Unit 1

Introduction to Ethics
Objectives

• Definition
• Ethics, Morals & Law
• Corporate Ethics
• Code of Conduct
• Approaches to Ethics
• Theories of Ethics
 Derivation & Meaning(s)
• The term “ethics” is derived from the Greek word “ETHOS”
which refers to character, ideals, beliefs or customs or
accepted behavior.
• ETHICS is a branch of philosophy that addresses questions
about concepts such as good and bad; noble and ignoble;
right and wrong.
• Supreme oneness is the rationale of ethics.
• It’s a set of standards or a code worked out from human
reason and experience, by which free human actions are
determined as ultimately right or wrong, good or evil. If an
action agrees with these standards, it is ethical else its
unethical.
 Nature of Ethics

 Standards of Behavior tells us how to behave

 Not same as Feelings
 Ethics is not religion but it is advocated by religion
 Ethics is not law but law contains ethics
 Vary from society to society
 Ethics is not science
 Ethics and Morality

• Ethics is the principle that guides human behavior.

• Morality as “moral judgments, standards and rules of
conduct”.
• Morals are related to traditional beliefs, customs and
conventions that guide man’s social behavior
• Ethics and morality also differ since ethics involves the
consideration of reasons underlying existing principles or
values while morality constitutes cognitive judgments of
the individual regarding right or wrong.
Ethics & Morality
 Ethics and Law
• Ethics is the science of conduct. It deals with certain standard
conducts and morals.
• Law is a code of conduct which the authority in power
prescribes for society
• Law are rules and principles developed through ethics and apply
in situations involving morality.
• Ethics and morality cover a wider scope when compared to law
because law only regulates particular aspects of ethics and
morality.
• Ethics and morality then translate into law with the intention of
creating a basis for encouraging people to opt for what is good
or right instead of merely relying upon every individual’s value
judgments or conscience.
 ETHICS LAW
The scope of ethics is broad The scope of Law is narrow

Ethics may be written or unwritten Laws are written rules about what is
rules or principles that define right or right and what is wrong in various walks
wrong conduct of life

People who reject Ethical principles If People don’t obey laws, they are
have to face social boycott subjected to punishments
Ethics does not use force Law uses force when necessary

It is not backed by power It is backed by power

Ethics concentrate on what should be Law concentrates on what should not
done – DO’s be done – DON’T’s

Ethics contains all the social Social customs and traditional beliefs
obligations, customs and traditions cannot get a place in law.
which are essentially implemented in
the society
 Business Ethics
 Business ethics can be defined as written and unwritten codes
of principles and values that govern decisions and actions
within a company. In the business world, the organization’s
culture sets standards for determining the difference between
good and bad decision making and behavior.
 It is the study of business situations, activities, and decisions
where issues of right and wrong are addressed. Right or Wrong
morally, commercially, strategically and financially.
 Business Ethics do not only include commercial business but
also:
• Government organizations
• Pressure groups
• Not for profit businesses
• Charities and other organizations
 Features of Business Ethics
1. It is a code of conduct which business men/women should follow
while conducting their normal activities.
2. It is a relative term and changes from business to business and
country to country.
3. They are based on well accepted social and moral values.
4. It protects customers, shareholders, employees and society at
large.
5. It provides framework within which business is to be conducted.
It suggests legal, social, moral, economic and cultural limits within
which business needs to be operated. It suggests what is right and
good for the community at large through business actions.
6. It is not against fair profit making, it is against profiteering by
cheating and exploiting consumers, employees or investors.
7. It supports expansion but by fair means and curbs illegal
activities and corrupt practices.
8. It aims at Benefit for all.
 Principles of Business Ethics
1) Publicity: People should be adequately informed about the nature,
purpose and consequences of business dealings.
2) Equivalent Price:- People receive the goods and services fully
equivalent to the money paid.
3) Conscience in Business:
a)Rules of Business should be judged by the morals
b)Decision governed by the concern for the society, rather than
selfish motives
4) Spirit of Service: Service FIRST and Profit NEXT.
5) Business should be Just and Human as well as Efficient and
Dynamic.
6) Growth of business must be accompanied by the growth of human
values
7) Business must make best and fullest use of its input.
8) Business should promote and support open and healthy
competition.
 Importance of Business ethics
 Ethics help us to have a ready understanding of how to react to a certain
situation before it happens.
 Ethics act as our mediator when dealing with people. If we have wrong
sense of ethics we will react to people in a negative manner.
Business Ethics are needed:
• To make businessmen conscious of their roles and responsibilities
towards the larger society.
• To protect the interest of all concerned like employees, investors,
shareholders, customers, suppliers etc.
• To curb unfair practices and stop wealth accumulation at certain hands
only.
• To create a good and long lasting reputation for a company. Public expects
business to exhibit high levels of ethical performance and social
responsibility. It re-instates their trust in the company.
• Promoting ethical behavior is to protect business from abuse by unethical
employees or unethical competitors.
 Benefits of following business ethics
1. Social Pressure
2. Legal Need
3. Consistent with profit motive
4. Image
5. Payback Principle
6. Easier change management
7. Strong team work and productivity
8. Enhanced Employee growth
9. Helps to detect violations easily
10.Helps to manage values associated with quality
management, strategic planning etc
 Influencing factors

 Legal Interpretations: In secular societies, legal

interpretations are based upon contemporary values and
standards according to time, country or situation.
 Organizational Factors: The organization too can affect or
influence participant’s behavior based on the degree of
commitment of the organization's leader.
 Individual Factors: Individuals come to work with different
values based on the personal values and morals, family
influences, peer influence and life experiences.
Ethical Influence Impact on Business
Areas of Business Ethical Practice
Plant location Environment Impact
Product Pollution
No hoarding of finished
Purchase & Storage goods
Transportation Safety Regulations
Advertising Realistic Claims
Finance Appreciation of Capital
Personnel Equitable treatment
 Inculcating ethical behavior in an
organization
• Mission or value statements
• Code of Ethics
• Ethics managers, officers & committees
• Ethics education and training
• Peers reporting of unethical behavior
• Leadership
• Codes of conduct
– Compliance-based
– Integrity-based
• Social audits
• Whistle blowing
Flashback…
Ethical dilemmas in business

 Conflicts arise due to choice between:

 Bad and Right
 Good and Right
 Most often business interests conflict with moral values
 Personal values and interests clash with organizational
image / policy or goals.
 Eg. Bribe Or a means of sales promotion
 Guidelines to handle ethical dilemma

 Define the situation and problem clearly

 Stand on the other side of the fence
 How did the situation arise?
 Intention of taking that decision?
 What are the probable results of the decision?
 Who will be affected by your decision? And how?
 Can you discuss with involved parties before taking the
decision?
 Symbolic potential of your action, if understood or
misunderstood?
 Exceptions to your decision?
 Some Ethical Issues
Conflicts of interest
Quality control issues
Discrimination in hiring and promotion
Child labor
Misuse of proprietary information
Abuse of company expense accounts
Misuse of company assets
Drug and alcohol abuse
Environmental pollution, environmental destruction
Corruption and bribery
Dishonesty & deception (Lack of transparency, unfair, fraudulent
trade practices)
Exploitation of resources
Fraudulent tax payments
Reasons for the existing unethical business practices in
India

1. Business community prefer to earn money by exploiting

consumers rather than by raising efficiency, reducing cost and
avoiding wastages.
2. Indian consumers accept unethical practices and suffer but do
not react aggressively and collectively. This attitude
of accepting injustice silently is one cause responsible
for unethical business practices continuing in India.
3. Absence of well organized consumer movement at the national
level is another cause responsible. Consumers are not united.
They do not have adequate consumer education and guidance.
As a result, they accept unethical practices.
4. Many consumer protection laws are not executed
properly. As a result unethical business practices are used
even when laws are against such practices.
5. Lack of proper education and training of businessmen.
6. Limited interest of political parties in consumer protection.
7. Inadequate support of the government
to consumer movement for its rapid growth.
But growing market competition, economic reforms, globalization,
growing consumer awareness are the major reasons due to
which the intensity of unethical business practices is reducing in
India in recent years.
 3 C’s of Business Ethics
 Compliance
a) Laws
b) Principles of morality
c) Policy of the Company
 Contribution
a) Core values
b) Quality of products/services
c) Employment
d) Usefulness of activities to surroundings
e) QWL
 Consequences of Business Activity
a) Towards environment
b) Social responsibility towards stakeholders
c) Good Public Image 25
Myths of Business Ethics

1. Ethics is a personal and individual affair.

2. Business and ethics do not go hand-in-hand.
3. Ethical values differ in developed and developing
countries.
4. Good business means good ethics.
 Warren Buffet’s rule of thumb for ethical
conduct

• “…I want employees to ask themselves (when they are in doubt

about whether a particular conduct is ethical or not) whether
they are willing to have any contemplated act appear the next
day on the front page of their local paper – to be read by their
spouses, children and friends – with the reporting done by an
informed and critical reporter.” [Berkshire Hathaway’s code of
ethics]
 Concept of Rights & Duties
• Concept of Right – individual’s entitlement to something.
Justifiable claim based on legal or moral grounds.
– Legal right
– Human right
– Employee right
– Moral rights
• Concept of Duty – refers to responsibilities and obligations
that a person owes to others. Rights and duties are
correlative.
– Duties towards various sections of society
– Duties towards organization
– Duties towards country
– Duties towards self
 Corporate Code of Conduct
• The concept "corporate code of conduct" refers to companies'
policy statements that define ethical standards for their
conduct. There is a great variance in the ways these
statements are drafted.
• Corporate codes of conduct are completely voluntary. They
can take a number of formats and address any issue.
• Their implementation depends totally on the company
concerned.
• Potential authors of a code are the founders, board of
directors, CEO, top management, legal departments,
consultants etc. The process can involve employee
representatives if required.
• While the content of codes will vary from organization to
organization, many will address common topics, including:
– Conflicts of interests
– Confidential information
– Employment discrimination
– Use of the organization's property
– Financial reporting and accounting
– Health and safety issues
– Political contributions and campaigning in the office
– Legal compliance issues relevant to the organization
• REASONS FOR CODE FOR CONDUCT:
– Defined Framework
– High standards of practice
– Transparency
– Benchmark
• TYPES OF CODES:
– Code of Ethics – statements of value and principles that
define the purpose of company
– Code of Practice – statements that guide decision making
– Code of Conduct – statements that prescribe behavior under
particular situations
• STEPS INVOLVED IN IMPLEMENTATION:
– Clear drafting & Preparation
– Proper and effective Communication
– Enforcement and Disciplinary actions
– Periodic review
Factors for Code of Conduct:
1) Involvement of senior Management
2) Involvement of Employee
3) Picking the well tested model

Measures to Improve Ethical Conduct:

4) At Institutional Level
5) At Government Level
6) At Society Level

Measures for effective implementation

7) Ethical audit & training
8) Code of conducts
9) Committees & hotlines
10) Rewards and disciplinary actions.
 Ethics from Western Perspective
 Ethics are broadly described in literature as moral principles
about right and wrong, honorable behavior reflecting values, or
standards of conduct.
 Honesty, openness, responsiveness, accountability, due diligence,
and fairness are core ethical principles.
 Ethics are a branch of philosophy with no clear-cut definition of
what behaviors are ethical and which are unethical when judging
one’s behavior.
 There is no general or global consensus for defining ethical
behavior for individuals, as it may change from time to time and
from one place to another place.
 There is no universal measure or standard as to what constitutes
ethical behavior.
Western Perspective believes in 'Give and Take".
• It believes in the rights of the individual along with duties.
• However, Indian Philosophy believes in 'Nishkam Karma' and
'Karmanya Vadhika Raste Maa Phaleshu Kadachin' - Do your duties
without expectations.
• According to one shloka from the 'Rig-Veda', "An organization should
benefit from business like a honeybee which sucks honey from the
flower without affecting its charm and beauty.“
Indian Ethics believe more in giving.
• In today's modern world, with growing materialism, man's needs have
become greed and he is not bothered about the means. As a result,
corruption is increasing and unethical practices are increasing with
sole objective of earning money. Therefore business ethics is needed
in every walk of life, so as to have peace and happiness.
 Approaches of Business Ethics
• EMPIRICAL APPROACH
It stats that ethics is derived through experiences of
businessmen who determine what is right and wrong.
• INTUITIVE APPROACH
It states that businessmen automatically process an
understanding of right and wrong. It doesn’t happen through
experience.
• RATIONAL APPROACH
It states that businessmen need not require any past
experience to determine what is right or wrong.
• REVELATION APPROACH
It states that religious moral principles help life to rise to its
greatest potential.
Flashback…
Responsibility towards Stakeholders
Classification of Stakeholders:
STAKE-HOLDERS

Internal External
Employees Consumers
Management Suppliers / Creditors
Shareholders Competitors
Community / Society
Government
 Expectations of stakeholders
Expectations
Stakeholders
Primary Secondary
Owners Financial returns Added value

Employees Economic security Work satisfaction

and growth

Customers Supply of goods and Quality

services
Creditors Credit worthiness Security
Long term
Suppliers Timely payment relationships
Community / Society Safety ad security CSR
Improved
Government Compliance competitiveness
Employees:
• Better working Conditions
• Equal Employment Opportunity
• Economic Security and progress
• Child / Parental Care
• Employee Dignity
• Conflict of Interest
• Job Satisfaction

Shareholders:
• Better returns
• Sustainable future
• Long term profits
• Growth and progress
• Transparency in future plans
Customers / Environment / Society:
• Right to information
• Right to safety
• Right to choice
• Free and fair competition and availability
• No monopolistic or restrictive practices
• No unfair or harmful trade practices
• Maintain ecological balance
• Promote eco-friendly practices
• Corporate social responsibility

Investors / Suppliers / Creditors / Government:

• Honesty
• Timely Action
• Appropriate Compensation
• Payment of taxes and duties
 Responsibility of Stakeholders
Responsibility of shareholders:
 Regularity in payment of dues on shares
 Active participation in company affairs
 Co-ordination and support to the management
 Proper use of voting rights
 Use of implementation of different policies and procedures. Eg
whistle blower’s policy
Responsibility of employees:
 Maintaining and sustaining cordial relationships with superiors
 Fulfilling responsibilities assigned by authorities
 Devotional and dedication towards work
 Honesty, accountability and righteousness
 Goal oriented approach
 Responsibility of customers:
 Appreciation and support to the quality standards
 Development of Brand Loyalty Approach
 Proper use of consumer rights
 Effective feedback through consumer channels

 Responsibility of Government:
 Basic infrastructure facilities
 Support through R&D facilities
 Arrangements of loans and advances
 Prevention and control of monopoly and unfair trade practices
 Promoting “Ethical” or “Social” Audits
 Establish advisory regulatory bodies like SEBI, NABARD
 Regulate and review taxes and duties to encourage
international trade
 Responsibility of suppliers:
 Maintaining the quality of raw materials, machinery and
spare parts
 Periodic supply
 Effective payment modes and flexible credit limits
 Cordial relationship with business mangers
 Proper pricing policies
 Ethical practices
Profit making – an objective with an
ethical dimension
• Survival - Only profit is not acceptable
• A firm not performing well is considered as
liability overshadowing its practices
• A business cannot survive without profits but at
the same time society’s interest is also important
as business is the sub-set of the society.
 THE NESTLE CASE
 Guiyu Dumping Case
• Whistle blowing: blowing the whistle or
bringing to light unknown matters like crimes,
lapses and other such illegal or unethical
practices happening internally and externally
of the organization.
• Professionalism: the way we work,
commitment, adhering to company ethics,
rules and moral. All companies have a strict
code of conduct and this governs the
professional behavior for employees.
 Ethics Management Program (EMP)

• Designed by an organisation to have a formalized

structure for ethical compliance and environment
• Guiding principles:
– Commitment to organisation
– Assess the effectiveness of the Ethics
– Codify ethical and operational values
– Set up formal ethics structure
– Integrate formal system
• Ethics Committees
 Approaches to Business Ethics

• Utilitarian Approach by Jeremy Bentham and John Stuart

Mill
• Rights Approach by Emanuel Kant. (Deontology
approach)
• Fairness Approach by John Rawls
• Common Good Approach
• Virtue Approach
 Theories of Ethics

• Friedman’s Economic Theory

• Mill & Bentham’s Utilitarianism Theory
• Kant’s Deontology Theory
• Gandhian approach in Management and Trusteeship
 Friedman’s Economic Theory
• Believes that firm’s only responsibility is towards Shareholders
• This approach views shareholders as the economic engine
of the organization and the only group to which the firm is
socially responsible
• Friedman argues that an executive spending company
money on "social causes" is, in effect, spending somebody
else's money for their own purposes
• It states that CSR should focus on those projects which
are profitable to the orgnisation
• It refers to excluding Charitable Activities from business
• Avoiding deception and fraud
 Mill & Bentham’s Theory
• Utilitarianism is a version of consequentialism, which states
that the consequences of any action are the only standard
of right and wrong.
• Its goal is to justify the utilitarian principle as the foundation
of morals.
• This principle says actions are right in proportion as they
tend to promote overall human happiness.
• So, this theory on consequences of actions and not on rights
nor ethical sentiments.
• Bentham's theory was act utilitarianism, but Mill's was rule
utilitarianism.
 Kant’s Deontology theory
• The morality of an action should be based on whether
that action itself is right or wrong under a series of rules,
rather than based on the consequences of the action.
• Its normative ethical theory
• Here action is more important than the consequences
• Kant's argument that to act in the morally right way one
must act purely from duty begins with an argument that
the highest good must be both good in itself and good
without qualification.
• Do to others as you want others to do to you
 Gandhian theory of Trusteeship
• Trusteeship is a socio-economic philosophy 
• It provides a means by which the wealthy people would
be the trustees of trusts that looked after the welfare of
the people in general.
• This concept was condemned by socialists as being in
favor of the landlords, feudal princes and the capitalists,
opposed to socialist theories
• These trustees include: NGOs, Hospitals, Educational
institutions, Museums etc
• Dharma is the basis of this theory
 Gandhian theory
Principles: Limitations:
1. Businessmen will become
1. Reduce inequalities
more powerful
2. Change attitude of
2. Diluting the purpose and aim
businessmen
of business
3. Social pressure
3. Society will get lazy if business
4. Legal pressure
will work for its welfare
5. Consider social needs 4. Government will have no role
6. Equal distribution of or power in society
wealth development
7. No right to private 5. Uneven or unbalanced
ownership regional development