BUSINESS ETHICS

&
CORPORATE GOVERNANCE
Business Ethics-An Overview

Ethics are principles of behavior that

distinguish between right and wrong.
Business ethics is the evaluation of
business activities and behavior as
right or wrong. Ethical conduct
conforms with what a group or
society, as a whole considers right
behavior.
Business Ethics-An Overview

Meaning-ethos-character or manners

Ethics is the source of morals; moral

principles; recognized rules of
conduct.
Business Ethics-An Overview

John Donaldson-”Business Ethics

is the systematic study of moral
(ethical) matters pertaining to
business, industry or related
activities, institutions, or practices
and beliefs. It can also refer to the
actual standards, values, practices
or beliefs.
Business Ethics-An Overview

Business Ethics is the systematic

handling of values in business and
industry.
These are rules of business conduct,
by which the propriety of business
activities may be judged. It also
relates to the behavior of managers.
Objectives of Ethics
Study of Human Behavior. Makes
evaluative assessment about that as moral
or immoral ( a diagnostic goal)
Establishes moral standards / norms of
behavior
Passes judgment upon human behavior
based on these standards and norms

Cont’d…..
Objectives of Ethics
Prescribes moral behavior; makes
recommendations about how to or
how not to behave (therapeutic goal)
Expresses an opinion or attitude
about human conduct in general.
Nature of Ethics
Deals with human beings only
Science of ethics is a normative
science. It judges the value of the
facts in terms of an idea :
Concerned with judgments of ‘what
ought to be, but not with factual
judgments.
Deals with moral judgment regarding
voluntary human conduct
Nature of Ethics
Business ethics is the application of ethics
in business.
Business ethics can still facilitate profit
making.
Profit maximization and discharging of
social responsibilities at the maximum limit
cannot be done simultaneously as they are
at opposite ends.
Managerial decisions have ethical
implications and these decisions give rise
to managerial dilemmas.
Determinants of Ethics
Values and Morals
Family, Schools and Religions
Peers, Colleagues and Seniors
Social Pressure
Experiences from Life
Organizational demand and ethical codes
Legislation
Situations of Threat
EVOLUTION OF THOUGHT

Lessons from the past:

Lord Krishna’s definition of a true
Manager: “One who does his job, not
for personal gain but for the sheer
fulfillment of the task and the
satisfaction which he derives.”
EVOLUTION OF THOUGHT
Manu and Inheritance:

Made a change in our understanding of

ethics- In the Aryan ethical code,
there were rights and obligations for
the sons who inherited their father’s
property. They also inherited his
debts and the debt went down to two
generations.
EVOLUTION OF THOUGHT

Aristotle on Virtue
Intellectual virtue : Time &
Experience
Moral virtue : Result of Habit
No moral virtues arise in us by
nature, for nothing that exists by
nature can form a habit contrary to
it’s nature e.g. stone, fire, etc.
EVOLUTION OF THOUGHT
Mauryan Accountability
For the first time, concept of
accountability of the manager was
laid down.
Arthshastra-complex but carefully
defined operational framework
Lays down as a duty of a manager
to maintain complete accounts
He should also be subject to an
audit
EVOLUTION OF THOUGHT
Akbar & Operational Framework

Indispensable for regular ethical functioning –

A clear and stable commercial set-up.
Excellent land revenue system; clear definition
of duties of those who collected it.
There can be no proper performance of duty
and no ethical and social responsibility unless
the framework in which one operates has been
well defined.
Often it is vagueness that leads to loss of
ethics.
EVOLUTION OF THOUGHT
The British Period
The British emulated Akbar in three
things:
Giving India unity and a wholeness
Land revenue system
Hindu-Muslim unity
Succeeded in the first two, but failed in
the third.
EVOLUTION OF THOUGHT
The British Period
The British East India company-
Ethics Wavered
But, historically, credit goes to the
British Govt. operating till 1947,
that they gave India a complex but
good system of rights, obligations,
duties, an operational framework,
such as we had in Akbar’s and
Mauryan times.
VIRTUE ETHICS
‘Virtus’ – Moral Excellence of a person
Virtue ethics is an approach that
emphasizes rules, consequences and
particular acts and places the focus on the
kind of person who is acting.
The issue is not primarily whether one is
following the correct rule; what is primary is
whether the person acting is expressing
moral virtues or not.
Socio Economic Values
and Responsibilities
Socio Economic character of
Business
Since corporations are constituted
legal bodies, they assume
corresponding social and legal
responsibilities.
Milton Friedman may insist that the
only social responsibility of Business
is to make profits
Socio Economic character of
Business
Private Business enterprises, at
inception, are economic entities
As they grow, emphasis shifts
towards a more social character
There is integration between
Business Policy, Business Ethics,
social responsibility and public policy.
Socio Economic character of
Business
Socially responsible tasks:
1. Pollution control
2. Maintaining Ecological Equilibrium
3. Community Development, etc.
Later become integral parts of
Organizational commitments.
Trusteeship Management

Gandhian Philosophy of Wealth

Management
This philosophy implies that a
Businessman should consider himself
to be a trustee of the wealth he
possesses
Only a custodian of his wealth meant
to be used for the Business.
Trusteeship Management
Gandhian Philosophy of Wealth
Management
Wealth belongs to society and should be
used for the greatest good of all
Trusteeship concept should also be
extended to labor in industry
It does not recognize capital and assets as
individual property
This was basically to reduce conflict
between ‘Haves’ and ‘Have-nots’.
.
Trusteeship Management

Gandhian Philosophy of Wealth

Management
Origin-concept of non-possession
detailed in the Bhagvad Gita.
Social Economics

One of the major social challenges

faced by business is to balance ethics
and economics.

Society wants business to be ethical

and economically profitable at the
same time.
Social Economics-Changing
Environment
Our economy is more competitive,
society is becoming more crowded
and technology is becoming more
complex.
Ethics give rise to efficient economy
Social Economics-Changing
Environment
The three terms used to define
ethics are:
1. Right
2. Proper
3. Just
The question that needs to be asked
is, “what is right, proper and just?”
Social Economics-Changing
Environment
These terms and questions are important
for any business executive who has to
take multi-decisions in ways that are
beyond his own control.
The ethics of management is coined with
the above three terms and the
determination of what is right, proper, and
just in the decisions and actions that
affect other people.- goes far beyond
simple questions of bribery, theft and
collusion.
Collusion is a secret agreement to
deceive.
Ethical Theories

Two Categories:
1. Teleological – Ends / Outcome
2. Deontological – Process / Means
Ethical Theories

Teleological – Ends / Outcome

Virtue of the end achieved rather
than the actions taken
Concept of goodness-fundamental
principle
Concept of rightness and duty is in
its context to goodness.
Ethical Theories

Teleological – Ends / Outcome

Utilitarianism
• Jeremy Bentham (1748-1832) and
John Stuart Mill (1806-1873)
• Directs us to make decisions based
on the greatest “good” (or utility) for
the greatest number as the end
result.
Ethical Theories

Utilitarianism
• Cost-benefit analysis is the most
basic form of utilitarian analysis
• Follow the decision that provides for
the greatest overall gain
• Strong, powerful theory because it is
liberal
Ethical Theories

Utilitarianism
• This approach is superficially easy
to apply:
• Majority rule
• Profit/loss statements
Ethical Theories

Utilitarianism
• Complexities:
• Measure of Happiness/Unhappiness
• When the majority rules, who
protects the minority?
• Who ensures that new opinions are
expressed so that intellectual growth
is possible?
Ethical Theories

Distributive Justice
• Teleological approach
• Contemporary Harvard philosopher,
John Rawls
• Based on concept of fairness
• Ethical decisions are those that lead
to an equitable distribution of goods
and services
Ethical Theories

Distributive Justice
• “Veil of Ignorance”
• Prevented us from knowing our
status in society (Intelligence,
wealth, appearance)
• Rawls argues that we will make the
most just and fair decision under this
framework
Ethical Theories

Deontological theories
1. Immanuel Kant (1724-1804)
• Based on rules and Principles that
govern decisions
• Vision of ethics measured by the
rightness of rules rather than by
consequences.
• E.g. Cheating
Ethical Theories
Deontological theories
1. Immanuel Kant (1724-1804)
Cont’d…
• Universal laws applicable to whole
of Mankind
• Regardless of situation, rules apply
• Golden rule-Act upon others only as
you would have others act upon
you.
Ethical Theories

Deontological theories
2. Chinese scholar Confucius (551 BC)
• What you do not wish done to
yourself, do not do to others
• Do not wish for quick results, nor
look for small advantages
• When you see someone of worth,
think of how you may emulate.
Ethical Theories
Deontological theories
2. Chinese scholar Confucius (551 BC)
• When you see someone unworthy,
examine your own character.
• Wealth and rank are what people desire,
but unless they are in the right way, they
may not be possessed
• Feel kindly toward everyone, but be close
only with the virtuous
Ethical Theories
Deontological theories
3.Religion
• No theory or approach to the evaluation
of actions is more rule-based than
religion
• E.g. Ten Commandments govern
behavior
• Faith, rather than reason, intuition or
secular knowledge, provides the
foundation of a moral life built on religion.
Ethical Theories

Deontological theories
4. W.D. Ross
• He typically holds that certain
actions are right not because of
some benefit to ourselves or others
but because of the nature of these
actions or the rules from which they
follow.
Ethical Theories
Deontological theories
4. W.D. Ross
• Duties of fidelity-keep promises, both
explicit and implicit: to tell the truth
• Duties of reparation-to compensate
• Duties of gratitude
• Duties of justice-ensuring that goods are
distributed according to people’s merits
or demerits
Ethical Theories
Deontological theories
4. W.D. Ross
• Duties of Beneficence-to do whatever we
can to improve the condition of others
• Duties of self-improvement-to improve
our own condition with respect to virtue
and intelligence
• Duties of non-malfeasance-to avoid injury
to others
Ethics and Indian Management
Karma Yoga of Swami Vivekananda
The Goal-Isolation from dependence
When purusha finds that he is free
and does not require anything to
complete himself, then freedom is
attained
Everyone must work, but what
matters is how to work and in what
way one should work
Ethics and Indian Management

Karma Yoga of Swami Vivekananda

If we work with proper understanding,
it becomes the means for freedom.
If we work without understanding,
then work leads to bondage and
misery.
Work in Freedom and in Slavery
Ethics and Indian Management

Karma Yoga of Swami Vivekananda

Bliss is found when we work without
expectations of any rewards, without
any motives, as masters of our own
mind, and not as slaves to our
motives.
Work your best in the situation you
are placed
Ethics and Indian Management

Karma Yoga of Swami Vivekananda

Right Attitudes to work
Law of cause and effect
Be a Master, not a Slave
Ethics and its Relation to
Values, Norms and Morals
Ethics and its Relation to Values,
Norms and Morals
Values, Attitudes, Morals and
Norms combined together form
Ethics.
Nature of Values

Milton Rokeach-
Values represent basic convictions that
a specific mode of conduct (or end
state of existence) is personally or
socially preferable to an opposite
mode of conduct (or end state of
existence)
Nature of Values

Values have both Content and

Intensity attributes.
Content specifies that a mode of
conduct is Important
Intensity specifies how important it is.
Values are the most stable and
enduring characteristics of
individuals.
Nature of Values

Values are the most stable and

enduring characteristics of
individuals.
They are the basis upon which
attitudes and personal preferences
are formed as well as the basis for
crucial decisions.
Values and Attitudes

Some researchers see values as

consisting of large sets of related
attitudes