Business Ethics Tathagat Varma Session 5/12: 13-‐Aug-‐09
General Business Ethics • This part of business ethics overlaps with the philosophy of business, one of the aims of which is to determine the fundamental purposes of a company. If a companys main purpose is to maximize the returns to its shareholders, then it should be seen as unethical for a company to consider the interests and rights of anyone else. – Corporate social responsibility or CSR: an umbrella term under which the ethical rights and duQes exisQng between companies and society is debated. – Issues regarding the moral rights and duQes between a company and its shareholders: ﬁduciary responsibility, stakeholder concept v. shareholder concept. – Ethical issues concerning relaQons between diﬀerent companies: e.g. hosQle take-‐overs, industrial espionage. – Leadership issues: corporate governance. – PoliQcal contribuQons made by corporaQons. – Law reform, such as the ethical debate over introducing a crime of corporate manslaughter. – The misuse of corporate ethics policies as markeQng instruments.
Ethics of AccounQng InformaQon • CreaQve accounQng, earnings management, misleading ﬁnancial analysis. • Insider trading, securiQes fraud, bucket shops, forex scams: concerns (criminal) manipulaQon of the ﬁnancial markets. • ExecuQve compensaQon: concerns excessive payments made to corporate CEOs and top management. • Bribery, kickbacks, facilitaQon payments: while these may be in the (short-‐term) interests of the company and its shareholders, these pracQces may be anQ-‐ compeQQve or oﬀend against the values of society. • Cases: accounQng scandals, Enron, WorldCom
Ethics of Human Resource • Management covers those ethical The ethics of human resource management (HRM) issues arising around the employer-‐employee relaQonship, such as the rights and duQes owed between employer and employee. – DiscriminaQon issues include discriminaQon on the bases of age (ageism), gender, race, religion, disabiliQes, weight and a^racQveness. See also: aﬃrmaQve acQon, sexual harassment. – Issues arising from the tradiQonal view of relaQonships between employers and employees, also known as At-‐will employment. – Issues surrounding the representaQon of employees and the democraQzaQon of the workplace: union busQng, strike breaking. – Issues aﬀecQng the privacy of the employee: workplace surveillance, drug tesQng. See also: privacy. – Issues aﬀecQng the privacy of the employer: whistle-‐blowing. – Issues relaQng to the fairness of the employment contract and the balance of power between employer and employee: slavery, indentured servitude, employment law. – OccupaQonal safety and health. • All of the above are also related to the hiring and ﬁring of employees. A employee or future employee can not be hired or ﬁred based on race, age, gender, religion, or any other disciminatory act.
Ethics of Sales and MarkeQng • MarkeQng, which goes beyond the mere provision of informaQon about (and access to) a product, may seek to manipulate our values and behavior. To some extent society regards this as acceptable, but where is the ethical line to be drawn? MarkeQng ethics overlaps strongly with media ethics, because markeQng makes heavy use of media. However, media ethics is a much larger topic and extends outside business ethics. – Pricing: price ﬁxing, price discriminaQon, price skimming. – AnQ-‐compeQQve pracQces: these include but go beyond pricing tacQcs to cover issues such as manipulaQon of loyalty and supply chains. See: anQ-‐compeQQve pracQces, anQtrust law. – Speciﬁc markeQng strategies: greenwash, bait and switch, shill, viral markeQng, spam (electronic), pyramid scheme, planned obsolescence. – Content of adverQsements: a^ack ads, subliminal messages, sex in adverQsing, products regarded as immoral or harmful – Children and markeQng: markeQng in schools. – Black markets, grey markets. • Cases: Bene^on.
Ethics of ProducQon • This area of business ethics deals with the duQes of a company to ensure that products and producQon processes do not cause harm. Some of the more acute dilemmas in this area arise out of the fact that there is usually a degree of danger in any product or producQon process and it is diﬃcult to deﬁne a degree of permissibility, or the degree of permissibility may depend on the changing state of preventaQve technologies or changing social percepQons of acceptable risk. – DefecQve, addicQve and inherently dangerous products and services (e.g. tobacco, alcohol, weapons, motor vehicles, chemical manufacturing, bungee jumping). – Ethical relaQons between the company and the environment: polluQon, environmental ethics, carbon emissions trading – Ethical problems arising out of new technologies: geneQcally modiﬁed food, mobile phone radiaQon and health. – Product tesQng ethics: animal rights and animal tesQng, use of economically disadvantaged groups (such as students) as test objects. • See also: product liability • Cases: Ford Pinto scandal, Bhopal disaster, asbestos / asbestos and the law, Peanut CorporaQon of America.
Ethics of IP, Knowledge and Skills • Knowledge and skills are valuable but not easily "ownable" as objects. Nor is it obvious who has the greater rights to an idea: the company who trained the employee, or the employee themselves? The country in which the plant grew, or the company which discovered and developed the plants medicinal potenQal? As a result, a^empts to assert ownership and ethical disputes over ownership arise. – Patent infringement, copyright infringement, trademark infringement. – Misuse of the intellectual property systems to sQﬂe compeQQon: patent misuse, copyright misuse, patent troll, submarine patent. – Even the noQon of intellectual property itself has been criQcised on ethical grounds: see intellectual property. – Employee raiding: the pracQce of a^racQng key employees away from a compeQtor to take unfair advantage of the knowledge or skills they may possess. – The pracQce of employing all the most talented people in a speciﬁc ﬁeld, regardless of need, in order to prevent any compeQtors employing them. – BioprospecQng (ethical) and biopiracy (unethical). – Business intelligence and industrial espionage. • Cases: private versus public interests in the Human Genome Project
InternaQonal Business Ethics • While business ethics emerged as a ﬁeld in the 1970s, internaQonal business ethics did not emerge unQl the late 1990s, looking back on the internaQonal developments of that decade. Many new pracQcal issues arose out of the internaQonal context of business. TheoreQcal issues such as cultural relaQvity of ethical values receive more emphasis in this ﬁeld. Other, older issues can be grouped here as well. Issues and subﬁelds include: – The search for universal values as a basis for internaQonal commercial behaviour. – Comparison of business ethical tradiQons in diﬀerent countries. – Comparison of business ethical tradiQons from various religious perspecQves. – Ethical issues arising out of internaQonal business transacQons; e.g. bioprospecQng and biopiracy in the pharmaceuQcal industry; the fair trade movement; transfer pricing. – Issues such as globalizaQon and cultural imperialism. – Varying global standards -‐ e.g. the use of child labor. – The way in which mulQnaQonals take advantage of internaQonal diﬀerences, such as outsourcing producQon (e.g. clothes) and services (e.g. call centres) to low-‐wage countries. – The permissibility of internaQonal commerce with pariah states. • Foreign countries oken use dumping as a compeQQve threat, selling products at prices lower than their normal value. This can lead to problems in domesQc markets. It becomes diﬃcult for these markets to compete with the pricing set by foreign markets. In 2009, the InternaQonal Trade Commission has been researching anQ-‐dumping laws. Dumping is oken seen as an ethical issue, as larger companies are taking advantage of other less economically advanced companies.
Ten Principles of Highly Ethical Business Leaders 1. Treat all employees as unique individuals. – Don’t reduce people to a uQlity — a means to accomplish your ends. 2. Support each person’s freedom to grow and develop. – Never view anyone through stereotypes, or as ﬁxed and unchangeable. 3. Communicate to people by name with respect. – Never use hurnul labels or refer to a person by his or her job funcQon. 4. Model and encourage a balanced life of good work and rest. – Don’t make long-‐term demands on employees that undermine balanced lives. 5. Honor and respect families of others. – Don’t forget that each person lives in a broader context beyond his or her work. 6. Value life, safety, and health. – Work processes or products should not create unnecessary risk or harm. 7. Keep your promises. – Don’t violate wri^en or verbal commitments, or look for loopholes to do so. 8. Be fair and just in ﬁnancial maOers. – Don’t tolerate unfair wages, prices, or ﬁnancial pracQces. 9. Communicate honestly and truthfully. – Never misrepresent people, products, services, or facts. 10. Recognize the accomplishments of others. – Don’t claim the success of others for yourself.
Why have a Code of Conduct • A code of conduct is intended to be a central guide and reference for users in support of day-‐to-‐day decision making. It is meant to clarify an organizaQons mission, values and principles, linking them with standards of professional conduct. As a reference, it can be used to locate relevant documents, services and other resources related to ethics within the organizaQon. • A code is an open disclosure of the way an organizaQon operates. It provides visible guidelines for behavior. A well-‐wri^en and thoughnul code also serves as an important communicaQon vehicle that "reﬂects the covenant that an organizaQon has made to uphold its most important values, dealing with such ma^ers as its commitment to employees, its standards for doing business and its relaQonship with the community.“
Why have… • A code is also a tool to encourage discussions of ethics and to improve how employees/members deal with the ethical dilemmas, prejudices and gray areas that are encountered in everyday work. A code is meant to complement relevant standards, policies and rules, not to subsQtute for them. • Codes of conduct oﬀer an invaluable opportunity for responsible organizaQons to create a posiQve public idenQty for themselves which can lead to a more supporQve poliQcal and regulatory environment and an increased level of public conﬁdence and trust among important consQtuencies and stakeholders
Common Ethic Code Provisions • Below are some common provisions found in organizaQonal codes. • The list of provisions is not exhausQve, nor are the category headings deﬁniQve. OrganizaQons tend to label and categorized their code provisions in many diﬀerent ways depending on their unique characterisQcs, their goals for the code and so forth. • Similarly, code content (i.e. provisions) can vary substanQally across organizaQons depending on their industry, regulaQons/requirements and goals for the code.
Common… • Employment PracUces – Workplace Harassment – Equal Opportunity – Diversity – Fair Treatment of Staﬀ – Work-‐Family Balance – DiscriminaQon – Illegal Drugs and Alcohol – Use of OrganizaQon Property • Employee, Client and Vendor InformaUon – Maintaining Records and InformaQon – Privacy and ConﬁdenQality – Disclosure of InformaQon • Public InformaUon/CommunicaUons – AdverQsing and MarkeQng – Development and Fundraising – Clarity of InformaQon – Access to InformaQon – Transparency of InformaQon
Common… • Conﬂicts of Interest – Giks and GratuiQes – PoliQcal AcQvity – Outside Employment – Family Members • RelaUonships with vendors – Procurement – NegoQaQng Contracts • Environmental Issues – Commitment to the Environment – Employee Health and Safety • Ethical Management PracUces – Accuracy of books and records and expense reports – Proper use of organizaQonal assets – ProtecQng proprietary informaQon • Employment PracUces – Proper Exercise of Authority – Employee Volunteer AcQviQes • Conﬂicts of Interest – Disclosure of Financial Interests • PoliUcal Involvement – PoliQcal AcQviQes
Quiz 1/2 • Why people engage in unethical behavior? (2.5) • What are the major ethical dilemmas of today’s business? (2.5) • IdenQfy ethical issues in the following situaQon, and suggest an ethical response to those issues: (5) – Satyam works for a pharma company as a sales rep. He is based out of Bangalore but travels frequently for work. He a^ends an interview with a compeQtor on a weekday in Mumbai, and he ﬁles expense report with his company claiming the travel as business travel. During interview, he is promised heky bonus if he could bring at least 25% of his current business to the compeQtor in next 3 months. In Mumbai, he also met an old friend over lunch, and included lunch bill as business entertainment. While retuning from Mumbai, he picked up a Barbie doll for his boss’s daughter whose birthday was on coming Sunday.
Quiz 2/2 -‐ Yes / No 1. Business ethics focuses mostly on personal ethical issues 2. Business ethics deals with right or wrong behavior within a parQcular organizaQon 3. Business ethics contributes to investor loyalty 4. If an acQvity is approved by most members of an organizaQon and it is also customary in the industry, it is probably ethical 5. The primary method for resolving business ethics disputes is through the criminal court system 6. Whistle-‐blowers oken retain their posiQons and conQnue to advance within the organizaQon 7. A person who behaves unethically and is rewarded is likely to conQnue to act unethically 8. SocializaQon refers to the process in which a person learns the values and behaviors considered appropriate by the organizaQon 9. The accountability and responsibility for appropriate business conduct rest with top management 10. Management’s total loyalty to maximizaQon of proﬁt is a principle obstacle to achieving higher standards of ethical pracQce