Business Ethics and Corporate

Social Responsibility
• Social responsibility is an obligation of
business to account for the interests of several
groups that constitute society beyond the
consideration of profit.
 Need for Social Responsibility
• Today businessmen are aware that society is the
biggest force which controls the entire business
operations, right from acquisition of land to final
produce. It is now assumed that a business
cannot operate in societal isolation.
• The success of a business depends on the growth
of the society because the goods and services of
the business are ultimately consumed by the
society. Hence steps should be initiated to lead to
its economic upliftment.
Dimensions of Social Responsibility
• Economic Responsibility: Business has an
economic obligation to produce goods and
services that society wants and sell them at
profit. Unless business is economically viable
it cannot take up its other responsibilities well
and to achieve this well it must be effective,
efficient and make wise strategic decisions.
• Legal responsibility: Businesses need to follow
certain rules and regulations laid down, within
which business is expected to operate, so as to
ensure that it assumes a productive role in the
society
• Ethical responsibility: The ethical responsibility of
a business includes taking up activities like drive
against environment pollution, discrimination
against workers, producing dangerous products
and ensuring that there is no misleading
advertising done by the company
• Voluntary responsibility: The society expects
the businessmen to contribute to the society
through their business giving or philanthropy.
Such acts like giving money or other resources
for a charitable cause, initiating adopt a school
program, starting an executive loan program
in the community, conducting an inhouse
program for drug abuse, sponsoring civic
events etc.
 Types of ethical behaviour
• Descriptive Ethics: it is the presentation of
actual ethical behaviour of individuals or
member of an organisation. It is used when
one just wants to know and understand the
course of ethical behaviour. Here no
interpretation is made concerning why the
given course of ethical behaviour took place.
• Analytical Ethics: it can be described as
understanding the reason behind a course of
ethical behaviour that took place. It
understands the motive behind the ethical
behaviour of an organisation as to how it
happened. Thus analytical ethics helps to
determine the legality of a specific ethical
behaviour.
• Normative Ethics: it is described as prescribed
course of action that ensures that the ethical
behavior will take place accordingly. This deals
with what and how one should conduct in
future. It enables an organization to address
probable ethical issues well before they take
place and by following the acceptable and
avoiding the unacceptable behavior.
 Theories of Ethics
• Teleological Theory: Also termed as
Consequentialist Theory, It is the study of
ends, goals and purpose, it judges the
rightness of an action based on its
consequences in terms of ends, goals and
purposes. In other words a moral theory is
regarded as teleological if the actions finally
bring about good or happy consequences. The
final result of an action is regarded as the sole
criteria to consider an action as right.
• Three forms:
1) Ethical egoism: An action is morally right if
the consequences of that action are more
favorable than unfavorable only to the agent
performing the action.
2) Ethical altruism: An action is morally right if
the consequences of the action are more
favorable than unfavorable to everyone except
the agent.
3) Utilitarianism: An action is morally right if the
consequences of that action are more
favorable than unfavorable to everyone.
Three main theories under teleological theory:
1. Theory of utilitarianism: it is based on the
principle of utility where o e’s actions add to
the overall utility of the community impacted
by those actions. It is founded on the ability
to predict the consequence of an action. To a
utilitarian, an action is ethically right that
produces the greatest benefit to the greatest
number of people.
Thus this principle claims that we choose the
action most likely to bring about the greatest
happiness to the greatest number of people.
Eg: under one situation action A may be the
most appropriate to give greatest happiness to
the greatest number, while under another
situation, action B may be appropriate to give
happiness to greatest number.
2. Theory of justice and fairness: This theory
was given by John Rawls. It means giving
what is due to one. Distributive Justice: It is
concerned with giving fair and just social
benefits to everyone in the society.
Redistributive Justice: It upholds the view
that a defaulter should be awarded some
form of punishment.
3. Theory of Virtue Of Ethics: This theory talks
on what kind of traits we should have to
perform the right action. Some of these
virtues are honesty, loyalty, duty, patience,
perseverance. These traits are derived from
natural internal tendencies but need to be
nurtured once established to become a
stable habit.
 Deontological Theory
• According to this theory rightness of an action does not
depend on its consequences but on the act itself. For a
deontologist the ends or consequences of our actions
are not important, but our actions and duties are
important to judge them as ethically right. It is also
called as Non- Consequentialist Theory. Eg: Some
actions like bribery are wrong by nature itself,
regardless of their consequences.
• Eg: Case of N.R. Narayana Murti where he refused to
pay bribe to an Income Tax officer and instead chose to
pay a bigger amount of money due as tax.
• Duty Theory: It says that certain duties are
universally binding and which are the result of
contracts between the people, these basic duties
are: Avoid wrongdoing towards others, treat
people as equals and promote the good of
others.
• Rights Theory: A right is an entitlement of a
person to have others act in a certain way toward
him. Rights are tightly correlated with duties in
the sense that rights of one person implies the
duties of another person.
• Rights are classified as following:
• Claims: it entitles a person to demand something from
another person. Eg: an employee has a claim in terms
of salary from his or her employer.
• Privilege: It refers to o e’s freedom to do something.
For eg: an adult citizen above the age of 18 years
enjoys the freedom of casting his vote in the elections.
• Power: It refers to the power entrusted to someone
due to his position. Eg: a manager is entrusted to
exercise his power to control the behavior of his
subordinates.
 Area’s of so ial i volve e t
Ecology and environmental quality:
1. Cleaning up of existing pollution
2. Design process to prevent pollution
3. Noise control
4. Required recycling
Consumerism:
1. Truth in tending and advertising business
activities
2. Product warranty and service
3. Removal of harmful products
Community needs:
1. Use of business expertise in resolving
community problems. Eg: ITC
2. Healthcare facilities
3. Urban renewal
Governmental regulations:
1. Restriction on lobbying
2. Control of business on political actions
Minorities and disadvantaged persons:
1. Programmes for alcoholics and drug addicts
 Whistle Blowing
• Whistle – blowing is the release of information
by a member or former member of an
organization that is evidence of illegal or
immoral conduct in the organization that is
not in the public interest.
• Whistle blowing occurs when an employee
informs the public of inappropriate activities
going on inside the organization.
• The information is the evidence of wrongdoing on the
part of organization: Matters that cause harm to the
public interest come under the purview of whistle
blowing. Thus the matters that merely influence the
course of action but are not contrary to the public
interest are not treated as whistle- blowing.
• Whistle must be blown with moral motive to correct
some wrongdoing: The motive behind whistle- blowing
should only to correct some wrongdoing in the
organization, not with the motive to take revenge. Such
an act would not be termed as whistle- blowing.
• Whistle against the wrongdoing of an
organization must be blown by its member or
former member: The information about the
wrongdoing should be passed on by an
internal member or a former member of the
organization and not by the outsiders like
journalists, social- activists, political leaders
etc. It is thus an action which is takes place
within the organization.
• It must be clear to whom the whistle
regarding wrongdoing is to be blown: Only
then a desired change or an action can be
brought about. Merely revealing the
information about the wrongdoing to the
outside party does not necessarily constitute
whistle blowing but simply an instance of
snitching.
• The information about the wrongdoing in the
organization must be released outside through
normal channels of communication prescribed
by the organization: In most of the organizations
an established procedure is to be followed by the
employees to report the instances of
wrongdoings to their immediate superiors or to
the designated officials Like ombudsman in the
Life Insurance Corporation of India.
• Information about wrongdoing must be released
voluntarily.
 Causes of Whistle- Blowing
• Misuse of official funds for private purposes
• Official powers used for private gain
• Discrimination by age, race, or gender
• Corruption
• Dumping of industrial pollutants causing harm to
public
• Deceptive advertising
• Adulteration
• Harassment
• Monopolist pricing
• Use of official funds for political campaign
• Non- enforcement of laws.
 Types of Whistle-blowing
• Internal: when the Whistle- blower reports the
wrongdoing to the official, at a higher position in
the organization, it is called internal whistle-
blowing. The usual subject of whistle- blowing
are disloyalty, improper conduct, indiscipline and
disobedience etc.
• External: Where the wrongdoings are reported to
the people outside the organization like media,
public interest groups or enforcement agencies.
• Alumni: When the whistle- blowing is done by
the former employee of the organization, it is
called alumni whistle- blowing.
• Open: when the identity of the whistle-
blower is revealed it is open whistle- blowing.
• Anonymous: when the identity of the whistle
blower is not revealed it is called anonymous
whistle blowing.
• Personal: When the organizational wrongdoings are to
harm one personally, disclosing such acts is called
personal whistle blowing. It is desirable only when
there is danger to o e’s freedom dignity or esteem.
• Impersonal: when the wrong doings is to harm others
it is called impersonal whistle blowing.
• Government: where the disclosure is made about
wrongdoings or unethical practices adopted by the
officials of the government.
• Corporate: When a disclosure is made about the
wrongdoings in a business corporation it is called
whistle-blowing.
 Code of Ethics
• It is the set of rules or guides intended to
establish moral standards and decent
behaviour in an organization. It is also the
rules of behaviour that guide the decisions,
procedures and systems of an organization in
a way that contributes to the welfare of its key
stakeholders, and respects the rights of all
constituents affected by its operations.
 Benefits of code of ethics
• It creates unanimous agreement of behaving
and operating among the organization.
• It improves team performance
• It helps in improving cohesiveness
• It helps in preventing misconduct
• Guide how to make right decisions in the
organization
• Increases managers confidence
• Improvement in relationship between
customers and organization.
• Product differentiation in the marketplace
• Signal to the stakeholders about the firms
quality
• Take suppliers into confidence and foster a
long- term relationship with them.
 How to develop code of ethics
• Decide on goals and meanings of success
• Identify values needed to address current issues in
your workplace: Collect descriptions of behaviors that
produce the issues. Consider which of these issues is
ethical in nature, e.g.., issues in regard to respect,
fairness and honesty. Identify the behaviors needed to
resolve these issues. Identify which values would
generate those preferred behaviors. There may be
values included here that some people would not
deem as moral or ethical values, e.g., team-building
and promptness, but for managers, these practical
values may add more relevance and utility to a code of
ethics.
• Create code development task force
• Data intake and analysis, interviews and focus
groups
• Keep leadership informed
• Draft your code of ethics
• Submit code to leadership for a review
• Field test the code and make any final revisions
• Have code reviewed by your legal counsel
• Obtain board approval of final draft
• Decide on a communication strategy
• Revise and update regularly
 Corporate Philanthropy
• It implies giving for the wellbeing of human
beings. It is the pursuit of excellence in every
facet of human life, by giving and
implementing new means and systems. It can
also be defined as private giving of time or
valuables for public purposes. In total it can be
summed up as private initiatives for public
good focusing on quality of life.
Bases Corporate Philanthropy Corporate Social
Responsibility

Involvement It is an executive decision CSR involves every

dealt by the senior department and every
managers deciding when employee to play their
how much and whom to role. It is a company – wide
award grants. effort like manufacturing,
processing or marketing
Effect It impacts only a small It affects a wider group of
group of people rather society. Eg: ITC echoupal.
than a society at large.
General public or
companies own customer
may not be directly
affected.
Bases Corporate Philanthropy CSR
Purpose It may be used to enhance It creates image in the long
o pa y’s i age i the run. It is aligned to
short run. community requirements
and organizational
profitability. Eg: an
organization may donate a
portion of every item to a
specific charity while
simultaneously
encouraging people to buy
its product.
Scope It is a narrower concept. It It is broader in scope, it
refers to donations made includes what relates to a
to the charitable business organization such
organizations. as employees, customers,
government, environment
 Ethics in Marketing
• Marketing being a comprehensive term
consists of performance of all those activities
that direct the flow of goods and services
from producer to consumer or user. Marketing
history is replete evidences of marketing
activities drawing extensive criticism due to
their ethical considerations.
 Rights to the Marketers
• Right to decide the design and style of the
product to be marketed.
• Right to determine the price of the product
offered.
• Right to decide on the distribution mode of
the product
• Right to decide the way of promoting of the
product
 Rights to the consumer
• Protection against marketing of such goods that
are considered injurious and hazardous to life and
property of the consumer
• Information about the quality, quantity, standard
and price to protect against unfair trade practices
• Assurance that o su er’s interest will receive
due attention and consideration at the
appropriate level
• Opportunity to have required information and
being educated and about the product
 Unethical practices in Marketing
• Product: Sometimes unethical practices are
used at the stage of product development. Eg:
Nestle’s baby food stating that it contains less
sugar than apple and more nutrients than
apple.
• Kellog company of Michigan produced its
breakfast cereals containing inadequate
nutritional value in hildre ’s cereals.
 Pricing
• Deceptive / Manipulative Pricing: Pricing which
is intending to first lure the customer into the
store by announcing low prices of the products
and then offer them to buy high priced products.
• Eg: 1. announcing discounts or rebates which is
actually not available in the store, like Audi in
USA. 2. Offer discounts on inflated prices. 3.
Bogus clearance sale in which inferior goods are
brought in the store.
• Manipulative pricing is to take advantage of
the usto er’s psy hology to ake sale of its
goods or services. Eg: buy two and get one
free.
• Unfair Pricing: This is a technique of pricing
products even lower than the cost with an
objective to drive the competitors out of the
market and then again raise the prices to a
higher level. HMT manufacturing the dairy
machinery.
• Price Discrimination: It refers to charging
different prices for the same product to
different customers depending on their ability
to pay. Eg: cooking gas, petrol and diesel
prices in India, prices for gas cylinders is
higher for commercial purposes than that for
domestic purposes, Maruti dealers charging
different prices for the same car at different
locations.
• Price Fixing: It is an agreement among the
firms in an industry to set prices of their
products at a certain level. It is like Carteling
which is collective price fixation by which
enterprises restrain growth of a competitive
market place. Eg: Panasonic was accused of
vertical price fixation, gas dealers, airline
operators.
 Advertising/ Promotion
• Advertisements being all pervasive have a
strong influence in our life. They provide us
with the required information and make us
aware about the market. But advertisements
can also end up misleading the public. Eg: the
advertisement of Sahara Q Shop was in bad
taste and unethical.
 Ethics in Finance
• Finance has always been the life – blood of
business, no business can survive without
finance. But there are evidences available to
believe that at times business managers opt
for unethical practices to run business to serve
their vested interest and in turn cause harm to
their stakeholders.
 Why ethics in finance
• Ensures proper use of limited resources
• Ensures fair and transparent functioning of
business.
• Keeps managers away from the vested interests
• Helps build goodwill and reputation
• Serves interests of all stakeholders
• Enables business to sustain market for long time.
• Serves as competitive advantage for the business
 Unethical Practices in finance
• Financial Fraud: In legal term fraud means use
of dishonest or deceitful conduct in order to
obtain some unjust advantage over someone
else. In context of finance it means presenting
false figures in the books or window dressing
the financial facts.
 Reasons of financial fraud
• Seeking rewards not from productivity but
from presenting speculative financial position.
• Focus is not on good governance for building
long term relationships but on maximising
profit
• Absence of transparency in business
transactions
• Developing a system that rewards only a
particular group.
 Financial frauds in Organisations
• Credit cards: It begins with either the theft of the
physical card or compromise on the data
associated with the card account number. The
credit card companies pursue credit card fraud
prevention to safeguard the customers interest
and also limit their direct liability of securing
transactions between sellers and card account
holders.
• Bank cheques: This kind of fraud consists of the
theft of a financial document and manipulating it
to the benefit of the criminal.
• Mortgages: It is a criminal action where the intent is to
materially misrepresent the information on a mortgage
loan application and obtain a larger loan than would
have been obtained, if the lender had known the truth.
• Tax: It is to intentionally violate the legal duty to
voluntarily file income tax returns and pay the right
amount of corporate or excise taxes.
• Bankruptcy: it is a legal process which allows a
business to be discharged of all their debts due to an
inability to pay. Bankruptcy fraud consists of
concealment of assets, in order to avoid liquidation of
those assets.
• Insider trading: Insider means any person who is
or was connected with the company and who is
reasonably connected with the company, and
who is expected to have access to the
unpublished price sensitive information of the
company.
A price sensitive information means one which
relates directly or indirectly to a company and
which if published is likely to materially affect the
price of the securities of a company, like the
following:
• Periodical financial results of the company.
• Intended declaration of dividends
• Issue of securities or buy back of securities
• Any major expansion plans or execution of
new projects
• Amalgamation, mergers or takeovers
• Significant changes in policies plans or
operations of the company
Insider trading is a situation when an insider
of an organization makes an investment
decision based on the information that is not
available to the general public. This
information allows them profit, in other cases
avoid a loss.
• Money laundering: It is laundering or
legitimizing of illegally obtained money to hide
its true nature or source such as drug trade or
terrorist activities. It is done by passing by
passing it through legitimate channels of
businesses by means of bank deposits,
investments, transfers from one place to
another. It is a process by which criminals hide
the origin and ownership of the proceeds of
their criminal activities.
 Process of Money Laundering
• Placement: Placing criminal funds into the
financial system directly or indirectly
• Layering: The process of carrying out financial
transaction in order to camouflage the illegal
source
• Integration: If the layering process succeeds,
integration schemes place the laundered
proceeds back into the legitimate economy in
such a way that they appear to be normal
business funds.
 Obligations of banks & FI’s to prevent
Money Laundering
• Maintain records detailing the nature and
value of transactions, whether such
transactions comprise of single transaction or
a series of transactions integrally connected to
each other and where such series of
transactions take place within a month.
• To verify and maintain the records of the
identity of all its clients
 Obligations of the Tax department of
India
• It should take notice of the bank accounts that
records transactions of amount above 10 lac
• Bank accountant must maintain this record for
more than 10 years
• Banks must also submit a cash transaction
report and suspicious transactions report
whose amount is more than 10 lakh, within 7
days of doubt.
 Causes of unethical practices in
Finance
• Greed: it is said that human wants are unlimited and
resources are limited. Greed drives the evil behavior that is
fraud.
• Ambition: Human beings are characterized by the desire to
scale higher and higher in o e’s ladder. There is a need to
control the greed trap and the negativity that sets in. The
evidences suggest that the misplaced ambitions and greed
are often the root of unethical or fraudulent behavior.
• Urge of superiority:
• Momentary lapse of reason: Leaders and managers with
proven track record in their careers sometimes fall prey to
the momentary lapse of reason leading to serious
consequences in the form of fraud.
• Social reward system: Society often recognizes and
rewards people who have achieved ends, without getting
much concerned about their means. The economic success
has been valued more than other forms of success like
social contribution etc, hence people getting rich by any
means in quick time, have been recognized as successful
and emerged as role models.
• Ineffective corrective mechanism: Although the
mechanisms are in place to check and curb the fraudulent
activities but it takes a long time to catch and punish the
wrong doers. Therefore many people are tempted to follow
fraudulent activities with the belief that they can get away
by using shortcuts.
• Performance pressure for promotion: Often there is
relentless pressure on the top managers to present
great financial performance in the short term.
Sometimes performance based incentive schemes also
aggravates the problem.
• Overconfidence: In case of seniors well recognized in
the industry, it may neither be ambition nor greed for
them it is because of the strong belief in the absolute
power and the reputation they enjoy due to which they
feel that no one would raise an issue about their
conduct. Hence sometimes they cross the line of
acceptable behavior leading to fraudulent action.
• Fraudulent psychological bent: Greed and
dishonesty are not the only factors that tempt
a leader to break the rules, fraud rather a
product of personality , environment and
situational variables all moulded in one.
Psychological research on values show that
people differ in the amount of value they
place on the material things and enjoyment in
life. Where there is too much emphasis on the
above, fraudulent actions are taken up often.
 How to stop unethical practices in
finance
• Monitoring the cheques: All cheques should be kept under
safe custody using lock, they should be cleared in a
sequential order, the numbering on them should be
reviewed and monitored regularly in order to trace out the
missing cheques. Never signing a blank cheque etc
• Maintaining employee manual: manual of do’s and do ’t
including ethical code, setting clear standards of behavior
because sometimes employees conduct unethical practices
due to unawareness about what is right or wrong business
practice.
• Periodical review of financial statements: Like audit’s to
keep an eye on the financial reporting and to motivate all
the bookkeeping related staff to keep things in an honest
manner.
• Review of sensitive documents: maintain confidentiality of
certain documents like bank statements , customer receipts
and specify who will receive and handle these sensitive
documents in order to avoid any misuse.
• Checking the payroll: especially of temporary and
contractual staff, due care should be taken in checking
every payroll so that the employees are paid appropriately.
• Checking the employee references: while hiring new
employees there should be an adequate background check
that includes credit , employment and criminal history
• Independent review: to ensure correctness of
records and entries accounts should be reviewed
by a person outside the day to day transaction, as
theft occurs when book keeping is sloppy and
unsupervised. Hence people outside the direct
bookkeeping function of an organization should
be made in charge of it to avoid fraudulent
activities.
• Stringent law: Pass stringent laws to penalize
those who follow unethical practices. Eg: Britain –
Anti bribery law
 Ethics in HRM
• HRM is an important functional area of management.
Human resource is heterogeneous in the sense that
they differ in personality, perception, emotions, values,
attitudes, motives and modes of thought. Their
behavior to stimuli is often inconsistent and
unpredictable. This is why they need to be dealt with
delicately.
• Putting the right people at the right job is one of the
functions of HRM. A strong employee base can become
the competitive advantage or core competency of the
organisation in the toughest market conditions.
 Need for ethics in HRM
• Work force diversity: Organisations consist of workforce that differ
in age, race, values, cultural norms etc. More number of women
entering the workforce can be seen these days. Which is why
organisations need to ensure that there is no exploitation of any
individual or a group of people, on the basis of any of the above
grounds, and every one is given an equal chance and healthy
environment to work and grow.

• Economic and technological change: with the passage of time

there have been some economic and technological changes. There
is a shift in the occupational structure from agriculture to industry.
Men are now replaced by machinery. There is a need for fewer but
more number of highly skilled labourers. Hence the complexity has
increased manifold.
• Globalization: Organizations are now exploring new
markets abroad. World has become a global market
where competition is two way. Tapping the global
labour force, formulation selection, training and
compensation policies has posed a huge challenge for
the HRM.
• Organizational restructuring: The recent M&A in
banking and telecommunications industry have been
visible in the country, downsizing have also affected
the employees greatly, such restructuring pose human
consequences which is again a challenge for the
organisation.
• Changing nature of work: Due to
technological changes, introduction of
machines and IT work has become manual to
mental/ knowledge work. Where specialists
and experts are required. The recent melt
down has developed a new feeling related to
job security in the minds of the employees.
There is a shift from life time job to short term
job that poses yet another challenge for HRM
and questions ethical practices of it.
 Ethics in HRM
• Recruitment and selection: Unethical practices in
recruitment may relate to wide range of
manipulations right from the contents of
recruitments notice to last date of submission of
application to serve o e’s vested interest. Unjust
selection procedure, constitution of
inappropriate selection panel, asking humiliating
questions, biased evaluation of candidates are
some practices that bear impending costs or
consequences on the organization.
• Promotion: This includes promotion by choice and not
by competence, by person not by performance, by
favor and not by merit and by discrimination and not
by qualification. Such examples are denial of
promotion to an employee.
• Job discrimination: It means an act by an employer
that deprives employees of some benefits and other
opportunities entitled as per the terms and conditions
of employment agreed between the two. It arises out
of the employers decision about promotion,
compensation, other benefits that directly affect the
economic interest of the employees. This ultimately
leads to dissatisfaction in the organisation.
• Harassment: It includes any type of abuse, teasing,
threatening related to the loss of job, offensive written
material referring to either man or woman, is termed
as harassment.
• Employee privacy: It is the fundamental right of an
employee that consists of an individuals right to control
information about oneself and to control situations
where such information could be leaked. It saves an
employee from any kind of embarrassment on any
matter. It does not allow the interference of others in
their personal matters.
• Compensation: It says that people have a right
to punish or compensate the people who have
committed a wrong act in the organization
whether intentionally or unintentionally.
• Equality: It says that everyone should have an
equal opportunity to grow in an organization
and no one should be held back by
discrimination or unjust manners.
 Business Ethics
Carter McNamara has defined: Busi ess ethics is
generally coming to know what is right and wrong
in the workplace and doing what is right-this is in
regard to efforts of products/ services and in
relationships with stakeholders.

Atte tio to ethics in the workplace sensitizes

managers and staff to how they should act so
that they retain a strong moral compass.
 Arguments for and against business
Ethics
• The separatist view: Objecting to the view of bringing
ethics into business, this view argues that the sole
objective of business is profit earning and its
maximization hence those who are involved in business
should single mindedly pursue the objective of profit
making and should not sidetrack and waste the limited
resources into doing ethical works in business.
Following are four different types of separatist view.
1. Ethics vs. Claim: It is argued that main function of
business is economic i.e. profit making and not social
or ethical
2. Ethics vs. competitive advantage: It means that
bringing ethics in business has an adverse
impact on the competitive advantage of
business, as it involves cost which is borne
either by the o su er’s or by the stockholders
i.e. owners. The cost is passed on to the
consumers in the form of high prices, which will
result in decrease in demand of the product. If
the cost is absorbed by the owners, it will
reduce profits and return on investments for the
stockholders.
3. Ethics vs. loyalty: As a loyal agent of his employer a
manager has a duty to serve his employer, as the
employer wants him to be served. He (employer)
wants the manager to work for his e ployer’s
interest, that is the only ethical practice a manager is
supposed to follow.
4. Ethics vs. legitimacy: It is argued that to be ethical it is
enough for the business people to merely obey the
law i.e. ethics is considered identical to the law. It is
said that business should not have any concern
beyond obeying the legal codes in achieving the goals
i.e. profit maximization.
 Arguments for business ethics
• The Unitarian View: This view says that a business is a
sub-set of the society. Hence moral principles that
apply for society also apply to business. Business also
should abide by the moral code of the society. It has to
work for the good of the society.
• The integration View: This view integrates the two
business and ethics. It states that since business is an
economic activity it has the right to earn profit, no
business can survive without it. And business being a
subsystem of the society morality and ethics are also
the responsibility of a business. Several studies suggest
that profitability is correlated with ethical behavior of
the organizzation.
 Ten Myths about Business Ethics
• Business ethics is more of a focus on religion than
on effective management.
• Companies assume that they select and train
ethical employees who will always do the right
thing.
• Business ethics is a theoretical and abstract
philosophical concept
• Business ethics is based solely on the belief that
you will always do the right things, if you follow
business ethics.
• Business ethics is used by ethical people to
correct what unethical people do.
• Business ethics is based on legal compliance
• Business ethics cannot be managed by company
supervisors and executives.
• Business ethics equals corporate social
responsibility
• Because the company does not have any criminal
investigations pending, the company is ethical
• There is little practical relevance in supervisors
managing subordinates on business ethics in
the workplace.
 Ethics in global business
Key characteristics of globalization
1. Improved technology in transportation and
telecommunication: the increasing capacity and
efficiency of transport and communication technology
have made it possible for people and things to move
and communicate faster and cheaper.
2. Movement of people and capital: There can be seen
a migration of people between developing countries
of low standard of living and low wages to places of
greater and wider chance of economic success.
3. Diffusion of knowledge: Due to expansion of
global business knowledge does not remain
confined to the place of its origin, it diffuses
speedily and widely across the globe. Eg:
technology and innovation in the automobile
and telecommunication sector etc.
 Advantages and disadvantages of
globalisation
Advantages Disadvantages
Integration of markets like EU Intense competition
Increase trade between nations Wider gap between rich and poor
Cheaper products for consumer Harder for small business to establish
Leads to outsourcing like call centres Exploitation by paying less in developing
and more in developed countries
Lowering of international barriers like EU, Income earned in host country is not
ASEAN, NAFTA always spent in the same country.
Helps to prevent saturation in one Corporations taking advantage of weak
market, too many competitors at one regulatory rules in the developing country
place
 Unethical issues
• Business practices considered ethical in one culture
but not in the other: There can arise some ethical
issues in global business. What is ethical for one
culture can be unethical for another. Like Chinese and
South Korean business people will view attempts to
renegotiate a contract perfectly acceptable even after
they signed it, but Indians and Americans will find it
inacceptable. Similarly American companies usually
have no problem with simultaneously cooperating and
competing with the same business partner, unlike
Asians and Latin Americans
• Dumping : It means selling the product at below
the on- going prices or the price below the cost of
production. Usually when the organization in an
exporting country has some products in excess
then it dumps that amount of production into the
importing country at a price lower than the
prevailing price In the importing country. It hurts
the industry of the importing country because it
cannot compete with the low priced imported
products. Eg: Chinese toys have hit the Indian toy
industry.
 Dealing with unethical practices in
Global business
• Multinationals should not produce goods that
harm the host country.
• Co tri ute to the host ou try’s develop e t
by their activities
• Respect the human rights of their employees
• Multinationals should respect the local culture
and not work against it eg: KFC
• Pay their share of taxes
 How to participate in Global compact
• Global policy dialogue: it conducts a series of
action oriented meetings to focus on issues
related to globalization and corporate citizenship.
It brings businesses together with UN agencies to
produce solutions to the problems, it ahs also
included the role of private sector in the zones of
conflict.
• Local networks
• Learnings
• Partnership projects
 Ethical dilemma
• It is a situation when one has to choose
between two undesirable things or course of
action, in this opting for one course of action
would result in going against the another.
• Multiple choices
• Uncertain consequences of both nature and
extent resulting from choices.
 Types of Ethical Dilemma
• Organizational Goals vs. Personal values
• Organizational Goals vs. Social values: Coca-
Cola detected with pesticides. Its bottling
plant in Pallakad had been polluting the
ground water, P&G, Johnson & Johnson.
• Organizational Goals vs. Personal beliefs:
Racial discrimination, Boeing, Infosys(unlawful
termination of a female employee), West
Bengal University.
• Organizational profit vs. Production and sale
of hazardous products
• Work time vs. personal business
 Resolving the ethical dilemma
• Consult the code of conduct
• Share the dilemma with your supervisor
• Discuss with other executives in the
organization
• Discuss with peers and colleagues
• Acquaint with the related past happening
 Cause Branding/ Cause related
marketing
• It is a marketing strategy linking the purchase
of a product with the fundraising for a
worthwhile charity, or a project or a cause
that creates a mutually profitable outcome for
business and charity.
• The main way in which cause related branding
helps in improving a brand image is by
showing that the brand has a human side is
not all about business interest.
 Essentials of cause marketing
• Select a cause that strikes a chord with your
stakeholders
• Cause should relate to your business
• Done through packaging, point of purchase
displays, advertisements.
• Inform your employees
• It should be a sustained
 Role of Leadership in Implementation
of Code of Ethics.
• Since the organizational member imbibe their
mode of behavior from their leaders or top
managers, hence they need to manifest ethical
behavior with high standards.
• No amount of ethical training programmes, codes
of ethics and value statements would help create
and maintain the ethical climate within the
organization, if the leader himself is engaged in
not acting within the ethical boundaries of the
organization.
 A Leader should have the following
virtues
• Integrity: Employees do not believe in what leader says but
what he does. Hence a leader should be honest, open and
transparent in his work related dealings.
• Intent: The leaders motives and agenda must be clear and
unambiguous focusing, on the benefits of stakeholders. If
he works with some vested interests and hidden agendas,
the employees tend to become less inclined to act ethically.
• Capabilities: No matter the leader may possess the
attributes like integrity and intent, but if he lacks qualities
like the ability to establish, grow and extend ethics in the
organization, he may not be successful in building ethical
culture in the organization.
• Results: A leader must be able to create a
track record of achieving results by employing
ethical means.
• Creating organizational Symbols
• Modelling ethical behavior: a leader should
be able to live up to the ethical standards and
principles.
 Role of employees in Implementation
of Business Ethics
• Employees play a crucial role in maintaining
an ethical code of conduct within the
organization. To ensure this it needs to be
understood what makes the employees
deviate from their ethical path, so that better
ethical standards are maintained.
 Reasons of employees unethical
behavior
• An opinion that the activity is within the
permissible ethical and legal limits.
• A view that the activity must somehow be
undertaken as it is in the individuals or
o pa y’s best interest.: apply shortcuts to
look better than other employees.
• A view that the activity is not damaging
because it will never be exposed.
• A view that because the company will benefit
from the activity the company will overlook
the unethical behavior and will even shield the
employee involved in it.