MBA3.

1 Business Ethics and Corporate Governance

Unit I
1. Values and value systems:
Values are individual beliefs that motivate people to act one way or another. They serve as a guide for
human behaviour. Generally, people are predisposed to adopt the values that they are raised with. It is an order
and priority an individual or society grants to ethical and ideological values.

2. Value Systems:
The values that a group or person holds may fall into several different categories. The ones that
usually concern us in the area of value systems are the ethical and the ideological.

Ethical values may be thought of as those values which serve to distinguish between good and bad,
right and wrong, and moral and immoral. At a societal level, these values frequently form a basis for what is
permitted and what is prohibited.
Ideological values deal with politics, religion, economics, and social mores. In theory, ideological
values should derive logically as natural consequences of the particulars of fundamental ethical values and
their prioritizations. But although ideally a value system ought to be consistent, quite often this is not the case.
3. Characteristics of value systems:
(i) Personal

(ii) Societal

(iii) Internally consistent

(iv) Inconsistent

(v) Idealized value systems

(vi) Realized value systems

4. Sources of Value

i. Family

ii. Society (incl. friends and peers)

iii. Personal factors

iv. Culture

v. Religion

vi. Life experiences

vii. Organisation

viii. Constitution
5. Values across culture

(i) Power Distance - The degree to which people accept uneven distribution of power in the society and
institutions. People with high power distance tend to accept unequal power distribution. The people with low
power distance relatively prefer equal distribution of power. Low power distance cultures adopt Democratic way
of governance (for e.g. India) and high power distance cultures adopt autocratic style of governance (for e.g.
Gulf countries).

(ii) Individualism vs. Collectivism – Individualism refers the degree to which people value individual goals
over the group goals whereas in collectivism, individuals give preference to group goals over individual goals.

(iii) Masculinity vs. Femininity – Masculinity represents the degree to which the culture favours traditional
masculine domination over privilege and power whereas femininity value represents no demarcation between the
roles of males and females.
Cont…

(iv) Long term vs. short term orientation – Long term orientation is a national value which emphasises on
future, saving and perseverance (value of sustainable development) whereas short term orientation emphasises
on past and present.

(v) Indulgence vs. restraint – Indulgence is the degree to which people prefer to enjoy life, have fun and fulfil
natural desires (Materialistic way of life) whereas restraint is the degree to which gratification of individual’s
needs, desires and behaviour is governed by social norms or spiritual values (Spiritual way of life).

(vi) Achievement vs. nurturing - Achievement is the degree to which values such as assertiveness, the
acquisition of money and material goods, and competition prevail. Nurturing is the degree to which people value
relationships and show sensitivity and concern for the welfare of others.

(vii) Uncertainty avoidance - The degree to which people in a country prefer structured over unstructured
situations. In countries that score high on uncertainty avoidance, people have an increased level of anxiety,
which manifests itself in greater nervousness, stress, and aggressiveness.
6. Ethics
The word Ethics is derived from the Greek word ‘ethos’ which means character or conduct. Ethics is
also called as moral philosophy or philosophical thinking about morality. This morality has been further
elaborated as action and behaviour which is concerned with ‘good’ or ‘evil’, of particular traditions, groups or
individual.

Ethics is that science which is concerned with moral behaviour or with right or wrong and good or
evil of human behaviour.

Ethics refer to guide what human ought to do, usually in terms of right, obligations, fairness and
specific virtue.
Cont…

7. Nature of ethics

(i) Ethics is a normative science - It is mainly concerned with what ought to be done rather than what is the
case. It differs from positive science. A positive science is concerned with facts and explains them by their
causes, but ethics deals with values.

(ii) Ethics is not a practical science - It only guides us to achieve a specific goal.

(iii) Ethics is based on motive - The ultimate appeal of ethical conduct is to have inner harmony.
8. Business ethics
• Business ethics ensure that a certain required level of trust exists between consumers and various
forms of market participants with businesses.

Definition

• According to Crane, "Business ethics is the study of business situations, activities, and decisions
where issues of right and wrong are addressed.“

• Baumhart defines, "The ethics of business is the ethics of responsibility. The business man must
promise that he will not harm knowingly.“

• Garett defines “Business Ethics is primarily concerned with the relationship of business goals and
techniques to specific human needs”.
Cont…

• Business ethics goes beyond just a moral code of right and wrong; it attempts to reconcile what companies
must do legally versus maintaining a competitive advantage over other businesses.

• Ethical principles and standards in business:

 Define acceptable conduct in business
 Should underpin how management make decisions
Cont…

How do businesses ensure that its directors, managers and employees act ethically?

A common approach is to implement a code of practice. Ethical codes are increasingly popular – particularly
with larger businesses and cover areas such as:

 Corporate social responsibility

 Dealings with customers and supply chain
 Environmental policy and actions
 Rules for personal and corporate integrity

Ethics are the building block of our society and thus should be the building block of our corporations. Henry
Kravis states, “If you build that foundation, moral and the ethical foundation, as well as the business
foundation…then the building won't crumble.”
9. Principles of business ethics

 Avoid Exploitation of Consumers

 Avoid Profiteering
 Encourage Healthy Competition
 Ensure Accuracy
 Pay Taxes Regularly
 Get the Accounts Audited
 Fair Treatment to Employees
 Keep the Investors Informed
 Avoid Injustice and Discrimination
 No Bribe and Corruption
 Discourage Secret Agreement
 Service before Profit
 Practice Fair Business
 Avoid Monopoly
 Fulfill Customers’ Expectations
 Respect Consumers Rights
 Accept Social Responsibilities
 Satisfy Consumers’ Wants
 Optimum Utilization of Resources
10. Ethical practices in management
Ethical values, translated into active language establishing standards or rules describing the kind of behavior an
ethical person should and should not engage in, are ethical principles. The following list of principles
incorporate the characteristics and values that most people associate with ethical behavior.

1. Honesty: Ethical executives are honest and truthful in all their dealings and they do not deliberately mislead
or deceive others by misrepresentations, overstatements, partial truths, selective omissions, or any other means.

2. Integrity: Ethical executives demonstrate personal integrity and the courage of their convictions by doing
what they think is right even when there is great pressure to do otherwise; they are principled, honorable and
upright; they will fight for their beliefs. They will not sacrifice principle for expediency, be hypocritical, or
unscrupulous.

3. Promise-keeping & Trustworthiness: Ethical executives are worthy of trust. They are candid and
forthcoming in supplying relevant information and correcting misapprehensions of fact, and they make every
reasonable effort to fulfill the letter and spirit of their promises and commitments. They do not interpret
agreements in an unreasonably technical or legalistic manner in order to rationalize non-compliance or create
justifications for escaping their commitments.
Cont…

4. Loyalty: Ethical executives are worthy of trust, demonstrate fidelity and loyalty to persons and institutions by
friendship in adversity, support and devotion to duty; they do not use or disclose information learned in
confidence for personal advantage. They safeguard the ability to make independent professional judgments by
scrupulously avoiding undue influences and conflicts of interest. They are loyal to their companies and colleagues
and if they decide to accept other employment, they provide reasonable notice, respect the proprietary information
of their former employer, and refuse to engage in any activities that take undue advantage of their previous
positions.

5. Fairness: Ethical executives and fair and just in all dealings; they do not exercise power arbitrarily, and do not
use overreaching nor indecent means to gain or maintain any advantage nor take undue advantage of another’s
mistakes or difficulties. Fair persons manifest a commitment to justice, the equal treatment of individuals,
tolerance for and acceptance of diversity, the they are open-minded; they are willing to admit they are wrong and,
where appropriate, change their positions and beliefs.

6. Concern for others: Ethical executives are caring, compassionate, benevolent and kind; they like the Golden
Rule, help those in need, and seek to accomplish their business objectives in a manner that causes the least harm
and the greatest positive good.
Cont…

7. Respect for others: Ethical executives demonstrate respect for the human dignity, autonomy, privacy, rights,
and interests of all those who have a stake in their decisions; they are courteous and treat all people with equal
respect and dignity regardless of sex, race or national origin.

8. Law abiding. Ethical executives abide by laws, rules and regulations relating to their business activities.

9. Commitment to excellence: Ethical executives pursue excellence in performing their duties, are well
informed and prepared, and constantly endeavor to increase their proficiency in all areas of responsibility.

10. Leadership: Ethical executives are conscious of the responsibilities and opportunities of their position of
leadership and seek to be positive ethical role models by their own conduct and by helping to create an
environment in which principled reasoning and ethical decision making are highly prized.

11. Reputation and Morale: Ethical executives seek to protect and build the company’s good reputation and the
morale of its employees by engaging in no conduct that might undermine respect and by taking whatever actions
are necessary to correct or prevent inappropriate conduct of others.

12. Accountability: Ethical executives acknowledge and accept personal accountability for the ethical quality of
their decisions and omissions to themselves, their colleagues, their companies, and their communities.
11. Ethical value system

The following recommended core ethical values were developed based on research by Dr. Ron Bucknam,
for the development of an applied ethics in professional practice program to assist in evolving solutions to
ethical dilemmas encountered in professional practice.

1. Integrity, including
Exercising good judgment in professional practice; and
Adherence to ethical principles.
2. Honesty, including
Truthfulness;
Fairness; and
Sincerity.
3. Fidelity, including
Faithfulness to clients;
Allegiance to the public trust;
Loyalty to employer, firm or agency;
Loyalty to the profession; and
For the theist, faithfulness to God.
Cont…

4. Charity, including
Kindness;
Caring;
Good will;
Tolerance;
Compassion/mercy; and
Adherence to the Golden Rule.
5. Responsibility, including
Reliability/dependability;
Accountability; and
Trustworthiness.
6. Self-Discipline, including
Acting with reasonable restraint; and
Not indulging in excessive behavior.
12. Ethical corporate behaviour

• Ethical behavior is based on written and unwritten codes of principles and values held in society.
• According to the theory of cultural relativism, there is no singular truth on which to base ethical or moral
behavior, as our interpretations of truths are influenced by our own culture.
• According to consultant Lynn W. Swaner, moral behavior has four components:
 Moral sensitivity, which is “the ability to see an ethical dilemma, including how our actions will
affect others.”
 Moral judgment, which is “the ability to reason correctly about what ‘ought’ to be done in a specific
situation.”
 Moral motivation, which is “a personal commitment to moral action, accepting responsibility for the
outcome.”
 Moral character, which is a “courageous persistence in spite of fatigue or temptations to take the
easy way out.”

The ability to think through moral issues and dilemmas, then, requires an awareness of a set of moral and ethical
values; the capacity to think objectively and rationally about what may be an emotional issue; the willingness to
take a stand for what is right, even in the face of opposition; and the fortitude and resilience to maintain one’s
ethical and moral standards.
Unit II