Preface to the Second Edition

The first edition of this book “Business Ethics—An Indian Perspective” seems to have
served well and met the requirements of the academic community. Whatever feedback I
received from those who patronised it has been positive and though I earnestly required
them to let me know the defects they have observed in it, I did not get any adverse
comments. However, I am loathe to take it to mean that the book is perfect in every respect.
I have repeatedly gone through the book several times with a critical eye with a view to
finding commissions and omissions both from the points of view of the scholar and layman
so that I can correct errors wherever they occur in the book. In the process I have made
several corrections in various chapters. I felt that there is a need to add a chapter on
corruption in India, especially in the context of Gandhian Anna Hazare’s anti-graft
movement that is touted in the popular idiom as India’s second freedom. Struggles of this
type, of course, are not going to end such unethical practices in our society. Eternal vigilance
and uncompromising efforts towards achieving probity in public life alone will help us
realise a corrupt-free society. I hope this Second Edition of this book will contribute, even if
it is to a limited extent, to help realise the goal.

A. C. Fernando

Preface

When I was asked to handle the course on Business Ethics for students of postgraduate
diploma in Business Management at Loyola Institute of Business Administration (LIBA), I
came across a serious problem. While there were a few good books on the subject published
from abroad, Indian books on Business Ethics with Indian illustrations and case studies
were very limited. The available books were not properly structured —some of them did not
touch upon the theoretical aspects of business ethics, while others had pieced together a few
essays on some issues related to the subject and included writings or speeches of some
eminent public figures. The paucity of good, well-structured books on the subject warranted
a well-written India-centric book that would help students, and to some extent, the teachers.
The lack of adequate number of text books is understandable because the subject of
business ethics as a core course for management students is hardly two decades old. At the
same time, more and more B-schools have started introducing Business Ethics as a core or
an elective course. Hence, I felt a vital need for a good book on Business Ethics, which
focuses on the Indian perspective, and the idea of writing this book was born.

There was also another reason, rather a justification, for writing this book on business
ethics. My well-received book on corporate governance brought out by the same publisher,
Pearson Education, discusses Corporate Social Responsibility, Business Ethics, Corporate
Governance etc. that are generally included in any book on Business Ethics. Follow-up
efforts to improve future editions of Corporate Governance threw up new additional
material that appeared common to both the subjects. In the meantime, the subjects of
business ethics, corporate social responsibility and corporate governance were assuming
greater importance in the media as well as academia with several articles and research
papers being published in newspapers and journals. The idea of writing this book had thus
become irresistible!

While working on the chapterisation of the book —I should add in all humility—the course
content that was followed by my predecessor at LIBA, Dr C. L. Ramakrishnan, former
Director General of Police, Tamil Nadu looked well-conceived for me to emulate to a certain
extent. By adding a few more topics, the book looked complete in all respects. I take this
opportunity to salute Dr C. L. Ramakrishnan, an able and highly ethical police officer, for
showing me a clear path in writing this book. I have borrowed some of his ideas at several
places in the book. Since some of his imaginative ideas were presented more in power-
points than as published text, I had to elaborate many of the points he had touched upon in
his presentation.

A book of this sort, with the need to explain much of philosophy and ethical dilemmas,
could not have come from one who has been a student and teacher of economics all his life. I
have generously drawn a lot of ideas, theories, and real life cases from many authors, some
of whom lent their original contributions to the subject of Business Ethics that has been and
still keeps evolving. Wherever I have borrowed from their works, I have acknowledged. If I
have omitted to give credit to any source, it is needless to say it is unintentional and due to
sheer lapse of memory. Humility is a virtue I cherish most, especially in owning up the
original contributions I have used. However, if there are mistakes or inadequacies in the
book, it is due to my fault and I have no hesitation in saying “Mea culpa”. The supplement
for this book gives a lesson plan and PowerPoint slides
at [Link]/acfernando as useful study-aids.

I have made an effort to make this book useful for students taking the course on Business
Ethics. My publisher has also made serious efforts to get reviews of my peers to improve the
coverage and quality of the book. I have carried out to the extent possible, all their
suggestions. I seek the opinion and feedback of the academic community to make the future
editions of this book more acceptable to all stakeholders.

A. C. Fernando

Abbreviations

AAIFR – Appellate Authority for Industrial and Financial Reconstruction

ADB – Asian Development Bank

AFL-CIO – American Federation of Labor and Congress of Industrial
Organisations

AGM – Annual General Meeting

AIST – Australian Institute of Superannuating Trustees

ALI – American Law Institute

AMCs – Asset Management Companies, Annual Maintenance Contracts

AMFI – Association of Mutual Funds of India

AOP – Association of Persons

ARF – Assets Reconstruction Fund

AS – Accounting Standards

ASB – Accounting Standards Board

ASC – Accounting Standards Committee

ASSOCHAM – Associated Chambers of Commerce and Industry

BCCI – Bank of Credit and Commerce International

BIFR – The Board for Industrial and Financial Reconstruction

BIS – Bank of International Settlements

BOL – Build–Own–Lease

BOOS – Build–Own–Operate System

BOOT – Build–Own–Operate–Transfer

BOP – Balance of Payments

BPE – Bureau of Public Enterprises

BSE – Bombay Stock Exchange

CAC – Capital Account Convertibility

CAD – Current Account Deficit

CAG – Comptroller and Auditor-General

CAGR – Compound Average Growth Rate

CAO – Chief Accounts Officer

CARE – Credit Analysis and Research Ltd.

CBDT – Central Board of Direct Taxes

CBEC – Central Board of Excise and Customs

CCFI – Cabinet Committee on Foreign Investment

CCI – Controller of Capital Issues

CDSL – Central Depository Security Ltd

CEO – Chief Executive Officer

CFE – Certified Fraud Examiner

CFO – Chief Financial Officer

CFS – Consolidated Financial Statement

CG – Corporate Governance

CII – Confederation of Indian Industry

CIS – Commonwealth of Independent States

CISCO – The City Group for Small Companies, USA-based Software Company

CLA – Central Listing Authority

CLB – Company Law Board

CMD – Chairman and Managing Director

CMIE – Centre for Monitoring Indian Economy

COFEPOSA – Conservation of Foreign Exchange and Prevention of Smuggling

Activities

COPU – Committee on Public Undertakings

COR – Capital–output Ratio

COSO – Committee of Sponsoring Organisations

CPA – Certified Public Accountant

CPA – Consumer Protection Act, 1986

CPI – Consumer Price Index

CPSC – Consumer Product Safety Commission

CRA – Credit Rating Agencies

CRF – Consumer Redressal Forum

CRISIL – The Credit Rating Information Service of India Ltd.

CRR – Cash Reserve Ratio

CSO – Central Statistical Organisation

CSR – Corporate Social Responsibility

CUTS – Consumer Unity and Trust Society

D&OLI – Directors and Officers Liability Insurance Policy

Policy

DCA – Department of Company Affairs (now renamed Department of

Corporate Affairs), Government of India

DCC – Depositories and Custodian Cell (of SEBI)

DEA – Department of Economic Affairs

DEMAT – Dematerialisation

DGCI&S – Directorate General of Commercial Intelligence and Statistics

DICGC – Deposit Insurance and Credit Guarantee Corporation

DP – Depository Participants

DRI – Differential Rate of Interest

DTL – Demand and Time Liabilities

EC – Executive Chairman

ECB – External Commercial Borrowing

ECM – European Common Market

ED – Executive Director

EDIFAR – Electronic Data Filing and Retrieval System (SEBI)

EEC – European Economic Community

EEOC – Equal Employment Opportunity Commission

EFTA – European Free Trade Association

EMR – Exclusive Marketing Rights

ESAF – Enhanced Structural Adjustment Facility

ESCAP – Economic and Social Commission for Asia and the Pacific

ESI – Employees State Insurance; Environmental Sustainability Index

ESOP – Employee Stock Option Plan

ESOS – Employee Stock Option Scheme

ESPS – Employee Stock Purchase Scheme

EXIM BANK – Export and Import Bank

FRB – Federal Reserve Board

FAO – Food and Agriculture Organisation

FASB – The Financial Accounting Standards Board

FBI – Federal Bureau of Investigation

FCCBs – Foreign Currency Convertible Bonds

FD – Fixed Deposits

FDI – Foreign Direct Investment

FEMA – Foreign Exchange Management Act

FER – Foreign Exchange Reserves

FERA – Foreign Exchange Regulation Act

FERC – Federal Energy Regulatory Commission

FICCI – Federation of Indian Chambers of Commerce and Industry

FIIA – Foreign Investment Implementation Authority

FIIs – Foreign Institutional Investors

FIPB – Foreign Investment Promotion Board

FIPC – Foreign Investment Promotion Council

FMCG – Fast Moving Consumer Goods

FTC – Federal Trade Commission

FTZ – Free Trade Zones

GAAP – Generally Accepted Accounting Principles

GATT – General Agreement on Trade and Tariff

GCA – General Currency Area

GCF – Gross Capital Formation

GDCF – Gross Domestic Capital Formation

GDP – Gross Domestic Product

GDRs – Global Depository Receipts

GEF – Global Environment Fund

GFCF – Gross Fixed Capital Formation

GFD – Gross Fiscal Deficit

GRT – Gross Registered Tonnage

GSTP – Global System of Trade Preference

HDI – Human Development Index

HPAEs – High Performing Asian Economies

IAS – International Accounting Standards; Indian Administrative Service

IASB – International Accounting Standards Board

IASC – International Accounting Standards Committee

IBM – International Business Machines

IBPs – Inter-bank Participations

IBRD – International Bank for Reconstruction and Development (World Bank)

ICAEW – The Institute of Chartered Accountants in England and Wales

ICAI – The Institute of Chartered Accountants of India

ICC – Interstate Commerce Commission

ICICI – Industrial Credit and Investment Corporation of India

ICL – Indian Confederation of Labour

ICRA – The Investment Information and Credit Rating Agency

ICRR – Independent Cash Reserve Ratio

ICSI – The Institute of Company Secretaries of India

ICWAI – The Institute of Costs and Works Accountants of India

IDA – International Development Association

IDBI – Industrial Development Bank of India

IDI – Industrial Development Index

IDRA – Industrial Development and Regulation Act

IEBR – International Extra Budgetary Resources

IEPC – Investor Education and Protection Committee

IEPF – Investor Education and Protection Fund

IES – Indian Economic Service; Indian Education Service

IFAC – International Federation of Accountants

IFC – Indian Fiscal Commission

IFCI – Industrial Finance Corporation of India

IIF – Institute of International Finance

IFSA – Investment and Financial Services Association

IGGD – Investors Grievances and Guidance Division, SEBI

IIBI – Industrial Investment Bank of India

IIDC – Integrated Infrastructure Development Centre

IIM – Indian Institute of Management

IIP – Index of Industrial Production

ILO – International Labour Organisation

IMF – International Monetary Fund

IPO – Initial Public Offer

IPPs – Independent Power Producers

IRDA – Insurance Regulation and Development Authority

IRS – Internal Revenue Service

IUCN – International Union for the Conservation of Nature and Natural

Resources

LA – Listing Agreement

LATAM – Latin America

LERM – Liberalised Exchange Rate Mechanism

LIBOR – London Inter-bank Borrowing Rate

LLP – Limited Liability Partnership

LTFP – Long-term Fiscal Policy

MAOCARO – Manufacturing and Other Companies (Auditors Report) Order

MAPIN – Market Participation and Investor Database (SEBI)

MD – Managing Director

MF – Mutual Funds

MFA – Multi-fiber Agreement

MFNC – Most Favoured Nations Clause

MIC – Monopolies Inquiry Commission

MIS – Management Information System

MMMFs – Money Market Mutual Funds

MODVAT – Modified Value Added Tax

MoF – Ministry of Finance

MoU – Memorandum of Understanding

MRTP – Monopolies and Restrictive Trade Practices

MRTP Act – Monopolies and Restrictive Trade Practices Act

MRTPC – Monopolies and Restrictive Trade Practices Commission

MSBs – Market Stabilisation Bonds

MTN – Multilateral Trade Negotiations

MTO – Multilateral Trade Organisation

NACD – National Association of Corporate Directors

NAFTA – North American Free Trade Agreement

NASSCOM – National Association of Software and Services Companies (India)

NAV – Net Asset Value

NBFCs – Non-banking Finance Companies

NCAER – National Council of Applied Economic Research

NCDRC – National Consumer Disputes Redressal Commission

NCL – National Commission on Labour

NCLT – National Company Law Tribunal

NDP – Net Domestic Product

NEAT – National Exchange Automated Trading System

NEF – National Equity Fund

NEP – New Economic Policy

NFCG – National Foundation for Corporate Governance

NGOs – Non-government Organisations

NIEs – Newly Industrialised Economies

NLRB – National Labour Relations Board

NPAs – Non-performing Assets

NRIs – Non-resident Indians

NRNR – Non-resident Non-repatriable Rupee Account

NSDL – National Securities Depository Ltd

NSDP – Net State Domestic Product

NSE – National Stock Exchange

OECD – Organisation for Economic Cooperation and Development

OGL – Open General License

OPEC – Organisation of Petroleum Exporting Countries

OTCEI – Over the Counter Exchange of India

PAC – Public Accounts Committee

PBT – Profit Before Tax

PCAOB – Public Company Accounting Oversight Board

PCDCs – Partially Convertible Debentures

PCFC – Packing in Credit in Foreign Currency

PDS – Public Distribution System

PMS – Portfolio Management Scheme

POB – Public Oversight Board

PPDCs – Process-cum-product Development Centres

PPPs – Purchasing Power Parities

PSEs – Public Sector Enterprises

PSUs – Public Sector Undertakings

QRB – Quality Review Board

R&D – Research and Development

RBI – Reserve Bank of India

RCF – Risk Capital Foundation

RoC – Registrar of Companies

ROI – Return on Investment

SAARC – South Asian Association for Regional Cooperation

SADF – South Asian Development Fund

SAT – Securities Appellate Tribunal

SBI – State Bank of India

SCDRC – State Consumer Disputes Redressal Commission

SCMRD – Society for Capital Market Research and Development

SEBI – Securities and Exchange Board of India

SEC – Securities and Exchange Commission (USA)

SFC – State Financial Corporation

SLR – Statutory Liquidity Ratio

SNA – System of National Accounts

SOX – Sarbanes–Oxley Act (USA)

SPC – Small Private Company

SRI – Socially Responsible Investing

SRO – Self-regulatory Organisation

STCI – Securities Trading Corporation of India Ltd.

STP – Straight Through Processing

TCOs – Technical Consultancy Organisations

TDC – Technology Development Cell

TDICI – Technology Development and Information Company of India Ltd.

TNCs – Transnational Corporations

TRIMs – Trade Related Investment Measures

TRIPs – Trade-related Intellectual Property Rights

UNCTAD – United Nations Conference on Trade and Development

UNDP – United Nations Development Programme

UNESCO – United Nations Educational, Scientific and Cultural Organisation

UNRID – United Nations Research Institute for Development

UPS – Usual Principal Status

UR – Uruguay Round

UTI – Unit Trust of India

VAM – Value Added by Manufacture

VAT – Value Added Tax

VCF – Venture Capital Fund

VOICE – Voluntary Organisation in Interest of Consumer Education

WDR – World Development Report

WHO – World Health Organisation

WPI – Wholesale Price Index

WTO – World Trade Organisation

XGS – Exports of Goods and Services

ZBB – Zero-base Budgeting

 CHAPTERS

1  BUSINESS ETHICS: AN OVERVIEW

2  CONCEPTS AND THEORIES OF BUSINESS ETHICS

3  ETHICAL DILEMMAS, SOURCES AND THEIR RESOLUTIONS

4  ETHICAL DECISION-MAKING IN BUSINESS

5  GLOBALIZATION AND BUSINESS ETHICS

6  CREATING AN ETHICAL ORGANIZATION

Part One
THEORIES UNDERLYING THE ISSUES AND
PROBLEMS OF BUSINESS ETHICS

Business ethics is applied ethics that studies moral standards and shows how these apply to
the systems and organizations involved in businesses. Business ethics studies moral norms
and values and aims to apply the conclusions gleaned from them to business which is
carried out through a motley group of institutions, technologies, transactions, pursuits and
activities. Such a study of business ethics is best served through a discussion of the basic
framework of theories and principles that motivate and govern business behaviour. Once
the underlying principles are learnt, we can proceed to discuss their implications for
business.

Chapter 1 provides an overview of the subject matter; Chapter 2 discusses concepts and

theories of business ethics; and Chapter 3 focuses on ethical dilemmas, their causes and
possible resolutions. Chapters 4 and 5 discuss respectively the sources and consequences of
ethical dilemmas and how they are resolved, and ethical decision making in business. A
globalized business world throws up newer ethical challenges, issues and problems that are
discussed in Chapter 5. Chapter 6 provides a framework of creating an ethical organization.

Cases attached to all these chapters illustrate how all these principles when put into practice
are shown to impact business, sometimes positively, sometimes otherwise.