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  • 1. NotesModule 1Business EthicsBangalore UniversitySemester IIIIntroductionThe aim objective of this chapter is to give a basic understanding of ethics and its application in therelevant fields of business study human behavior. It is to establish &priorities moral standards & thevalues of any business and understand by any entity the scope, concept and importance of Ethics, itsgradual development and the relevance in business scenario. It also aims to encourage independentcritical thought and develop an individual system of ethics within an individual and the organization atlarge. A business established with a foundation of strong ethics and values is more promising, successfuland enduring than that of rapid growth at a cost of many compromises.Customers want products and services for which they are ready to pay the price. Businesses createthese products and services and in return multiply their returns, objective is profit. But in this process ofrequirements and fulfilling or meeting out the customer requirements and the expectations, companiesoften tend to ignore their basic principles of ethics during selling their products because then theirobjective of profit takes the helm.There should be their profit motive but ethically, i.e., at the same time the origin of business which wasdone on certain parameters and ethics should not be ignored or over-ruled. There is old French sayingthat has much relevance in todays corporate world. It runs thus saying, "He who Iooks deepest into the past looks farthest into the future." Hence, it isimportant to look deep into the past in the hope of perceiving the needs of the future. Business ethicsreflects the philosophy of business. The basic aim of business is to create profit at all costs. Wealthcreation invariably begins with a passion and the vision of its owners who lay the basic foundation of thebusiness. They build an idea to create a product or service that is market oriented or relevant andmonetarily profitable. The bottom-line of any business is how much revenue generation it is making andwhat kind of brand image or the goodwill of the company is getting created amongst the customers.Business success is measured quantitatively in terms of profit and loss.Profit being the mantra in business, all strategies, actions and decisions are directed towards it,sometimes regardless of what is ethically correct. It is assumed that profitable business cannot be donewithout a certain degree of unscrupulousness. An action might be morally correct but if it is the bestmove for business, then it is justified. Invariably, adjusting the numbers to record better profits becomesa matter of routine with a common dictum that business ethics is an oxymoron leading to the rules ofbusiness, values take a back seat. In this entire process of sweeping business ethics under the carpet and
  • 2. maximizing profits, it is overlooked that who we are and what actually influences the work that we do.Business ethics overlaps with the philosophy of business. One of the aims of business is to determinethe fundamental purpose of the incorporation of a company. On one hand if it is to make profits, itshould also consider sincere means to maximize profits arid believe that there are no shortcuts tosuccess. Corporate social responsibilities an umbrella term under which the ethical rights and dutiesexisting between companies and society is debated. Issues regarding the moral rights and dutiesbetween a company and its shareholders, fiduciary responsibility, stakeholder concept vs. shareholderconcept are argued. Ethical issues concerning relations between different companies: e.g. hostiletakeovers, industrial espionage, Leadership issues, corporate governance;Corporate Social Entrepreneurship, Political contributions made by corporations towards thebetterment of the society, Law reform, such as the ethical debate over introducing a crime of corporatemanslaughter and to continue the misuse of corporate ethics & policies as marketing instruments are allconsidered, understood, argued and implemented towards practicing ethics. Leadership is amanagement process, a command of guidance of encouraging & helping others to work enthusiasticallytowards the set objectives.ExampleFor Azim Premji, chairman of Wipro, integrity is paramount both in personal as well as business life. Henarrates that the only advice that his father gave him was to conduct himself with values and that hebelieves it has helped him all through his life. He has always lead a simple life, and considered integritythe fundamental value. He ran a factory on captive power generation for 18 months just because he didnot want to bribe the concerned people to get an electricity connection. That sums up his philosophy.This standard of Premji sets a benchmark for his employees in Wipro to emulate. Integrity being theguiding principle for Premji has resulted in the formulation of the Integrity Manual in his company thatguides through the tough choices confronted within the daily execution of the employees roles and tohelp create confidence in the minds of the customers , investors, suppliers and the society at large withrespect to Wipros dependability and sincerity. This is how the ethical choices of a business leaderpermeate into the companys organizational behavior and functioning. As is shown by the performanceof companies like Wipro and Infosys a leaders personal ethics are not a deterrent to generating revenuefor the company - it can be a foundation for higher standards of functioning, accountability andtransparency that motivates the employees, influences the way they behave in the workplace, earnstheir loyalty and eventually helps an organization endure.No doubt the organization faces lots of turbulences in the process of inception, continuation of itsproving of existence and constant attacks and challenges but it is not to be forgotten that it was butexpected and had to be thought before the implementation of the idea incarnated. An individualplunges into business when he thinks he is better than somebody, can do a particular thing better, facecompetition more effectively, has an enhanced vision to accomplish and dares to confront the storms,takes the risks and gets into entrepreneurship. Ethics is seen to be at its peak at the inception butgradually sinks when profits takeover the prime seat in business or start loosing hopes when sees thatethical ways are longer and difficult comparing the easier routes of accomplishing quicker benefits
  • 3. growth and meeting the reason for business establishment. So can we really meet the above and grow,getting retained in business by following ethics throughout ? This is a challenging question which playsthe foundation of the business further.Q. What do you mean by business ethics? (2 marks)The term business ethics is quite ambiguous. It has various meanings with varied implications based onits use. Business ethics appeals to people who have a strong sense of role morality. It can be both anormative and a descriptive discipline. As a corporate practice and a career specialization, the field isprimarily normative. In academia descriptive approaches are also taken.Ethics thus refers to the moral principles, a sense of right & wrong or the goodness & badness of theaction, their motives & the consequences further.Q. Why shouldwe study ethics then? (2 marks)Ethics is a set of standards or code of conduct, by reasons and experiences, a set of rules of standardsgoverning the conduct of a person or the members of a profession that lay the foundation, which arelater classified into or determined as ultimately good or evil thus addressing the question of morality It isa specialize code of right and wrong.These are the basic guidelines and principles which the company adopts to do business. It aims atmeeting not only the personal and business requirements but also the social parameters. If an actionagrees with these standards, it is ethical; if not it is unethical. Ethical issues in business include the rights and duties between a company and its employees, suppliers,customers and shareholders. Many philosophers consider ethics to be the "Science of Conduct" andmany of them explain that ethics lays the fundamental ground rules by which we live our lives. Some ofthem also consider emerging ethical beliefs to be the state-of-the-art legal matters, i.e. what becomesan ethical guideline today is often translated to a law, regulation or a rule tomorrow. Thus applied ethicsis a field of ethics that deals with ethical questions in many fields such as medical, technical, legal andbusiness ethicsQ: Why do you study business ethics? (8 marks)Business ethics refers to the application of ethics in business. It is in other words an elaborative study ofthe good and the evil, right & the wrong, just and unjust actions of the business.We also find transactional ethics here which means the asymmetrical or irregular and uneven relationsof unequal claims & conflicting interests which do not exhaust the arsenal of possible action patterns. Asan individual decides principles for his life that he will not cheat anyone, not tell lie under anycircumstance, be sincere at all difficulties and challenges etc. in the same way company sets certainstandards and values or formulates the moral philosophy of the business to conduct it in a better way.
  • 4. There are many instances wherein companies did not follow business ethics and they had to shut down,compromise profits and company image, shattered goodwill, undergo losses etc. in the long runconsequently. Hence it is very critical that certain basic structures on ethics are set and followedemphasizing the study, implementation and regular practice of ethics in business. Business ethics cameinto limelight as organizations started realizing that they need to manage a more positive image of theircompany to the public.The philosophy of any business is reflected by the business ethics followed or implemented by theorganization which examines and resolves the ethical and moral principles and problems that arise inbusiness environment. Environment refers to all external forces which have a bearing on the functioningof business. Environment includes factors such as socio-economic, technological, suppliers, competitorsand the government. It applies to all aspects of business conduct and is relevant to the conduct ofindividuals and the entire organization.Problems such as corporate responsibility, corporate governance, shareholder relation, bribery anddiscrimination are examined in Business ethics. It concentrates on moral standards as they applyparticularly to business policies, institutions and behavior.Discussion on ethics in business is necessary because, firms and corporations operate in the social andnatural environment is duty bound to be accountable to its surviving environment and business can gothus unethical. There are plenty of evidences on unethical corporate practices. Irrespective of thedemands and pressures upon it, business, by virtue of its existence is bound to be ethical, for at leasttwo reasons: one, because whatever the business does affects its stakeholders and two, because everyjuncture of action has curve of ethical as well as unethical paths.The existence of business is justified by ethical alternatives. The demise of small scale, high trust andface-to-face enterprises and emergence of huge multinational corporate structures are capable ofdrastically affecting everyday lives of the masses and compliments the ethical and unethical decisions ofbusiness.Culture at the same time means the mode of life of a particular group of people with due reference tothe way they lead their lives in the society, their dress code, beliefs, rules and regulations, rituals,behavior and ethical practices. Therefore cultures of different nations are different with its own predefined ethical practices. The basicvalues of a society constitutes nothing but the core of its culture. Man as a social animal cannot livealone and hence his conduct has a direct or indirect reference to the culture he belongs to. These moralstandards and values have a tremendous impact and profoundly affect the person in building his ownethical value structure. But it is also to be remembered that the moral conduct of a person is notconfined only to his family culture. It transcends and goes beyond family culture and spills over to thesociety or the race which he belongs to.In spite of ethics being culture specific there are certain principles which run like a common threadamong all cultures, all religions and among all the ages in history. These are nothing but the principles of
  • 5. honesty, respect for life and freedom, fairness, loyalty, human dignity, integrity etc. These principles areunchangeable, immortal and remain always valid, transcending time, space and distance. Corporateculture is a shared value that defines for its members as to what the organization stands for, itsfunctioning, its priorities and the importance of its existence. Thus it has a strong impact on businessethics. Researchers have suggested that the broader ethical con-text in an organisation referred to asethical culture is very important.The elementary that guides the employees thought and action include leadership qualities, rewardsystem, perceived fairness, employees authority structures and an organizational focus thatcommunicates care for employees and the community at large. Business ethics can be defined as thecritical and structured examination of how people and institutions should behave in the world ofcommerce, addressing the moral features of a commercial activity. In particular, it involves examiningappropriate constraints on the pursuit of self-interest or profits when the actions of the individuals orfirms affect others. It is a movement which refers to the development of structures and principlesinternal to the company resulting in helping the company and the employees.Q: List a few guidelines to manage ethics at work place (8 marks)1. Managing ethics is a gradual process : Ethics is a matter of values and associated behaviorsdistinguished through the process of constant reflection. Ethics programs may seem more process-oriented and prefer processes focused on deliverables with measurements. However, experiencedmanagers realize that the deliverables of standard management practices (planning, organizing,motivating, controlling) are only tangible representations of the very process-oriented practices.Practice cultural relativism which is a concept of relating any given decision about right or wrong, true orfalse to the culture prevailing in a particular place. In short, it means Be a Roman in Rome. Ofcourse theprocess of strategic planning is more important than the plan produced by the process. The same is truefor ethics management which produces deliverables like codes, policies and procedures, budget items,meeting minutes, authorization forms, newsletters etc. and ethics management program is the processof reflection and dialogue that produces these deliverables. 2. Ethics program aims at accomplishing preferred behaviors at workplace : The best of ethical valuesand intentions are relatively meaningless unless they generate acceptable ethical behaviors in theworkplace that can translate these values to appropriate behaviors. Thus a certain standardization iscreated and implemented into the system from seniors to juniors.3. Ethical dilemmas can be handled by avoiding their occurrence : Precaution is always better than cure.The development of ethical practices such as developing code of conduct and ethics sensitizes theemployees to ethical considerations and minimizes the chances of unethical behavior occurring in thefirst place.
  • 6. 4. Make ethics decisions in groups and then publicize the decision : It produces better quality decisionsby including diverse interests and perspectives and increases the credibility of decision process andoutcomes by reducing suspicion of unfair bias.5. Integrate ethics management with other management practices : While developing strategic planning,the value statement towards ethical values need to be more prominent in workplace as they reflectorganizational objectives, goals and the company culture. Corporate culture is a set of shared valuesthat defines for its members about what the organization stands for and how it functions along withwhat it considers to be the most important. Integrate ethical requirements with other managementpractices to create a sound corporate environment and system.6. Cross-functional teams to develop and implement ethics management program : It is always advisedto include employees in developing and operating the values of ethical program that is to be initiated inthe organization which makes then feel a sense of participation and ownership in the program. 7. Value forgiveness : It rather sounds a little religious and preachy to hear, but its also one of theprime components of any management practice. An ethics management program may increase thenumber of ethical issues to be dealt with because people are more sensitive to their occurrence. At thesame time, there may be more occasions to address peoples unethical behavior. It is always to beremembered that a shaking hand and a patting attitude is always better than a pointing finger. The mostimportant ingredient for remaining ethical is trying to be ethical. Therefore, help people recognize andaddress their mistakes and then support them to continue to try operate ethically. 8. Try to operate ethically and making a few mistakes is better than not trying at all : Someorganizations have become widely known, as thus operate in a highly ethicalmanner, e.g., The Tatas,Johnson and Johnson, Hewlett Packard, etc. Unfortunately, it seems that when an organization achievesthis strong public image, its placed on a pedestal by some business ethics writers.All organizations are comprised of people and people are not perfect. However, when a mistake is madeby any of these organizations, the organization has a long way to fall. In our increasingly critical society,these organizations are accused of being hypocritical and they are soon pilloried by social critics.Consequently, some leaders may fear sticking their necks out publicly to announce an ethicsmanagement program. This is extremely unfortunate. Its the trying that counts and brings peace ofmind and not achieving a heroic status in society. We can always initiate a process or a route which canbecome a basis for somebody else to improvise with better ideas, concepts, means and perceptions.Q: Describe the history and development of business ethics (12 marks)The history of business ethics is probably as old as business itself. Even in prehistoric societies therewere most likely rules governing acceptable trade practices which dealt considerably with issuesconcerning commerce, tariffs and pricing.
  • 7. The evolution of business ethics and awareness can be attributed to a number of factors like increasedglobalization and decentralization of business, an expanded corporate business to ethics and theinfluence of various stakeholders focusing attention on both ethical successes and challenges. With theglobalization of economy and media and the growth of internet, companies are being held accountablefor their ethical conduct. A range of new economic issues such as the shifting of production to developing economies, whatconstitutes a living wage and how companies respond to cultural differences is being cast in ethicalframes since times. By the 4th century B. C., ethical issues related to business and trade can be tracedreceiving academic treatment in the philosophies of Plato and Aristotle. The history of business ethicsalso has its formative years in the reformation. Reformation figures like Martin Luther and John Calvin,in the 15th and 16th centuries A. D., applied religious and moral considerations to trade and economicsleading to the development of the Protestant work ethic.But in the following two centuries, Enlightenment thinkers such as John Locke and Adam Smith began toseparate religious doctrine from moral and ethical considerations of commerce and business. Lockeintroduced the concept of property as a natural right, and Smith developed the foundation for moderneconomic theory by championing the moral values of self-interest in guiding and promoting the progressof markets. In the 19th century, theories like Smiths came under attack from Karl Marx and hisfollowers, who saw the maximization of profit dictated by self-interest as necessarily exploitative oflabor.We have seen in the past that great teachers have searched for their disciples and instances where thestudent has covered a long distance in finding out their teachers. There are various examples like SwamiRamkrishna Paramhamsa who has seen Mother Kali incarnating and he himself traveled around todiscover his student Swami Vivekanand, Swami Guru Ramdas who searched for his student ShivajiMaharaj, Chanakya, who went in search of and found his shishya Chandragupta Maurya, Shri Gokhalewho found Mahatma Gandhi and so on there are various examples which exhibit how in the pastreligious, moral, political, social and business concerns were met with the help of ethics identification,exploration and ways of implementation so as to establish peace, justice, customs, behaviors, conduct,habits and rules for the smooth administration processes. Likewise we also have many exampleswherein the student has explored his Guru and covered the journey of their lives. When SwamiRamanandji did not accept Ramdas as his student, since he was an untouchable, one early morning inthe dawn when the Guru was on his way to take bath in the river, Ramdas slept on the steps. The Gurudid not notice and stamped him and said Ram-Ram. Though the Guru did not accept Ramdas as his disciple, the student took his uttered words asGurumantra and continued believing him as his Guru. We know the story of Sri Hanuman who waitedfor his Guru Sri Ram and later was prominently known for his Guru-bhakti, both for and because of hisGuru. Ekalavya is a classic example in this stream, who was not accepted by his Guru Shri Dronacharyaas his disciple for which he made an idol of his Guru and practiced arachery. Not only this, ethics meetsits reality when he was asked for his thumb as Gurudakshina and he did not hesitate or rethink to give itthough he knew that his dream, passion, talent and practice would come to an end after it. Thus ethics
  • 8. cannot be pointed and said that this is right and this is wrong. That which helps in the multiplication ofprofit, social gains, benefits to individuals and society at large without following or indulging into anyillegal, prohibited, banned or illegitimate or dishonest means can be stated as ethical or unethical theotherwise.To this day, many of the issues and concerns raised by the religious, philosophical, and economictraditions have continued in various forms in discussions of ethics and morality in business practices. Butbusiness ethics as a separate, formal academic discipline is a fairly recent development. In the midst ofthe changes in social attitudes that emerged in the 1960s, questions about the social and moralresponsibilities of businesses and corporations began to emerge in academic and professional circles.Sociologist Raymond Baumhart was among the first academicians to explicitly teach and study the ethicsof business and commerce and by 1974 there was enough of a developing discipline in the field to giverise to a landmark conference at the University of Kansas.Since then, courses and organized studies in the field have emerged in universities throughout theworld, even spawning sub-disciplines such as marketing, accounting, and financial ethics. Business ethicshas only existed as an academic field since the 1970s. During the 1960s corporations found themselvesincreasingly under attack over unethical conduct. As a response to this, corporations in the developedsocial responsibility programs involved charitable donations and funding local community projects. Thispractice was unorganized and it differed from industry to industry and from company to company.Business schools in large universities began to incorporate social responsibility courses into their syllabiaround this time. But it was mostly focused on the law and management strategy Social responsibilityhas been descried as being a pyramid with four types of responsibility involved into called as —Economic, legal, ethical and philanthropic. Ethical issues were dealt with in social issues and were notconsidered in their own rightuntil the 1970s when philosophers began to write on the subject ofbusiness ethics. Previous to this development, only the management professionals, theologians andJournalists had been highlighting problems of this nature on a regular basis. When philosophers becameinvolved they brought ethical theory to bear on the relevant ethical issues and business ethics became amore institutionalized, organized and integral part of education in business. This aspect of businessethics differentiated it from social issue courses in three ways, like;• Business ethics provided an ethical framework for evaluating business and the corporate world.• It allowed critical analysis of business and development of new and different methods.• Business ethics focused on personal and social responsibility together and gave it a theoreticalfoundation.Q. Describe the nature of business ethics (12 marks)Business ethics reflects the philosophy of business and the aim is to determine the fundamental purposeof the incorporation of a company. The moral philosophy, the business philosophy, employer-employeephilosophy and the responsibilities towards the customers need the optimum priority and attention inbusiness ethics. It is now considered as an important discipline because of its relevance and the
  • 9. customers’ high awareness level. Hence the need of reformulate nature of business ethics or doingbusiness ethically has secured a more important place of prominence today.If a companys purpose is to maximize shareholder returns, then sacrificing profits to other concerns is aviolation of its deemed responsibilities. Economist Milton Friedman writes that corporate executivesresponsibility generally will be to make as much money as possible while conforming to their basic rulesof the society. Similarly business consultant Peter Drucker observed, "There is neither a separate ethics of business noris one needed, implying the standards of personal ethics covers all business situations." Another view ofbusiness is that it must exhibit corporate and social responsibility and an ethical business must act as aresponsible citizen of the communities in which it operates even at the cost of profits or other goals.Stakeholders have the right to expect a business to be ethical; if business has no ethical obligations,other institutions could make the same claim which would be counterproductive to the corporation.Ethics and Values have their own stand and play a vital role.Ethics can be denied as a description of norms and behavior that provide a comparable protection to thecoherence of the society whereas Values are global beliefs that guide actions and judgments across avariety of situations.Values represent basic convictions of what is right and wrong, good or bad, just or unjust, fair or unfairetc. Business ethics or corporate ethics is a form of applied ethics or professional ethics which examinesethical principles and morals or ethical problems that arise in a business environment. It applies to allaspects of business conduct and is relevant to the conduct of individuals and the entire organization.Consequently, business ethics can be strong preventative medicine and there are many benefits ofmanaging ethics in the workplace.Similarly Money Laundering which is squandering of money involving transactions of cash outflow,conducted in a manner as to appear that they were made honestly. Laundering actually means cleaningup. Money laundering cloaks the illegal activities and protects the lawbreakers.Wallace and Pekel explain that attention to business ethics is critical during times of fundamentalchanges in times much like those faced by businesses like values that were previously taken for grantedmight now strongly be questioned. Many of these values are no longer followed.Consequently, there is no clear moral compass to guide leaders through complex dilemmas about whatis right or wrong. Attention to ethics in the workplace sensitizes leaders and staff to how they shouldact. Perhaps most important attention to ethics in the workplace helps ensure that when leaders andmanagers are struggling in times of crises and confusion, they retain a strong moral compass.However, attention to business ethics provides numerous other benefits also. Business ethics refers tothe application of ethics to business. To be considered ethical a business must draw its idea about whatis a desirable behavior from a common or a reliable source. It should anyhow not try evolving into itsown principles to justify its actions.
  • 10. Also inorder to have a longrun existence and sustained profitability it is important for a business to havean ethical foundation and function as responsible corporate citizen of a country. Business ethics is considered as management discipline, especially since the origin of socialresponsibility movement. In 1960s, social awareness movements raised expectations of businesses touse their massive financial and social influence to address social problems such as poverty, crime,environmental protection, equal rights, public health and improving education. An increasing number ofpeople asserted that because businesses were making profit from using the countrys resources, theyowed it to the country by improving society.Many researchers, business schools and managers have recognized this broader constituency, and intheir planning and operations have replaced the word "stockholder" with "stakeholder," meaning toinclude employees, customers, suppliers and the wider community.Q. Explain the scope and importance of business ethics (12 marks)The success of business depends on various factors which are both internal and external to theorganization. Strategies are chalked out or action plan is worked before executing or implementing anyidea or a longrun theory. Strategy refers to a plan of action designed to achieve a particular goal or the relevant alternativeschosen to make a desired future such as achievement of a goal or solution to a problem. It is otherwisethe art and science of planning of the resources for their most efficient and effective use. Conductingbusiness requires adequate consideration to a number of issues outside the traditional scope of makingmoney. In the process of making profits and achieving growth, business people and organizations facemany challenges related to environment and conduct of business. So important part of doing business is primarily understanding the business ethics. If organizations andpeople fail to understand and consider, it might affect reputation of the business and can even ruin thebusiness affecting long standing establishments and success. Ethics being a subjective topic might nothave importance across all areas of business. But ethics has significant role to play in most of the areasof business be it sales and marketing, product development, customer service and even to some extentfinance.So ethics plays an important role in ensuring business success and ultimately living up to the corporatesocial responsibility. Thus adopting ethics approach to doing business is critical towards ensuring astrong business model with long term potentials.Business ethics is especially important in dealing with customers, maintaining integrity with customerand building client relationships. On the other side of your business, its also important to adopt anethical approach which considers your various responsibilities towards shareholders, employees and thesociety at large.
  • 11. Ethics is no doubt an important business subject for any entrepreneur to study, but it also has a widerapplication throughout organizations. So what is ethical to one may not be ethical to others hence, itsimportaht to establish a collective set of ethics that represent the entire organization rather than justadopting it individually. This can be done through training, through having standard business policiesand even by careful selection of human resource.An ethical image for a company can build goodwill and loyalty among customers and clients and theimportance of business ethics can be highlighted;• Ethical motivation works on employee motivation which protects and improves reputation of theorganization by creating an efficient and productive work environment.• Balancing the needs and wishes of stakeholders is also a critical requirement. There is pressure onbusiness to recognize its responsibilities to society. Business ethics requires business to think about theimpact of its decisions on people or stakeholders who are directly or indirectly affected by suchdecisions. Companies build their image by acting in accordance with their values. Creating a positivepublic image comes from demonstrating appropriate values. Publicizing and following a companysvalues allows stakeholders to understand what the company stands for.• A global challenge not only leads to business growth and expansion but has to become aware of theethical diversity of the world because of increasing globalization of the economy. Business must learnthe values of other cultures and apply them to its decisions, combining with its own values.• Ethical pay-offs help the organization to reduce risks such as breaches of law, regulations or companystandards, and damage to reputation of the organization in longrun.• Employee Retention is a successful Business Ethics program which establishes a culture that rewardsmaking the right decision and helps company to retain talent. One of the major costs in business isemployee turnover. The loss of people is loss of valuable experience and training the new personnel costthe company. • Prevention and Reduction of Criminal Penalties through following a set of ethical practices can help acompany have "an effective program to detect and prevent violations of law". Exc7itives cannot alwaysbe aware of everything done in a companys name.• Market Leadership be seen when a company fully integrates its values into its culture, gradually qualityrises due to the employees focus on values. Customers see that the employees care about thecustomers concerns. Employees reflect appropriate values in their attitude and conduct.• Following ethical practices can help the company to set an example in the society and the market andalso lead to recognize the company as a leader.
  • 12. Q. Explain the need for business ethics / Why to promote business ethics in organizations? (12 marks)Customers are more educated today and their awareness level has comparatively increased. Businessorganizations will always set objectives for the business and focus towards profit maximization andgrowth. The most important question is how managers make profit and achieve growth? They worktowards understanding and working towards meeting these objectives. Business considers why to make profits, and why should do so legally. But why should they beconcerned about ethics, as long as they are making money and staying out of legal problems making alegal profit for the firm. These dimensions and arguments are confusing and often mistaken. So it isimportant to first understand why should business people be ethical?To say that one should do something is another way of saying it is ethical. If it is not ethical, then oneshould not do it. Perhaps when business people ask why they should be ethical, they have a differentquestion in mind: what is the motivation for being good (ethical)? One should be good because "good"is, by definition, that which one should be. As for motivation, good behavior often brings a reward, butnot every time. Think about it. If it were always in ones interest to be good, there would be no need forethics. We could simply act selfishly and forget about obligation. People invented ethics preciselybecause it does not always coincide with self-interest.No doubt organizations prove their existence by profit making, but it is always not necessary to opt forthe unethical way. In the past a number of factors have brought ethical matters into sharper focus.A few of the following points put an effort to explain the need and intent of business ethics:1. Globalization: Global expansion has brought about greater involvement with different cultures andsocial-economic systems. With this kind of a development, the ethical considerations such as thedifferent assumptions about the responsibilities of business, about accepted business practices andabout the values needed to build a cohesive successful organization taking-up the lead and becomemore important.2. Competition. Rising competition brings with it added pressure to corners.Simultaneously, leaderslooking for new ways to differentiate their companies and moreover to a new level of excellence. Somebelieve that a proactive ethical stance can have a positive impact on the bottom-line. 3. Technology. The added capabilities of technology have created a new level of transparency andimmediacy to business communities. Now the conduct of businesses around the globe is more exposedthan it ever was before. The boon of science and technology is completely exploited by business arenaand used as stepping stones to success.4. Public perception and the law. This is a perceived decline in social ethics that yields uncertainty.Managers are no longer comfortable assuming the employees joining their companies and possess thedesired ethical values. Public expectations have also changed enormously. That which ones deemedunacceptable is now more readily scrutinized. New laws and stepped up enforcement efforts Raveincreased the risk of personal and organizational liability.
  • 13. They give an opportunity to think through, complex ethical issues that are likely to arise later. None ofthis convinces one to be good, but it is useful to those who want to be good. It may also improvebusiness conduct in general. How many of the recent business scandals would have occurred ifsubordinates had possessed the skills, vocabulary and conceptual equipment to raise an ethical issuewith their coworkers?Q. Explain the Benefits of Business Ethics (12 marks)Most of the organizations today are taking up challenges related to bringing in ethical practices and arealso looking at the benefits that organizations get by following business ethics. So these benefits arerelated to many dimensions like societal, public, employees, stakeholders and organizations. However,the following list describes various types of benefits from managing ethics in the workplace.1. Attention to business ethics has substantially improved society . A matter of decades ago, children inour country worked 16-hour days. Workers were harassed and exploited and disabled workers werecondemned to poverty and often to starvation. Big players affected the small players and prices werefixed on ground rules. Employees were terminated with no valid reason. Then society reacted anddemanded that businesses place high value on fairness and equal rights. Anti-trust laws were brought in,government agencies were established, Unions were organized, Laws and regulations were established.2. Ethics programs help maintain a moral course in turbulent times and the times when change isessential : Every organization passes through tough times and need for major changes in operations andtechnology as it is demanded from the changing business environment. During such times culture offollowing ethical practices helps the organizations to hojd the momentum and face the challenge.3. Ethics programs cultivate strong teamwork and productivity : Ethics programs in the organizationhelps to bring proper alignment between employee behaviors with ethical values preferred by leaders ofthe organization. So there must be proper exhibition of right behaviors by employees which can matchorganizational values. These values in the workplace build openness, integrity and teamwork whichresults -in motivation and performance.4. Ethics programs support employee growth and meaning : Following ethics in the workplace helpsemployees face reality, both good and bad in the organization and within themselves. Employees willexpress full confidence to handle the tasks and situation thus taking better decision which helps them toproduce better results. These results in turn helps employees to perform better and achieve growth.5. Ethics programs help ensure that policies are legal : Ethical practices usually complement legalrequirements and these practices are applied in the current situation and which will impact the futuretoo. So it is better to invest time and resources to ensure ethical practices now than investing onhandling litigation later. So most of the time ethical principles are often state-of-the-art legalmatters.Attention to ethics ensures highly ethical policies and procedures in the workplace.6. Ethics programs help avoid crimes and can lower fines : Ethics programs always help the team toidentify ethical issues and violations even before the implementation so that they can be reported or
  • 14. addressed. In some cases, when an organization is aware of violation and does not report it to theappropriate authorities, this can be considered a criminal act. So if organization attempts to follow theethical practices, the intensity of fine and penalties will be less.7. Ethics programs help manage values associated with quality management, strategic planning anddiversity management : Organizations today, will have to face challenges due to dynamism of market,thus focusing on managing strategic planning, diversity management and quality management. Ethicsprograms help to identify preferred values to achieve better quality and strategic growth. This effortincludes recording the values, developing policies and procedures to align behaviors with preferredvalues, and then training all personnel about the policies and procedures. This overall effort is veryuseful for several other programs in the workplace that require behaviors to be aligned with values,including quality management, strategic planning and diversity management.8. Ethics programs enhances public image of the company : Business organization will have certainresponsibilities towards society and public. Attention to ethics is also strong public relations butmanaging ethics should not be done primarily for reasons of public relations. But the fact that anorganization regularly gives attention to its ethics can portray a strong positive image to the public.People see those organizations who value people more than profit, as striving to operate with utmostintegrity and honor.9. Overall benefits of ethics programs : Managing ethical practices has lot of positive impacts onbusiness and organization. It strengthens the team coherence and balances organizations culture,improves trust and relationships between individuals and groups, supports greater consistency instandards and qualities of products and cultivates greater sensitivity to follow organization values. 10. Formal attention to ethics in the workplace is the right thing to do : As part of organizationspractice it is important to follow ethics and it also emphasizes on legal requirements to be fulfilled bybusiness. So it is important to have things in place and follow them to fulfill the legal requirements sothat we can avoid legal hurdles.Q. What are arguments and dilemmas for and against business ethics? (8 marks)There are different arguments in business wherein a category of people believe that following ethics issafer and rewarding in the longrun though it brings with it a lot of problems and challenges, thrills andbreakdown time and by for the businessman. But after all success is assured at a cost of long awaited patience and hard work. The arguments purportto show that a businessman ought to maximize profit and nothing else. Money is very important foranything be it continuation or the existence of the business, hence wealth maximization is a must. At thesame time a situation in which one had more money is necessarily preferable only if other things areequal, which they often are not. If I am offered a pay rise I naturally am inclined to accept it, but not if itwould entail moving house and saying good-bye to all my friends, or moving to a location where thereare no good schools for my children or if it would involve working under hazardous conditions, or if itwould require of one telling lies to prospective customers.
  • 15. While the other category of people deny with the fact and feel that we i have to mold ourselves and beas per the situation and circumstances and thus being indifferent should achieve the organizationalobjectives and achieve profit maximization.Situational changes will decide about our being or not being or in other words towards the change ofbusiness etc., hence being successful by hook or crook is important. Maximizes try to sidestep theargument by changing the content of what is being maximized. Instead of money it is t profits, instead ofprofits it is long-term profits.Arguments for : Business organizations today have accepted ethics as a part of their business conduct.They have realized that business exists and operates within the society and is a part of the subsystemsociety, so its functioning should contribute to the welfare of the society. As a company grows, thepublic takes more interest in it as it has a great impact on the community.There is a greater social responsibility on the mangers to maintain a proper image of the company in theminds of the public. The company cannot resort to unethical behavior or disregarding social welfare.Ethical practices sometimes reduce the cost of production in the long-run. Ethical and moral behaviorgives a unique edge and advantage in the market place. This has been well proved by the Tata group ofcompanies that have based their business activities on ethical principles.There have been different discussions and contradictions for this view of following and implementingethics in business or not.Argument Against : Businesses are economic entities and should concentrate on producing goods andservices efficiently and thus maximizing the profits to the shareholders. Some economists like Friedmanbelieved that if business ethics is a part of corporate culture, the customer would have to bear the costof the ethical practices of the organization as some ethical practices increase the price of products.Earlier people feared that ethical code of conduct would mean a sacrifice of efficiency and productivityand the competitiveness of the marketplace would fade. It was believed that business should use theirresources and engage in activities designed to increase profits. But now it is seen that the fearsexpressed by philosophers and psychologists have changed gradually.Argument 1 : In perfectly competitive markets, the pursuit of profit will by itself ensure that themembers of society are served in the most socially beneficial ways.Counter points to this argument : 1. Most industrial markets are not "perfectly competitive" as theargument assumes, and to the extent firms do not have to compete when they can maximize profitsinspite of inefficient production (i.e. unethical measures)2. The argument also assumes that any step taken to increase profits will necessarily be sociallybeneficial - then what about bribery, hiding product hazards, surrogated advertising, harmful pollutionetc.
  • 16. Argument 2: Business managers should do what is in the best interest of the firm. This is known as loyalagents argument.Counter points to this argument:1. The argument shows that the manager should serve the employer in whatever way the employerwants to be served and this means that ethics does not matter because we are assuming an unprovenmoral standard.2. No limits to managers duties which is morally not correct.Argument 3: To be ethical it is enough for business people merely to obey the law. Business ethics isessentially obeying the law.Counter Points to This Argument It is wrong to see law and ethics as identical. It is true that some lawsrequire behavior that is as same as the behavior required by our moral standards. Laws that, prohibitmurder, rape, theft, fraud and so on. In such cases, laws and morality coincide, and the obliption to obeysuch laws is the same as the obligation to be moral. Business ethics is a study of good, evil, right orwrong along with the just and unjust actions in businesses. Like the above there are various examplesand arguments againstbusiness ethics.A few of them are like: There is an argument with business being an economic entity should havenothing to do with morals or ethics. It is agreed that business should assume no other responsibilityother than to produce goods and services efficiently, thus to maximize profits for its shareholders.Hence only economic values should be the guiding principles and sole determinant for the businessperformance. Economist Milton Friedman narrates in his book, Capitalism and Freedom that the onlyresponsibility of business is to earn profits. He says that if business ethics forms a part of corporateculture, ultimately the customer would be called upon to bear the cost of ethical practices of theorganization. Earlier people feared that ethical code of conduct would mean a sacrifice of efficiency andproductivity and the competitiveness of the market place would ultimately fade. It is believed thatbusinesses should use their resources and engage its activities designed to increase profits. A Fewdilemmatic Instances to narrate the same: "A customer asked for a product/service from us today. Aftertelling him the price, he said he couldnt afford it. It is known that he could get it cheaper from acompetitor. Should he be told about the competitor or let him go without getting what he needs? Whatshould one do?"Q. What are the issues related to business ethics ( economic, competitive, legal & regulatory,philanthropic) (12 marks)Issues in Business Ethics Organizations formulate policies or general guidelines for employeeshighlighting companys expectations to offer guidance on handling some of the more common ethicalproblems that might arise in the course of doing business, pertaining to the ethical conduct ofemployees which are simple and contain specific behavioral requirements.
  • 17. Genetic inheritance is one of the primary sources of ethics wherein evolutionary sources of naturalselection influence the development of traits such as co-operation and altruism. There is a positiveapproach that such policies will lead to greater ethical awareness, consistency in application, and theavoidance of ethical disasters. There are various perspectives in business ethics - like; Ethics of human resource management, ethics offinance, ethics of production, ethics of international business, ethics of sales and marketing, ethics oftechnology, general business ethics, ethics of property, property rights and intellectual property etc.Business ethics comprises principles & standards that guide behavior in business.Social responsibility is more towards an organizations obligation to maximize its positive impact onstakeholders and to minimize negative impact. There are various dimensions of business ethics andsocial responsibility, like the legal, economic, competitive and philanthropic and each of these issues isdiscussed below in brief.Legal and regulatory issues:The legal system provides the human society with the minimum standards of behavior but anyhow lawsdo not tend to duplicate the value system of the society. Laws are also not a replica of the ethical systemnor are they an expression of the moral standards of the society.They merely provide us with the guideline of behavior for a disciplined, peaceful and a safe societywhich expects business to abide by law which is presumed to be an ethical behavior. Scholars Georgeand John Steiner have identified six primary sources of ethics in American business arena namely theGenetic inheritance which stresses on the evolutionary forces of natural selection which influences thedevelopment of qualities such as co-operation and altruism that lie at a core of our ethical systems.Those qualities of goodness often associated with ethical conduct may in some measures be a productof genetic traits strengthened over time by the evolutionary process.The other being philosophical system wherein to the Epicureans the quality of pleasures to be derivedfrom an act was an ethical measure of its goodness. The stoics like the Puritans and many contemporaryAmericans advocated a disciplined, hardworking, thrifty lifestyle which has been instrumental in thesocietys moral development.The third and the equally important being the Codes of conduct speaks that inorder to act with integrity,a firm must first articulate its values and its priorities. The most prevalent form of value articulation andcommunication is corporate mission, code of conduct or ethics. Once the firm has defined its individualvalue structure the individual decision makers within the firm have guidance in connection with difficultdilemmas. Codes may refer to general areas of business conduct or may apply to a specific area of the firmsbusiness. There are certain standard legal regulations to run business and organizations and it is heldthat business is not bound by any ethics other than abiding by the law. So it is always important tounderstand ethics and legal regulations which mostly go hand in hand. Milton Friedman is the pioneer of
  • 18. the view and his opinion was "business organizations will have obligations to make a profit within theframework of the legal system.Ethics according to him is nothing more than abiding by customs and laws and he made it explicit thatthe duty of the business leaders is, "to make as much money as possible while conforming to the basicrules of the society, both those embodied in the law and those embodied in ethical custom". Counter toFriedmans logic it is observed that legal procedures are bureaucratic, rigid and obligatory whereasethical act is voluntary choice of organizations to choose and follow.So as it is evidenced in many corporate scandals that in spite of having regulatory boundaries,organizations do break the basic rule of the game. Ethics as voluntary way to manage business offersvalid reasons beyond legal laws to do business. Following legal issues are nothing but obeying laws andregulations established by government to set minimum standards of acceptable behavior by theorganizations. Laws are passed because society does not always trust business to act in their bestinterests safeguarding the rights and duties of individuals and criminal law prohibits specific actions andimposes punishment for breaking the law.Economic issuesThe objective of economics is to maximize the economic growth through increased production andconsumption of goods and services. The identification of customer needs towards the production ofsuch necessities, meeting their requirements and following the ethical means of achieving all of theseand generating profit to an organization is definitely not an easy task. Hence the open financial systemaccelerates economic growth by encouraging foreign capital inflow.This enables higher levels of savings, investments, employment, productivity and welfare boosting ahealthy economy. Political economy and political philosophy have ethical implications, particularlyregarding the distribution of economic benefits. Once these are taken care of, we can find the economicconditions complimenting the organizational growth and viz-a-viz. Thus the study pertains to understandthe implications on the industry and the economic growth by following ethics implementing an ethicalway of business. Growth might be slow but definitely not shattered and it is obvious to be stable andrewarding time and by.Business organizations were created as economic entities designed to provide goods and services tosocietal members. The profit motive was established as the primary incentive for entrepreneurship. Thebusiness organization was the basic economic unit in the society. The principle role of any business wasto produce goods and services that consumers needed and wanted to make an acceptable profit in thedue process. Many of the times profit motive got transformed into a notion of maximum profits and thishas been an enduring value ever since. All other business responsibilities are predicted upon theeconomic responsibility of the firm.Competitive Issues
  • 19. If it is business, it ought to have objectives like profit maximization and growth. Fulfilling theseobjectives depends on the organizations capabilities in terms of innovativeness, effective marketstrategies and efficient product/service promotion and delivery. We hardly find monopolistic market.The market is highly competitive and has free arena of business exchange where the goal of everyparticipating product distributor or service dispenser is to achieve maximum profits to improve business.It calls for sensitivity, readiness, aggressiveness and shrewdness of the business firm and the essentialpersonnel who constitute it. In a competitive state of affairs, positioning plays a very vital role where afirms positioning strategy defines how it will compete in the marketplace.An effective positioning strategy considers the strengths and weaknesses of an organization, the needsof the marketplace and the position or status of the competitors. Ethical perspectives see allcompetitors to be on the same competitive platform and everything done in the spirit of competition isconsidered good and right.There is no right or wrong apart from what a business competitor perceptively considers to be right orwrong in the light of what is beneficial and advantageous to the organizations interest to stretch itsresources for higher profits. It also aims to inspire employees to conceive of novel and more effectiveways of satisfying customers.Philanthropic IssuesPhilanthropy is a Greek term which if directly translated means "love of mankind." It is an idea, event oraction that is done to better the humanity and usually involves some kind sacrifice as opposed to beingdone for a profit motive. Philanthropy encompasses those corporate actions that are in response tosocietys expectations that businesses be good corporate citizens. Acts of philanthropy include acts ofprograms to promote human welfare or goodwill donating money to a charity, volunteering at a localshelter, or raising money to donate. Corporate giving or corporate philanthropy is the act of corporations donating a portion of their profitsor resources to various non-profit organizations. The function of corporate giving can be handleddirectly by the corporation or through a company foundation. The most common resource thatcorporations donate is cash. However corporations also donate the use of their corporate facilities,property (such as used computers, buildings or land), gifts of products, services and equipment,advertising support, executive loans, and many corporations have employee volunteer groups thatdonate their time. Communities desire their firms to contribute their money, facilities and theiremployee time towards humanitarian programs and purposes. but it is not regarded as the firmsunethical behavior if they do not provide the desired level. Corporations give to a wide variety ofnonprofit organizations involvement in terms of education, arts, human services, health, environmentpreservation and awareness, public benefit and many others.In broader sense it also refers to business contribution to society, quality of life issues, responsibleproduction of goods & services, technology improvement without damaging to the environment andalso making their communities better places to live. Building structures of the Tatas, the growth of the
  • 20. area where their factories are established (bus-stops, public gardens, toilet facilities, cleanlinessmeasures etc.)Encouragement of involvement of the employees of Infosys and Wipro etc. in social activities andrewarding them is a sense of creating the willingness amongst individuals to participate and contribute.There is a need to involve into betterment practices and creativity other than only restricting oneself totheir personal life and professional success. The best way to create this essence is an initiative taken bycorporate who experiment and motivate their employees in such activities and make it a mandatory inwork. Hence philanthropy is more voluntary on the part of businesses. Finally business is expected to bea good corporate citv_.in wherein business is expected to contribute financial and human resources tothe community and to improve the quality of life thereof.Q. Explain the framework of ethical decision making (12 marks)Ethical decision making is a challenge to business professionals as there are number of issues andsituations that are too complex. Ethical decision-making need more practical approach and one need toenhance by studying cases and developing a strategy to face ethical issues. In spite of having practicalskills to handle ethical issues, practitioners do not always have complete control over the situations onwhich they have to take decision. That is the reason it is said that the philosophers have been wrestling with ethical decision making forcenturies and they are able to come out with some important principles that can guide towards ethicaldecision making. The use of ethical decision making in business is advisable if company has establishedstandard operating procedures. More often it may happen so that the decision that is being consideredcan affect ones bonus or it may affect the financial stability of a department.Most ethical dilemmas involve a conflict between the needs of the part and the whole individual versusthe organizations or the organization versus society as a whole. The "best" ethical decision would be the one that yielded the greatest net benefit for society, and the"worst" decision would be the one that yielded the greatest net harms for society. So making ethicaldecision needs professional approach, core skills and sequential steps to be followed. Some principlesfor ethical decision-making could be:1. While making a decision aim for objectivity and fairness and not alone for personal power.2. Recognizing an ethical issue, i.e.recognizing if there is something wrong personally, interpersonally orsocially. It is necessary to find if there is any conflict or asituation / decision damages the people or thecommodity.3. Try to facilitate solutions rather than actually deciding and imposing decisions, unless all parties arehappy for you to do so.4. Finding if the issue has gone beyond legal or institutional concerns.
  • 21. 5. Learn from history and previous situations & reviewing how previous situations were handled whichreduces the risks of making mistakes 6. Finding the options available for acting and whether all the relevant persons and groups are beingconsulted.7. Get the facts from all possible perspectives so that the decision considers all dimensions.8. Utilitarian approaches wherein the ethical action is the one that will produce the greatest balance ofbenefits over harms.9. Understand the long-term consequences and also look at previous examples and history.10. Rights Approach where the ethical action is the one that most dutifully respects the rights of allaffected and is fair to all stake holders.11. Check the law and ethics dimension before an action is taken.12. Fairness or justice approach where the ethical action is the one that treats people equally and ifunequally considers people proportionately and fairly.13. Common Good Approach where the ethical action is the one that contributes most to theachievement of a quality common life together.14. Consult with all experts, especially with critical people, and especially beyond your close circle ofbiased and friendly advisors, colleagues, friends, etc.15. Virtue approach where the ethical action is the one that embodies the habits and valuesof humansat their best. 16. Consider cause and effect in the best possible way so that effects are understood and the intensityis verified17. Resist the arrogance that power and authority tends to offer while making decision 18. Aim for solutions and harmony, objectivity and facilitate rather than influence. Diffuse situationsfind common ground - dont inflame.19. Implementing the decision is ultimately the most crucial.The employees in Tata group are committed to the values of the company, which has held it in goodstead for last close to 150years. From the founder Jamshedji Tata in 1868 to Ratan Tata in 2005, theleaders of the group have nurtured a value based culture that cares about the employees and conductsbusiness within the ethical framework laid down by the company leaders.When asked if Tata groups traditional emphasis on doing business the ethical way was a constraint toprofit making, Ratan Tata, Tata group chairman said, "You mean in terms of ethics and values.
  • 22. Yes, it’s still a constraint. But we are very heartened that we have not compromised on those and havegrown the way we have. The Tata family members who hold a small stake in Tata Sons, instead ofbenefiting themselves, channel their earnings to social services like education and health care for theless privileged sections of society. Over the years, Tata group has become synonymous with benefits forthe employee and a company that people trust. It is an organization that is built to last, thanks to thestrong value based culture given to it by its leaders. There are many approaches, processes, and modelsused to discuss ethical problems and there is an 8-step comprehensive method / model of ethicaldecision making process.1) Identify the question being discussed, and describe why it is an ethical problem.2) Identify and list any stakeholders who may be affected by the problem.3) List the people who could be involved in selecting a course of action or in assisting or influencing thestakeholders in selecting a course of action.4) Describe possible courses of action. Include possibilities that are obvious, subtle, and "off-the-wall",even ones that might have obstacles.5) Use a decision making chart to describe the benefits (pros) and risks (cons) of each course of action.6) Identify the ethical principles and values that support each course of action.