1. Principles of Business Ethics.pptx

1
PRINCIPLES OF BUSINESS ETHICS
CHAPTER 1
IPCC PRINCIPLES OF BUSINESS ETHICS

1.ETHICS - Greek word “Ethos”
Ethos are value concepts
Which guide us to say
What is Right and Wrong
What is good and bad
What is proper and improper
2. Ethics are applicable to all sections of the society.
3. Business too has ethics
IPCC
2

What do you mean by the term 'Ethics' ?
The term 'ethics' is derived from the Greek word 'ethos' which means
character. Ethics are the principles of conduct governing an individual
or a group. It is concerned with norms for conduct of people as
members of society as it relates to what is good or bad, and having to
do with moral duties and obligations.
Definition :
defined ethics as
“the application of moral values or codes to complex problems using a
rational decision making process”.
The outcome of this process is usually a behaviour or set of behaviors.
3

What is 'Business Ethics' ?
Definition :
“Business Ethics is the study of what constitutes right and
wrong or good and bad human conduct in business context”.
Thus, business ethics deals with morality in business
environment.
It involves moral judgement based on understanding of the
society.
It extends beyond the legal questions and involves goodness
and badness of an act.
4

1. Business ethics refers to the application of everyday moral or ethical
norms to business. It requires an awareness of how the products
and services of an organisation and the actions of its employees, can
affect its stakeholders and society as a whole, either positively or
negatively.
2. Ethics in business organisation relates to a corporate culture, values,
leadership, programs and enforcement.
3. It is that set of principles or reasons which governs the conduct of
business - at the individual or collective level by the application of
ethical reasoning to specific business situations and activities.
4. Business Ethics deal with the morality for conducting business
activities.
5.5 It is the behaviour of businessmen in business situations.

What is the difference between ethics and morals ?
Basis of
difference
Ethics Morals
Meaning
Ethics relates to what is
good or bad, moral duties
and obligation.
Moral relates to principles of
right and wrong.
Origin
Greek word “Ethos” means
character.
Latin word “MO” means
customs.
Group/
Personal
Character
attribute.
is a personal Custom is an attribute of a
group or society.
6

Scope
Ethics is much wider in scope. It
examines the moral standards of a
group or society to determine
whether these standards are
reasonable or unreasonable in
situations.
Morals have smaller scope than
ethics. It addresses, human needs
for belonging and emulation.
Expression
Ethical norms are comparatively
abstract. It cannot be described in
general rules and statements.
Moral norms are usually
expressed as general rules and
statements, e.g. " always tell the
truth"
Absorption
Ethics are adopted or absorbed by
an individual gradually by taking
reasonable decisions in
appropriate situations.
Morals are typically adopted or
Absorbed since childhood from
family, friends, school, religious,
leaders and so on.
IPCC
7

Functional Area of
Business
Ethical Practice.
1.Plant location No adverse impact on local community
2.Production Control of Pollution
3.Purchase No hoarding of raw material
4.storage No hoarding of finished goods
5.Marketing Fair treatment to customers
6.Advertising Truthful and realistic claims
7.Administration Concern for social values
8.Finance Protection and appreciation of Capital
10.Personnel Just and equitable treatment to
employees.
In what way Ethical Practices relate to functional area of Business ?
8

Explain the social sins listed by Mahatma Gandhi. (Nov. 10)
1. Politics without Principles
2. Wealth without work
3. Commerce without morality
4. Knowledge without character
5. Pleasure without Conscience
6. Science without humanity
7. Worship without sacrifice
Non-Violence, Justice
& Harmony among
people of all faiths
9

What are the benefits of Business ethics ?
The advantages or benefits of Business Ethics are as follows :-
1. Improvement of society : Focus on Business Ethics has substantially
improved society.
2. Ethical Practices: Exploitation of workers and children, monopolistic
price fixing and profiteering, harassment of employees at workplace
etc. cannot be practiced by business enterprises now.
3. Maintaining moral course in turbulent times: Business Ethics is
helpful during times of fundamental change, when there is often no
clear moral compass to guide leaders through complex conflicts
about what is right or wrong.
10

4. Strong teamwork and productivity : Employees feel strong
alignment between their values and those of the organization, as
well as motivation and performance of employees are also
improved.
5. Employee growth : Focus on ethics in the workplace helps
employees face reality, both good and bad, in the organization.
6. Ensure that policies are legal : Attention to ethics ensures highly
ethical policies and procedures in the workplace. For example, in
matters of hiring, evaluating, disciplining, firing, etc.
IPCC
11

7. Compliance with law : Ethical programs helps to avoid criminal acts"
of omission" and reduce fines,
8. Total Quality Management (TQM) : Ethical programs helps in
identifying preferred values and ensuring that organizational
behaviours are aligned with those values for TQM purposes.
9. Diversity Management : Ethics management programs are useful in
managing diversity.
10. Strengthens the organization :
i. Managing ethical values legitimizes managerial actions
ii. Strengthens balance of the organization's culture
iii. Improves trust in relationship between individuals and groups
iv. Supports greater consistency in standards.
12

13
State the ancestry of ethical standards. (RTP - May 12)
1. The Utilitarian Approach - (Increase Good done &
Reduce Harm done)
2. The Rights Approach - (Choose freely your life and
decide what you want to do
with your life)
3. The Fairness/ Justice Approach - (Equals to be treated equally.)
4. Common Good Approach - (Respect & Compassion for
common good.)
5. Virtue Approach - (Our habits that enable us to
take ethical actions. Truth/
Compassion/ Love/ Self
Control/ Integrity/ Honesty etc.)

What is meant by the term 'Stakeholders'?
Management is not accountable solely to Investors (shareholders) but
also to other interest groups or constituents who are affected by
corporate activity. The term "Stakeholders" describes such constituents
of an organisation - the individuals, groups or other organization which
are affected by, or can affect the organization in pursuit of its goals.
Stakeholders of a company constitutes:-
1. Employees
2. Trade Unions
3. Suppliers
4. Government
5. Competitors
6. Customers
7. Shareholders and investors
8. Local Communities.
14

15
Write a note on Stakeholders.
Internal Stakeholders External Stakeholders
Shareholders
Employees
Management
Trade Union
Consumers
Suppliers
Creditors
Competitors
Local Community
Government
(Constituents of an organisations - The individuals, groups or other
organisations which are affected by, or can affect the organisation in
achieving its goals. )
Stakeholders

Business issues are straight forward and hence easy to resolve.
But ethical issues bring a number of alternatives to choose from.
So, one is confused – This is called ethical dilemma.
We are not caught in a conflict between right and wrong,but
16 between right and right.
ETHICAL DILEMMA

1. Analyse all the alternatives
2. Make choice between personal values and goals organizational
values and success
3. Define the problem clearly
4. Stand on the other side and see the problem
5. How did the situation arise ?
How to handle ethical dilemmas ?
IPCC
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6. What is the intention of the solutions ?
7. Can your decision injure anyone ?
8. Can you discuss the problem with the affected persons ?
9. Can you be confident that your position will be valid for a long
period, as it seems now ?
10. Can you disclose your decision to your boss, CEO, Family
members, Board Of Directors and Society ?
IPCC
18

Introduction
 Managers / Owners have realized that profits should be
19 made by conducting business honestly, legally and morally.
IPCC Corporate Governance and Corporate Social responsibilities (CG & CSR)

20
CORPORATE
GOVERNANCE
Definition
“Corporate Governance is about promoting corporate
fairness, transparency and accountability.”
Scope
1.Accountability to stakeholders / employees / unions /
govt. /sh.holder / suppliers / competitor /community
2.Power to the management
3.Control over the above powers.
Definition
Formal system of Accountability and control for Ethical
and socially responsible organizational decisions and
use of resources.

What is the characteristics of good Corporate Governance?
Good Corporate Governance is a system of
formal
accountability, decision-making and control of ethical and socially
responsible organisational decisions and use of resources. Good
corporate governance has some major characteristics. They are as
follows :
1. Participatory
2. Consensus oriented
3. Accountable
4. Transparent
5. Responsive
6. Equitable & inclusive
7. Efficient and effective, and
8. Follows the rule of law.
21

Role played by different committees in regulating Corporate
Governance.
1. Board of Directors
2. Audit Committee
3. Compensation Committee
4. Nomination Committee
5. Investor Services Committee
6. Corporate Management Committee
7. Divisional Management Committee
22

CSR
CORPORATE – SOCIAL RESPONSIBILITY
23

Introduction
Business is a part of the society.
Business needs support of society.
Healthy business cannot exist in a sick society.
1. Definition of H.R. Bowen
2.Business must take care of the quality of life of
society.
3. Protect environment and human rights.
IPCC
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Corporate Governance and Corporate Social responsibilities (CG & CSR)

2.
“CSR is achieving commercial successes in ways that
honor ethical values and respect people, communities,
and the natural environment”
What is corporate social responsibility? (RTP May 11)
Definition of H.R. Bowen
1.
“The obligation of business to pursue those policies, to
make those decisions or to follow those lines of actions
which are desirable in terms of the objectives and
values of our society”
25

Need for CSR
1. Iron Law of Responsibility
Society gives charter to business
This charter can be revoked or amended if business
fails to respond.
2. Business can use its skills to develop society.
3. Wealth creation for society.
4. Effective use of resources and power
5. Long term benefits.
6. Better public image.
7. Avoid government intervention
8. Minimize environmental damage
26 9. Avoid misuse of power.

27
Benefits for CSR
1. Improve financial performance
2. Reduce operating cost
Recycling, waste water use, flexi time
3. Increased sales (use of environment friendly, equipments, No
child labour etc.
4. Brand image
5. Productivity and quality(better working conditions reduced
defective role.
6. Attract and retain employees
7. Reduce govt. intervention
8. Access to capital market
9. Preference for awarding govt. contracts (UID – Infosys)

28
STRATEGIES USED BY COMPANIES FOR IMPLEMENTS CSR
SEVERAL COMPANIES ADOPT DIFFERENT MECHANISM FOR
HANDLING CSR ISSUES

Some of the strategies that companies use for implementing
CSR policies are
1. Mission / Vision statements
E.g. Tata steel, ITC, etc.
2. Cultural values
3. Management structure (A shown above)
4. CSR Planning to identify area
5. Employee recognition
6. Communication
7. Education & training
8. CSR Reporting (in Annual Report)
9. Use of influence (Some model companies can influence
29 others in the locally)

IPCC WORK PLACE ETHICS
Work Place Ethics
“How one applies values to work that is a set of Right
and wrong actions at the work place”
It covers issues relating to :
Or List the commonly recognized Employment Discrimination
practices. (May 11)
1. Recruitment and selection
2. Promotion
3. Conditions of Employment
4. Wage payment
5. Transfer etc. of the Human Resources of an organisation.
316.Dismissals

What points/ factors are to be considered for creative a sound ethical
environment in a company? (RTP - Nov. 10)
1. Ensuring that employees are aware of their legal and ethical
responsibilities.
(Trade and motivate employees in ethics programme. Eg. Wipro
ltd.)
2. Providing a communication system between the management and
the employees.
(Report about fraud without any fear of being reprimanded)
3. Ensuring fair treatment to those who act as whistle blowers. (RTP -
May 11)
(Appreciate whistle blowers. Enron Ltd.)
32

Importance of Work Place Ethics :
1. No man or woman should be exploited in his / her work, or
alienated through his / her work.
2. Therefore, employer / organization must take steps to
create a work. Environment where employers have a clear
understanding of what is right and wrong.
3. Employers should feel free to discuss ethical
issues.
4. Employees should feel to report violation of ethical
standards.
33

Else, What Happens?
1. Employees perform unethical activities.
2. Report violations to outsiders.
3. Lack of trust in infernal forum.
4. Inability to retain good people.
5. Loss of competitive advantage in the market.
6. Loss of Reputation.
7. More legal battles in the court of law
IPCC
34
WORK PLACE ETHICS

35
Bring out some examples of ethical issues faced by the
individual in the workplace. (RTP Nov. 10, ICAI Nov. 10)
Vis-à-vis Suppliers
and Business
Partners
Vis-à-vis
Customers
Vis-à-vis
Employees
Vis-à-vis
resource
Management
Bribery and immoral
entertainment
Unfair pricing
Discrimination in
hiring and treatment
of employees
Misuse of
companyfunds
Discrimination
between suppliers
Cheating Customers
Harassment in
workplace
Tax evasion
Dishonesty in
making and keeping
contracts
Deceitful
Advertising
vis-à-vis resource
Management
Research
Confidentially

Factors Influencing
Ethical Behaviour
Individual Colleagues Corporate Culture
1.The Individual employees
beliefs & values will decide
his behaviour.
2. Every employee is everyday
has choices before his role.
3. Sometimes values are
compromised in the process
1. Boss
2. Press
3. Subordinates
set examples for ethical
conduct
1. Company’s Policies
and codes.
2. Companies culture
Provides directors
3.E.g. The best
employee finds his
boss using Company
telephone for
personal calls.
of making quick decisions to
achieve targets
4. E.g. gift from supplier
report or fudging of A/c?
53.6Need for self Actualisation

FORMS OF DISCRIMINATION
1. Sexual Discrimination
2. Sexual Harassment
3. Religions Discrimination
37

FORMS OF DISCRIMINATION
4. Age Discrimination
5. Nationality Discrimination
6. Handicapped Discrimination
38

39
HARASSMENT
“Intimidating & Tormenting an Individual through
constant interference”
SEXUAL HARASSMENT
1. Improper sexual conduct at work place
2. Includes :
Lewd Comments
Touching
Comments
Persistent Attention
Requests for sexual favors

3. Man – Woman / Boss – Subordinate
4. Deprives Women of opportunities
5. Hurts sensitively and honor of women
6. Degradation of moral values
7. Legal costs to the firm
8. Productivity declines
40

HOW TO PREVENT SEXUAL HARASSMENT OF WOMEN?
1. Prepare Sexual Harassment policy
2. Declare strict actions
3. Educate and warn all employees
4. Adopt procedure to handle
5. Assurance of Confidentiality - of the victim
6. Assurance of non – retaliation
7. Take disciplinary action
8. Pay compensation to victim
41

GUIDELINES FOR MANAGING ETHICS ATWORK PLACE
1. Prepare code of conduct
2. Ombudsman
3. Leadership Example
4. Open Communication
5. Ethical Culture
6. Group Decision Making
7. Cross Functional Teams
8. Anonymous Suggestion
9. Grievance Procedure
42 10. Review & Revision

1. Environmental Ethics deal with the “Rights &
wrongs” with regard to the conduct of business
vis-à-vis its impact of environment.
2. Industrial & Technological developments have
brought material prosperity.
also equally brought threats the
3. They have
environment.
IPCC
44
ENVIRONMENT & ETHICS

(RTP - Nov. 10)
Explain the concept of Sustainable Development.
OR
There is no economic growth without ecological costs. Explain.
(RTP - May 11, May 12)
1. High economic growth means higher rate of extraction and
utilisation of resources.
2. Sustainable development is to meet the needs of future
generations.
3. Therefore, satisfy present requirements without affecting future
generations
4. Economic growth should be environmentally sustainable
5. Efforts are to be made for resource regeneration.
IPCC ENVIRONMENT & ETHICS
45

Sustainable Development (SD)
1. Simple meaning of SD – maintaining development for a
period over time
2. But a widely cited definition is Development that meets
the needs of the present without compromising the
needs of the future generations.
3. Economic growth has to be environmentally sustainable.
4. Hence need for resource regeneration.
5. Adopt positive approach to environment
46

Pollution & Resource depletion
1. Air pollution
2. Global Warming
3. Ozone depletion
4. Acid rain
5. Water pollution
6. Land pollution
7. Nuclear pollution
8. Soil pollution
IPCC
47
ENVIRONMENT & ETHICS

GREETING AND GREEN INITIATIVE
When any company adopts anti pollution environment policy, it is said to be
“going green”
Why go green ?
Reduced wastage
So reduced handling
expenses
Avoid fines
Competitive
Advantage
Public
image
Economic
Benefits
1.Efficient products
2.Better / cleaner
technology
3.Waste reduction
Better image
Employees feel proud
Investors are happy
Consumers are
delighted
Examples [Recycling – Carbon reduction – CFC free – CFC Bulbs – Save Power –
BEE star works for electrical units – paper glass –
p48aperless offices – ITC Hotels recycling of used water – 5/7 Star
hotel change of bed cover etc.]

GREEN ACCOUNTING
1.
2.
3. process for
Conventional accounting leads to policy decision which are now
sustainable for the country.
Green Accounting focuses on such deficiencies.
The environmental costs must be properly reflected in the
goods and services.
4.
5.
6.
7.
8.
499.
Costs will increase, but consumer is willing to adjust according to the
market environment.
This helps to reduce damage to environment.
The prices charged will influence consumer behaviour to avoid
exploitation of resources.
Over utilization of resources will come down.
Adopt rule “Polluter Pay Principle” – “PPP”
Remove subsidies adopt rule “PPP”

0
“Polluter Pay Principle”
5

IPCC ETHICS IN MARKETING & CONSUMERPROTECTION
51

52
Q. Explain the relationship between ethics
and marketing
OR
Short Note on Ethical dilemma in marketing
1. Marketing objectives
P
P
P
P
4 PS
2. Ethics Right or wrong
Good or bad
3. Dilemma
a. Class of objectives
b. One cannot be at the cost of another
c. Need to balance

NEED FOR ETHICAL BEHAVIOUR IN MARKETING
OR
WHY ETHICS ARE NEEDED IN MARKETING ?
1.
2.
3.
4.
5.
53
To restore / reverse declining public confidence in marketing
Toreduce govt. control on marketing
Toregain the power granted by the society
(Ratan Tata / Anand Mahindra / A.M. Naik / Mukesh
Ambani / Kumar Birla / R.K. Bajaj / etc. have great deal of
social power and speak out on economic issues)
Toprotect image of the organization.
Touphold the well-being of the consumer and society.

COMPETITION ACT, 2002
1. Earlier MRTP Act, 1969
2. Competition Act, 2002
3. Similar laws in all countries.
4. Whole of India except Jammu and Kashmir.
5. Objectives
a.Toestablish C.C.I. (Completion Commission of India)
b. Toprevent adverse impact of competition
c. Topromote healthy competition
d. Toprotect consumer
e. Toensure freedom of trade
6. Prohibit anticompetitive agreements like Tie-up sales, cartels,
Resale price, manmade
547.Regulate – mergers, takeovers, etc.

55
What are the Parameters/ Provisions of Competition law/
Competition Act 2002? (RTP - May 11, ICAI - Nov. 11)
1. Prohibition of certain agreements.
2. Abuse of dominant position.
3. Regulation of combinations.

IPCC ETHICS IN MARKETING & CONSUMER PROTECTION
Explain the eight consumer Rights and Themes. (RTP - May. 12)
OR
State the objectives of the Consumer Protection Council in India.
(Nov. 10)
1. Right to basic needs
2. Right to safety
3. Right to choose
4. Right to redress
5. Right to information
6. Right to consumer education
7. Right to representation
85.6Right to healthy environment

57
Explain the consumer protection councils in India. (RTP - Nov. 11)
1. The Central Consumer Protection Councils.
2. The State Consumer Protection Councils.
3. The District Consumer Protection Councils.

58
Particulars Consumer Interest Public Interest
1. Meaning
Area which benefit the
“Consumer” as a whole,
constitute Consumer Interest.
Area in which the society as a
whole has some interest is called
Public Interest.
2. Interested Class
Consumer is a member of a broad
class of people who purchase,
use, maintain and dispose of
products and services.
Society refers to the collection of
sub-systems, e.g. consumers,
manufacturers, distributors,
input suppliers, service
providers, etc.
3. Scope
Consumer is only a sub-system of
a larger system i.e. general public
/ society. Hence, consumer
interest is restricted in scope.
Public Interest is wider in scope
than consumer interest.
Contd…

Particulars Consumer Interest Public Interest
4. Factors
Consumers are affected by pricing
policies, financing, practices, quality
of goods and services and various
trade practices.
Public interest reflects the morals
during period and the established
interest of the society.
5. focus
If Consumer welfare is at the centre
of any Governmental policy, such
measures / decisions are said to be
taken in “Consumer Interest”.
Government policy decisions
which are intended to benefitthe
society as a whole, constitute
Public interest.
6. Examples
Formulation of Competition Act,
Regulation of Consumer Protection
Councils, Consumer Courts /
Adalats, etc.
Maintaining law and order,
providing for the defence of the
country, maintenance of
monuments of national
importance, etc.
IPCC
59
ETHICS IN MARKETING & CONSUMERPROTECTION

IPCC ETHICS IN ACCOUNTING & FINANCE
60

What are the general reasons for unethical behaviour in
context of Accounts & Finance?
1. Money-Mindedness.
2. Accounting Complexities.
3. Short-Term Profitability.
4. Ignoring small unethical issues.
5. Economic Cycles.
61

Explain “Ethical Dilemma” in the context of a Finance and
Accounting Professional. (RTP - Nov. 11)
1. Ethical Dilemma
a. Value-conflicts
b. Multiple alternatives
c. Consequences to stakeholders
2. Examples:
Profit Forecast for a new project
a. Unrealistic projection of revenue
b. Projecting realistic but insufficient revenue.
(Both have their own risks)
C.A.
62

What are the Fundamental Principles related to ethics.
(Nov. 10, May 11, RTP - Nov. 11)
1. Principles of Integrity: (Honesty and straightforwardness)
2. Principles of objectivity: (No Bias)
3. Principles of Confidentiality:
4. Principles of Professional Competence
5. Principles of Professional Behaviour: (Code of Conduct of
ICAI)
63

What are the various threats which can be faced by the Finance
and Accounting Professional while working as an Auditor,
Consultant or an Employee in an organization. (RTP - May12.)
1. Self-Interest Threats
2. Self Review Threats
3. Advocacy Threats
4. Familiarity Threats
5. Intimidation Threats
64

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