Business Ethics

Dr. VK Arora
 Before we start (1)

Ethics

Understanding the Word with History of life in the universe

Human Being (what about animals???)

Government – Citizen (ancient India Raja - Praja)

Structure of Government

Discussion in the classroom

 Before we start (2)

Business Ethics

Importance of the word

Operations Marketing Human Resource

Logistics Business Law Finance

Business Environment Entrepreneurship Corporate Strategy

Detailed discussion later on

 Before we start (3)

Business Ethics (After Globalization)

Environmental System – Entrepreneur

Entrepreneur – Competitors - Cooperators

Employer – Employee

Boss – Subordinate

Employee – Peers

Focal – Suppliers

Focal – Customer (clients)

Detailed discussion later on

 Introduction

Moral and Ethics

 Ethics involves the study of moral issues and choices

– A set of principles prescribing a behavioral code that explains what is good and
right or bad and wrong; ethics may outline moral duty and obligations.

– Provide the basic rules or parameters for conducting any activity in an

“acceptable” manner.
 What is morality?

Taken from the Latin word ‘moralitas’

"manner, character, proper behavior“

A doctrine or system of ideas concerned with right (human) conduct

 Norms Values Beliefs

Morality

Norms – Standard (Pattern;; default expectation)

Values – Principles (Judgment;; what is important in life)

Beliefs – Trust (Opinion;; with trust)

 Morality

Changes with age and stage

But the composition is same 1) Norms 2) Values 3) Beliefs

 Norms Values Beliefs

Morality

Individual Community

Right Wrong Right Wrong

Ethics

A set of values that describe what is right or wrong, good or

bad.
Ethics Definition adapted from UNESCO/ IUBS/ Eubios Bioethics Dictionary:

A system of moral principles or standards governing conduct.

1. A system of principles by which human actions and proposals may be judged

good or bad, right or wrong;
2. A set of rules or a standard governing the conduct of a particular class of human
action or profession;
3. Any set of moral principles or values recognized by a particular religion, belief or
philosophy;
4. The principles of right conduct of an individual. Ethical behavior requires the
ability to reason, to understand the consequences and to make choices about
one’s actions. [Latin ethicus or Greek ethikos pertaining to "ethos" or character].
Norms Values Belief
Motive Moral Ethics

Attitude

Behavior

SUCCESS
 Understand the terminology related with ethics

1. Ethical System (system of ethics) being a broad range

of cases; should be generalizable. Although
generalizable, conflicts will always arise between
ethical principles.
2. Ethical problems are linked with ethical and unethical
issues.
3. Ethical Principles are the theories to solve ethical
problem.
4. Ethical Theories are the application part of the ethics
Individual Vs Group Ethics
 Ethics

Individual Group

Points to remember

Individual Ethics are generally personal ethics.

Individual Ethics may be right or wrong in one’s view.
Personal Ethics may vary in a group
Group ethics are the collection of individual ethics
Image of Group Ethics vary due to its individual components
Strong linkage between Individual and Group Ethics
 Group Ethics

Unstructured Structured

Points to remember

Unstructured may be formed at any time and situation

Unstructured are impulsive and volatile
Structured may be referred as Institutional (Institutional Ethics)
Both depends upon many factors including culture, civilization etc
International diversity play important role in both the ethics
Notes
Important Notes

1. Responsibility for ethical conduct in Business

(Global Context)

2. Reasons for Unethical Behavior

3. Two Key Branches of Ethics

 Responsibility for ethical conduct in Business
(Global Context)

Asia Top Management From Top to Bottom

Europe Collective Flows from Group

US Individual Parallel
 Europe US Asia
Who is responsible Social Control by The Individual Top
the collective Management
Who is the key actor Government, Trade The Corporation Government,
Union, Corporate Corporations
Association
What are the key Negotiated legal Corporate codes of Managerial
guidelines framework of ethics discretion
business
What are the Key Social issues in Misconduct and Corporate
issues organizing immorality in Governance and
framework of single decisions accountability
business situations
What is the dominant Formalized multiple Focus in Implicit multiple
stakeholders stakeholders shareholders value stakeholder
management approach approach
approach
Reasons for Unethical Behavior

• Greed
• Distinctions between activities at work and activities at
home
• A lack of a foundation in ethics
• Survival (bottom-line thinking)
• Reliance on other social institutions to convey and reinforce
ethics.
 Two Key Branches of Ethics

• Descriptive ethics involves describing, characterizing and

studying morality
– “What is”

• Normative ethics involves supplying and justifying moral

systems
– “What should be”
Institutional Ethics
 Institutional
Ethics

Government Business Professional

Discussion in the classroom

Government Business
Ethics Ethics

Professional Management
Ethics Ethics
Note:

1. Government - Declaration of Independence

2. Business - The ethics and moral code for a business

may be different than that of the government or an
individual.

3. Profession - A professional group purporting to

represent a profession makes an ethical code. This may
again differ from the ethics of an individual.
Government Ethics

• National Policy and Interest

• Political Development
• Political View
• Development Practices
• Individuals responsibility and personal interest
• Dedication towards the citizens
• Red - tapism and Kickbacks
Professional Ethics

• The professional is an expert in a field (e.g., medicine or

computing) that the general public may know little about.

• Customers from the general public rely on the knowledge,

expertise, and honesty of the professional. To the extent that a
professional “advertises” expertise, he or she has an obligation to
provide it.

• To the extent that their expertise is required by society,

professionals have a responsibility not only to their customers,
but to the general public.
 Factors influencing Professional Ethics

Honesty Integrity

Professional Ethics

Fairness Self-discipline

Respect Compassion
Business Ethics

Ethics involved (governing ) in the conduct of a business

• Moral code – what is ‘right’

and what is ‘wrong’?
• Highly subjective nature
• Public’s interest in business ethics increased during
the last four decades
• Public’s interest in business ethics spurred by the
media
 Factors influencing Business Ethics

Technology Management

Business Ethics

Cultural/ Political/
Religion Legal

Employee/ Product/
Customer Services
Management Ethics

Why Management Ethics are important

• Top to Bottom
• Engine of the Train
• From Vision Mission Objectives VALUES
• Important for Brand Strategy
Sources of Ethical Norms
 Sources of Ethical Norms

Regions of
Fellow Workers Fellow Workers
Country

Family Profession
The Individual
Conscience
Friends Employer

The Law Religious

Society at Large
Beliefs
Law and Ethics
 Friedman’s view – Law not Ethics

Very often it is held that business is not bound by any ethics other than
abiding by the law. Milton Friedman is the pioneer of the view. He held that
corporations have the obligation to make a profit within the framework of
the legal system, nothing more. Friedman made it explicit that the duty of
the business leaders is, "to make as much money as possible while
conforming to the basic rules of the society, both those embodied in the law
and those embodied in ethical custom“. Ethics for Friedman is nothing more
than abiding by 'customs' and 'laws'. The reduction of ethics to abidance to
laws and customs however have drawn serious criticisms.

Discussion in the classroom

 Counter to Friedman’s View - Ethics not Law

Counter to Friedman's logic it is observed that legal

procedures are technocratic, bureaucratic, rigid and
obligatory where as ethical act is conscientious,
voluntary choice beyond normativity. Law is
retroactive. Crime precedes law. Law against a crime,
to be passed, the crime must have happened. Laws are
blind to the crimes undefined in it. Further, as per law,
"
conduct is not criminal unless forbidden by law which g
ives advance warning that such conduct is criminal
.

Discussion in the Classroom

• Law often represents an ethical minimum
• Ethics often represents a standard that exceeds the
legal minimum

Frequent Overlap

Ethics Law
Law, Economy and Ethics
 Important Notes

1. Ethical Problems and Solution

2. Core Values and Business Values
3. Code of Conduct
4. Citation
5. Development of Individual Ethics
6. Ethical Challenges
7. Ethical Environment
8. Area of Responsibility

Corporate Responsibility
 Ethical Theories – Application part of Ethics

Rules and principles that determines right and/ or wrong for a given situation

Morality

Ethics
Ethical Problem

Ethical Theory
+

Solution
Core Values
• Respect for human dignity
• Respect for basic rights
• Good citizenship
• These core values must be translated into core values for business. What does it
mean for a company to be a good citizen?

Core Business Values

• Companies can respect human dignity by creating and sustaining a corporate culture
in which employees, customers, and suppliers are treated as people whose intrinsic
value must be acknowledged, and by producing safe products and services in a safe
workplace.
• Companies can respect basic rights by acting in ways that support and protect the
individual rights of employees, customers, and surrounding communities, and by
avoiding relationships that violate human beings’ rights to health, education, safety,
and an adequate standard of living.
• Companies can be good citizens by supporting essential social institutions, such as the
economic system and the education system, and by working with host governments
and other organizations to protect the environment.
 Codes of Conduct

• Must provide clear direction about ethical behavior when

temptation to behave unethically is strongest.
• But, also must leave room for a manager to use his or her
judgment in situations requiring cultural sensitivity.
• Intl. managers who are not prepared to grapple with moral
ambiguity and tension should pack their bags and come home
 What is citation?

A "citation" is the way you tell your readers that certain material in your
work came from another source. It also gives your readers the information
necessary to find that source again, including:

– Information about the author

– The title of the work
– The name and location of the company that published your copy of the source
– The date your copy was published
– The page numbers of the material you are borrowing

The following situations almost always require citation

– Whenever you use quotes

– Whenever you paraphrase
– Whenever you use an idea that someone else has already expressed
– Whenever you make specific reference to the work of another
– Whenever someone else's work has been critical in developing your own ideas.
Development of Individual Ethics
 Ethical Challenges

Telling the
truth and
Situation in which a adhering to
business decision deeply felt
may be influenced ethical
for personal gain. principles in
business
decisions.
Businesspeople
expect
Employee’s employees to be
disclosure of loyal
illegal, and truthful, but
immoral, or ethical conflicts
unethical may arise.
practices in the
Ethical Environment
Areas of Responsibility
Responsibility to General Public
• Public Health Issues. What to do about inherently dangerous products
such as alcohol, tobacco, vaccines, and steroids.
• Protecting the Environment. Using resources efficiently, minimizing
pollution.
• Recycling. Reprocessing used materials for reuse.
• Developing the Quality of the Workforce. Enhancing quality of the
overall workforce through education and diversity initiatives.
• Corporate Philanthropy. Cash contributions, donations of equipment
and products, and supporting the volunteer efforts of company
employees.
Responsibility to Customers
• The Right to Be Safe. Safe operation of products, avoiding product liability.
• The Right to Be Informed. Avoiding false or misleading advertising and
providing effective customer service.
• The Right to Choose. Ability of consumers to choose the products and
services they want.
• The Right to Be Heard. Ability of consumers to
express legitimate complaints to the appropriate parties.
Responsibility to Employees
• Workplace Safety. Monitored by
Occupational Safety and Health Administration.
• Quality-of-Life Issues. Balancing work and family through flexible
work schedules, subsidized child care, and regulation such as
the Family and Medical Leave Act of 1993.
• Ensuring Equal Opportunity on the Job. Providing equal
opportunities to all employees without discrimination; many
aspects regulated by law.
• Age Discrimination. Age Discrimination in Employment Act of
1968 protects workers age 40 or older.
• Sexual Harassment and Sexism. Avoiding unwelcome actions of a
sexual nature; equal pay for equal work without regard to gender.
Responsibility to Investors
• Obligation to make profits for
shareholders.
• Expectation of ethical and moral behavior.
• Investors protected by regulation by the
Securities and Exchange Commission
and state regulations.
 Corporate Social Responsibility

Responsibility of a Corporate towards Society

 Proceeding of CSR

Responsible Corporate
Why it is required?

Where to do?

How does it help?

What does it impact? Corporate

How it may be done?

When to take first step (& Iteration)?

 Nature of Corporate Social Responsibility

Encompasses the Economical, Legal, Ethical and

Philanthropic (love of the fellow human) expectations

placed on organization
by society at a given point of time.
 Philanthropic Responsibility
Desired

Ethical Responsibility
Expected

Economic & Legal Responsibility

Required

By Society
 Corporate Responsibility Report

Detailed written report of Social Responsibility by a Corporate

(generally issued every year)

It is a comprehensive report on how a corporate integrates

corporate responsibility and ethics into its operations.

Corporate responsibility is not just a “nice to have” - it is a

fundamental statement of intent, of the ethics and responsibility
that all of us must demonstrate to society as a whole.

Visit: www.nokiasiemensnetworks.com
Inventory of Ethical Issues in Business

– Employee-Employer Relations
– Employer-Employee Relations
– Company-Customer Relations
– Company-Shareholder Relations
– Company-Community/Public Interest
 Public’s Opinion of Business Ethics

• Gallup Poll finds that only 17 percent to 20 percent

of the public thought the business ethics of
executives to be very high or high
• To understand public sentiment towards business
ethics, ask three questions
– Has business ethics really deteriorated?
– Are the media reporting ethical problems more
frequently and vigorously?
– Are practices that once were socially acceptable
no longer socially acceptable?
 Business Ethics: What Does It Really Mean?

Business Ethics:Today vs. Earlier Period

Society’s
Expectations
Expected and Actual Levels

of Business
of Business Ethics

Ethics

Ethical
Problem

Actual
Ethical Problem Business
Ethics

1950s Time Early 2000s

Business Ethics: What Does It Really Mean?

Definitions
• Ethics involves a discipline that examines good
or bad practices within the context of a moral
duty
• Moral conduct is behavior that is right or
wrong
• Business ethics include practices and
behaviors that are good or bad
 3 Models of Management Ethics
1. Immoral Management—A style devoid of ethical
principles and active opposition to what is ethical.
2. Moral Management—Conforms to high standards
of ethical behavior.
3. Amoral Management
– Intentional - does not consider ethical factors
– Unintentional - casual or careless about ethical
considerations in business
3 Models of Management Ethics

Three Types Of Management Ethics

Three Approaches to Management Ethics
Three Models of Management Morality
and Emphasis on CSR
Moral Management Models and
Acceptable Stakeholder Thinking
Making Moral Management Actionable

Important Factors
• Senior management
• Ethics training
• Self-analysis
Developing Moral Judgment
Developing Moral Judgment
 Developing Moral Judgment

External Sources of a Manager’s

Values
• Religious values
• Philosophical values
• Cultural values
• Legal values
• Professional values
 Developing Moral Judgment
Internal Sources of a Manager’s Values

• Respect for the authority structure

• Loyalty
• Conformity
• Performance
• Results
Elements of Moral Judgment
– Moral imagination
– Moral identification and ordering
– Moral evaluation
– Tolerance of moral disagreement and
ambiguity
– Integration of managerial and moral
competence
– A sense of moral obligation
 Elements of Moral Judgment

Amoral Managers Moral Managers

Moral Imagination
Moral Identification
Moral Evaluation
Tolerance of Moral Disagreement
and Ambiguity
Integration of Managerial and
Moral Competence
A Senses of Moral Obligation
Corporate Governance and Ethics

Role of MCA 21
A Company has following Goals

1. Continuity i.e. succession planning; continue as working unit

2. Stimulating the enterprise so to identify the opportunity
3. Facilitating constructive challenges within the business
4. Identifying appropriate allocation of resources

Company attempts to achieve these objectives through the instrumentality of a

group of people known as BODs.
But the interest of Board may not always match those of the shareholders on
account of various reasons.
It is in this context the need of Corporate Governance arises.
Governance is a Dynamic Concept which cannot be placed in the straitjacket
Of any single definition. Corporate Governance is drawn from diverse fields like
Law, Economics, Ethics, Politics, Management, and Finance etc.

Scope of Corporate Governance

1. Structuring the Boards

2. Board Procedure
3. Enhancing the Shareholders’ participation
4. Discloser of financial information
5. Fulfilling shareholders’ right
6. Industrial democracy and transparency
Governance vis-à-vis Management

Accountability Supervision
Governance

Str.Mgmt

Executive Mgmt
Decision and Control
Management
Operation Management
 Fundamental Principles of CG

Transparency Accountability

Trusteeship Empowerment

Ethics Fairness to all Stakeholders

 Corporate Governance

– a relationship among stakeholders that is used to determine and

control the strategic direction and performance of organizations

– concerned with identifying ways to ensure that strategic

decisions are made effectively

– used in corporations to establish order between the firm’s

owners and its top-level managers
 CORPORATE GOVERNANCE - OBJECTIVE

TO BUILD UP AN ENVIRONMENT OF TRUST AND CONFIDENCE AMONGST

THOSE HAVING COMPETING AND CONFLICTING INTEREST

TO ENHANCE SHAREHOLDERS’ VALUE AND PROTECT THE INTEREST OF

OTHER STAKEHOLDERS BY ENHANCING THE CORPORATE PERFORMANCE
AND ACCOUNTABILITY

TO ATTAIN HIGHEST STANDARD OF PROCEDURES AND PRACTICES

FOLLOWED BY THE CORPORATE WORLD SO AS TO HAVE TRANSPARENCY IN
ITS FUNCTIONING WITH AN ULTIMATE AIM TO MAXIMISE THE VALUE OF
VARIOUS STAKEHOLDERS.
 Basic Model of CG

Shareholders Accountability

Independent Auditors

Labour Board of Directors Interest

Employees Creditors
Wages (Direction) Debt

Corporate Mgmt
(Executive action &
Import supervision) Price

Goods
Price

Suppliers Consumers
Slides prepared and presented by

Dr. VK Arora
B.E. (Electronics), MIBM, D. Phil.
Subject Domain: Strategic Management and Entrepreneurship

Contact Details:

Email: arora_vk@yahoo.com
Website: www.manasso.com
Phone: + 91 120 2403616, 3115759
Mobile: + 91 9811593059