Business and society have been coeval since time immemorial and also have been inter-dependant.
This relationship between business and society is appreciated in Rigveda also : “Corporates should
work like a honeybee, which takes the nectar of a flower without the flower being losing its shape
and fragrance and provides honey for the wellbeing of the society.” It means that both have to work
on a symbiosis manner for each one’s survival and success. The business history is replete with
evidences to believe that business flourishes only where society thrives. On the contrary, business
dies when society condemns and rejects it. No business can survive without societal approval and
sanction. The inter-dependant nature of relationship between the business and the society is best
illustrated by the management guru Peter Drucker (1954) by the example of a ship and sea. He states
that the relationship between business and society is “like the relationship between a ship and the
sea which engirds it and carries it, which threatens it with storm and shipwreck, which has to be
crossed but which is yet alien and distant.” No doubt, business has been conducted primarily to
earn profit and / or create wealth. However, there are reasons and evidences to believe that the
mindless obsession with profit maximization at any cost carried to any extreme has led to spurt in
sordid activities in business causing harm to both the business and society and ultimately leading
business to flounder and fizzle out. Enrons Parmalats, Union Carbide, and World.com are to name a
few representing examples of such business collapses. Business history is also replete with examples
that only the businesses that are conducted through good or right practices enjoy societal sanction
and survive and last for long. Johnson & Johnson, Maruti Limited, Reliance Industries Limited, and
Tata Iron and Steel Company are such examples that indicate that being good in conducting business
activities proves good for businesses also. Hence, there has been increasing concern for conducting
business in a good or ethical manner. Though there has been a spurt in research activities on business
ethics or ethics in business, not much research has so far been conducted on what actually makes
business ethics and how being ethical or good is good for business also.
Every business has an ethical duty to each of its associates namely, owners or stockholders,
employees, customers, suppliers and the community at large. Each of these affect organization and is
affected by it. Each is a stakeholder in the enterprise with certain expectations as to what the
enterprise should do and how it should do it.
Business ethics is applied ethics. It is the application of our understanding of what is good and right
to that assortments of institutions, technologies, transactions, activities and pursuits that we call
business. Ethical behavior is the best long term business strategy for company , however this does
not mean that occasions may never arise when doing what is ethical will prove costly to a company
nor does it mean that ethical behavior is always rewarded or that unethical behavior is always
On the contrary, unethical behavior sometimes pays off and the good sometimes lose. Strategy
means merely that over the long run and for most of the part, ethical behavior can give a company
significant competitive advantages over companies that are not ethical.
In an age of liberalization and globalisation corporations can grow, survive and prosper in the long
run only if they adopt policies and programmes, which can be considered ethically, economically,
socially and environmentally good to vast sections of society with whom they are intricately linked.
In the wake of revelations of serious scandals, irregularities, malpractices perpetrated by corporate
entities anywhere and everywhere in the world, the need for good corporate governance and
application of ethical values and principles in the conduct of business operations at every level of a
corporate organisation right from top level is felt more relevant now than before to serve the varied
needs, aspirations and expectations of different segments of stakeholders who have a stake in the
healthy functioning of a corporate entity as a socially responsible member of the civil society.
Three Pillars of Modern Business
“Business ethics, Professionalism and Corporate Governance”
Business ethics, Professionalism and Corporate Governance are the important imperatives for
survival and growth of a modern business organization confronted with multiple challenges
including financial scams, dying sentiments of investors, fixing accountability, transparency,
independence in decision making, rule of law, fairness in deals, etc. from the different stakeholders,
i.e., investors, creditors, industry, government and society, in the present knowledge based, global
and competitive environment.
In the years to come, not only corporate governance is going to be the major concern of management
but also the basic ingredient of corporate governance is going to change. In addition to full
disclosure of the workings of the company, a professional and good management has to identify and
quantify the risk being undertaken by various stakeholders. And then the management has to apply
all its innovative qualities to ensure that the risk for each stakeholder is reduced to an accepted level
and that each stakeholder is rewarded properly for the risk undertaken by him. The success of any
company would largely depend on maintaining a business model wherein all the stakeholders are
made comfortable. Being transparent in all the dealings/workings can further enhance the comfort
level of the stakeholders.
A key element of good governance—corporate or otherwise—is transparency projected through a
code of good governance which incorporates a system of checks and balances between key
players—boards, management, auditors and shareholders. Transparency in turn requires the
enforcement of the right to information and the nature, timeliness and the integrity of the information
produced at each level of interface defines the real issue. All of this can only succeeds if the
responsibilities of each entity and their interface is defined with great clarity and understood by all.
For effective corporate governance, a company must symbolize harmonious alignment of various
interests of individual, corporation and society. In yet another perspective, corporate reputation,
competitive credibility and governance have become increasingly inter-oven. Therefore, corporate
governance must be driven by ethical and philosophical concerns as well as legal structural
imperative. In short, promoting corporate fairness, transparency and accountability are the
hallmark for corporate governance.
Profit : Measure of Success
No doubt profit is the yardstick to measure the success of every business enterprise whether it is run
by the Government or a private organisation. Nevertheless a modern business corporation cannot run
its business operations solely with a profit motive, but as an enlightened corporate citizen to serve
the varying needs and aspirations of different segments of society. This is reflected by the brilliant
statement made by Henry Ford at the time of Dodge v. Ford trial about his company’s philosophy -
“I do not believe that we should make such as an awful profit on our cars. A reasonable profit is
right, but not too much. So it has been my policy to force the price of the car down as fast as
production would permit, and give the benefits to the users and the labourers (meaning workers)
with surprisingly enormous profits to ourselves”.
What Mr. Ryuzaburu Kaku, the dynamic and social oriented President of Cannon said severally
years ago is valid forever under whose visionary leadership that company had made great strides and
progress in every area of its operations. He said “If corporations run their business with the sole aim
of gaining more market share or earning more profits, they may lead the world with economic,
environmental and social ruin. If they work together for the common good they can bring food to
the poor, peace to war torn areas and renewal to the natural world. It is our obligation as business
leaders to join together to build a foundation for world peace and prosperity”.
Profitability & Morality
Frequently the impression of most people is that ethics and profits are mutual, opposed to one
another and that if a company is ethical, it may forget about making profits. People also frequently
seem to believe that a profitable company must necessarily be unethical. This is like saying that a
company can make profits only through unethical means. Nothing can be more have ethical
companies made profits, but more importantly it is, only ethical companies which discharged its
social responsibilities, that have survived competition and turbulent changes through the years and
have contributed to social welfare and have contributed to flourished undiminished.
In fact, considered from all angles, it is unethical, NOT to make profit. It is unethical, for a company,
to make losses. Because, a company which can not make profits and makes losses, misutilises scarce
national resources can not pay back creditors, does not make wealth for its shareholders, make huge
liabilities, upsets the economy, promotes inefficiency and most importantly, can not, at any cost
discharge its social responsibility, meet its welfare commitments and jeopardises the future of its
employees. Such a loss- making company becomes a nuisance and a burden to the economy and has
not right to exist in the market place. Moreover, it has no business to force its employees into
economic insecurity, which is highly unethical.
Thus instead of profits being contradictory to ethics, business ethics dictates that the first
responsibility of business is to remain profitable and generate revenue from the shareholders and the
society. Rather, it is unethical, not to make profits. Hence, the first and foremost ethical obligation of
every business is to make profits for its shareholders, for its employees, for its creditors and most
importantly, for itself, so that it can discharge its social responsibilities and welfare commitments.
But how much profits to make, the means and methods of making it, and at what cost- that is the
No business, however great or strong or wealthy it may be at present, can exist on unethical means,
or in total disregards to its social concern, for very long. Resorting to unethical behaviour or
disregarding social welfare is like calling for its own doom. Thus business needs, in its own interest,
to remain ethical and socially responsible. As V.B. Dys in "The Social Relevance of Business " had
"As a Statement of purpose, maximising of profit is not only unsatisfying, it is not even accurate. A
more realistic statement has to be more complicated. The corporation is a creation of society whose
purpose is the production and distribution of needed if the whole is to be accurate: you cannot drop
one element without doing violence to facts."
Business needs to remain ethical for its own good. Unethical actions and decisions may yield results
only in the very short run. For the long existence and sustained profitability of the firm, business is
required to conduct itself ethically and to run activities on ethical lines. Doing so would lay a strong
foundation for the business for continued and sustained existence. All over the world, again and
again, it has been demonstrated that it is only ethical organisations that have continued to survive
and grow, whereas unethical ones have shown results only as flash in the pan, quickly growing and
even more quickly dying and forgotten.
Business needs to function as responsible corporate citizens of the country. It is that organ of the
society that creates wealth for the country. Hence, business can play a very significant role in the
modernisation and development of the country, if it chooses to do so. But this will first require it to
come out from its narrow mentality and even narrower goals and motives.
Profit maximization: A social objective
The obsession with profits has led to several undesirable and unethical business practices, which in a
course of time will lead to a company's doom.
Business and Society have been interdependent for ages. There is no doubt that for a business to
survive in the society it has to make ‘profits’. Without ‘profits’, a business would slowly crumble
and die an unnatural death, no matter what the objectives of the business be. ‘Profit’ is like oxygen
to the business and a lifeline to all.
Profit, in simple layman’s parlance refers to excess of Income over Expenditure or Excess of
Revenue over Costs. An accountant’s version of profit would be different from an economists
definition of profit. As they say, 10 different accountants would arrive at 20 different profit figures
for the same accounts, at the same time. Similarly, a businessman’s definition of profit would be
significantly different from the taxman’s definition of profits. Even the businessman would wary his
definition of profit for various purposes, at different times. For example if the business man wants to
apply for a loan, or avail an overdraft facility or financing facility from a bank or a financial
institution, he would want to show a relatively higher profit and would go to any extent to do so. The
same businessman would be very conservative in his methods of computing his profits when it
comes to preparing and filing his tax returns, the reasons being obvious.
‘Window dressing’ has been extensively used by corporations which need to report the results of
their operations to their shareholders. The Balance sheet is shown to be healthier than it is. The
Profit and Loss account or the Income Statement is “adjusted” to reflect a better operational result.
The auditor of the corporation is invariably a party to these ‘adjustment’ and he lends his
professional skills and expertise to finalize a ‘profit’ figure which would best describe the results of
the operations in a manner which he reports to be a ‘true and fair’ view of the ‘profit’ or ‘loss’ of the
corporation for a particular period. Even the most private of the private enterprise is an organ of
society and serves a social function
It is not a rocket science to ‘adjust’ profits to meet the requirements of the business. Time tested
methods have been discovered, created or invented to alter the profits. Under/over valuation of
inventory, excess/under provision of expenses, charging capital to revenue, revenue to capital etc are
methods which result in under/over statement of ‘profit’, as may be. Of course this is a subjective
matter and the treatment of these items would entirely depend on the person responsible for the
same. However, a deliberate attempt to maneuver the ‘profit’ and make it show a different figure
from what is actually the case is not only unethical, but also detrimental to the stakeholders and
society at large, as it has tremendous implications.
Though the dominant objective of business has been ‘earning profits’, the obsession with profits
must not be overwhelming and be the sole objective. An extremely high obsession with profits could
jeopardize the balance with corporate governance, which is the mantra of most socially responsible
companies. Also this motive could cause a tremendous imbalance with society at large, which could
result in the business perishing sooner than later. It should thus be the focus of every legitimate
business owner to keep the society alive through following ethical and acceptable business principles
and adopt CSR through corporate governance or otherwise.
Business history is replete with instances of the mindless obsession with profit maximization has led
to the collapse of corporations like Enron, WorldCom, Union Carbide etc. On the other hand
corporations demonstrating social concerns have stayed, survived, and thrived in the long run.
Corporate history has witnessed that business flourishes only where society thrives. Hence business
corporations need to show and exhibit their concern for the well being of the society within which
these operate. Corporate Social responsibility earns social capital or social patronage. That’s why
there has been a paradigm shift beyond profit maximization to social and humane concern. Further,
the focus of most corporations today has been to define and follow the corporate governance by
However “profit maximization with a social objective” is not without its share of criticism or
opposing views. Adam Smith, the noted economist of the 18th century favored ‘profit maximization’
as the only objective of business. Further according to him, what is good for an individual is also
good for the society. Later Alfred Marshall and other classical economists further enlarged and
refined Smith’s view into a separate economic theory which state that especially under competitive
market conditions, profit maximization by firms leads to the most efficient allocation of resources,
lower prices and larger aggregate output than under monopoly. The obsession with profits must not
be overwhelming and the sole objective
The later theories have all advocated the view that corporate social responsibility is an important
factor and profit is not an end itself, but rather a means. Thus, while it is important to be profitable to
survive the modern day competitive business, treating the objective of profit maximization as the
sole objective, could prove fatal to the fortunes of a corporation in particular and society in general.
Organizations should rather spend money on CSR by investing well in intellectual capital,
generation of goodwill, social infrastructure, knowledge enhancement, research and development,
civil amenities, community development, ancillary industry development, upliftment of the poor and
needy and a whole lot of other social responsibilities.
Therefore, there is an urgent need to mould the motive of businessmen towards profit maximization
with social concern. Corporations should understand this and imbibe this in all its top management
and other employees and create awareness in one and all. Workshops, trainings, seminars etc will
help a long way in ensuring that all individuals who matter understand this very simple concept and
give it their very best to ensure that the results of their business are better arrived at but with some
The Changing Business Paradigm and Ethical Dilemmas
Most of the big corporate houses operate globally and maintain manufacturing, marketing, service or
administrative operations in many different host countries. With a worldwide presence, these
corporations draw capital, raw materials and human labour from wherever in the world they are
cheap, skilled and available, and assemble and market their products in whatever nations offer
manufacturing advantages and open markets. The fact that these corporations operate in more than
one country produces ethical dilemmas for their managers than the managers of firms limited to a
The reason to this is that the corporations have operations in more than one country, and the ability
to shift their operations out of any country that becomes inhospitable and relocate in another country
that offers it cheaper labour, less stringent laws or more favourable treatment. This ability to shift the
operations sometimes enables the multinationals to escape the social controls that a single nation
might attempt to impose on the multinational and can allow the corporation to play one country
against another. Environmental laws for example which can ensure that domestic companies operate
in responsible manner that a country deems right for its people, may not be effective constraints on a
corporation that can simply move or threaten to move to a country without such laws. The managers
therefore are confronted with the dilemma of choosing between the economic needs and interests of
their business, on the one hand and the local needs and interests of their host country on the other
Another set of dilemmas is created since corporations operate plants in several countries, it can
sometimes transfer raw materials, goods and capital among its plants in different countries at terms
that enable it to escape taxes and fiscal obligations that companies limited to a single nation must
bear. Yet another group of dilemmas is faced by multinationals – because they operate in several
countries they often have the opportunity to transfer a new technology or set of products from a
developed country into nations that are less developed. The multinational wants to carry out the
transfer of course because it perceives an opportunity for profit and the host country wants and
allows the transfer because it perceives these technologies and products as key to its own
development. However, the transfer of technologies and products into a developing country can
create risks when the country is not ready to assimilate them.
Ethics at Market Place
Free markets are justified because they allocate resources and distribute commodities in ways that
are just, that maximize the economic utility of society’s members and that respect the freedom of
choice of both buyers and sellers. These moral aspects of a market system depend crucially on the
competitive nature of the system. If firms join together and use their combined power to fix prices,
drive out competitors with unfair practices or earn monopolistic profits at the expense of consumers,
the market ceases to be competitive and the results are injustice, a decline in social utility and a
restriction of people’s freedom of choice. In a perfectly competitive free market conditions forces
drive buyers and sellers towards the so called point of equilibrium. In doing so they achieve three
major moral values:
i) They lead buyers and sellers to exchange their goods in a way that is just,
ii) They maximize the utility of buyers and sellers by leading them to allocate, use and distribute
their goods with perfect efficiency, and
iii) They bring about these achievements in a way that respects buyers’ and sellers’ right of consent.
Fairness is getting paid fully in return for what one contributes and it is this form of justice that is
achieved in perfectly competitive free markets. Perfectly competitive markets embody capitalist
justice because such markets necessarily converge on equilibrium point and the equilibrium point is
the one point at which buyers and sellers on an average receive the value of what they contribute.
In a monopoly market situation, however conditions change as compared to perfectly competitive
market conditions particularly with respect to the number of buyers and sellers and also the entry is
not so easy. Unregulated monopoly markets fall short of the values of capitalist justice and economic
efficiency. The high prices the seller forces on a buyer in a monopoly situation are unjust and these
unjustly high prices are the source of the sellers, excess profits. The high profits in a monopoly
market indicate a shortage of goods. Other firms are blocked entering the market, their resources
cannot be used to make up the shortages indicated by the high profits. Thus monopoly market results
in a decline in the efficiency with which it allocates and distributes goods. Oligopoly markets which
are dominated by a few large firms are said to be highly concentrated i.e. there are relatively small
number of firms. It is relatively easy for the managers of these firms to join forces and act as a unit.
By explicitly or implicitly agreeing to set their prices at the same levels and to restrict their output
accordingly , the oligopolist can function like a single giant firm. This uniting of force together can
create barriers to entry and result in the same high prices and low supply levels that are
characteristics of a monopoly markets. As a consequence oligopoly market, like monopolies can
generate a decline in social utility and can fail to respect basic economic freedom.
What do you do when you find yourself confronted with an opportunity to learn exactly what a
competitor is doing or is about to do. What Mr. John E. Pepper, the Former Chairman and Chief
Executive of The Procter & Gamble Co. (P&G) narrated in his talk on 30th January, 1997 at the
Florida University about the philosophy of business ethics practiced by P&G by two live cases will
be of great interest and relevance for our discussion.
Case No.1 : An individual made a call from Europe to a Senior Manager of P&G informing him that
he had in his possession very sensitive and useful documents about the future plans of its competitor
– a Lever brand– which he was willing to sell to P&G. The Senior Manager of P&G immediately
passed on the information to the Head of Security at Unilever, who in turn alerted the police. The
police swung into action and arrested the culprit.
Case No. 2 : A Senior Executive of one of the advertising agencies of P&G while travelling in a cab
in New York found lying on the floorboard, a computer disk that included the marketing plans of the
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P&G’s main competitor who was giving serious headache to one of P&G’s flagship brand in the
market place. The Senior Executive immediately sent back the disk to the Chairman of the
competitive company and assured him that neither the agency nor anyone at P&G had looked at the
contents of the disk. In his letter he said “We will always compete with commitment and intensity but
will never compromise our ethics to win”.
Business Ethics & External Environment
The process of producing goods forces businesses to engage in exchanges and interactions with two
main external environments – the natural environment and a consumer environment. Here you will
understand the ethical issues raised by these exchanges and interactions. The two basic problems
related to the natural environment are – pollution and resource depleting. Several consumer issues,
including product quality and advertising are the probable related to consumer environment.
The External Environment
For centuries, business institutions were able to ignore their impact on the natural environment, an
indulgence created by a number of causes. First business was able to treat air and water as free
goods. However in today’s context unless business recognize the interrelationships and
interdependencies of the ecological systems within which they operate and unless they ensure that
their activities will not seriously injure these systems we can not hope to deal with the problem of
Environmental issues raise large and complicated ethical and technological questions for our
business society. What is the extent of the environmental damage produced by present and projected
industrial technology? How large a threat does this damage pose to our welfare? What values we
must give up to halt or slow such damage? Whose rights are violated by pollution and who should be
responsible of paying for the costs of polluting the environment? How long will our natural
resources last ? What obligations do firms have to future generations to preserve the environment
and conserve our resources? Economists often distinguish between what it costs a manufacturer to
make a product and what the manufacturer of that product costs as a whole when a firm pollutes its
environment in any way, the firm’s private costs are always less than the total social costs involved.
This is a problem because when the private costs diverge from the social costs involved in its
manufacture, markets no longer price commodities accurately. Consequently they no longer allocate
resources efficiently. As a result the welfare of society declines. The remedy for the external costs is
to ensure that the costs of pollution are internalized – that is they are absorbed by the producer and
take into account when determining the price of goods. In this way goods will be accurately priced,
market forces will provide the incentives that will encourage producers to minimize external costs
and some consumers will no longer end up paying more than others for the same commodities.
Ethics of Consumer Production and Marketing
People are exposed daily to astonishingly high levels of risk from the use of consumer products.
Each year people suffer serious accidental injuries and few others are killed due to accidents
involving consumer products. Examples are often reported of injuries requiring hospital treatment
inflicted on youngsters and adults using toys, nursery equipment and playground equipment, people
using home, workshop equipment, people requiring treatment for injuries involving home
Now the dilemma which arises is where does the consumer’s duty to protect his or her own interests
end and where does the manufacturer’s duty to protect consumers’ interest begin? Three different
theories on the ethical duties of manufacturers have been developed, each one of which strikes a
different balance between the consumer’s duty to himself or herself and the manufacturer’s duty to
the consumer – the contract view, the ‘ due care’ view, and the social cost view. The contract view
would place the greater responsibility on the consumer, whereas the due care and social costs views
place the larger measure of responsibility on the manufacturer. Consumers are also bombarded daily
by an endless series of advertisements urging them to buy certain products. Although sometimes
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defended as sources of information, advertisements are also criticized on the grounds that they rarely
impart additional information and only give the barest indications of the basic function a product is
meant to serve and sometimes misrepresent and exaggerate its virtues.
Economists argue that advertising expenditure is a waste of resources while sociologists bemoan the
cultural effects of advertising. The advertising business is a massive business. The question however
is who pays for these advertising expenditures? In the end, the prices consumers pay for the goods
they buy must cover advertising costs–the consumer pays. What does the consumer get for his or her
advertising rupee? According to most consumers, they get very little. However, the advertising
industry sees things differently. Advertising, they claim is before all else communication. Its basic
function is to provide consumers with information about the products available to them – a
beneficial service. The question to be discussed therefore is whether advertising is a waste or a
benefit? Does it harm consumers or help them? Discussion of the ethical aspects of advertising can
be organized around the various features like its social effects, its creation of consumer desires and
its effects on consumer beliefs. Studies have shown that advertising frequently fails to stimulate
consumption of a product and consumption in many industries has increased despite minimal
advertising expenditures. Thus advertising appears to be effective for individual companies not
because it expands consumption but only because it shifts consumption away from one product to
another. If this is true then economists are correct when they claim that beyond the level needed to
impart information , advertising becomes a waste of resources because it does nothing more than
shift demand from one firm to another. The moral issues raised by advertising are complex and
involve several still unresolved problems. However there are few factors like its social effects, its
effect on desire, effects on belief that should be taken into consideration when determining the
ethical nature of a given advertisement. Advances in computer processing power, database software
and communication technologies have given us the power to collect, manipulate and disseminate
personal information about consumers on a scale unprecedented in the history of the human race.
This new power over the collection, manipulation and dissemination of personal information has
enabled mass invasions in the privacy of consumers and has created the potential for significant
harms arising from mistaken or false information.
The purpose of rights is to enable the individual to pursue his or her significant interests and to
protect these interests from the intrusion of other individuals. It is also important because it has
several enabling functions. Privacy enables certain professional relationships to exist. In so far as the
relationships between doctor and patient, lawyer and client, and psychiatrist and patient all require
trust and confidentiality, they could not exist without privacy. It is clear then that our interest in
privacy is important enough to recognize it as a right that all people have, including consumers.
However this right must be balanced against the rights and legitimate needs of others. For example,
consumers benefit from having life insurance available to them. However there are significant
consumer benefits that businesses can provide but they can provide only if there exists agencies that
can collect information about individuals and make that information available to businesses. Thus
consumers’ rights to privacy have to be balanced with these legitimate needs of businesses.
Business Ethics And Internal Environment
The Internal Environment
The process of producing goods forces businesses not only to engage in external exchanges, but also
to coordinate the activities of the various internal constituencies that must be brought together and
organized into the processes of production. Employees must be hired and organized, stockholders
and creditors must be solicited and managerial talent must be tapped. Inevitably conflicts arise
within and between these internal constituencies as they interact with each other and as they seek to
distribute benefits among themselves. The ethical issues raised by these internal conflicts fall into
two broad areas of job discrimination and the issue of conflicts between the individual and the
organization. Although many more women and minorities are entering formerly male-dominated
jobs, they still face problems that they would characterize as forms of discrimination. Experiences
suggest that sexual discrimination and racial discrimination are alive and they do create flutters in
Regardless of the problems inherent in some of the arguments against discrimination, it is clear that
there are strong reasons for holding that discrimination is wrong. It is consequently understandable
that the law has gradually been changed to conform to these moral requirements and that there has
been a growing recognition of the various ways in which discrimination in employment occurs.
Among the practices now widely recognized as discriminatory, few of them are recruitment
practices, screening practices, promotion practices and conditions of employment. Women as noted
earlier are victims of a particularly troublesome kind of discrimination that is both overt and
coercive. They are subject to sexual harassment.
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Many businesses are aware of these trends and have undertaken programmes now torespond to the
special needs of women and minorities. However it should be clear in view of the future
demographic trends that enlightened self interest should also prompt business to give women and
minorities a special hand. It is for these reasons that companies have instituted aggressive
affirmative programmes aimed at integrating large groups of minorities into their firms where they
are provided with education, job training, skills, counseling and other assistance designed to enable
them to assimilate into workforce.
The employee’s main moral duty is to work toward the goals of the firm and avoid any activities that
might harm those goals. To be unethical, basically is to deviate from these goals to serve one’s own
interest in ways that if illegal are counted as form of ‘white collar crime’. There are several ways in
which the employee might fail to live up to the duty to pursue the goals of the firm. The employee
might act on a “ conflict of interest”, the employee might steal from the firm or the employee might
use his or her position as a leverage to force illicit benefits out of others through extortion or
commercial bribery. The ethical issue of misusing proprietary information has become much more
prominent in the last decade as new ‘information technologies’ have increasingly turned information
into a valuable asset to which employees have regular access. As
information technologies continue to develop, this issue will continue to grow in importance. Insider
trading is also unethical – not merely because it is illegal but because it is claimed, the person who
trades or insider information in effect ‘steals’ this information and thereby gains as unjust or unfair
advantage over the member of the general public.
In the course of performing a job an employee may discover that a corporation is doing something
that he or she believes is injurious to society. Indeed individuals inside a corporation are usually the
first to learn that the corporation is marketing unsafe products, polluting the environment ,
suppressing health information or violating the law. Employees with a sense of moral responsibility
who find their company is injuring society in some way will normally feel an obligation to get the
company to stop its harmful activities and consequently will often bring the matter to the attention of
their superiors. Unfortunately if the internal management of the company refuses to do anything
about the matter , the employee today has few other legal option available. In the absence of legal
protections of the employee’s right to freedom of conscience the practice of whistle blowing is
discussed and debated. Whistle blowing is an attempt by a member or former member of an
organization to disclose wrongdoing in or by the organization. It can be internal or external. If the
wrongdoing is reported only to those higher in the organization it is internal whistle blowing. When
the wrongdoing is reported to external individuals or bodies such as government agencies,
newspapers or public interest groups, the whistle blowing is said to be external. However it is for the
ethical judgment to decide whether external whistle blowing is wrong because employees have a
contractual duty to be loyal to their employer and to keep all aspects of the business confidential.
When an employee accepts a job, the argument goes, the employee implicitly agrees to keep all
aspects of the business confidential and to single mindedly pursue the best interests of the employer.
The whistleblower violates this agreement and thereby violates the rights of his or her employer.
The last point to be mentioned here is the ethics of political tactics in organizations. Political
behaviour in an organization can easily become abusive. Political tactics can be used to advance
private interests at the expense of organizational and group interests, they can be manipulative and
deceptive and they can seriously injure those who have little or no political power or expertise.
However political tactics can also put at the service of organizational and social goals, they may
sometimes be necessary to protect the powerless and they are sometimes the only defense a person
has against the manipulative and deceptive tactics of others. The dilemma for the individual in an
organization is knowing where the line lies that separates morally legitimate and necessary political
tactics from those that are unethical.
To achieve a planned, orderly and consistent growth in a competitive environment and a free market
economy, a company must try to improve its methods of production, processes and systems by using
updated and relevant technologies using its vast financial and human resources judiciously.
Naturally every company must conduct its affairs economically, efficiently and progressively on
ethical lines to serve the public interest, with probity, accountability and transparency of company
finances in a socially responsible manner. A company incorporated in a particular country has the
nationality of that country though like a natural person it cannot change its nationality. The era of
corporate autocracy is coming to an end. In simple terms the success or failure of a corporation in
the long run will be based on cherished values and ideals acceptable to society as an enlightened
corporate citizen and which understands, appreciates and recognizes its pivotal role to look after the
rights and interests of various segments of society such as shareholders, employees, consumers, local
community and society at large. Spiritual health of an organisation is based on internal and external
connectivity. Level of cohesion, co-operation, partnership, community involvement and social
responsibility are important indicators to measure the spiritual health of a company.
In order to enable everyone dealing with a company to understand its basic objectives and aims, a
company must define its vision, mission and value statements in a clear cut manner for the benefit of
various segments of society and also frame a business code of conduct based on ethical values and
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principles analysed above. These should be integrated into the organization’s systems, procedures
and practices. Let us briefly discuss and understand the relevance and purpose of these statements.
Vision statement : Essentially every vision statement brings to the notice of everyone dealing with
the company what is its intention with regard to the future it desires to create by using all its
resources at its command more so by its motivated and inspiring human resources. It will assure the
society that the company will take up of social issues and make its contribution for a meaningful
living of mankind.
Mission statement : Every mission statement is meant to keep the energies of the company rightly
focused around its core business areas, which can ensure robust growth and sustainable profits.
Often every mission statement is very concise, inclusive and easily memorized. Every mission
statement is addressed to various segments of society such as shareholders, employees, customers
and society at large.
Tom Chappell, co-partner and CEO of Tom’s of Maine present values in the form of credo about his
organisational goals and beliefs as under which cover the best one can think of in every
“We believe that both human beings and nature have inherent worth and deserve our respect.
We believe in products that are safe, effective and made of natural ingredients.
We believe that our company and our products are unique and worthwhile and that we can sustain
these genuine qualities with an ongoing commitment to innovation and creativity.
We believe that we have a responsibility to cultivate the best relationships possible with our co-
workers, customers, owners, agents, suppliers and our community.
We believe in providing employees with a safe and fulfilling work environment and an opportunity to
grow and learn.
We believe that our company can be financially successful while behaving in a socially responsible
and environmentally sensitive manner”.
Corporate Scandals & Corporate Malpractices
There are a number of scandals rocking the corporate world day in and day out anywhere and
everywhere in USA, France, Germany, Japan, South Korea and in our own country relating to
various types of corporate crimes such as falsification of accounts by showing inflated profits,
embezzlement of company funds by dubious ways, siphoning of company’s funds by entering into
fictitious transactions, making fraudulent investments, financial irregularities, breach of fiduciary
duty, breach of trust, breach of confidential information, dishonesty, non-disclosure of material facts,
insider trading, misfeasance, misappropriation, mal-administration, corruption and bribery and
milking the company by fat salaries, amenities, facilities, stock option schemes, severance benefits
without any regard to company’s performance or profitability to Board Members, CEO’s and other
key executives harming the rights and interests of various segments of society. The World Bank has
identified corruption as “the single greatest obstacle to economic and social development” of the
universe hitting the poor and vulnerable section of the world population.
John T. Noonan, a Judge of the United States Court of Appeals in his book “Bribes” which is
considered one of the most comprehensive book on bribery ever written provides various reasons as
to why bribery has to be morally condemned. A company, which pays bribes to clinch a business
deal will get itself sucked into more murkier deals in future as it will turn into a regular practice. In
reality it is often found that many multinational corporations in the business of arms sale, ships,
aircrafts, sophisticated plant and machinery which involves staggering amount of business deals are
the real culprits for payment of bribes to people in power through middlemen. In the circumstances
many international business corporations which attach significant importance to ethical values and
principles have prescribed a corporate code on bribery, which says – “The offer, payment, demand
or acceptance of bribes in any shape or form, in any circumstances is totally unacceptable to this
organisation, discovery will be followed by severe disciplinary and possibly legal action”.
Besides there are a number of misdemeanors exist in our corporate working such as sexual
harassment of women by other employees, employment and exploitation of child labour,
discrimination in employment and pay based on colour, sex, race etc. and wanton destruction of
precious natural resources thereby affecting ecological balance and biodiversity of the universe.
Many of our corporate entities use share buy back by using the funds of such companies as a device
to strengthen the control by the promoter groups or foreign companies on them (which can otherwise
be used for new projects, modernisation or expansion of their activities) and later go for de-listing in
stock exchanges totally disregarding the interest of small investors. Similarly many companies in
India make preferential allotments to promoter groups or others primarily intended to achieve the
In the US 2002 can be considered as the year of “whistle blowers” in as much as Sherron Watkins of
Enron and Cynthia Cooper of Worldcom two insiders were responsible to bring in the open the
serious accounting irregularities committed by the said companies. Another serious impact of the
scandals in USA is the exposure of auditing profession to strong criticism by all about its dubious
role in not disclosing vital financial information for public scrutiny and blindly providing support
and assistance to scam related corporate entities. The Sarbanes-Oxley Act, 2002 which is the
outcome of the demise of Enron and the scale of misreporting of vital financial information at
Worldcom is the most sweeping reform of corporate governance in USA since the Great Depression
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in 1930s. It is becoming the global benchmark for all corporate entities for setting up proper internal
control systems, framing of tighter disclosure norms for due compliance, establishment of tough
financial reporting standards and requiring certification by people at the helm of management about
the correctness and accuracy of financial information, appointment of independent audit committee,
disclosure of off–the-books transactions that would have big effect on their financial position and
putting in place a proper ethical code of conduct to reassure all stakeholders that corporate
organisations will carry on their business activities for common good. The Public Company
Accounting Oversight Board (PCAOB), which was created by the aforesaid Act, to replace self-
regulation of US audit profession has already prohibited auditors doing non audit work to their
“The next wave of enduring great companies will be built not by technical or product visionaries but
by social visionaries – those who see their company and how it operates as their ultimate creation
and who invent entirely new ways of organizing human effort and creativity”
– Jim Collins
A socially oriented corporate entity can serve the needs, expectations and aspirations of various
segments of society in many ways. However it is thought it fit to cover three important segments of
society as under with which every company will be more interlinked than with others.
Shareholders: Every Company should provide all required information under the statute to the
shareholders from time to time to enable them to understand the financial working of the Company,
present and future prospects, level of business competition etc. Similarly every company should
organise, call and conduct general meetings according to the provisions of the Articles of
Association and mandatory legal requirements. Every corporate entity should reward their
shareholders by paying a decent dividend regularly and offer bonus and rights shares at frequent
intervals. It should be the responsibility of every corporate entity to provide good investor services.
Incidentally a recent report of Organization for Economic Co-operation and Development (OECD)
urges Asian Governments to ensure minority shareholders are adequately protected by strengthening
disclosure requirements, ensuring regulators have real powers and resources to monitor companies
and impose substantial sanctions for any wrong doing, strengthening the fiduciary duty of directors
to act in the interest of all shareholders and provide shareholders who suffer financial losses with
private and collective rights to sue controlling shareholders and directors.
Employees : Since people are the most critical component of every business for its sustenance,
survival, continued growth and success companies are paying more attention how to attract and
retain good talent especially of persons with critical skills and knowledge. Realising the importance
of labour a modern company gives enough importance to human resources development function to
frame a realistic salary structure with good benefits and facilities to their work force but also focuses
greater attention for their personal development and career prospects for future advancement by
intensive in house and outside training. Every company should create a healthy environment for
individual development, teamwork, job satisfaction and a distinct corporate culture by trying to tap
and unearth an employee’s hidden creative energy and innovation to achieve its organisational goals.
Employees need to feel a sense of fairness, commitment, right of privacy, right of meaningful work,
equality, recognition, responsibility and pride in their work. Too much control, use of excessive
authority, exploitation, poor working relationships between employees are sure signs of poor
emotional health of an organisation. Every organisation should encourage its employees to grow
both in their personal and professional lives. Personal growth builds emotional intelligence and
professional growth builds skills and intellect. When employees have a common identity, common
vision and shared values they work for the common good and develop a strong sense of loyalty to
the company. It should be appreciated that true power lies not in the ability to control staff but in the
ability to trust. People like organizations which encourage them to explore their own creativity
because in doing so the company gives them the meaning of their very existence. Creativity will not
blossom in a rigid over controlled bureaucratic setup and punishes employees severely even for
minor failures. Unfortunately there is a wrong mind set in many organizations to the effect that a
worker’s job is to execute a work in the way the management wants and he cannot use his intuition
and latent talent power to make improvement on it. However if employees are allowed to use their
knowledge and creativity there will be shared feelings for good of the organisation. Every
transnational organisation is uniting people under a single corporate culture with shared values that
transcends cultural, racial and national boundaries. Employees should have adequate authority,
enough independence in their functional area of work and they must be made accountable for their
action. The second preferred employer in India Procter & Gamble Group spends a lot of money on
training and career development opportunities right from entry level recruitments to develop their
trainees as future leaders.
In a booklet titled “A Business and its beliefs” Thomas J. Watson, a former IBM Executive
succinctly states that “the real difference between success and failure in a corporation can be very
often traced to the question of how well the organization brings out the great energies and talents of
its people” .
Consumers : The old rule of caveat emptor is no more valid for sale or provision of services. A
company is required to provide adequate and reliable information to enable a consumer to make his
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own decision to purchase or avail of a service or not. Naturally a company must produce goods or
offer a service of an acceptable standard to suit the needs and purchasing power of the consumers
giving due regard to their safety and quality aspects and price its products or services on a fair basis
with a reasonable profit margin with full back up facilities for after sale service and maintenance
through out the working life of a product. The company should not try to increase the cost of a
product by mere change in style without adding value to the product to benefit its user. Since a
customer relies on the reputation and integrity of the supplier to provide a good quality product or
service, it is the responsibility of a company to make product improvement on a continuous basis, or
introduce new products or services to match the changing consumer preferences, emerging needs,
aspirations and expectations of the community. Realising the importance of customer goodwill every
company should set up a grievance cell to monitor and understand the feed back and reaction of its
customers with a view to ensure that every product manufactured or service provided shall be within
the accepted norms and standards set out by the company. A company should not indulge in false
publicity, misrepresentation of facts, give false guarantee and workmanship or tempt to offer
substandard goods or services to raise revenues. A company should provide products or services of
high quality and value that improve the life style of world’s consumers. Companies with a genuine
consumer commitment earn the respect and support of the local community and local governments.
A growing numbers of consumers are choosing products manufactured and or services provided by
socially responsible companies. In France a recent survey conclusively revealed that companies,
which produce and market fair trade products even if they are costing a little more are having ready
market demand and good acceptability from the discernable consumers. In other words consumers
are reluctant to lend support to companies for sale of products produced by exploitation of child
labour or by not providing good working condition according to accepted international labour norms.
Society accepts and rewards companies, which follow strict environmental and ethical standards in
the manufacture and marketing of consumer products.
Profession & Role Of Professionals
In a changing society it is very difficult to define the term “Profession” or for that matter any
particular occupation which can be properly described as a profession. There are professions to day,
which nobody would have considered to be a profession in the past. While a businessman pays more
attention to maximization of his profit, a professional is more concerned to provide an unmatched
quality of service to his clients. Furthermore every professional is required to have certain special
characteristics compared to other sections of society, which give him a good status and image in the
community. The ever changing business environment, complexity in our legislative framework and
emerging new regulatory norms require business enterprises to seek the assistance, advice and
support of competent professionals in different spheres of activities. An enduring image of reliability
and trust based on his knowledge, competence, experience and expertise, thorough honesty,
integrity, good health, sharp memory line, constructive attitude, right approach, good temperament
and behaviour, quick ability to grasp the essence of a problem from mass data of information,
analytical skill and persuasive character are some of the ingredients that make an individual a
respected professional in his own right. More than anything a professional should have a strong
character, ethical values and professional commitment to serve the needs and aspirations of various
segments of society. In simple terms if a corporate entity does not follow the prescribed legal
requirements, the professional who is involved should have the courage and conviction to make his
comments and observations on any matter for the benefit of company’s shareholders and creditors
which have any adverse effect on the functioning of the company in clear cut terms rather than
Company Secretaries both in employment and in practice have a pivotal role to play by counselling
corporate bodies against improper, unethical, unfair, unlawful or questionable business practices. In
reality it is established that professionals are often found to be playing a supportive role to many
company managements to hide facts about non-compliance of legal requirements or for window
dressing of vital financial information. Needless to say every professional whether he is in service or
in practice should uphold ethical values and principles in the working of corporate enterprises for the
good of the society.
Ethical Issues – New Problem Areas
No doubt corporate houses are going to face a number of challenges and problems in several new
areas of technology such as computers, biotechnology, medical research and intellectual property
and patent rights on ethical and moral grounds at the global level. Interception of internet messages
or use of electronic surveillance or devices will affect privacy of individual freedom. On the other
hand wicked people can use internet system anonymously to avoid responsibility and detection in
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respect of illegal and unethical activities. In the area of biotech one may face resistance in the use of
hybrid technology because there is a lurking fear that it may affect soil fertility of a region adversely.
The ongoing medical research tests on living organisms and creation of new genes and cloning may
hurt religious feelings and animal lovers and companies involved in such research activities are
likely to face serious problems in their working in many countries. In the case of patenting already
many companies in the western world are acting smart and are trying to obtain patent rights on
popular brand names of agricultural and medicinal products in use in the developing countries to
have total monopoly in world trade in such products of mass consumption and eliminate
competition. One can cite the recent attempt of a western company to get registration of the trade
name “Basmati” which is a quality rice produced in the Indian subcontinent with sizeable export
Ethics And Business: Objections
People taking objections to bringing ethics into business argue that persons involved in business
should single mindedly pursue the financial interests of their firm and not side track their energies or
their firm’s resources into doing good works. Some argue that in perfectly competitive free markets
the pursuit of profit will by itself ensure that the members of society are served in the most socially
beneficial ways. However what experts like Manuel G Velasquez argue is that often assumptions
behind this argument like perfectly competitive market situation do not exist. Another argument is
that business managers should single-mindedly pursue the interests of their firms and should ignore
ethical considerations. This argument finds its basis in ‘loyal agent’s argument’, which suggests that
a manager engaged in certain illegal or unethical conduct be excused because he did it not for
himself but to protect the interests of his company. However again the assumptions behind this
argument can be questioned on several grounds.
The third kind of objection is that to be ethical it is enough for business people merely to obey the
law. Business ethics is essentially obeying law. It is wrong however to see law and ethics as
identical. It is true that some laws require behaviour that is same as the behaviour required by our
moral standards. However law and morality do not always coincide. Some laws have nothing to do
with morality because they do not involve serious matters. These include dress codes, parking laws
and other laws covering similar matters. Beyond these arguments for and against the role of ethics in
business, discussions happen whether ethical companies are more profitable than unethical ones.
There are many different ways of defining ethical, many different ways of measuring profits and the
findings of different studies remain inconclusive. However studies do suggest that by and large
ethics do not detract from profit and seems to contribute to profits.
Change is the only constant factor in everyday life. It is witnessed from the Stone Age to civilized
age. When change affects life it also affects the environment and business. The business
environment becomes extremely complex as change inflicts variety and diversity leading to deep and
fundamental ways. Change in the values, environments of business based on the expectation of
society has alerted business houses to realign its priorities. The changing economic, political, legal
and social environment has also made the business and businessmen to consider the ethical approach
to business. Therefore, there is paradigm shift from the goal of maximization of profit or wealth to
ethical means to achieve them. The last 150 years have been marked the world over for rapidity of
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change ushered in by the advent of technology and industrial revolution. This period has also been
marked for its attempt to generate unquestioning faith in human reason and intellect. The last
century has witnessed that the intellect are becoming the cornerstones of the society. The rapid
changes have improved the standard of living, also establishing a lot of sensible relationships in and
around the society.
There is a growing realization all over the world that ethics is virtually important for any business
and for the progress of any society. Ethics makes for an efficient economy. Ethics is good in itself,
ethics and profit go together in the long run and ethics alone can protect the society. An ethically
responsible organization is one, which has developed a culture for caring for the people and for the
betterment of society as a whole. Ethics has a considerable influence on the economy for efficient
and smooth functioning. The government, the laws cannot always resolve certain key problems of
the society and business. Ethical behavior enhances the quality of life. An ethically based economy
can do wonders in the way of creating wealth or society.
The task of business is to optimize the outcome of economic activity. It is the economic environment
of business, which is the primary consideration in evaluating the business tactics. The present day
economic environment of business is a complex phenomenon. The economic relations with the
government, public, society and community influence the trend and structure of economy. People
and society are part and parcel of an organization. People want and need to be ethical not only in
their private life but also in public. The people are the ultimate sufferers if the affairs of the
organization were conducted unethically which are detrimental to the society. Therefore, they have a
concern over this. Over the last two decades, there has been a shift in the attitudes of corporate and
their executives towards ethics. A silent revolution is in under way in business ethics today. The
ideas, beliefs and attitudes associated with the profit ethic are being challenged as never before. The
historical idea of the divine right of capital no longer applies. The changes in the values, cultures and
customs lead to change, which in turn lead to re-engineering of ethics.
The world of business ethics is quite broad and its tentacles spread into a number of areas in the
larger sphere of business society relationship. The social responsibilities of businessmen, for
instance, clearly involve ethics and morality. There is always a doubt in the mind of the businessmen
about what is and what is not ethical. It is difficult to understand business or business society
relationships, without knowledge of the ethics. Business ethics is what society expects from
business. Mark Twain once said: “ To be good is noble. To tell people how to be good is even
In short “Corporate Houses can earn Profit with Morality”
A Case Study : Profitability with Morality
Mr. Suresh B. Hundre (65), Chairman and Managing Director of Polyhydron Private Limited (PPL),
Belgaum, an entrepreneur running his business for more than 25 years, who has given his people
operational freedom and liberated them in a "Business Ashram".
When Hundre took over the executive responsibility of PPL, managing the organisation was not
easy. There was continuous problem of cash flow due to long pending payments from the customers;
also the inventory was very high leading to high pressure on working capital management. Hundre
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analyzed the problems and found the cash flow problem also resulted in non-compliance of the
statutory and regulatory requirements.
He decided to change the system radically. He is stongly influenced by a diverse set of teachings and
the books he has read which incude the scriptures and spirituality, The Gita, Ricardo Semler's
Maverick, Swami Vivekananda and also Japanese Management techniques. He has picked up the
best from all this and runs his organisation like a ‘business ashrama' as he calls it, where
"Honesty is not the best policy, it is the only policy! We are honest. We are transparent."
Management of Quality, Leadership, Vision & Core Values
"We do not pay bribes" He first decided to comply with all the laws and pay the taxes on time.
Hundre also decided that he would not pay any bribe, as he is not a willful defaulter. The customers
were not given any credit, and the business was to be done only on payment, He scrapped the
material store and established a transparent supplier management system. He took a policy decision
that he would not entertain any price bargain with the customer and started following a transparent
discount policy, known to all.
Quality in PPL is a matter of character building rather than adherence to product or process
The Vision statement of PPL is "To create an island of excellence through focus on customer,
employee empowerment and continuous improvement". Hundre explains that excellence is about
feeling happy about ones work and doing something impossible according to own standards.
The Mission statement reads as "To nurture an ethically managed organisation and not to exploit
Customers, Employees, Suppliers, Government, Society, and Nature". The Mission is implemented
at every facet of the Company.Workmen are not asked to work in back shifts as working in odd
hours creates unnecessary stress and may adversely affect health and overall performance, suppliers
are also treated with respect.
He does not like pushing people to perform their duties, on the contrary he believes in creating an
enabling environment where people work without compromising ethics and morality.
He has created an ethically managed organisation. He feels that transparency and ethical behavior go
hand in hand. These are the basic foundations of quality. In PPL transparency is maintained in all
types of data sharing. Hundre does not object to employees looking into the balance sheets.
Information like cost per employee, productivity, profit, growth rate and many such data are shared
among all through displays on the notice board. Any one can question a financial transaction of the
Hundre strongly opposes debt based business dealings. He believes that businesses should build their
own financial strength then only sustained growth can be achieved. He feels that the fundamental
reason for premature collapse of a company is debt trap.
The Company strongly condemns consumption of any type of intoxicant. People with weak
personalities indulge in intoxication to create an artificial sense of well-being. One should acquire
strength - physical and mental through conscious efforts and not by artificial means. Consumption of
tobacco or cigarette is prohibited within the Company premises.
He believes that trust is an inseparable part of PPL's organizational process. PPL does not employ
watchman at the Company gate as the honesty of people is not to be questioned. Watchman is there
only during night hours when no one is working in the factory. Suppliers and employees are trusted.
No further inspection is carried out once the product quality is certified by the person concerned.
Organisation Structure , Work Practices & People
PPL follows a lean structure. Only one level exists between CMD and the workmen/operators. This
level is of Shop Floor Co-coordinators who are expected to be facilitators; they coordinate various
activities of the departments/functions. There is no supervision, the supervisors work as mentors and
The workmen are empowered to stop production at any stage in case they notice any product which
will not be accepted by the customer. The suppliers are also made aware about this practice.
The employees follow a common code of ethics "Each of the employees is responsible for both the
integrity and consequences of one's own actions."
The employees enjoy operational freedom. But they can not take reckless decisions which can affect
many others and can be questioned. But this does not create a fearful atmosphere; rather the
ownership of decisions and the results there of makes every one to take a responsible decision. In the
monthly meeting all issues related to the Company are discussed. Day-to-day information is shared
through notice board displays.
Suppliers & Purchases: There is no store provided for raw materials and incoming products. They
deliver materials directly at the work stations. No inspection is carried out the quantity is also not
formally counted. PPL has developed trust and respect from the suppliers. In case the workmen find
any problems with the material or component, they directly communicate with the concerned
supplier as it is believed that the workmen knows the problem best.
The dates of payments are decided by PPL as per the preference of the supplier. They collect their
cheques directly from their pigeon holes.
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"Business should create wealth," firmly believes Hundre. But he feels that quality of wealth is
equally important and should not be collected by exploitation. According to him, consistent,
sustainable and considerable growth is important. Size or rate of growth is not important. Hundre
says, "Taste of the fruit is the core issue not the size."
Ethics Drives Business Excellence
Does a moral compass help an enterprise become more competitive? An interview with Dr. Adam
GalinskyKaplan Professor of Ethics and Decision in Management at Northwestern University's
Kellogg School of Management.
Q: What are the key components of business ethics?
Galinsky: When we talk about business ethics, usually we're speaking about standards of behavior
in the workplace as well as with customers and partners. Companies known for high ethical
standards usually have an ethical code stating that they treat everyone with dignity, don't present
misleading information, and scrupulously follow rules and regulations.
Q: Why should a company be concerned about business ethics?
Galinsky: Having a moral compass leads to more effective business practices — whether in building
sales, retaining employees, or reducing litigation and regulation costs. For example, people are
usually willing to pay premium prices to feel good about the products they buy. Also, companies that
follow certain moral codes attract better people — and these people often are willing to work harder
with less compensation. It goes without saying that ethical companies are less likely to undergo the
costly scrutiny of courts and regulators.
Q: Why do some people and companies engage in unethical behavior?
Galinsky: It's important to understand that people don't engage in unethical behavior when the
incentives are small. They tend to engage in unethical behavior when the incentives are large. Keep
in mind also that unethical behavior usually breeds more unethical behavior — because hiding that
first misdeed usually requires more misdeeds — and for some businesses, like Enron, this can lead
down a path that ends in destruction.
Q: How do you get people to adhere to ethical standards in business?
Galinsky: Moral behavior needs to be embedded in a supportive social infrastructure that promotes
consistent behavior. For starters, company management can lead by example. A formal incentive
structure for adhering to standards also goes a long way in establishing moral behavior.
Communicating these standards with all stakeholders is critical, because an organization needs to
show its stakeholders that moral behavior is a serious matter, further reinforcing these norms
reinforcing these norms.
Q: Can incentives for certain kinds of behavior create ethical problems?
Galinsky: Incentive systems can both create and diminish unethical behavior. Large incentives can
invite unethical behavior. And then there are weak sanction systems — those with low detection
probabilities or small penalties — which are tragically ineffective and can corrupt normal behavioral
regulators, such as guilt. In fact, one study found that when small fines were introduced to reduce a
negative behavior (like being late), that behavior actually increased. Small fines and the low
probability of detection can alter decisions from being based on ethical considerations to crass
considerations simply based on economic concerns. This is why norms and culture matter so much.
Q: What's the importance of business ethics for executive leadership?
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Galinsky: I'm afraid to say that much of my research shows that people in positions of power tend to
become more egocentric and self-focused. This limits their capacity to understand the viewpoints of
other people, which may provide needed insight. However, an ethical company that values the
contributions of its employees is more likely to be innovative in the marketplace.
Q: How should business ethics affect employee behavior?
Galinsky: Milton Friedman once stated that the employees of a firm have the moral obligation to
maximize shareholder value. Deviating from this directive, he believed, is like a form of taxation
without representation, because shareholder money gets spent in ways that does not maximize
returns. This, I think, needs to be tempered with a stakeholder theory of the firm, which deals with
how employees interact with suppliers, partners, customers, and their co-workers - and these are all
interactions that should be encapsulated in a company's code of ethics.
Q: What's the importance of business ethics in the boardroom?
Galinsky: Business ethics are critical for members of company boards, as these people should
provide a great deal of moral leadership. But in some cases, board members turn a blind eye to
developing problems, and this can make bad situations worse. Still, board members often find it
difficult to fulfill their ethical duties, as recent research by my colleagues Ithai Stern and Jim
Westphal shows. Board members who are zealous about fulfilling their duties often get punished by
not being selected for boards at other companies.
Q: What role should legislation play in regulating business ethics?
Galinsky: Legislating some ethical behavior can help keep the marketplace free of monopolistic
behavior and safeguard stakeholders such as partners, customers, and investors. What's more, a
transaction between two organizations can affect other parties — and these externalities, as
economists call them, are sometimes best addressed by regulation.
Q: Does the global economy change the rules of business ethics?
Galinsky: A company's core values should be put into practice regardless of where business is being
transacted. That said, cultural differences and different business practices around the world can
present ethical challenges. But in some areas, forward-looking companies have actually been able to
improve conditions while still being competitive.
Q: How does the increased use of technology affect business ethics?
Galinsky: Some of the biggest issues with ethics and technology can be found in security and
privacy concerns. Ethical companies do their best to protect company assets without making people
feel stifled — and this balance is increasingly important for innovation and creativity.
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