BUSINESS ETHICS AND GOOD

GOVERNANCE
LECTURE NOTES

“he who governs the least governs the best”

ETHICS

Ethics
• The word ethics is originated from the
Greek word “ethos” meaning
character, guiding beliefs, standards
or ideals that pervade a group,
community or people.

• Ethics concern an individual’s moral

judgement about right and wrong.
 • Ethics are set of principles or rules of
conduct to help distinguish right and
wrong.

KEY TERMS
The key terms of ethical language are
• Values
• Rights
• Duties
• Rules
 Values: consider something is
good/bad, importance, worth,
usefulness of something. For instance
producing a quality product may be
one of the value of a company.
-she value herself; his house valued
tsh.1m;
 Rights: Are the claims that
entitle a person to take a particular
 action. Rights of one person are
limited by the rights of others.
 Duties: Are obligations to take
specific steps or obey the law.
 Moral rules: define proper
behavior keeping promises, helping
those in distress, respect for aged
persons etc

Elements of an Ethical Culture

1. Leaders live by clear standards and
self-transcending principles.
2. Employees feel genuinely cared for
and respected.
3. Employees put the work at hand and
the interests of others above themselves.
4. Employees feel empowered and
energized to reach for ethical and
technical excellence in serving
customers, clients, and each other.
5. Employees hold themselves and their
managers accountable to
uncompromising standards of conduct.
6. People at all levels move toward, not
away from, ethical dilemmas and
conflicts in order to address them
through self-transcending ideals.

CLASSIFICATION OR TYPES OF
ETHICS
1.Normative ethics
Norms or Standards are also known as
values or codes.
-Norms set clear guidelines for social
interaction in a community.
-Normative ethics is a study of moral
standards which can be applied to human
actions to judge their moral character,
that is if they are right or wrong. E.g.
Justice, duty, etc.
Codes
-Defined as a systematically arranged set
of principles, standards, best practices
and/or recommendations:

-are defined as a set of ‘best practice’

recommendations with regard to the
behavior of an individual/firm

2. Applied ethics

-Is professional ethics judging what is

right or wrong in performing actions in a
given field of study.
Business ethics deal with application of
normative standards to specific
business experiences e.g. medical
practitioners are expected to diagnose
correctly and issue right medication

3. Meta-ethics
It is in depth study of a given discipline
or is a scientific study of the concept of
ethics in itself.
Therefore, meta-ethics is a study of the
general principles that govern right and
wrong human actions.

4. Moral Ethics
-This branch questions how individuals
develop their morality.
-Why certain aspects of morality differ
between cultures and why others are
generally universal e.g. abortion.

5. Descriptive Ethics
- focuses on how human beings actually
operate in the real world rather than
attempts to theorize about how they
should operate.

ETHICAL MECHANISM

1. Written Standards
Values statements: Reflect an
organization’s guiding principles
Codes of conduct: Reflect an
organization’s values and provide
guidelines employees should follow

2. Ethics Training
Training and development programs at
organizations with ethical cultures
emphasize character formation,
resolution of conflicting values,
3. Internal Reporting
-Options for employees to report or seek
advice about possible legal or code of
conduct violations
-Employees encouraged to report
concerns to their supervisor and, if they
are not comfortable with this option, to
contact HR

4. Anonymous Reporting
Mechanism
Confidential, anonymous hotline for
employees not comfortable with using
the internal mechanism

5. Discipline for Misconduct

HR and legal departments - review ethics
complaints and decide on appropriate
action
 BUSINESS ETHICS

 Business Ethics- study of what is

good or bad, right & wrong, just &
unjust, fair & unfair in the business as
against in personal life.
 Different from Personal Ethics
.

 Business ethics- refers to a 'code

of conduct' which businessmen are
expected to follow while dealing with
others
-Codes are defined as a systematically
arranged set of principles,
standards, best practices and/or
recommendations, or are set of ‘best
practice’ recommendations with
regard to the behavior and structure
of a firm
 -Code of conduct for businessman for
carrying on business consistent with
what others follows.

 ethics in business -is simply the

application moral or ethical norms to
business
 Business ethics comprises the
principles and standards that guide
behaviour in the conduct of business
 Business ethics refer to a set of
moral principle which should play a
very significant role in guiding the
conduct of managers or employees in
the operation of enterprise (Prasad,
2007).

- 'Code of conduct'- is a set of principles
and expectations that are considered
binding on any person who is member of
a particular group
- Businesses must balance their desire to
maximize profits against the needs of the
stakeholders
- rules, standards and norms are
developed to guide the businesses to earn
profits without harming others
- business ethics covers-employees,
suppliers, customers and neighbors, its
fiduciary responsibility to its
shareholders

IMPORTANCE OF BUSINESS
ETHICS

1. Stop business malpractices and unfair

trade.
2. Improve customers’ confidence about
the quality, quantity and price of goods
or products.
3. Survival of business.
-When customers are cheated and find
out they won’t return, the business will
have negative image and publicity.
Consumer movement has made
consumers more, organized and aware of
their rights thus, can’t be cheated easily.
7. Smooth functioning of the business
from the corporation from its
stakeholders enabling growth, expansion
and diversification.
8. Consumer satisfaction will increase if
the business follows business ethics.
9. Healthy competition giving equal
opportunities to small-scale businesses,
avoiding monopoly
10. Forge cordial relation with the
society.

11. Prevent exploitation of market,

society and consumers

SOURCES OF BUSINESS ETHICS

1. Religious
-various religions including Christianity
and Islamic insist on ethical behaviour
when dealing with others.
Example: do not cheat and steal, love
and respect one another.

2. Cultural beliefs
-cultural beliefs differ from one society
to another but some cultures are
universal
e.g. protecting and respecting human
rights, not giving or accepting
corruption.

3. Value forming institutions

-The value system of individuals is
shaped by various institutions such as
family, religion, school and the
government.
-These institutions prescribe what is the
best and the beast for an individual.
Right behavior is rewarded while
wrong behavior are punished.

5.Organizational goals/objectives
-The objective of an organization
influences the values of its members.
Many times, managers may be forced
to compromise their personal ethical
value in order to achieve organizational
goal
6. Peers and colleagues
-An individual in a group tend to
conform to the norms of the group.
-One does to either get approval or
friendship of his colleagues.
-One adopts the altitude, beliefs and
values of a group to which he is
associated.

7. Professional codes
-Codes of ethics are written documents
that outline the principles of conduct to
be used in making decisions within the
organization.
-They may be organizational
philosophy, company policies etc
 PSYCHOLOGY OF MORAL
DEVELOPMENT

-Moral development is rooted in

psychological literature.

-The research on moral development

attempts to respond to the following
question:

how is it that people grow morally?, and

what influences the development of a
moral life?

What is Psychology?
-The word psychology is derived from
two Greek words “psyche” and “logos.”
-Psyche means soul and logos mean the
study.
- Originally psychology was defined as
the study of “soul” or “spirit.”
But later on philosophers defined psyche
as mind.

Because of this, psychology began to be

regarded as the study of an individual’s
mind or mental process.

-Over time, this definition of psychology

was given up because the mind as an
object does not exist: and cannot be
observed and measured objectively.

-The most widely and accepted definition

of psychology came up which is:
The science of behavior and mental
processes of both humans and animals

Moral (s)
-Concerned with the principles of right
and wrong behavior

-what you believe to be right and wrong

Morality
-is defined - consists of the rules of
conduct based on conscience or the sense
of right and wrong

-sense of -reasoning, moral feelings,

action or behavior

 Concern about understanding the

distinction between right and wrong
  Deals with people’s relationship
with others
 A system of values on conduct

 morality also focuses on long-

term character traits, virtues
understanding what it means to be
human and to live meaningfully

 All human beings have the

capacity for moral thinking

What makes for “Morality”

 Cognitive factors -Understanding

of issues
 Concern for others
 Shame/guilt

Development
  A process that that constitute a new
stage in a changing manner

 Is a process that creates growth,

progress, positive changes
(psychological, physical, economic,
environmental, social and
demographic)

Morality Development
-has been discussed by many
theories/theorists include:

 Psychoanalytic Theory
 Cognitive Developmental Theory
 Social Learning Theories
 Damon’s View of Moral Identity
NB: All theories agree that conscience
develops over time

- All agree that there is a stage-wise

development

1. PSYCHOANALYTIC THEORY
-Psychoanalysis is a branch of
psychology which was developed by the
Austrian born neurologist Sigmund
Freud in 1924

-Psychoanalysis is a theory of the human

mind and a treatment method for psychic
problems
-a method for treating mental illness and
also a theory which
explains human behavior
- Psychoanalysis is often known as the
talking cure, Freud would encourage his
patients to talk freely (on his
famous couch) regarding their symptoms
and to describe exactly what was in their
mind

- Freud proposed that physical symptoms

are often the surface, a manifestation of
deeply repressed conflicts.

- it is based on the ideas that mental life

functions at two main levels: conscious
and unconscious

- Psychoanalysis -is a system that

investigate the interaction of
CONSCIOUS AND UNCONSCIOUS
elements in the mind and bringing
repressed fears and conflicts into the
conscious mind

i) Unconscious mind

- A major part of our mind is

unconscious, and this part is only
accessible with psychoanalysis.

-is the unconscious part of the mind, the

site of the repressed and the unknowable
memory-traces of early life

- this is a region/repository where

frightening, primitive, painful events,
wishes, desires and other impulse are
locked up. This happens through the
process of repression
-Feud argue that the unconscious mind
governs behavior

ii) Conscious mind

-everything we are aware of
- is seen as
the tip of the iceberg

So
- the goal
of psychoanalysis is to make the
unconscious conscious
Early Childhood Experiences
-Feud argue that the development of the
child’s mind is divided into unconscious
and conscious psychiatric process
 it is based on the belief that childhood
events have a powerful psychological
and moral influence throughout life
 they are characterized by passionate
wishes, untamed impulses, and
anxieties.
Example: hunger stirs a wish to
swallow up everything, yet also the
fear of being swallowed up by
everybody else; fears of being
manipulated or abandoned; fears of
being separated by parent/care taker,
fears of being helpless and alone

-Therefore early wishes and fears

result in conflicts, if they were not
resolved, are repressed and become
unconscious
  Repression -is the force that keeps
unconsciousness due to unresolved
portions of childhood conflicts

The Ego, the Id and the Super-Ego

-Later, Feud developed a more
structural model of the mind comprising:

i)The Id-
-the personality component made up of
unconscious psychic energy that works to
satisfy basic urges, needs, and desires

-comprises two kinds of

biological instincts (or drives)
 life instinct- directs life-
sustaining activities such as
respiration, eating
  death instinct, is viewed as a set
of destructive forces present in all
human being

ii) The Ego- develops from the Id during

infancy.
 The egos goal is to satisfy
the demands of the id in a safe a
socially acceptable way.
 it operates in both the
conscious and unconscious mind

iii) The Superego

 develops during early childhood.
 is responsible for ensuring moral
standards are followed.
 The superego operates on the
morality principle and
motivates us to behave in a socially
responsible and acceptable manner.
Ex. can make a person feel guilty if rules
are not followed

Treatment Method for Psychic

Problems
-Mary suffered from hysteria, a condition
in which the patient exhibits physical
symptoms (e.g. paralysis, convulsions,
hallucinations, loss of speech) without an
apparent physical cause. Her doctor
succeeded in treating
her by helping her to recall forgotten
memories of traumatic events.
Critic
-Freud's theory is good at explaining but
not a
predicting behavior (which is one of the
goals of
science)
What Is a Theory?
A theory is a collection of interrelated
concepts, factors, interpretations and
premises which presents a systematic
view of phenomena
 A theory is a set of general
principles or ideas that are meant to
explain how something works, and is
independent of what it intends to
explain
 a theory defines the relationship
between variables in order to explain
a natural phenomenon
 a Theory is a coherent group of
assumptions put forth to explain the
relationship between two or more
observable facts and to provide a
sound basis for predicting future
events
 strong theories are relevant
because they are functional as they
take seriously the context, but also
 embody philosophical policy
implications

3.3.1 Objectives of the Theories

Why do we need theories?
 to help explain what causes something
to occur, or to inform us of the likely
consequences of a phenomenon
(explaining society, processes,
relations, behaviour and perceptions)
 to predict the outcome of a certain
relationship among variables.
-A strong theory has a great value of
accuracy of prediction hence guide
decision-making
 to understand the reason behind
prediction.
-A well-developed rhetorical model
allows for testing of the model, and
 revision of the model to increase its
accuracy.
 to explain more effectively and
systematically the world of humans
(the social, physical, economic and
political world) the nature of the
relationship between them, their
actors, their events, their institutions,
their histories their behaviors and
their power base
 enable understanding and inform
decision-making (practitioners).
 shape the framing of their data, and
are often presented as an essential part
of any well-designed research project
(Researchers-make a theoretical
contribution).
 Allows testing (hypotheses, models)
enables to uphold or refute existing
explanations, leading to enhanced
 theoretical confidence – or prompting
refinement

A Theory is not;
 facts or data
 a hypothesis, or a case study
 a literature review

PSYCHOLOGY OF MORAL
DEVELOPMENT CONT……
 2. COGNITIVE DEVELOPMENTAL
THEORY
-by Piaget, 1932; Kohlberg, 1969
-is concerned mainly with MORAL
REASONING

JEAN PIAGET
-was Swiss psychologist
He researched and wrote the book The
Moral Judgment of the Child (1965)
-Piaget was interested in how children
put their cognitive worlds in order, how
children understand the moral “rules” of
behavior with their peers, and where do
the “rules” come from;

-Piaget answered these questions with a

qualitative study of children playing in
their natural environment.
In his research,
 • He watched and interviewed young
boys (age 5-12) as they played
marbles.
 The interviews were designed to elicit
the boys’ understanding of the moral
rules as well as their “consciousness”
of the rules themselves
 Piaget found that the boys’
understanding of the moral rules
changed according to a predictable, h
hence came with the term “moral
development”

-He liked to use the concept of autonomy

-He argued that ethical thinking begins
with the ability to make an autonomous
choice
-The theory shows that moral reasoning,
based on the concepts of equality and
reciprocity, changes in predictable ways
across the years of childhood and youth

- just as the child’s thinking and use of

logic develop through several stages, so
moral reasoning moves through stages
that are progressively more complex and
inclusive in scope

-The child does not simply take in or

internalize an external morality, but
rather produces his/her own moral
understanding by constructing and re-
constructing concepts of reciprocity and
equality

Developmental Stages
Jean Piaget stages of moral development
  At age 2, children put the
marbles in their mouths- little moral
import (Piaget called it motor and
individual)
 At age 5, the children moved into
the egocentric stage-didn’t play
together, parallel play
 At 7 to 8 changes occurred-
played together- stage of incipient
cooperation- gave different accounts
of the actual rules applicable to
everyone
 9 to 10, the boys entered the stage
of the codification of the rules- boys
had internalized the rules and
understood that they could change
them, with the reasons behind the
rules themselves
-at this stage boy are believed to
understand distributive justice
- Piaget described the major moral stage
transition as taking place in late
childhood, and it consisted of moving
from a “heteronomous” view of social
rules to an “autonomous” one, in which
the child could adopt others’ points of
view and see the rules as his/her own.

Advant
- the applicability of his insights to adult
moral behavior is straightforward.
- Adults sometimes do ethically
questionable things (driving a car very
fast just for the experience of speed)
- Comfort, experience, and good
cognitive skills allow most adults to
internalize some universal
understandings
- Cooperation is the work of adult life
LAWRENCE KOHLBERG
-psychologist Lawrence Kohlberg’s came
with six stages of moral development
 He tested Piaget’s framework on
undergraduate men at Harvard
 He proposed that the STAGES
reflect higher quality ethical
reasoning
 Kohlberg theorized that people
progress through the six stages in
hierarchical linear fashion with no
slipping backward

- Kohlberg’s six stages were divided

into three broad levels
 Pre-conventional
 Conventional
 Post-conventional
i)The Preconventional
stage (stages 1 & 2
- follow unvarying rules -rewards and
punishments

- is defined by rules that are delivered by

authority and are inviolable

-breaking rules results in punishment,

and adherence to rules is either to avoid
punishment or gain rewards

- In this stage, people are concerned with

their own welfare
- This level of moral development is
defined by simple, self-interested
obedience to the rules

ii) Conventional reasoning (stages 3 &

4)
-in this stage, rules begin to be respected
and are eventually seen as serving
society
- rules are necessary for maintaining
social order and can be changed if all
agree.

- Helping others and gaining their

approval drive an individual’s actions.

- At this level, one’s moral reasoning is

dominated by “doing one’s duty” and
maintaining social order
- Thinking at this stage acknowledges the
role of duty

- Authority here is vested in the social

group(s) to which the individual belongs

- approach problems in terms of their

own position as good, responsible
members of society

iii) the Postconventional (stages 5 & 6)

- Kohlberg’s highest stage, the
Postconventional
-in this stage, laws and rules are
respected only so far as they appeal to
universal ethical principles

- rules are the result of intellectual

reasoning and they should achieve full
reciprocity;
- Right and wrong, and the value of rules
and law, are determined by their appeal
to mutuality and universality
exa: journalist operating at this stage of
moral development would agree to
withhold publishing a photograph in
order to protect a person’s privacy
-individual understanding that some
rights are beyond debate, for example,
life and liberty

- universal moral principles – bigger than

societal concerns

- Kohlberg see moral develop takes place

at adolescence and early adulthood, and
maintained that each stage consisted of a
unique conceptualization of the requisites
of social interaction, with each
successive stage exhibiting greater
cognitive complexity and a greater range
of perspectives taken into account

Critic
- Kohlberg’s formulation focused on
rights and justice
-this assumption was challenged by
Carol Gilligan (1982),
- theory was biased against women, they
argued that women develop differently
from men, putting more emphasis on
caring for others
-the theory lacks moral judgment/
moral sensitivity/ moral
motivation/moral character, or the ability
to determine morally acceptable options
 3. SOCIAL LEARNING THEORY
-by Albert Bandura
- born December 4, 1925 in Alberta,
Canada
-Father of Psychology as He studies
Psychology from first degree to PhD, and
widely published in the area.

 learning is defined as “A
persisting change in human
performance as a result of the
learner’s interaction with the
environment
 is the relatively permanent
change in a person’s knowledge or
behavior due to experience
 LT see the environment as the
major force in development
  This theory is based on the idea
that we learn from our interactions
with others in a social context.

Principles of Learning
People learn through:
 Observation
 Imitation
 Modeling
 Intrinsic Reinforcement

i) Observation learning
 Learning takes place by
observing the behaviors of others,
people develop similar behaviors.
 People can learn new information
and behaviors by watching other
people
  experiments in children- simply
they imitate the behavior they had
observed
 Observational learning may take
place at any age
 He noted that because people
learn through observation alone,
Learning may or may not result in a
behavior change
 elements of effective
observational learning are attention
(take notice), retention (able to
remember), reciprocation (ability to
replicate the behavior) and motivation
(demonstrate what they have learned).

ii)Imitation and modeling learning

-this is the second and third stage
 individuals shaping their own
behavior after the actions of models
  people who are being observed
are called models and the process of
learning is called modeling
-examples of behaviors that can be
learned through modeling include:
-students can watch parents read,
-students can watch the
demonstrations of solving
mathematics problems, or watch
someone acting bravely and a fearful
situation
- children become more aggressive
when they observed aggressive or
violent models
 moral thinking and moral
behavior are influenced by
observation and modeling

iii)Intrinsic Reinforcement
 is one of the form of internal
reward, such as pride, satisfaction,
and a sense of accomplishment.
 He believed that external,
environmental reinforcement is not
the only factor to influence learning
and behavior

Therefore;
 Our expectations and beliefs
influence which behaviors are
learned.
 Vicarious reinforcers (as learned
by observing peers, media, parents,
and others) influence our sense of
right and wrong as well as our
actual behaviors.
Factors that Promote Moral Growth
 Cognitive development;
stimulation; exposure to conflicting
views
 Relevant social experience –
interact with people who have
different points of view – promotes
“cognitive disequilibrium”
 Opportunities to sort out
differences with peers.

The Source of Morality

-All theories are that conscience
originates outside the individual in
societal influences.

 Psychoanalysis- the origin of the

superego as a process of
 incorporation, almost literally a
“swallowing” of the parent’s morality
by the child
 Learning approaches -posit
environmental pressures, in the form
of models, reinforcements, and
punishments, as elements that govern
the acquisition of conscience
 Cognitive-developmental theory
-arguing that the child essentially
creates his or her own conscience on
the basis of experience with
relationships and role-taking
opportunities

Predictors of Moral Development

i)Age
- people change as they age. In
- the higher the quality of moral
reasoning used.
ii) Education
- stage progression from high school into
adulthood
- moral development levels off when
formal education stops
- education is a more powerful predictor
of moral development
For example, college aims to develop
critical thinking skills, students are asked
to explain why, give evidence. college
exposes students to diversity of facts,
ideas, people, and cultures

iii) Religious Beliefs

- interpretation of religious texts such as
the Bible or Koran and rigid adherence to
those principles, often with intolerance of
other views
- religious beliefs influence moral
thinking in powerful ways- religious
teachings tell people what to do, and is
outside the bounds of human scrutiny
- religious directives from transcendent
authorities that are incorporated into life
experience and therefore not beyond
human understanding are
Postconventional

iv) Ethic of Care, -benevolence

-This is the highest stage of development.
-focus on removing any significant
gender bias i.e women
 UNETHICAL BEHAVIOR

Unethical behavior
- is defined as the one that is not morally
honorable or one that is prohibited by the
law.

-Unethical practices recognized and

prohibited by law include:

Corruption, fraud, illegal business

donations, patent infringement, Misuse
of company time, abusive behavior, lying
to employees, falsifying time or
expenses, safety violations, disciplinary
actions and abuse of company resources
False Communication-cheating on tax
returns or inappropriate depreciation
schedule and wrong expenses

Collusion -especially with competitors,

to fix prices, is an unfair business
practice today

Gifts and Kickbacks- employees to

receive gifts from clients during normal
course of business.

Conflict of interest -occurs when one’s

private interest interferes or appears to
interfere in any way with the interest of
the organization. These include;
 diverting from the organization for
personal benefit, a business
opportunity,
  using the organization ‘s assets for
personal benefit,
 accepting any valuable thing from the
organization ‘s customers or
suppliers,
 having a financial interest in an
organization ‘s competitor

Insider trading - occurs when a person

who has access to confidential
information uses or shares the
information for securities trading
purposes

Discrimination and Harassment -

involves not providing equal opportunity
in employment on merit but on other
basis such as race, sex, national origin,
age, religion, or any other basis not
related to the job
Trade Practice -which prevents,
distorts, restricts competition in any
manner that
 Obstructs free play of competitive
forces
 Impedes free flow of capital,
information and Resources into stream of
production
 Free flow of supplies into market
 Manipulation of prices

ii) Exclusive dealings

iii) Discriminatory dealings
iv) Re-sale price maintenance (RPM)
v) Territorial and other restrictions
vi) Boycott
vii) Predatory pricing
ix) Misleading advertisement or false
representations
Causes of Unethical Behavior
 pressure to meet unrealistic
business objectives and deadlines
 desire to further one ‘s career
 the desire to protect one ‘s
livelihood
 Job pressure
 Ignorance- not knowing the
seriousness of the consequences
Competition for scarce resources, power
or position
 ETHICAL DILEMMAS
Question: Why do people do something
even when they know it’s wrong?

-The interaction among stakeholders

creates a multitude of ethical dilemmas

-The business environment presents

many potential ethical conflicts
- Ethical dilemmas arises when people
make unethical choices

An Ethical Dilemma
 Ethical paradoxes
 Moral dilemmas
-can be defined as a situation where an
individual face two conflicting moral
choice, or an undesirable or unpleasant
choice relating to a moral principle or
practice

-a situation in which every available

choice is wrong

-Ethical dilemma is a situation in which

two or more “right” values are in
conflict.

-There are three conditions that must be

present for a situation to be considered an
ethical dilemma.
i) there must be different courses of
action to choose from.
ii) an individual must make a decision
about which course of action is best.

iii) no matter what course of action is

taken, some ethical principle is
compromised. In other words, there is
no perfect solution.

Simply put
-Ethical dilemma happens in situations
where two or more important values,
rights, or responsibilities conflict and we
have to choose between equally
unpleasant alternatives

For example,
 Your critically ill family member
is in the hospital and the doctors and
nurses are turning to you to make
 medical decisions on the patient’s
behalf. You don't know how to decide
what to do and could use some
guidance
 what should I do when a clerk
gives me too much change?
 What should I say when a
convenient lie can cover a mistake?
 How far should I go in my
promises to win a client?
 Is deciding whether to embezzle
corporate funds a tough ethical
dilemma?

-Ethical issues typically arise because of

conflicts among individuals’ personal
moral beliefs and values and the core
values and culture of the organizations
where they work
-The business environment also presents
many potential ethical conflicts/
dilemma.

-Organizational objectives can clash with

its employees’ in an attempts to fulfill
their own personal goals.

In a dilemma situation- all of the

alternatives have negative consequences,
so the less harmful choice is made

Reasons as to why people make

unethical choice
i) they choose What is Most
Convenient
ii) Make choice in order to Win-
desire to win through achievement
and success.
iii) Social pressure
 iv) Rationalization-Many people
choose to deal with such ‘no-win
situations’ by deciding what’s
right in the moment
(no one will ever find out, that the
behavior is not really illegal, that it
is in the best interest of the
organization, and that the
organization will protect them)
v) Failure to use legal framework as
their standard for decision making

ETHICAL THEORIES
-Theories of ethics emphasize different
aspects of an ethical dilemma

-They direct to the ethically correct

resolution according to the guidelines
within the ethical theory itself
i)Deontology
-The word deontological comes from the
Greek deon, meaning “duty.”
- the right action, which it is the duty of
all to do
-things that must be done (or refrained
from) irrespective of the consequences.

-a deontologist focuses on what is “right”

(based on moral principles or values such
as honesty, promise keeping, fairness,
loyalty)

Solution for Ethical Dilemma.

-The deontological theory states that
people should adhere to their
OBLIGATIONS AND DUTIES when
analyzing an ethical dilemma.
This means that a person will follow his
or her obligations to another individual
or society because upholding one's duty
is what is considered ethically correct

- deontologist rely on moral rules to

determine i.e Golden Rule, a basic moral
rule found in every major religion;
“Do unto others as you would have them
do unto you.” Everything you want
others to do to you, you should do to
others.

2. Do not do to others anything, which

you do not with them to do to you.
3. Do not do anything to others that, if
done to you, would cause harm to you .

- NB: The Golden Rule leads you to the

best decision only if you’re highly ethical
- Deontological argue that certain moral
principles are binding, regardless of the
consequences. As such, some actions
would be considered wrong even if the
consequences of the actions were good
Ex:
An auditor taking a deontological
approach would TELL THE TRUTH
about a company’s financial difficulties
even if doing so might put the company
out of business.
While, aUtilitarianist would weigh the
societal HARMS AND BENEFITS
before deciding what to do, including
lying now he or she could save a good
company in the long term,
  deontologist will always keep his
promises to a friend and will follow
the law
 the theory guides individual to
produce very consistent decision


Weakness
 there is no rationale or logical
basis for deciding an individual's
duties. For instance, businessman
may decide that it is his duty to
always be on time to meetings.
Nothing is known why the person
chose to make this his duty. Ethical
dilemmas often pit these against each
other.
 Sometimes a person's
DUTIES/RIGHT conflict each other.
EX:
 -if the deontologist who must be on
time to meetings is running late,
-how is he supposed to drive?

Is the deontologist supposed to speed,

breaking his duty to society to uphold
the law?
-or is the deontologist supposed to
arrive at his meeting late, breaking
his duty to be on time?
-What does the deontologist do if one
binding moral rule clashes with
another?

ii) Teleology theories

-teleological, comes from the Greek telos
for “end” and logos for “reason”
-The main assumption is that the morality of
behaviour can be judged by the
consequences of that behaviour
- Teleology has several a branch of theories

a) Consequentialist Theory
- The theory focus on outcomes and
consequences
-The theory is founded on the ability to
predict the consequences of an action

-Consequential Theory- contend that the

moral rightness of an action can be
determined simply by looking at its
consequences. If the consequences are
good, the act is right; if the consequences
are bad the act is wrong

-theories focus attention on the results or

consequences of the decision or action
Ex;
-decision to nullify std result by NECTA
-providing health care even as costs
escalate;

Simply put, ACTIONS should be judged

in terms of their CONSEQUENCES

Solution for Ethical Dilemma

- argued that resolution of ethical
dilemmas requires a BALANCING
EFFORT in which we minimize the
harms that result from a decision even as
we maximize the benefits

Benefit
 most of us would admit that
considering the consequences of
one’s decisions or actions for society
 is extremely important to good ethical
decision making

Weakness
 it is often difficult to obtain the
information required to evaluate all of
the consequences for all stakeholders
who may be directly or indirectly
affected by an action or decision
 uncertainty.
Although people can use their life
experiences to attempt to predict
outcomes, no human being can be
certain that his predictions will be
true. This uncertainty can lead to
unexpected results making the
utilitarian look unethical.

b) Utilitarianism
- Jeremy Bentham and John Stuart Mill
(1806 – 1873) British philosophers
-Utilitarianism is an approach which says
that the moral act is the one that creates
the GREATEST HAPPINESS or good
for the Greatest Number of people.

- asserts we should always act so as to

produce the greater ratio of good for
everyone and therefore emphasizes the
best interests of everyone concerned

- the fundamental imperative of

utilitarianism is to always act in the way
that will produce the greatest overall
amount of good in the world

- behaviour is deemed to be unethical if it

either does not maximize the benefit
individuals receive, or produce more
benefit for some people than for others

-In terms of organizational policies,

utilitarianism holds that Rules Are
Ethical If They Promote Behaviours That
Maximize The Benefit For All Members
and other stakeholders, and are unethical
if they do not

- the principle is that everyone should act

to generate the greatest benefits for the
largest number of people

- Utilitarianism focuses on ends and not

on the means required to achieving those
ends

Solution for Ethical Dilemma

-A utilitarian would approach an ethical
dilemma by systematically identifying
the stakeholders in a particular
situation as well as the alternative
actions and their consequences (harms
and/or benefits) for each

-the choice that yields the greatest benefit

to the most people is the choice that is
ethically correct
-utilitarianism is solely concerned with
achieving the maximum good/focuses on
doing what will maximize societal
welfare

-an individual's rights may be infringed

upon in order to benefit a greater
population
-act utilitarianism is not always
concerned with justice, beneficence or
autonomy for an individual if oppressing
the individual leads to the solution that
benefits a majority of people

-assessing “the greatest good for the

greatest number” by
 performing a social cost/benefit
analysis.
 All possible benefits and costs of the
assessed act are listed and
summarized
 all benefits minus all costs.
 If the net result is positive, the act is
morally acceptable
Adva
 utilitarian can compare similar
predicted solutions and use a point
system to determine which choice is
 more beneficial for more people. This
point system provides a logical and
rationale argument for each decision
and allows a person to use it on a
case-by-case

Weakness
 the rights of a minority group can
easily be sacrificed for the benefit of
the majority

 in most cases we make decisions

based on more immediate concerns
not as an ultimum end

ex;
going to the dentist and have a root
canal performed not because we enjoy
the pain as an ultimate end, but
because the temporary pain of the
 dental procedure will result in a
longer pain-free period afterward

iii)The Integrity /Virtue Ethics

- Aristotle and Plato

-The virtue ethics approach focuses more

on the INTEGRITY of the moral actor
(the person) than on the moral act itself
(the decision or behavior).
-focuses more on good character/traits of
the individual.

-The goal here is to be a good person

because that is the type of person you
wish to be

- This approach considers the ACTOR’S

character, motivations, and intentions
Ex; a priest/sheah
Solution for Ethical Dilemma
- Ethical dilemma is determined by the
individual ethical behavior

- solve ethical dilemmas using virtues

(set of behavioral pertterns with high
moral standards

- individuals solve ethical dilemmas

when they develop and nurture a set of
virtues, this requires training,

- One’s character may be assessed in

terms of principles such as honesty, rule
following
Lists of Virtues
Ability- Being dependable and
competent
Acceptance- Making the best of a bad
situation
Amiability -Fostering agreeable social
contexts
Articulateness -Ability to make and
defend one’s case
Attentiveness- Listening and
understanding
Autonomy- Having a personal identity
Caring -Worrying about the well-being
of others despite power
Charisma- Inspiring others
Compassion- Sympathetic
Cool headedness- Retaining control and
reasonableness in heated situations
Courage- Doing the right thing despite
the cost
Determination- Seeing a task through to
completion
Fairness- Giving others their due;
creating harmony
Generosity -Sharing; enhancing others’
well-being
Graciousness -Establishing a congenial
environment
Gratitude- Giving proper credit
Heroism -Doing the right thing despite
the consequences
Honesty- Telling the truth; not lying
Humility -Giving proper credit
Humor- Bringing relief; making the
world better
Independence -Getting things done
despite bureaucracy
Integrity -Being a model of
trustworthiness
Justice -Treating others fairly
Loyalty -Working for the well-being of
an organization Prid
Shame- (capable of) Regaining
acceptance after wrong behavior
Toughness- Maintaining one’s position
Trustworthiness- Fulfilling one’s
responsibilities
Zeal- Getting the job done right;
enthusiasm

So according to VIRTUES….
- Motivations and intentions are
important to ethical decision making

For Ex;
i) If a person harms another, society
judges that person less harshly if he or
she did not intend to commit harm; i.e., it
was an accident
ii) if a person plagiarized a passage that
was later detected by a peer, the peer
who knows the person well will
understand the person's character and
will be able to judge the friend. If the
plagiarizer normally follows the rules
and has good standing amongst his
colleagues, the peer who encounters the
plagiarized passage may be able to judge
his friend more leniently

Strength
 is useful for individuals who work
within a professional community that
has developed high standards of
ethical conduct for community
members i.e Health profession..there
are codes to guide

Weakens
  it does not take into consideration
a person's change in moral character

Dealing with Ethical Dilemma

- The biggest challenge of an ethical
dilemma is that it DOES NOT OFFER A
SOLUTION that would comply with
ethical norms

However,
WHEN FACING ETHICAL
DILEMMA, DO THE FOLLOWING

i)Ask yourself multiple questions

1. Do you think it is right? Is it legal?
- Everything legal is not ethical nor is
every ethical decision legal. Ethics
transcends legality
2. Is it beneficial? To whom? How
much?

3. Is it harmful? To whom? How much?

-don’t consider your own benefit/harm.
When in dilemma, it is about
benefit/harm of people around you

4. Would you be willing to allow others

to do to you what you are considering
?

- Refute the paradox (dilemma): The

situation must be carefully analysed. In
some cases, the existence of the dilemma
can be logically refuted.

ii) Call It by a Different Name

- attach a lovely label to what we are
doing
- ex; download music without permission
-copyright infringement- peer-to-peer
file sharing

iii) Rationalizing Dilemmas Away

- cannot face an ethical issue if we
simply assure ourselves, “Everybody else
does it.
Ex;
 Everybody speeds, and so I speed.”-
though speeding is still a breach of on
of the ethics
 If We Don’t Do It, Someone Else,
will take it anyway and make
money”-usually used by
businesspeople as they face tough
competition

 We’ll Wait until the Lawyers Tell Us

It’s Wrong
  “It Doesn’t Really Hurt Anyone
 the System Is Unfair

iv) make decisions that Do Not Harm

Others
- avoid decision that could cause injury.
- e fair and decent in the working
conditions we provide for workers

ETHICAL DECISION MAKING

- Ethical decision-making- is a method of
evaluating and choosing the alternatives
decided by ethics management.
- Ethical decision making helps the
people to make difficult choices when
faced with an ethical dilemma, a situation
in which there is no clear right or wrong
answer.

- Good moral decision-making includes

 knowledge of the facts,
 careful consideration of the moral
values (principles) relevant to a given
situation.
 sensitivity and awareness of the
range of interests are also highly
sought in moral decision-making
process.

decision making about ethical matters

- Ethical reasoning is just like any other
managerial problem-solving process
The following Decision making
Methods:

a)Rational decision-making
framework
- This decision-making process can be
applied to ethical reasoning

Steps in Ethical Decision Making in

Business
i) Gather The Facts
-a process of collecting good information
- Ethical decisions are particularly
difficult because of the uncertainty of
information
- Facts may simply be unavailable
-don’t jump to solutions without having
the facts
- to gather the information necessary for performing an
ethical analysis, the six question framework can help
reach a moral conclusion regarding the rightness or
wrongness of any decision.
1. Who are all the people affected by the action?
2. Is the action beneficial to me?
3. Is the action supported by my social group?
4. Is the action supported by national laws?
5. Is the action for the greatest good of the greatest
number of people affected by it?
6. Are the motives behind the action based on
truthfulness and respect/integrity toward each
stakeholder?

ii) Define The Ethical Issues

- identifying the ethical issues or points
of values conflict in the dilemma
- go back to the philosophical approaches
to get clarification of situations
- challenge yourself to think of as many
issues as you possibly can.
- Present the dilemma to coworkers, to
your spouse, or to friends you respect
(Being able to see the situation through
others’ eyes is a key moral reasoning
skill)

iii) Identify The Affected Parties (The

Stakeholders
- stakeholders are those individuals or
groups who have a stake in the particular
decision or action
- identify all affected parties especially
individuals who are immediately
affected, and ask how they are affected
- you can “test” a potential decision with
affected parties before you made final
decision

iv) Identify The Consequences

- think about the potential consequences
for each party
- o identify every possible consequence-
those with high probability of occurring
and those that would have particularly
negative consequences
- think about short-term and long-term
consequences

v) Identify The Obligations

-Identify the obligations/role toward the
affected parties and the reasons for each
one

vi) Consider Your Character and

Integrity
- identify the relevant moral community
and consider what that community would
advise
- identifying the relevant professional or
societal community
vii) Think About Potential Actions
- look for different alternatives/solutions
- think outside the box

viii) Check Your Gut (feelings)

deciding on how you feel rather that
reasons
- emotion that can signal awareness
- Pay attention to your gut, but don’t let it
make your decision for you

b) Can Use Approaches/Theories

-to guide you toward making the best
ethical decisions.
-you can use to evaluate ethical
dilemmas
i.e consequentialist, utilitarian

c)Decision-making heuristics
- people do not possess the capacity to
obtain and process the amounts of
information necessary in order to take a
rational approach to decision making
- Bounded rationality sets limits on the
extent of such searches.

- Herbert Simon’s (1983) the concept of

satisficing, which is the process of
searching for and evaluating options until
one is found that is good enough

- looking for the information and options

necessary to make a decision

- the process of searching for and

evaluating options until one is found that
is good enough.
-this solution may not be the best or
optimal one

ETHICAL COMPLIANCE
Ethics and Compliance-What is the
difference?

Other people say: Ethics and

compliance are essentially different sides
of the same coin
Compliance -means is following the
law, conforming to relevant laws,
regulations, policies, standards,
procedures, or contractual obligations
while Ethics -is doing what is right
regardless of what the law says.
Compliance- is something that requires
you to do while Ethics- is something you
choose to consider when taking action

Ethics is knowing the difference between

what you have the right to do and what is
right to do while Compliance is the act
of obeying an order, rule, or request

Compliance means not simply following

laws but also preventing misconduct

Simply put;
Compliance equals legal requirements
and ethics equals doing the right thing
- Ethics is about action beyond
compliance
- compliance is rule-based and drives a
rule-based culture, whereas ethics is
principle-based and drives a values-based
culture
The common denominator that links the
two concepts is the way in which people
at work behave ('doing the right thing

Ethics implies
 that people will behave in
accordance with common values that
are agreed and shared
  individuals need to rely on their
own personal judgement to discern
right and wrong

Compliance implies
 that people must do what they are
told to do, either by law or by their
superiors
 must be willing to do what other
people want you to do (mainly
disapproving)

Development of The Ethical

Compliance

- The fight against bribery, misconduct

and other forms of corruption in
business is the main factors influenced
the way organizations have developed
their internal frameworks to manage
ethics and compliance. This led to dev
of:

 legislative interventions i.e codes

 ethics and compliance programs
 ethics management structures i.e
appointment of someone responsible
for managing ethics

Organizations that are Values-driven,

tend to aimed at explaining 'how things
are done around here' using codes. These
codes are often referred to as a 'code of
ethics'.

-businesses usually work closely together

to establish standards of acceptable
behavior
-Org engage in collaborative efforts to
establish goals and mandate minimum
levels of ethical behavior, i.e the
European Union, the North American
Free Trade Agreement (NAFTA), the
Southern Common Market
(MERCOSUR), and the World Trade
Organization (WTO

-Some companies refuse to do business

with organizations that do not support
and abide by these standard

-Companies demonstrate their

commitment toward acceptable conduct
by adopting globally recognized
principles emphasizing human rights and
social responsibility
For instance, in 2000 the United Nations
launched the Global Compact, - a set of
10 principles concerning human rights,
labor, the environment, and anti-
corruption.
-The purpose of the Global Compact is to
create openness and alignment among
business, government, society, labor, and
the United Nations.
-Companies that adopt this code agree to
integrate the ten principles into their
business practices

A Code of Ethics and a Code of

Conduct
are two unique docu-
ments.
-A Code of Ethics describes broad ethical
aspirations. A Code
of Conduct describes acceptable
behaviors for specific situations that
are likely to arise

-A Code of Ethics is like the Ten

Commandments, a few general
principles to guide behavior that could fit
on one piece of paper or a
business card
For ex: respecting all owners, customers,
employees, suppliers, com-
munity members, and the natural
environment-is like an aspira-
tions.

-These principles describe the kind of

people we want to be,
such as a person who respects everybody
A Code of Conduct -provides substance
to the Code of Ethics and
is usually several pages long. A Code of
Conduct applies the Code of
Ethics to a host of relevant situation
For Ex: one principle in the
Code of Ethics might state that all
employees will obey the law, a
Code of Conduct might list several
specific laws relevant to organiza-
tional operations that employees will
obey

-Code of Ethics can lists ethical

principles to guide behavior i.e. service,
social justice, dignity and worth of the
person, importance of
human relationships, integrity, and
competence; Code of Conduct can give
a more detailed explanation on how to
obtain
informed consent from clients regarding
the purpose of services pro-
vided, relevant costs, and treatment
alternative

-Many organizations are required to have

Code of Ethics.
Public companies are re-
quired to do so by law.

-private companies do so because it is a

best
practice and in response to market or
stakeholder expectations

-A Code of Ethics, sometimes referred to

as a Values Statement,
expresses the principles that define an
organization’s ideal moral
essence.
-The code should be easy to understand,
use simple language

-A Code of Ethics should be affirmative,

stating how
people should act

-the following six

universal moral values expressed in
many codes;
1.Trustworthiness
2.Respect
3.Responsibility
4.Fairness
5.Caring
6. Citizenship
-Code of Ethics high-
lights guiding principles i.e open
communication, respect for
others, personal integrity, and
performance excellence.

Procedures of Codes
-Have employees participate in
constructing the code
-A cross-functional
team, representing different aspects of
company operations, can then
draft a code for managerial approval. The
end result is a unique Code
of Ethics with a broad base of support

CODE OF ETHICS
See hand-out pg 33
-A Code is defined as a systematically
arranged set of principles, standards,
best practices and/or recommendations,
-A code of ethics, also called a code of
conduct or ethical code, set out the
company’s value, ethics, objectives and
responsibilities.

- Code of Ethics sets out practical and

clear terms, the standards of behaviour
expected of all Customers employees

- A well written code of ethics gives

guidance to employees on how to deal
with certain ethical situations.

- Every code of ethics is different and

should reflect the company’s ethos,
values and business style.
-Some codes are short, setting out only
general guidelines, and others are large
manuals, encompassing a huge variety of
situations.
- The code of ethics- is a set of
behavioral rules employees should
follow to ensure the company’s values
are reflected in all business dealings

- clearly defined codes monitor

transactions and keep your company
from violating laws and make it a place
where employees feel comfortable doing
the right thing.

 A code is not a law; it is precatory (in

nature) – that is neither legally nor
contractually binding. However,
some code provisions can migrate into
law.

 Codes are flexible to encompass the

views of many actors within a single
 market i.e many industries,
stakeholder groups

 Codes are expressed as principles

subject to exception, rather than as
regulation subject to penalty

Things that can be included in the codes

are:
(a) Company Values.
(b) Avoidance of conflict of interest.
(c) Accurate and timely disclosure in
reports and documents that the company
files before Government agencies, as
well as in Company's other
communications.
(d) Compliance of applicable laws, rules
and regulations
Elements of the Code of Ethics and
Conduct are
 Personal Responsibility - perform
duties with honesty, care, diligence,
professionalism, impartiality and
integrity
 Compliance with the Law
 Relations with the Public- shall
not engage in any discriminatory
practices based on race, national or
ethnic origin, religion, age, sexual
orientation, disability or any other
discriminatory practices.
 Limitations on the Acceptance of
Gifts, Rewards, Hospitality and
Discounts – shall not accept or solicit
any gifts, hospitality or other benefits
that may have a real or apparent
influence on their objectivity in
carrying out their official duties
 Avoiding Conflicts of Interest
 Limitations on Political
Activities- ensure that official
activities are not compromised
 Confidentiality and Use of
Official Information - have a duty not
to disclose (without proper authority
and lawful purpose) any non-public
official information obtained in the
course of their official duties
 Use of Official Property and
Services - the use of resources and
property, as well as services paid for
with official funds for personal
purposes or gain is prohibited
 Work Environment- have the
right to a healthy and safe workplace,
free of discrimination and harassment,

Importance of Code
  Codes of Ethics and Conduct
demonstrate managerial concern
about
ethics, convey a particular set of
values to all employees, and have an
impact on employee behavior.
 They provide employees with clear
and consistent moral guidance

Weakness
 many companies
have a vague Code of Ethics that is
not well-communicated to
employees

PROCEDURES OF ETHICAL
COMPLNCE

Business ethics are observed by a

businessman because of the
consequences that would result due to
their non-compliance.

Here, some of the regulations are

presented briefly:

1. Legislative Measures:
 Enforcing the legislative measures is
one of the ways of making
businessmen follow business ethics.
 The purpose of enforcing the acts is
to protect the public interests
including the business and the
businessmen.
 The Company’s Act, ex TZ…and
the like are some of the legislative
measures.

2. Goodwill of Business Unit:

  Generally, businessmen have to work
hard to earn goodwill by adopting
business ethics.

3. Social Status of Businessman:

 Businessman thinks that he gets
recognition from the public in a
place where he does business.
 It is always ethical for a businessman
to keep social status.
 Then, he wants to enjoy social status
continuously and avoid unjust or
immoral business activities.

4. Trade Union:
 A trade union may be a registered or
unregistered one. Here, the trade
union has to suffer a break if business
ethics is not properly followed.
  Trade union acts as a watchdog to
ensure observation of business ethics.

5. Business Association:
 Outside agency like the business
association guides the business as
how to observe business ethics,
stating the reasons for doing so. A
business unit may be isolated from the
business association if the particular
business unit fails to comply with
ethics.

6. Consumer Movement:
 Now-a-days, the consumer movement
has developed so much to protect
consumer interests.
 consumer movements take active part
in the adoption of business ethics.
For example, if a purchased
 product is not up to the standards
as specified, the consumer
movement claims damages or takes
steps to replace the product to the
consumer and insists the business
unit to maintain the quality as
specified by it
….

7. ETHICAL AWARENESS

8. ETHICAL CULTURE
The ethical component of a corporate
culture relates to the values, beliefs, and
established and enforced patterns of
conduct employees use to identifand
respond to ethical issues

-ethical culture is acceptable behavior as

defined by the company and industry.
-Ethical culture is the component of
corporate culture that captures the values
and norms an organization defines and is
compared to by its industry as
appropriate conduct.

-The goal of an ethical culture is to

minimize the need for enforced
compliance of rules and maximize the
use of principles that contribute to ethical
reasoning in difficult or new situations

-To develop better ethical corporate

cultures, many businesses communicate
core values to their employees by
creating ethics programs and appointing
ethics officers to oversee them.
-An ethical culture creates shared values
and support for ethical decisions and is
driven by top management

Business Ethics – Business Ethics and

Profits
 Frequently the impression of most
people is that ethics and profits are
mutually opposed to one another,
and that if a company is ethical, it can
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 further from the
truth.
THERE ARE EXAMPLES GALORE,
FROM THE PAGES OF HISTORY,
WHERE NOT ONLY HAVE ETHICAL
COMPANIES MADE PROFITS, BUT
MORE IMPORTANTLY, IT IS ONLY
ETHICAL COMPANIES WHICH
DISCHARGED ITS SOCIAL
RESPONSIBILITIES,

…. have survived competition and

turbulent changes through the years and
have contributed to Social Welfare and
have continued to flourished
undiminished.

‘Profit is a dirty word’, said Jawaharlal

Nehru, in the 1950’s while referring to
the public sector companies.
  Today, not only is profit not a dirty
word, in fact, every company is
expected to justify its existence in the
marketplace, through the profit it
generates.

A sick and loss making company is a
liability and a burden to society-it cannot
discharge its responsibilities to the
society, it cannot meet its welfare
commitment to its employees, indeed it
cannot even compensate its workforce
for their efforts, it cannot generate
revenue for its shareholders, it cannot
meet consumer demands adequately and
cannot do all those things that a healthy
responsible organisation is required and
expected to do. Hence,
 profit is today viewed as a measure
of the success of the company and its
justification for sustained existence,
growth and diversification.

 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
cannot make profits and makes losses,
misutilises scarce national resources
cannot pay back creditors, does not
make wealth for its shareholders,
make huge liabilities, upsets the
economy, promotes inefficiency and
most importantly, cannot, 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 no right to
exists in the marketplace.
 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 for the shareholders and
the society. Rather, it is unethical, not to
make profits.

what cost-that is the ethical question.

Business Ethics – Relationship
between Business & Ethics
The relationship between business and
Ethics has long been debated.

If Classical economists like Adam Smith

and Milton Friedman were of the opinion
that the only objective of business was
profit maximisation and business had no
right to ‘meddle’ with ethics, the Church,
in pre-medieval times, was the
spokesman and judge for all spheres of
the society, including business.
In medieval and pre-medieval period, the
Church took upon itself to regulate the
moral functioning of business, making
moral declarations like-all businesses
must remain closed on Sunday, the ‘holy-
day’, when Jesus Christ was supposed to
have taken a rest and it was morally
‘correct’ to stop working on Sundays.
These two are extreme views, known as
the Unitarian View and the Separatist
View. However, around the decade of
1950, Talcott Parsons, founded the
Integration View which stated that
neither was business an extension of
morality and ethics nor can business keep
itself absolutely aloof from the ethical
practices of the society wherein it exists
and operators. This view sought to
integrate the two previous views
presenting a more realistic picture.
The Unitarian View:
This view is of the opinion that business
is only a subset or sub-structure of the
moral structure of the society. According
to this view, business and morality
cannot be separated and business must
play by the rules of morality and ethics
of the community which guides the
activities of the community.
This view was emphasised more by the
Church in the European countries and the
Church prescribed that business must
exist only to do good for the society, and
it had no other role to play apart from
serving society and ushering in social
welfare. This View stated that business
must conduct its affairs purely through
altruist motives and that profit was a
dirty word.
The Separatist View:
Dramatically opposite to the Unitarian
View, classical economists like Adam
Smith and Milton Friedman asserted that
the only goal of business should be profit
maximisation; and that ethics and
morality plays no part in business
conduct.
In fact, Milton Friedman, the celebrated
economists, who won the Noble Prize for
Economics, in 1976, hold the view that
business should go on with the business
of producing goods and services
efficiently, and leave the solution of
social problems to government agencies
and concerned individuals.
In short, managers should focus on what
they know best—that is how to make
profits. It was Friedman who forwarded
the classical view that the only
responsibility of business is to earn
profits, arid he goes on to say, in his
book, ‘Capitalism & Freedom’, thus-
“There is one and only one responsibility
of business-to use its resources and
engage in activities designed to increase
its profit so long at it stays within the
rules of the game, which is to say,
engages in open and free competition,
without deception or fraud. Few trends
could so thoroughly undermine the very
traditions of our free society as the
acceptance by corporate officials of a
social responsibility other than to make
as much money for their stockholders as
possible. This is fundamentally
subversive doctrine.”
Adam Smith and Friedman were of the
opinion that business should be left alone
to play by the rules of the prevalent
market system, and the introduction of
ethics would make an imbalance of the
market dynamics. The Separatist View is
of the opinion that business too has its
own set of principles like ‘reduce
production costs,’ ‘optimise labour’ and
so on, and these principles are all related
to the marketplace and have nothing to
do with moral principles.
Playing the business game by the market
rules will ensure that the ‘individual hand
of the market’ would generate social
welfare to community.
Theodore Levitt, the well-known
psychologist, believed that if ethics and
morality were allowed to enter the realms
of business, then there is a danger of
business values ultimately dominating
over social values. He expressed thus, in
his famous article, ‘The Danger of Social
Responsibility’, –
“The danger is that all these things
(social aspects of business functioning)
will turn the corporation into twentieth-
century equivalent of the medieval
Church. The Corporation would
eventually invest itself will all-embracing
duties, obligations, and filially powers-
ministering the whole man and moulding
him and society in the image of the
corporation’s narrow ambitions and its
essentially unsocial needs”
Many intellectuals expressed the fear that
any replacement of altruism for self-
interest will, therefore, be fatal to the
efficiency of the system. Managers
should manage only in the interests of the
shareholders and shareholders should be
put in the position where they decide
how their wealth and resources will be
used. They believe that business should
not have any responsibility beyond
obeying certain legal codes in achieving
its economic and business goals.
The Integration View:
This View was proposed by Talcott
Parsons, wherein he sought to integrate
ethical behaviour and business in a new
area called Business Ethics. This View
states that business is an economic entity
and it has the right and the need to make
profits, but, it must also discharge its
obligations to the society where it exists
and operates.
Profits is certainly not a dirty word, but,
neither is morality and ethics in business.
This View states that society consists of a
number of subsystems, and business and
morality are just two of these
subsystems. Since all subsystems within
the society are interlinked and
interdependent, so also are business and
morality interlinked.
Business and Ethics overlap and hence
many business decisions are guided by
moral considerations. In fact, business
itself is considered to constitute of ethics,
as it does so much good to so many
people and specially to the society it
serves. Production of goods and services
and making them available to consumers
who need them and benefit from them,
itself, constitute a noble deed towards
social welfare. Thus, business constitutes
of ethics in itself, even while it pursues
profits.
A sick and bankrupt organisation is a
social liability and can hardly contribute
in the area of social responsibility. Hence
the first responsibility of a businessman
is to generate surplus for his business. At
the same time however, he must do so
ethically, carry on his business on
morally sound principles and go out of
his way to assume social responsibilities
beyond the legal minimum.

Compliance-based codes of ethics

-Compliance-based codes of ethics not
only set guidelines for conduct but also
determine penalties for violations. This
type of code of ethics is based on clear-
cut rules and well-defined consequences
rather than individual monitoring of
personal behavior

WHISTLE BLOWING
 regulatory and legislative requirements

- compliance should be done through with applicable laws, non-binding rules, codes and standards in a
way that supports the organisation being ethical and a good corporate citizen
- setting up effective internal compliance frameworks
- approving policy that articulates the approach to compliance, and that identifies relevant compliance
standards

Governing body committees

- Committees at governance level are effective ways through which the governing body fulfils its
responsibilities and oversees both ethics and compliance
- focus on organisational ethics and compliance
- ensures that ethics and compliance issues are looked at systematically
- Committees can focus on the relevant details and identify trends and risks in a timely way that can help
to identify potential problems when they are still at an early stage
PRINCIPLES OF ETHICAL
COMPLIANCE

Every organization strives for this effective program in the hopes of gaining some level of
protection for having an effective compliance and ethics program. In addition, the elements have
been massaged by the compliance and ethics industry, as they have been implemented in actual
compliance and ethics program models. The industry has now defined the following as the
components of an effective compliance and ethics program (not all inclusive):

 Code of conduct and relevant compliance policies and procedures

 Oversight and accountability by the board for the compliance program
 Education, communication, and awareness
 Delegation of authority
  Enforcement, discipline, and incentives
  Monitoring and auditing
  Internal investigations, including a root cause analysis and corrective action plans
  Consistent and fair discipline
  Risk assessments
  Effectiveness assessments of the compliance and ethics program

Ongoing program improvement

Element 1: Standards, Policies, and Procedures (a Code of Conduct)

An organization should have an established set of compliance standards and procedures.

These standards should not be a “paper only” document, but a living document that promotes
organizational culture that encourages ethical conduct and a commitment to compliance with
applicable regulations and laws.

The first of the Guidelines Manual’s prescribed compliance elements requires that “The
organization shall establish standards and procedures to prevent and detect criminal
conduct…‘Standards and procedures’ means standards of conduct and internal controls that are
reasonably capable of reducing the likelihood of criminal conduct.”[5] These two documents, the
standards or code of conduct and the policies and procedures, become the tools upon which you
can build your compliance and ethics program

Code of Conduct

First and foremost, the code of conduct demonstrates the organization’s overarching ethical
attitude and its system-wide emphasis on ethics and compliance with all applicable policies,
laws, and regulations. The code is meant for all employees and all representatives of the
organization, not just those most actively involved in known compliance and ethics issues. This
includes the board, management, staff, vendors, suppliers, volunteers, and independent
contractors, which are frequently overlooked groups. From the board of directors to volunteers,
everyone must receive, read, understand, and agree to abide by the standards of the code of
conduct. The code should be written in a simple and concise manner that is reader friendly. It is
not recommended that an organization include policies and procedures in its code. Scenarios and
examples are great to explain how to handle a situation. An eighth-grade reading level is
recommended. Simple and concise does not mean generic, however. The contents of the code of
conduct will need to be tailored to the organization’s culture and risk profile and to its industry
and corporate identity. Also, institutions with a diverse constituency should consider providing
the code of conduct in a foreign language, or even braille as appropriate. Policies and procedures
should not be included in the code, but a link to those that are relevant should be considered for
inclusion

The code of conduct provides a process for proper decision-making for doing the right thing. It
elevates corporate performance in basic business relationships and confirms that the organization
upholds and supports proper compliance conduct. Managers should be encouraged to refer to the
code of conduct whenever possible, even incorporating elements or standards into performance
reviews, and compliance with the standards must be enforced through appropriate discipline
when necessary. Disciplinary procedures should be stated in the standards, and the penalty—up
to and including termination—for serious violations of the standards of conduct must be
mentioned to emphasize the organization’s commitment.

Content Checklist

 Demonstrates system-wide emphasis on compliance with all applicable laws and

regulations
 Written plainly and concisely so all employees can understand the standards
 Translated into other languages, as appropriate
 Includes links to internal policies and external regulations
 Includes expectations for employee actions with internal affairs and other employees, as
well as with external affairs and contractors and clients
 Mentions organizational policies without completely restating them
 Is consistent with company policies and procedures
 Includes management’s responsibility to explain and enforce the code

Element 2: Compliance Program Administration

An organization should have the appropriate high-level personnel overseeing the compliance
and ethics function, with a specific executive given overall responsibility. These compliance
personnel should have accountability as to the success or failure of the compliance and ethics
program. Adequate resources must be dedicated to implementing the program. The
organization’s governing structure—in many cases the board of directors—must exercise
reasonable oversight of the implementation and effectiveness of the program.

An organization should designate a compliance officer to serve as the focal point for compliance
activities. Whether the position is full time or part time will depend on the size, scope, and
resources of the organization. Also, according to the Guidelines Manual, assigning the
compliance officer appropriate authority is critical to the success of the program. On a specific
level, for example, the compliance officer must have full authority to access any and all
documents that are relevant to compliance and ethics activities. This includes documents such as
financial statements and supporting documents, contracts with suppliers and agents, and other
billing and accounting records. In the big picture, “appropriate authority” comes from the
unquestionable backing by the CEO and board of directors or its equivalent, typically the sources
of ultimate authority and respect.

Appropriate authority and the full backing of the board of directors and management are
consistent with the Guidelines Manual ’s call for “Specific individual(s) within the organization
shall be delegated day-to-day operational responsibility for the compliance and ethics
program….To carry out such operational responsibility, such individual(s) shall be given
adequate resources, appropriate authority, and direct access to the governing authority or an
appropriate subgroup of the governing authority.”[9] This is logical, because it is generally the
board that launches the compliance initiative and/or approves the hiring of the compliance
officer. Board members should be actively involved in interviewing and hiring the compliance
officer. The board will be an important part of the compliance officer’s reporting structure.

There are considerable conflicts involved in having the compliance officer report to the general
counsel or to the chief financial officer. Separation of compliance from legal and finance, when
possible, helps ensure that legal reviews and financial analyses are independent and objective.
Many compliance officers report directly to the organization’s CEO and/or the board of
directors. It is most important that the compliance officer be independent.

The size and setting of your organization will influence its reporting structure. It is recommended
that the board or its appointed committee have at minimum a “dotted line” or indirect reporting
relationship with the compliance officer.

The compliance officer’s duties also will vary depending on size and scope of the program. The
main focus of the position should be the day-to-day operations of the compliance and ethics
program. Primary responsibilities should include the following:

 Designing, implementing, overseeing, and monitoring day-to-day operations of the

compliance and ethics program
 Reporting on a regular basis to the organization’s governing body, CEO, and compliance
and ethics committee
 Assessing effectiveness of the compliance program and revising the program periodically
as appropriate
 Developing, coordinating, and participating in a multifaceted educational and training
program
  Ensuring that independent contractors and agents are aware of the organization’s
compliance and ethics program requirements
 Serving as a source of information for employees, management, contractors, and the
board
 Ensuring that appropriate background checks are done to eliminate sanctioned individuals
and contractors
 Assisting with internal compliance review and monitoring activities
 Independently investigating and acting on matters related to compliance
 Conducting risk assessments and working with management to prioritize risk and develop
mitigation plans

Compliance is still a relatively new field. Most compliance officers therefore may not have
extensive previous experience in compliance. This unique position requires an individual who
understands the nature of the business or industry, is capable of understanding and questioning
financial and billing statements, is knowledgeable of applicable legal requirements and sanctions
that may be imposed in the industry for wrongdoing, has strong written and verbal
communication skills, and is firm yet approachable. Whatever the tenure or the educational level,
the compliance officer, as the focal point of the program, must be a figure who is respected and
trusted throughout the organization. Strong interpersonal skills, good listening abilities, and
discretion are mandatory. (See Appendix 2-C, “Sample Compliance Officer Job Description.”)

As the compliance and ethics profession has grown and matured, it has, like other professions,
sought to identify and distinguish those in the field who have, with experience and education,
achieved the necessary skill set to be an effective compliance officer. There are now several
compliance-related certification and degree programs.

Moreover, compliance officers are also stewards of a public trust, and therefore the services
provided must be of the highest standards of professionalism, integrity, and competence. The
SCCE’s Code of Professional Ethics for Compliance and Ethics Professionals addresses three
principles, which are broad standards of an aspirational nature. They include:

Principle I: Obligations to the Public—Compliance and ethics professionals should abide by

and promote compliance with the spirit and the letter of the law governing their employing
organization’s conduct and exemplify the highest ethical standards in their professional conduct
in order to contribute to the public good.

Principle II: Obligations to the Employing Organization—Compliance and ethics

professionals should serve their employing organizations with the highest sense of integrity,
exercise unprejudiced and unbiased judgment on their behalf, and promote effective compliance
and ethics programs.

Principle III: Obligations to the Profession—Compliance and ethics professionals should

strive, through their actions, to uphold the integrity and dignity of the profession, to advance the
effectiveness of compliance and ethics programs, and to promote professionalism in compliance
and ethics.[10]
These principles and the accompanying more detailed rules of conduct should be reviewed,
studied, and adhered to by all compliance officers. To view the entire code and an analysis of its
meaning, see Chapter 1.

The compliance officer may be the focal point of a compliance and ethics program, but they
cannot be the only point. An essential role of the compliance program is engaging leaders,
managers, and employees, so those in the organization understand that being compliant is
everyone’s responsibility.[11] The formation of a multidisciplinary compliance committee can be
an effective addition to the program and can help empower leaders and managers to actively
promote compliance and “own” compliance in their areas of purview. The compliance
committee should be established to advise the compliance officer, assist in the implementation of
the compliance program, and further engage leaders and/or managers in compliance. The
organization will benefit from having varying perspectives, such as operations, finance, audit,
human resources, social work, and legal, as well as employees and managers of key operating
units on the committee.

The compliance officer’s role within the compliance committee can vary. In some organizations,
the compliance officer sits on the committee. In others, the compliance officer may even chair
the committee. Regardless of who chairs the committee, the compliance department will likely
be responsible for scheduling meetings, preparing the agenda, taking and distributing minutes,
and coordinating follow-up.

Compliance committee functions, in addition to aiding and supporting the compliance officer,
may include, but not be limited to, the following:

 Analyzing specific risk areas

 Assisting with the development of standards of conduct, policies, and procedures
 Annually reviewing the compliance plan
 Reviewing relevant industry guidance and new information regularly and integrating it
into the compliance and ethics program
 Determining the appropriate strategy to promote compliance
 Participating in the risk assessment process
 Empowering and helping hold accountable operational leaders and managers for
compliance in their areas of purview (i.e., reporting on specific risk remediation efforts
and internal controls)
PRINCIPLES OF BUSINESS
ETHICS
What is a principle?
A principle is understood as;
 a governing law of conduct
 a basic idea or reason behind the
practice
 a fundamental assumption guiding
belief
 a truth, a fact
  a source, or origin; that from which
anything proceeds
 a basic generalization that is accepted
as true and that can be used as a basis
for reasoning or conduct

A principle is not:
 A technique. It should be understood
that techniques are procedures or
methods, which involve a series of
steps to be taken to accomplish
desired goals
 A value. These are general rules for
behaviour of individuals in society
formed through common practice.
These are things which are acceptable
or desirable. They have moral
connotations.
Generally, a principle is a guideline, a
fundamental truth about the way things
ought to be, and are applicable to all
organizations.

- Principles are used to further support

the business values by including
operational credos employees should
follow

PRINCIPLES OFBUSINESS ETHICS

Honesty
-there has to be honest and truthful in all
their dealings and there should not be
deliberately misleading or deceiving
others by misrepresentations,
overstatements, partial truths, selective
omissions, or any other means

Integrity
-the focus should be on demonstrating
personal integrity and the courage of
convictions by doing what is right even
when there is great pressure to do
otherwise; they are princ beliefs.

Promise-Keeping & Trustworthiness.

-Ethical executives should have worthy
of trust.
-They should supply relevant information
and correcting misapprehensions of fact,
and make every reasonable effort to fulfil
the letter and spirit of their promises and
commitments.
-They should not interpret agreements in
an unreasonably technical or legalistic
manner in order to rationalize non-
compliance or create justifications for
escaping their commitments.
Loyalty.
-ethics requires demonstration of fidelity
and loyalty to persons and institutions by
friendship in adversity, support and
devotion to duty;
Avoid use or disclose information
learned in confidence for personal
advantage.
-ethics should safeguard the ability to
make independent professional
judgments by scrupulously avoiding
undue influences and conflicts of
interest.

Fairness.
-Ethics should focus on fair and just in
all dealings;
-avoid exercise power arbitrarily, and do
not use overreaching nor indecent means
to gain advantage nor take undue
advantage of another’s mistakes or
difficulties.
-Fair persons manifest a commitment to
justice, the equal treatment of
individuals, tolerance for and acceptance
of diversity, the they are open-minded;
they are willing to admit they are wrong
and, where appropriate, change their
positions and beliefs

Concern for Others.

-Ethic is for caring, compassionate,
benevolent and kind for others
-it should be like the Golden Rule, help
those in need, and seek to accomplish
their business objectives in a manner that
causes the least harm and the greatest
positive good.

Respect for Others.

-Ethics involves demonstrating respect
for the human dignity, autonomy,
privacy, rights, and interests of all those
who have a stake in their decisions
- should focus treat all people with equal
respect and dignity regardless of sex,
race or national origin.

Law Abiding
-Ethic involves abiding to laws, rules and
regulations relating to their business
activities

Commitment to Excellence.
-Ethic deals with pursuing excellence in
performing duties, well informed and
prepared, and constantly endeavour to
increase their proficiency in all areas of
responsibility.
Leadership
-Ethics is about conscious of the
responsibilities and opportunities of the
position of leadership and seek to be
positive ethical role models by their own
conduct and by helping to create an
environment in which principled
reasoning and ethical decision making
are highly prized.

Reputation and Morale

-Ethics seek to protect and build the
company’s good reputation and the
morale of its employees by engaging in
no conduct that might undermine respect
and by taking whatever actions are
necessary to correct or prevent
inappropriate conduct of others.

Accountability
-Ethics should focus on acknowledging
and accepting personal accountability for
the ethical quality of their decisions and
omissions to themselves, their
colleagues, their companies, and their
communities.

Transparency
-Transaction should be well informed in
a justified manner with their different
stakeholders and society.

Liking in expectations
-In order to establish the ethical norms
and conduct in business, it is required to
follow all these good and acceptable
behaviour by businessmen.
-They must give and perform some
excellent examples as per the
expectations of others.

Due process
-All the persons and different employees,
as engaged in business are required to
involve in the decision-making process
and different important tasks.
-Businessmen should follow a reasonable
and justified working process in their
organization.
As per other few researchers on business ethics there are six broad principles on which business ethics is
built:
(1) Harm principle
(2) Fairness principle
(3) Human rights principle
(4)Autonomy principle
(5)Reality principle (6)Stakeholder principle

Sub-Principles
1.1. Coordinates Ends and Means
-The businessmen should try to make a
coordinating or balancing form between
their ends and means within their work
performance and its allied activities.
-They should develop their ventures
within the limitations of resources and
capacities.

1.2. Satisfaction
- Every businessman is required to create
and develop their role and behaviour to
establish pleasure and happiness with the
other person and the society at large.
-Fore mostly, in business as per their
products and services, the customer
should be satisfied at every stage.

1.3. Cooperation with others

-Ethical norms motivate the feeling of
collaboration and team spirit.
- It is required that based on capacity and
available resources, the businessman
should make full cooperation with
different other persons as per their good
conduct and value-based behaviour.

1.4. Non - Cooperation in evils

- It is needful that businessmen should
try to make non - cooperation or
discourage the evils, misconduct, and
unethical behaviour not only with
different customers but with the society
also.

1.5. Communicability
- According to this principle, there is a
need to make effective means of
communication with the internal and
external persons as engaged with
business houses.
-The communication should be in clear,
open, and in a justified manner.

1.6. Rationality
- Based on the ethical code of conduct,
every businessman should analyze and
self-evaluate the good or bad, right or
wrong, ethical or unethical aspects within
their business transaction and day to day
working of the business houses.
- They must follow the rational attitudes
and behaviour also.

1.7. Commitment
- According to this principle, every
businessman should be able to fulfill
their commitments and assurance as
given to other people.
-The implementation of commitment
should be based on honesty and
responsiveness too.

1.8. Universal Values

- It is required that every businessman
should conduct and perform the task and
different business activities to be based
on universal assumptions, custom, and
overall accepted norms and Principles by
society.

LEGAL STANDARDS

Legal standards are those standards that are set forth in governmental laws.

Ethical standards are based on the human principles of right and wrong.

Legal standards are based on written law, while ethical standards are based on human rights and
wrongs. Something can be legal but not ethical.
Business Ethics – 17 Important Principles – Principle of Conscience, Wishless
Work, Esprit, Publicity, Purity, Humanity, Universal Values, Commitment and a
Few Others

Business ethics refers to basic guidelines to study and analyse a sense of right and wrong and
goodness and badness of our tasks.

In context of business performance, there are certain principles and guidelines, based on
ethical conducts as given here:

. Principle of Conscience – This principle is based on inner-feeling of persons to analyse the

sense of right and wrong. On this basis the businessmen can determine different roles and
behaviour at their levels.

2. Principle of Wishless Work – This principle emphasise that there is no need to perform all the
task to be self-centered or self-interest. Accordingly, we should perform all the role and
behaviour to another person’s for their esteemed interest. We should be devoted to our efforts to
do the work for others.

3. Principle of Esprit – According to this principle businessmen should give due attention to
make best possible services and try to develop the feelings of devotion and truthfulness in
services. All the behaviour and activities should be based on values and service motive in
business.

4. Principle of Publicity – According to this principle, all the activities and performance as
conducting in business houses, should be well informed to every person or organisation who are
directly or indirectly attached with business. It aims to remove the doubtfulness and
misunderstanding among people.

5. Principle of Purity – It is most needful that every businessman should follow the politeness,
truthfulness and tolerance for developing the feelings of mental peace. At the same time, the
mental peace and purity also becomes the ways for politeness and tolerances etc.

6. Principle of Humanity – It is needful that every businessman should follow the human values,
human decorum and human aspects within their policies, programmes and different working
areas. The ethical behaviour may determine the path of humanity.

7. Principle of Universal Values – It is required that every businessmen should conduct and
perform the task and different business activities to be based on universal assumptions, customs
and overall accepted norms and principles by society.

8. Principle of Commitment – According to this principle, every businessmen should be able to

fulfill their commitments and assurances as given to other persons. The implementation of
commitments should be based on honesty and responsiveness.

9. Principle of Rationality – On the basis of the ethical code of conduct, every businessmen
should analyse and evaluate the good or bad, right or wrong, ethical or unethical aspects within
their business transaction and day to day working of the business houses. They must follow the
rational attitudes and behaviour.

10. Principle of Communicability – According to this principle, there is a need to make effective
means of communication with the internal and external persons as engaged with business houses.
The communication should be in cleared, open and justified manners.

11. Principle of non-Cooperation in Evils – It is needful that businessmen should try to make
non-cooperation or discourage the evils, misconduct and unethical behaviour not only with
different customers but with society also.

12. Principle of Cooperation with Other – Ethical norms motivate the feeling of collaboration
and team spirit. It is required that on the basis of capacity and available resource, the
businessmen should make full cooperation to different other persons as per their good conduct
and value based behaviour.

13. Principle of Satisfaction – Every businessmen are required to create and develop their role
and behaviour to establish pleasure and happiness with other persons and the society at large.
Fore mostly, in business as per their products and services, the customers should be satisfied at
every stage.

14. Principle of Coordinate Ends and Means – The businessmen should try to make a
coordinating or balancing form between their ends and means within their work performance and
its allied activities. They should develop their ventures within the limitations of resources and
capacities.

15. Principle of Due Process – All the persons and different employees, as engaged in business
are required to involve in decision making process and different important task. Businessmen
should follow a reasonable and justified working process in their organisation.

16. Principle of Liking in Expectations – In order to establish the ethical norms and conducts in
business, it is required to follow all these good and acceptable behaviour by businessmen. They
must give and perform some excellence examples as per the expectations of others.

17. Principle of Transparency – Ethics denotes the concept of purity and truth. All the business
activities and transactions should be well informed with justified manners with their different
stakeholders and society.

Business Ethics – Theories of Business

Ethics: Teleological and Deontological
Theories
The theories of business ethics can be
divided into two categories:
1. Teleological theories, and
2. Deontological theories.
1. Teleological Theories:
The term ‘teleological’ is derived from
the Greek word ‘telos’ which means an
end. According to teleological theories
the Tightness of an action is determined
solely by its consequences rather than by
any feature of the action itself. Actions
that result in greatest possible balance of
good or evil are considered ethical. Thus,
teleological theories are based on the
concept of goodness.
Now the question is which is good and
what is evil. In classical utilitarianism,
pleasure is regarded good, and pain is
considered evil. In broader terms,
goodness is human well-being.
Bentham and Mill explained the
doctrine of utilitarianism:
i. The Principle of Utility:
Jeremy Bentham (1748-1832) explains
this principle as follows:
“By the principle of utility is meant that
principle which approves or disapproves
of every action whatsoever, according to
the tendency which it appear to have to
augment or diminish the happiness of the
party whose interest is in question – or,
what is the same thing in other words, to
promote or to oppose that happiness.”
Thus, the consequences of an action are
measured in terms of the pleasure and
pain caused to different individuals.
Bentham suggested a procedure called
hedonistic calculus for this purpose.
Bentham’s theory is criticised for two
reasons. First, it is not always possible to
measure in quantities the pleasure and
pain caused by an action. Second,
pleasure does not constitute human well-
being. Even pigs are capable of pleasure
and his theory is criticised as a ‘pig
philosophy’ fit only for swine.
According to critics, one absurd
consequence of Bentham’s principle is
that it would be better to live the life of a
satisfied pig than that of a dissatisfied
human being such as Socrates. For
human beings, friendship and aesthetic
enjoyment are as good as pleasure.
ii. The Principle of Utilitarianism:
John Stuart Mill (1806-1873) modified
the principle of utility by recognising that
pleasures differ in their quality which is
an important as the quantity of pleasure.
Mill concluded, “It is better to be a
human being dissatisfied than a pig
satisfied; better to be Socrates
dissatisfied than a fool satisfied. And if
the fools, or the pig, are of a different
opinion, it is because they know only
their side of the question.”
Thus, there are two forms of
utilitarianism:
(a) Action utilitarianism under which an
action is right if and only if it produces
the greatest balance of pleasure over pain
for everyone. For example, telling a lie or
breaking a promise is right if its
consequences are better than those of any
alternative course of action. Thus,
classical utilitarianism does not require
observing rules such as “Tell the Truth.”
(b) Rule Utilitarianism under which an
action is right if and only if it confirms to
generally accepted rules and produces the
greatest balance of pleasure over pain.
Act utilitarianism is simple and easily
understood. But rule utilitarianism is
morally more sound and does not require
calculating the consequences of each
action.
The principle of utilitarianism consists
of the following elements:
(1) Consequentialism – The Tightness of
any action depends solely on its
consequences.
(2) Hedonism – Pleasure alone is good.
(3) Maximisation – A right action is one
that creates greatest amount of net
pleasure.
(4) Universalism – Everyone’s
consequences are alike.
Advantages of Teleological Theories:
These are as follows:
(i) Teleological theories are consistent
with the ordinary moral reasoning.
Utilitarianism why telling the truth,
keeping promise, and other acts which
provide some benefit are morally
relevant.
(ii) Teleological theories provide an
objective and precise method for moral
decision-making. A decision maker can
choose the right course of action by
calculating and comparing the
consequences of different alternatives.
(iii) Economists assume that people seek
to maximise their utility or welfare. The
economic theory is based on the ethical
theory of utilitarianism.
Limitations of Teleological Theories:
They are as under:
(i) Teleological theories do not consider
the basic obligations. Parents have
obligations to their children and they
must provide for their children even
when the money could be more
beneficial for orphans.
(ii) It is not possible to measure and
compare the goodness/badness of various
actions.
(iii) Teleological theories disregard rights
and justice. For example, the right of free
speech entitles us to speak freely but
restrictions on this right might lead to
better consequences. Similarly,
discrimination violates the basic
principle of justice. But preferential
rights are often given to women and
minorities.
2. Deontological Theories:
The term ‘deontological’ is derived from
the Greek word ‘deon’ which means
duty. Duty or obligation is the
fundamental concept in deontological
theories.
According to deontological theories
certain actions are right not due to some
benefit to self or others but due to their
basic nature or the rules underlying them.
For example, bribery by its very nature is
wrong irrespective of its consequences.
Similarly, the Golden Rule “Do unto
others as you want them do unto you”
appeals to human dignity and respect for
others.
W.D. Ross, the 20th century Britisher
philosopher has given the following
moral rules:
(i) Duties of Fidelity — to keep
promises, both explicit and implicit, and
to tell the truth.
(ii) Duties of Reparation — to
compensate people for injury that we
have wrongfully inflicted on them.
(iii) Duties of Gratitude — to return
favours that others do for us.
(iv) Duties of Justice — to ensure that
goods are distributed according to
people’s merits.
(v) Duties of Beneficence — to do
whatever we can to improve the
condition of others.
(vi) Duties of Self-improvement — to
improve our own condition with respect
to virtue and intelligence.
(vii) Duties of Non-maleficence — to
avoid injury to other.
Thus, deontological theories refute the
argument that consequences determine
what we ought to do. Actions are right or
wrong not because of their consequences
but because of our duty or obligation.
Deontological theories have the
following merits:
(i) Deontological theories make sense in
cases in which consequences are
irrelevant. It appears more sensible to
care for relations than for consequences.
For example, it is the duty of a
manufacturer to honour the warranty on a
defective product even when the cost of
doing so is more than the benefits.
(ii) Another merit of deontological
theories is that they consider the role of
motives in evaluating actions. For
example, two people give equal amounts
to charity. Here their benefit is the same.
But the action of the person who denoted
due to genuine concern for poor is better
than that of the person who donated to
impress others. Thus, the motive with
which actions are done determine their
Tightness.
Deontological theories suffer from the
following weaknesses:
(i) Deontological theories fail to provide
a precise criteria to understand our moral
obligations and to resolve moral conflict.
(ii) Ross gave no order of priority among
his rules and when these rules are in
conflict there is no guide. For example,
telling the truth or keeping a promise
may cause harm to someone.
Business Ethics – Business Ethics and Profits

Frequently the impression of most people is that ethics and profits are mutually opposed to one
another, and that if a company is ethical, it can 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
further from the truth.

There are examples galore, from the pages of history, where not only 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 continued to flourished undiminished.

‘Profit is a dirty word’, said Jawaharlal Nehru, in the 1950’s while referring to the public sector
companies. Even private companies making profits were viewed with disdain by the public.
Their dealings were suspect in the eyes of the upright moral citizens of that time. This was
mainly because of the distorted view of business that society had during that time.

With the wide spread interest in business activities since then, with the introduction of business
and management education all over the world, and with the rapid widening of the market place
and the astronomical growth of consumerism worldwide, the value of profit has been given its
deserved place.

Today, not only is profit not a dirty word, in fact, every company is expected to justify its
existence in the marketplace, through the profit it generates. It has been felt that any company
which cannot make profits even for its own operations has no right to exist in the marketplace
and should be wiped out.

A sick and loss making company is a liability and a burden to society-it cannot discharge its
responsibilities to the society, it cannot meet its welfare commitment to its employees, indeed it
cannot even compensate its workforce for their efforts, it cannot generate revenue for its
shareholders, it cannot meet consumer demands adequately and cannot do all those things that a
healthy responsible organisation is required and expected to do. Hence, profit is today viewed as
a measure of the success of the company and its justification for sustained existence, growth and
diversification.

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 cannot make profits and makes losses,
misutilises scarce national resources cannot pay back creditors, does not make wealth for its
shareholders, make huge liabilities, upsets the economy, promotes inefficiency and most
importantly, cannot, 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 no right
to exists in the marketplace. 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 for 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 ethical question.

Business Ethics – Advantages of Managing Ethics in Workplaces

(i) Significant improvement to society- By applying business ethics, many social evils can be
eliminated like child labour, harassment to employees etc.

(ii) Cultivate strong team work and productivity- Business ethics helps in building openness,
integrity and a sense of oneness amongst all employees. Employees become motivated as they
feel strong alignment between their values and those of organisation.

(iii) Support employee growth- It supports the employees in facing the entire situation whether
good or bad.
(iv) Insurance policy – It ensures the employees that all the policies are legal and all the
employees are treated equally in the organisation.

(v) Avoid penal action- Ethical problems if detected at earlier stage helps in avoiding penal
action and lower fines for the organisation.

(vi) Helps in quality management, strategic planning and diversity management.

Business Ethics – Regulations: Legislative Measures, Goodwill of Business Unit,

Social Status of Businessman, Trade Union, Business Association and Consumer
Movement

Business ethics are observed by a businessman because of the consequences that would result
due to their non-compliance.

Here, some of the regulations are presented briefly:

1. Legislative Measures:

Enforcing the legislative measures is one of the ways of making businessmen follow business
ethics. The purpose of enforcing the acts is to protect the public interests including the business
and the businessmen. The Company’s Act, Consumer Protection Act, M.R.T.P. Act and the like
are some of the legislative measures.

2. Goodwill of Business Unit:

Generally, businessmen have to work hard to earn goodwill by adopting business ethics.
Thereafter, the same practice is followed to maintain the earned goodwill.

3. Social Status of Businessman:

Businessman thinks that he gets recognition from the public in a place where he does business. It
is always ethical for a businessman to keep social status. Then, he wants to enjoy social status
continuously and avoid unjust or immoral business activities.

4. Trade Union:

There are number of trade unions functioning in India. A trade union may be a registered or
unregistered one. Here, the trade union has to suffer a break if business ethics is not properly
followed. Trade union acts as a watchdog to ensure observation of business ethics.

5. Business Association:
Outside agency like the business association guides the business as how to observe business
ethics, stating the reasons for doing so. A business unit may be isolated from the business
association if the particular business unit fails to comply with ethics.

6. Consumer Movement:

Now-a-days, the consumer movement has developed so much to protect consumer interests. As a
matter of fact, business ethics deals with morality in the business environment. Nevertheless,
consumer movements take active part in the adoption of business ethics. For example, if a
purchased product is not up to the standards as specified, the consumer movement claims
damages or takes steps to replace the product to the consumer and insists the business unit to
maintain the quality as specified by it.

Business Ethics – Guidelines to Determine Ethical Actions

i. The Golden Rule:

Act in a way you would expect others to act toward you.

ii. The Utilitarian Principle (Utilitarian Approach):

Act in a way that offers greatest benefit to the greatest number of people. Nobel Prize winning
economist, Milton Friedman, argues that using resources in ways that do not clearly maximize
shareholder interests amounts to spending the owners’ money without their consent and is
equivalent to stealing. The utilitarian approach, thus, puts focus on behaviours and their results,
not on the motives for such actions.

iii. Kant’s Categorical Imperative (Universal Approach):

Act in way that the action taken under the circumstances could be a universal law or rule of
behaviour. If you follow this approach, you should choose a course of action that you believe can
apply to all people under all situations and that you would want applied to yourself.

iv. The Professional Ethic:

Take actions that might be viewed as proper by a disinterested group of professional colleagues.

v. The TV Test:

Managers should indulge in soul-searching questions such as: “would I be comfortable

explaining to a national TV audience why I preferred this action?”

vi. The Legal Test (Justice Approach):

Is the proposed action or decision legal? The justice approach involves evaluating decisions and
behaviour with regard to how equitably they distribute benefits and costs among individuals and
groups. Generally speaking, costs and benefits should be equitably distributed, rules should be
impartially applied, and those damaged because of inequity or discrimination should be
compensated.

vii. The Four-Way Test:

If the answer to the following questions is “yes”, then managers are said to be on track—is the
decision truthful? Is it fair to all concerned? Will it build goodwill and better friendships? Will it
be beneficial to all concerned?

viii. Natural Duty Test:

This principle requires that decisions and behaviour be based on universal principles associated
with being a responsible member of society. Four universal duties are to help others who are in
need; not to harm or injure another; not to cause unnecessary suffering; and to support and
comply with just institutions.

ix. Moral Rights Test:

The moral rights approach holds that decisions should be consistent with fundamental rights and
privileges, i.e., life, freedom, health and privacy. Many laws nowadays require businesses to
comply with society’s view of appropriate standards for quality of life and safety.

Employees, customers, shareholders and the general public have the right not to be intentionally
deceived on matters about which they should be informed. Likewise, citizens have a moral right
to control access to personal information about themselves and its use by public and private
agencies.

Values in Business:

Values define what is good or bad, right or wrong. They guide our behaviour wherever we go
and are the primary sources of our actions. Right from childhood, we are guided by our parents
to be honest and true to ourselves and to be accountable for our actions. When we grow up and
enter organisations we continue to judge events, people and situations with preconceived notions
of “what ought “and” what ought not” to be(Robbins) Values (such as freedom, honesty, self-
respect, equality etc.) are perceptions about what is good or bad, right or wrong. They tend to be
broad views of life and are influenced by parents, teachers, peer groups and associates.

Infact, peoples’ values develop as a product of the learning and experience they face in the
cultural setting in which they live. Value differences basically arise because learning and
experiences differ from one person to another. As a result, one person may give more importance
to money whereas another person may look at honesty and truthfulness as more important than
money. Such differences are likely to be deep seated and somewhat difficult to change, many
have their origins in early childhood and the way a person has been raised (Rokeach).
From a managerial standpoint, it is important to know that values are those concepts, principles,
things, people or activities for which a person is prepared to work hard and even make sacrifices
for. Compensation, recognition and status are common values in the workplace. Values, quite
often, help managers to tie the knot between employee decisions and actions with overall
corporate goals.

Values and their Impact on Human Behavior:

People are not born with values; rather they acquire and develop them early in life. Parents,
teachers, relatives, friends and others influence an individual’s values. Values such as stealing is
“bad”. ‘Honestly is the best policy’. ‘Respect your elders & teachers. ‘Be kind to people’ are
taught and reinforced in schools, religious institutions and social groups. Over the years these
values become relatively stable and enduring. As we grow in years, we often seek environments
that are compatible with the values we learned as children.

For example, values help find out what companies we are attracted to and how long we stay
therein. They also influence how motivated we are at work; people who share same values as the
organisation are committed to the organisation that those who do not. Whenever people make
decisions or talk about what constitutes appropriate behaviour at work, we can easily see the
impact of values or even conflicts between different values.

For example, consider the question of laying-off employees. Managers with dominant economic
values would be less hesitant to lay them off quickly than would managers with high social
values. Once a particular value is internalized, it becomes a standard for guiding action. It
becomes instrumental in developing and maintaining attitudes towards relevant objects and
situations for justifying one’s own and others actions and attitudes, for morally defining self and
others and for comparing self with others. When individuals enter an organisation with certain
pre-set values, of what is right or wrong, they tend to look at the world through coloured glasses.

For example, you believe that an organisation should promote people on the basis of merit and
not on seniority. However, the organisation does the opposite thing, you tend to feel disappointed
and totally out of place. Your attitude and behaviour towards the organisation perhaps would be
very optimistic if your values match with organization’s promotion policies. Values, thus,
overpower objectivity and rationality.

Business Ethics – Ethical Dilemma

An ethical dilemma is a situation where one is in conflict between moral imperatives. Ethical
dilemma is also known as ethical paradox or moral dilemma. Ethical dilemma is a situation in
which it cannot be determined whether the action is right or wrong. To follow one action would
result in transgressing another.

Characteristics of Ethical Dilemma:

1. Choice between equally undesirable alternatives

2. Different courses of action possible

3. Involves value judgments about actions or consequences

4. Data will not help resolve issue

5. Different sources (psychology, theology) offer solutions

6. Unfavourable outcomes will result

7. Choices have far-reaching effects on persons, relationships and society

8. Resources which must be allocated are finite or limited

9. Can be resolved, not solved

10. There is no “right” or “wrong”.

Business Ethics Practiced by Indian Companies are:

1. Principle of ‘sacrifice’ – A person, who is able to sacrifice a part of his asset or effort,
commands a superior place in the organisation.

2. Principle of ‘harmony’- harmony helps in avoiding conflicts in the organization.

3. Principle of ‘non-violence’- It protects an organisation from strikes and lockouts.

4. Principle of ‘reward’- The one who performs well is encouraged in form of rewards.

5. Principle of ‘justice’ – The one who works hard is awarded and the one who fails is punished.

6. Principle of ‘taxation’- The one who is taxed more is encouraged to stay fit for a longer period
by proper appreciation. This principle applies to people who are hardworking and productive.

7. Principle of ‘integrity’ – Integrity emphasis unity which helps to reap the benefits of division
of labour.

8. Principle of ‘polygamy’ – It emphasized on combining of two different cultures by absorption

or takeover.

Business Ethics – Relationship between Business & Ethics

The relationship between business and Ethics has long been debated. If Classical economists like
Adam Smith and Milton Friedman were of the opinion that the only objective of business was
profit maximisation and business had no right to ‘meddle’ with ethics, the Church, in pre-
medieval times, was the spokesman and judge for all spheres of the society, including business.

In medieval and pre-medieval period, the Church took upon itself to regulate the moral
functioning of business, making moral declarations like-all businesses must remain closed on
Sunday, the ‘holy-day’, when Jesus Christ was supposed to have taken a rest and it was morally
‘correct’ to stop working on Sundays.

These two are extreme views, known as the Unitarian View and the Separatist View. However,
around the decade of 1950, Talcott Parsons, founded the Integration View which stated that
neither was business an extension of morality and ethics nor can business keep itself absolutely
aloof from the ethical practices of the society wherein it exists and operators. This view sought to
integrate the two previous views presenting a more realistic picture.

The Unitarian View:

This view is of the opinion that business is only a subset or sub-structure of the moral structure
of the society. According to this view, business and morality cannot be separated and business
must play by the rules of morality and ethics of the community which guides the activities of the
community.

This view was emphasised more by the Church in the European countries and the Church
prescribed that business must exist only to do good for the society, and it had no other role to
play apart from serving society and ushering in social welfare. This View stated that business
must conduct its affairs purely through altruist motives and that profit was a dirty word.

The Separatist View:

Dramatically opposite to the Unitarian View, classical economists like Adam Smith and Milton
Friedman asserted that the only goal of business should be profit maximisation; and that ethics
and morality plays no part in business conduct.

In fact, Milton Friedman, the celebrated economists, who won the Noble Prize for Economics, in
1976, hold the view that business should go on with the business of producing goods and
services efficiently, and leave the solution of social problems to government agencies and
concerned individuals.

In short, managers should focus on what they know best—that is how to make profits. It was
Friedman who forwarded the classical view that the only responsibility of business is to earn
profits, arid he goes on to say, in his book, ‘Capitalism & Freedom’, thus-

“There is one and only one responsibility of business-to use its resources and engage in activities
designed to increase its profit so long at it stays within the rules of the game, which is to say,
engages in open and free competition, without deception or fraud. Few trends could so
thoroughly undermine the very traditions of our free society as the acceptance by corporate
officials of a social responsibility other than to make as much money for their stockholders as
possible. This is fundamentally subversive doctrine.”

Adam Smith and Friedman were of the opinion that business should be left alone to play by the
rules of the prevalent market system, and the introduction of ethics would make an imbalance of
the market dynamics. The Separatist View is of the opinion that business too has its own set of
principles like ‘reduce production costs,’ ‘optimise labour’ and so on, and these principles are all
related to the marketplace and have nothing to do with moral principles.

Playing the business game by the market rules will ensure that the ‘individual hand of the
market’ would generate social welfare to community.

Theodore Levitt, the well-known psychologist, believed that if ethics and morality were allowed
to enter the realms of business, then there is a danger of business values ultimately dominating
over social values. He expressed thus, in his famous article, ‘The Danger of Social
Responsibility’, –

“The danger is that all these things (social aspects of business functioning) will turn the
corporation into twentieth-century equivalent of the medieval Church. The Corporation would
eventually invest itself will all-embracing duties, obligations, and filially powers-ministering the
whole man and moulding him and society in the image of the corporation’s narrow ambitions
and its essentially unsocial needs”

Many intellectuals expressed the fear that any replacement of altruism for self-interest will,
therefore, be fatal to the efficiency of the system. Managers should manage only in the interests
of the shareholders and shareholders should be put in the position where they decide how their
wealth and resources will be used. They believe that business should not have any responsibility
beyond obeying certain legal codes in achieving its economic and business goals.

The Integration View:

This View was proposed by Talcott Parsons, wherein he sought to integrate ethical behaviour
and business in a new area called Business Ethics. This View states that business is an economic
entity and it has the right and the need to make profits, but, it must also discharge its obligations
to the society where it exists and operates.

Profits is certainly not a dirty word, but, neither is morality and ethics in business. This View
states that society consists of a number of subsystems, and business and morality are just two of
these subsystems. Since all subsystems within the society are interlinked and interdependent, so
also are business and morality interlinked.

Business and Ethics overlap and hence many business decisions are guided by moral
considerations. In fact, business itself is considered to constitute of ethics, as it does so much
good to so many people and specially to the society it serves. Production of goods and services
and making them available to consumers who need them and benefit from them, itself, constitute
a noble deed towards social welfare. Thus, business constitutes of ethics in itself, even while it
pursues profits.

A sick and bankrupt organisation is a social liability and can hardly contribute in the area of
social responsibility. Hence the first responsibility of a businessman is to generate surplus for his
business. At the same time however, he must do so ethically, carry on his business on morally
sound principles and go out of his way to assume social responsibilities beyond the legal
minimum.

Business Ethics – Rationale of Business Ethics: Survival of Business, Need of a

Stable Society, Growing Clout of Business, Effective Decision-Making and a Few
Others

Rationale of corporate ethics are as follows:

1. Survival of Business:

Any individual business will collapse if all of its managers, employees, and customers come to
think that it is morally permissible to steal from, lie to, or break their agreements with the
business.

2. Need of a Stable Society:

All businesses require a stable society in which they are supposed to carry on their business
dealings. Stability of any society requires that its members adhere to some minimal standards of
ethics. It will create a conducive environment for the development of economic and social
institutions.

3. Consistent with Business Objectives:

Ethics should be brought into business by showing that ethical considerations are consistent with
business pursuits, in particular with the pursuit of profit. That ethics is consistent with the pursuit
of profit and it can be shown by simply finding examples of companies where a history of good
ethics has existed side by side with a history of profitable operations.

4. Growing Clout of Business:

The power and influence of business in society is greater than ever before. Evidence suggests
that many members of the public are uneasy with such developments. Ethics help us to
understand why this is happening, what will be its implications and how we will address this
situation.

5. Safeguarding Public from Business Malpractices:

Business malpractices have the potential to inflict enormous harm on individuals, communities,
and the environment. Ethics seeks, to improve the human condition by focusing on the causes
and consequences of these malpractices being done by the business organisations.

6. Effective Decision-Making:

Ethics help to improve the business ethical decision-making with the appropriate knowledge and
tools that allow them to correctly identify, diagnose, analyse, and provide solutions to the ethical
problem and dilemmas they are confronted with day to day decision making having implications
for the stakeholders.

7. Business Effectiveness:

Ethics develop the ability to assess the benefits and problems associated with different ways of
managing ethics in organizations. It also improves the knowledge that transcends the traditional
framework of business studies which have focused on the relevance of ethics in business.

Business Ethics – Three Dimensions: Systematic Issue, Business Issues and

Individual Issues

Business ethics include three dimensions:

These are:

1. Systemic issues,

2. Business issues, and

3. Individual issues environment.

1. Systemic Issues:

These are ethical questions raised about the economic, political, legal, and other social systems
within which corporate enterprises are expected to operate. These are set by the society,
government and other agencies involved in ethical movements. These include questions about
the morality of economic system, laws, regulations, industrial structures, and social practices
within which Indian Business Enterprises are required to achieve their vision and mission.

2. Business Issues:

These are ethical questions raised about a particular business. These questions include about the
morality of the activities, policies, practices, or organizational structure of an individual business
taken as a whole. Individual behaviour of the business set the agenda for other companies
working in the industry concerned and managers and employees are expected to comply with
these standards. Generally, individual companies try to formulate their own ethical standards for
their behaviour.

3. Individual Issues:

These are ethical questions raised about a particular individual or particular issue within a
business. These include questions about the morality of the decisions, actions, or character of an
individual manager. For example, Deepak Parekh (HDFC), Narayan Murti (Infosys), Ratan Tata
(Tata Group of Companies), H V Kamath (ICICI Bank) have tried to integrate their personal
values in their organizational values.

Business Ethics – Challenges in Compliance, Finance, Human Resource,

Marketing and Production

(i) Ethics in Compliance:

Compliance means conforming to relevant laws, regulations, policies, standards, procedures, or

contractual obligations. These may be external or internal obligations. Organizations that follow
high Ethics comply with the law and ensure an ethical climate inside throughout the
organization.

(ii) Ethics in Finance:

Financial statement fraud can surface in many different forms, although once deceptive
accounting practices are initiated, various systems of manipulation will be utilized to maintain
the appearance of sustainability.

Common approaches to artificially improving the appearance of the financials include:

(a) Overstating revenues by recording future expected sales

(b) Capitalizing operating expenses

(c) Inflating assets’ net worth

(d) Hiding obligations off of the company’s balance sheet and incorrect disclosure.

(e) Insider trading, executive compensation

(iii) Ethics in Human Resource:

HR includes numerous ethical pitfalls that can damage a company’s reputation or financial
sustainability if not handled properly. Understanding the importance of ethics in human
resources is crucial for any business owner, whether in a local startup or a multinational
powerhouse.
The ethics of human resource management (HRM) covers those ethical issues arising around the
employer-employee relationship, such as the rights and duties owed between employer and
employee.

The issues of Ethics faced by HRM include:

(a) Discrimination issues, affirmative action, sexual harassment.

(b) Issues surrounding the representation of employees and the democratization of the
workplace.

(c) Issues affecting the privacy of the employee, workplace surveillance, drug testing.

(d) Issues affecting the privacy of the employer- whistle-blowing.

(e) Issues relating to the fairness of the employment contract and the balance of power between
employer and employee: slavery, indentured servitude, employment law.

(f) Occupational safety and health.

(iv) Ethics in Marketing:

Marketing ethics is the area of applied ethics which deals with the moral principles behind the
operation and regulation of marketing.

The issues of Ethics faced through marketing are:

(a) Price Discrimination, Price war, Price skimming

(b) Misleading advertisement

(c) Black market, Grey market

(v) Ethics in Production:

Ethics in production is a subset of business Ethics that is meant to ensure that the production
function or activities are not damaging to the consumer or the society.

(a) Ethical problems arising out of use of new technologies that are deleterious to health, safety
and environment, genetically modified food, radiations from mobile phones, medical equipment
etc.

(b) Defective services and products.

(c) Products those are innately deleterious like alcohol, tobacco, fast motor vehicles, warfare,
chemical manufacturing etc.
(d) Animal testing.

(e) Pollution, global warming, increase in water toxicity and diminishing natural resources.

Business Ethics – Arguments against Business Ethics

Though it is done very, very infrequently now-a-days, some authors and philosophers,
nonetheless, do tend to put forward the argument that businesses being economic entitles, should
have nothing to do with morals (i.e., with what people do) or ethics (what people ought to do).

They argue that businesses should assume no other responsibilities, other than to produce goods
and services efficiently and to maximise profits for the shareholders. They believe that business
being economic entities, only economic values should be their guiding principles and the sole
determinant of their performances.

Milton Friedman, the celebrated Noble Prize winning economist, in his book, ‘Capitalism and
Freedom’, put forward his classical view that the only; responsibility of business is to earn
profits. He believed that-

“There is one and only one responsibility of business-to use its resources and engage in activities
designed to increase its profits so long as it stays within the rules of the game, which is to say,
engages in open and free competition, without deception or fraud. Few trends could so
thoroughly undermine the very traditions of our free society as the acceptance by corporate
officials of a social responsibility other than to make as much money for their stockholders as
possible. The fundamentally subversive doctrine.”

Friedman feared that if business ethics formed a part of corporate culture, ultimately the
customer would be called upon to bear the cost of the ethical practices of the organisation, as
Friedman erroneously assumed that such ethical practices would increase the prices of the
organisation’s products. He further believed the social responsibility of business is contrary to
basic business functions.

Moreover, he says that the business manager does not know, and does not need to know, where
public interest lies. That is the concern of politicians, bureaucrats, concerned organisations and
individuals and the state.

Today, business have found out that they are, in fact, responsible for social welfare, since they
live and operate within a social structure. Without earning social sanction, no business can hope
to survive, leave alone develop and flourish. And ethical practices do not necessarily increase the
cost of production, in fact they tend to reduce costs. But, even if they do increase costs, short
term sacrifices must be made for long term good.

Another personality, the famous psychologist, Theodore Levitt, expressed fear that if business
started being concerned about ethics, then business values would come to dominate social
values.
These views were put forward in the 1950s and the 1960s. Since then, there has been a radical
change of views and the fears expressed by philosophers and psychologists about business ethics
have largely remained unfounded.

People at that time feared that any altruism or ethical conduct or embracing of any moral
philosophies by the organisation would lead it to sacrifice its efficiency and productivity; and the
competitiveness of the marketplace would fade away. Nothing could be more far from the truth.

Having realised this, more and more business organisations are today accepting business ethics
as part and parcel of their daily business conduct. And to their astonishment and delight, they
have found that being ethical and moral have given them an unique edge and advantage in the
marketplace.

Moreover, their employees, executives and managers have felt proud to belong to such
organisations. For, goodwill, loyalty genuine pride, and above all, mental peace, cannot be
calculated accurately in terms of money.
GOOD GOVERNANCE

Introduction
-looks at the responsibilities of the
government----from a big picture of
illiteracy, filth, and poverty.
- people expect from their government
maximum results with minimum cost
(law and order, administration of justice,
safety, economically and socially welfare
of society)
- Good governance looks at the
functioning of the given segment of the
society
- Good governance, as a concept, is
applicable to all sections of society such
as:
 the government, legislature, judiciary,
the media, the private sector, the
corporate sector, the co-operatives,
registered trusts, trade unions and
lastly the non-government
organizations (NGOs)
What is governance?
What is governance?
- The word governance comes from the
Latin word “gubanare” which means “to
steer”.

- the perception of governance has been in the

human civilization since the time that the people
learned how to live in one community or society
through the process of making decisions and
implementations of certain laws, rules and
policies in order to live orderly and
harmoniously in one environment

- Governance -is the manner of

directing and controlling the actions
and affairs of an entity.
- is an exercise of powers and actions to
achieve goals of an organizational entity.
 - is essentially a function of leadership
in the organization or company

 defined as the use of power and

authority by those in government to
provide goods and services to the
people to uphold the common good
and fulfill the aspirations and needs of
the common man
 Governance- is concerned with
power, strategies, policies, plans and
projects that aim at improving the
substance or quality of life
 the process of decision-making
and the process by which decisions
are implemented (or not
implemented)
- thus, an analysis of governance focuses
on the formal and informal actors
involved in decision-making and
implementing the decisions made

-Governance can be used in several

contexts such as corporate governance,
international governance, national
governance and local governance

Governance must be distinguished

from the following:
i) Government
Governance- is a broader notion than the
Government, whose principal elements
include the constitution, legislature,
executive and judiciary
Government -is the exercise of authority
to direct, to lead and to control within an
organization or any territory.
-Governance -involves interaction
between these formal institutions and
those of civil society

ii) Management
Governance- is the responsibility of the
elected representatives of the
membership who comprise the Board
Management -the responsibility of
management is of the Chief Executive
Officer (CEO).
• The board Chairperson-ensure the
boundaries between governance and
management are respected and
maintained

Governance becomes good when the

decisions and actions of the government
are based on peoples’ consent, legitimacy
and accountability
What is good Governance?
 good governance- is concerned
with high quality in governance
 good governance implies
enlightened citizenship as well as
accountable and constitutional
government

Good Governance-Understanding
through basic questions
 Do people fully participate in
governance?
 Are people fully informed?
 Do people make decisions or can
they at least hold the decision makers
accountable?
 Are the women equal partners with
men in Governance?
  Are the needs of the poor and
disadvantaged met?
 Are peoples’ human rights
guaranteed?
 Are the needs of the future
generation taken into account in
current policies?
 Do people own their structures of
governance?

-The World Bank (1992) report define

good governance as “the manner in
which power is exercised in the
management of a country’s economic
and social resources for development”
The essence of good governance was
described as predictable, open and
enlightened policy, together with a
bureaucracy imbued with a professional
ethos and an executive arm of
government accountable for its actions.

Characteristics of Good Governance

 Law and order

 People caring administration
 Justice and rationality as the basis
of decision
 Corruption free governance
 views of minorities are taken into
account
 voices of the most vulnerable in
society are heard in decision-making
 government is responsive to the
present and future needs of society
PRINCIPLES OF GOVERNANCE
The five basic principles of good
governance as given by United Nations
Development Programme (UNDP)
Accountability
- Accountability is related to the system
of openness and transparency to avoid
favouritism, nepotism and prejudice in
the treatment of the citizens
- implies that the bureaucracy should be
answerable for what they do or don’t do
- The executive is to be responsive to the
people
 Decision-makers in government,
the private sector and civil society
organizations are accountable to the
public, as well as to institutional
stakeholders.
 Transparency is built on the free
flow of information-enough
information is provided to understand
and monitor them
How:
  in parliamentary- through
questions, debates, discussions,
budgetary approvals, committees
(proved to be ineffective for reasons
of decline in the quality and character
of debates and the representatives)
 judicial review of the
governmental decisions or laws.
 citizens’ charter
Example
A country can set up institutions to
secure accountable administration. For
example, Commission for human rights,
Comptroller and Auditor General,
TCCB, Ministry of gender, Fair
Competition, Empowerment, special
seats, units to deal with the grievances
from the government action,
-to remove administrative bias,
corruption, alienation and secrecy, o
prevent undesirable acts or behavior,
promote efficiency and integrity of
public servants, enhancing financial
abilities through increased financial
powers

Participation
 Participation by both men and
women is a key cornerstone of good
governance.
 Participation could be either direct
or through legitimate intermediate
institutions or representatives

Rule of law
 Good governance requires fair
legal frameworks that are enforced
impartially.
  It also requires full protection of
human rights, particularly those of
minorities.

Transparency
 Transparency means that decisions
taken and their enforcement are done
in a manner that follows rules and
regulations.
 It also means that information is
freely available and directly
accessible to those who will be
affected by such decisions and their
enforcement.
 It also means that enough
information is provided and that it is
provided in easily understandable
forms and media
Responsiveness
  Good governance requires that
institutions and processes try to serve
all stakeholders within a reasonable
timeframe

Consensus oriented
 There are several actors and as
many view points in a given society.
 Good governance requires
mediation of the different interests in
society to reach a broad consensus in
society on what is in the best interest
of the whole community and how this
can be achieved

Equity and inclusiveness

 A society’s well-being depends on
ensuring that all its members feel that
they have a stake in it and do not feel
 excluded from the mainstream of
society.
 This requires all groups, but
particularly the most vulnerable, have
opportunities to improve or maintain
their wellbeing.

Effectiveness and efficiency

 Good governance means that
processes and institutions produce
results that meet the needs of society
while making the best use of
resources at their disposal.
 The concept of efficiency in the
context of good governance also
covers the sustainable use of natural
resources and the protection of the
environment.
Challenges to Good Governance
Corruption
 is an illegal use of authority for
personal gains.
 Corruption is a universal disease
causing harm to the people and
government almost everywhere in the
world

Population Growth
 development efforts have failed to
eliminate poverty, unemployment and
illiteracy and to secure to all ‘citizens
equitable access to even primary
 education and health, food, water and
a house

 .
QUESTIONS

3. What is the difference between virtue ethics and utilitarianism?

4. Business ethics is of no practical importance to managers. Debate about wrong and rights
should be left in classrooms. Critically evaluate this statement using examples where aproriate