BUSINESS ETHICS AND CORPORATE GOVERNANCE OBJECTIVE OF THE CHAPTERThe 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 & prioritize 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. Presenting moral behavior i.e.making recommendations abt how to & how not to behave, making judgment on human behavior basedon the standards set of expressing an opinion abt human conduct in general.1.1 AN OVERVIEW OF BUSINESS ETHICS Customers want products and services for which they are ready to pay the price. Businesses create these products and services and in return multiply their returns, objective is profit. But in this process of requirements and fulfilling or meeting out the customer requirements and the expectations, companies often tend to ignore their basic principles of ethics during selling their products because then their objective of profit takes the helm. There should be their profit motive but ethically, i.e., at the same time the origin of business which was done on certain parameters and ethics should not be ignored or over-ruled. There is old French saying that has much relevance in todays corporate world. It runs thus saying, "He who knows deepest into the past looks farthest into the future." Hence, it is important to look deep into the past in the hope of perceiving the needs of the future. Business ethics reflects the philosophy of business. The basic aim of business is to create profit at all costs. Wealth creation invariably begins with a passion and the vision of its owners who lay the basic foundation of the business. They build an idea to create a product or service that is market oriented or relevant and monetarily profitable. The bottom-line of any business is how much revenue generation it is making and what 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 done without a certain degree of unscrupulousness. An action might be morally correct but if it is the best move for business, then it is justified. Invariably, adjusting the numbers to record better profits becomes a matter of routine with a common dictum that business ethics is an oxymoron leading to the rules of business, values take a back seat. In this entire process of sweeping business ethics under the carpet and 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 determine the fundamental purpose of the incorporation of a company.
On one hand if it is to make profits, it should also consider sincere means to maximize profits aridbelieve that there are no shortcuts to success. Corporate social responsibilities an umbrella termunder which the ethical rights and duties existing between companies and society is debated. Issuesregarding the moral rights and duties between a company and its shareholders, fiduciaryresponsibility, stakeholder concept vs. shareholder concept are argued. Ethical issues concerningrelations between different companies: e.g. hostile takeovers, industrial espionage, Leadershipissues, corporate governance; Corporate Social Entrepreneurship, Political contributions made bycorporations towards the betterment of the society, Law reform, such as the ethical debate overintroducing a crime of corporate manslaughter and to continue the misuse of corporate ethics &policies as marketing instruments are all considered, understood, argued and implemented towardspracticing ethics. Leadership is a management process, a command of guidance of encouraging &helping others to work enthusiastically towards the set objectives. For Aim Premix, chairman ofWipro, integrity is paramount both in personal as well as business life. He narrates that the onlyadvice that his father gave him was to conduct him with values and that he believes it has helpedhim all through his life. He has always leaded a simple life, and considered integrity the fundamentalvalue. He ran a factory on captive power generation for 18 months just because he did not want tobribe the concerned people to get an electricity connection. That sums up his philosophy. Thisstandard 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 companythat guides through the tough choices confronted within the daily execution of the employees rolesand to help create confidence in the minds of the customers , investors, suppliers and the society atlarge with respect to Wipros dependability and sincerity. This is how the ethical choices of abusiness leader permeate into the companys organizational behavior and functioning. As is shownby the performance of companies like Wipro and Infosys a leaders personal ethics are not adeterrent to generating revenue for the company will later. It can be a foundation for higherstandards of functioning, accountability and transparency that motivates the employees, influencesthe way they behave in the workplace, earns their loyalty and eventually helps an organizationendure. No doubt the organization faces lots of turbulences in the process of inception,continuation of its proving of existence and constant attacks and challenges but it is not to beforgotten that it was but expected and had to be thought before the implementation of the ideaincarnated. An individual plunges into business when he thinks he is better than somebody, can do aparticular thing better, face competition more effectively, has an enhanced vision to accomplish anddares to confront the storms, takes the risks and gets into entrepreneurship. Ethics is seen to be atits peak at the inception but gradually sinks when profits takeover the prime seat in business or startlosing hopes when sees that ethical ways are longer and difficult comparing the easier routes ofaccomplishing quicker benefits growth and meeting the reason for business establishment. So canwe really meet the above and grow, getting retained in business by following ethics throughout?This is a challenging question which plays the foundation of the business further.1.2 MEANING OF BUSINESS ETHICS
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. These_ are the businessprinciples and values that a company follows to do business. In future these ethical requirementsbecome legal requirements of business in terms of policies, safety measures, quality products,conditions of work, needs of employee requirements etc. Gradually companies, sometimes to save costmay opt for certain compromises.—Even for the companies there is a dilemma that if they follow ethicsto that hardcore standards, can they really make profits? This leads to minor acceptations in thebeginning in terms of bribery, selling under quality products, etc. Historically, interest in business ethicsaccelerated dramatically during the 1980s and 1990s, both within major corporations and withinacademia. For example, today most major corporate websites lay emphasis on commitment topromoting non-economic social values under a variety of headings (e.g. ethics codes, socialresponsibility charters etc.). When managers reporting to NASA were thoughtful whether to ask for apostponement before what turned out to be a fateful launch of the space shuttle Challenger, the Chairof the meeting literally said, "Take off your engineering hat and put on your management hat." The hatssymbolize the various roles people take on in different situations. Therefore, if the main aim of the gamein business were just maximizing profit, this approach would allow a businessman to act as if businesswere-a moral game where success is measured in financial terms alone. Ethics thus refers to the moralprinciples, a sense of right & wrong or the goodness & badness of the action, their motives & theconsequences further. What is ethics then?. Ethical issues in business include the rights and duties between a company and its employees,suppliers, customers and share holders. Many philosophers consider ethics to be the "Science ofConduct" and many of them explain that ethics lays the fundamental ground rules by which we live ourlives. Some of them also consider emerging ethical beliefs to be the state-of-the-art legal matters, i.e...What becomes an ethical guideline today is often translated to a law, regulation or a rule tomorrow.Thus applied ethics is a field of ethics that deals with ethical questions in many fields such as medical,technical, legal and business ethics. Ethics in business is supplying the application of everyday moral ofethical means in business. Organizations today are finding themselves under public attack and criticism and they responded bydeveloping the notion of social responsibility. They thus start the social responsibility program andspend a good deal of money in advertising their programs and how they promote the social cause. Thefundamental purpose of a company is both profit and social responsibility and adhering to both with dueconsideration on ethical values and norms brings not only success but also stability and dependability inthe long run. The different sources of ethical values are through; Genetic inheritance, code of conduct,culture, religion, legal system, philosophical system etc. Religion here refers to a specific &institutionalized set of beliefs & practices which are generally agreed upon by a group of persons orsections of the society.Religion is the oldest source of inspiration for ethics. Across the globe, we find various religions withdifferent doctrines with a strong conviction that ethics is indispensible and reveals what is right and
wrong in all the facets of life. All the religions stress on the need for an ordinary social system andresponsibility towards general welfare. Why business ethics? Business ethics refers to the application ofethics in business. It is in other words an elaborative study of the good and the evil, right & the wrong,just and unjust actions of the business. We also find transactional ethics here which means theasymmetrical or irregular and uneven relations of unequal claims & conflicting interests which do notexhaust the arsenal of possible action patterns. As an individual decides principles for his life that he willnot cheat anyone, not tell lie under any circumstance, be sincere at all difficulties and challenges etc. inthe same way company sets certain standards and values or formulates the moral philosophy of thebusiness to conduct it in a better way. There are many instances wherein companies did not followbusiness ethics and they had to shut down, compromise profits and company image, shattered goodwill,undergo losses etc in the long run consequently. Hence it is very critical that certain basic structures onethics are set and followed emphasizing the study, implementation and regular practice of ethics inbusiness. Business ethics came into limelight as organizations started realizing that they need to managea more positive image of their company to the public. The philosophy of any business is reflected by thebusiness ethics followed or implemented by the organization which examines and resolves the ethicaland moral principles and problems that arise in business environment. Environment refers to all externalforces which have a bearing on the functioning of business. Environment includes factors such as socio-economic, technological, suppliers, competitors and the government. It applies to all aspects of businessconduct and is relevant to the conduct of individuals and the entire organization. Problems such ascorporate responsibility, corporate governance, share holder relation, bribery and discrimination areexamined in Business ethics. It concentrates on moral standards as they apply particularly to businesspolicies, institutions and behavior. Discussion on ethics in business is necessary because, firms andcorporations operate in the social and natural environment is duty bound to be accountable to itssurviving environment and business can go thus unethical. There are plenty of evidences on unethicalcorporate practices. Irrespective of the demands and pressures upon it, business, by virtue of itsexistence is bound to be ethical, for at least two reasons: one, because whatever the business doesaffects its stakeholders and two, because every juncture of action has curve of ethical as well asunethical paths. The existence of business is justified by ethical alternatives. The demise of small scale,high trust and face-to-face enterprises and emergence of huge multinational corporate structures arecapable of drastically affecting everyday lives of the masses and compliments the ethical and unethicaldecisions of business.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 ownpredefined ethical practices.The basic values of a society constitute nothing but the core of its culture. Man as a social animal cannotlive alone and hence his conduct has a direct or indirect reference to the culture he belongs to. Thesemoral standards and values have a tremendous impact and profoundly affect the person in building hisown ethical value structure.
But it is also to be remembered that the moral conduct of a person is not confined only to his familyculture. It transcends and goes beyond family culture and spills over to the society or the race which hebelongs to. In spite of ethics being culture specific there are certain principles which run like a commonthread among all cultures, all religions and among all the ages in history. These are nothing but theprinciples of honesty, respect for life and freedom, fairness, loyalty, human dignity, integrity etc. Theseprinciples are unchangeable, immortal and remain always valid, transcending time, space and distance.Corporate culture is a shared value that defines for its members as to what the organization stands for,its functioning, its priorities and the importance of its existence. Thus it has a strong impact on businessethicsBusiness ethics can be defined as the critical and structured examination of how people and institutionsshould behave in the world of commerce, addressing the moral features of a commercial activity. Inparticular, it involves examining appropriate constraints on the pursuit of self interest or profits whenthe actions of the individuals or firms affect others. It is a movement which refers to the development ofstructures and principles internal to the company resulting in helping the company and the employees.Some companies have always been ethical and have structured themselves and their culture toreinforce ethical behavior. A running business requires adequate consideration to a number of issuesoutside the traditional scope of making money, of which ethics is most certainly an important one. Asbusiness grows and becomes more significant, we concentrate and focus on creating jobs and wealth.But it is equally important to understand the business ethics which can build the reputation or affect itnegatively if not considered. The relationship between ethics and business can be viewed in two angles:One is that, ethics conflicts with profits and second being that businesses always choose profits overethics. Business has the highest level of humanity and social good. One of the important questions hereis what are the ethical values that a business leader needs to have?Who decides what the right ethical conduct for business is? It’s no longer enough for companies toproduce healthy profits. They must also prepare the next generation of business executives to respondto ethical, social and environmental considerations of today’s corporate world.A few guidelines to manage ethics at workplace are: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. Of coursethe process of strategic planning is more important than the plan produced by the process. The same istrue for ethics management which produces deliverables like codes, policies and procedures, budgetitems, meeting minutes, authorization forms, newsletters etc. and ethics management program is theprocess of 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 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.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 needs 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 them 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 the primecomponents of any management practice. An ethics management program may increase the number ofethical issues to be dealt with because people are more sensitive to their occurrence. At the same time,there may be more occasions to address peoples unethical behavior. It is always to be rememberedthat a shaking hand and a patting attitude is always better than a pointing finger. The most importantingredient for remaining ethical is trying to be ethical. Therefore, help people recognize and addresstheir 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: Some organizationshave become widely known, as thus operate in a highly ethical manner, e.g., The Tata’s, Johnson andJohnson, Hewlett Packard, etc. Unfortunately, it seems that when an organization achieves this strongpublic image, its placed on a pedestal by some business ethics writers. All organizations are comprisedof people and people are not perfect. However, when a mistake is made by any of these organizations,the organization has a long way to fall. In our increasingly critical society, these organizations areaccused of being hypocritical and they are soon pilloried by social critics. Consequently, some leadersmay fear sticking their necks out publicly to announce an ethics management program. This is extremelyunfortunate. Its the trying that counts and brings peace of mind and not achieving a heroic status insociety. We can always initiate a process or a route which can become a basis for somebody else toimprovise with better ideas, concepts, means and perceptions.
1.3 HISTORY AND DEVELOPMENT OF BUSINESS ETHICSThe 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.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 todeveloping economies, what constitutes a living wage and how companies respond to culturaldifferences is being cast in ethical frames since times.By the 4th century B. C., ethical issues related to business and trade can be traced receiving academictreatment in the philosophies of Plato and Aristotle. The history of business ethics also has its formativeyears in the reformation. Reformation figures like Martin Luther and John Calvin, in the 15th and 16thcenturies A. D., applied religious and moral considerations to trade and economics leading to thedevelopment of the Protestant work ethic. But in the following two centuries, Enlightenment thinkerssuch as John Locke and Adam Smith began to separate religious doctrine from moral and ethicalconsiderations of commerce and business.Locke introduced the concept of property as a natural right, and Smith developed the foundation formodern economic theory by championing the moral values of self-interest in guiding and promoting theprogress of 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 instanceswhere the student has covered a long distance in finding out their teachers.There are various examples like Swami Ramakrishna Paramhamsa who has seen Mother Kali incarnatingand he himself traveled around to discover his student Swami Vivekananda, Swami Guru Ramdas whosearched for his student Shiva Maharaja, Chanukah, who went in search of and found his shishyaChandragupta Maurya, Shri Gokhale who found Mahatma Gandhi and so on there are various exampleswhich exhibit how in the past religious, moral, political, social and business concerns were met with thehelp 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 alsohave many examples wherein the student has explored his Guru and covered the journey of their lives.When Swami Ramanandji did not accept Ramdas as his student, since he was an untouchable, one earlymorning in the dawn when the Guru was on his way to take bath in the river, Ramdas slept on the steps.The Guru did 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 as Gurumantra and continued believing him as hisGuru. We know the story of Sri Hanuman who waited for his Guru Sri Ram and later was prominentlyknown for his Guru-bhakti, both for and because of his Guru. Ekalavya is a classic example in this stream,which was not accepted by his Guru Shri Dronacharya as his disciple for which he made an idol of hisGuru and practiced archery.Not only this, ethics meets its reality when he was asked for his thumb as Gurudakshina and he did nothesitate or rethink to give it though he knew that his dream, passion, talent and practice would come toan end after it. Thus ethics cannot be pointed and said that this is right and this is wrong. That whichhelps in the multiplication of profit, social gains, benefits to individuals and society at large withoutfollowing or indulging into any illegal, prohibited, banned or illegitimate or dishonest means can bestated as ethical or unethical the otherwise.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 inthe field have emerged in universities throughout the world, even spawning sub-disciplines such asmarketing, accounting, and financial ethics. Business ethics has only existed as an academic field sincethe 1970s.During the 1960s corporations found themselves increasingly under attack over unethical conduct. As aresponse to this, corporations in the developed social responsibility programs involved charitabledonations and funding local community projects. This practice was unorganized and it differed fromindustry 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 right until the 1970s when philosophers began to write on the subject ofbusiness ethics.Previous to this development, only the management professionals, theologians and Journalists had beenhighlighting problems of this nature on a regular basis. When philosophers became involved theybrought ethical theory to bear on the relevant ethical issues and business ethics became a moreinstitutionalized, organized and integral part of education in business. This aspect of business ethicsdifferentiated 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.In this way we find business ethics had a broader remit than the social issues and was a good deal whichwas more systematic and constructive. Business ethics also recognized that the world of business raisednew and unprecedented moral problems and covered by personal systems of morality. Common sensemorality is sufficient to govern judgments about stealing from your employer, cheating customers andtax frauds. It could not provide all the necessary required tools for evaluating moral justification ofaffirmative action, the right to strike and whistle-blowing. Business ethics being part of the larger socialethics, always has been affected by the ethics of time.The followers of Epicures, a Greek follower who taught and gave the doctrine that pleasure was thechief God meant Epicure or Epicureanism. At different periods, people, especially the elites of the world,were blind to ethics and morality and obviously unethical to the succeeding ages. History of business,thus, is tainted by and through the history of slavery and colonialism and later by the history of cold war.The need for business ethics in the current times had begun gaining more attention since 1970s.Historically, firms started highlighting their ethical stature since the late 1980s and early 1990s, as theworld witnessed serious economic and natural disasters due to unethical business practices.The Bhopal disaster, and the fall of Enron are instances of the major disasters triggered by bad corporateethics. It should be noted that the idea of business ethics caught the attention of academics, media andbusiness firms by the end of the overt Cold War. Of the many, the first definition of social businessethics in India dates back to around 1000 to 1600 BC. In the Bhagavada Gita, Shri Krishna laid down therights and obligations of each one of us. Shri Krishna said that a manager must look upon the task thathe has been set for that he sets himself, not interms of personal gains or profit but purely interms of itsfulfillment and the satisfaction that he gets out of that. To elaborate the same, it can be a betterinstance to relate the instance provided by Mr.Prakash Tandon, when he was the director of HindustanLever in 1956 and it became a public company with its first board meeting with a every scholarlychairman, Lord Heyworth, whose name had been associated with Unilever for 30years.At the board meeting, Lord Heyworth said that there was one little thing that he would like to discuss.Did the directors of Hindustan Lever buy and sell Hindustan Lever shares or not. Did they get involved inany personal manner in the company, or was their involvement only professional? After a briefdiscussion, the chairman said if they understood the market well, they could trade in other company’sshares: but he advised them not to be associated with any personal gain in Hindustan Lever beyondtheir remuneration.Many years later an American scholar, Elliot Jacques, created a new term for this kind of professionalmanager, he allied him property-less manager, one who manages the company but does not own anypart of it as his personal property. Jacques went straight back to Shri Krishnas definition of a true
manager, one who does his job, not for personal gain but for the sheer fulfillment of the task and thesatisfaction, which he derives.Lord Buddha enunciated the same concept in his words with a beautiful phrase that a trade is like ahoney bee, which sucks honey out of the flower but does not harm the flower.Buddha of course did not realize, that the bee actually helps the flower in the process of fertilization bypollinating it. What Lord Buddha wanted to emphasize was that no harm must be done in quest ofpersonal gain. Arthashastra from the Mauryans lays down the concept of accountability (duty,responsibility) of the manager to keep complete accounts; it also mentions that he should be subject toan audit from time to time on clarity and truthfulness of his fair accounts. Akbar gave us somethingindispensible for regular ethical functioning; a clear and stable commercial set-up.1.4 NATURE OF BUSINESS ETHICSBusiness 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 thecustomers 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 ethicsof business nor is one needed, implying the standards of personal ethics covers all business situations."Another view of business is that it must exhibit corporate and social responsibility and an ethicalbusiness must act as a responsible citizen of the communities in which it operates even at the cost ofprofits or other goals. Stakeholders have the right to expect a business to be ethical; if business has noethical obligations, other institutions could make the same claim which would be counterproductive tothe 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 orunjust, fair or unfair etc. Business ethics or corporate ethics is a form of applied ethics or professionalethics which examines ethical principles and morals or ethical problems that arise in a businessenvironment. It applies to all aspects of business conduct and is relevant to the conduct of individualsand the entire organization. Consequently, business ethics can be strong preventative medicine andthere are many benefits of managing ethics in the workplace. Similarly Money Laundering which issquandering of money involving transactions of cash outflow, conducted in a manner as to appear thatthey were made honestly.
Laundering actually means cleaning up. Money laundering cloaks the illegal activities and protects thelawbreakers.Wallace and Peel 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 guideleaders through complex dilemmas about what is right or wrong. Attention to ethics in the workplacesensitizes leaders and staff to how they should act. Perhaps most important attention to ethics in theworkplace helps ensure that when leaders and managers are struggling in times of crises and confusion,they retain a strong moral compass. However, attention to business ethics provides numerous otherbenefits also. Business ethics refers to the application of ethics to business. To be considered ethical abusiness must draw its idea about what is a desirable behavior from a common or a reliable source. Itshould anyhow not try evolving into its own principles to justify its actions.Also in order to have a long run existence and sustained profitability it is important for a business tohave an ethical foundation and function as responsible corporate citizen of a country. Business ethics isconsidered as management discipline, especially since the origin of social responsibility movement. In1960s, social awareness movements raised expectations of businesses to use their massive financial andsocial influence to address social problems such as poverty, crime, environmental protection, equalrights, public health and improving education.An increasing number of people asserted that because businesses were making profit from using thecountrys resources, they owed it to the country by improving society. Many researchers, businessschools and managers have recognized this broader constituency, and in their planning and operationshave replaced the word "stockholder" with "stakeholder," meaning to include employees, customers,suppliers and the wider community.Organizations can manage ethics in their work place by establishing an ethics management programwhich is made up of values, policies and activities which impact the propriety of organization behavior.To maintain the ethical culture in Infosys, employees are encouraged to report cases of fraud, in personor by writing anonymously through e-mail or to the corporate counsel.1.5 SCOPE AND IMPORTANCE OF BUSINESS ETHICS 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 long run theory. Strategy refers to a plan of action designed to achieve a particular goal or therelevant alternatives chosen to make a desired future such as achievement of a goal or solution to aproblem. It is otherwise the art and science of planning of the resources for their most efficient andeffective use.
Conducting business requires adequate consideration to a number of issues outside the traditionalscope of making money. In the process of making profits and achieving growth, business people andorganizations face many challenges related to environment and conduct of business. So important partof doing business primarily understands the business ethics. If organizations and people fail to understand and consider, it might affect reputation of the businessand can even ruin the business affecting long standing establishments and success. Ethics being asubjective topic might not have importance across all areas of business. But ethics has significant role toplay in most of the areas of business be it sales and marketing, product development, customer serviceand even to some extent finance. So ethics plays an important role in ensuring business success andultimately living up to the corporate social responsibility.Thus adopting ethics approach to doing business is critical towards ensuring a strong business modelwith long term potentials. Business ethics is especially important in dealing with customers, maintainingintegrity with customer and building client relationships. On the other side of your business, its alsoimportant to adopt an ethical approach which considers your various responsibilities towardsshareholders, employees and the society at large. Ethics is no doubt an important business subject forany entrepreneur to study, but it also has a wider application throughout organizations. So what isethical to one may not be ethical to others hence, its important to establish a collective set of ethicsthat represent the entire organization rather than just adopting it individually. This can be done throughtraining, through having standard business policies and 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. • Ethicalpay-offs help the organization to reduce risks such as breaches of law, regulations or companystandards, and damage to reputation of the organization in long run.• 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 is
employee 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 ^xi be seen when a company fully integrates its values into its culture, graduallyquality rises 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.1.6 NEED FOR BUSINESS ETHICSWhy to promote business ethics in organizations? Customers are more educated today and theirawareness level has comparatively increased. Business organizations will always set objectives for thebusiness and focus towards profit maximization and growth. The most important question is howmanagers make profit and achieve growth?They work towards understanding and working towards meeting these objectives. Business considerswhy to make profits, and why should do so legally. But why should they be concerned about ethics, aslong as they are making money and staying out of legal problems making a legal profit for the firm.These dimensions and arguments are confusing and often mistaken. So it is important to firstunderstand 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 byprofit taking, but it is always not necessary to opt for the unethical way. In the past a number of factorshave brought ethical matters into sharper focus. A few of the following points put an effort to explainthe 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, leaders looking for new ways to differentiate their companies and moreover to a newlevel of excellence. Some believe that a proactive ethical stance can have a positive impact on thebottom-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.Why Study Ethics? Ethics courses have a number of features that influence behavior. It provides alanguage and conceptual framework with which one can talk and think about ethical issues. Theypresent ethical theories help define what a valid ethical argument looks like. They give an opportunity tothink through, complex ethical issues that are likely to arise later.None of this convinces one to be good, but it is useful to those who want to be good. It may alsoimprove business 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?Participatory ethics is a privileged part of business ethics. Parties co-operate voluntarily committingthemselves to a self imposed and non-enforceable obligation producing a distant common good.Similarly recognition ethics is an ethics of self development guided by the principles of fidelity to onesbasic self which clarifies and supports the Principle of recognition (formal and conscious when one getsinvolved in situations of moral asymmetry) and the Principle of beneficence (that no harm should bedone to others or avoided or compensated thereof).Ethics and management are closely related. Business management is all about making decisions. Ethicsis all about making the right decision. So what is the difference between the two? Management isconcerned with how decisions affect the functioning of a company, while ethics is concerned about howdecisions affect everything else including the existence of a company.Management operates in the specialized context of the firm, while ethics operates in the generalcontext of the world. Management is therefore part of ethics. A business manager cannot make theright decisions without understanding management in particular as well as ethics in general. Businessethics is thus nothing but management carried out in the real world. Hence a businessman should study
and understand ethics. The need of business ethics can be more appropriately discussed with, thefollowing relevances :• Introducing Socialism in Business which elaborates that the gains of business must be shared by all andnot just by owner of business. Profit is the result of group efforts and hence all concerned i.e., theworkers, shareholders, consumers and all others who contribute to the success of the business shouldshare the gain and profits.• Interest of Industry should be protected by big firms which normally try to dominate and eradicatesmall firms. If industry follows code of conduct, small firms can fight for their existence and stay in thebusiness for longer times contributing success and economy. • Buyers Market is taking its importance in many products by converting sellers market into buyersmarket. Under such changed business conditions business ethics needs to stress the importance ofconsumer satisfaction and service orientation in place of profit orientation.• Better Relations with business and society, reconciling conflicting interests of various sections ofsociety such as workers, shareholders, consumers, distributors, suppliers, competitors and governmentcan be done by implementing and following Code of conduct.• Advantages to Business and Society can be shown by Ethics pointing out what is good and bad, so alsowhat is right and wrong. It brings to the notice of the business community the importance of honesty,sincerity, fairness which makes them alert and socially conscious.Thus business ethics helps business and society at large ensuring healthy atmosphere in business whichfurther leads to improvement in social, economic and cultural values of the society.1.7 BENEFITS OF BUSINESS ETHICS 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 hold 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 help 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 legal matters.Attention to ethics ensures highly ethical policies and procedures in the workplace. 6. Ethics programshelp avoid crimes and can lower fines : Ethics programs always help the team to identify ethical issuesand violations even before the implementation so that they can be reported or addressed. In somecases, when an organization is aware of violation and does not report it to the appropriate authorities,this can be considered a criminal act. So if organization attempts to follow the ethical practices, theintensity 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 positiveimpacts on business and organization. It strengthens the team coherence and balances organizationsculture, improves trust and relationships between individuals and groups, supports greater consistencyin standards 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 organizations practice it isimportant to follow ethics and it also emphasizes on legal
. 1.8 ARGUMENTS AND DILEMMAS FOR AND AGAINST BUSINESS ETHICSThere are different arguments in business wherein a category of people believe that following ethics issafer and rewarding in the long run 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-raise 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. While the other category of people deny withthe fact and feel that we i have to mould ourselves and be as per the situation and circumstances andthus being indifferent 7 should achieve the organizational objectives and achieve profit maximization.Situational changes will decide about our being or not being or in other words towards the change of 4business etc, hence being successful by hook or crook is important.Maxi misers try to sidestep the argument by changing the content of what is being maximized. Insteadof money it is t profits, instead of profits it is long-term profits. Arguments for : Business organizationstoday have accepted ethics as a part of their business conduct. They have realized that business existsand operates within the society and is a part of the subsystem society, so its functioning shouldcontribute to the welfare of the society. As a company grows, the public takes more interest in it as ithas a great impact on the community. There is a greater social responsibility on the mangers to maintaina proper image of the company in the minds of the public. The company cannot resort to unethicalbehavior 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 differentdiscussions and contradictions for this view of following and implementing ethics 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 Friedman believed that if business ethics is a part of corporate culture, thecustomer would have to bear the cost of the ethical practices of the organization as some ethicalpractices increase the price of products. Earlier people feared that ethical code of conduct would meana sacrifice of efficiency and productivity and the competitiveness of the marketplace would fade. It wasbelieved that business should use their resources and engage in activities designed to increase profits.But now it is seen that the fears expressed by philosophers and psychologists have changed gradually.