HIGHER INSTITUTE OF TECHNOLOGY, BUSINESS, &

MANAGEMENT SCIENCES (HITBAMAS, YAOUNDE)

COURSE MANUAL
UNDERGRADUATE LEVEL

HIGHER NATIONAL DIPLOMA (HND) PROGRAM: PJM

COURSE TITLE: BUSINESS ETHICS I
COURSE CODE: EB02

COURSE EVALUATION
Attendance and participation: 10%
Class assignments: 20%
End of semester exam: 70%

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 TABLE OF CONTENTS/COURSE OUTLINE

CHAPTER ONE: INTRODUCTION OF BUSINESS ETHICS

a. Ethics and Business Ethics
b. Ethical Concepts
c. Ethical Values
d. Business Ethics
CHAPTER TWO: ORGANIZATIONAL ETHICS
a. Ethical Corporate Behaviour
b. Development of Ethical Corporate Behaviour
c. Ethical Leadership

CHAPTER THREE: ETHICAL DECISIONS

a. Ethical Decision Making
b. Ethical Dilemmas in Organization
c. Social Responsibility of Business
d. Corporate Governance

REFERENCES FOR FURTHER READING

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 CHAPTER ONE: INTRODUCTION OF BUSINESS ETHICS
Ethics is the branch of philosophy that studies the values and behaviour of a person. Value
study of a person is used to determine his positive and negative attitude towards life. Ethics
studies concepts like good and evil, responsibility as well as right and wrong. Ethics can be
distinguished in three categories: normative ethics, descriptive ethics and meta ethics. Meta
ethics focuses on the issues of universal truths, ethical judgements and the meaning of ethical
terms. Normative ethics can be used to regulate the right and wrong behaviour of individuals.
Descriptive ethics, also called applied ethics, is used to consider controversial issues, such as
abortion, animal rights, capital punishment and nuclear war. There are a lot of prevailing
unethical issues that surround the business world of the 21st Century. As such, there is a need
for a course on business ethics that provide the standards that business organizations have to
inculcate as they inter-relate within and without holding firmly on ethics as a regulator.

a. Ethics and Business Ethics

The term ‘ethics’ defines the standards that bear on right and wrong issues of society. Business
ethics is thus a set of professional standards, which emphasize principles of honesty and duty
to the business and the general public. The other significant principles included in business
ethics are:
1. Fairness
2. Integrity
3. Commitment to agreements
4. Broad-mindedness
5. Considerateness
6. Importance given to human esteem and self-respect
7. Responsible citizenship
8. Attempt to excel
9. Accountability
These principles, if strictly pursued, lead to a decent business environment and create healthy
relationships in the organization. However, deviations from these principles can occur due to
the following factors:

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 1. Ignorance and indifference to issues
2. Selfishness
3. Imperfect reasoning

Concept of Business
Just like human beings function with limbs, corporations or companies function through their
businesses. The term business can be broken as ‘busy-ness’ meaning an activity that keeps an
individual busy. In the economic sense, the creation of utility is called business while in the
commercial sense, the activities concerned with the purchase and sale of goods and services
are called business. A business includes that part of production, which is equally exchanged
and results in mutual benefits to the parties who exchanged goods in the transaction.

According to Peterson and Ploughman, ‘Business may be defined as an activity in which

different persons exchange something of value, whether goods or services for mutual gain or
profit.’ According to James Stephenson, ‘Business is the sum total of those processes which are
engaged in the removal of hindrances of persons (trade), places (transport and insurance) and
time (warehousing) in the exchange (banking) of commodities.’ According to F.C. Hooper,
‘Business means the whole complex field of commerce and industry, the basic industries,
processing and manufacturing industries and the network of ancillary services, distribution,
banking, insurance, transport, and so on, which serve and interpenetrate the world of business
as a whole.’

Nature/Character of Business
Business is a wide term. It includes all occupations in which people are busy in earning income
either by production or purchase, sale and exchange of goods and services to satisfy the needs
of people and to earn profit. The following points may be discussed to reveal the true
nature/character of a business:

1. Economic activity:
Business is an essential economic activity. Profit motive is the key element that inspires a
businessman to work efficiently.

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 2. Human activity:
Business is a human activity. In this sense, business is considered to be an economic activity of
human beings only. A business is by the people and for the people.
3. Social process:
Business is a social process. All the individuals involved in a business, such as owners,
customers and employees, are an integral part of society. Business has to fulfil its social
responsibilities.
4. System:
A system is a combination of things or parts forming a unitary whole. It is an established
arrangement of components for the attainment of objectives. Similarly, business is a system
consisting of various subsystems that are operated in a balanced and coordinated way.

Types of Business Activities

All human activities concerned with earning money are included under the term business.
Cultivation by a farmer, teaching by a teacher and treatment taken by a patient from a doctor
are also treated as business activities. There are different types of business activities, which
may be classified as follows:
1. Industry:
An industry includes the activities connected with the production and processing of
goods. Manufacturing enterprises are engaged in the production of goods. These kinds of
industries can be classified as follows:
a. Analytical enterprises:
An oil refinery that separates crude oil into petroleum, kerosene and diesel oil is an analytical
concern.
b. Synthetic enterprises:
An enterprise which combines several materials to produce one product is a synthetic
enterprise. All soap mills and cement factories are synthetic enterprises.
c. Assembling enterprises:

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All those plants engaged in the production of products, such as radios, scooters and television
sets are assembling enterprises. A few enterprises involved in mining are involved in mineral
resource production, for example, iron ore, coal, gold and silver.
Aids to trade are those incentives that makes it easy for trade whether internal and external to
be carried out. Trade in itself cannot be possible if availability of aid to trade are not in place.
In other words, aid to trade act as facilitators to the execution of trade.
2. Commerce:
It is the total of all those activities that are engaged in the removal of hindrances of persons or
trade, places or transportation, risk of loss or insurance and time, such as warehousing,
banking and financing of commodities. Commerce can be divided into two categories: trade
and aid to trade. Trade can be further divided into two categories, which are as follows:
a. Internal:
This includes the trade that is done within the country, such as wholesale and retail trade.
b. External:
This includes the trade that is done with various countries, such as export and import.

Characteristics of Business

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Business means the creation of utilities. There are many features of business activities and,
thus, the business. The essential characteristics of business may be summarized as follows:
1. Exchange or sale:
A business includes the sale, purchase and exchange of goods and services.
2. Creation of utilities:
A business creates transfers and utilities of goods by making them available in proper form at
the appropriate time and place.
3. Social institution:
A business deals with the people of society. All the persons engaged in the business, such as
owners, customers, employees and other professionals belong to the society. A business has to
fulfil its social responsibilities towards each part of the community and has to follow the
business ethics as well.
4. Profit motive:
Business activities are carried out to make profit. A non-profitable business cannot continue to
exist for long. Profits are essential for growth of a business.
5. Risk and uncertainty:
There are two types of risks in a business. The first type of risk is floods and thefts. The second
type of risk is loss due to fall in demand and labour trouble. Uncertainty arises because of
unpredictability of profit in a business. Profit is such an element which cannot be predicted in
advance.
6. Customer satisfaction:
A business always tries to satisfy its customer with better quality and reasonable prices.

c. Ethical Concepts
Ethics is the branch of philosophy that is used to evaluate human actions. Some basic ethical
concepts in business are as follows:
1. Ethical subjectivism:
This concept emphasizes that the ethical choice of the individual decides the rightness or
wrongness of his behaviour.
2. Ethical relativism:

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According to this concept, no principle is universally applicable and so it would be inaccurate to
measure the behaviour of one society with another’s principles or standards. Relativism
overlooks the fact that there may be enough evidence to believe that an ethical practice is
based on false belief, illogical reasoning, and so on.

3. Consequentialism:
Consequentialism is based on two ideas: the concept of value and the maximization of value.
If, for example, honesty is considered a value, an act is considered ethical only if it maximizes
this value. An act, which does not maximize the said value, is not ethically permissible.
This concept stresses that ethical values can be developed from the concepts of reason as all
rational individuals possess the ability to reason. We may, for example, end up causing pain
unknowingly while trying to create happiness. Therefore, the ethical value of an action cannot
be determined by its consequences. Instead, it is in the motive that lies behind the particular
action.
4. Ethics of virtue:
This concept emphasizes those traits that give the individual a sense of satisfaction from ethical
point of view. Virtuous acts like courage, honesty, tolerance and generosity are done as a way
of living and not by chance.
5. Whistle blowing:
Whistle blowing refers to the attempt of an employee to disclose what he or she believes to be
illegal behaviour in or by the organization. From one point of view, this seems to deceive the
principle of honesty in business ethics, as it is taken for granted that the employees of an
organization need to be loyal to its workings. However, when loyalty to one’s organization in
particular is perceived to be harming one’s general loyalty to mankind, the act of whistle
blowing is justified. Failure on the part of the management of the organization to fulfil its social
obligations calls for whistle blowing. It is the responsibility of the whistle blower to be careful
about revealing the organization’s secrets and to consider the harm it may cause to his
colleagues and shareholders. The steps that should be taken into consideration by the whistle
blower are:
a. Ascertain the gravity of the situation before whistle blowing.

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 b. Scrutinize the purpose.
c. Authenticate and keep a record of the concerned information.
d. Determine the type of offence and to whom it should be reported.
e. Assert your claim in a proper way.
f. Stick to the facts.
g. Determine if the whistle blowing need be external or internal.
h. Decide if the whistle blowing should be anonymous or otherwise.
i. Make sure to follow proper rules in reporting the offence.
j. Consult a lawyer (if required).
k. Anticipate and document vengeance.

6. Ethical dilemmas in business:

An organization’s ethical problems indicate a conflict between its economic and social
performance. This results in a dilemma for managers. Since people handle business, it is a
crucial requirement to check and ascertain ethical behaviour at a personal level. This will
confirm ethically correct responses from the organization to the mutual actions of individuals.

Ethical Models

Ethical models can be used to define ethical situations and manage ethical dilemmas that may
occur in the organizations. The Golden Rule Model and The Right-driven or Kantian model are
two operational models that have emerged from the work of philosopher Immanuel Kant.

1. The Golden Rule Model

This model originated from the New Testament—specifies people should treat others in the
same manner that they themselves would like to be treated. It is a fundamental principle found
in every culture and religion and it is the most important basis for the modern concept of
human rights. It is also called the ethics of reciprocity as it stimulates an individual to put
oneself in the other person’s shoes and then evaluate how one would wish to be treated in that
particular situation. This proves that this rule is absurd without identifying the receiver and the
situation. The ethics of reciprocity should not be confused with revenge or penalizing justice.
The ethics also mentions that one has the freedom to do anything as long as those activities do

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not harm anyone. If this golden rule is applied to every anomaly, then many unethical
consequences may result in causing harm to others and perfectionists may charge others with
critical analysis, which may lead to harassments. Different people have different ideologies,
beliefs and may belong to different cultural heritages. This difference is the reason behind the
different people’s behaviour towards various situations.

2. The Kantian Model

This model is based on the hypothesis that everybody has some fundamental rights in this
ethical universe. So any action is ethically correct if it reduces the stakeholders’ collective
violation of rights. This model willingly provides assistance in the internal audit review and
helps in managerial decision-making. Kant did not believe that any outcome was good from its
origin. According to him good is not always intrinsic. He did not believe in ‘good’ character traits
like ingenuity, intelligence and courage. In fact, he used the term ‘good’ to describe ‘goodwill’,
by which he meant the resolve to perform the act purely in accordance with one’s duty.
If the actions are predetermined then they cannot be described as free and moral. He believed
that to act morally, freedom is required. According to Kant there are two concepts of duty.
According to one concept, duty is just following orders imposed by others. The other concept is
that duty is internal and can be imposed on oneself. He considered that inclinations constitute
motivation whereas others believed that it was the physical world that acted as motivation.
But Kant believed that the sources of the physical world might be unreliable, passive and
phenomenal. Sometimes, man’s mind is over-clouded by sorrows due to his lack of sympathy
from others but he still has the power to help those in distress. He no longer needs any support
as he is sufficiently occupied with his own inclinations, making him indifferent to the sufferings
of others. He becomes adaptive to his sufferings with the help of the patience and endurance
he has developed in due course of time. This begins to show his worth of character and
temperament.
Most of us live by rules most of the time. Some of them are called categorical imperatives that
are unconditional commands which bind everyone at all times. There are two types of
imperatives: hypothetical imperative, which is to say that if one wants to achieve success then
he should work in a freeway and not bind himself to his inclinations; and categorical

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imperative, for example, the imperative to always tell the truth as it is unconditional and can
be applied at all times.
Kant also introduced maxims, which are subjective rules that guide actions and help an
individual to act according to the relevant description. There is sufficient generality in
description. All actions have maxims like:
1. Never lie to your colleagues.
2. Never act in a manner that would make your family or organization ashamed of you.
3. Always work hard to be the best performer.
4. It’s acceptable to cheat if the pattern demands it.

d. Ethical Values and Actions

Ethical values and actions are an integral part of ethical societies. Ethical actions in the ethical
society refer to the initiatives taken by the people to show their commitment towards building a
better life for them and for their children. Ethical actions are also termed as the categorical
imperative actions. The whole world is created by action and is meant for action. The future life
depends on the actions performed by the people. Ethical actions are the activities performed by
the social, national or personal group. The people in these groups perform the activities in a
spirit of service and commitment. The dimensions of ethical actions can be divided into two
major categories. These categories are:
1. Community service:
Community service aims at helping the organizations and the people in the community. The
organizations in the Southwest and Northwest regions are providing humanitarian action to the
population affected by the socio-political upheavals come under this category.
2. Social issues support:
Social issues support aims at giving emotional and physical support to organizations and the
people in the society. Social issues support can come in different forms. These forms are:
a. Emotional support
b. Informational support
c. Instrumental support

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 d. Personal feedback
e. Sharing view points

Types of Ethical Actions

Ethical actions can be of two types. These types are:

a. Destructive actions.
b. Constructive actions.

a. Destructive actions.
Destructive actions are those that can harm the people performing the actions as well as
others. It is very difficult for people to find out which actions are harmful. Some actions can
cause damage in one situation and the same actions can be useful in some other situation.

b. Constructive actions
Constructive actions are also considered as desire-prompted duties. Constructive actions are
always done by people who consider it their responsibility or duty to perform these actions.
These actions can be performed either daily or on some special time. These actions always
provide a result that is purposeful and self-determined. Constructive actions can be of three
different types. These types are:
a. Obligatory actions:
These actions can be performed by any type of person in the society. These actions do not
affect any special category of people. Every man, society and the universe would be affected
by these actions.
b. Prohibited actions:
Prohibited actions do not prove to be of worth for the people. The non-performance of
prohibited actions is also obligatory.
c. Optional action:

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Optional actions are also called hypothetical imperative actions. These actions prove to be
beneficial to human beings and are also performed by the people to secure their personal
benefits.
Therefore, ethical actions are responsible for performing the obligatory and optional actions
successfully and avoiding the prohibited actions.
Characteristics of Ethical Actions
The different characteristics of ethical actions are:
a. Ethical actions are not only activities to serve others but also the inner temperament of
the mind.
b. Ethical actions give importance to helping others.
c. Ethical actions are not the instrumental value but the intrinsic value.
d. Ethical actions are performed for prosperity, success and sound decisions.
e. Ethical actions are used to avoid prohibited constructive actions and to promote
obligatory and optional actions.
f. Ethical actions are performed as duties or responsibilities of individuals.

Morality

People should be self-disciplined in order to carry out ethical actions successfully. Morality
refers to the concept of human action which pertains to matters of right and wrong.
Individuals who oppose with determination inducement towards the wrong spend a good moral
life.
Ethical actions should be performed as a community standard rather than as an individual
responsibility. Individuals in a society can perform three types of ethical actions. These actions
are:
1. Morality:
Morality actions are performed to secure the future of others.
2. Religion:
Religion is the collection of ethical actions that can affect a group or society.
3. Civil law:

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Civil law actions are a collection of ethical actions that can be used to change or control the
behaviour of an individual in society.
Therefore, morality can be defined as the collection of concepts and attitude that can be used
by a culture or a group in society to control or change the behaviour of an individual. Different
societies or cultures have their different opinions on morality. Morality can be applied to the
generality or the part of the fields in which the personal opinions of the individual have some
relation or reference to other individuals. These individuals may belong to some other
community too. Therefore, morality can exist in isolation or in a generic society.
There exist different types of groups or societies having different views on behaviour. Some
groups put heavy restrictions on behaviour and some groups allow the individuals to be self-
determined. Morality can also be defined as the personal ethical behaviour that an individual
creates for himself. The terms ‘morality’ and ‘ethics’ have a strong relationship with each other.
Morality refers to moral character or standards. Morality is used to analyse the behaviour of the
individual and the standards of conduct. Ethics is used to refer to the formal study of these
standards. Morality can be considered as ethics in action.

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The mind is responsible for the thoughts and feelings of individuals. The existence of
individuals and their activities is only due to their mind. The feelings and opinions of persons
depend on their mind. A person having a good mind has good feelings and a person having a
disturbed mind has disturbed feelings. Professor Gardner suggests five types of minds. The
ethical mind is one of them. The others are disciplined mind, synthesizing mind, creating mind
and respectful mind. The ethical mind of a person is affected by the nearby surroundings and
culture. Ethical minds can be of two types. These are:
a. Subjective mind:
The subjective mind faces motivation from the different objects of the world. This type of
human mind is also called the outer mind.

b. Objective mind:
This type of mind reacts to the encouragement received from the outside world. This type of
human mind is also called the inner mind.

The objective mind of the human being is under the control of the subjective mind. The
objective and subjective minds of human beings are separated by layers of egoistic desires.
The confidence of an individual depends on the distance between these two minds. The greater
the distance between these two minds, the more confused is the person. If the distance
between the two minds is large, then the objective mind does not receive any message from
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the subjective mind. If the mind is in a state of confusion, then the mind of the individual
becomes nervous, unsteady and confused. Thus, the person loses his morale. If the emotions
of the person are separated from his mental power, then the objective mind would not be
under the control of the subjective mind. This situation can make a man wild and come to
some unintelligent conclusions.
Each person should try to decrease the distance between the subjective mind and the objective
mind. This can only be accomplished by training the mind. Each person should be able to
identify support that will maintain mental energy, intellectual vision and physical patience to
spend the ethical action life.
Training of the mind can be accomplished by two methods. These methods are:

1. Art of disengagement:
Mental disengagement can only be developed by developing a mind that is free from abstracted
and fractional feelings and is more concentrated. Every person should identify his role and keep
the subjective and objective mind steady to fulfil his role. The mind of the person should be
integrated so as to keep him aware of each situation. The integrated mind does not allow
the individuals to cross the boundaries of his current role.
2. Self-denial:
Self-denial is an inner characteristic of a person, by which he does not let any extraneous
thoughts enter his mind so as to achieve something. This is one of the methods to train the
mind. Some examples of self-denial are the state of mind of a student before an examination,
and the state of mind of a dancer before the performance.

Self-development

Self-development is the responsibility and duty of the individuals to learn and develop
themselves. Individuals can use the process of assessment, reflection, and take necessary
action to achieve self-development. Self-development is the only way for individuals to update
their skills and knowledge in order to face the new problems that emerge in life. Self-
development also determines one’s future career direction. Some of the characteristics of self-
development are:

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 1. The person undergoing self-development does not depend on the support of the outside
world. Such type of person becomes self-sufficient. Self-development in individuals
makes them independent.
2. Self-development brings in the feature of objectivity in individuals. Such a feature gives
individuals an impersonal attitude.
3. A self-developed person looks happy in life. His inner nature looks full of cheer and joy.
He will not be depressed and miserable.
4. A self-developed person becomes dynamic, active and brighter in life.
5. A self-developed person is more lovable.
Self-development Methods

Individuals can use different methods for self-development. Some of the methods are:
1. Path of action:
The path of action states that people should only perform their job and should not care for the
fruits or results. This is also the Indian philosophy. Ethical actions are a way to perform one’s
duties or responsibilities in an unselfish manner.
2. Path of knowledge:
The path of knowledge means to move towards acquiring knowledge. The path of knowledge
also eliminates the distance between the subjective mind and the objective mind. Thus, the
path of knowledge makes a man confident and self-developed.
3. Path of discrimination:
The path of discrimination assists a person to identify his inner faults. The person has to
transform the inner motives and mental attitudes to train the mind. The path of discrimination
forces individuals to control the emotions of attachment, fear and anger.
4. Path of sacrifice of wealth:
The path of sacrifice of wealth refers to donations of wealth in charities without a consequence
in mind. This feature makes people more positive towards life and helps individuals overcome
greed.
5. Path of self-control:

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Self-control is an internal characteristic of individuals. Self-control can be of five types. These
are:
a. Non-injury
b. Truthfulness
c. Non-stealing
d. Celibacy
e. Non-acceptance of gifts

6. Path of mind-control:
The path of mind-control consists of concentration and meditation. Concentration refers to
focusing on the object on which one is working. Devotion to God helps in achieving
concentration. Meditation refers to the state of the body in which the person feels relaxed and
the mind is more focused. Therefore, meditation helps in achieving concentration.

d. Business Ethics

Business ethics has different meanings for different people, but generally it is to decide what is
right or wrong in the business. According to Wallace and Pekel, ‘attention to business ethics is
necessary during times of fundamental change as the moral values that were not taken
seriously are strongly questioned at that time.’ Business ethics enables the leaders and
employees to act at the time of crises and confusion in the business. Therefore, business ethics
helps to deal with business ethical issues that are vague.
Business is described as an activity done by humans to produce or acquire wealth where he
buys and sells goods. Business ethics and values are important for the successful development
of a business organization. Ethics in business refer to a code of standard by which one can
determine what is wrong and what is right for the business enterprise. Fairness, integrity,
commitment to agreements, broadmindedness, considerateness, importance given to human
esteem and self-respect and many such principles determine business ethics.
Business ethics generally deals with what is right or wrong in the business. According to
Wallace and Pekel, ‘attention to business ethics is necessary during times of fundamental
change as the moral values that were not taken seriously are strongly questioned at that time’.

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It is business ethics that enables the leaders and employees to act in times of crisis and
confusion in the business. Business ethics is a method of dealing with unclear business
problems.

Unethical Problems in a Business

a. Managerial misbehaviour:
Managerial misbehaviour includes illegal and unethical practices involved in the management of
an organization.
b. Moral mazes:
It is a part of business ethics which deals with the ‘moral mazes of management’. It includes
ethical problems, such as conflicts of interest, misconduct of contracts and agreements and the
illegal use of resources. After the birth of the social responsibility movement in 1960, business
ethics has become a management discipline. This movement helped solve various social
problems, such as poverty, crime and illiteracy by using the finance of business class people.

To develop better relationships among people within an organization, the field of human
resources emerged recently. As the complexity in the field of commerce has been increasing
day by day, so has the need to simplify trade in an organization. The process of simplifying the
commerce within an organization ensures better trading between the partners. With the
growing need of simplifying trade, the discipline of business ethics emerged. Business ethics is
managed by following the ethical code and the code of conduct as set by an organization.

Benefits of Business Ethics

The various benefits of managing ethics in a business are as follows:
a. Business ethics helps in improving society by establishing government agencies, unions,
laws and regulations in the society.
b. Business ethics helps an organization maintain ethical values during times of crisis.
Business ethics programmes guide leaders about the right or wrong ways of dealing with
complex dilemmas and how they should act during that time.
c. Business ethics helps employees behave according to the ethical values that are
preferred by the top management of an organization. An organization discovers

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 many differences between the values that reflect in the actions of the employees and
the values preferred. Employees experience a relationship that is strong between the
values of the organization and their values. Ethical values induce teamwork and increase
the efficiency of the employees.
d. Ethics supports employee growth. When an employee pays attention to ethics, it induces
confidence in the employee to deal with reality and face both good and bad
circumstances. Bennett, in his article ‘Unethical Behaviour, Stress Appear Linked’,
explained that the more an employee is emotionally healthy, the more ethical he is.
e. Ethics have become legal instruments. These days, there are several lawsuits regarding
personnel matters and the influence of the services of the organization on the investors
and customers. Major ethical principles that are applied in the organization are the laws
that are made by the government. A greater attention on ethical issues on the part of
the government ensures high ethical procedures and policies in the workplace. An
employee, for example, is subject to breach of contract on non-compliance of the terms
and conditions of the contract.
f. Business ethics helps to avoid criminal acts of ‘omission’ and it also helps in lowering the
fines. Ethics helps in ascertaining the violation of ethical issues and helps in rectifying
the violation that is committed by the organization. The guidelines set by an organization
about ethical values helps to lower fines. An organization, for example, that has
knowingly violated a contract is considered to have committed a criminal act and the
organization is subject to penalty.
g. Business ethics helps to identify and manage the values associated with quality
management, strategic management and diversity management. For managing these
values, ethical programmes record the values, develop policies and procedures
and then provide training to the employees on these policies and procedures. These
ethical programmes manage certain values of quality management, such as reliability,
performance, measurement and feedback. Similarly, these programmes also manage
various strategic values, such as reducing cost and increasing market share.
h. Business ethics helps in building a strong and positive public image of an organization.
Ethical values enable an organization to increase their goodwill in the market. Those

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 organizations that value their customers have a positive influence in the market. Ethical
values are the milestones that enable the establishing of a successful and socially
responsible business.
i. Business ethics strengthens organizational culture. Ethical values improve relationships
between an organization and its customers. They strengthen the organization by
ensuring consistency in the standard and quality of the product.
j. Business ethics makes sure that the right activities are performed in an organization.

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 CHAPTER TWO: ORGANIZATIONAL ETHICS
To understand the term ‘organizational ethics’, one has to first try and understand the two
terms ‘organization’ and ‘ethics.’ An organization is a collection of individuals with a common
mission while ‘ethics’ may be described as an attempt or endeavour by individuals, to
understand what is ‘right’ or ‘wrong’. Ethics is concerned with the critical analysis of situations.
Organizational design and follow a set of core principles or concepts in that attempt to develop
ethical corporate behaviour.
a. Ethical Corporate Behaviour
Organizational ethics is used to consider the issues of morality and rationality in organizations.
Organizational ethics is completely different from management ethics. Management ethics
focuses on the ethical quality of the decisions and actions taken by managers of an
organization. Thus, management ethics deals with the individuals in the organization and
organizational ethics deals with all the activities of an organization. Therefore, organizational
ethics is collective in scope. Organizational ethical issues can be handled at three levels. These
levels are:
• Corporate mission
• Constituency relations
• Policies and practices
Corporate mission refers to the objectives of an organization that are used to define its ethical
responsibilities. Corporate mission also reflects the ambitions and expectations of the
employees. Employees should be integrated in a good manner to achieve the corporate
mission.
Constituency relations define the responsibilities of the elements of an organization. The
elements of an organization may be employees, customers, suppliers, shareholders and the
general public. These responsibilities must be handled properly to manage the ethical conduct
of business.
Organizational ethics can also be used to evaluate the policies and practices of the
organizations. Public commitment to ethical principles can give way to business and
administrative practices.

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Organizational ethics also depends on the type of the organization. Organizations can be
classified by considering their economic and ethical concerns. Organizations can be
classified into four types. These are:
• Exploitative:
Organizations with low economic and ethical concerns are called exploitative organizations.
These organizations utilize child labour and use rivers for dumping wastes to maximize their
profits.
• Manipulative:
Organizations with high economic performance concerns and low ethical concerns are called
manipulative organizations. These organizations use tax laws, labour laws and union leaders to
maximize profit.
• Holistic:
Organizations with high ethical concerns and low economic concerns are called holistic
organizations. These organizations spend their money in social and environmental purposes.
• Balanced:
Balanced organizations have high ethical and economic concerns. These types of organizations
gain profit as well as work for social and environmental purposes.

Figure 1.2 shows the different types of organizations classified by economic and ethical issues.

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  Corporate Code of Ethics
Corporate ethical codes can be defined as the standards and beliefs of an organization. These
standards and beliefs are made by the managers of the organization. These ethical codes can
be used to adjust the thinking and attitude of the individuals in the organization. Ethics codes
of organizations are different from the rules of ethics. Ethical rules are the requirements
according to which an individual acts.
Snoeyenbos and Jewell define three elements to implement ethical behaviour in the
organization. These elements are:
• Implementing the corporate ethical code.
• Introducing an ethics committee.
• Introducing a management training programme that includes ethics training.

Organizations can handle the issue of ethics by incorporating the code of business conduct in
the corporate structure. These business codes can be used to advise, guide and regulate the
behaviour of the individuals in organizations. Organizations can translate the human core
values into business codes by using some specific guidelines. Many organizations have
formulated codes of ethics for their employees. Most of these codes are very different and
some are similar. These formulated codes of ethics can be used as a tool for developing ethical
conduct. Some of the ethical codes formulated by organizations are:
• Ethical codes for discipline.
• Proper code of dressing.
• Avoiding abusive language or actions.
• Punctuality.
• Legalistic ethical codes.
• Always following instructions from superiors.
• Performance of fair performance appraisals.
• Personal and cultural ethical codes.
• Not using official property for personal use.
• Performance of good quality of work.
• Having initiative.

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• Conservation of resources and protection of quality of environment.

 Advantages of a Code of Ethics

Some of the advantages of a code of ethics are:
• Code of ethics can be used to handle outside pressure.
• They can also be used in making overall strategic decisions.
• These codes can be used to define and implement the policies of the organization and
distribute work between the employees.
• Code of ethics can be used to optimize the public image and confidence of the organization.
• They can be used to increase the skills and knowledge of the individuals.
• Code of ethics can also be used to respond to the different issues of stakeholders.
• These codes of ethics can be used to discourage improper requests from employees.
• They can also strengthen the enterprise system.
b. Development of Ethical Corporate Behaviour
The approaches to business ethics can be classified into the following areas:
1. Identifying practical issues and assigning responsibilities.
2. Analysing existing practices and framing a code of conduct.
3. Raising fundamental philosophical problems.

1. Identifying Practical Issues and Assigning Responsibilities:

This approach explores various kinds of ethical issues that can arise in business and society.
Business activities should be conducted in such a way that they do not cause any harm to the
society. The various ethical issues that can arise in business and society are:
• Employee rights
• Ethical business conducts
• Environmental protection
• Child labour in business
• Discrepancies in the wages of women employees
• Bonded labour
• Exploitation of unorganized labour
• Minimum wages

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• Obligations of large and multinational corporations

2. Analysing Existing Practices and Framing a Code of Conduct:

This approach deals with the subject of public policy and with the identification of unethical
practices. There are various areas of conduct that require some amount of government
regulation. Such areas include product liability, worker rights, environmental problems, white-
collar crimes and child labour. This approach also deals with the ethical guidelines that provide
benchmarking for the decision-making process.
Benchmarking is one of the trends or perspectives that can be used by the management for the
purpose of organizational development. Benchmarking can be defined as a process of
comparing the works and service methods against the best practices and best outcomes.
Benchmarking acts as a powerful agent for change and motivation that helps in organizational
development. Benchmarking basically focuses on identifying changes that can result in higher-
quality output by incorporating different organizational behaviour techniques. The process of
benchmarking involves looking both inside and outside the organization for identifying the
methods that can be used for organizational development. Benchmarking facilitates
organizational development by identifying improvement strategies. It enables the organization
to learn from other organizations. It also helps in the relocation of resources that
speed up organizational development. Benchmarking is also used to train and develop human
resources to ensure efficient performance that is comparable to the performance of
competitors.
Benchmarking involves team activity. In benchmarking, a team activity should be encouraged
by seeking new ideas, suggestions and cooperation through a process of external consultation.
Benchmarking also involves introducing new ways of working that utilize the talents and
abilities of the employees working in an organization. The active involvement of employees at
all levels ensures their interest and commitment, which is essential for organizational
development. In an organization, the internal teams which are used to obtain and analyse data
related to benchmarking are responsible for recommending changes and improvements in
order to support organization development.
There are basically three types of benchmarking:

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 a. Internal benchmarking.
b. Functional benchmarking.
c. And competitive benchmarking.

a. Internal benchmarking:
It is carried out between closely related divisions or similar plants of the organization. This type
of benchmarking uses shared performance parameters as a basis for comparison.
b. Functional benchmarking:
It is a more positive approach than internal benchmarking. Functional benchmarking is used to
compare performance parameters of similar business units of different organizations. It is also
used to compare various procedures followed by the organizations for the purpose of
organizational development.
c. Competitive benchmarking:
It uses customer requirements as a parameter for comparing the performance of the
organization against other companies that are best in the industry. This helps in identifying the
areas which should be targeted for improvement, in order to ensure organizational
development. Some organizations implement benchmarking at the start of the projects. This
strategy begins with the formation of a team, which is responsible for defining the goals of the
project and identifying the areas in which benchmarking will be used. Other organizations use
benchmarking to carry out their day-to-day activities. The examples include the development of
benchmarking strategies to reduce manufacturing set up time, increase in the number of
customers served per hour and cut in the delivery time.
The following is the sequence of steps involved in an effective benchmarking process:
a. Determine the key performance areas that need to be benchmarked. These include
products and services, customers, business processes in all departments and
organizations, business culture and calibre and training of employees.
b. Identify the most relevant competitors and best organization in the relevant industry.
c. Set the key standards and variables that need to be measured.
d. Measure the standard variables regularly and objectively.
e. Develop an action plan to gain or maintain superiority over competitors.

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 f. Specify programmes and actions to implement the action plan and monitor the on-going
performance of the organization.

3. Raising fundamental philosophical problems.

Under this approach, business ethics can be defined as an attempt to keep ethical obligations.
This approach deals with the relationship of the individual and the society and it is used to
identify the area of development of the society and its culture. It also focuses on the
differences between personal morality and social morality. The main aim of this approach is to
identify and define business values.
A business value refers to a set of beliefs pursued by an organization. Business values like
‘customer satisfaction,’ ‘enthusiastic teamwork’ and ‘state-of-the-art provision for production’
are some of the commonly pursued values by several organizations. When such values are
pursued effectively and with zeal by executing them in the daily activities of the management
and the employees of the organization, they are believed to pay back in manifold returns and
success.
Pursuing business values plays a vital role in the growth and survival tactics of an organization.
In general, the most common values that facilitate in improving profits and the image of the
organization are as follows:
a. Persistent progress: It refers to an eagerness and enthusiasm on the part of the
organization to keep its functioning as an ever efficient and up-to-date working
endeavour towards progress.
b. Customer satisfaction: It refers to making the customers feel important and responding
to their needs, interests and, if need be, providing solutions to their problems in case of
any documentation processes regarding the purchase of the organization’s product.
c. Personnel development: When it comes to development, organizations can benefit more
by developing the skills of their employees. Besides considering the satisfaction of its
customers and management, it should also take into account the satisfaction of its
employees, which in turn can yield sincere work performance from the employees.

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 d. Innovation: It refers to the enthusiasm to take on new challenges and responsibilities on
the part of the employees and a desire to diversify and try out new ventures on the part
of the organization.
e. Optimal use of resources: It refers to making sincere efforts to enhance overall business
performance by maximum utilization of the organization’s current resources.

c. Ethical Leadership
A leader is an integral part of an organization, because it is the leader who helps the
organization to achieve the goals and objectives. The various reasons why the leaders are
important for an organization are as follows:
1. A leader acts as a friend to the employees he is leading.
2. A leader recognizes the potentialities of the individuals and transforms them into
realities.
3. A leader wins the confidence of the employees of an organization.
4. A leader unites the people as a team and builds up team spirit.
5. A leader maintains discipline among his group and develops a sense of responsibility
among them.
6. A leader builds up a high morale among the employees of the organization.
7. A leader motivates his group in order to achieve the goals and objectives of an
organization.
8. A leader maintains the ethical standards among the employees of an organization.
9. A leader acts as a link between the work groups and the forces outside the organization.
Leadership is a form of management, and can be defined as the art of getting things done by
others. Thus, the term management divides all the employees of the organization into two
groups. These groups are:
a. Managers: Managers are the individuals in the organization who are responsible for
directing the activities of others.
b. Workers: Workers are the individuals who are working under the control of the
managers or leaders.

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Leadership involves planning, organizing and controlling the resources of the organization so as
to achieve the goals and objectives of the organization. The managers of the organization
make some rules to coordinate and control their subordinates in the right manner. These rules
can be determined by the environment and the culture of the organization. These rules also
define the relationship of the managers with their subordinates and peers. These rules defined
by the managers of the organization are termed as descriptive ethics because no one is forced
to follow them. These rules are the contextual and moral guidelines that the managers derive
from their personal moral philosophy. The moral awareness of the managers can be
ascertained by the organizational administration.
Management ethics in an organization deals with the morality and conduct of the individuals
and the responsibilities of the management. Therefore, ethical management or ethical
leadership deals with issues relating to managerial misbehaviour and the moral conduct of the
management.
 Ethical Issues in Organizations
There exist many different ethical issues in the organization or at the workplace. Some of them
are:
1. Identifying the conflict issues in the organization and trying to avoid them.
2. Deciding different methods to motivate employees.
3. Managing fairness in employee performance appraisal
4. Protecting secret information of the organization
5. Identifying the areas of interest of customers, employees, suppliers, owners and the
staff.
6. Taking action against the reports of complaints in the organization
7. Handling different problems of employees.
8. Taking corrective action against employees.
Ethics management programmes are used by the organizations to manage ethics in their
workplace. According to Brain Schrag, ‘Ethics programmes convey corporate values using codes
and policies to guide decisions and behaviour, and can include extensive training and
evaluating, depending on the organization.’ Ethics management programmes are made up of
values, policies and activities that can affect the behaviour of the organization.

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Managing ethics as a programme is advantageous to organizations in many ways. Some of the
advantages are that:
1. These programmes can assign an independent role to each individual in the organization
to manage ethics.
2. Ethics management can provide the necessary operating values and behaviour to the
organizations.
3. These programmes are used to align the operating values and behaviour.
4. Ethics management programmes are used to schedule different ethical requirements.
5. These programmes are used to make the organizations aware of ethical issues.
6. These programmes provide structural mechanisms to handle ethical problems.
7. They also provide some guidelines to decision-making.

 Guidelines for Managing Ethics in Organizations

Some guidelines for managing the ethics in organizations are:
1. Identify ethics management as a process:
Ethics management is used to provide operating values and associated behaviour. Ethics
programmes are process-oriented because the operating values are determined by on-going
reflection. The deliverables of the ethics programmes, such as codes, policies and procedures,
budget times and meeting minutes, are not produced directly. However, these deliverables are
produced by the process of reflection and dialogue.
2. Use ethics programmes to manage behaviour in organizations:
The ethical values provided by the ethical programmes can be used to direct behaviour in the
workplace. Therefore, ethical management practices, in addition to ethical values, should also
generate deliverables. These deliverables can be used to transform ethical values into
behaviour.
3. Avoid ethical dilemma:
The codes of ethics and the codes of conduct can be used to minimize the occurrences of
ethical dilemma.
4. Combine ethics management with other management practices:

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Ethical management should be integrated with other management practices. While developing
strategic planning, ethical values of the organization should be considered. While developing
personnel policies, determine the ethical values that are most effective for the environment of
the organization and then implement policies to produce these kinds of behaviour.
5. Develop ethics management programmes using cross-functional teams:
The employees of the organization should be included in the development and implementation
of the ethics management programmes.
6. Value maintenance:
Ethics management programmes may increase the ethics of people in the beginning because of
the sensitivity of people on their occurrence. However, people should remain ethical on the
implementation of these ethics management programmes.

 Roles and Responsibilities in Ethics Management

Each individual in the organization should be provided a specific role in managing ethics
in the organization. However, the role assigned to each individual depends on the size and
nature of the organization. The roles can also be full-time or part-time. The following
responsibilities can be assigned in ethics management:
1. The chief executive officer of the organization must support the ethics management
programme.
2. A committee or group should be developed in the organization to control the
development and operation of the ethics management programme.
3. A committee or group should be developed which should be responsible for training the
employees on the policies and procedures of the ethics management programme and
should resolve any ethical dilemmas that may arise. This committee can contain senior
officers.
4. A person in the organization should be designated as ombudsperson who has the
responsibility of investigating or resolving complaints from the employees of the
organization against the ethics management programme.
5. Each person of the organization is responsible for the implementation of the ethics
management programme.

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 CHAPTER THREE: ETHICAL DECISIONS
The management of an organization is responsible for making effective decisions. Managers are
responsible for all business operations and they also make all the important decisions. To make
decisions ethically correct, various models are considered for the purpose of good decision-
making. There are various frameworks of decision-making based on factors such as duty,
consequences and virtue. Managerial decision-making involves defining problems and then
structuring them for positive results. There are certain steps to be followed during decision-
making.

a. Ethical Decision Making:

Managers affect the behaviour and decision-making capability of individuals. The individuals in
an organization are responsible for conducting business operations. Management is defined as
a decision-making process. Ethical decision-making is a method of evaluating and choosing the
alternatives decided by ethics management. The following should be kept in mind while making
ethical decisions:

1. Identify and eliminate unethical options in the alternatives.

2. Identify complex, ambiguous and incomplete facts and try to avoid them.
3. Determine the ethical dilemma and resolve it.
4. Select the best ethical alternative.

Organizations need to perform a set of activities and take various decisions to achieve
organizational goals. These are known as the business strategies of the organization. Business
strategies are an important part of businesses, firms and industries. To make a business
strategy, all businesses, firms and industries need to develop a strategic plan once a year.
Managers of the firms are given the responsibility to achieve the goals stated in the strategic
plan. Business strategies are used for the following purposes:

1. They help determine the products and services that an organization needs to provide.
2. They help determine the various industries in which the organization competes.
3. They help identify the competitors, suppliers and customers of the organization.

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 4. They help analyse the long-term goals of the firm.

 Simon Decision-making Model:

Herbert A. Simon planned a model for decision-making that was known as the Simon’s model
of decision-making. According to Herbert A. Simon, the decision-making model is based on the
following sequence of steps. These steps are:

1. Identifying the problem.

2. Generating alternative solution.
3. Selecting a solution.
4. Implementing and evaluating the solution.

This model has the following three phases:

1. The Intelligence phase.

2. The Design phase.
3. The Choice phase.

1. The Intelligence Phase:

A decision-maker gets to learn about the environment where a problem occurs. The scanning
of environment may be continuous or irregular. For example, a review of daily scrap report by a
production manager to check the problems related to quality constitutes continuous scanning,
while frequent visits of a sales executive to the key customers to identify customer needs
constitute irregular scanning. The intelligence phase of the decision-making process involves
problem searching and problem formulation.

2. The Design Phase

In this phase, various alternatives are developed in order to get the best possible alternative to
solve a particular problem. The decision-maker makes a detailed analysis of each and every
alternative before taking the final decision.

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 3. The Choice Phase:

In this phase, an alternative, which was developed in the design phase, is selected. This
selection helps the decision-maker in taking appropriate decisions. After making a decision, the
decision is implemented. However, at any phase, the decision-maker may return to the
previous phase. For example, the decision-maker in the choice phase may reject all alternatives
and return to the design phase for developing new alternatives.

 Types of Decisions:

Organizational decisions can differ in different ways, which initiates development of different
types of decisions from which organizations can choose the appropriate decisions.
Organizational decisions are primarily classified on the basis of the purpose of decision-making.
Knowledge of outcomes is another approach for classifying organizational decisions. An
outcome defines what is going to happen if a particular decision is taken or a particular course
of action is taken.

Organizational decisions involve selecting the best alternative from amongst the available
alternatives. Organizational decisions are classified into the following categories:

1. Strategic planning decisions:

These are the decisions in which a decision-maker develops objectives and allocates resources
for achieving these objectives. Decisions under this category are used for a long period of time
and involve a large investment. For example, introducing new products and the acquisition of
another organization are strategic planning decisions.

2. Management control decisions:

These are the decisions taken by the management control-level managers, who are at the
middle level of the management hierarchy in an organization. These managers deal with the
use of resources in the organization. The management control decisions include the analysis of
variance, product mix and planning decisions.

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 3. Operational control decisions:

These are the decisions that deal with the day-to-day problems that affect the operation of an
organization. For example, decisions such as production scheduling and inventory control fall
under this category. Decisions under this category are taken by the operational-level
managers, who are at the bottom-level of the management hierarchy in an organization.

4. Structured decisions:

These are the decisions that are well defined and require application and implementation of
some specified procedure or decision rule in order to reach a decision. Such decisions require
less time for developing alternatives in the design phase. Structured decisions are made by
operating procedures or by using other accepted tools. More modern techniques for making
such decisions involve operations research (OR), mathematical analysis, modelling and
simulation.

5. Unstructured decisions:

These are the decisions which are not well defined and have no pre-specified procedure or
decision rule. These decisions may range from one-time decisions relating to a crisis to
decisions relating to recurring problems. The unstructured decisions usually consume much
time in the design phase of the decision-making process. These decisions could be solved using
judgement and intuition. Modern approaches to such decisions include special data analysis on
computers and heuristic techniques. Such decisions are usually handled by strategic planning
level managers because of their unstructured nature.

6. Semi-structured decisions:

These are the decisions that are neither structured nor unstructured. These decisions fall
somewhere between the structured and unstructured decisions. For example, the introduction
of a new product is a semi-structured decision.

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  Characteristics of Good Decision-making:
1. Decision problems should be grabbed by the management both in space and time. This
means, the decision problem should be analysed thoroughly by the management.
2. The decision made by the decision-maker should keep him in a state of calm.
3. Decisions made by the management should contribute to harmony in the organization.
4. Self-interest and self-orientation should not come in the way of decision-making.

 Problems in the Decision-making Process:

There are various problems faced by a management in the decision-making process. These
problems are:

1. Insufficient information:

It refers to the lack of information which affects the performance and quality of the
management in an organization.

2. Insufficient knowledge:

It refers to the difference between available knowledge and the required information for the
management to take a decision.

3. Lack of time:

It refers to the pressure on the management to make decisions. If time is limited, then the
management needs to take hasty decisions.

4. Poor communications:

It leads to the problem that arises due to improper communication of information. Other
limitations of any management in the decision-making process are with respect to the inability
of the human mind to handle available knowledge as also human behaviour.

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  Managerial Decision-making:

Decision-making and problem solving is a core function of a management because it is an

integral part of all other managerial functions such as planning, organizing, directing and
controlling. It is also an integral part of life because life cannot be managed without making
decisions. We are always faced with situations where we have to make choices almost every
day of our lives and making a choice out of many options constitutes a decision. This decision
may be a simple one, such as choosing clothes to wear, selecting food from a menu or deciding
the general activities for the day or it may be a major decision such as changing a job or
purchasing a house.

Rational decision-making and problem solving may be used interchangeably since a problem
has to exist and a decision has to be made to solve such a problem. While most decisions
indeed involve a problem, some decisions are part of routine and may not involve a problem.
For example, decisions as to what to wear or which movie to see or whether to stay or go for
swimming are routine decisions and simple choices among available alternatives, requiring
common sense and simple qualitative judgement. Problem solving, on the other hand, is a
much more vigorous process which requires rational inquiry based upon unemotional
reasoning, identifying the problem, generating feasible solutions for it, choosing the best
solution from the point of view of utility and then applying this solution to see if it works
efficiently and effectively. In general, while decision-making results in a choice from many
alternative courses of action, problem solving results in resolving the disparities between the
desired performance and the performance actually obtained.

Decision-making is a complex mental exercise in reality. Some of the decisions we make are
highly significant with highly important consequences. The more significant decisions very often
need the exercise of considerable analytical judgement and the quality of such judgement is
the backbone of successful decisions. These judgements must eliminate the root causes of

38
problems that have necessitated such decisions. Ineffective decisions attack only the symptoms
and are only cosmetic in nature. They may solve the problem on the surface or on a short-run
basis, but in order to find a lasting solution, the problem must be attacked at its roots.

As we all face the future, its unpredictability brings to us certain situations that are unexpected
and hence problematic in nature. As we grow older and share added responsibilities, we
develop certain characteristics and some intuitional senses that help us solve some of these
problems. Moreover, we also learn some techniques and methodologies through the acquisition
of knowledge and skills, which assist us in solving certain types of problems. These problems
require decisions that exist at personal, organizational and social levels.

Individuals must make major decisions regarding their careers, their marriage and family and
other decisions, which have far-reaching personal implications. Organizational decisions involve
problems relating to investments, products, marketing, location of production or service
facilities, dealing with personnel problems, contributions towards community welfare, and so
on. Societies, in general, have many problems that affect their very survival, such as crime,
energy shortages, depletion of finite resources, health services, employment and political
conflicts among nations.

All these problems have to be faced and solved. No person can avoid problems and ignoring a
problem is never a solution. As Thomas J. Watson Jr put it:

I never varied from the managerial rule that the worst possible thing we could do would be to lie
dead in the water with any problem. Solve it, solve it quickly, and solve it right or wrong. If you
solved it wrong, it would come back and slap you on the face and then you could solve it right.
Doing nothing is a comfortable alternative because it is without immediate risk, but it is an
absolutely fatal way to manage a business.

From organizational point of view, the decision-making process is such an integral and
important part of management that some thinkers propose that management is simply a
decision-making process. They call it the ‘decision theory school of management.’ The basic
emphasis of this school is not on people or environmental variables influencing the

39
management behaviour, but on the process of decision-making and the theory that all
management thought could be built around it. According to Simon:

A theory of administration should be concerned with the process of decision as well as with the
process of action. Even if the decision-making is not the only skill required for effective
management, it cannot be denied that in fact it is an essential and highly important skill. This skill is
actively utilized in all other functions of management such as planning, organizing, directing and
controlling. Hence, decision-making is widely acknowledged as the centre of executive activity in
business and industry and is considered as the major criterion for the evaluation of an executive’s
 Factors affecting Decision-making:

Some of the factors and personal characteristics that have an impact on decision-makers are
described below. Some factors are more important at higher levels of management and others
are more important at the lower levels.

1. Programmed versus non-programmed decisions:

Programmed decisions are made in predictable circumstances and managers have clear
parameters and criteria. Problems are well structured and alternatives are well defined. The
problems are solved and decisions are implemented through established policy directives, rules
and procedures. Non-programmed decisions are made in unique circumstances and the results
of such decisions are often unpredictable. Managers face ill-structured problems. These
problems require a custom-made response and are usually handled by the top management.
To start a new business, to merge with another business or to close a plant are all examples of
non-programmed decisions. For example, when Steven Jobs and Stephen Wozniak introduced
the first Apple microcomputer in 1978, they were not certain about the market for it. Today,
Apple Macintosh computer is a major competitor to IBM computers.

2. Information inputs:

It is very important to have adequate and accurate information about the situation for decision-
making; otherwise, the merit of the decision will suffer. It must be recognized, however that an

40
individual has certain mental constraints, which limit the amount of information that he can
adequately handle. Less information is as dangerous as too much information. Some highly
authoritative individuals do make decisions on the basis of comparatively less information
when compared to more conservative decision-makers.

3. Prejudice:

Prejudice and bias are introduced in our decisions by our perceptual processes and may cause
us to make ineffective decisions. First, perception is highly selective, which means that we only
accept what we want to accept and hence, only such type of information filters down to our
senses. Second, perception is highly subjective, meaning that information gets distorted in
order to be consistent with our pre-established beliefs, attitudes and values. For example, a
preconceived idea that a given person or an organization is honest or deceptive, good or poor
source of information, late or prompt delivery, and so on, can have a considerable effect on the
objective ability of the decision-maker and the quality of the decision.

4. Cognitive constraints:

A human brain, which is the source of thinking, creativity and decision-making, is limited in
capacity in a number of ways. For example, except for some unique circumstances, our
memory is short term, having the capacity of only a few ideas, words and symbols. Second, we
cannot perform more than a limited number of calculations in our heads and it is tough to
compare all the possible alternatives and make a choice. Finally, psychologically, we are always
uncomfortable with making decisions. We are never really sure if our choice of the alternative
was correct and optimal until the impact of the implication of the decision has been felt. This
makes us feel insecure.

5. Attitudes about risk and uncertainty:

These attitudes are developed in a person, partly due to certain personal characteristics and
partly due to organizational characteristics. If the organizational policy is such that it penalizes
losses more than it rewards gains, then the decision-maker would tend to avoid the alternatives
that have some chances of failure. Thus, a manager may avoid a potentially good opportunity if

41
there is a slight chance of a loss. The personal characteristics of a decision-maker regarding his
attitudes towards risk taking affect the success of the decision.

 Steps in Decision-making:

All decisions involve a series of sequential steps that lead to a particular result. These steps are
generally followed to make systematic, objective, analytical and unemotional decisions and
some management scholars have called this process a ‘rational decision-making process.’
Figure 3.1 shows the steps in decision-making.

These steps are explained in more detail as follows:

1. Perception and diagnosis of the problem:

Problems are defined in terms of discrepancy or deviation between the desired and actual state
of affairs. The greater this deviation the more serious is the problem. This discrepancy must be
perceived correctly, since any solution to a wrong problem would be a wrong solution. This
deviation could develop either because the performance slips when the goals remain constant
or because the goals change and the performance remains constant. A problem once isolated,

42
must be defined and formulated. A written problem statement must be developed, describing
as specifically as possible the nature and extent of the symptoms and when and where they
occurred and what the underlying causes are thought to be. A written problem statement is
easier to work on and more people can work on the problem at the same time. Furthermore, a
written form provides an excellent form of communication to all parties concerned.

2. Generation of alternate solutions:

The next step in decision-making process is to generate possible solutions and their
consequences to the organization. All possible solutions should be considered because the most
obvious solution may not be the optimal solution. However, creativity should be encouraged so
that the focus can be shifted to unique solutions. The degree and depth of creativity would
generally influence the quality of decisions and consequently the results of actions that are
based on such decisions. Creativity must not be-locked by personal values or perceptions about
the problem. It must be objective and removed from emotions and cultural taboos that might
affect the outcome of a decision.

While developing alternate courses of action, the decision-maker should take into
consideration possible changes in the organizational environment as a result of the decision
made and that might pose either a threat or an opportunity in a given period of time. In
searching for alternatives, some of the resources that can be drawn upon are: the past
experience of the decision-maker to look for similarities with the problems and solutions
in the past, drawing on the experience of other experts both within and outside the
organization and the responses of the people who would be affected by the decision.

3. Evaluation of alternatives and selecting a course of action:

The evaluation of alternatives and selecting the best alternative with the most advantages is
the most critical part of the decision-making process. A wrong choice would negate the effects
of all efforts put in the preparation of the process. Finding the optimal choice requires the
consideration of the possible impact of all alternatives in such a manner that the chosen course
of action will not only meet the requirements of the objectives, but also eliminate the root

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cause of the problem. Some of the criteria against which the alternatives are to be measured
are quantitative in nature such as return on investment, market share or net profits. Some
other criteria are qualitative in nature such as consumer attitude, employee morale and ethics
of the organizational mission. The bottom line in any decision criterion is the benefit derived
from it in financial terms. This may be in the form of cost effectiveness, which means that for a
given cost, the alternative with a greater degree of achievement of objective will be selected.
Similarly, for a set level of achievement, the alternative with a lower cost will be accepted.

No matter how tangible the methodology of the decision-making method may be, the effect of
the personal judgement of the decision-maker in choosing the best alternative is always
dominant. This judgement will be a reflection of current management values, ethics, social
commitment and organizational politics. This judgement cannot be quantified and hence, must
be based upon strong intuition and past experience.

4. Implementation of the decision:

Implementation means putting the selected alternative into action and seeing it through to its
completion. The process of implementation starts with assigning responsibilities to persons who
will be involved in carrying out the decision. The possibility of any resistance to change should
be examined, especially if it affects or conflicts with personal values and personalities and
group norms or, as the case may be, group objectives. The implementation, of course,
becomes easier if the persons implementing it and persons affected by it were also involved in
the decision-making process and if they have some stake, financial or otherwise, in the success
of the solution. It is vital to communicate the details of the decision and procedures for
implementation to all the employees clearly, in detail, and in a manner that would invite
commitment and dedication. This commitment can further be improved if the implementation
plan has provisions for any necessary modification that may be required and the members of
the organization should be empowered to modify the solution during implementation based
upon their experience with it.

5. Monitoring feedback:

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Feedback provides the means of determining the effectiveness of the implemented decision. If
possible, a mechanism should be built into the process, which would give periodic reports on
the success of the implementation. In addition, the mechanism should also serve as an
instrument of ‘preventive maintenance’ so that the problems can be prevented before they
occur. In many situations, computers are very successfully used in monitoring, since the
information retrieval process is very fast and accurate and in some instances, the self-
correcting is instantaneous. Monitoring the decision is necessary and useful irrespective of
whether the feedback is positive or negative. Positive feedback reaffirms the correctness of the
decision and the process. Negative feedback indicates either that the implementation requires
more time, resources, efforts or planning than originally thought or that the decision was a
poor one and needs to be re-examined.

b. Ethical Dilemmas in Organization

Social responsibility of business involves the consideration of general public interest by

businessmen while taking business decisions and actions. According to Bowen, social
responsibility refers to the ‘obligations of businessmen to pursue those policies, to make those
decisions or to follow those lines of action which are desirable in terms of the objectives and
values of our society.’ This entails that businessmen should perform their operations with due
consideration to the aspirations of society. They should fulfil the demands of those who have a
claim on the operations of business. They must measure the consequences of their decisions
and courses of action on the society and ascertain that no undue harm is done to the interests
of the society. The concept of social responsibility has emerged due to several economic, social,
political and legal influences. These forces, which have obliged, persuaded and helped
businessmen to become aware of their responsibility to society, are as follows:

1. Public opinion:

Public interference with the help of the government has instilled a fear in the heart of
businessmen. The threat of public regulation and public ownership has compelled them to
acknowledge the fact that responsible behaviour is essential on their part for survival in the
private sector.

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 2. Trade union movement:

The recent development of socialism that boosted the strength of labour unions has forced
businessmen to give a fair share to workers. Human relations and labour legislation have
facilitated trade unions to increase their influence.

3. Consumerism:

Consumer organizations have encouraged awareness about consumer rights. Consequently,

businesses have become more responsive to consumer needs and stress the dictum of
‘consumer is the king.’ Businessmen can no longer adopt the approach of ‘let the buyer
beware.’

4. Education:

Extensive education has made businessmen conscious about the quality of life, moral values
and social standards. Liberal business leaders have been pressing the business community to
acknowledge its social obligations.

5. Public relations:

Modern businessmen are aware that a good public image contributes to their growth. There is
a greater alertness in their hearts that business is a construction of society and hence, it should
consider and react positively to the expectations of society.

6. Managerial revolution:

Separation of ownership from control in large corporations has resulted in professionalism in

management. A professional manager is fairly aware of the society’s expectations and
attempts to meet the demands of all social components, like ; employees, shareholders
and the government, in a well-adjusted manner.

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The case of social responsibility has been the subject of controversy since long. There have
been arguments both in favour and against it. The main points that support the assumption of
social responsibility by business enterprise are as follows:

1. Long-term self-interest of business:

As stated earlier, a good public image is bound to give better returns to a business enterprise.
Businessmen can benefit in the long run by providing for the welfare of the society through
education and better living conditions. This will result in better employees in business and
enlightened customers in society who will benefit through their increased purchasing power.

2. Ascertainment of law and order:

Social responsibility on the part of business can avoid unrest in society. If the society feels that
it is not getting its appropriate share in business, it is bound to create disorder by adopting
anti-social and illegal activities and rebellions. Pursuing the doctrine of social responsibility can
help business organizations prevent social chaos.

3. Maintenance of free enterprise:

Government or public regulation can hinder the development of business by decreasing the
flexibility of decision-making and the freedom of choice and action. Therefore, the voluntary
assumption of social responsibilities is essential for the growth of a business organization.

4. Creation of society:

Business is a part of society and survives on the demands of the society. Therefore, it should
be responsive to social expectations and welfare. The right of the business to grow goes hand
in hand with its awareness of social responsibility and welfare. It is the duty of the business
enterprise to contribute in some way to the well-being of its society.

5. Moral justification:

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Enlightened businessmen have now become more aware about their moral duty to serve the
society. Business has the resources and power to solve social problems. Therefore, its power
should be balanced with social responsibility.

6. Profitable environment:

To ensure a profitable environment in the society in which it operates, business needs to meet
the challenges of social evils. Active interference on the part of businessmen in solving these
challenges can convert them to opportunities, which in turn will ascertain not just the
existence, but also the benefits of the organization.

7. System interdependence:

Business system and social dependence are interrelated and thus affect each other.

The arguments against social responsibility on the part of business enterprise are as follows:

1. Dilution of profit maximization:

Economic value is the main criterion by which the success of a business should be estimated.
According to Milton Friedman, ‘Few trends could so thoroughly undermine the very foundation
of our free society as the acceptance by corporate officials of a social responsibility other than
to make as much money for shareholders as possible. This is a fundamentally subversive
doctrine. Management’s spending for society is hypocrisy. Only people can have responsibilities
not corporations.’

2. Loss of incentive:

The motivation to utilize resources effectively is decreased when social responsibility is

considered important. It is the profit motive principally that encourages optimum use of
resources and manpower to run the business with enthusiasm.

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 3. Lack of standard:

Besides the effort motive, profit serves as a standard to measure the performance of business.
A business organization goes off course as it loses the guiding measure that depicts the
efficiency of its performance and thus hinders decision-making.

4. Business is an objective venture:

The emotional insights and experience essential to tackle social problems are lacking in the
temperament of businessmen. They cannot determine what is in public interest. The solutions
to social problems should be expected from specialized social agencies and not from
businessmen.

5. Undue use of power:

If business organizations are involved in social institutions they are likely to dominate the
decisions of these institutions for their own interests. They can use their financial power to take
decisions concerning the functioning of these institutions. This may further lead to increased
social detriment.

6. Market mechanism gets distorted:

The principle of social responsibility is based on the assumption that market mechanism is not
the appropriate way to allocate scarce resources to alternative uses and so it should be
replaced by political mechanism. If the market price of a product contains the cost of social
actions, it does not actually represent the relative cost of producing it and thus the market
mechanism gets distorted.

c. Corporate Governance:

Corporate governance is defined as an act of controlling, directing and evaluating the activities
of an organization. The structure of corporate governance specifies that the others taking part
in the organization, such as the board managers, board of directors, shareholders and other

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stakeholders must be provided with some rights and responsibilities. Providing powers to the
participants of the organization results in the monitoring of performance of the employees in an
organization. Corporate governance helps the organization achieve the goals and objectives of
an organization in a desired manner.

Corporate governance has achieved a great deal of success in attracting public interest because
corporate governance gives importance to the economic health of the corporation and the
society as a whole. However, corporate governance covers a wide variety of the distinct
economic phenomenon. Therefore, many people have given different definitions of corporate
governance. A few definitions of corporate governance are as follows:

According to Shleifer and Vishny, ‘Corporate governance deals with the ways in which suppliers
of finance to corporations assure themselves of getting a return on their investment.’

An article from Financial Times has defined corporate governance as ‘the relationship of a
company to its shareholders or, more broadly, as its relationship to society.’

According to the J. Wolfensohn, ‘Corporate governance is about promoting corporate fairness,

transparency and accountability.’

 The Need for Corporate Governance:

There are various reasons for the need for corporate governance in an organization.
These are:

1. A corporation, which is a union of many stakeholders, such as employees, customers,

investors, vendors, and so on, must be fair and transparent to its stakeholders in all its
dealings. It is very important in today’s globalized business world, where corporations
require to have access to global pools of capital attract and retain the best human
resource from all parts of the globe. If a corporation does not take up and show ethical
conduct, it is not considered to be successful.
2. Corporate governance covers ethical conduct in business, the code of values and
principles that helps an individual to choose between right and wrong or make the right

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 selection from the options or alternatives provided. Managers decide on certain actions
on the basis of and principles that are governed by the culture, context and values of an
organization. An organization that follows ethical values feel that it is better for the
business, as it helps in the long run and the stakeholders observe that the management
is running the organization in the desired way.
3. It is beyond the sphere of law, i.e., it stems from the background and outlook of the
management and cannot be regulated by legislation alone. It deals with running the
affairs of a company in such a way that it is fair to all the stakeholders and that its
dealings benefit the greatest number of stakeholders. It is about honesty, integrity and
responsibility. Laws should set up a common framework to maintain standards. Since
substance is very much linked with the mindset and ethical standards of management, it
shall in the end lay down the creditability and integrity of the process.
4. Corporations should realize that it is necessary for all the stakeholders to cooperate in
order to facilitate development. Such cooperation and support can only be possible by
adhering to the best practices of corporate governance. In this context, management
has to take the responsibility of the shareholders at large and stop any unbalanced
benefits of the varied sections of the shareholders.
5. The economic competence of a company can be improved through corporate
governance. Corporate governance also ensures that corporations consider the interests
of a wide range of constituencies and also of the communities within which they
function. Corporate governance also makes sure that the boards of directors are
responsible to the shareholders. This even helps to ensure that corporations work for the
benefit of the society at large, including the society’s concerns about labour and
environment.
6. If the execution of good governance fails, heavy losses can result in terms of cost other
than regulatory problems. Many organizations that do not give due importance to
corporate governance end up paying a large risk premium while contending for scarce
capital in the public markets. Of late, stock market analysts have started realizing,
accepting and appreciating the relationship between returns and corporate governance.

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7. The confidence of both foreign and domestic investors is maintained and upheld due to
the trustworthiness that comes from good measures of corporate governance. The cost
of capital should be brought down so that more long-term investment is attracted.
8. Often, importance and attention is given to corporate governance in times of financial
crisis. In the US, when scandals disturbed the otherwise calm and contented corporate
environment, new initiatives thrown up by them led to fresh debates in Asia and the
European Union. With many instances of corporate misdemeanour coming into limelight,
the emphasis now is on compliance with substance, rather than on form. It has also
brought to the fore the need of intellectual honesty and integrity. The financial and other
disclosures made by firms are only as good as the people who make it.
9. Corporate governance has been defined in different ways. Many definitions do not give
its scope and the motives of many of the definitions vary. However, the crux is that
corporate governance is a concept and not an individual instrument. It encompasses
necessary management and control structures of a company, the rules about the power
relationship between owners, the board of directors, stakeholders and others. The
easiest definition of corporate governance has been given by the Cadbury Report. It has
been paraphrased as, ‘the system by which business are directed and controlled.’ The
other all-inclusive definition has been given by the OECD (Organization for Economic
Cooperation Code). According to it, corporate governance includes complex
relationships among the management, its shareholders, board and others. It also
establishes the framework through which the aims of the company are established and
the methods of attaining those objectives and observing the working are decided.
10. Corporate governance is aimed at increasing the long-term value of an organization for
not only its shareholders, but also partners. It represents an amalgamation of all those
involved in a process that is socio-economic. It is imperative for all organizations to
govern and manage. Corporate governance includes the entire stakeholder and at the
same time the process is economic as well as social.
11. Studies related to corporate governance practices conducted worldwide by various
institutions clearly indicate that no single model is available for good corporate
governance. The OECD also recognizes this. It also accepts the fact that a wide range of

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 approaches to corporate governance have developed due to the differences that exist
in institutional frameworks, legal systems as well as traditions in various countries. All
good corporate governance regimes place high preference on the interests of
shareholders, as the latter place their trusts on corporations to use their investment
funds in an effective and wise manner.

 Principles of Corporate Governance:

Corporate governance includes principles such as honesty, trust, integrity, responsibility,

accountability and commitment to the organization. Apart from these, the other principles of
corporate governance are as follows:

1. Rights and equitable treatment of shareholders:

The organizations must acknowledge the rights of the shareholders and they must help the
shareholders in exercising their rights effectively. Shareholders must also be encouraged to
participate in the general meetings of an organization.

2. Interests of other stakeholders:

It is the duty of an organization to recognize the legal and other obligations of certain
stakeholders.

3. Role and responsibilities of the board:

In order to deal with various issues of a business, an organization needs a wide range of skills
among the members of the board. The members of the organization must work with great
responsibility.

4. Integrity and ethical behaviour:

In order to promote ethical and responsible decision-making, organizations must develop

a code of conduct for the directors of an organization.

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 5. Disclosure and transparency:

The roles and duties of directors must be clearly defined by an organization. Organizations
must implement certain procedures in order to verify and safeguard the integrity of the
organization. An organization must disclose the financial information to investors and
shareholders.

 Managerial Roles in Corporate Governance:

The managers of an organization also play a very important role in the success of an
organization and corporate governance. An organization must examine the roles that the
managers are expected to perform. Henry Mintzberg developed these roles in the late 1960s
after a careful study of executives at work. All these roles in one form or another deal with
people and their interpersonal relationships. These managerial roles are divided into three
categories. The first category of interpersonal roles arises directly from the manager’s position
and the formal authority bestowed upon him. The second category of informational roles is
played as a direct result of interpersonal roles and these two categories lead to the third
category, that of decisional roles. Figure 3.2 shows the various managerial roles.

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 Figure 3.2: Various Managerial Roles

1. Interpersonal roles:

Managers spend a considerable amount of time in interacting with other people, both within
their own organizations as well as outside. These people include peers, subordinates, superiors,
suppliers, customers, government officials and community leaders. All these interactions
require an understanding of interpersonal relations. Studies show that interacting with people
takes up nearly 80 per cent of a manager’s time. These interactions involve the following three
major interpersonal roles, which are:

 Figurehead:

Managers act as a symbolic figurehead performing social or legal obligations. These duties
include greeting visitors, signing legal documents, taking important customers to lunch,
attending a subordinate’s wedding and speaking at functions in schools and churches. All these,
primarily, are duties of a ceremonial nature but are important for the smooth functioning of an
organization.

 Leader:

The influence of a manager is most clearly seen in his role as a leader of the unit or
organization. A manager is responsible for the activities of his subordinates, he must lead and
coordinate their activities in meeting task-related goals and he must motivate them to perform
better. He must be an exemplary leader so that his subordinates follow his directions and
guidelines with respect and dedication.

 Liaison:

In addition to their constant contact with their own subordinates, peers and superiors, the
managers must maintain a network of outside contacts in order to assess the external
environment of competition, social changes or changes in governmental rules, regulations and

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laws. In this role, the managers build up their own external information system. In addition,
they develop networks of mutual obligations with other managers in the organization. They
also form alliances to win support for their proposals or decisions. The liaison with external
sources of information can be developed by attending meetings and professional conferences,
by personal phone calls, trade journals and by informal personal contacts within outside
agencies.

2. Informational roles:

By virtue of his interpersonal contacts, a manager emerges as a source of information on a

variety of issues concerning the organization. In this capacity of information processing, a
manager executes the following three roles:

 Monitor:

Managers are constantly monitor and scan their environment, both internal and external, collect
and study information regarding their organization and the outside environment affecting their
organization. This can be done by reading reports and periodicals, by asking their liaison
contacts and through gossip and speculation.

 Disseminator of information:

Managers must transmit the information regarding changes in policies or other matters to their
subordinates, their peers and to other members of the organization. This can be done through
memorandums, phone calls, individual meetings and group meetings.

 Spokesperson:

A manager has to be a spokesman for his unit and here presents his unit in either sending
relevant information to people outside his unit or making some demands on behalf of his unit.
This may be in the form of the president of the company making a speech to a lobby on behalf
of an organizational cause or an engineer suggesting a product modification to a supplier.

3. Decisional roles

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On the basis of the environmental information received, a manager must make decisions and
solve organizational problems. In that respect, a manager plays four important roles, which
are:

 Entrepreneur:

As entrepreneurs, managers are continuously involved in improving their units and facing
dynamic technological challenges. They are constantly on the lookout for new ideas for product
improvement or products addition. They initiate feasibility studies, arrange for capital for new
products if necessary and ask for suggestions from the employees for ways to improve the
organization. This can be achieved through suggestion boxes, holding strategy meetings with
project managers and research and development personnel.

 Conflict handler:

Managers are constantly involved as arbitrators in solving differences among the subordinates
or the employee’s conflicts with the central management. These conflicts may arise due to
demands for higher pay or other benefits or these conflicts may involve outside forces such as
vendors increasing their prices, a major customer going bankrupt or unwanted visits by
governmental inspectors. Managers must anticipate such problems and take preventive action if
possible or take corrective action once the problems have arisen. These problems may also
involve labour disputes, customer complaints, employee grievances, machine breakdowns, cash
flow shortages and interpersonal conflicts.

 Resource allocator:

The third decisional role of a manager is that of a resource allocator. Managers must establish
priorities among various projects or programmes and make budgetary allocations to the
different activities of the organization based upon these priorities. They assign personnel to
jobs, allocate their own time to different activities and allocate funds for new equipment,
advertising and pay raises.

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All these roles are important in a manager’s job and are interrelated even through some roles
may be more influential than others, depending upon the managerial position. For example,
sales managers may give more importance to interpersonal roles, while the production
managers may give more importance to decisional roles. The traits of effective managers are
their ability to recognize the suitable roles to play in each situation and the flexibility to change
roles when required. However, managerial effectiveness is determined by how well the
decisional roles are performed by the manager in the organization.

REFERENCES FOR FURTHER READING

1. Modh, Satish. (2005). Ethical Management: Text and Cases in Business Ethics and
Corporate Governance. New Delhi: Macmillan Publishers India Ltd, 2005.
2. Mathur, U.C. (2005). Corporate Governance and Business Ethics: Text and Cases. New
Delhi: Macmillan Publishers India Ltd, 2005.

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Slogan: ‘Perspiration in preparation is inspiration in presentation’

Mr. ETAMBA Gilbert (Course Facilitator)

Tel: 6 77 00 81 61/ 6 96 65 45 21
E-mail: etambaccti@gmail.com

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