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  • 1. MODULE III ETHICAL DILEMMAS IN MARKETING Ethics in marketing is the function and process of marketing keeping to the standard norms of it and achieving the ends through a sound means. A discussion on ethics in marketing could begin with discussion of sets of the followings: i) Individual Ethics Vs. Market Ethics ii) Company Ethics Vs. Market Ethics iii) Industry Ethics Vs. Market Ethics; and iv) Inter Market Ethics (or Cross-Cultural Ethics in Markets). Ethical modeling of the market pre-supposes ethical modeling of the individual as well as the collective minds. It is the individual’s mind that presents the agenda for the mind of any sort of the collective – an organisation, a society, a market or a greater congregation. INDIVIDUAL-COMPANY-MARKET ETHICS LAYOUT 4 3 2 1 1 = Individual Ethics 2 = Intra Company Ethics 3 = Inter Company Ethics 4 = Ethical Consciousness of the market
  • 2. As has been shown in the picture, the ethical position of an individual depends upon the relationship among Individual ethics, Intra-company ethics, Inter-company ethics and finally ethical standing of the market. Marketing being a key activity that directs the flow of goods and services from the producer to the end user, is vital for success of the organization. In a competitive business environment, this field is susceptible to a number of ethically challenging situations. 1. Providing Information to the Customer According to the traditional marketing system, buyer beware or caveat emptor was the prevailing norm. The burden of gathering information relevant to purchase decision and taking the right decision was the responsibility of customer. In the changing business scenario, most of the companies are providing information to help customers make selection easier. Hence the marketers are having the ethical responsibility of the correctness, relevance and authenticity of information provided to the potential customers. 2. Deceptive and manipulative practices In its quest for getting maximum customers to try their product, marketers use a number of techniques, quite often of doubtful character. Some of these can be considered deceptive and manipulative. The moral case against deceptive and manipulative practice is that, market should be free of force and fraud. a) Using the label of new and improved may not have any practical value for the customer. b) Many companies use the promotional technique of selling three for the price of two. If the sale continues for long period other than a short introductory stage, the credibility of the product in terms of quality and price is likely to suffer. c) Reducing the volume while reducing the price – while price reduction is advertised, reduction in volume is not mentioned in the advertisements. d) Sugging is the process of selling in the guise of market research, where sales teams visit residences to gather information, to fill up questionnaires etc, but use the vulnerability of not-so-educated people to carry out sale. e) Bait and switch is widely used by many marketers, where huge discounts are offered to some products, prompting customers to enter the stores. Once inside, they find the discount items are not the ones they need or the quality of these items are so poor that they are not willing to purchase these items. However, a substantial part of the customers end up buying some other product on which there is no discount or nominal. f) Another form of deceptive marketing practice is using confidential information about the customers gathered from other sources and using them for marketing activity.
  • 3. 3. Bribery and paying kick-backs for obtaining orders is common especially in high value marketing. Another way of influencing key decision makers is by giving costly gifts, holiday offers etc, with the objective of getting orders in favour. 4. In commercial and technical bidding, many firms try to gather information on price, package, delivery terms etc quoted by competitors before submitting their offers. This is done frequently by enlisting the services of employees, contractors suppliers etc of competitors by offering inducements. 5. Pricing is an area where unfair practices are followed by most marketers. This can be in several forms: a) Charging high prices, disproportionate to the cost with a motive of making exorbitant profits, especially in Monopoly markets b) Fixing prices jointly with competitors, in situations like oligopoly markets. Price fixing can be done in two ways. Vertical Price fixing where manufacturer, wholesaler and the reseller join to sell the product at a particular rate. In horizontal price fixing, different sellers at the same level join together to charge a higher rate. For example, if you go to a taxi stand, all the taxi operators quote the same rate to go tone place. c) Price discrimination can be ethical in some cases like giving discounted rates to bulk purchasers. However, charging different prices to different customers with out valid reason is unethical. Consider two persons go to the market to buy fish – one in lungi and another neatly dressed and traveling by car. Will they get fish at the same rate? Sometimes, the retailers do not pass on the discounts, promotional material etc to the customers information d) Fixing a higher resale price and charging the same across the market and not passing on benefits due to lower tax etc top the customers. On the other hand, fixing a high resale price and charging much below, giving the false impression of special discount is also common. 6. Breach of warranty citing flimsy reasons, thereby customers are made to pay for services which otherwise would have been part of the deal and already included in the initial payment. 7. Tying arrangements ( where dealer of the main product of a company is forced to take other products which do not give benefit to the dealer) and reciprocal dealings can be grey areas. 8. Packaging and labeling are areas where customers get adequate and reliable information of a product. The labels should contain manufacturing information, expiry dates, contents, nutritional value for food items etc. It also should provide correct usage/storage procedures, installation advises etc. Negative sides like risks in usage of products, side
  • 4. effects in case of medical items etc should be publicized to keep the customer aware of problem areas. 9. Adulteration of food items, supply of spurious and low standard products are always considered unethical marketing practices. 10. Targeting vulnerable market segments like children, elderly people etc; promoting undesired products like drugs, cigarettes among children and youth cannot be considered fair marketing. 11. Using contacts and agreeable commentators & columnists to give favourable analysis reports, press release etc there by misleading customers to purchase. 12. Creating artificial shortages by manipulating supply to give the impression the product is in high demand. 13. Advertising is a key area where lot of complaints and issues arise. Many a time artificial needs are created, ego and craving for social status are stimulated, leading to market demand. a) Advertising is a non-productive expenditure as it does not add any value to the customer. Hence large scale spending on advertising itself is a debatable issue. (A counter argument is that advertisements increase demand, higher demands lead to higher sales volumes and hence higher production thereby reducing production cost and the cost to the customer of the particular product. Thus advertising contributes to lower costs to the customer.) b) Quite often advertising persuades customers to go for a product, though it is not the exact requirement or in priority list. c) While accepting some exaggeration is part of advertising over exaggerated claims of product effectiveness like in fairness creams, weight reduction gadgets can be highly misleading. d) Excessive use of women, sex, violence etc to grab attention is unfair practice. e) One-to-one comparison of products with an intention of showing competitor product is not a fair means of achieving market success. f) Deceptive comparison is widely used by advertisers. While some features specific to that product is promoted, the negative sides are hidden or underplayed. The positive features of competitor gets suppressed. Thus in all the marketing activities; be it pricing, promotion, packaging, placing or product, there is lot of likely situations which can be potentially ethical conflict areas. A marketer’s job is a tight walk with out violating the ethical policies, simultaneously getting market success. It calls for a high ethical organizational culture and mature behaviour from the marketing staff to ensure
  • 5. customers are the ultimate beneficiaries. For, the company that ensures its marketing activities are ethical, ultimately wins in the competitive market. PRODUCT DEVELOPMENT THE CONTRACT VIEW The most basic moral duty a business firm owes its customers, according to the contract view, is the duty to provide consumers with a product that lives up to those claims that the firm expressly made about the product. The implied claims that a seller/producer might make about the qualities possessed by the product range over a variety of areas and are affected by a number of factors. Frederick Sturdivant classified these areas in terms of four variables: 1. Reliability The manufacturer has a duty to ensure that the product is as reliable as he implicitly or explicitly claims it will be. 2. Service Life Claims concerning the life of a product refer to the period of time during which the product will function as effectively as the consumer is led to expect it to function. 3. Maintainability 4. Product Safety THE DUE CARE THEORY According to the due-care view, manufacturers have an obligation, above and beyond any contract, to exercise due care to prevent the consumer from being injured by defective products. What specific responsibilities does the duty to exercise due care impose on the producer? In general, the producer’s responsibilities would extend to the following three areas: 1. Design The manufacturer should ascertain whether the design of an article conceals any dangers, whether it incorporates all feasible safety devices, and whether it uses materials that are adequate for the purposes the product is intended to serve. The manufacturer is responsible for being
  • 6. thoroughly acquainted with the design of the item, and to conduct research and tests extensive enough to uncover any risks that may be involved in employing the article under various conditions of use. This requires researching consumers and analyzing their behaviour, testing the product under different conditions of consumer use and selecting materials strong enough to stand up to all probable usages. The effects of aging and wear should also be analysed and taken into account in designing an article. There is a duty to take the latest technological advances into account in design a product, especially where advances can provide ways to design a product that is less liable to harm or injure its users. 2. Production The production manager should control the manufacturing processes so as to eliminate any defective items, identify any weaknesses that become apparent during production, and ensure that short-cuts, substitution of weaker materials, or other economizing measures are not taken during manufacture that would compromise the safety of the final product. To ensure this, there should be adequate quality controls over materials that are to be used in the manufacture of the product and over the various stages of manufacture. 3. Information The manufacturer should fix labels, notices or instructions on the product that will warn the user of all dangers involved in using or misusing the item and that will enable the user to adequately guard him against harm or injury. These instructions should be clear and simple, and warnings of any hazards involved in using or misusing the product should also be clear, simple and prominent. In the case of drugs, manufacturers have a duty to warn physicians of any risks or dangerous side effects that research or prolonged use have revealed. FINANCE Finance covers a broad range of activities, but the two most visible aspects are financial markets, such as stock exchanges, and the financial services industry, which includes not only commercial banks, but also investment banks, mutual fund companies, pension funds, both public and private, and insurance. FINANCIAL SERVICES The financial services industry operates largely through personal selling by stockbrokers, insurance agents, financial planners, tax advisers and other finance professionals. Personal selling creates innumerable opportunities for abuse, and although finance professionals take
  • 7. pride in the level of integrity in the industry, misconduct still occurs. Investors are often deceived by the broker’s sales pitches and by concealed material information. Brokers have been accused of “churning” client accounts in order to generate higher fees and of selecting “unsuitable” investments for clients. Other abusive sales practices in the financial services industry include “twisting”, in which an insurance agent persuades a policy holder to replace an older policy with a newer one that provides little if any additional benefit but generates a commission for the agent, and “flipping”, in which a loan officer persuades a borrower to repay an old loan with a new one, thereby incurring more fees. Three objectionable practices in selling financial products to clients are: 1. Deception, 2. churning and 3. Suitability Deception The ethical treatment of clients requires salespeople to explain all of the relevant information truthfully in an understandable, nonmisleading manner. Salespeople avoid speaking of commissions, even though they are the source of their compensation. Commissions on mutual funds are “front-end” or “back-end loads”; and insurance agents, whose commissions can approach 100 percent of the first year’s premium, are not legally required to disclose this fact – and they rarely do. Deception is often a matter of interpretation. Promotional material for a mutual fund, for example, may be accurate but misleading if it over emphasises the strengths of a fund and minimizes the weaknesses. Figures of past performance can carefully be selected and displayed in ways that give a misleading impression. Deception can also occur when essential information is not revealed. Thus, an investor may be deceived when the sales charge is rolled into the funds annual expenses, which may be substantially higher than the competition’s or when the projected hypothetical returns do not reflect all charges. Churning Churning is defined as excessive or inappropriate trading for a client’s account by a broker who has control over the account with the intent to generate commissions rather than to benefit the client. For churning to occur a broker must trade with the intention of generating commissions rather than benefiting the client. The legal definition of churning contains three elements: 1. the broker controls the accounts; 2. the trading is excessive for the character of the account; and 3. the broker acted with intent. Suitability The most common causes of unsuitability are:
  • 8. 1. Unsuitable types of securities, that is, recommending stocks, for example, when bonds would better fit the investor’s objectives. 2. Unsuitable grades of securities, such as selecting lower-rated bonds when higher-rated ones are more appropriate; 3. Unsuitable diversification, which leaves the portfolio vulnerable to changes in the markets; 4. Unsuitable trading techniques, including the use of margin or options, which can leverage an account and create greater volatility and risk; and 5. Unsuitable liquidity. Limited partnerships, for example, are not very marketable and are thus unsuitable for customers who may need to liquidate the investment. HIGH FINANCE Most people agree that high finance, has had many undesirable consequences on society. But like the gun lobbyists of the USA, they would place the blame on the wickedness of man and not on the instrument. (Guns do not kill people. People do.) We need to work on this wickedness rather than question the instrument. In India, the left and ultra traditionalists are against high finance just as they are for more extensive laws. But the new right conservatives are for it just as they are for minimal laws. [Four major types of High Finance are: 1. Stock market operations primary or secondary, 2. Bank operations, 3. Stock market operations through derivatives and international swapping transactions, and speculative dealing in money markets in debentures and government securities, and 4. Mergers and acquisitions] The most glaring breakdowns of ethical norms in the world today are undoubtedly in the area often described as high finance. Why is there such an ethical vulnerability in this area and what can we do about it? The special ethical features of high finance are: • The basic rewards in this field are not from improving real productivity but in speculative forecasting. • The focus in the management at organisations is not on effective governance, but as sources of income to fulfill “naked greed”. There is no incentive to develop permanent and long standing trust relationships. There is only an unquenchable thirst for profits. • Decisions are always highly risky and tantamount to gambling. • The transactions are easily hidden from the public eye and there is no transparency. • The systems are such that the rewards for risk-taking go to one set of persons whereas the costs are likely to be foisted on other groups.
  • 9. • The rewards are astronomical (huge) and therefore tempt the unscrupulous risk takers. • Internal controls are weakened for several reasons, the most important one being the mystique of the subject and the fact that it is not well understood by the generality of management. Let us see how this happens under the four types of transactions detailed above. 1. BANKING SCAMS In India, banks cannot invest in speculative investments. Their investments have to be made in no-risk investments. The banking regulations also require standards of public disclosure of information. The ethical role of the accountants and auditors is to ensure this. Before we describe the different views on ‘why’ scams happen, let us briefly state ‘how’ they happened. The massive BCCI scam of the UK took place as moneys were lent to drug traffickers and highly disreputable characters who ultimately failed financially. BCCI was able to bribe its way through some of the most highly placed personnel including those of the World Bank. A firm of world-renowned auditors repeatedly overlooked serious inadequacies in the bank’s accounts which were in no way fair; this was known only in retrospect. In the Indian Bank scam Harshad Mehta forged documents and created fake transactions which seemed to satisfy the banking regulations, took the money from the banks for temporary periods and paid them handsome returns till the overheated market of his creation collapsed. In the Barings scam, Leeson, a young English executive of Barings Bank at Singapore, speculated and gambled in derivatives. Leeson was given the combined responsibility of trading and its accounting in the books. Leeson traded in derivatives with precarious stakes. More disastrously, he did not put the loss-making transactions through the account book of Barings. On some occasions he misclassified cash transactions deliberately to stow them away under heads where they would not attract attention. Peter Baring, the Chairman, woke up to the disaster only after Leeson had fled from Singapore on 28th February 1994. Barings’ losses were more than its capital and there was no way it could survive. Several people all over the world including the British royalty who had trusted their money to the bank had to face a financial disaster. This is how the scams occurred; the question is “why” do they take place. The Indian Bank securities scam was convincingly ascribed to inadequate control systems and an unwise interference by the government in the market mechanisms. The BCCI scam was not just a financial scandal – it was all about gun running and drug trafficking, bribing through all control systems in the USA, the World Bank and several Asian and Arab countries.
  • 10. All scams are due to the failure of the internal control systems. How can we improve on the internal controls provided by the world’s most renowned auditors? Both in the Barings and BCCI scams, obviously fraudulent accounts were certified by these very auditors for several years in a row. A composite set of reasons were no doubt responsible not singly but jointly. The ease with which systems could be beaten as also the clumsiness of the controls were undoubtedly the major reasons. But they were compounded by the basic failure of the ethical fiber. This ethical fiber is not always present in the behaviour of the traditionalists and absent in the modernists. The background information on the Indian Bank scam illustrates this. The first thing of course is that most of the banks were running in losses in late nineties. The nationalized banks were tied down by the national priorities of distributive justice and directed to lend a prescribed percentage of their resources to the priority sector. The interest rates were also regulated and lower than the market rate. According to most bankers these conditions would not allow them to make profits even with efficient operations. Further, labour rates in banks were six or seven times the national average. With this background, if the bank managers were still expected to make profits and their rewards dependent on that, it was only natural that they would compromise and cut ethical corners. 2. STOCK MARKET OPERATIONS (INSIDER TRADING) Is insider trading unethical? To examine the ethical aspect of insider trading, we must first understand the nature of insider trading. Insiders are chairman, directors, officers etc., and principal shareholders with 10 percent or more of their own firm’s common stock. These people are believed to have the opportunity to get access to their firm’s private information. Corporate insiders, in particular, those who have managerial positions in the firm, are assumed to have superior information about the firm’s future prospects, unavailable to the investing public and the current shareholders. It is easy to imagine that managers, who are supposed to serve the best interests of shareholders, may take advantage of this fiduciary relationship to act in their own self-interest through trading activities. However, insiders may trade on their own firm’s stock for a number of reasons: it is important to understand that insider trading is not all based on private information. For this reason, not all ‘insider-trading’ is illegal or unethical. Previous research has identified the following reasons for insider trading. 1. Portfolio diversification and liquidity adjustment. (Firm managers often acquire stock through a plan or an exercise of options. They may later sell it to diversify their portfolios. Managers may also sell their stock due to financial need. 2. Corporate control. Managers purchase their firm’s stock to increase their share of total stockholdings and enhance their voting power in the firm. 3. Sentimental Reasons. 4. Insider trading based on private information. This falls into two subcategories. First, insiders may purchase the firm’s stock because they genuinely believe the stock is a good investment. Second, insiders may trade prior to announcements that will generate abnormal returns for themselves. There is no cause for ethical concern in the first three
  • 11. categories. Even in the fourth category, only insider trading with prior knowledge of forthcoming announcements is obviously motivated by insider’s desire for exclusively personal gain. 3. DERIVATIVES AND MONEY MARKETS Derivatives as new instruments were refined by the brilliant efforts of the Nobel-prize winning group, Fisher Black, Myron Scholes and Robert Merton who could use ideas and methods from mathematics and physics in financial economics. These instruments are used by big Wall Street companies like Meryll Lynch, Morgan Stanley, Solomon Bros and Goldam Sachs, aided by computers. The basic features of these new instruments are that there is a “maker” (option writer) who offers a contract to an “option holder”, that provides for the holder to pay the maker a ‘premium’ in consideration of an option to be exercised by on a specified date to buy or sell a specified security at a specified price. If the holder, by or on that specified date, decides not to exercise the option, he loses nothing more than the premium. But the maker would lose if the security being held shifts its price in a direction and in a magnitude not anticipated and provided for in the gamble. The maker will lose if the holder decides to buy the security which the maker may not possess and which will have to be bought in the market to enable the maker to sell it to the holder. This ‘naked option’ will obviously result in a loss for the maker as the holder would have otherwise found it beneficial to buy it from the market than from him. Derivatives challenge the slogan of the traditional accounting. They allow managers to exploit loopholes in accounting rules. The thinkers inclined towards socialism were not kindly disposed towards derivatives and money markets. They straightaway rejected banks using stock markets to boost their earnings. 4. MERGERS AND ACQUISITIONS Certain ethical issues that arise in merger include human, intellectual, technical, economic and other dimensions. In case of most of the mergers: • Swap ratios for shareholders normally go in favour of the predator company or the bigger one acquiring the smaller. • Executives employed in the predator company get relative advantage in the merged company with respect to the positions and new job descriptions. • Management, suppliers of materials of the smaller one gets lesser importance in the merged company.
  • 12. • Skilled employees and technical persons find their jobs redefined in terms of the additional demands on the bottom lines to be achieved with the same lot of resources. • Cross border mergers normally carry and establish the culture of the predator company’s country against that of the acquired company. • Non-performing assets of the predator receives sustenance through the surplus efficiency of the prey company. The other basic issues of mergers and acquisitions are: • Unfair consequences for the consumers and society. • Unfair consequences for the shareholders. • Unfair consequences for the genuine innovators as against those who have never grown even a blade of grass. CONCLUSION Ethical issues in finance are important because they bear on our financial well being. Ethical misconduct, whether it be by individuals acting alone or by financial institutions, has the potential to rob people of their life savings. Because so much money is involved in financial dealings, there must be well-developed and effective safeguards in place to ensure personal and organisational ethics. Although the law governs much financial activity, strong emphasis must be placed on the integrity of finance professionals and on ethical leadership in our financial institutions. Some of the principles in finance ethics are common to other aspects of business, especially the duties of fiduciaries and fairness in sales practices and securities markets. However, such activities as insider trading and hostile trading and hostile takeover raise unique issues that require special consideration. HUMAN RESOURCE MANAGEMENT Human Resource Management includes personnel management, industrial relations and most importantly, management planning and control. HRM is concerned with the people’s dimension in organisations. The basic ethical responsibilities that emerge from the “rational” aspects of the organisation focus on two reciprocal moral obligations: a) the obligation of the employee to pursue the organization’s goals, and avoid any activities that might threaten that goal; and b) the obligation of the employer to provide the employee with a fair wage and fair working conditions. This section looks at some the morally relevant concerns to which any organisations must be sensitive.
  • 13. HIRING/RECRUITMENT In making hiring decisions, the employers must be careful to treat job applicants fairly. One useful way to approach some of the moral aspects of hiring is to examine the principal steps involved in the process: screening, testing and interviewing. i. Screening: When firms recruit employees, they attempt to screen them - that is, to attract only those applicants who have a good chance of qualifying for the job. When done properly, screening ensures a pool of competent candidates and guarantees that everyone has been dealt with fairly; when done improperly, it undermines effective recruitment and invites injustices into the hiring process. Screening begins with a job description and specification. A job description lists all pertinent details about a job, including its duties, responsibilities, working conditions and physical requirements. A job specification describes the qualifications an employee needs, such as skills, educational experience, appearance and physical attributes. Completeness is important. When either the job description or job specification is inadequate or unspecific, candidates can waste time and money pursuing jobs they are not suited for. Lack of pertinent information prevents candidates from making informed decisions about their job prospects. ii. Tests: Tests are generally designed to measure the applicant’s verbal, quantitative and logical skills. To be successful, a test must be valid. Validity refers to whether test scores correlate with performance in some other activity. Just as important, tests must be reliable. Reliability means that a subject’s score will remain constant from test to test. iii. Interviews: Human resource experts rightly caution against rudeness, coarseness, hostility and arrogance in interviewing job applicants. PROMOTIONS Many reasonable people debate whether promoting by job qualification alone is the fairest thing to do. Are other criteria admissible? If so, when and how much weight should these criteria carry? These are tough questions with no easy answers. To highlight the problem we
  • 14. consider seniority, inbreeding (the practice of promoting exclusively from within the firm), and nepotism, three factors that sometimes serve as bases for promotions. i. Seniority Opponents of seniority would undoubtedly claim that the firm has an obligation to fill the job with the most qualified person. In this way, the firm is best served and most qualified are rewarded. The seniority in itself does not necessarily indicate competence or loyalty. The proponents of seniority would contend that the company should be loyal to its senior employees, that it should reward them for faithful service. In this way, employees have an incentive to work hard and to remain with the firm. The management should remember in any promotion decision its twin responsibilities of promoting on the basis of qualifications and of recognizing prolonged and constructive contributions to the firm. A policy that provides for promotions strictly on the basis of qualifications seems heartless, whereas one that promotes by seniority alone seems mindless. The challenge for management is how to merge these dual responsibilities in a way that is beneficial to the firm and fair to all concerned. ii. Inbreeding (The practice of promoting exclusively from within the firm) In theory, whenever managers must fill positions they should look only to competence. In practice, however, managers must seriously consider the impact of outside recruitment on in- house morale. iii. Nepotism Nepotism is the practice of showing favoritism to relatives and close friends. A manager promoting a relative strictly because of the relationship between them would raise a number of moral concerns such as disregard of fairness to other employees and managerial responsibilities to the organisation. Not all instances of nepotism raise serious moral concerns. For example, when a firm is strictly a family operation and has its purpose providing work for family members, nepotistic practices are generally justified. DISCIPLINE AND DISCHARGE For an organisation to function in an orderly, efficient and productive way the personnel departments should establish guidelines for behaviour based on such factors as appearance, punctuality, dependability, efficiency and cooperation. Discipline, although desirable and
  • 15. necessary, raises concerns about fairness, noninjury and respect for persons in the way it is administered. To create an atmosphere of fairness, one in which rules and standards are equally applied, the principles of just cause and due process must operate. The four types of discharge are: firing, termination, layoff and position elimination. To ease the trauma associated with discharge, employee should provide sufficient warning, severance pay and perhaps displacement counseling. WAGES From the moral point of view, it is very easy to say that firms should pay a fair and just wage, but what constitutes such a wage? Although there is no way to determine fair salaries with mathematical exactitude, we can at least identify a number of factors that should be taken into account in determining wages and salaries. i. The prevailing wage in the industry and the area. ii. The firm’s capabilities. In general, the higher the firm’s profits, the more it can and should pay its workers; the smaller its profits, the less it can afford. iii. The nature of the job. Jobs that involve greater health risks, require more training, impose heavier physical burdens should carry higher levels of compensation. iv. Minimum wage laws. v. What are other employees inside the organisation earning for comparable works? vi. Local costs of living. vii. The fairness of wage negotiations. HEALTH AND SAFETY Health and safety remain of foremost moral concern in the workplace. The scope of occupational hazards including shift of work and stress and the number of employees harmed by work related injuries and diseases are greater than many people think. THE RIGHT TO PRIVACY Individuals have a right to privacy, in particular a right to make personal decisions autonomously, free from illegitimate influence. Whenever an organisation infringes on an individual’s personal sphere, it must justify that infringement. Polygraph tests, personality tests, drug tests, and the monitoring of employees on the job can intrude into employee privacy. The
  • 16. exact character of these devices, the rationale for using them to gather information in specific circumstances and the moral costs of doing so must always be carefully evaluated. THE RIGHT TO PARTICIPATE AND PARTICIPATORY MANAGEMENT Within a democracy decision making usually has two characteristics: a) Decisions that affect the group are made by a majority of its members, and b) decisions are made after full, free and open discussion. As a first step toward democracy, decisions affecting workers should be made only after full, free and open discussion with workers. Employees would be allowed to freely express criticism, receive accurate information about decisions that will affect them, make suggestions and protest decisions. A second step toward “organisational democracy” would give individual employees not only the right to consultation, but also the right to make decisions about their own immediate work activities. These decisions might include matters such as working hours, rest periods, organisation of work tasks and scope of responsibility of workers and supervisors. A third step toward extending the ideals of democracy into the workplace would allow workers to participate in the major policy decisions that affect the general operations of the firm. If participative management style does make organisations more effective and productive, then on utilitarian grounds, managers would have moral obligation to seek to implement this style. JOB DISCRIMINATION Discrimination in employment involve adverse decisions against employees or job applicants based on their membership in a group that is viewed as inferior or deserving of unequal treatment. Job discrimination can take different forms. Individuals can intentionally discriminate out of personal prejudice or on the basis of stereotypes. For example, a member of a company’s personnel department might routinely downgrade applications from women who want to work in the company’s production plant because he believes, and knowingly acts on the belief, that “ladies don’t understand machines”. Institutions can also discriminate. An example is when company policy dictates that women not be placed in supervisory positions because “the boys in the company don’t like to take orders from females”. From a variety of moral perspectives there are compelling moral arguments against job discrimination on racial or sexual grounds. Discrimination involves false assumptions about the inferiority of a certain group and harms individual members of that group. Discrimination on grounds of sex or race or caste also violates people’s basic moral rights and mocks the ideal of human moral equality. Furthermore such discrimination is unjust.
  • 17. SEXUAL HARASSMENT Unwelcome sexual advances, requests for sexual favours and other verbal or physical conduct of a sexual nature constitute sexual harassment when: i) submission to such conduct is made either explicitly or implicitly a term or condition of an individual’s employment, ii) submission to or rejection of such conduct by an individual is used as the basis for employment decisions affecting such individual, or iii) Such conduct has the purpose or effect of substantially interfering with the individuals work performance or creating an intimidating, hostile, or offensive working environment. LABOUR LEGISLATION Twentieth century labour legislation embodies our society’s enactment of many ethical obligations of employers to their employees. Compliance with these laws makes ethical decisions easier. Among these enacted ethical precepts are: • Child labour laws which embody societal ethics that young children should not be exploited. • The Occupational Safety and Health Act which demands that employers provide a workplace free of recognised hazards which are likely to cause death or serious bodily harm. • The Employee retirement laws which requires employers to make good on their promises of retirement income for workers who have given a long period of service. • Worker’s compensation laws which ensure that employees injured on the job receive compensation, health care and sustenance. • The laws which bar discrimination in employment on the basis of many considerations which are irrelevant to job performance (e.g. race, religion, sex, disability, citizenship, national origin etc.) • Common laws which let courts grant damages for wrongs like defamation and fraudulent inducements to applicants and employees THE BIBLICAL ETHICAL INJUNCTION – BE FAIR, BE TRUTHFUL AND AVOID INJURING OTHERS “Do unto others as you would like to be treated yourself” is the golden rule which lies at the foundation of the Judeo-Christian Ethics.
  • 18. To sum up, the philosophy of human resource management should be one of care rather than of justice. TECHNOLOGY MANAGEMENT J.K. Galbraith defines technology as a ‘systematic application of scientific or other organised knowledge to practical tasks’. Some of the technological inventions the man feels are wonders, some others are horrors, and yet others have mixed blessings. For example, Automobiles and television have evoked mixed reactions. Hydrogen bomb, nerve gas and sub- marine guns have proved to be horrors. Penicillin, open heart surgery etc. are wonders. New technologies developed in the closing decades of the 20th century are transforming society and business radically and creating the potential for new ethical problems. Foremost among these developments are the revolutions in biotechnology and in information technology, including not only the development of extremely powerful and compact computers but also the development of the internet, wireless communications, digitalization and numerous other technologies that have enabled us to capture, manipulate and move information in new and creative ways. Almost all ethical issues raised by new technologies are related in one way or another to questions of risk: are the risks of a new technology predictable? How long are the risks and are they reversible? Are the benefits worth the potential risks? Do those persons on whom the risks will fall know about the risk and have they consented to bear these risks? Will they be justly compensated for their losses? Are the risks fairly distributed among the various parts of society including poor and rich, young and old, future generations and present ones? Many of the ethical issues new technologies have created – especially information technologies like the computer - are related to privacy. Information technologies have also raised difficult ethical issues about the nature of the right to property when the property in question is information (such as computer software,) or computer services. Computerized information (such as a software program or digitized picture) can be copied perfectly countless times without in any way changing the original. What kind of property rights does one have when one owes one of these copies? Biotechnology has created yet another host of troubling ethical issues. Genetic engineering refers to a large variety of new techniques that let us change the genes in the cells of humans, animals and plants. Genes, which are composed of deoxyribonucleic acid (DNA), contains the blueprints that determine what characteristics an organism will have. Through recombinant DNA technology, for example, the genes from one species are removed and
  • 19. inserted into the genes of another species to create a new kind of organism with the combined characteristics of both species. Businesses have used genetic engineering to create and market new varieties of vegetables, grains, sheep, cows, rabbits, bacteria, viruses and numerous other organisms. Bacteria have been engineered to consume oil spills and detoxify waste, wheat has been engineered to be resistant to disease, grass has been engineered to be immune to herbicides and a French laboratory is said to have inserted the fluorescent genes from a jellyfish into a rabbit embryo that was born glowing in the dark just like the jellyfish. Is this kind of technology ethical? Is it wrong for a business to change and manipulate nature in this way? When a company creates a new organism through genetic engineering, should it be able to patent the new organism so that it in effect owns this new form of life? Often the consequences of releasing genetically modified organisms into the world cannot be predicted. Engineered animals may drive out natural species and engineered plants may poison wild organisms. The pollen of species of corn that had been engineered to kill certain pests, for example, was later found to also be killing off certain butterflies. Is it ethical for businesses to market and distribute such unpredictable engineered organisms throughout the world? MANAGEMENT OF TECHNOLOGY Technology is a high-risk, costly and uncertain activity. While costs of discovery are increasing at an accelerating rate, the incremental pay-off results seem to be growing at a decreasing rate over the short run. There is the added risk that a new product will quickly be duplicated or closely imitated, thereby reducing the market and profit potential for the original innovator. For a management which wants to import technology, there are problems. Basic infrastructural facilities like training of technicians and supervisors, testing facilities for raw materials, replacement parts, and the like are not easily available. Import of technology is also not easy because developed countries are not willing to lend it. The technology, the developed countries are willing to lend, is limited in scope and is mainly aimed at exploiting our dynamic competitive advantages in order to feed the markets they are interested in. They will not pass on their key technology, such as design know-how for manufacturing equipment, which could help us in challenging them in their own game. COMPETITION AND ETHICS Competition is a rivalry between two or more parties trying to obtain something that only one of them can possess. Competition exists in political elections, in football games, on the battle field etc. Market competition involves more than mere rivalry between two or more firms. To get a clearer idea of the nature of market competition, we examine three abstract models, describing three degree of competition in the market: perfect competition, pure monopoly and oligopoly. We also examine the ethical issues raised by each type of competition.
  • 20. I. PERFECT COMPETITION A perfectly competitive free market is one in which no buyer or seller has the power to significantly affect the prices at which goods are being exchanged. In a perfectly competitive free market, there are numerous buyers and sellers, none of whom has a substantial share of the market. The goods being sold in the market are so similar to each other that no one cares from whom each buys or sells. In a perfectly competitive market, prices and quantities always move toward what is called the equilibrium point. The equilibrium point is the point at which the amount of goods buyers want to buy exactly equals the amount of goods sellers want to sell, and at which the highest price buyers are willing to pay exactly equals the lowest price sellers are willing to take. At the equilibrium point, every seller finds a willing buyer and every buyer finds a willing seller. Moreover, this surprising result of perfectly competitive free markets has an even more astonishing outcome. It satisfies three of the moral criteria: justice, utility and rights. That is, perfectly competitive free markets achieve a certain kind of justice; they satisfy a certain version of utilitarianism, and they respect certain kind of moral rights. 2. MONOPOLY COMPETITION Monopoly markets are those in which a single firm is the only seller in the market and which new sellers are barred from entering. A seller in a monopoly market, therefore, can control the prices of the available goods. The monopoly firm is able to fix its output at a quantity that is less than equilibrium and at which demand is so high that it allows the firm to reap an excess monopoly profit by charging prices that are far above the supply curve and above the equilibrium price. The monopoly firm will calculate the price-amount ratios that will secure the highest total profits (i.e., the profit-per-unit multiplied by the number of units) and will then fix its prices and production at those levels. A monopoly market is one that deviates from the ideals of capitalist justice, economic utility and negative rights. Instead of continually establishing a just equilibrium, the monopoly market imposes unjustly high prices on the buyer and generates unjustly high profits for the seller. Instead of maximizing efficiency, monopoly markets provide incentives for waste, misallocation of resources and profit gouging. Instead of respecting negative rights of freedom, monopoly markets create an inequality of power that allows the monopoly firm to dictate terms to the consumer. 3. OLIGOPOLISTIC COMPETITION Oligopoly markets, which are dominated by a few large firms, are said to be highly concentrated. Prices in an oligopoly can be set at profitable levels through explicit agreements that restrain competition. The managers of a few firms operating in an oligopoly can meet and jointly agree to fix prices at a level much higher than what each would be forced to take in a
  • 21. perfectly competitive market. Such agreements, of course, reproduce the effects of a monopoly and consequently curtail market justice, market efficiency and market rights. The following sorts of market practices in Oligopoly have been identified as unethical: 1. Price Fixing: When firms are operating in an oligopoly market, it is easy enough for their managers to meet secretly and agree to set up their prices at artificially high levels. This is straight forward price fixing. 2. Manipulation of Supply: Firms in an oligopoly industry might agree to limit their production so that prices rise to levels higher than those that would result from free competition. 3. Exclusive Dealing Arrangements: A firm institutes an exclusive dealing arrangement when it sells to a retailer on condition that the retailer will not purchase any products from other companies and/or will not sell outside of a certain geographical area. 4. Tying Arrangements: A firm enters into a tying arrangement when it sells a buyer a certain good only on condition that the buyer agrees to purchase certain other goods from the firm. 5. Retail Price Maintenance Agreements: If a manufacturer sells to retailers only on condition that they agree to charge the same set retail prices for its goods, it is engaging in “retail price maintenance”. A manufacturer may publish suggested retail prices and may even refuse to sell to retailers who regularly sell their goods at lower prices. It is illegal, however, for retailers to enter an agreement to abide by the manufacturer’s prices and illegal for manufacturers to force retailers to enter such an agreement. 6. Price Discrimination: To charge different prices to different buyers for identical goods or services is to engage in price discrimination. Price differences are legitimate only when based on volume differences or other differences related to the true costs of manufacturing, packaging, marketing, transporting or servicing goods.