Lack of knowledge which man should have of his moral duties. This is of
two dimensions:
 Positive Ignorance: Lack of knowledge that is required of the person.
Negative Ignorance: Lack of knowledge for it has no importance to the person
7. Passion : Strong tendencies towards the possession of something good or towards the
avoidance of something evil.
8. Fear: This is a disturbance of the mind caused by the thought of a threatening evil.
9. Violence: Refers to the application of external force on a person by another free agent for the
purpose of compelling him to do something against his will.
10. Habits - a constant and easy way of doing things acquired by the repletion of the same
act

Importance of Business Ethics:

1. Corresponds to Basic Human Needs:
The basic need of every human being is that they want to be a part of the organisation which they
can respect and be proud of, because they perceive it to be ethical. Everybody likes to be
associated with an organisation which the society respects as a honest and socially responsible
organisation. The HR managers have to fulfill this basic need of the employees as well as their
own basic need that they want to direct an ethical organisation. The basic needs of the employees
as well as the managers compel the organizations to be ethically oriented.

2. Credibility in the Public:

Ethical values of an organisation create credibility in the public eye. People will like to buy the
product of a company if they believe that the company is honest and is offering value for money.
The public issues of such companies are bound to be a success. Because of this reason only the
cola companies are spending huge sums of money on the advertisements now-a-days to convince
the public that their products are safe and free from pesticides of any kind.

3. Credibility with the Employees:

When employees are convinced of the ethical values of the organisation they are working for,
they hold the organisation in high esteem. It creates common goals, values and language. The
HR manager will have credibility with the employees just because the organisation has
creditability in the eyes of the public. Perceived social uprightness and moral values can win the
employees more than any other incentive plans.

4. Better Decision Making:

Respect for ethics will force a management to take various economic, social and ethical aspects
into consideration while taking the decisions. Decision making will be better if the decisions are
in the interest of the public, employees and company’s own long term good.

5. Profitability:
Being ethical does not mean not making any profits. Every organisation has a responsibility
towards itself also i.e., to earn profits. Ethical companies are bound to be successful and more
profitable in the long run though in the short run they can lose money.

6. Protection of Society:
Ethics can protect the society in a better way than even the legal system of the country. Where
law fails, ethics always succeed. The government cannot regulate all the activities that are
harmful to the society. A HR manager, who is ethically sound, can reach out to agitated
employees, more effectively than the police.
IMPORTANCE OF STUDYING BUSINESS AND SOCIAL ETHICS

Isn’t ethics something you feel, not something you think? Can it be taught? Instilled? Will
studying ethics change behavior? Isn’t character formed in early childhood, and not during a
lecture? If the suggestion is that college-level study of ethics does not change behavior, we
should shut down the entire university, not only the ethics course. Presumably the claim, then, is
that studying finance and marketing can influence one’s conduct, but studying ethics cannot.
This is again a curious view, since ethics is the one field that deals explicitly with conduct.
Where is the evidence for this view? The early origins of character do not prevent finance and
marketing courses from influencing behavior. Why cannot ethics courses also have an effect?
1. Ethics courses have a number of features that seem likely to influence behavior. They
provide a language and conceptual framework with which one can talk and think about
ethical issues.
2. Their emphasis on case studies helps to make one aware of the potential consequences of
one’s actions.
3. The ethical theories help define what a valid ethical argument looks like. They teach one
to make distinctions and avoid fallacies that are so common when people make decisions.
 4. They give one an opportunity to think through, at one’s leisure, complex ethical issues
that are likely to arise later, when there is no time to think.
5. They introduce one to such specialized areas as product liability, employment,
intellectual property, environmental protection, and cross-cultural management.
6. They give one practice at articulating an ethical position, which can help resist pressure
to compromise.
7. The study of ethics helps learners think more critically and apply moral reasoning to
specific situations and defend the conclusions of that reasoning
8. It fosters scholarly investigation that recognizes ethics as an empirical reality
9. An understanding of ethical issues is valuable for a wide variety of careers in business
10. The skills acquired in the course unit are not only vital to the workplace but are an
excellent preparation for life after university. Graduates will be better equipped to behave
ethically not only at the workplace and also at the family level.
11. Provides the learners with the knowledge and attitude necessary to recognize and address
ethical issues in their day to day lives and in future careers
12. Though none of this convinces one to be good, it is useful to those who want to be good
as it may generally improve business conduct.
13. To prepare students to succeed in the business world by instilling a sense of
ethics/morality so as to prevent them and by extension businesses from maximizing their
own well being at the expense of others.

Business is almost always a repetitive game. Optimal behavior in repetitive games is

often vastly different than one-time games where reputation is less important. In a
repetitive game the value of one’s reputation (which will be lost if you behave
unethically) disciplines behavior and generally leads to more ethical actions. The
differences between repetitive and single-time transactions are well known in business
and have shaped the way business is done.
Consider the following two scenarios

For instance, Person X is 500 miles from home and his car breaks down. After sitting on the side
of the road, a tow truck comes along with a mechanic who promises to fix the car. Person Y is a
wealthy civic leader whose car will not start one morning. Y calls a local mechanic. If you were
forced to predict, who will get better service? And who will have to pay more? What would you
say? If you said person Y will get better service and pay less you are probably correct, Why?

Traveler X will probably have to pay more for the repair because the mechanic realizes that the
customer is desperate (X has few options and a high opportunity cost). Moreover, X will likely
never come back to the same mechanic again no matter how well or cheaply the car is repaired.
This is an example of a one-time game. Reputation is not important. The traveler essentially has
no choice in who will fix the car and will probably never need the mechanic to fix another car.

Civic leader Y on the other hand is playing a different game. Because Y’s car broke down at
home, Y was in a better bargaining position (he was able to shop around) and he may need a car
repaired in the future and very well may give the mechanic future business if Y is happy with
the price and performance this time.

Business people are very smart and over the course of time, the business environment has
evolved in multiple ways to lessen the problems associated with single-time games. For
example, the problems of the traveler above are partially alleviated through nationwide auto
repair services (such as AAA). By insuring many drivers, these services have the ability to turn
a single-time game into a repetitive play game where reputation is important and the mechanic
has less of an incentive to behave unethically because while the individual traveler may never
need a mechanic in that town again, another member of the travel service will.

Another way this problem is solved is by having chains of auto-repair shops. Here the idea is
that while you may not do business with that exact repair shop, you will with another in the same
chain. Again the incentive to take advantage of the customer is reduced because if you are
treated unfairly once you are less likely to return to another location of the same chain.

Food for thought

How many of the recent business scandals would have occurred if subordinates had possessed
the skills, vocabulary and conceptual equipment to raise an ethical issue with their
coworkers?
NEED FOR BUSINESS ETHICS
i. Ethics corresponds to basic human needs. It is human trait that man desires to be ethical,
not only in his private life but also in his business.
ii. These basic ethical need compel the organizations to be ethically oriented.
iii. Values create credibility with public. A company perceived by the public to be ethically
and socially responsive will be honored and respected.
iv. The management has credibility with its employees precisely because it has credibility
with the public.
v. An ethical attitude helps the management make better decisions, because ethics will force
a management to take various aspects- economic, social, and ethical in making decisions.
vi. Value driven companies are sure to be successful in the long run, though in the short run,
they may lose money.
vii. Ethics is important because the government, law and lawyers cannot do everything to
protect society.

ETHICAL GUIDELINES

i. Obeying the law: Obedience to the law, preferably both the letter and spirit of the law
ii. Tell the Truth: To build and maintain long-term, trusting and win-win relationships with
relevant stockholders.
iii. Uphold human dignity: Giving due importance to the element of human dignity and
treating people with respect.
iv. Adhere to the golden rule: “Do unto others as you would have others do unto you”
v. Premium Non-Nocere: (Above all, do no harm)
vi. Allow Room for participation: Soliciting the participation of stakeholders rather than
paternalism. It emphasizes the significance of learning about the needs of stakeholders.
vii. Always Act When You Have Responsibility: Managers have the responsibility of
taking action whenever they have the capacity or adequate resources to do so.

TOOLS FOR ETHICAL MANAGEMENT

 i. Top management commitment: Managers can prove their commitment and dedication
for work and by acting as role models through their own behaviors.
ii. Codes of Ethics: A formal document that states an organization’s primary values and the
ethical rules it expects employees to follow. The code is helpful in maintaining ethical
behavior among employees.
iii. Ethics committees: Appointment of an ethics committee, consisting of internal and
external directors is essential for institutionalizing ethical behavior.
iv. Ethics Audits: Systematic assessment of conformance to organizational ethical policies,
understanding of those policies, and identification of serious deviations requiring
remedial action.
v. Ethics training: Ethical training enables managers to integrate employee behavior in
ethical arena with major organizational goals.
vi. Ethics Hotline: A special telephone line that enables employees to bypass the normal
chain of command in reporting their experiences, expectations and problem. The line is
usually handled by an executive appointed to help resolve the issues that are reported.

PURCHASING/PROCUREMENT ETHICS

Ethics play a major role in procurement and are considered more important as technology and
consumer behavior change. Being ethical means being in accordance with the rules or
standards for right conduct or practice, especially the standards of a profession. For
instance: procurement is involved in supplier selection, evaluation, negotiation, contracts
sign off and awarding business to suppliers. When interacting with suppliers, procurement
should treat them in fair and unbiased manner.

Procurement professionals must conduct their business practices in the most ethical manner.
Failing to abide to ethical practices can lead to immoral and illegal practices such as bribery,
favoritism, illegal sourcing etc. The immediate reaction to the idea of unsatisfactory procurement
ethics is that it will be damaging for public relations, if those ethics become public knowledge.
Leaders have to make sure that actions are taken to follow proper ethics as this can only
contribute to the success of any business.
Why ethics are important for procurement professionals?
 Procurement represents their organization and is responsible for awarding business to
suppliers. Any unethical behavior will have a negative impact on the brand image of the
organization
 Procurement professionals experience enormous pressure from internal and external
forces to act in unethical ways as they usually have control over large sums of money.
 Ethical behavior in conducting business helps in establishing a long term relationship and
goodwill with suppliers
 An ethical person is respected in the business community. Once a buyer earns a
reputation within an industry, it is difficult to change it. A professional reputation is
something a buyer carries throughout his entire career.

Types of Unethical Behaviors in Purchasing:

 Accepting supplier favors & gifts: Accepting gifts, favors and freebies from suppliers is
the most common unethical practice. This may affect buyer’s decision to evaluate and
select a supplier.
 Conflict of interest: Conflicts of interest arise when buyers or their close family/friends
have direct financial interest in a supplier’s organization. This is a major unethical
practice and a serious breach of ethics.
 Confidentiality of information: Confidential information should be shared only when
needed and with the persons who are liable to get the same as part of their profession.
Confidential information should be carefully shared with the internal and external world.
There are various kinds of information that need to be protected; otherwise it could
hamper the business adversely. Some of the examples are pricing, T&Cs, personnel
information of customers, commercial information of suppliers in case of an RFQ
process, cost break up, any business and trade secrets etc.
 Fair and unbiased treatment: All suppliers should be treated fairly and in an unbiased
manner. Any biased treatment to any particular vendor raises unethical behavior.
  Integrity: Integrity is the quality of being honest and having strong moral principles.
Any compromise on the integrity has a negative impact on the overall procurement
process.

How to ensure that your organization’s procurement ethics are upheld

i. An ethics policy
An ethics dispute should never be the result of a difference of opinion between the
procurement department and a company employee. Every organization should have a
written policy making clear what top management considers ethical and what it considers
unethical.

ii. Ethics Training

Ethics training is one of the most essential components to ensure that employees are
aware of the importance of ethical practices. An innovative training will provide
employees with all the important information about ethics so that they are able to deal
with their day-to-day jobs in an ethical way. The great part about having an ethics policy
is that the rules are in a tangible, indisputable form. The unfortunate part is that no one
reads ethics policies! Supplement an ethics policy with procurement ethics training for
anyone who is involved with the purchase of products or services and/or who meets with
suppliers.

iii. A process with checks and balances

Every major procurement should require management review to confirm that all
guidelines were followed and that no ethical violations have occurred or will occur.

iv. Audits
Periodically, audits should be performed to verify that all procurement activities were
conducted ethically and in accordance with procedures. Audits also serve as a deterrent to
future unethical behavior.
EMERGENCE OF ETHICAL ISSUES
With different parties involved in the supply chain process there is always a question of who is
being fair and otherwise. Tensions arise in supply chain mainly due to the perceived
understanding of ‘fair play’ between various parties. What may seem as a legitimate course of
carrying out the business may be perceived as an unfair trade practice by the other. So below are
some of the ethical issues faced by the parties involved in the supply chain process.
 Producers. There are numerous ethical issues that a producer could possibly face in a
supply chain process. Working conditions, labour rates, child labour, environment
unfriendly practices (including production of goods and disposal of wastes), utilization of
natural resources are some of the factors in which an organization can deviate from its
fair business practices. Some organizations with the backing of the government in their
homeland resort to exploitation of the available resources either by exploiting the
political instability or by feeding the corrupt law makers of the host nation. These actions
create a sense of dissatisfaction among the workforce in the longer run which may result
in disruption in the production process. Also environmental degradation cannot be ruled
 out if the organization is totally unmindful of the way their wastes are disposed. Unfair
trade practices always stems with disregard for intellectual property rights. A producer is
deemed to be unethical if the product whose technology or idea has been duplicated from
another producer that has spent millions to create a value for their end users.
 Suppliers. Suppliers are an integral part of the production process of an organization.
Not all producers procure all raw materials directly from a source. Suppliers perform an
integral job of procuring raw materials of high quality and maintaining high standards of
inventory and a sound distribution network. But some suppliers maintain lower standards
in managing inventory or the quality of materials procured will be of a cheaper quality,
reasons which are attributed towards saving cost and increasing profit margin. Signing a
mandatory code of conduct with the organization has been the need of the hour mainly
because of the lack of trust. This lack of trust has stemmed from the fact that standards
and quality may have not been maintained according to the expectations of the producer
which has led to signing of agreements between parties. Also certain suppliers form a
cartel which leads to manipulating the market. For example, farmers from whom the
agricultural products are procured, will be under the mercy of these cartels that resort to
rogue pricing. These raw materials are sold at a higher price to the manufacturer so that
there is a higher profit margin for the suppliers. Exploitation of the resources happens not
only with organizations that procure materials directly but also by suppliers that act as
middlemen between the original source and the manufacturer.
 Retailers. Similar instances of unethical practices have been recorded with retailers when
it comes to packaging or labeling the products. Retailers resort to practices such as
tampering with the packages or partially filled packages which amounts to cheating as the
customers who buy the product are led to the belief that the content of the package is
equal to the weight disclosed on the cover (For example, a potato wafers packet may
consist of only 25-30 grams whereas the disclosed weight on the product would be 35
grams). Also retailers may resort to pseudo-marketing techniques to project a good image
among the public. For instance a retailer may claim that part of the proceedings in the
purchase of the product goes towards a noble cause. Even manufacturers make tall claims
about their product being totally environment friendly which may not be the case
(Sainsbury shopping bags – Daily Mail, 2007)
  Consumers. Though consumers are in the receiving end of unethical practices most of
the time, not always it could be justified. If companies offer a quality product at a higher
price, the willingness to buy has reduced considerably due to availability of alternatives.
By alternatives it does not mean availability of substitutes alone. Consumers have started
buying counterfeit products which are priced much cheaper. Their only approach towards
buying is based on cost and not quality. As a reason, manufacturers are forced to cut
down or compromise on the quality of the product they have been offering plainly
because of lack of sales which burdens their profit margin. So overall it has become a
vicious circle where in a slight increase in the cost of the material supplied by the
supplier which is passed onto the manufacturer who increases the cost of the final product
leading to consumers preferring alternatives.
Another quality that is expected of consumers is ethical consumerism. It is a trait among
individuals to look beyond the purchase of product. They are not focused on self or about the
harm that would occur on the product usage/consumption but also possess a higher moral
understanding that connects people across culture, creed, gender and nation. For example, during
the festive month of Diwali in India, certain people abstain from purchasing crackers citing the
reason that lot of child labour had gone into the making of the crackers which is still widely
prevalent in South India.
Code of Business Ethics
 Professionalism. All participants of the supply chain process should exhibit a high
standard of professionalism. It means that each entity should treat the other with an equal
amount of respect and trust and in no way shall intervene or command the other.
Information that is deemed to be classified should be guarded safely by all parties
involved. Adherence to the laid down terms and conditions should be a pre-requisite for
all.
 Personal Integrity. Integrity is defined as a trait in a person who exhibits qualities such
as honesty and having principles that are morally strong. Personal integrity is a strong
sense of commitment towards morality, openness and high standards of ethics that an
individual stands by and act as a role model for his/her colleagues. Every individual and
not just the overall entity should have high personal integrity to make sure the entire
supply chain process is ethically right. Behavior like receiving favors such as gifts,
 monetary commissions, stakes, preferential treatments are considered to be outside the
code of business ethics.
 Transparency and accountability. All the parties involved in the supply chain process
have to be open and accountable. For e.g. certain companies approach or try to
manipulate officials of a state/nation to gain advantage over their competitors for their
personal agenda rather than proceeding on legally right channels. Public resources are
used by different parties in the supply chain which must adhere to fair usage policies.
 Compliance and continuous improvement. Compliance to local laws is a mandatory
pre-requisite. No party shall bypass the laws of the state/nation for their business motives
to gain unfair advantage. All entities shall work towards fostering a continuous
improvement culture in their supply chain activities and serve as a role model for others
to follow. Doing so can lead to earning concessions/credits from government as a token
of appreciation.

Case Analysis
 Bangladesh tragedy. The recent tragedy across the border has shaken the global garment
industry. Mere compensation to the victims or the kin of the victims has only cleared the
monetary difficulties. What about the pain that will forever remain in the hearts of those
people who had lost their sole breadwinners in the tragedy? The Bangladesh tragedy was
one of the biggest or may be the biggest tragedy to have happened in the garment
industry. After China, Bangladesh is the second largest exporter of garments in the world.
People still wonder how this tragedy occurred. That’s because seldom are we aware of
imminent danger. Yet we can prevent them with pro-active thinking and actions. The
building that collapsed killed scores of people with a death toll that breaching the 1000
mark. This tragedy opened the eyes of the global apparel giants to take some
responsibility thanks to some online campaigning by human rights groups across the
globe that made these corporates to finally sit up and look at the situation that needed
 immediate attention. It could have been another situation where corporate would have
wanted to absolve themselves of the responsibilities by feeding the corrupt law makers
but not this time because of the quantum of this accident that occurred.
Mostly developing countries don’t have stringent laws regarding labor working conditions and
Bangladesh was no different. Now after this tragedy global corporations have started focusing
more on labor rights and working conditions. Even companies have started to insist on
understanding the details of the premises that they want to purchase (For example, the age of the
building, quality of material used etc.) or acquire through lease. Maybe a more pro-active
approach would have saved many lives as our neighbors didn’t deserve such a gruesome end.
So the key focus area to improve the supply chain process is public interest. What are the three
factors if mismanaged can put the interests of the public at stake? Environment, safety and
consumer rights are those critical factors in which disruptions in either of these links will jolt the
entire supply chain process. Companies need to procure, design, manufacture and distribute
products that will have minimum life cycle impact on the environment. People are involved
inevitably in the process of supply chain and any compromise on their rights or the work
environment will lead to serious damage of the supply chain. All products reach the end user and
any exploitation will lead to legal issues as well damaging the reputation of the company.
Pseudo-marketing techniques such as claims of being an eco-friendly product or contribution
towards noble cause (cause-related marketing) through the purchase of a product will eventually
hit the image of the company. Focusing on innovations in developing a product, strategizing on
cost reductions, adopting best practices and new technology development will only help a
company to re-invent itself in a changing business world.

PRINCIPLES OF ETHICS IN SUPPLY CHAIN MANAGEMENT

PROFESSIONAL ETHICS

Professionalism is the conduct, aims or qualities that characterize or mark a profession or

professional person; it implies quality of workmanship or service. Every organization knows that
a professional reputation is the difference between success and failure and they seek to keep their
most professional staff.
Professionalism is all about success and influence; having a reputation for excellence and being
thought of as someone who exhibits professionalism under any circumstances can open doors for
you either in the workplace or in your personal ambition.

Following are ten golden rules to being professional in service to your organization:
i. Always strive for excellence; this is the first rule to achieving greatness in whatever
endeavor you undertake this is the quality that makes you and your work stand-out.
Excellence is a quality of service which is unusually good and so surpasses ordinary
standards, it should be made a habit for it to make a good impression on your bosses and
colleagues.
ii. Be trustworthy; in today’s society trust is an issue and any employee who exhibits
trustworthiness is on a fast track to professionalism. Trustworthiness is about fulfilling an
assigned task and as an extension- not letting down expectations, it is been dependable,
and reliable when called upon to deliver a service. In order to earn the trust of your
bosses and colleagues, worth and integrity must be proven over time.
Be accountable; to be accountable is to stand tall and be counted for what actions you
have undertaken, this is the blameworthiness and responsibility for your actions and its
consequences- good or bad.
iii. Be courteous and respectful; courteousness is being friendly, polite and well mannered
with a gracious consideration towards others. It makes social interactions in the
workplace run smoothly, avoid conflicts and earn respect. Respect is a positive feeling of
esteem or deference for a person or organization; it is built over time and can be lost with
one stupid or inconsiderate action. Continued courteous interactions are required to
maintain or increase the original respect gained.
iv. Be honest, open and transparent; honesty is a facet of moral character that connotes
positive and virtuous attributes such as truthfulness, straightforwardness of conduct,
loyalty, fairness, sincerity, openness in communication and generally operating in a way
for others to see what actions are being performed. This is a virtue highly prized by
employers and colleagues, for it builds trust and increases your personal value to all.
v. Be competent and improve continually; competence is the ability of an individual to do a
job properly, it is a combination of knowledge, skills and behavior used to improve
 performance. Competency grows through experience and to the extent one is willing to
learn and adapt. Continuous self development is a pre-requisite in offering professional
service at all times.
vi. Always be ethical; ethical behavior is acting within certain moral codes in accordance
with the generally accepted code of conduct or rules. It is always safe for an employee to
“play by the rules”. This is always the best policy and in instances the rule book is
inadequate, acting with a clear moral conscience is the right way to go. This may cause
friction in some organizations but ethical organizations will always stand by the right
moral decisions and actions of their employees.
vii. Always be honorable and act with integrity; honorable action is behaving in a way that
portrays “nobility of soul, magnanimity, and a scorn of meanness” which is derived from
virtuous conduct and personal integrity. This is a concept of “wholeness or
completeness” of character in line with certain values, believes, and principles with
consistency in action and outcome.
viii. Be respectful of confidentiality; confidentiality is respecting the set of rules or
promise that restricts you from further and unauthorized dissemination of information.
Over the course of your career, information will be passed on to you in confidence –
either from the organization or from colleagues- and it is important to be true to such
confidences. You gain trust and respect of those confiding in you and increase your
influence within the organization.
ix. Set good examples; applying the foregoing rules helps you improve your professionalism
within your organization but it is not complete until you impact knowledge on those
around and below you. You must show and lead by good example. Being a professional
is about living an exemplary live within and without the organization.

Professionalism is highly valued by every organization today and professionals are hardly
out of work. Apply the ten golden rules of professionalism and enjoy a wonderful,
professional and prosperous career.

Ethical aspects in Purchasing & Supply Management

Purchasing and supply management deals with storage, buying and monitoring of goods and
services. Like all areas of business, ethics in purchasing and supply management is critically
important as it can affect a company's bottom line. Organizations that are aware of the needs of
their external environments, including customers, suppliers, employees and communities, and
those that perform in an ethical and socially responsible manner can exploit a public relations
advantage that might increase company profits.

1. Use Power Appropriately

Power is a vital component of supply relationships. It is fundamental that purchasing and supply
management professionals know ways to use the purchasing power of their companies in the
most appropriate manner. Undue influence and abuse of power, as well as acting
unprofessionally, will not result in long-term value for money. It is also imperative that
purchasing and supply management professionals adhere to all applicable laws governing this
area.

2. Do Not Indulge in Corruption

Purchasing and supply management professionals should abstain from any form of corrupt
activity. If facing an ethical dilemma, supply management professionals have an obligation to
alert senior management. In most countries, bribery is an offense. It is the responsibility of the
purchasing and supply management professional to determine what ethical and unethical
behavior between suppliers and colleagues is. Though the information flow between these two
parties should be transparent, it is the role of the purchasing and supply management
professional to educate colleagues about unethical relationships with suppliers.

3. Promote Social Responsibility and Sustainability

Supply and purchasing professionals should drive sustainability and social responsibility when
dealing with suppliers and other individuals in daily business activities. Associations such as the
Institute of Supply Management aim to encourage supply professionals to have supplier
agreements that contain more sustainable language. ISM also attempts to make more supply
professionals aware of sustainability and social responsibility issues by providing references,
tools and best practices to develop proactive and socially responsible programs. For instance, the
ISM provides information that helps companies avoid dealing with companies that use
sweatshops, child labor and other unethical forms of business practice.

4. Act Ethically at all Times

Carry out all business practices in an ethical manner by making sure business policies conform to
the highest ethical standards. For example, Philips' Supply Management Code of Ethics suggests
refraining from using confidential information for unethical purposes and maintaining integrity
of records --"including documenting obtained discounts in a proper form." Philips also supports
communicating ethical expectations to those it does business with. Companies that follow
unethical policies risk potential legal liability and a firestorm of bad publicity.

ETHICAL CONCEPTS

The Concept of "Good Business Ethics"

"Good" business ethics involves having and adhering to a code of moral conduct that places the
rights and expectations of people over and above the "profit motive" of business. Even though it
is the goal of business to make money, the manner in which profit is sought can come under
intense scrutiny if it is believed that the rights of human beings are being compromised in the
process of making money. For this reason, it can result in good business for companies to
practice good business ethics, because moral business practices, in the final analysis, can be seen
as "profitable." Ethical conduct helps business in three primary ways by:
 i. Discouraging the breaking of laws in work-related activity. Since it is wrong or
"criminal" to break the laws of society, then it is morally "right" to uphold (or not to
break) them.
ii. Helping business entities avoid actions that may result in costly civil law suits against the
company. Since individuals have rights, business has obligations to observe those rights.
iii. Motivating companies to avoid engaging in actions that can harm the company's image.
Having a "moral code of conduct," or ethics, can help businesses improve their
profitability, because adhering to moral standards can help to prevent loss of revenue and
loss of company reputation.
Some of the moral obligations of business are determined by what the law requires. Moral
standards are part of our legal system. There are laws, for example, against killing, stealing,
engaging in fraudulent activities, sexual harassment, and public nudity, among other things. But
moral standards go beyond what the law requires. For example, in the U. S. and most Western
nations, adopting positions with regard to "social responsibility" are optional for companies. No
company is required by law to help improve the quality of life on a local, national, or
international level, yet that is exactly what the company called Ben & Jerry's has vowed to do.

The Concept of "Immoral" Business Practices

Many major companies have become embroiled in trouble, and have been fined millions of
dollars for violating laws that were set up based on ethical considerations. But unethical business
practices extend well beyond activities that break the law. Hundreds of companies participate in
"questionable" and clearly "unethical" practices--without breaking any established laws. They
engage in practices developed only to improve their bottom-line profits, with no regard for
anything or anyone else.

A good example of such practices is “dead peasant” insurance policies. These policies were
widely exposed in the 2010 Michael Moore documentary movie, "Capitalism, a Love Story."
"Dead peasant" policies are those companies take out on their employees, without the employee's
consent, which not only give the companies tax breaks, the policies allow them to make money
off of an employee's death. Some of the policies are worth millions of dollars, and the companies
collect on them, not the deceased employees' families or loved ones. (You can learn more about
"dead peasants" insurance policies and see a list of companies that have taken them out on
employees at http://deadpeasantinsurance.com/which-employers-bought-policies-on-the-lives-of-
employees/). (Please note: the term "dead peasants," which speaks volumes about the attitude of
many top executives and business owners, toward rank and file employees, was coined by one of
the companies that engaged in this deplorable practice.)

It is not wrong to make money, but it is important for businesses owners and executives to
conduct themselves in ways that are moral and ethical, as they make money. Hundreds of
examples of businesses engaging in bad, unethical, and immoral behavior in order to make
money only serve to convince people that major companies are immoral, and that they don't
think highly of ethical business practices. When companies engage in practices such as "dead
peasants" insurance policies, consumers become convinced that business will stop at nothing to
keep the rich getting richer and the poor poorer. Organizations are “morally responsible” for
their actions and their actions/conduct are judged to be either “moral” or “immoral” in the same
sense as those of individuals.

The Concept of "Rights"

What Is a Moral “Right?”

In general, a moral "right" is an individual’s entitlement to something. It is a gift from God that
extends from being a human being. When someone has a "right," it means he or she is able to
choose freely whether or not to pursue certain interests or activities, without need of the
permission of others. Rights impose prohibitions and requirements on others not to interfere, and
it is these prohibitions and requirements then enable people, as individuals, to choose freely
which interests and activities they will pursue.
The possession of moral rights necessarily implies that others have certain duties toward the
bearer of that right. For example, the moral right to worship as one chooses comes the moral
duty of other people not to interfere in one's chosen form of worship.

What Are "Negative" Rights and "Positive" Rights?

Negative rights are sometimes called the right to non-interference. Negative rights impose duties
on other people to leave you alone; to not stop or block you from doing things that you feel are
right for you, and that are important to you. For example, you have a right to make your own
decisions and choices for your life, as well as a right to voice your opinion on a topic (freedom of
speech). American society places a great deal of importance on the rights of individuals, and
most of us understand the importance of not violating the negative or "non-interference" rights of
others. We understand that it is our duty not to interfere in certain activities of other human
beings who are holders of a given right.

Positive rights do more than impose negative duties. They create duties on others to provide
something for the holder of the right. They say that others must provide the holder of the right
with benefits; whatever he or she needs to freely pursue his or her interests. Let's use, for
example, the notion of health care. If we look at health care as being a negative right, then, you
and I possess the right of non-interference when it comes to getting health care. Even though we
must pay for health care services, we have a right to obtain health care. The right we have to
pursue health care, and the right to non-interference with this right, has to be protected by the
state in order to ensure that no one interferes with or discriminates against us as we pursue our
right to obtain health care. But, if health care is a positive right that means the state has an
obligation to provide health care for us.
Concepts of Justice
Before looking at concepts of justice, here is a scenario for you to consider. Let's say that you are
the owner of a corporation that has a manufacturing plant employing hundreds, yet the plant
pollutes an environment that affects thousands.
You and your employees get to leave your company every day, and you drive home to
communities that you have not polluted, where the air is fresh and safe to breathe. But, those
people who live near the plant and the pollution you created are suffering serious adverse health
effects caused by the pollution, and they are having to pay the health and medical costs of their
illnesses.

As the business owner, are you sharing equally in society’s benefits and burdens? Or are you
getting more than your share of benefits, as you're creating more, and shouldering less, than your
share of the burdens? Judgments about justice are based on moral principles that identify fair
ways of distributing benefits and burdens to members of a society. Questions concerning how
justice is "distributed" can arise when different people put forth conflicting claims on society’s
benefits and burdens and all the claims cannot be satisfied.

Egalitarianism is the belief in the equality of all people. Believers in human equality say that
there are no relevant differences among people that can justify unequal treatment. According to
them, all the benefits and burdens of society should be distributed according to this formula:
“Every person should be given exactly equal shares of a society’s or a group’s benefits and
burdens.” The egalitarian view of how justice should be distributed is based on a seemingly
simplistic view that all human beings are equal in some fundamental respect and that, in view of
this equality, each person has an equal claim to society’s goods, and those goods, and burdens,
should be allocated in equal portions.

Utilitarianism is the belief that a society is just to the extent that its laws and institutions exist to
promote the greatest overall or average happiness of its members. Utilitarians believe in the best
consequences for all, and that it is right to organize society in a way that distributes or
redistributes wealth so that everyone's basic needs are met. Since "happiness" cannot be
quantified or averaged, many Utilitarians consider a "basic-needs" minimum, to which they
believe every person is entitled. Basic needs are viewed as being universal. All people have a
basic need for things such as food, shelter, clothing, medical care, protection, companionship,
and self-development. The basic-needs minimum, says Utilitarianism, is a prerequisite to any
desirable kind of life, and is something every human being is entitled to just because they are
human beings.

Socialist justice, on the other hand, says “work burdens should be distributed according to
people’s abilities, and benefits should be distributed according to people’s needs.” It is
concerned with equal justice for all, in every aspect of society, arguing that there should be an
"even" chance for everyone and opportunities for all--from the poorest, to the middle class, to the
rich.

Capitalist justice says that the benefits a person receives should be equal or proportional to the
value of his or her contribution to society. It says, “benefits should be distributed according to
the value of the contribution the individual makes to a society, a task, or an exchange. If this is
true, we have to ask, “Do manufacturers contribute more value to society?” If so, does that mean
their larger portion of benefits and lesser portion of burdens is legitimate?

Libertarian justice says the free market is inherently just, and that redistributive taxation
violates people’s property rights. Libertarian distributive justice is based on two principles
defining how individuals are responsible for their own future no matter what happens. Principle
1 (Principle of equal liberty) of distributive justice says that each person’s liberties must be
protected from invasion by others and must be equal to those of others. Principle 2 (Difference
principle) assumes that a productive society will incorporate inequalities, but it then asserts that
steps must be taken to improve the position of the most needy members of society, such as the
sick and the disabled--unless such improvements would so burden society that they make
everyone, including the needy, worse off than before.

CONFIDENTIALITY
Confidentiality needs extra consideration in procurement, due to the delicate nature of the
information that is handled in procurement processes, such as pricing of products, marketing
strategies, etc. A breach in the confidentiality of the data handled in the procurement process
could result in discredit of the organization and distrust from governments, partners or suppliers.

The concept of confidentiality is repeated in several instances in the Code of Conduct

documented in the Standards of Conduct in the International Civil Service 2001;
ST/SGB/2002/13, Regulation 1.2 (i) and V, 35. It states that: “Staff members shall exercise the
utmost discretion with regard to all matters of official business. They shall not communicate to
any Government, model, person or any other source of information known to them by reason of
their official position that they know or ought to have known has not been made public except as
appropriate in the normal course of their duties or by authorization of the Secretary General.
These obligations do not cease upon separation from service.”

“The disclosure of information may seriously jeopardize the efficiency and credibility of the
organization. International Civil Servants are responsible for exercising discretion in all matters
of official business. They must not divulge confidential information without authorization. Nor
should international civil servants use information that has not been made public and is known to
them by virtue of their official position to private advantage. These obligations do not cease upon
separation from service.” Confidentially might seem in contradiction with transparency, but what
this means is, the way the overall procurement process is conducted needs to be clear and
transparent, while truly proprietary data needs to remain confidential.

DUE DILIGENCE
Due diligence in the context of procurement refers to carrying out duties carefully and
thoroughly and avoiding careless practices or techniques. Due diligence is a term most
commonly used for the process whereby a potential purchaser evaluates a target company for
acquisition. It amounts to an investigation of a potential investment that includes reviewing all
financial records plus anything else deemed material to the sale. Offers to purchase are usually
dependent on the results of due diligence analysis.

The importance of a due diligence – as many other business processes – is well illustrated by its
failures. A high-profile example was the due diligence conducted for Hewlett-Packard on
Autonomy, the UK software company. HP subsequently claimed that Autonomy had inflated the
value of the company prior to the takeover, which led to a write-off of more than $8.8 billion
related to allegedly fraudulent accounting at Autonomy. Similarly, US machinery manufacturer
Caterpillar was forced to make a $580 million write-down after accounting misconduct was
uncovered at ERA’s Zhengzhou Siwei subsidiary.

While a breach of ethics is central to these accounting scandals, ethics has a further relevance for
a due diligence. A due diligence should serve to confirm all material facts, for example in regard
to a sale, and it is intended as a means to prevent unnecessary harm to either party involved in a
transaction. But, in the absence of an ethical culture, the facts can be skewed by the company
being sold - as illustrated by the examples above. The acquisition can also pose significant future
risks to the purchaser. This can range from liabilities and penalties associated with fraudulent
practices to having to change the company’s entire culture. The difference between an ethical
and unethical company is so noteworthy that ethics – or, specifically, a lack of ethics – should be
considered a material fact. Conducting an assessment of the organization’s ethics as part of a due
diligence can add considerably to the depth of insight into the target company.

Due diligence requires that all activities by procurement officers be pursued in a manner that
goes beyond the minimum effort. For example, diligent procurement officers should:
 check the references of potential suppliers
 develop impartial evaluation criteria
 carefully analyse the offers received
 Not cut corners for the sake of convenience.

SOCIAL RESPONSIBILITY AND BUSINESS ETHICS

Social responsibility is the obligation of decision-makers to take actions, which protect and
improve the welfare of society as a whole along with their own interests. Every decision the
businessman takes and every action he contemplates have social implications. Be it deciding on
diversification, expansion, opening of a new branch, and closure of an existing branch or
replacement of men by machines, the society is affected in one way or the other. Whether the
issue is significant or not, the businessman should keep his social obligation in mind before
contemplating any action.

Arguments for Social Responsibility of Business

The major arguments that have been raised in support of business social responsibility include:
i. Changing public needs and expectations: These have led to changing expectations of
business therefore increased business social response is necessary in order to narrow the
gap between expectations and actual response and keep business in tune with society.
ii. Moral obligation: Social responsibility is ethical. Therefore, a business is ethical by
being socially responsible.
iii. Limited resources: A business must act responsibly not only to conserve the earth’s
limited resources but also to use such scarce resources wisely.
iv. Better social environment: A business can help in creating a better quality of life by
helping to solve difficult social problems.
v. Long-run profit: A more socially responsible business tends to have more secure long-
run profits.
vi. Discouragement of further government regulations: If business is socially responsible,
it will discourage government from imposing more regulations.
vii. Balance of responsibility with power: A business should be more socially responsible as
a balance to the large amount of social power it enjoys.
viii. System interdependence requires social involvement: The modern social system
has become so complex and interdependent that almost any internal act of business has
some influence on the external world. Therefore, because business action affects others
outside the business, it should act socially responsible.
ix. Business contributes to social problems: Many of society’s problems have been caused
by business; therefore it (business) should correct them by applying its valuable resources
to these problems.
x. Public image: Business’ social response improves its public image.
Arguments against Social Responsibility of Business
i. Need for profit maximization: The singular pursuit of profit enables business to reduce
costs and prices which benefit society.
ii. Divided purposes and confused expectations: If business executives have also to pursue
social goals besides the economic ones, their interests may be so greatly divided that they
will become confused and ineffective.
iii. Costs of Social responsibility: The activity costs something and such costs are eventually
passed on to society.
iv. Weakened international balance of payment: The costs of social problems eventually
make products of a country expensive (due to attempts to recover costs in prices), which
weakens a country’s competitive position in international trade.
v. Business has enough power: Since business has already enough social power, it would
therefore be too powerful if it had also to assume social responsibility.
vi. Lack of social skills: Business executives are economically oriented and unlike social
workers, lack the social skills required in the administration of social responsibility.
vii. Lack of accountability: Business has no direct lines of social accountability to the
people; therefore it is unwise to allow business activities in areas where business is not
accountable.
viii. Inability to make moral choices: Only persons or individuals can make moral
choices, not organizations or business. Therefore, it is waste of time talking about
business social responsibility.

SOCIAL RESPONSIVENESS
Social responsiveness (SR) is “the ability of a corporation to relate it operations and policies to
the social environment in ways that are mutually beneficial to the company and to society”.
In other words, it refers to the development of organizational decision processes whereby
managers anticipate, respond to, and manage areas of social responsibility. The need to measure
the social responsiveness of an organization led to the concept of social audit.
The social responsiveness of an organization can be measured/gauged on the basis of the
following criteria:
i. Assisting voluntary social organizations in fund-raising
ii. Contributions to charitable and civic projects
iii. Employee involvement in civic activities
iv. Proper reuse of material
v. Equal employment opportunity
vi. Promotion of minorities
vii. Direct corporate social responsiveness investment
viii. Fair treatment of employees
ix. Fair pay and safe working conditions
x. Safe and quality products to consumers
xi. Pollution avoidance and control

Social Responsibility of Business

The concept of social responsibility has emerged due to several economic, social, political and
legal influences. These forces, which have obliged, persuaded and helped businessmen to
become aware of their responsibility to society, are as follows:

Public opinion: Public interference with the help of the government has instilled a fear in the
heart of businessmen. The threat of public regulation and public ownership has compelled them
to acknowledge the fact that responsible behaviour is essential on their part for survival in the
private sector.

Trade union movement: The recent development of socialism that boosted the strength of
labour unions has forced businessmen to give a fair share to workers. Human relations and
labour legislation have facilitated trade unions to increase their influence.
Consumerism: Consumer organizations have encouraged awareness about consumer rights.
Consequently, businesses have become more responsive to consumer needs and stress the dictum
of ‘consumer is the king’. Businessmen can no longer adopt the approach of ‘let the buyer
beware’.

Education: Extensive education has made businessmen conscious about the quality of life,
moral values and social standards. Liberal business leaders have been pressing the business
community to acknowledge its social obligations.

Public relations: Modern businessmen are aware that a good public image contributes to their
growth. There is a greater alertness in their hearts that business is a construction of society and
hence, it should consider and react positively to the expectations of society.

Managerial revolution: Separation of ownership from control in large corporations has resulted
in professionalism in management. A professional manager is fairly aware of the society’s
expectations and attempts to meet the demands of all social components, like customers,
employees, shareholders and the government, in a well adjusted manner.

BUSINESS ETHICS
The two issues - an organization’s social responsibility and responsiveness- ultimately depend on
the ethical standards of mangers. The term ethics commonly refers to the rules or principles that
define right and wrong conduct. Ethics is defined as the “ discipline dealing with what is good
and bad and with moral duty and obligation”. Business ethics is concerned with truth and justice
and has a variety of aspects such as expectations of society, fair competition, advertising, public
relations, social responsibilities, consumer autonomy, and corporate behavior in the home
country as well as abroad.

FAIR TRADE
Fair trade is a movement aimed at ensuring that the farmers and workers who grow, pick, and
make the food products you buy earn a fair wage and don’t experience dangerous or overly
taxing working conditions. In the kind of global supply chains that bring us items such as coffee
and chocolate, there’s a host of middlemen between farmer and consumer—buyer, processor,
exporter, U.S.-based broker, food corporation, distributor, grocery store. In many instances, the
bulk of the money you spend at the store goes to them, leaving little for the people who grew and
harvested the coffee beans or cacao.

How does fair trade work?

Under the fair-trade system, nearly all of the layers between producer and consumer are cut out,
so the end user is buying as directly as possible from the farmer. Under a conventional fair-trade
arrangement, your grocery store will buy the product from a distributor, which gets it directly
from a co-op of farmers who grow, for example, coffee in Honduras.

What do fair trade businesses get?

There are many fair-trade certification organizations, but all have certain things in common:
Typically, for a product to earn a fair-trade label, the farmers must be guaranteed a minimum
price for their harvest to ensure they can cover costs—as well as have enough to reinvest in their
families, businesses, and communities. Products also must respect certain environmental
standards, such as water pollution prevention and forest protection, and be GMO-free.

What are the pros and cons of fair trade?

Critics argue that fair-trade practices distort economic reality, amounting to a consumer created
subsidy that artificially inflates prices and spurs overproduction (which in turn depreciates the
actual value of the product) and thereby insulates farmers from market cues to switch crops or
business models. Consequently, they argue, fair-trade practices do little to permanently lift
farmers and communities out of poverty, and they rip off consumers, who shouldn’t have to pay
more for a product than what the market would otherwise dictate. Proponents of fair trade
maintain that the practice gives farmers and producers the best shot at a sustainable business. In
2009, fair-trade products racked up $4.4 billion in sales worldwide—proof that a market exists
for such items, according to supporters, even when priced at higher rates.

Principles of Fair Trade

Principle One: Creating Opportunities for Economically Disadvantaged Producers

Poverty reduction through trade forms a key part of the organization’s aims. The organization
supports marginalized small producers, whether these are independent family businesses, or
grouped in associations or co-operatives. It seeks to enable them to move from income insecurity
and poverty to economic self-sufficiency and ownership. The organization has a plan of action to
carry this out.

Principle Two: Transparency and Accountability

The organization is transparent in its management and commercial relations. It is accountable to

all its stakeholders and respects the sensitivity and confidentiality of commercial information
supplied. The organization finds appropriate, participatory ways to involve employees, members
and producers in its decision-making processes. It ensures that relevant information is provided
to all its trading partners. The communication channels are good and open at all levels of the
supply chain.

Principle Three: Fair Trading Practices

The organization trades with concern for the social, economic and environmental well-being of
marginalized small producers and does not maximize profit at their expense. It is responsible and
professional in meeting its commitments in a timely manner. Suppliers respect contracts and
deliver products on time and to the desired quality and specifications.
Fair Trade buyers, recognizing the financial disadvantages faced by Producers and Suppliers of
FT products, ensure orders are paid on receipt of documents or as mutually agreed. For
Handicraft FT products, an interest free pre-payment of at least 50 % is made on request. For
Food FT products, pre-payment of at least 50% at a reasonable interest is made if requested.
Interest rates that the suppliers pay must not be higher than the buyers’ cost of borrowing from
third parties. Charging interest is not required.
Where southern Fair Trade suppliers receive a pre-payment from buyers, they ensure that this
payment is passed on to the producers or farmers who make or grow their Fair Trade products.
Buyers consult with suppliers before cancelling or rejecting orders. Where orders are cancelled
through no fault of producers or suppliers, adequate compensation is guaranteed for work already
done. Suppliers and producers consult with buyers if there is a problem with delivery, and ensure
compensation is provided when delivered quantities and qualities do not match those invoiced.
The organization maintains long term relationships based on solidarity, trust and mutual respect
that contribute to the promotion and growth of Fair Trade. It maintains effective communication
with its trading partners. Parties involved in a trading relationship seek to increase the volume of
the trade between them and the value and diversity of their product offer as a means of growing
Fair Trade for the producers in order to increase their incomes. The organization works
cooperatively with the other Fair Trade Organizations in country and avoids unfair competition.
It avoids duplicating the designs of patterns of other organizations without permission. Fair
Trade recognizes, promotes and protects the cultural identity and traditional skills of small
producers as reflected in their craft designs, food products and other related services.

Principle Four: Fair Payment

A fair payment is one that has been mutually negotiated and agreed by all through on-going
dialogue and participation, which provides fair pay to the producers and can also be sustained by
the market, taking into account the principle of equal pay for equal work by women and men.
The aim is always the payment of a Local Living Wage. Fair Payment is made up of Fair Prices,
Fair Wages and Local Living Wages.

Fair Prices A Fair Price is freely negotiated through dialogue between the buyer and the seller
and is based on transparent price setting. It includes a fair wage and a fair profit. Fair prices
represent an equitable share of the final price to each player in the supply chain.

Fair Wages
A Fair Wage is an equitable, freely negotiated and mutually agreed wage, and presumes the
payment of at least a Local Living Wage.
Local Living Wage

A Local Living Wage is remuneration received for a standard working week (no more than 48
hours) by a Worker in a particular place, sufficient to afford a decent standard of living for the
Worker and her or his family. Elements o vdf a decent standard of living include food, water,
housing, education, health care, transport, clothing, and other essential needs, including
provision for unexpected events.

Principle Five: Ensuring no Child Labor and Forced Labor

The organization adheres to the UN Convention on the Rights of the Child, and national / local
law on the employment of children. The organization ensures that there is no forced labor in its
workforce and / or members or home workers. Organizations who buy Fair Trade products from
producer groups either directly or through intermediaries ensure that no forced labor is used in
production and the producer complies with the UN Convention on the Rights of the Child, and
national / local law on the employment of children. Any involvement of children in the
production of Fair Trade products (including learning a traditional art or craft) is always
disclosed and monitored and does not adversely affect the children's well-being, security,
educational requirements and need for play.

Principle Six: Commitment to Non Discrimination, Gender Equity and Women’s

Economic Empowerment, and Freedom of Association

The organization does not discriminate in hiring, remuneration, access to training, promotion,
termination or retirement based on race, caste, national origin, religion, disability, gender, sexual
orientation, union membership, political affiliation, HIV/AIDS status or age.
The organization has a clear policy and plan to promote gender equality that ensures that women
as well as men have the ability to gain access to the resources that they need to be productive and
also the ability to influence the wider policy, regulatory, and institutional environment that
shapes their livelihoods and lives. Organizational constitutions and by-laws allow for and enable
women to become active members of the organisation in their own right (where it is a
membership based organisation), and to take up leadership positions in the governance structure
regardless of women’s status in relation to ownership of assets such as land and property. Where
women are employed within the organisation, even where it is an informal employment situation,
they receive equal pay for equal work. The organisation recognizes women’s full employment
rights and is committed to ensuring that women receive their full statutory employment benefits.
The organisation takes into account the special health and safety needs of pregnant women and
breast-feeding mothers.

The organisation respects the right of all employees to form and join trade unions of their choice
and to bargain collectively. Where the right to join trade unions and bargain collectively are
restricted by law and/or political environment, the organisation will enable means of independent
and free association and bargaining for employees. The organisation ensures that representatives
of employees are not subject to discrimination in the workplace.

Principle Seven: Ensuring Good Working Conditions

The organization provides a safe and healthy working environment for employees and / or
members. It complies, at a minimum, with national and local laws and ILO conventions on
health and safety. Working hours and conditions for employees and / or members (and any home
workers) comply with conditions established by national and local laws and ILO conventions.
Air Trade Organizations are aware of the health and safety conditions in the producer groups
they buy from. They seek, on an ongoing basis, to raise awareness of health and safety issues and
improve health and safety practices in producer groups.

Principle Eight: Providing Capacity Building

The organization seeks to increase positive developmental impacts for small, marginalized
producers through Fair Trade. The organization develops the skills and capabilities of its own
employees or members. Organizations working directly with small producers develop specific
activities to help these producers improve their management skills, production capabilities and
access to markets - local / regional / international / Fair Trade and mainstream as appropriate.
Organizations which buy Fair Trade products through Fair Trade intermediaries in the South
assist these organizations to develop their capacity to support the marginalized producer groups
that they work with.

Principle Nine: Promoting Fair Trade

The organization raises awareness of the aim of Fair Trade and of the need for greater justice in
world trade through Fair Trade. It advocates for the objectives and activities of Fair Trade
according to the scope of the organization. The organization provides its customers with
information about itself, the products it markets, and the producer organizations or members that
make or harvest the products. Honest advertising and marketing techniques are always used.

Principle Ten: Respect for the Environment

Organizations which produce Fair Trade products maximize the use of raw materials from
sustainably managed sources in their ranges, buying locally when possible. They use production
technologies that seek to reduce energy consumption and where possible use renewable energy
technologies that minimize greenhouse gas emissions. They seek to minimize the impact of their
waste stream on the environment. Fair Trade agricultural commodity producers minimize their
environmental impacts, by using organic or low pesticide use production methods wherever
possible. Buyers and importers of Fair Trade products give priority to buying products made
from raw materials that originate from sustainably managed sources, and have the least overall
impact on the environment.

Ethics and Technology

Businesses today are technology and innovation driven. There is huge competition in the sphere
and therefore like other industry or business function ethics is essential here also. Specially
because ethics by itself is only a tool to create and doesn’t know ethics or morals!
Every day we have innovative products and services that announce their arrival in the market
place and others that go obsolete. It is this technology and innovation that leads to ethical issues,
considering the competition to stay ahead by innovating is immense. Issues like data mining,
invasion to privacy, data theft and workplace monitoring are common and critical.

In technology we speak of ethics in two contexts; one is whether the pace of technological
innovation is benefiting the humankind or not, the other is either severely empowering
people while choking others for the same. Technology, for example, has drastically replaced
people at work.

In the first case we are compelled to think about the pace at which technology is progressing.
There are manifold implications here, be it things like computer security or viruses, Trojans,
spam’s that invade the privacy of people or the fact the technology is promoting consumerism.
Nowadays data storage is primarily on computer systems. With the advent of internet technology
the world has got interconnected and data can be accessed remotely by those who are otherwise
unauthorized to do the same. This is one of the pitfalls of innovation. The other one i.e. the pace
of technological change also raises the question of ethics.

New products make their way and leave the existing ones obsolete. In fact technological change
and innovation is at the heart of consumerism, which is bad for economy and environment in
general. The recent economic downturn makes up for a very good example.
Increasingly technological products are adding up to environmental degradation. Computer
screens, keyboards, the ink used in the printers are some of the ways in which technology is
polluting the environment. All these produce toxins that cannot be decomposed easily.

The other major issue in technology that brings in ethics is interface between technology
and the computers. Many scientists are of the opinion that the world will come to an end with a
war between the humankind and the technology. Technology they say will advance to an extent
beyond the control of those who have made it! No doubt technology has replaced people at work
and made certain others redundant. On the flip side many people have been raised to power
while others have been severely handicapped. The latter is especially true for third world
countries. New manufacturing processes that are outsourced either replace manpower there or
either exploits the latter in the name of employment by engaging them cheaper prices.

Technology has also made inroads into the field of medicine and life care. New cloning
techniques, genetic modifications or other life saving drugs need continuous monitoring and
surveillance. Bioethics has thus emerged as ethics in the field of medical technology.
Whereas we cannot talk of controlling technology and innovation, the better way is to adapt and
change. The role of ethics in technology is of managing rather controlling the same. Continuous
monitoring is required to keep track of latest innovations and technological changes and for
ensuring fair practices.

Ethical Issues in Information Technology

There are various ethical issues involved in information technology. In 1986, Masovi had
classified ethical issues in the following four groups:
1. Accessibility
It involves the right of accessing the required information as well as the true payment of charges
to access the information.
2. Privacy
It deals with the degree of privacy and dissemination of information about an individual.
3. Property
It talks about ownership and value of information.
4. Accuracy
The information which is viable and being accessed is now much more accurate and authentic.

TOPIC FOUR-CREATING AN ETHICAL ORGANIZATIONAL CULTURE

Having an organizational culture that emphasizes ethical behavior can cut down on misbehavior
of organizations. Research shows that whether an organization develops a culture that
emphasizes doing the right thing even when it is costly comes down to whether leaders, starting
with the CEO, consider the ethical consequences of their actions. Leaders with a moral compass
set the tone when it comes to ethical dilemmas.
Robbins and Judge (2009) offer a nice list of what management can do to create a more ethical
organizational culture. They suggest a combination of the following practices:
1. Be a role model and be visible. Your employees look to the behavior of top
management as a model of what’s acceptable behavior in the workplace. When senior
management is observed (by subordinates) to take the ethical high road, it sends a
positive message for all employees.
2. Communicate ethical expectations. Ethical ambiguities can be reduced by creating and
disseminating an organizational code of ethics. It should state the organization’s primary
values and the ethical rules that employees are expected to follow. Remember, however,
that a code of ethics is worthless if top management fails to model ethical behaviors.
3. Offer ethics training. Set up seminars, workshops, and similar ethical training programs.
Use these training sessions to reinforce the organization’s standards of conduct, to clarify
what practices are and are not permissible, and to address possible ethical dilemmas.
4. Visibly reward ethical acts and punish unethical ones. Performance appraisals
of managers should include a point-by-point evaluation of how his or her
decisions measure up against the organization’s code of ethics. Appraisals must
include the means taken to achieve goals as well as the ends themselves. People who
act ethically should be visibly rewarded for their behavior. Just as importantly, unethical
acts should be punished.
5. Provide protective mechanisms. The organization needs to provide formal mechanisms
so that employees can discuss ethical dilemmas and report unethical behavior without
fear of reprimand. This might include creation of ethical counselors, ombudsmen, or
ethical officers.
A good case study of an unethical organizational culture is the now defunct Enron. Sims and
Brinkmann (2003) described Enron’s ethics as “the ultimate contradiction between words and
deeds, between a deceiving glossy facade and a rotten structure behind”. Enron executives
created an organizational culture that valued profits (the bottom line) over ethical behavior and
doing what’s right. A business perceived to lack integrity or to operate in an unethical, immoral,
or irresponsible manner soon loses the support of customers, suppliers and the community at
large.
In addition to losing customers, suppliers and the community, I would also include losing the
support of employees and managers.

CHALLENGES TO ETHICAL ORGANIZATIONAL CHANGE

Organizational culture
The organizations culture is reflected in the “…attitudes and values, management styles and
problem solving behaviour of it’s people” (Bommer, 1987:272). The conduct of the board of
directors, CEO and other senior managers can signal subordinate managers as to which behaviors
are acceptable which can influence ethical behaviour in organizations.

Personal variables
Bommer et al (1987:272) also identifies variables that relate to the individuals personal life that
can impact on ethical behaviour. These variables are; the family and peer groups. It is important
to mention that research on how families affect on the job ethical behaviour is very limited.
However it is noted that ethicists have failed to account for the pressure that multiple roles exert
on members of modern society when they undertake ethical analysis.
Individual attributes
In their individual component of the model, Bommer et al (1987:273) includes the individual’s
level of moral development, personal goals, motivation mechanisms, position or status in
organization, self concept, life experiences, personality and demographic variables all as factors
impacting on ethical behaviour. Once again like in Trevino’s (1986:603) person-situation
interactionist model, Kohlberg’s (1969:347) influence is found throughout most of the model.
Bommer et al (1987:273) also identified the personality characteristic, locus of control as
impacting on ethical behaviour. ‘Locus of control’ refers to the degree on relies on oneself
(internal) vs. others (external) for reinforcement. Adams-Weber (1969) have found a significant
concentration of internal locus of control individuals in the post-conventional (level 5 & 6) level
of moral development which means that people with an ‘internal’ locus of control generally tend
to behave more ethical because they take responsibility for the consequences of their actions

TOPIC FIVE: ETHICAL DILEMMAS IN MODERN BUSINESS ENVIRONMENT

ETHICAL DILEMMAS

Ethics in business has to do with making the right choices often there is no apparent one right
way and one must choose the best in the circumstances. Managers are sometimes faced with
business choices that create tensions between ethics and profits, or between their private gain and
the public good. Any decision where moral considerations are relevant can potentially give rise
to an ethical dilemma for example:

i. A decision that requires a choice between rules

ii. A decision where there is no rule, precedent for example to follow
iii. A decision that morally requires two or more courses of action, which are in practice
incompatible with each other.
iv. A decision that should be taken in one’s self-interest, but which appears to violate a
moral principle that you support.
It is the imperative to act, combined with the uncertainty of which action to take, that causes a
dilemma.

For example: By defining the desired outcome (O), two necessary conditions (X and Y), and
their corresponding pre-requisites (Z and –Z), any dilemma can be portrayed as follows: In order
to achieve a desired outcome (O), I must have X (i.e. X is a necessary condition for the desired
outcome). At the same time, in order to achieve the desired outcome (O), I must have Y (i.e. Y is
also a necessary condition for the desired outcome). Now, in order to have X, I must do Z (i.e. Z
is a necessary action for the creation of condition X). But, in order to have Y, I must do –Z (i.e. –
Z, which is the opposite of Z, is a necessary action for condition Y).

Its use is illustrated by means of an example: Suppose you are offered a lucrative consulting
contract, conditional upon agreeing to ‘kick-back’ a percentage to the general manager of the
client company. Your dilemma is to either accept the contract or not. So Z = accept the contract;
-Z = do not accept the contract. Your objective (O) = have a successful business. Now to
complete the ‘drum’ you need to define X and Y. You do this by stating: “I must (Z) in order to
--------- (X)”; so “I must accept the contract in order to make money”; X is therefore ‘make
money’. Likewise, “I must (-Z) in order to -------- (Y)”; so “I must not accept the contract in
order to not violate my principles”; Y is therefore ‘not violate my principles’.

At this point one must decide whether to take action, by considering the consequences of each
action and eliminating those with undesirable consequences; or eliminate those with courses of
action that ought not to be implemented or that you would be loathe to see adopted as universal
standards; or a virtue-ethical approach – eliminating those that you perceive as vices, and
considering only the options you regard as virtuous.

You might therefore decide on one of the following:

i. blow the whistle on the general manager – based on a rightness or wrongness of actions;
ii. agree to the kickback but never actually pay it – a decision taken from an ethical egoistic
position;
iii. lower your price to make it irresistible to the client but let it be known that no ‘kickback’
will be paid – a virtuous decision;
 iv. apply your efforts elsewhere – which seems to combine both virtue-ethics (serenity) and
categorical imperative;
v. Raise the price and threaten to blow the whistle on the general manager if he doesn’t
award you the contract anyway perhaps another example of ethical egoism.

What is a Professional Dilemma?

A professional dilemma is an ethical problem that requires an individual to choose a particular
course of action. Usually, the choice itself is black and white: one choice is clearly the right
answer, while the other choice is unmistakably the wrong answer. However, the consequences or
repercussions of choosing the right answer may sometimes make it a difficult decision.

Examples of Professional Dilemmas

Examples of professional dilemmas include discovering fraudulent or illegal activity and
debating whether to report it, or being pressured by bosses, colleagues or clients to be deceitful.
Other examples include predicaments regarding disclosure of confidential information,
withholding pertinent information, engaging in inappropriate relationships with colleagues,
bosses or clients and accepting gifts that constitute a conflict of interest.

The Whistleblower Effect

Many professionals, especially in negative work cultures, feel pressure to conform and fear
retaliation if they speak out. According to the Ethics Resource Center's 2011 National Business
Survey, 64 percent of whistleblower employees reported that management no longer involved
them in decisions, while 62 percent of whistleblowers stated that fellow workers shunned them.
These individuals also reported being subjected to decreased working hours and pay, denied
raises and promotions and some were even relocated.
FIVE DILEMMAS IN PUBLIC PROCUREMENT

Public Procurement Dilemma #1 – The Accountability/Responsibility Dilemma: Develop

Flexible Procurement Systems While Maintaining Accountability and Control

Through principles of transparency and accountability, the regulation of public procurement

provides a pedestal of the legal, economic, and policy interface between the public and private
sectors (Bovis, 2008). For the present purposes, a focus will be on the differences emanating
from the accountability and control functions utilized within public purchasing while ensuring
the need for fairness and transparency.

There are noticeable differences between public and private purchasing. Consider that because
public procurement professionals often provide advice during the preparation of purchase
descriptions and statements of requirement, evaluating and negotiating contracts must be done in
a way that any resulting contracts adequately protect the interests of the government agency and
the public in general. Thus public procurement is typically characterized by high levels of public
disclosure and a heavy reliance on the bid process compared to private sector organizations
(Osborne & Pastrik, 1997). It is well-known that private and public sector organizations respond
differently to scarcity of resources. Where the private sector tends to see increased competition
(Harrigan, 1980), public sector organizations tend to react to cutbacks by increasing
centralization to avoid duplication (Ludwig, 1993). This often results in the increased use of
purchasing consortia (Johnson, 1999).

However, due to statutory regulations and public oversight, public procurement must be
transparent in a way unrivaled by private entities. As a result of open and public surveillance
(Vagstad, 1995), public agencies tend to be cautious and risk-adverse while responding to
procedures and policies that outline how to avoid risk or the perception of misappropriation
(McCue, 2000). Even among transparent public procurement, the interface of public and private
sectors creates incentives for corruption (Coppier & Piga, 2007). Efforts to curb corruption
through increased levels of transparency often confront high implementation costs. If
transparency is costly, organizations have a tendency to stop short of implementing the level of
transparency in procurement that would dissolve corruption. Consequently, Coppier and Piga
(2007) argued transparency alone is not enough to reduce corruption levels.

While transparency may foster risk-averse tendencies, a higher level of transparency does not
automatically evidence improved performance by purchasing agents (Humphreys & Weinstein,
2007). Since it is typically government administrators or elected officials rather than agency
end-users who must answer to public criticism over perceptions of bureaucratic waste or
budgetary mismanagement, end-users are usually not as appreciative of oversight nor are they as
aware of the need for the steps taken to minimize the potential for fraud and abuse. Moreover,
because service departments are often reactionary instead of proactive in solving societal
problems, a tension between line agencies and the procurement organization tends to develop
over time. Thus, centralized procurement departments are often seen as roadblocks to effective
service delivery by both elected officials and agency end-users.

In all, there are always going to be tradeoffs between decentralizing and empowering line
managers in order to provide more flexible procurement processes and the need to control how
line managers spend public resources. Although electronic procurement systems may help in
providing more flexibility to line managers in the purchase of goods and services, ultimately the
central purchasing authority will be held accountable if things go wrong.
Public Procurement Dilemma #2 – The Fraud/Red Tape Dilemma: Limit the Opportunity
for Fraud/Mismanagement While Reducing Operational Constraints

One might be tempted to adopt a risk-management perspective to this problem, yet it is unclear
how an observer would gauge the competing values of economic efficiency (often measured in
monetary terms) against the value of public transparency and accountability, because it is not
readily apparent how this latter value should be measured. 2 Nonetheless, we are confident that
the attempts to institutionalize internal control processes in purchasing often have the unintended
consequence of mitigating attempts by service delivery managers to effectuate added-value in the
organizational supply chain. Moreover, it is plausible that additional regulations result in goal
displacement where efforts of purchasers are redirected toward proxy measurements and
evaluations. Under these circumstances, the focus of purchasers would likely shift to reporting
and offering a detailed accounting of their activities that is more reactionary rather than
proactive, and more clerical than strategic. Indeed, in the long-run, this may actually inhibit
accountability in the procurement function by shifting the efforts of public purchasers to properly
filling out forms which are viewed by others. In turn, this may absolve the purchaser of
responsibilities for procurement mistakes, miscalculations, or poor decisions because the forms
were properly filled out while the standard operating procedures were followed.3

Thus, it is no easy task to delineate the proper procedures that will balance the efficiency-
oversight tradeoff – or what we term the fraud-red tape dilemma. To address the fraud-red tape
dilemma, consideration must be given to establishing training and education of not only
procurement personnel but elected officials, administrators, suppliers, and line services personnel
as well. Furthermore, this training will likely have elements of not only proprietary rules and
regulations, but also enhanced ethics education as well. This is likely to lead to increasing costs
in training and personnel hires for those purchasers who are becoming more specialized. All the
while, there is a need to establish monitoring and evaluation systems to insure accountability is
maintained and that the controls on the factors of production are not overly burdensome.

The issue of public trust, and those charged with the responsibility for the discharge of the public
weal, will limit purchasing’s ability to devolve authority while insuring against corruption. The
fraud – red tape dilemma is one that is often not discussed in the literature, yet is critical to how
governments are constrained when attempting to empower service delivery managers yet
simultaneously maintain accountability structures that accurately reflect public values. It is how
and by whom those values are interpreted and applied that purchasing is constantly struggling
with maintaining a balanced set of operational policies and procedures that satisfy both
objectives.

Public Purchasing Dilemma #3 – The Principle/Agent Dilemma: Identifying “Best Value”

in the Presence of Competing Goals and Common Agency

Because price, cost, quality, and value lead to discretion in procurement decisions, the means by
which accountability may be attained when that discretion is exercised becomes more difficult.
Consider that a principal-agent relationship in procurement involves a fiduciary relationship
which arises because of the asymmetric knowledge and superior training of the purchasing-agent
(Soudry, 2007). This means that the agent in charge of purchasing has the trust and confidence
to act in the capacity of a “caretaker” of another’s rights, assets and/or wellbeing. However, the
purchasing agent cannot be given the full freedom to set the sum of requirements for the award
of a public contract (Hettne, 2013). Instead, it implies that the agent-purchaser has a moral,
personal, and legal responsibility to ensure that the funds are expended responsibly, reasonably,
and in compliance with the intentions, rules, laws, and concerns of the provider of the funds.

Hence, it is easy to see how under conditions of scarce public resources (which appears to be a
constant situation), competition for public resources can lead to purchases by one agent that may
contradict or counteract the purchases of another (Rolfstam, 2009). Under these circumstances,
it is unclear how the ultimate principal (which is regarded as society) can maintain control over
the agent ostensibly acting on its behalf. Indeed, there are several principals who may be
operating under competing goals and jurisdictional rivalries (Strauss, 1964). Moreover, because
procurement authority creates fiduciary responsibilities to fulfill obligations and avoid certain
actions, decision-makers are theoretically held accountable for those decisions, and it is believed
that accountability is realized through the transparency of actions taken within a formal network
of internal and external controls.4 As a result there are competing incentives to achieve best
practices in light of the potential common agency constraint.

Public Procurement Dilemma #4 – Short-Term Benefit/Long-Term Cost Dilemma: Short-

Term Economic Efficiency vs. Long-Term Monitoring Costs
Internal controls are the protocols that ensure effective and efficient operations (Cox, 2008), and
they are typically maintained through reliable financial reporting; compliance with applicable
statutes; and adherence to administrative directives, rules, policies, and procedures (Schiele &
McCue, 2010). Moreover, the control environment is assumed to be very important. This
consists of the administrative assumptions, standards, values, and norms (see Schein, 1992 for an
introduction to organizational culture) that promote appropriate purchases that have a clear
public purpose.

In theory, the environment helps to guide members of an organization and their behaviors
(Palmer, 2005) while ensuring that funds are expended responsibly and in compliance with the
intentions, rules, laws, and concerns of the provider of the funds. By setting the organizational
culture of their departments, administrators help to control purchases through their own actions
and directives (Preuss, 2009).

There are numerous control activities which are often assumed to increase accountability. For
example, those staff given purchasing authority – whether they are procurement or line-agency
personnel – should be intimately familiar with the control environment and thus have adequate
training about the institution’s policies and procedures. Moreover, control can also be employed
through the use of pre-approvals and auditing. Prior to making some purchasing transactions,
reviews which typically require supporting documentation of the proposed purchases can be
conducted to determine that the purchases are appropriate. In general, higher dollar purchases
and those that carry more risks than usual are more likely to require pre-approval, yet similar to a
pre-audit, pre-approvals are often burdensome and slow down the purchasing process, especially
if several layers of pre-approval are required (Ellram, 1995).

Public Procurement Dilemma #5 – The Cost of Empowerment Dilemma: Responsiveness to

“End User” through Decentralization while Increasing Training and Evaluation Costs

If one considers that decentralizing the purchasing function is equivalent to a functional

reorganization, the presumed savings may not be realized. Indeed, the scholarly literature on the
savings to be enjoyed from major governmental reorganizations or terminations of agencies
should give reformers pause. Consider that Carpenter and Lewis (2004) found that at least at the
federal government level, although termination of agencies happens frequently, those
commitments the agencies executed are rarely discarded. Thus, termination of organizations
may actually increase costs in both the short and the long-run because of efficiency losses
associated with fragmentation of functionally-related activities into different agencies (Carpenter
& Lewis, (2004). There are also numerous other empirical and qualitative studies that point in
the same direction, especially contributing to higher costs in the short-run (Frantz, 1997; Meier,
1980; Salamon, 1981; Szanton, 1981; Behn, 1978).

Now one might make the argument that decentralizing the purchasing function is not comparable
to a major reorganization, but we would differ on the grounds that devolution may violate
classical organization theory which holds that agencies with no duplication and limited spans of
control can result in the provision of services with fewer persons and at less cost (Downs, 1967).
Indeed, the training that is required for decentralized purchasing is likely to be substantial and
require new job skills for line employees. For these and other reasons, we reserve judgment that
devolution will reduce costs. In fact, it is just as likely that the total administrative expenses
devoted to procurement will in fact increase while those expenses will be redistributed across
more agencies. In time, one can expect that lapses in procurement protocols will incrementally
lead to more rules and regulations designed to control these mistakes which will then lead to
increasing overall costs and calls for centralization in the chase for more accountability.
Ultimately, this can lead to loss of efficiency in the name of increased accountability – another
public procurement dilemma. This dilemma might also help explain some of the cycles and
swings from centralization to decentralization and back again that are often witnessed in public
procurement organizations. Rule-making explodes under devolution in order to control fraud or
waste which in turn, leads to calls for more efficiency via centralization of purchasing. However,
this centralization can lead to less procurement responsiveness and end-user effectiveness
because the discretion of end-user agency is curbed – all in the name of accountability.

WAYS TO PREVENT UNETHICAL BEHAVIOR IN THE WORKPLACE

Unethical behaviors can plague a workplace, whether an executive steals money from the
company or an associate falsifies documents. Unethical behaviors can damage a company's
credibility, causing the business to lose customers and ultimately shut down. However, business
owners and their management teams can work with employees to prevent unethical behaviors.
Create a Code of Conduct
A written code of conduct provides employees and managers with an overview of the type of
conduct and behaviors the company expects. It outlines what behaviors are unacceptable and
what measures are taken if an employee violates the code of conduct. For example, a company
with a social media policy in place prohibiting company discussion may need to discipline or fire
an employee who violates the policy by ranting about a new workplace initiative.
Lead By Example
Employees look to business owners and managers for direction on how they should conduct
themselves. As a business owner, make ethics-based decisions and monitor the individuals you
put into leadership roles at your company for the same values. If you see a manager violating
company practices, such as a policy against workplace relationships, intercede immediately to
retain credibility with other workers.
Reinforce Consequences
Business owners must hold their employees accountable when they act unethically. Start by
informing new employees of the rules during their orientation sessions. Make sure all new
workers know the consequences of policy violations. If an employee acts unethically, refer to the
code of conduct and take the necessary measures to warn or terminate.
Show Employees Appreciation
Loyal employees feel that a company values the hard work they put into accomplishing tasks on
a daily basis. A loyal employee is less likely to act unethically. Show appreciation to workers on
a regular basis to encourage loyalty. Consider offering an extra day off per quarter or year to top
performers or institute a bonus program in the sales division to reward hard work.
Welcome an Ethics Speaker
Schedule an ethics trainer to visit your work site to discuss ethical behavior and explain why it is
important in organizations, regardless of the size or industry. Ethics trainers use role-playing,
motivational speaking, videos and handouts to illustrate the importance of ethics in the
workplace.
Create Checks and Balances
Rather than putting related responsibilities in the hands of one employee, create a system of
checks and balances to minimize the opportunities for unethical behavior. For example, a sales
associate rings up customer purchases, while an accountant balances the books to ensure that all
payables are received and documented. Use an annual audit to verify established procedures are
being followed and develop new policies to address any unique situations that arise during the
year.
Hire for Values
When business owners hire employees, many seek to bring on individuals who have the
education and experience that prove they are skilled workers, capable of handling the tasks at
hand. Employers who want to prevent unethical behavior also look at candidates' values to
ensure they mesh with the company's culture. Make sure a new employee believes in working
diligently to earn a salary and are ready to comply with company policies.