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  1. 1. Business Ethics and Corporate GovernanceBangalore UniversitySemester IIIBusiness EthicsModule 3 & 4Introduction Suppose that putting out natural fires, culling feral animals or destroying some individual members ofoverpopulated indigenous species is necessary for the protection of the integrity of a certain ecosystem. Willthese actions be morally permissible or even required Consider a mining company which has performedopen pit mining in some previously unspoiled area? Does the company have a moral obligation to restorethe landform and surface ecology? And what is the value of a humanly restored environment compared withthe originally natural environment? It is often said to be morally wrong for human beings to pollute anddestroy parts of the natural environment and to consume a huge Proportion of the planets naturalresources. If that is wrong, is it simply because a sustainable environment is essential to (present and future)human well-being? Or is such behavior also wrong because the natural environment and/or its variouscontents have certain values in their own right so that these values ought to be respected and protected inany case? These are among the issues (questions) investigated by environmental ethics. Business Ethics in external context is strong consciousness of the responsibility any business has towardsthe whole environment it operates within. And this responsibility shall be accomplished not only in terms ofeconomic and financial returns for shareholders, but in more general terms of attention and compliance toany issues coming from the territory, the communities, the human resources, Customers and Suppliers, thePublic Institutions the business may have to deal with while pursuing its business targets and environment.It also explores how code of business ethics respond to their ecology through innovation, strategy, —operations and marketing.Over the course of past two decades there has been huge increase in general awareness about ecology.Ecology is study of plants, animals, people and institutions in relation to environment. As in normative ethicsgenerally, ecological ethics involves evaluating, justifying (or not), and prescribing values, norms, andstandards of character and conduct in view of the ecological conditions that contribute to the well-being ofhumans and other life forms. The current agenda of ecological ethics is molded by contemporaryenvironmental problems. The primary concerns are climate change, multiple forms of pollution, humanpopulation growing scarcities of some renewable and nonrenewable resources, human-induced losses inbiodiversity, the interactive dynamics of ecological degradation and economic patterns of consumption anddistribution, and, increasingly relevant, the environmental effects of genetic manipulations Coca cola andPepsi had caused severe ecological damage ,in 2002-03,in the state ( Himachal Pradesh by painting theiradvertisements on rocks. The issue describes the ecologic importance of these rocks and the nature andextent of environmental damage caused by the companies. Further issue is seen in limelight of the efforts KSOM Notes by Dr. Sneha
  2. 2. Business Ethics and Corporate Governancetaken by the companies to repair the damage. Environmental ethics or ecological ethics is an exploration ofethical issues pertinent to environment, for example: obligations to future generations; the question ofanimal right! Endangered species; pesticides and pollution; energy technologies; depletion of resources;globe justice and ocean resources. Consideration of the pertinent obligations of individual: businesses, andgovernment.Q. Explain the meaning of ecology (8 marks) Ecology is the scientific study of the relation of living organisms with each other their surroundings. It is theinterdisciplinary scientific study of the distribution and abundant of organisms and their interactions withtheir environment. The environment of an organism includes all external factors, including abiotic ones suchas climate and geology, and biotic factors, including members of the same species and other species thatshare a habitat. If the general life science of biology is viewed as a hierarchy of levels of organization, frommolecule (processes, to cells, tissues and organs, and finally to the individual, the population and theecosystem, then the study of the latter three levels belongs within the purview of ecology. The word"ecology" was pronounced in 1866 by the German scientist Ernst Haeckel (1834 1919).Ancient philosophers of Greece, including Hippocrates and Aristotle, were among the earliest to recordnotes and observations on the natural history of plants and animals. Modern ecology later branched out ofthe natural history that flourished as a science in the late 19t: century. Charles Darwins evolutionarytreatise including the concept of adaptation, as it was introduced in 1859, is a pivotal cornerstone in modernecological theory.Major components of Ecology are(a) Environment(b) Temperature(c) Light(d) Water(e) Wind(f) Nutrients(g) Substrate (Rocks & Soil)(h) Abiotic components(i) Biotic componentsQ. Explain the Scope of Ecology (2 marks) KSOM Notes by Dr. Sneha
  3. 3. Business Ethics and Corporate Governance Ecology is usually considered a branch of biology, the general science that studies living organisms.Organisms can be studied at many different levels, from proteins and nucleic acids, to cells, to individualsand at the level of populations, communities and ecosystems to the biosphere as a whole. Ecology is a broaddiscipline comprising many sub-disciplines namely; Eco physiology — examines how the physiologicalfunctions of organisms influence the way they interact with the environment, both biotic and abiotic.Behavioral ecology — examines the roles of behavior in enabling an animal to adapt to its environment.Population ecology— studies the dynamics of populations of single species. Community ecology (orsynecology) focuses on the interactions between species within an ecological community Ecosystem ecologystudies the flows of energy and matter through the abiotic and biotic components of ecosystems. Systemsecology is an interdisciplinary field focusing on the study, development, and organization of ecologicalsystems from a holistic perspective. Landscape ecology examines processes and relationships acrossmultiple ecosystems or very large geographic areas. Evolutionary ecology studies ecology in a way thatexplicitly considers the evolutionary histories of species and their interactions. Political ecology connectspolitics and economy to problems of control and ecological change.Q. Explain Ecological Crisis (2 marks)An ecological crisis occurs when the environment of a species or a population changes in a way thatdestabilizes its continued survival. There are many possible causes of such crises:It may be that the environment quality degrades compared to the species needs, after a change of abioticecological factor (for example, an increase of temperature, less significant rainfalls).It may be that the environment becomes unfavorable for the survival of a species (or a population) due toan increased pressure of predation.Lastly, it may be that the situation becomes unfavorable to the quality of life of the species (or thepopulation) due to raise in the number of individuals, industry and business. As the Ecology crisis arises dueto unfavorable quality of life caused by industry and business, lead us to a new study branch i.e. Ecology andBusiness Ethics. .Q. What is ecology ethics? (2 marks)Business ethics, for example, must now think not only socially and economically, but also ecologically—considering moral responsibilities to other life forms and their habitats, present and future, in economicplanning. Henceforth, all ethics must be done in the context of ecological ethics—or else they will bedistorted and constricted ethics. Ecological ethics is the study of what humans, individually and corporately,ought to value, ought to be, and ought to do in relationships with all other beings and elements in thebiosphere.As in normative ethics generally, ecological ethics involves evaluating, justifying (or not), and prescribingvalues, norms, and standards of character and conduct in view of the ecological conditions that contributeto the well-being of humans and other life forms. This discipline is diverse in types, methods, values,problems, foundational perspectives, and other elements of ethics. KSOM Notes by Dr. Sneha
  4. 4. Business Ethics and Corporate Governance Ecological ethics comes in both philosophical and religious versions; the problems and values are often thesame, though the methods and ultimate rationales are often different. The topical agenda of ecologicalethics is molded by contemporary environmental problems. The primary concerns are climate change,multiple forms of pollution, human population growth, scarcities of same renewable and nonrenewableresources, human-induced losses in biodiversity, the interactive dynamics of ecological degradation andeconomic patterns of consumption and distribution, and, increasingly relevant, the environmental effects ofgenetic manipulations.Q. Establish Link between ecology and ethics (8 marks)Ethics is a set of principles about right & wrong how human beings should behave.Ecology is about inter- relationships – between living organisms (both plants & animals) and betweenbiological & physical entities. The still unresolved issue seems to be how these two can be reconciled – probably in the interests of thefuture of mankind & the future of all the non- human beings. The dichotomy between right & wrong beganto be significant when the needs & efforts of human beings propagated. The ethical question was probablyabsent or insignificant when the main theme and effort of human life was survival, as in the huntinggathering stage. It began to be more & more significant as one abandoned nomadic life style, becamesettled within the spread of agriculture which induced a sense of individual and / or communal property. The surplus food that agriculture created tuned the communities into a human society with diverse skills &professions and a hierarchy of classes based on wealth & power or their lack & gave rise to different cultureswhich reflected aspirations, beliefs & motivations. Environment probably played a crucial role in shapingthese. Human beings were never considered to be superior to nature. The cosmos & the nature wereconsidered to be so vast and complex that they would always remain beyond human comprehension but itwas not until the Industrial Revolution when the west affected a union between science and technology, amarriage of theoretical and empirical approaches to nature, that knowledge came to be considered astechnological power over nature. By the 19th Century conquest of nature became a normal pattern of action. This new pattern of action gaverise to the concept of ecology As the study of the plant & animal kingdoms progressed, the western thinkersbecame increasingly aware of the necessity of preserving these in the interest of human survival and soarose the need to question the notion of human rights ( & later duties) towards the — human world. An investigation began in the origins of right & wrong in humans & other animals. People began to discusswhether the animals have rights, whether trees have a moral standing & how the present generation shoulduse nature & resources so as to ensure a decent standard of living for future generations. The constant risein consumption & pollution triggered a question "should we go ahead destroying everything in the beliefthat technology will always find a substitute for everything?"The other question is whether companies should bear the responsibility of creating and maintaining anenvironment conducive to the welfare of people in the neighborhood? The deeper question here is whether KSOM Notes by Dr. Sneha
  5. 5. Business Ethics and Corporate Governancethe right to a livable environment should or should not be considered a basic human right? Or is there anyresponsibility of Industry and business towards ecology?These questions lead a way towards establishing a link between ecology and business ethics. To a greatextent these problems can resolved if organizations start following a code of conduct for ecology. The codeof conduct for ecology is known as Ethics of Ecology or Ecological Ethics.Q. Discuss different dimensions of pollution and resource depletion (12 marks) The accelerating industrialization of the world, especially in addition to worldwide population explosion,suggests that we may be overtaxing the carrying capacity of earth by our accelerating pollution of theenvironment and depletion of resources. There is considerable evidence that this is so. Resource depletion involves the consumption of finite orscarce resources. Pollution involves the undesirable contamination of the environment by the manufactureor use of commodities. Since clean air and water can be considered as resources, pollution, since itdiminishes their useful qualities, can be viewed as a form of resource depletion itself. DepletionFor the most part affects future generations.Concerned with finite nonrenewable resources.What will be around for future generations is just whats left over from the present.For example crude oil, natural gases, coal, petroleum, water, minerals, gold, Endangered Species, energyetc.The dimensions of our pollution and resource depletion are unbelievable.We pollute the air with carbon dioxide (CO2) and other greenhouse gasses: this causes global warming.Chlorofluorocarbons (CFCs) deplete the ozone layer that protects us from harmful ultraviolet (UV) radiation.Nitrogen and sulfur oxide emissions react with water in our atmosphere to cause acid rain which kills fishand vegetation in lakes, and causes deforestation.Assorted airborne toxins and particulates contribute to respiratory disease and cause cancer. We polluteour water with phosphorous compounds from detergents and agricultural fertilizer which causes explosivealgae growth.Organic wastes from sewerage, runoff from animal feedlots also contribute to explosive algae growth aswell as oxygen depletion in lakes, and directly endanger human health. Toxic inorganic pollutants such asheavy metals find their way into aquatic food chains and our drinking water.Oil spills kill wildlife, are detrimental to tourist and fishing industries, and require expensive cleanup. Evenheat can pollute, when: we use water as a coolant in nuclear reactors and industry, it disrupts marinehabitats. Our oceans are the end recipients of the pollutants that go into our lakes and rivers, and have beenused as disposal sites themselves. KSOM Notes by Dr. Sneha
  6. 6. Business Ethics and Corporate GovernanceOur groundwater supplies, which provide more that 50% of U. S. drinking water, and are at risk from runofffrom landfills, waste piles, and surface reservoirs.Toxic substances — which cause increase in mortality rates, or in irreversible or incapacitating illness, orhave other seriously adverse health effects — include acids, pesticides heavy metals, flammable solvents,and radioactive wastes.Our use of such substances increase tenfold increase from 1970 to the mid-80s and pose a multitude ofhealth risks which a difficult to assess. Solid waste from residential and industrial sources, likewise, poseshealth risks from direct human exposure, and contributes to groundwater contamination. At present no safemethod of disposing of high-level nuclear wastes — which remains dangerous radioactive for thousands ofyears — is known; and the nuclear power industry poses security) risks as well, since plutonium (used innuclear reactors) can also be used to make atomic bombs.Following are few examples when industry/business damage environmentTobacco production damages environment • The land that has been destroyed or degraded to grow tobacco has effects on nearby farms. As forests,for example, are cleared to make way for tobacco plantations, the soil protection it provides is lost and ismore likely to be washed away in heal rains. This can lead to soil degradation and failing yields.• A lot of wood is also needed to cure tobacco leaves• Tobacco uses up more water, and has more pesticides applied to it, further affecting water supplies. Thesewater supplies are further depleted by the tobacco industry recommending the planting of quick growing,but water-thirsty eucalyptus trees.• Child labor is often needed in tobacco farms.Damage Caused by Sugar Industry Sugar is present in products we consume every day, yet we rarely give asecond thought to how and where it is produced and what toll it may take on the environment. According tothe World Wildlife Fund (WWF), roughly 145 million tons of sugars are produced in 121 countries each year.And sugar production does indeed take its toll on surrounding soil, water and air, especially in threatenedtropical ecosystems near the equator. A 2004 report by WVTF, titled "Sugar and the Environment," showsthat sugar may be responsible for more biodiversity loss than any other crop, due to its destruction ofhabitat to make way for plantations, its intensive use of water for irrigation, its heavy use of agriculturalchemicals, and the polluted wastewater that is routinely discharged in the sugar production process.Damage Caused by Paper IndustryThe Paper industry has been a major source of accumulated toxic chemicals in several rivers.The paper industry is major source of toxic pollution. KSOM Notes by Dr. Sneha
  7. 7. Business Ethics and Corporate GovernancePulp and paper mills are large source of standard air pollutants such as carbon- di- oxide, nitrous -di- oxide,carbon mono oxide etc. These contribute to ozone warning, acid rain, global warming, respiratory problemetc.Paper making is energy intensive, drawing large amount of electricity from public utilities or forcing mills tobuild their own power plans.Paper making uses lot of water frequently from diminishing groundwater supplies.Paper making generally produces large quantity of solid waste.Worldwide enormous forests are being cut for paper pulp production contributing to the world tragicdeforestation trends. The activities carried out by businesses can exert considerable pressure on theenvironment. There is an obvious conflict between business ethics and environment. Profits are routinely juxtaposed with doing the right thing, as if making an ethical decision means profitsmust be reduced. The environment is rarely considered central to business strategy unless there is someregulation that constrains business goals, a mess to clean up, or a public issue which pits executives againstenvironmentalists.Q. Explain contribution of industry in conservation of depletable resources (2 marks)Conservation through improvement of the efficiencies of end use devices is one of the most effective waysto provide relief for the resource problem. This helps to maintain economic growth and social progress of aregion. Environmental problems, resource depletion and growing demand of resources in the state/regionmake it increasingly imperative that we use resources as efficiently as possible, and planners should takenote of this untapped resource.The industrial sector constitutes a major consumer of depletable resources. Some of the steps which shouldbe taken by industries for conservation of depletable resources are as follows:-• improve the efficiencies of end use devices and/or conversion equipment in all sectors;• optimize energy sources (end use matching);• maximize the use of renewable resources;• balance the exploitation of resources; and• Discourage the use of depletable resources. To achieve the objective of conservation of depletable resources a new strategy which is taken by industriesis Green strategy KSOM Notes by Dr. Sneha
  8. 8. Business Ethics and Corporate GovernanceQ. What is green strategy? (8 marks)The Green Strategy is a planning tool. It sets out sustainable development practices that aim to strike abalance between economic development, maintaining the citizens quality of life and preserving theenvironment. If this balance is achieved, future generations will be able to enjoy and benefit from the samenatural resources we have today. In the next future the green revolution would affect every businessactivity. Consumers, governments, regulators and, increasingly, businesses are seeing green. A growing wave ofglobal environmentalism is forcing technology companies to produce greener products through greenerprocesses. Though the industry does not feel it is particularly harmful to the environment, a solid majority oftechnology executives believe it is very important that their companies take measures to reduce or minimizetheir environmental impact. Thus, tech companies are taking steps both the fundamental requirement of inclusive fitness to theirsurroundings. They have many operations among ways to do this but sooner or later must do it one way oranother, for better or worse for themselves and the fauna, flora, and ecosystems in which they reside."Environmental ethics is becoming an important issue for many companies and businesses as there is agreater push for corporate responsibility.Leaders of organizations of all sizes and in all sectors face a growing number of issues related to ethicalbehavior particularly ethical responsibility. However, there is no agreed ethics for environmental issues, andno international environmental code. Environmental ethics simply tries to answer the questions of how humans should relate to theirenvironment, how we should use the Earths resources and how we should treat other species, both plantand animal, but there are also those who are of the opinion that constant change is simply a fact of thisplanet and the planet will readjust to new conditions as it did in the past. There are differences amongscientists as to the exact cause and nature of environmental problems and how to solve them, and so thereare differences in the approaches to environmental ethics; some think the traditional forms of ethicalthought are good guides and some that these traditional forms (at least in the West) are too human-centered.To expand the number of green-oriented products they produce and to reduce the reality or the appearanceof a heavy environmental footprint. For example, technology companies are developing formalenvironmental policies, auditing internal green practices, appointing a senior executive to oversee greeninitiatives and creating a clearer linkage between green initiatives and performance. A growing number arealso increasing the degree of external reporting relating to environmental sustainability.Q. What are environmental ethics (8 marks?)Environmental ethics is the part of environmental philosophy which considers extending the traditionalboundaries of ethics from solely including humans to including the non-human world. Environmental ethics KSOM Notes by Dr. Sneha
  9. 9. Business Ethics and Corporate Governanceconsiders the ethical relationship between people and the natural world and the kind of decisions peoplehave to make about the environment:Should we continue to cut down the rain forests for the sake of human consumption?Should we continue to manufacture petrol-driven cars when we have the technology to make cars which donot pollute the environment?Should we knowingly cause the extinction of other species?What are our environmental obligations to future generations?Should humans be forced to live a simpler lifestyle in order to protect and preserve the environment?Industry are engaged in manufacturing activities as well as repairing of manufactured goods, operating on acommercial basis.The raw materials of industries come from naturel these industries are being established in an unplannedway only to serve the financial interests of a group of people. The mere economic interests of a group ofpeople are destroying and polluting the nature. In Environmental Ethics, Holmes Rolston says, "Nature, and particularly the organic world, is subject toconstant change as a result of mans economic activity. These changes include a reduction in the areas ofvegetation, the acidification of the soil and water, industrial wastes, including some highly toxic substances,polluting the air, oceans and the soil, the combustion of large quantities of fossil fuels leading to an increasein the carbon dioxide concentration, which may result in changes in the health regime of the earths surface. Throughout societys history man has modified his relations with nature, mostly in terms of the directionsand scale of his action. At the beginning man and society had a purely consumer attitude to nature; later thisconsumption began to grow and take different forms. Not only did people use material provided by nature,they processed it, giving it new properties alien to the natural world. From that moment consumer relationswere replaced by an attitude of dominating nature, extensively exploiting its resources. But this attitude tonature should be changed, improving the relation between human and nature and every organism must bea natural fit, integrated into a life-support system. In the wild, misfits cannot flourish and are eventuallyeliminated. However, much human business revises spontaneous nature, primarily by deliberately adaptingthe environment to humans rather than humans to the environment, humans do not escape.Q. How are Environmental ethics is applicable in the following areas Land, Water, Forests, and Dams(12 marks) KSOM Notes by Dr. Sneha
  10. 10. Business Ethics and Corporate GovernanceTechnology has rapidly changing the earth. These changes have accelerated as man moved from ahunter/food gatherer to a member of an agricultural society and finally into the industrial age. Many of thepresent technological changes are irreversible, damaging to the land and clashing with our increasingscientific knowledge of how biotic communities function. Individuals are faced with a moral environmentalresponsibilityThe land ethic is a perspective on environmental ethics first turned by Aldo Leopold (1887— 1948) in hisbook A Sand County Almanac (1949). In it he wrote that there was a need for a "new ethic", an "ethicdealing with mans relation to land and to the animals and plants which grow upon it. Aldo Leopolds landethics offers an alternate approach and extension to the utilitarian view of the environment. He concludedhis land ethics with a general principle: "A thing is right when it tends to preserve the integrity, stability, andbeauty of the biotic community. It is wrong when it tends otherwise." Land to Leopold had a broad meaning.It included soils, waters, plants and animals. Water has an economic value in all its competing uses andshould be recognized as an economic good. Within this principle, it is vital to recognize first the basic right ofall human to have access to clean water and sanitation at an affordable price. While water resourcemanagement and water conservation is to start practically everywhere on Earth, freshwater resources arescarce and fragile, requiring us to be conscientious about conserving this life-giving resource Water ethicsfocuses on water1) Water resource management: There are ethical issues imbedded in all aspects of water managementdecision making, including planning, regulating, operating, financing and investing, designing, andimplementing. Decision-makers should understand the linkage between development strategies and issuesof water allocation, supply and pricing, and consider decisions in the context of macro-economic nationaland regional strategies. The reality is that water is used as a factor of production and managed as acommodity, in some degree, by all societies. Whether explicit or not, it is valued and it clearly incursopportunity costs. However, all the costs and benefits are not and cannot be reduced to quantifiablecurrencies. Water is priced in some way by all societies. Although water pricing needs to be taken intoaccount water costs, we must acknowledge the role that subsidies have played and are realistically going toplay in the future. Because of the complexities of these issues, broad public access to information andopportunity to participate in decision-making are ethical imperatives in determining water prices and themost appropriate institutional structures for water management.Perform a water audit to benchmark plant-wide water use. Identify where and how water is currently beingused. Track water use over several weeks.2) Determine the cost of the water going to each process line. These costs can be used to determine thelevel of conservation that is feasible and to justify modifications with payback. 3. Establish a waterconservation team to evaluate conservation ideas, methods and equipment. 4. Obtain conservationinformation from vendors, trade associations, consultants and state agencies. 5. Educate employees on theimportance of water conservation and solicit employee suggestions on ways to use water more efficiently.Your company can save more than water with a conservation program. In Connecticut, several companieshave avoided costly expansions to their on-site wastewater treatment systems by reducing water use. Other KSOM Notes by Dr. Sneha
  11. 11. Business Ethics and Corporate Governancecompanies have eliminated or significantly reduced their wastewater discharges. Almost everymanufacturer that uses water can find some benefit in reducing, reusing or recycling water.The current debates over private versus public roles in water management are too narrowly.Forest focused and sometimes ignores important historical realities of the developed countries which eForest ethics is about moral values and norms on the relationships between human beings are advocatingincreased privatization. Today, privatization is often seen as a way to increase and forests. Moral values andnorms are the essence of morality. Companies large and small efficiency and to bring more water to more people (i.e., to democratize waterand sanitation) have made great strides in relying on forest certification standards for sourcing wood andHowever, privatization also raises a question of open information flow and transparency paper products.Organizations which operate to seek a profit are frequently not as prone to share critical Marginalized forestdependent communities, and the organizations that are working to information on water flow or waterquality as their public counterparts, particularly were support them, need to benefit if a greater focus onethical issues is to have any validity. There is a weak regulatory environment, needs to be practical actionagainst agencies that are routinely involved in carrying out human Water management also confronts uswith the reality of conflicting human rights . Conflicts rights abuses in relation to forestry clearly there arestrong links between national governments over water arise from a variety of causes. Water is forcing us torethink our notions of security, and commercial enterprises — illegal harvesting and sale of forest productsis a large scale dependency, and interdependency. Increased interdependence through water sharing plansactivity and not easily hidden. Transport of large logs is highly visible whether by road or sea andinfrastructure networks is often viewed as increasing vulnerability and dependence and yet this issue is notaddressed — often due to the poor compliance monitoring in relation to reducing security. However, thereis an alternative way to look at interdependence. Connections legal and illegal harvested forest productsDams are clean, reliable, and cheap ways to produce electricity. In addition to this they consumption tosome rather sophisticated and expensive technologies to completely eliminate are exceptionally valuable forprevent floods that would normally making housing near that water use. Only you can determine to whatextent water conservation makes sense for your river next to impossible. However the problem that damscause is that they prevent fish from company being able to swim upstream, the heat generated by themtends to kill sea life making these rivers pretty uninhabitable for creatures in the river. Many people opposedams because they change the flow of rivers and affect the migrating patterns of fish and other, faultydesign of tyres, automobiles, electrical dangers in appliances and injury risks from species, but arent theyalso a great renewable energy source?Q. Relate business ethics and consumer (8 marks)When profit maximization and wealth maximization are main objectives of organizations using misleadinglabeling, or describing size in misleading terms. For example Apple it is difficult to always be in 100% ethicalpractices. The practices taken by organization fizz bottle resembles champagne bottle. Children can getcarried away by packaging and right or wrong for consumers, is consumer ethics. KSOM Notes by Dr. Sneha
  12. 12. Business Ethics and Corporate GovernanceAnother example is candy designed like cigarette. Deception on for consumer is main motto of consumerethics. In our day to day life we come across and control .Some public and private transport carry passengers morethan its capacity (unethical practices of organization with consumer). Consumer generally purchase and isinaccurate and incomplete testing of product Increased prices and then discount. Very products with little orno knowledge about the origin frequently seen in the market.Small as well as big retailers use the psychology of consumer to Consumer ethics focuses on increase theirsale, by proving discounts. Generally these discounts are provided on increased arise of products. Promotingordinary product as luxury product Low product price but very U Identifying unscrupulous corporations thatexploit people or animals;, and increase social poverty, inequality, and deprivation sigh service cost Manyretailers pass off MRP Several agricultural products use harmful the chemicals and pesticides, some are evengenetically tampered for taste, variety and abundanceAllowing us to share information on fair trade products or services of production without careful study onside effects of its consumption. Exposing workplace injustices, sweatshops, and child labor violationsHarmful and Low benefit Products: Producing harmful products like tobacco based U Identifying companiesthat value their employees and customers, that promote Gutka, cigarettes and Alcoholic drinks are aconcern just as promoting products that lack living wages and equality and fairness in the workplace,provide safe and nutritional value like Maggi noodles, Frito-Lay potato chips, Chocolates and even junk foodworking environments, and maintain sustainable business and environment like the fast food fromMcDonalds practicesQ. Relate corporate ethics and marketing (8 marks)Finding products that are safe to use or healthy to consume, Marketers across the world face an ethicaldilemma on marketing issues like distributor Recognizing consumer addiction and consumer propagandarelations, advertising standards, Customer service, pricing, product development, and generalUnderstanding and voting against economic legislation that is unfair or predator sensitivity to ethical andmoral issues. The different ethical practices and social responsibility the initiatives personal value system ofManagers, companys attitude, culture and Consumer is integral part of market.So, Consumer ethics lead to market ethics. One corporate philosophy can be developed through preparationof a set of principles ethics means standard by which marketing action of an organization is judged right orwrong which can act as a guideline to resolve all the difficult ethical situations the marketer faces, Rightmarketing action leads to overall societal gain in short run as well as long run. But since the adherence tosales producing strategy can often result in immoral or amoral actions fact is that seldom it has becomepossible to define what is right and what is wrong? The socially responsible and ethical behavior go beyond the legal and develop into standards of personalintegrity, effects, example azinomotto which is a taste enhancer but lot of negative side effect whichcorporate conscience, and long run consumer welfare not declared by company. In the wake of globalizationoften multinational companies face different norms of ethics unsafe product. KSOM Notes by Dr. Sneha
  13. 13. Business Ethics and Corporate GovernanceThis concerns the production of flawed products due to company and social responsibility in each country.The total corporate commitment towards these issues indifference, increased product complexity, and poorquality control. The examples could include alone can bring success. Marketers must become aware of theethical standards and acceptable behavior in their society. In the USA a high level of awareness hasdeveloped on these issues, and American Marketing Association has prepared guidelines on ethical normsand values practice can occur when working with any element of the marketing mix.Consumer’s information helps marketers to become effective in Corporate Citizenship. In fact it ranks Top100 fortune be exposed to eat quantities of information about products and firms, they often becomesskeptical of marketing claims and selling messages and act to protect themselves from being companieseach year on their corporate citizenship records received. Thus, when a product or service does not provideexpected value, customers willQ. Identify issues related to consumer ethics (8 marks) Often seek a different source. Consumer Protection Deceptive pricing practices cause customers to believethat the price they pay for some might of value in a product or service is lower than it really is. Thedeception might take the Consumer of making false price comparisons, providing misleading suggestedselling prices, omitting important conditions of the sale, or making very low price offers available only whenother Deceptive items are purchased as well. Promotion practices are deceptive when the sellerintentionally introduces deceptive pricing how a product is constructed or performs, fails to discloseinformation regarding dynamic sales (a sales technique in which a person is recruited into a plan and thenexpects to With the wave of globalization and liberalization the economy has become market driven makemoney by recruiting other people), or employs bait-and-switch selling techniques economy. This has givenrise to the need and importance of Protecting consumers. There a technique in which a business offers tosell a product or service, often at a lower price, in order various dimension of consumer protection ,be itfood, safety, drugs, agriculture etc., Consumer to attract customers who are then encouraged to purchase amore expensive item). False or are not aware of their rights and responsibilities. Prior to end of the nineteenth century, greatlyexaggerated product or service claims are also deceptive. When packages are consumer was almostpowerless to stop any wrong doing it was receiving at the hands of conventionally mislabeled as to contents,size, weight, or use information that constitutes artists, manufacturers of shoddy goods and dishonestsalesmen. Ever since then, consumers rights advocates. Government have been trying and succeeding littleby little to place consumer protection before Question arises how ethical for organization to practicedeceptive marketing strategies? Profit. Consumer protection is all the activities of government, business andconsumer who is not well informed about the product or such tactics, sometimes they feel organizationsdesigned to insure consumers rights in the marketplace being cheated by the sellers. Consumers aregenerally carried away by misleading promotional every country has designed their own Consumerprotection laws or Consumer Protection acts and glorious advertisements. Act. Consumer protection lawsdesigned to ensure fair trade competition and the free "SALE", DISCOUNT OFFERS are live example ofdeceptive marketing, when we dont get of truthful information in the marketplace. The laws are designed KSOM Notes by Dr. Sneha
  14. 14. Business Ethics and Corporate Governanceto prevent businesses of what is shown in offers. Engage in fraud or specified unfair practices from gainingan advantage over competitors at Endorsement of celebrities in product advertisement.A small example: Amitabh Bachchan may provide additional protection for the weak and those unable totake care of themselves. Consumer Protection laws are a form of government regulation which aim toprotect the right lying to convince us that Navratna Tel is the best and that Rin washing powder is theperfect detergent for clothes. Is he really using it? of consumers. For example, a government may requirebusinesses to disclose details information about products—particularly in areas where safety or publichealth is an issuing Kareena Kapoor endorsing Boro Plus – It wouldnt be so funny if she didnt say in hersuch as food. Consumer protection is linked to the idea of "consumer rights" (that consume! interviews thatshe only uses imported brands. have various rights as consumers), and to the formation of consumerorganizations which recently in 2009 a cheating and mental suffering court case was filed by one personhelp consumers make better choices in the marketplace.Q. Explain consumer privacy/customer privacy. (2 marks)Consumer privacy, also known as customer privacy, involves the handling and protection if customersbelieve they will get more value from a product or service than they actual1of sensitive personalinformation that individuals provide in the course of everyday transactions. Deception, which can take theform of a misrepresentation, omission, or misleading. This involves the exchange or use of dataelectronically or by any other means, including telephone, fax, written correspondence, and even directword of mouth.Q. Explain “Protection Of Consumer Privacy In India”. (2 marks)Consumer privacy is concerned with the manner in which information disclosed by consumer to a vendor iscollected and used. Specific issues include: behavioral advertising .Broadly, there are four potential avenuesfor the protection of consumer privacy in India. Spyware, identity management, and data security/breach,increasingly, data that is collect from.1) Individual organizations may voluntarily commit to protect the information of their from consumers isstored in databanks. This is then used for both legitimate purposes (such clients through "Privacy Policies" These become acomponent of the contractual commitments marketing, research etc.) and illegitimate extraneous purposes(as when this data is sold between the service providers and customers and are enforced through ordinarycivil litigation. bulk to third parties). Additionally, the privacy of consumers may be compromised by action2. Certain professions and industries have codes of privacy that they must statutorily of third parties that arefacilitated by the negligence of the vendors. The following international examples illustrate the kinds ofprivacy they abide by this is true of such professions as the medical profession and the legal profession inthat the collection of data from consumers may pose. India and the entire banking industry and the telecom industry. Rigorous privacy norms are set for each ofthese industries by their respective apex governing bodies. KSOM Notes by Dr. Sneha
  15. 15. Business Ethics and Corporate GovernancePenalties for breach Example1) Toysmart — an online company- collected personal information from its use include derecognition andmonetary penalties. In 2000, Toysmart entered bankruptcy and used the consumer information unethically.Consumer privacy may be enforced by the specialized Consumer Dispute Tribunals avoid losing everythingtried to sell its database despite its strict privacy policy. This exam illustrates how vendors may attempt tomonetize the personal information of custom under the Consumer Protection Act in India exceeding theterms of the contract entered into with them.The newly amended Information Technology Act imposes an obligation on anyone controlling CONSUMERdata to indemnify against losses caused by the leakage/improper use of that data. Example 2) In 2006 it was found that AOLs research site had a stored file that contain information collected frommore than 600,000 users between March to May of 2006. Though PROTECTION ACT, INDIA the file did notindicate each user by name, it was eventually found that there was now The Consumer Protection Act 1986is a social welfare legislation which was enacted as an information to correlate specific individuals to theiruser number.Q. Explain the Organization for Economic Co-Operation and Development (OECD) (12 marks)They observe the principles of natural justice and have been empowered to give reliefs, of specificature andalso to impose penalties for noncompliance of the orders given by such bodies. The main object of thesebodies is to provide speedy and simple redressal to consumer `disputes. The provisions of the consumerprotection Act, 1986 came into force with effect from 15-4-87. Consumer Protection Act imposes strictliability on a manufacturer, in case of supply of defective goods by him, and a service provider, in case ofdeficiency in rendering of its services. The term "defect" and "deficiency", as held in a catena of cases, are tobe couched in the widest horizon of there being any kind of fault, imperfection or shortcoming.Furthermore, the standard, which is required to be maintained, in services or goods is not to be restricted tothe statutory mandate but shall extend to that claimed by the trader, expressly or impliedly, in any mannerwhatsoever.The salient features of the Act are: (I) It covers all the sectors whether private, public, and cooperative orany person. The Provisions of the Act are compensatory as well as preventive and punitive in nature and theThough not a law, the OECD Guidelines drafted in 1980 provide a useful set of 1 information practiceswithin which privacy of consumers may be evaluated. Briefly, the principles declared were: Collectionlimitation principle (there should be limits to the collection of data), data quality principle (data should beaccurate and relevant to the purpose of specification principle, use limitation principle, security safeguardsprinciple, openness principle (there should be openness about data policies and changes there individualparticipation principle (enabling the individual to find out if data is bell held about him and to obtain a copyof the data and make corrections) andAct applies to all goods covered by sale of goods Act and services unless specifically exempted by the CentralGovernment; (II) it enshrines the following rights of consumers: KSOM Notes by Dr. Sneha
  16. 16. Business Ethics and Corporate Governance(a) Right to be protected against marketing of goods and services which are hazardous to life and property(b) Right to be informed about the quality, quantity, potency, purity, standard and price of goods or serviceso as to protect the consumers against unfair trade practices;(c) right to be assured, wherever Grant of Reliefs under CPA On arriving at a finding of defect in the goodsaccording to Section 14 CPA, the jurisdictional possible, access to a variety of goods and services atcompetitive prices;(d) Right to be hear Consumer Forum may direct one or more of the following:(i) To remove the defect;(ii) To and to be assured that consumers interests will receive due consideration at the appropriatelyreplace the goods with new goods of similar description which shall be free from any defect (e) Right to seek redressal against unfair trade practices or unscrupulous exploitation c- to return to thecomplainant the price;(iv) To pay such amount as may be awarded as consumers; and(f) right to consumer education; compensation to the consumer for the loss or injury suffered by theconsumer due to the(III) The Act also envisages establishment of Consumer Protection Councils at the negligence of the oppositeparty;Goods which will be hazardous to life and safety when used are being offered for sale to the public incontravention of the provisions of any law requiring traders to display information in regard to the contents,manner and effect or use of such goods.To discontinue the unfair trade practice or the restrictive state and district levels, whose main objectives areto promote and protect the rights trade practice or not to repeat them;To cease and desist manufacture of hazardous goods; consumers;To provide a simple, speedy and inexpensive redressal of consumer grievanceTo pay such sums as orders if injury/loss is suffered by a large number of consumers not the Act envisages athree-tier quasi-judicial machinery at the national, state and district level identifiable conveniently;(viii) to issue corrective advertisement for neutralizing effect of These are: National Consumer DisputesRedressal Commission known as National Commission misleading advertisement;(ix) not to offer the hazardous goods for sale;(x) to withdraw the State Consumer Disputes Redressal Commissions known as State Commissions andDistricts from hazardous goods from being offered for sale; KSOM Notes by Dr. Sneha
  17. 17. Business Ethics and Corporate Governance(xi) to provide for adequate costs to parties (the Consumer Disputes Redressal Forum known as DistrictForum; and Complainant). Q. What is Ethical Consumerism (8 marks) Ethical Consumerism is the intentional purchase of products and services that the customer considersto be made ethically. This may mean with minimal harm to or exploitation creation of humans, animalsand/or the natural environment. Ethical consumerism is practiced through Commission started functioningfrom 24 September 2003. The government is monitoring positive buying in that ethical products are favored, or moral boycott,that is negative disposal of cases by the consumer courts through National Commission. (a) Positive buying (b) Moral boycott Positive Buying means favoring ethical products, be they fair trade, cruelty free, organic, recycled, re-used, or produced locally. This option is arguably the most important since it directly supports progressivecompanies. Moral boycott is the practice of avoiding or boycotting products which a consumer believes e beassociated with unethical behavior. An individual can choose to boycott a product. Q. Name the theories of product liability/duties of manufacturer toward customers (2 marks) The responsibility of manufacturers, distributors and sellers of products to the public, b, Product safetyconcerns the degree of risk associated with using the product. Here, since deliver products free of defectswhich harm an individual or numerous persons and to mail° product is absolutely risk free, acceptableknown levels of risk is the operative concept. good on that responsibility if their products are defective.These can include faulty auto brakes the seller has a duty to provide a product with a level of risk no higherthan they have contaminated baby food, exploding bottles of beer, flammable childrens pajamas, or lackexpressly or implicitly represented to the customer, which the customer has freely and knowingly labelwarnings, agreed to assume. The duty of disclosure is a duty of the seller to inform the buyer of both the Examples Beauty QueenHair Products makes a hair-permanent kit in which the formulate terms of the contract and to provide anyinformation about the product that might reasonably : influence the customers purchase decision: thisincludes risks, on all accounts, and on some will cause loss of hair to women with sensitive scalps, (morestringent accounts) performance characteristics, costs of operation, product ratings, and Molly Makeup hasher hair done at the Bon Ton Beauty Shop and suffers scalp burns as applicable standards, besides. The duty of true representation is to the duty of disclosure as loss of hair. Molly has a claim for damagesagainst Beauty Queen, the manufacturer. KSOM Notes by Dr. Sneha
  18. 18. Business Ethics and Corporate Governance The theories of product liabilities are: • Contractual theory • The Due Care Theory • The Social Cost Theory Q Explain Contract Theory (2 marks) Caveat Emptor “Let the buyer beware "watch word for contact theory. On the contract; they view ofbusinesses duties to consumers, when a customer buys a product they enter into a "sales contract" with thevendor. The vendor freely and knowingly reality, who agrees to give the buyer a product with certaincharacteristics, and the consumer freely and knowingly agrees to pay certain amount of money for theproduct. From these 3 conditions 4 main moral duties of businesses to consumers arise: • A duty of compliance with the terms of the contract; • A duty of disclosure regarding the nature of the product; a • Duty of true representation of the nature of the product and the terms of the agreement; • A duty not to exercise undue influence in persuading the customer to enter into the contract. Q: Explain the due care theory (refer to the notes of 2nd module) (8 marks) Q: Explain the social cost theory /social costs view of the manufacturers duties. (2 marks) The view that a manufacturer should pay the costs of any injuries through any defects in the product,even when the manufacturer exercised all due care in the design and manufacturing. • Manufacturer should pay the costs of all injuries caused by defect in a product if any of them. Media,today is the fastest means of communication and advertising reaches out exercised due care to countlesspeople in one go. The new products can be launched through T.V, Radio etc. • Argues that injuries are external costs that should be internalized. The social costs theory imposes strict liability for costs to consumers due to the malfunction or misuse ofconsumer products on those products manufacturers and vendors. Q: Explain Ethics in advertising (2 marks) KSOM Notes by Dr. Sneha
  19. 19. Business Ethics and Corporate Governance On this view, How many of us miss out on the beauty soap flashed on our TV screens displaying the manufacturer should pay the costs of any injuries sustained through the use of the product glamorous models and then ensure to buy the same. This is the power of advertising. Advertising promises more choice, better value new and improved products. As time is a major constraint even when the manufacture has taken due care in the products design and manufacture, and is the present rush of life where people do not have enough time to survey the different in informing customers about the risks, and in instructing them in the proper use, of the products offered in the market, advertising provides them an easy solution and access to all products. Under strict liability absence of negligence or lack of knowledge are not excusatory. kinds of products. Only the resultant harm matters, the only relevant considerations in assessing liability are whether the product caused the injury and the extent of the injury In particular, evidence of? Today advertisement is more near to people than any other promotional way. Advertisement misuse is inadmissible. Appropriateness advertisement action for public is even if Advertising ethics internalizing external costs of production since injuries resulting from products — unavoidable — are part of the products total social cost. Internalizing the costs, it is argued an advertisement is ethical only when it is able to meet following principle would lead to fairer distribution of costs, market prices that more truly reflect total social costs An advertisement is ethical only when it is able to meet following principles: Truthfulness and safer products. Upholding human dignity Social responsibility KSOM Notes by Dr. Sneha