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PAIIT I, CONCEPTS AND THEORIES OF BUSINESS ETHICS
In sum, ethics as i mofai and normative science refers to principies that define human behaviour as right,
good and proper. However, it should be stressed that these principles do not lead to a single course ofaction,
tut offer u m.un. of evaluating and deciding afong competing options.
PERSONAL ETHICS AND BUSINESS ETHICS
personal ethics refer to the set ofmoral values that form the character and conduct of a person. Organization
ethics, on the other han4 describes what constitutes right and wrong or good and bad, in human conduct in
the context of an organization. It is concerned with the issue of morality that arises in any situation lvhere em-
iloyers and employees come together for the qpecific purpose of producing commodities or rendering services
iorit r purpose of making a profit, An organization can bo described as a group of people who work together
with a vierv to achieving.a common objective, which may be to offer .a product or seryice for a profit,
Oryanizationethics, therefore, deals with moral issues and dilemmas organizations face both in business and
noi-business settings that include academic, social and legal entities.
MORALW AND LAW
Philosopher James Rachels suggests two miteria fulfilling a minimum conception of morality-reason and
impartiality. By the use of reason, Rachels means that a moral decision must be based on reasons acceptable
to other raiional persons. The criterion of impartiality is fulfilled when the interests of all those affected bird
moial decision are taken into account, with of course, the recognition of finite knowledge of the repqrcussions
of any ethical decision. Following Rachels, then, any legitimate moral theory must.meet the tests of reason
and impartiality. People often tend to confuse legal and moral issues. These are hvo diffcrent things; Breaking
'an
unjust law is not necessarily immoral. Gandhiji during his Dandi Yatra broke the law the British made in
India to the effect that one who produced salt would have to pay a tax. His civil disobedience movement also
was meant to disobey or even to break the British-made law. By no stretch of imagination, these acts of the
Father ofthe Nation could be considereil immoral. Likewise, the legality of an action could not automalicifty
be considered morally right. William Shaw in his book Busliless Etlu'cs brings to focus two contexts 'to illustrate
this sit'rations' ', , '
,
l. An agticn can be illegal, but morally righf. For instance, during the freedom struggle many yqnteti
freedom fighters (criminals according to the colonial rulers) had hidden themselves in the houses of
patriotic Indians to save themselves from prosecution and imprisonment. Though this wps, agail$ the,
British law in India, this patriotic deed of freedom-loving Indians was no doubt an admirably brave
2,. An action that is legal can be morully wrong.For instance, a profit-earning company aru(ious to retain its
b top b6ss may sack hundreds of its workers to save enough monry to lay ttre former with a view to getting
w tniirguiaance andmanagerial expertise.This actmaybe'perfectly iegalbutmorallyunjus!!fipd. ,,.,: :,
' ' Then, how db we understand the relationship befween law and morality? Generally, law codifies anation's
ideals, norms, customs and moral values. However, changes in law can take place to ieflect the conditions of
the tirne irr- which they are enunciated. For instance, during the British rule in India, several laws were enacted
that benefited the coionial power and its maint6nance, unA *ilitut d against the interests of natives.'To:keep
those lavs even after independence would not only be unanachronistic but also totally out of plaqe. Moreover,
even,if a nationb laws are both sensible and morally sound they may be insufficient to establish rnoral standards
tu guide the people. The law cannot cover iire wide variety of possible individual and group behaviour and in
many situations is an inadequate tool to provide moral guidance.6
There is thus a clear-c.ut difference between law and morality. In a particular situation, an act can be legal but
will notbe rnorally right. For example,'it will be legal for an organizafion which is running in loss to lay offa
few employees so€s to exist in the business situation. But it is not morally right to do so, because the employees
will find it difficult to find a living. On the other hand, an action performed can be illegal but morally right. For
example, it was illegal to help the Jewish family to hide from the Nazis, but it was a morally admirable ad'. '
ln the organizatio-n too, we will find such situations where an act will be.morally right and legally wropg
to perform- The strong ethical base of the individual as well as of the organization would come to the rescue
of that sittr:tion. The larv calrnot coverthe rvide vari.:ty of passibie individua! and gloupconduct.',hstear1;'it
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JU BUSINESS EiHICS-Ar INDIAN FERSPECTIiE
HOW ARE MORAI" STANDARDS FORMED?
There are some morai standards thai many of us share in our conduct in society. These moral standards are in-
fluenced by a lariety offactors such as the moral principles rve accept as part ofour upbringing, values passed
on to us through heritage and legacy, the religious values that we have imbibed from childhood the values that
were showcased during the period of our education, the behaviour pattern of those who are around us,'the ex-
plicit and implicit standards of our culture, our life experiences and more importantly, our critical reflections
on these experiences. Moral standards concern behaviour which is very closely linked to human well-being.
These standards also take priority over non-moral standards, including one's self-interest. The soundness or
otherwise of these, of course, depends on the adequacy of the reasons that support or justifi them.
RELIGION AND MORALTTY
Many people believe that morality emanates from religion, which provides its followers its own set of moral
instructious, beliefs, values, traditions and commitments. if we take Christianity as an illustration, it offers its
believers a view that &ey are unique creatur€s of Divine Intervention "that has endowed them rvith conscious-
ness and ability to love". They are finite and bound to eaith, and having been born morally flawed #ith the
original sin, they are prone to wrongdoing. But by atoning for their sihs, they can transcend nature, and after
death, become immortal.T One's purpose in being born in this sinful world is to serve and love one's Creator.
For the Ckistian, the way to do this is to emulate the life and example of Jesus Christ who was the very em-
bodiment of love and sacrifice. What greater love and sacrifice there can be than to lay down one's ovrn life
for the sake of those whom you love? Christians find an expression of love in the life of Christ who died on
the Cross to atone for the sins of mankind rvhom He loved abundantly. Their expression of this love is shown
when they perform selfless acts to help even strangers in distress, develop a keen social conscience, and is
therefore made intrinsically worthwhile. Service to fellow human beings is an inalienable part of thoehristian
virhre. Has not Jesus enjoined llis followers: "Whatever you do to the least of my brethrin, that yirti do unto
Me"? The life of MotherTeresa epitomized this basic Christian virtue of love that found expression in her self-
less service to the lepers, the hungryand those afflicted with serious and terminal diseases. This commitment
of love towards or.i f.llo* human beings hones the Christian sense of responsibility not only to his family
but also to the wider community.
Unlike ii-Cfrrirtiunity where most of the moral principles are diawn from the teachings of bhrist who
also provided the interpretations for the Ten Commandments and other moral standards gleaned from the,
Old Testament, Hinduism, the major religion in India, does not provide one acceptable souice of moial stan-
dards. The Hindu view of moral standards is drawn fiom a large and bottomless cauldron that contains
values accrued from various religious beliefs. The Hindu moral siandards are examplified in works such as
the Ramayana, Mahabharata, Bhagavad Gita, Panchatantra, Naganan:tham andthe Jatakatales. One of the
* common fundarnental areas of agreement which cln be called the Indian religious tradition is the theory of
Karma, the doctrine of the soul and the doctrine of mukfi (freedom).8 Almost all the Hindu religious lradi-
tions agree in the belief that a person's actions leave behind some sort of potency which provide the com:
mensurate power to ordain joy or sorrow in the person's future birth. When the fruits of action are such that
they cannot be enjoyed in the present life, it is believed that the benefits for righteous deeds or penalties
for wrong doing will be reaped in the person's next birth, as a human or any other being. It is also believed
that the unseen potency of the action generally requires some time before it could give the doer the merited
enjoyment of benefit or punishment. These would accrue and set the basis for enjoyment and suffering for
the doer in the personh next life. Only the extreme fruits of.those good or bad actions can be reaped in the
person's present life,e The natire of a person's next birth is determined by the pleasant or painful experiences
that have been made ready forthat person by the maturing actions in this life. The Bhagawad Gitaalsoun-
derlines the fact that a person has a choice in action, but never in its outcome. The results are determined
the moment the action is carried out-Jhe fruits thereof cannot be avoided, and in any oase, are not under
the control of human beings. Therefore, people should concentrate on their actions without worrying about
the results they will bring.
All Hindu religious thinking leads to the general principles of ethical conduct that must be followed for
the attainment of salvation. Controlling all passions, no injury to life in any form, and a check on all desires
for pleasrrrel, are princioles vrhich a;"e eekr-.olrledqed unir,;r:: !l'r in all l{indu traditiors anr! l;eli.fs. l!-he Indinn
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PART I, CONCEPTS AND THEORIES OF BUSINESS ETHICS
HindusageThiruvalluvar,.throughhismagnumopus,T}rrrukkulal,hasplovidedethicalprescdptionsforthe
;*xffilffil3i"1::;ij;;des not onlr a f,o1mal system of worship, but arso a prescripiion for social inier-
course. tViiliam H. Shr* ;;;;;, ,rr. *or, ..r.u'"ttit"i'gious mandate which is found in almost ali major re-
ligions of the.world "Do unto others as you would havJfhem do unto you"' Termed the 'Golden Rule" this
iniunction epltom*es
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*.itirAt rriglr.rt.ofiiOturt' But then' ihough religious ideals' teachings and
thoughts provide u prutio*ior enunciat[n
"f
;;;;"oittit*tt moral behaviour and are always inspiring'
these are very general anJ.uo rr*ary provide griJ.iir". ror precise policy injunctions' Nonetheless' religious
orearizations do take p"riri*, *iarticutate thJir^;il ";
spt:'.fr: issues on such diverse fields of human
"rid.uuo*
u, pofiti.r,
"iu.uii*,
economy, adm;;;;;i;; o'd medicine' They also help mould public opinion
on such important nationai ,o.ir't irrr* as aUortioi'euttranasia' homosexual relations' and international issues
as nuclear weapons #;;;i;p*ental assistaric; ;;;;"t countries to fight poverty' HIV'etc' The Roman
catholic church r,u, u ri;trudilion of trying *ir.ri":rr it, ,."rulo"s to themoral aspects of industrial te-
lations. several rop., in ih. 20th century rr.a rp*Jii.-cutrrori. religious ideals through their encyclicals
and pastoral trtt"r, ,o.r, us pope r* *IIrt n'"rr. io**u^(1891i and Pope John Paul II's encyclical
ContesimusAnnus (1991). Likewise, the Cattrotic-g;;;; a-;'rf;"..rin**y *4iorcountries issue pastoral
letters to their flock *Jiute stands on ir"potOnt totioitono111it und even political issues'
.
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MORALIW, ETIQUETTE AND PROFESSIONAL CODES
;;;;";;ssary to understand the differences between morally.-T"tl:::i:f:f^T:,:?l3,Ti"-":X'#il:
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organizations, swerll aspects orcoworl!,.sfi*es and.fr4elirons terdtoundennine
aperson,s moral responsibility. Organiz4tional ,roilu, gtoup commitment.to certaihgoals' piessutito'conforrn
ard the diftusion of responsibiiity can all mate th;.-#;;il of personal i,,ItJil|;ilfl'1i9"t9*l oruobrgani-
zationdifficult. Moralprinciples providec"'6"'"*o
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is notmechanicar. principres provfde
"'.on..p*uiii*il*itu,
goiaopiirt. in*4ing rnoiaidecisions'
Careful thoughts and reflictioir with an open mind are very *"t"u'y to.io'k from one'smoral'principle to
make a moral judgement. A person can hold , -;;;; t'rtiequtriilonly after going through a process of "a
conscientiouseffortto be conceptually clear, to ffir"",,"r*'ti"r"niati";;;?;A;*:*ti*h1ty'
i*i
MANAGEMENT AND ETHICS : . '
issues occur in all decision making
Management of any business involves hundreds of decisions' Ethical
processes. Conflicts and ethical dilemmas are ;;t;fi;;tel of such processes' Tlrere arises a continuous
conflict betweenthe goals of an organization #;;;r:-tr;r ra.G to its day-to-day management' The
success of any business organization i, -ruror.a'irr9r*r*,.profitslcost-cutting,
qualiry quantity effi'
ciency, and so on. These objectives of the oiganizltiir t'r t*i direcl conflict with its social commitment
w-hich is measured in terms of obligations to
".f."t "ia.",
both within and outside the organization' For in-
stance, cost-cutting may be used as a tool t9 d;;;; ;;;;nue and pfofit' In the process of realizing this'ob'
jective, the
"orp*y
#uy have to lay off some *o.t"t'' This creales a conflicibet'ween the organizational
goal and the business units' obligation to the stakeholders, in this case, the discharged workers' These issues'
of course, wilt differ from organization to org;'i;uti;;ffi1; to people and thJ problems and issues thrown
,up in each case may r.nJ tnZrr.rves to differe"il""tit""'ions' ror its own survivaf it is necessary that
the organi4ation shoufJmuintuin its competitiv;
"-Gio
tt t *arket' It should produce useful' safe' and qual-
ity products una ,rrri.r, uiaffordaUte pii..r. whifZ doing so, t1e orga;lzation should ensure that the inter-
nsrs orthe stakci,ot.i*"r"sl;;;;;r,l;1Gr^.i;i. il:;;i;"*ii ri* t?'l,.nairigait ori thq' qart of the
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BUSii!ESS ETHICS-AN iiirDIAN PERSPECTIVE
The dilemmas and conflicts that managemenls encollnter during decision making processes and tireir ob-
ligations to stakeholtlers require a balancing act, involve anatytical approach, and sound decision making in
vielv of the fact that each of such decisions has its orvn rewards and penalties. Some of these decisions may
have an impact on the health and safety of consumers. Sometimes, in order to push the sales of products, man-
agers may te prompted to resort to deception, or suppressio veri, suggestio falsi.This creates a conflict of in-
terest for them between their obligation to their organization and their obligation to consumers and other
stakeholders. The business managers need to reccgnize the impact of their decisions and actions on their own
organization and the community at large. a clear inderstanding of the moral consequences of their decisions
and the manner of implementing them on all stakeholders is required at all levels in the organization' This
may not be as simple as it sounds, because not all ethical questions have simpie 'yes' and 'no' ansv/ers- "I11
practice, the ethical questions have many alterndtives with different probabilities of occurrence and have dif-
ferent impacts on stakeholders. Each set ofchoices will have different economic and social consequences and
may lead to further decision points."rr
NORMATIVE THEORIES
Ethics is a normative study, that is, an investigation that attempts to reach normative conclusions. It aims to
artive at conclusions aboui what things are good or ba{ or what actions are right or wrong. In other words, a
normative theory aims to discover what should be, and would include sentences
fike
'99mn9ies should follow
corporate governance standards' or 'managers ought to act in a manner to avoid conflicts of inteiests'.'This is
the study of moral standards which are correct or supported by the best reasons, and so'lattempts to reach
conclusions about moral rights and wrong, and moral good and evil".r2 For instance, the stakeholder theory
has a 'normative'thrust and is closely.linked to the way that corporations should be governed and the way that
There are different normative perspectives and ethical priniiples that often contradict one another'rThere
are consequentialist andnon-consequentialist normative thaories Gig.2.1). In the organizational context, we
can identifu the following ethical theories that have in impact on the manner in which ethics or the lack of it
could be identified in'a b-usiness organization. These are, according to William H Shaw,t3 thefollowihg:
Egoism, both as an ethical theory and as a psychological theory
Utilitarianism, the theory that a morally rigtt action results in the greatest good to the largest nurnbeJ
ofpeople.
Kant'sethics,withhisemphasisonmoralmotivationandrespectforpersoris..
Other non-consequentialist normative themes: duties, moral righls, and prima facieprinciples'
ETHICAL THEORIES IN RELATICN TO BUSINESS
"The view that associates morality with seliinterest is referred to as egoism."ra Therefore, it can be qaid that
egoism is an ethical theory that treats self-interest as the foundation ofmorality. Egoism contends that an act
is morally right if and orly if it b.rt promotes an agent's (persons, groups or organizations) long-term interests'
Egoists make use of their self interesi as thr -.u*ring.od of theiiactions: Normally, the tendency is to equate
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PANT I. CONCEP;S AND THEORIES OF BUSINESS ETHICS
eg!3istr1 lvith individual personal interest, but it is equally identified rvith the interest of the organization or of
the societY'.
Decisions based on egoism mainly are intended to provide positive consequences to a given partyt in-
terest rvithout considering the consequence to the other parties. Philosophers distinguish between two kinds
of egoism: personal ancl impersonal. The personalist theory argues that persons should pursue their long-
term interest, and do not dictate what others should do. Impersonal egoists argue that everyone should follow
theirbest long-term interest. It does not mean that an egoist will act against the interest of the society. They
maybeable to safeguard their interest without hurting the interest of others. When an organization performs
or safeguards its interest without hurting the interest of others, then we can say that the organization acts
ethically.
PsvcuoicetcAL EGolsM
Egoism asserts that the only moral obligation we have is to ourselves, though it does not openly suggest that
we should not render any help to others. However, rve should act in the interests of others, if that is the only
way to promote our own self-interest.
-Ettricists
who propose the theory of egoism have tied "to derive their basic moral principle from ttre alleged
fact that humans are by nature selfish creatures."ts According to these proponents of psychological egoism,
hurnan beings are so made that they must behave selfishly. They assert that all actions of men ar.e motivatqd b.y
self-interest and there is nothing like unselfish actions. To them, even the so-construed self-sacrificial act like,
sa, whiStle-blowing in an organ=iration to bring to the notice of the top brass the unethicalacts Factis.-4_4"*
the line, or by top executives, is an attempt by the whistle-biower to either take revenge or become a celeb{ty.
,l
Criticism of the lheory of Fsychotogicol Egoism Though there are a few advocates of the theory bf
egoisrn even today, one would hardly come across philosophers who would propose it as the basis for personal
or organizational morality- Generally, the theory is:criticized on the following grounds: | :' i ,,
. L Egoism as an ethical theory is not really a monl theory af all. Those who espouse egoism have very sub-
jective moral standard, for they want to be motivated by their orvn best interests, irrespective ofthe nature
of issues or circumstances. They never try to be objectiye, and evelythirig is vie-wed subjectively based
on whether it would promote their own self-interests or not.
2. Psychological egoism is not a sound theory inasmuch as it assunies that all actions of men are moti-
vated by self interest.Itignores and undermines the human tendency to rise above personal safety as
proved in thousands of examples of personal sacrifices at times of calamities such as,flogds, ,91..r"_th;,
3. pthical egoism'ignores blatant . By reducing every hpman act to self-interest and,self'
*
-;=*frg"Ar
;h;fi J";r not t*. o.i.u. .tund against ,o -rny pri.onal or organizational vices such
* as cor*ption, bribery pollution, gender and racial discrimination. ' ' ,i;,':''
There are two names associated with utilitarian philosophy; they are Jeremy Bentham (1748-1832) who is
generally considered the founder of traditional utilitarianism, andphilosopher cum classieal economist, John
Stuart MiU (180G1S73). According to the utilitarian principle, a decision is ethical if it provides a greater net
utility than any other alternative decision. Bentham's principle can be stated thus: "The seeking of pleasure
and avoidance of pain, that is, happiness, is the only right and universally desirable end of human action".
Ethics is nothing ilse than the arr of directing the actions of men so as to bring about the greatest possible
happiness to all those who are concerned with these actions. It is not merely the agent's own happiness but
that of all concerned. Bentham vielved the interests of the community as simply the sum of the interests of its
members.'summarized, the utilitarian principle liolds that "An action is right from an ethical pointof view if
and only ifthe sum total ofutilities produced by that act is greater than the sum total ofutilities produced by
any other act the agent could have performed in its place". The utilitarian principle assumes that we can some-
horry measure ana aAO the quantities of benefits fenerated by an action and deduct from it the measured Qiian-'
lif i-r cf hritn that aci i:;orlriceC i-ur!. cliic;'ir.ir,i tllercl;-,, lviiich a+tion prcdirces iltn g::or"tfllt total be-icfitr tti litc
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When utilitarianism argues that the right action for a particular occasion is thei one that prociuces more util-
ity than any other possibie action, it does not mean that the right action is the one that produces most utility
for the person w'ho performs the action. on the conirar,! an ecti;n is right, as pcinted by J. S. Mill, if itprodgces
the most utiiitlr for all the persons affected by the acticn. ti -
When we try to analyse the utilitarian theory, there are ceriain inferences and implications of the theory
that we must take into account, as otherwise, we will get ourseives totally misled: (i) when utilitarians say
that practising the theory will lead to "the gre-atest hapiiness forthe greatest number,,, we should include the
ulhlnliness or pain that may be encountered along rvitir the happinesf; (ii) one's actions will affect other peo-
ple in different degrees and thus will have different impacts; fmi sin". utilitarians assess actions with regard
to their consequences, which cause different results in diverse circumstances, anythin;;igrr,, in fact, be
morally right in some circumstances; (iv) Maximization df happiness is the objective of utilitarians not only
in the immediate situation, but in the long rtrn as well; (v) Utiiiiarians agree that most of the time we do not
know what would be the future .onr.quri.., of our actions; (vi) Utilitarianism does no,
"*p."iui;;;;
our own pleasure while choosing among possible actions,
utilitarianism fits in correctly witl ttre intuitive criteria that people use when they discuss moral conduct.
Forinstance, when people have a moral obligation to perform some action, they will evaluate t,;;;;ffi;;
the benefits orharms the action witl bring upon human beings. The tt rory r"uar i" th;i,.fiffie conclusion
that morality requires the ag:nl,to impartiiltl. tae into u..orn', ,r.jo;-;il;;; ;"d;r. #ri; ,;Lrffi;:;
usefulness of utilitarianism in,the organizational context it should te uooerrtooJ dffi;;il; standards for
lli*f::::,1fl:Y irit promoteJthe werrare.orau, ;; ;;, *r lii".
"lt..nutive,
tiren it is ,ilH;;
the theory proddes an objective means ofresolving conflicts of selfinterest with the ."rio" r"i."rr.on.good.
Thir'4tlretheoryprovidesaflexible,result-ori9nteiappro.ct,toe;il;i;;iffi.ffi'-*
one major problem with the utilitarian theory ioncernr trr. *"ur*.ment of utility. utility is
-a
psycholog-
ical concept and is highly subjective. lt differi from person to person, place to ptu.", una time to time.
Therefore, it qannot be the basis for a scientific theory. ' .- *::
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*'"'
A second problem concerns the intractability to measurement that arises while dealing with certain Uenents
and costs. For example, how can one measure ihe value of life or health? '-: : --- ---:::" --^:--
Another problem of the utilitarian theory concerns the Iack orpredictauility of benefits and costs. If they
cannot be predicted, then they cannot be measured either. l
The fourth problem concerns the lack ofclarity in defining what constitutes 'benefit, and what constitutes
'cost" This lack of clarify creates problems, especially with ie-spect to social issues that are given ;#;;;;-
KRNrnrusna: ErHrcs oF DuTy ' :
Immanuel Kartt (1724'1804) is regarded as the most important ethician in the ratiorialistic school in modern
times' one of the basic principleJ of his ethics iJ his ;ost i.."* .rii"al doctrine that a gooi will is the
only unqualified good. Kant said that for an action to be morally worth it shoutd refleci i g""o will. By
wt'Kantrneant the unique-human capacity to act from principle. Coi uin"a in the notion of good will is
the concept of duty: only when *" .r, act irom duty does ou. i"tion f,are moral worth. wh.r;;;.; ;;;
out of feeling, inclination, or-serf-interest, ouractions-although rh.y;"y;;;;;;;f"ilffial with ones
that spring from the sense of duty-have no true moral worth]
. .Kul':ot:!ed that the action must be taken only for dutfs sake and not for some other reason. For Kant,
ethics is based on reason alone and not on human nature. In Kant's perspective, the imperatives of rnorality
are not hypothetical but categorical; He says ,rru, ,t
"
moral duty that binds usi";;;;fi;;"r.in. core idea
of his cate8orical imperative is that an actiln is right if and only if we can will it to become
","iu;;#'l#;i
conduct' This means that we must never perform an action unless we can ;;"il;1,,;;;.* be fol-
lowed by everyone.
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orgonizolionol lmpofionce of Kontion Philosophy Kantian theory of ethics has adequate relevance
to a business organization. Though there are lots of criticisms against Kantian ethics we would consider the
positive aspects of his ethics which would be beneficial in orga"nizationaiJ."jr-r"" rn"trrr. in."l.1.ri;i;.1
imperative of Kant gives us firm rules to follow in moral decision making for ."nuin i.rirr;i".uur. tir" ,r.utt
of such acrions does nor depend on the circurnstances ;,,he ffi;;;i_i,;nc;, *,
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PANT I, CONICEPTS AND THEORiES OF BUSINESS ETHICS
Kant introduces an important humanistic dimension to business decisions. In the ethical theories of egoism
aad utilitarianism humans are considered means to achieve the ends. In the neiv economic scenario, human
beings are sidelined b;v technological growth and other developments. Kant gives more importan."'to irai-
viduals.
For Kant an action has.moral worth only when it is done from a sense of duty. A normal motivation of the
kartha is a must to make that action morally right. People in the organization perform certain actions which
are bineficial to them thinking that somehorv it will be beneficial tc the other, ihe Kantian principle of *oti-
vation of a performer of action comes as a corrdcting instrument to the organization. This is vlry much relevant
for the organization when it takes decisions on ethical issues.
The two formulations of Kant are as follows:
l. To act only in.ways that one would wish others to *t *t
",
faced with the same circumstances.
2. Always to treat other people with dignity and respect.
To sum up, to Kant, reason is the final authority for morality. Blind beliefs or rihrals cannot be the foundation
for morality. He emphasized that the basics of ethics are those moral actions that are taken Uy a ..nr" of duty
and dictated by reason.
SOME MORE NORMATIVE THEORIES OF BUSINESS ETHICS
There is a certain amount of confusion in defining business ethics as a field of study between the ethics theoriits
and those engaged in business. Business ethics tJcoucrcail;;*;, ,1,;;; br;cJalii;.ks ;atpi,1";;;;;:
They express .their theories in bombastic language ana co;otut"J riproriorr rr.t ;,d;;;Adiffiili#
menls', 'hedonistic calculus'and the like, wuictrLate no sense to ordinary busin.rr*ro *t o ili.i*;ipilirq,
sophically inclined nor trained in philosophy. Businessmen express themselves i; ;;;r..y hd";;;Jl;
not like.to deal in abstractions. They are interested in solving the specific probl.*r th;;;;f.o;-ti;;;il;
rather than indulging in abstractions that look like a road to'nowhere. : ,: :., ": ,-
- .Il
it imperative, therefore, that the business
"tt
icirt sriour;;;;;. a set of ethical principles that are both
lucid and easyto comprehendforbusiness forks, who.*pt"..it.*i"#;;;;A;;;;;;;Ubrd;!
ln{we whether they have any practical relevance. The siarch for a down-to-earth theory rrl r-ill,ir,";r"-
lution of several normatil'e
11e-ories
that suit specific ursi""*
"*iionment..'A
normative ,t**
"iui;r;;ii
:ll": |t-f {"ff1"t: fo:us this general theory exclusivety upon ltrose urpect, of m** rir" tUt ir;;lr;';*t:
ness relationship".tt In simple language, a normative theory is specificaliy meant to provide *en witf, ett ieut
. Presently, there are three normative theoiies of business ethics that have evolved over a neriod of time.
rney are (I) stocl*tolder theory (2) stakeholder theory and (3) social contract theory (Fig z.z). ofthese three,
the
spst and one that has falr', inLai.'.puts #il;tr;;,J;,ht"t;;;i;;"cent times i, m. rt*u,oiffi#;
though economists like Milton Friedman,:following rt', f;il6#Ad;I;'i,h;ph"l;rh;ffi;fii*#;
pursu^ed by the promoters of trre theory. To most orit e critics, tf. ;;klr;ilffi;il;;;;;#;;;#
over from the 'bad old days of capitaiism'. The next theory evolved was the stakerrora". it io[, ;h"h,-;;;l
the past three decade, oi so, has gained .ia"rpr.J r..r;;.;;;ng the business erhics community.
1"r*:l:l'l *cent years, tle social c-ontract theory has emerged as a strong contender to ,l*
"trk9ill;.'ilil;;
anc occupies a pre-eminent position among the normative iheories. It n;eds io be stressed rr.." irrui .u"r,
"i
these three normative theories_upholds a distinctly different model of a Uurin.srrant
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BUSIIJESS TJHICS-AN INDIA| PERSPECTIVE
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Tar SrocrHoLDER THeonY
The stockholder theory also knor,vn as the shareholde ; theory expresses the business relationship belw'een the
olvners and their agents who are the managers running the day+o-day business of the company' As per the
theory businesses are merely arrangements rn which on. g'oup of people,lamely,-the shareholders eu:t^"
capital to another group namely, the managers to realize certain ends beneficial to them' ln this arrangement'
managers (including the Boari of Directors) act as agents for shareholders' The managers are empowered to
manage the. capital advanced by the shareholders und ut duty bound by their agency relationship to carry on
the business exclusively for the purpose outlined by their principals. This fiduciary relationship binds managers
not to spend the available r".o*.., on any actirity without the authorization from their owners, regardless of
any societal benefits that could be accruedg doirg so' This obviously implies, as per this line of thinking'
that a business can have no social responsibilities'
According to the strict interpretation of the stopkholder theory, managers have no option but to follov
the dictates of their masters. If the stockholders vote by a majority that their company-should not produce
any obnoxious proouct--which in the percepion of the managers would be a profitable business proposi-
tion-the managers still have to abide by the decision of the owners of the company' This may ue
1
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fetched example, as shareholders who buy stocks of a company.to maximize their return on investment may
not issue any such direciion. There are companies that produce tigarettes,liquor, and pistols
"l qal13 f:"?
to maximize stockholders'returns. In all such cases, siockholders seemto be happy with the.high dividends
they get apart from an increase in market capitaliration ollheir stock and therefore, there is no,rel3on !o1
them to issue directions that negate the managers' actions. The stockholder theory has been succinctly sum-
;;;il6-;;iirt ryrlton r-riedman who asserted thus: "There is one and only one social responsibility
of business-{" ,r. irr;;;;;;;#';"g.g.'i" tr,r
".tirities
designed to increase its profits so long 4s it
stays within the rules of the game, which is to.stay engaged in open andfree'competition withouideception
"' Tilr*, reading of the definitions of the stocl;holder theory provides us.an understanding tr,ui it a*' *t
give the manag ersa carteblanchetoignore ethical constaints inlth, ,ingi.'-i"atap*t'i"rp-t"nt'rn"m"oty
shesses that managers should pursue profit onlyiytali legal, non'deciptive means' A lot of adverse criticism
against the theory coutd have been avoided had # *iririrppt".irt"d li;i; thut the stockholder theoly'did
not stress that managers were expected,o p*rr. p.on at all costs, even ignoring ethical constraints' The qtgck:
holder theory is also associated with the line of'utilltarian argument adoBted by liberal classical ecgnomists'
One,s pursuit of pront, louJed by one's enhglrtened self inteiest in a frei market economy leads collectively
tothepromotio,,ofg,nilii;;;,;i;i;fild;;;:;;i'-ivaa,,"smithj:i1$1bl:lydlll-11't"bnITl"
was a term coined uy edai iJ,t ,o oproi tt . idea that though:f1i*i"-dr'1 in his/her economic'activities
acts in his/trer own interest such actions are guided by a sort-of invisible hand' which ensures that they are
also ts the advantage oi*"
"";;;,rrr, i;?;];;ry;rr
in{ividual by pursuing his own self-interestpromotes
the interest of the society more efficiently than when he-really intends to p"-o:t" it (Adam Smith)""t* t-:'::
th*
"ur",
it is unwar;;J;; ;;t;ib"'int""' to act directly to promote the common good' Therefore' there
is no justification to make a claim that businesses "have urry ro.iul responsibilities other than to legally and
''-'6il-f,|-[.;i, ;dr"q**iuiirr' tirr" of thinking in support.of the stockholder theory, there is'aiother
ideontological, urguro.n u"*al to buttress tt. il;c"*.rt tirit r1rc p.1t, ":::-"q:]*1t^r-"Y11" theii capital
to managers on tfr,
"onAi-ii*
,t * ,t ry *" it i, uttorai"ce with their wishes. If the ynaeers.{;lept this capital
and spend it to realize some social goals, unauthori zedby the stockholders, does it not tantamount to a clear
breach of the agreer;1ent?i'
Criticism of lhe Stockholder Theory Many business ethicists have been criticizing the stocl:holder the'
ory for various reasons. Ithas been describe4 as part ofcorporate law that has outlived its usefulness; as one
based on a 'myopic vlew of corporate responsibility' and as one-that leads to 'rnorally pernicious conse-
quences'. Robert C. Solomonzr in t i, f*r;r, i-ni f*""tlrrce (1992)finds it "not only foolish in theory.'.but
cruel and dangerous in practice" and misled'iio,n itt ,on,."itu1ly one-sided assumption of responsibility
to a pathetic understanding of stockholder personality as Homo Economicul ', Many ethicists discard the the-
ory as an outmoded relic of the Past.
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PARi I, CONCEPTS AND IHEORIES CF BUSINESS ETHICS
of the market forces'. Most modem day ethicists have littie faith in laissez-faire capitalism (absolutely uncon-
trolled free enterprise system) that is beset by market failures. They believe that to the extent the stockholder
theory is asscciated with that type of economic model tlaissez-faire capitalism) that cannot be relied upon to
secure the common good. The theory itself stands discredited because of its failures.
Another reason why the stockholder theory stands discarded today is because "the contemporary economic
conditions are so far removed from those of a true, free markef'.22 In today's world, govemment-especially
in its role in collecting huge taxes and spending the large sums that it earns on various welfare, people-cenkic,
and even defence projects-influences the activities of corporations enormously. Besides, in the modern
economies, as a producer the State itself has a significant stake in several utilities and environmental activities.
In such a situation, it is very likely that the pursuit of private profit will not truly be productive for the public
good.
Another criticism of the stockholder theory is based on a false analogy. It goes like this: if governments
of dernocratic societies have a moral justification to spend the taxpayer's money for promoting the common
welfare of people without taking their consent, then, it might mean, by inference, that businesses are also
justified in carrying out social welfare activities without the consent of the shareholders. But then, this is
based on a wrong and far-fetehed assumption. The very objective ofa government, apart from providing
political governance, is to provide some basic utility services and also to ensure that the lot of the poor is
improved over a period of time. Undertaking welfare measures is one of the generic functions of a gov-
ernment and on occasions iuch as natural calamities like earthquakes, floods, tsunamis, etc., this may be
the most important cause for its existence. Moreover, governments get a mandate fromtheir electors to go
ahead with the public welfare activities on the basis of promises made by political parties in their mani'
festos. :
---
HI*"r"r, in the case of a business organization, promoting social welfare is only incidental to its major
function of increasing the profit of the company so as to enhance the long-term shareholder value. They give
no undertaking to any shareholder that they would promote public welfare activities when they are formid.
In recent times, many socially conscious companies like Tata Steel do seek and get the approval of their share-
holders to spend a part oftheir profit on social welfare activities.
SrerEuopeR THEoRy
The stakeholder theory of business ethics has a lengthy history that dates back to 1930s. The theory represents
a synthesis ofeconomics, behavioural science, business ethics and the stakeholder concept. The history and
the range ofdisciplines that the theory draws upon have led to a large and diverse literature on stakeholders. ,
In Fssence, the theory considers the firm as an input-output model by explicitly adding all interest
groups-€rnployees, customers, dealers, government, and the society at large--to the corporate mix. Figure
f;*p illuskates the different kinds of stakeholders. t : : : . : :: ,ii:,, i
The theory is grounded in many normative theoretical perspectives including ethics of care, ethics of fi-
duciary relationships, social contract theory theory ofproperty rights, theory ofthe stakeholders as investors,
communitarian ethics, critical theory etc. While it is possible to develop stakeholder analysis from a vari.ety
of theoretical perspectives, in practice much of the stakeholder analysis does not firmly or explicitly root
itself in a given theoretical tradition, but rather operates at the level of individual principles and norms for
which it provides little formal justifibation. Insofar as stakeholder approaches uphold responsibilities to non- '
shareholder groups, they tend to be in some tension with theAnglo-American model of corporate gbvernarrce,
which generally ernphasizes the primacy of 'fiduciary obligations' owed to shareholders over any stakeholder
claims.
However, the stakeholder theory unfortunately carries some sort of an unclear label since it is used to
refer to both an empirical theory of management and a normative theory of business ethics, often intermixed
and without distinguishing one from the other. In this theory, the stakeholder is defined as anyone who has
a claim or stake in a firm. In a wider sense, a stakeholder will mean any individual or group who can affect
or is affected by the corporation. Interpreted n'arrowly, stakeholders would mean "those'groups who are vital
to the survival and success of the corporation".23 In its empirical form, therefore, the stakeholder theory ar-
gues that a corporate's success in the market place can best be assured by catering to the'interests of all its
stakeholders, namely, shareholders, customers, employees, suppliers, management andthe local cqmmunity.
To achis:,i* ils o'hlicciive, fhc c.rrpuaie t,ould lie.ve tb adopt poltcies that'r.oulC ensirrc 'the opiimal balance
anr(.}Iis ii,e}1'.
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Stokeholders of on Orgonizotion
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As a normative theory the stakeholder theory stresses that regardless of the fact whether the management
achieves improved flnancial performance or not, managers should promote the interests of all stakeholders.
It considers a firm as an ilstrument for coordinating stakeholder interests and considers manalers as having
a fiduciary responsibility not merely to the shareholders, but to all of them. They are expected to give equal
consideration to the interests of all stakeholders. While doing so, if conflicts of interests arise, managers
should aim at optimum balance among them. Managers in such a situation may be even obliged to partially
$acrifice the interests of shareholders to those of other stakeholders. Therefore, in its normative form, the
theorydoesassertthatcorporationsdohavesocialresponsibilities.
A seripus reading of the theory will show that a magager's fundamental obligation is not to maximize the
*firmb profitability, but to ensure its very survival by balancing the conflicting claims of its multiple stakehold-
ep. There are two principles that guide corporatiols to comply with this requirement. According to the first,
cb[ed the principle of corporate legitimacy, f'the corporation should be managed for the benefit of its stake-
holders: its customers, suppliers, owners, employees and the local comrnunities. The rights of these groups
must be ensured and, further, the groups must participate, in some sense, in decisions that substantially affect
their welfare".2a The second principle, known as the stakeholder fiduciary principle, asserts that !'management
bears a fiduciary relationshif to stockholders and to the corporation ur * ubrtruct entity. It must act in the in-
terests of stakeholders as their agent, and it must act in the interests of the corporation to enswe the survival
of the firrn, safeguarding the long term stakes of each group".2s
The stakeholder theory has received a wide acceptance among ethicists, perhaps due to the "fact that the
theory seems to accord well with many people's rnoral intuitions, and, to some extent, it may simply be a spill-
over effect of the high regard in which the empirical version of the stakeholder theory is held as a theory of
management".26 However, the theory is not beyond reproach and criticism. It has been subject to many criti-
cisms on many perfectly valid grounds.
Criticisms of the Stokeholder fh€oty The stakeholder theory is often criticized, more often than not
as 'woolly minded liberalism', mainly b".uur" it is not applicable inpractice by corporationi. Another cause
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of stakeholders' interests' Ivlanagerl-alcomplish their organizational tasks as efficiently as possible by draw-
ins on stakeholders u, o ,.rourJ.. This is m .fir., u '.o"rtracti between the two' and one that mr:st be equi-
ruf;f" i" order for both parties to benefit' c-^* the rliffi cept. Who re-
The major probtem'witfr the stakeholder theory stems from the diificulty of defining the cont
ally constitut., u g"noin"-rirr..t oro"rr rrr*. i, ., .*pansive list suggested by authors, ranging from the most
bizareto include terrorists, dogs and tree1, t9 tn"'rttilt"ttiiorruurt"*h as Lmployees and customers' Some
writers have suggested that any one negatir-e$ afteti'A Uy to'porate actions mighireasonably be included as
stakeholder, una *rro], ,r,. *iria rnir-*tghtililr p"liti,afp'i'on"rs' abuseJ children' rninorities and the
homeless. Hower,tr, ;;;; seriously ,ontii'i'uiiyl*"*tt"a list of stakeholders would generally include
employees, customers, suppliers, ttt. gor.,o*Jni, tf"
"o*o'iry
assorted activist or pressure groups' and of
course, shareholders. s"*iJ*rir*. oith. rh.";;;il;ii"it1',r'";; f:'.t
*t too manv stakeholders' it isbetter
ta categoizethem as primary and secondary JtutJora*' 'in order to clarify and ease the burden it places
upon directors,. clive'smalt1ryn
?.savs. ':Th.;;;;inr-rfinguott' the serious claimants andthemore flip-
pant are rooted in business ethics, in *unugt'ili*"iAity and in best practice in business strategy'" Moreovet
in his opinion, though the inclusion or u r*g"-nu*uer of claiman^t' -ay ue well-intentioned' it may not be
oracticalforcorporatemanagerstocater,o*"t,ulargenumberofstakeholders.
It is also argued n'ii'"' if;"i ir'e 'intent ttffi ;ffi; itittt"t *r'it*d bv relving on the hand of manage-
ment to deliveruo"iuit'n'nt where it is
"q'#;l!"h;'*':-ttil*;* *ru::?;ilffi'l# :l:ftl;;
hm*"::r*r*ru,fruHi:;;?l'*;:[:f:]i3i'in'ff'fril'#";;;;;""'"ir,'ii'eeii'''atu'ieo
managers through the Board of Direct"r. Thr;;;;;;. specifiesirechanisms which reduce agency loss'
i.e., the extent to which shareholders *. p""" i"" i"i"" tt'" a"i'iont ana actions of agents differ from what
they thernselr., *"uiOr''t Jon" in similar.situations'
' In the assessment of Clive Smallman "d;;;;;lder model also stands accused of opening up a path to
corruption and chaos; since it offers .g.rt, #;;;;t riry t1*iver,t:wealth away from shueholders to others'
and so goes against the fiduciary outigations oJJdto shareholde., 1u*iruppropriation
of-resources)"2.'Thus'
the stakeholder model of corporate govelnlnce leads to corrupt ptu*itit in the hands of managements with
a wide option (because of too:many lqgfrofiers)
*a
"ft"
t9 tt'u*' u' it Aoes not differ much from the agency
model,whileincreasingexponentiuuvtrr..ri-dt'orpiinttpurt-theasentshavetotackle'
' '"":'
The stakeholder theory also can b.
"'iti;i;;;;t[' ""^"u
tttut ii"*t"tas the rights of stakeholders far
too much. To draw ethical conclusions fr."rr;;.*u,ion.-or,rr. state oruw is as dangerous as to assume'that
what is legatty r.qriJ;i;ld be ethically justifiable' Moreover' t";;;;ilalt siakeholders vrtro are im-
pa*ed by u
"ont
u"i'i.""; *"i"r rUrrt to Jal'e'l'#;!H-i; 9l'iit"ii* "i
lo effects mav ahb
'lead
to an in'
ference that they trave a right to participate J"i:'il"t#;ffi;;;;;ttt oriotintts as well' whlch s absurd
eb,
I ive theories of business ethics' It is close!
ffi iTi-rffi :lt;:il;::,i::;:f;J;:[:H*T'.]ffi:liffi ;;;;;iaiconrac"he;;T;;;in"{1
bus,inesses are ethically duty bound to i".raa-re m-rw rrur"1rtn. ,ociety by catering tolhe needs of the con-
sume,, and employees without in any *u,
"J*r"rirg
tf'" pti"t'pf"t oi'iuttituf iusticle'The.social
cbntract the'
ory is based on the principles of 'social .;;;;;"t'i" it i' u'**ed that ihere is an impliciragreement
betnreen the society and any created entity r".i,
", "
i*rress unit, in which *re society recognizes the existence
of a condition trrai it will serve ,t, in .""ii;;;;tt" certain tpt"inta *uyt' iht th"qry is drawn from
the rncciels of the political-ssciat ,onou.iir,.lries enunciated ly iiiJti= rike ihomas Hobbes' 'Iohn Locke
and Jean ,acques ffi:ffiXi;#ilffi;il;"ph..- t ira to'n"a * answer for a hvpothetical situation
as to what life would be in a society in tf" ut"*' of a lo'etnm"t u'JOitA
'o
plovife an answer by imagining
situations of what it might have been for
"iiir.ir,"
aglee to form one. "The obligations of the government to-
ward.s its citizens *.r"-th"n derived from thd term* of th" ug'"t*tni"''; As in iormative theory of business
ethics, the social contract theory aru*s muJ abm the averrnenn oilf"" political thinkers'
The social contract theory uaopt, titt *ame
"fnt*ft3;
tft3 oo" Jopt"A Uy the political theories towards
deriving the social responsibilities.of a U*f""i#frt ' ffr..tt"o'-y-at-"u*"1]1I*a:Tciety
that is bereft
of any complex business organization ,r"i
".
,rr. ones we t ur. i'oauy' It will be a 'state of individual pro-
i-".ici: n s+ciciy r;o agtrcl; ic ailciw ,*"f, fr,.'*ii.ru", t, t," fci'nr;rilll'liie "it'',i''i
cl-'llga;ioni; of brisi;-rcss i'r'';iL;"ti:;

40 EUSINESS ETHJCS-AN INDIAI.I PERSPEC IIVE
individual member.s of society are then clrawn from the terms of such an implicit agreernent betvreen the
two. Therefore, the social contract theory is based on an assumed contract betr,veen businesses and mem-
bers of the society who grant them the right to, exist in return for certain specified benefits that would ac-
crue to them. These benefits are a result of the functioning of these businesses, both for their own sake
and for that ofthe larger society.
When members of the sociery give the firms legal recognition, the right to exist, engage them in any eco-
nomic activity and earn profit by using the societyi ,rro*-.", such as land, raw materiltJana skilled labour,
it obviously implies that the fums owe an obiigation to the society. This would imply that business organizations
are expected to crbate wealth by producing goods and servicei generate incomes by providing employment
opportunities, and enhance social welfare. The concept of 'social welfare' implies ttrat iire memiers of the so-
ciety are interested to authorize the establishrqent of a business firm only if they gain some advantage by Coing
so. Such gains occur to them in trvo distinct ways, namely, as corr,rre.s and emlloyees. As conspirr.i111.il
bers of the society benefit from the establishment of business firms at least in tlo"" *oyr, (i) business firms
provide increased economic efficiency. This they do by enhancing the advantages of speciat)att"rr, ifi;iy1n;
decision
f]Yi"q
resources and increasing the capacity to acquire and utilize expensive technology and re-
sources; (ii) business firms offer stable levels ofproduction and channels ofaistiuution; and (iii) business
firmsalsoprovide increased liability resources, which could be used to compensate consumers adversety af-
fected by their products ald services. As employees, people are assured by "business firms of income potential,
diffi'rsed personal legal liability for harmful errors, and income allocation schemes,,.3o , , l
However, business firms do not provide an unmixed blessing. The interests of the public as consumers
can be adversely affected by business firms when they deplete the ireplenishable naturll r"rorrirfpotrui.
the environment and poison water bodies, help to reduci the personal accountability of its members and
misusepolitical power through their money power and acquired clout. Likewise, the interests of the public
as ernployees can be adversely affected by their alienation from the product oftheir o*n tutour, Uy-C.io!
treated as mere cogs in the wheels ofproduction, being made to suffei frorn lack of control over their"work-
ing conditions and being subjected to monotonously boring, sometimes damaging and dehurnanl;td;;;i;-
ing conditions.
Taking into account these respective advantages and disadvantages, business firms are likely to produce
the social welfare element of 'social contract'and enjoin that businiss fums should act in such a manner so
as to
1.benefitconsum€rstoenablethemreachmaximizationoftheirwants;
2' benefit employees to enable them secure high incombs and other i.""n,r that accrue by means of em-
ployment;and
' 3' inzure that pollution is avoided natural resources are not fast depleted and workerslinterests u6 or*l
tected.
*- It-:T,t:
justi;es^.noi1t of view, the social contract theory recognizes rhat members of the society authorize
t1E establishment of business firms on conditior that they agree to function 'within the bounds of general
canons ofjustice" Though what these canons ofjustice mlan-is not yet a settled issue,tirrc i, .'gro""*t rrn-
derstanding that these canons require that business firms "avoid frauiand deception . . . show respect for their
yorkers as-human beings, and . ' . avoid any practice that syslematicutty *rr"n the situation ofa given group
in society'.3r
It can be summarized from the above arguments that the social cqntract theory upholds the view that
manase$-1le-ethicallv obliged,o
"uia"
tff;;hilrffi;#;;;:ina lustice,provisions of the social
contract' If fully understood, these provisions impose significant social responsibilities on the managers of
corporations ---- --.-- v.. w..Y ^'
Criiiclsm of sociat Contract Theory The social contract theory ,,u" *. other normative theories of
business ethics, is subjec! to many criticisms. Critics argue that the so-called 'social contract, is no conhact
at all' Legally speaking, a contract is an liagreement betwien two or more persons which is f.garry
"rro...iiie
provided certain conditions are observed. It normally takes the form of one person's promise to do something
in consideration of the other's agreeing to do or suffei something else in retum"." a.o"t u"i;;lt;;ffi;
of minds, which does not exist itt tn. Jo-ruttrd social conhact. Social contrac, i,
""iri"r
rrffiitL, impricit
contract. Those who enter into a brrsine,ss clo so merell, h:, fcllorving ihe l+.qtl prccecl,ir,:r that a,-e ;rrrcrrai_i.
J
v,
..->
t
v
>--
v
v
v
>/-
Y
i.i
i
L;.,!

PART I, CONCEPTS AND THEORIES OF BUSINESS ETHICS
' -r -: : I serve the interest of the society in ways that are not specified in the law and that it would have a
--: . impact on the profitability of the flrm. Therefore, where there is neither a meeting of the mind nor
'--::,:"rding of the implications of what goes when one gets into a contract, the sociaicontract is more
" - ": :. than a true contract.
: -" .--: lroponents of the social contract theory are not unduly put offby such harsh criticisms. They concur
-: '':3.of the critics that the core theme of the theory namely, social contract is indeed a fictional or
: -::-lil contract and proceeds further to state that this is exactly what is needed to identify managers,
I - : - :-:gations. In the words of Thomas Donaldson "If the contract were something other than a
.fiction,,
- - --: rnadequate for the purpose at hand; namely revealing the normal foundations of productive organ-
' - : -{ccording to social contract theorists, the moral force of the social contract is noi derived from the
" : -: ' : the parties. However, in their view "productive organisations should behave as if they had struck a
' : - :
=
rrnd..of deal that would be acceptable to free, informed parties acting from positions of equal moral
-:rlrlNGS OF THE CHURCH
; -:-:l tbr justice has always been a central theme of the Catholic Church from earliest Biblical times to
: I -; i:ri, The work for justice finds its expression from the Gospels. The opening lines of Gaudi um et spes
'
' ! .: .'nd lhtican Council placed the centrality ofjustice to the Christian calling most vividly in the iol-
- .. -.-l-.
- - 1u5.
: : -
-rUS and hopes, the sorrows and anxieties of the women and men of this age, especially those who
' " - ': :': in any way oppressed, these are the joys and hopes, the sorrows and anxieties of the followers of
- ; ;i.:rression of the Church's social teaching commenced in the late lgth century l89l to be exact, with
' . : - - : : rcal of Pope Leo XIII's on the Condition of tabor (Rerum Novarum). From this modest beginning,
: :eaching has grown rapidly, representing a rising crescendo ofsocial consciousness and concern ir
' : - 1-:ri, The social teaching of the Church, based on Christian ethics, comprises sets of principles, guide-
- :: ::1d applications which provide a compelling challenge for individuals as well as corpoiatiorr. in ,J.por-
- . -':iizenship.
-'s pointed out, the Church always supports and promotes the welfare of the poor. The Church's concern
-:::';narginalized'isalwaysexpressedthroughherteachings.Thelessprivilegedandthemarginalizedrealize
-
' :';l that the wealth of the world is in the hands of a few. This .-".girg awareness of the mass is supported
- --': Church. People often think how business and ethical teachings of the Church can be related. reople al-
' ' :ied to see business without any reference to religion. But now the trend has changed and organizariLrns
-
- : .:stirutions relate,business with religion and ethics.
- :rs t&sition is due to the increased importance of ethics in business. The pressine concerns oi rhe st ciei
-:: :3flected in the teachings of the Church. 'Option for the poor' is the catchg'ord of rhe Church's reachinss.
-- - Church's concerns and ethical teachings are found in several papai encl'clicals. In rhe modern orsanizarron.
-:.J ethics is a key criterion for success.
i=r.tv NovRputvt
::';etheiate19thcentury,theredevelopedastrongtraditionofreflectivethoughtoneconomicissueswithin
'-. Catholic Church. This concern on economic issues started effectively in May l89l with the publication
: Rerum Novarum, an encyclical of Pope Leo XIII. The central theme of the letter was the relationship be-
' :en the State, employers and the workers. It strongly laid the foundation for human dignity. It was a rev-
. .:tronary work, because the Church could change the misconception that she support=s the rich and the
- .r crful of the society.
This encyclical directs the State and organizations to perform their duties to the working class. When
:.':r rs deprived of dignity and equality, he will indulge in unethical practices. There should be mutual support
-: the society as well as in organizations. This mutual support will help him perform his best for produciivity
.:d profit. "The consciousness of his own weakness urges man to call in aid from without. We read in the
: lges of the Holy Writ: it is better that two should be together than one; for they have the advantage of their
:ociety. If one falls, he shall be supported by the other. Woe to him that is alone, for when . . . It is natural
:npulse which binds men together in civil society; and it is likewise this which leads them to join together
41

ln associations which are' it is true, lesser and not independent societies, but nevertheless, real societies.
,Yfflr*:#te,and
or*anisations pa;;,h.; d*tv, th;;;;;il;il" corruption or unethical behaviour
GRuorurv Er Spes
i-IICS-AN INDIAN PERSPECTIVE
f;;::ffi,?,#::r:"T:##flHnl*:i""^1*,"lJTf1re1sea. auring the second vatican councl in
SflkTlHIH-,T?T::3'f }trl:ffi ;;#:.'#ffi .'#:::,*H&:"Tiffi :3J:l
h'ff ',filil.,;lTf*3Tt*f ::{;,;,i#ffi Jf#.".ffi ;#HH:H::l,1:"trffffi:';T*::}HT
il#il$j:ii:1115:i;H:T::1,:"**:{d,ffi i;'#fl:,i::::,1',i[''lT:,ffffi 3i,l,I"..iil,nx
ljqii:::.lf,r:r,n'ti:IflJl[?.#":**,ffi."*r:::11,'L'il:T#l,|iff.Tl;1trl;nru',';::'
as they have emerged.
;::nT"##:il#;crrurcrrnusa'u'iop';ild':#3ffi1Ti,H1',il:.'"T."i*Hfi?ll3i;l*
#.H;'}J*m fi:";i:1J",l:;L:f,:::,:r?::i:fi:y;l:lTo,*o rapid changes are spreading
:n[::':;.ffi il: jT,#:l:Ifr y*::i*:?j'.,; ;#j:H1T:;;t:'*tfl:$Jil:?ffi :
#-"': # f* J,l"::* :e " hi, il;ffi ;;# * -#.,i,
"ff
ifi ,TffilTl,
ffi Hi#i#f :f #i;11tf ,f* j:',"i{:t*r$!rf"fijX'fl:i*J:lf :i*#i,:Hl]T
speak of a
ffiTffi lffi Iiff fiiffi #T:*i::{xlffi ;#;JJ'liJ;ff T"J";ruff :'#',',"*,:T
changeinattitudesandinhumanil;**H|"*o[;Tff
:?'#ii.T#::1,11,"-i:H:i
question."36
4;":
Tue Tnnomoru or Cnrsorrc Socru Tnoueur
The papal encyclicals and pastoral letters that form the foundation of catholic Social Thought (csr) are moral
documents that reflect tht ton'"tns ;f ;;;h*.h for the rir".
"i.]Iions of human beings'as the result of
the working of the economies' From rr," b"9;,,9, th. fo.us oia;i;r, been on the probrJm ofpoverty and
the marginalization of the ait"auurlug.a, i?ri i" ,r," ira"rriurlIi."**r"s and then in the Third worrd. In
the past three decades- or so' there rraJhln a growirg .or".- ulouiioo--urh consumption by the rich and
inadequate consumotion uv ,rr. p"".;;;;;r."., was expressed by the pope paur vr r, ii, encycricar,
Popularum Progresiiothus: 'the ;r;;;;;;, ;.rr,r, or.i"i'"I*JJ.-rt oura be placed utii. ,".ui.. of poor
nations ' ' ' otherwise thtir.onri"u'"J giJJi *il ..rruirrv ;i;;;;, them the judgment of God and the
wrath of the poor'" Aaother aspect ,irir. Crrrrrtt .,grr*ri i. il**, of excessive consumption of the
earth's environment' rop" rohn P,riilillrir encycricar c"rt"rliri Annusexpressed this concern thus:
"Equally worrying is the ecologit'r q*rii"r,'lld y"-oi#r r,";."brem of consumerism and which is
closelv connected to it' In his (oid;il;.?t u* ura to
"r1ioy.u-d;;an
to be and to grow, man (or woman)
consumes the resources of the earth and his-1or her) own ridi" ,-"-.essive and ai.r-*,"i ,"v ,,
(p*a 37).
Earlier he has noted: ..rt
is not ;;;;;;;;;,ll ,*. 6.n"r, *ir; i;^;;; is a style of rife whici is presumed
;: i: #.'J;ll:l :.:.X,::."a,"]'i,.14
:r,""i,eila*,e.
trran ;0"G,,
",i *l,ich wants to have more, not in order
rhus, ,r,. csr..ii+H!:lli'[#;fl:lT, #f,;j,l:Xf;,,*:X,.,#;;;. _,,eria,istic.
minded consumerism should ur rrlrrii.,"a #ri,"
"r."i#;;;;;r.ane.future throug,-empowering
people to rebuird rhe i'arues ,ra irJiriJ"ri li...rru., to morary consrrain serf inreresr.3T
INDIAN ETHICAL TRADITIONS
:Ll'tffiff}#flT]:[11':T,il1""1,:il';::i:j::* :1:t,::".:
orlhe rand,ike the Gita,the t]panishads
Ilf H,T:31l;l*1:i::::,:Hn*i::o*;;rl,;'iffi:rlil:i:i,H,'ffi
;,,T;;,i:T",lll,"#"."ifli:1.,:.-,;d;;i;;_T'l#.,ffi1ffi ili;fflf.l;.,,ffi:,ff:i##:T::ll:
and rollowed bv western countries in their;.ii #"'#"f,ilU[T;:1'ii:1Tr:T]" traditions are copied
GnruoHAN pnnrclplEs
The Gandhian principle of trusteeship
in the presen t day world of decaying
is another philosophy on
morals and lack of trust
ethics that has received increased importance
among individuals as weil as orgarrirutio-nrl

PART I CONCEPTS AND THEORIES OF BUSINESS ETH'CS
- -: :hilosophy of trusteeship implies that an industrialist or businessman should consider himself to be a
*-,:ee of the wealth he possesses. He should think that he is only a custodian of his wealth meant to be
" .: for the purpose ofbusiness. The wealth belongs to society and should be used for the greatest good
, . The trusteiship concept should also be extended to the labour in industry. It does not recognize capital
. -
- .ssets as individual property. This was basically to reduce the conflict between 'haves' and 'have nots''
- .
. -.rigin of the trusteeship principle can be traced to the concept of non-possession detaile din Bhagawad
.: Gindhiji also advocaG d Sariodaya,meaning welfare for all. He was of the firm view that capital and
, - r :Lrr shoulb supplement each other. There should be a family atmosphere and harmony in work place'
--lhi,s philosophy of trusteeship has got more relevance in the present scenario' In the recent past, social
;ment by business has, for the most part, taken the shape of philanthropy and public charity. This has
: - :he building of temples, hospitals and educational institutions. A few examples of such activities
- : :::clude the Birla Temple in Kolkata, the Shree Vivekananda Research and Training Institute set up
i ::- Industries in Mandii which is very much in the spirit of trusteeship; the L&T Welfare Centre in
: - : :-.. the Tata Institute of Fundamental Research, and the Voltas Lifeline Express that has been running
' - :.:n tracks for over a decade'
I ;--=cusNtss AS THE Wnv lN THE GIA
- "
= 3:agawad Gita citesnumerous instances of how moral values and ethics can be incorporated in one's
-, -rt-e. Many of its verses are directly significant for the modern manager who may be confused about his
' - .: Jirection, and struggling to find an answer to ethical dilemmas. The Lord reiterates that work or karma
-
= Jni'ing force of life, and this work has to be ethical'
--...p,.. [, Verse 47 says
;'You have a right to perform your prescribed duty, but you are not entitled to
' : ::irts ofaction. Never consider yourselfthe cause ofthe results ofyour activities and never be attached
-:: doing your duty,'.38 This is the important message of Gitathat the performer_of the action has only
. .,ibr* the pr.r.ribed duty and not i;dulge in the result of the action. If the worker leaves the result of
- . ,,,,:,rk to thtlor4 on the rlalization that the result is beyond his control, then he can be serene forever,
- : - :.ise he is not worried of the result whether it is good or bad. This teaching of the Gita draws one's at-
. -: -r: to Nishkama Karma.
-r the organizational context too when one is only worried of the result, he or she is likely to fall into im-
: : - ::r activities. On the other hand, if one is ready to do his or her duty to the maximum of one's ability and
-: : io set aside the result, he or she will be an ethical person in the organization.
Chapter II, Verse 56 says "One who is not disturbed in mind admits the threefold misery or elated when
- .:: is happiness and wfro ls free from attachment, fears and anger, is called a sage of steady mind'"3e
f steady mind, another mental state, is desirable in one's work life, to retain one's integrity in the
:i on@oes. A steady mind gives you the right attitude and right direction. Detachment is that quality
::;h enables the individual not to accept anything for personal gratification. In the organizational con-
-:',.:. this quality is very much valued. Personal desires and conflicting interests end up in unethical prac-
' ::i.
Lord Krishna,s promise, in the seventh and eighth verse of Chapter IV of the Gita is that, whenever evil
:: llrnates, the Lord takes an avatar to set right the situation and re-establish the Dharma.ao Translated, these
::ses mean as follows:
"Yada yada hi dhatmasya glanir bhavati bharata
abhyuthanam adharmary tatamanam xuj amy ah'arfl
',
henever and wherever there is decline of Dharma and ascendance ofAdharm a,then,O scion of the Bharata
::;el I manifest (incarnate) Myself in abody'a2
For the protection of the good for the destruction of the wicke4 and for the establishment of Dharm a, I am
rorn from age to age.aa

,44 BUSINESS ETHICS-AN INDIAN PERSPECTIVE
Busuess nruo lstRtvt
' For Islam, all principles covering business emanate from the Holy Quran, as they are explained and ampli-
fied in the Hadith (collection of the Prophet's sayings). In Islam, there is an explicit edict against the ex-
ploitation of people in need through lending them money at interest and doing business through false
advertising.
Mohammed, the last Prophet and Messenger, was very much involved in business before he was chosen
by God. He was involved in trade from his early age and had widely travelled and had rich experience in
business.
The Prophet laid stress on honesty and truthfulness in business. He said "God shows mercy to a person
who is kind when he sells, when he buys and when he makes a claim".as His teachings cover a wide range of
business and economics. Dr. Muzammil H. Siddiqia6 in his article 'Business Ethics in Islam'enumerates the
following major business principles drawn from the teachings of Prophet Mohammed.
1. No fraud or deceit: The Prophet said, "When a sale is held, say-there's no cheating." (Al-Buktari,
te74)
No excessive oaths in a sale: The seller must avoid excessive oaths in selling an article: The Prophet
ordained: "Be careful of excessive oaths in a sale. Though it finds markets, it reduces abundance."
(Muslim,30l5)
Need for mutual consent: Mutual consent is necessary: "The sale is complete when the two part with
mutual consent." (Al-Bukhari, 1970)
Be strict in regard to weights and measures. "When people cheat in weight and measures, their pro-
vision is cut off from them." (Al-Muwatt, 780) He told the owners of measures and weights: you
have been entrusted with affairs over which some nations before you were destroyed." (Al-Trimidhi,
r 138)
5. The Prophet was very much against monopoly: "Whoever monopolises, he is a sinner." (Abu Da'ud,
2990)
Free enterprise: According to the Prophet, the price of the commodities should not be fixed unless there
is a situation of crisis or exffeme necessity.
Hoarding is forbidden: Hoarding the commodities in order to increase their prices is forbidden.
Forbidden transactions: Transaction ofthings that are for,bidden is also forbidden, such as intoxicants.
The Prophet Mohammed ordained that businesses should promote ethical and moral behaviour and should
follow honesty, truthfulness and fulfilment of trusts and commitments, while eliminating fraud cheating and
cut-throat competition.
SrnnnH AND INTEREST oN CAPITAL
Shariahbansthe taking of interest, because according to this law, investors can make profits only from busi-
ness based on exchange of assets and not on money. As per the law, bankers sell suftuk or Islamic bonds
only by the use of property and other assets so as to generate income which would be equal to the interest
they would be paying on conventional debt. As per the shaiah, the money thus gained cannot be used to fi-
nance gambling, guns or alcohol. Such assets managed under Islamic rules will be S2.8 trillion by 2015,
according to the Islamic Financial Services Board, an association of Central Banks based in Kuala Lumpur,
Malaysia. According to Zafar Sareshwala, Managing Director of Parsoli Investments: "lt is the religious
requirement of a Muslim to be invested; rather it is unislamic to hold money. Interest is forbidden, but shar-
ing risk and responsibility, that is, sharing profit and loss is acceptable. Equity ini esting is n'holly acceptable
under Shariah as long as it is in companies compliant with the Shariah rules".-'This implies that Muslim
investors invest only in a portfolio of 'clean stocks'. They do not invest it stt css t'f companies dealing in
alcohol, conventional financial services (banking and insurance), entertainm;nl cinemas and hotels), to-
bacco, pork meat, defence and weapons. Sectors such as computer softrilr:. jrugs and pharmaceuticals
and automobile ancillaries are all Shariahcompliant. Currently, there are :r,-1:3 lhan 800 Shariahcompliant
stocks on the exchanges.
2.
3.
4.
6.
7.
8.
.I{;1.

)-a
PAI?I i, CC|'JCEPIS AIJD IHICRIIS OF BUSIJESS EIHICS
'Etkics' and 'morality'though used interchangeably are two different concepts. ,Llorality,
according
to philosophers refers to h,man conduct anJvar,es
^rd'.;i;;;l;ii, *ua, of a set of principres
that defiae human character or behaviour in relation to ,urr* i, *ororry risht or rnomlly wrong. The
principles do not lead.to a single course oiaction but provide ,;;;;, of eral'ating and deciding
among competing options. . :
45
v.r6 vLrrrrPsuIIB upuons
Ethics is considered a normative study, that is, an investigation t;
conclusions. Ethics, in u,rtin.rr;.;;;i ro humdn condu* in a busi
nrio..;^ L,,^:---- ! i r .t
H:ilflj,ut,"i :i1T:131 ff:1:: :lllltyl, 3i+.*,,,* iilififfi # ;,ffi}ffi li.;:l.ii_l ,
",,,,'
moral
|-.
tl '' j
"""|lltlt-':
t"T:1t1:{" ngrmativy studv. that p, an investigarion rhat atremprs to rrurr., nl#;i";-, - ,' ,':
inabusines.qoro2ni.zctia,il;.'..:...l.+i^.

,tJ-
*
46 PIiSINESSI:i!ICS-A}JiI{DiANIPEI?SP!CII/E
Egosim . Utilitarianism ' Prima facie principles o
PJychotogical egoism ' Kantia". Philosophy
o
Stoch{rolder versus stakeholder r Social contract o
io.irrrrelfare o canons of justice n Explicit contract
. Implicit eontract r Encyclicals o Pa.storal letters '
Pastoral documentation o Trusteeship principles o
Sawodayat Righteousness o Steady rnind'.,,,,,
t,
DISCUSSION SUESTIONS
l. Many social thinkers are of the opinion that morality and ethics are- built on the foundation of itligion' Do
you subscribe to the view? Subsiantiate your answer'
2. Out of the three *r:"r-r*i-ti* iireori", ttatti;la*, stal:eholder and social contract)' whici one' in
your perception ua.qi,"ttiy t*pfuins tf'" tasis for business ethics?
3 . An itleal normative theory of business ethics ,h*H ;rp"* the ethical obligations arising out of business
agreements. In your perception, which norm,'i* *i,"ty it u9eful for constructing satisfactory procegdings
iriJrr* t*""r otiigati;ns of business? ':
4. Business ethics is basically a western concept wogl{ voy agree? Substantiate your answer'
5. A1l major religions of the worrdprovide a moj turir i* ttr.iifo,owers to carry on their business ethically'
-
;; ila e"i ni ut. *1y, provide arguments to prove your point'
:,
NOTES
l. Manuel G. Yelasquez, BusinessEthics: con,cep* and cases,6th ed' @glhi: Pearson Educ alton'2007)'p'22'
2.R.VBadiandN.VBadi;Busirressrmics1oelhi:VrindaPublications,2005).
?. 7 he Ameican Herita;c Dictionary, I st ed. (NewYork: American Heiitage Publishing CgmplnV' 1969)' Cited
inciples of Ethics: An Introduction,Encino, cA: Dickenson Publish:trg company' I 975)'
in Paulw'Tayloq Pr
EthicalDecisionMaking andcases'
4.o..C'Ferrel,JohnPau1Fraedrich,andLindaFerrel,BusinessEthics:
6th ed. (New Delhi: Bizantra, 2005)'
, *iu"", H. Shaq Busrness Etltics, thed. (singapore: ThomsonAVadsworth, 2002),
6. Ibid., P. 9.
'7
, Ibid., P. 11-
8. Poonanr Sharma and Kanika T''Bhal'
5:r5i,: Fiiti: i::i Li :i ;is, 2'i)i+)
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KEY}VORDS
Ethikos c lVloral values o Science of morals r Social
conduct r Ordinary parlance ' Il{orms of behaviour
o Nloral standards . Immortal c Epitomized o
Teiminal diseases c Christian Yirtye of love I Ten
commandments o old Testament. Religrous philos-
ophy.Common.Law.ConstitutionalLaw.
Conscientious effort . hlormative perspectives r
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