business ethics

BUSINESS ETHICS &

CORPORATE GOVERNANCE

Business Ethics-An Overview

Ethics are principles of behavior that distinguish between right and wrong.Business ethics is the evaluation of business activities and behavior as right or wrong. Ethical conduct conforms with what a group or society, as a whole considers right behavior.

Business Ethics-An Overview

Meaning-ethos-character or manners

Ethics is the source of morals; moral principles; recognized rules of conduct.

Business Ethics-An Overview

John Donaldson-”Business Ethics is the systematic study of moral (ethical) matters pertaining to business, industry or related activities, institutions, or practices and beliefs. It can also refer to the actual standards, values, practices or beliefs.

Business Ethics-An Overview

Business Ethics is the systematic handling of values in business and industry.

These are rules of business conduct, by which the propriety of business activities may be judged. It also relates to the behavior of managers.

Objectives of EthicsStudy of Human Behavior. Makes evaluative assessment about that as moral or immoral ( a diagnostic goal)

Establishes moral standards / norms of behavior

Passes judgment upon human behavior based on these standards and norms

Cont’d…..

Objectives of EthicsPrescribes moral behavior; makes recommendations about how to or how not to behave (therapeutic goal)

Expresses an opinion or attitude about human conduct in general.

Nature of EthicsDeals with human beings only

Science of ethics is a normative science. It judges the value of the facts in terms of an idea :

Concerned with judgments of ‘what ought to be, but not with factual judgments.

Deals with moral judgment regarding voluntary human conduct

Nature of EthicsBusiness ethics is the application of ethics in business.Business ethics can still facilitate profit making.Profit maximization and discharging of social responsibilities at the maximum limit cannot be done simultaneously as they are at opposite ends.Managerial decisions have ethical implications and these decisions give rise to managerial dilemmas.

Determinants of Ethics

Values and Morals

Family, Schools and Religions

Peers, Colleagues and Seniors

Social Pressure

Experiences from Life

Organizational demand and ethical codes

Legislation

Situations of Threat

EVOLUTION OF THOUGHT

Lessons from the past:

Lord Krishna’s definition of a true Manager: “One who does his job, not for personal gain but for the sheer fulfillment of the task and the satisfaction which he derives.”

EVOLUTION OF THOUGHT

Manu and Inheritance:

Made a change in our understanding of ethics- In the Aryan ethical code, there were rights and obligations for the sons who inherited their father’s property. They also inherited his debts and the debt went down to two generations.

EVOLUTION OF THOUGHT

Aristotle on Virtue

Intellectual virtue : Time & Experience

Moral virtue : Result of Habit

No moral virtues arise in us by nature, for nothing that exists by nature can form a habit contrary to it’s nature e.g. stone, fire, etc.

EVOLUTION OF THOUGHTMauryan Accountability

For the first time, concept of accountability of the manager was laid down.Arthshastra-complex but carefully defined operational frameworkLays down as a duty of a manager to maintain complete accountsHe should also be subject to an audit

EVOLUTION OF THOUGHT

Akbar & Operational Framework

Indispensable for regular ethical functioning – A clear and stable commercial set-up.Excellent land revenue system; clear definition of duties of those who collected it.There can be no proper performance of duty and no ethical and social responsibility unless the framework in which one operates has been well defined.Often it is vagueness that leads to loss of ethics.

EVOLUTION OF THOUGHTThe British Period

The British emulated Akbar in three things:

Giving India unity and a wholeness

Land revenue system

Hindu-Muslim unity

Succeeded in the first two, but failed in the third.

EVOLUTION OF THOUGHTThe British Period

The British East India company- Ethics WaveredBut, historically, credit goes to the British Govt. operating till 1947, that they gave India a complex but good system of rights, obligations, duties, an operational framework, such as we had in Akbar’s and Mauryan times.

VIRTUE ETHICS

‘Virtus’ – Moral Excellence of a person

Virtue ethics is an approach that emphasizes rules, consequences and particular acts and places the focus on the kind of person who is acting.

The issue is not primarily whether one is following the correct rule; what is primary is whether the person acting is expressing moral virtues or not.

Socio Economic Values and Responsibilities

Socio Economic character of Business

Since corporations are constituted legal bodies, they assume corresponding social and legal responsibilities.

Milton Friedman may insist that the only social responsibility of Business is to make profits

Socio Economic character of Business

Private Business enterprises, at inception, are economic entities

As they grow, emphasis shifts towards a more social character

There is integration between Business Policy, Business Ethics, social responsibility and public policy.

Socio Economic character of Business

Socially responsible tasks:

1. Pollution control

2. Maintaining Ecological Equilibrium

3. Community Development, etc.

Later become integral parts of Organizational commitments.

Trusteeship Management

Gandhian Philosophy of Wealth Management

This philosophy implies that a Businessman should consider himself to be a trustee of the wealth he possesses

Only a custodian of his wealth meant to be used for the Business.

Trusteeship Management

Gandhian Philosophy of Wealth ManagementWealth belongs to society and should be used for the greatest good of allTrusteeship concept should also be extended to labor in industryIt does not recognize capital and assets as individual propertyThis was basically to reduce conflict between ‘Haves’ and ‘Have-nots’..

Trusteeship Management

Gandhian Philosophy of Wealth Management

Origin-concept of non-possession detailed in the Bhagvad Gita.

Social Economics

One of the major social challenges faced by business is to balance ethics and economics.

Society wants business to be ethical and economically profitable at the same time.

Social Economics-Changing Environment

Our economy is more competitive, society is becoming more crowded and technology is becoming more complex.

Ethics give rise to efficient economy

Social Economics-Changing Environment

The three terms used to define ethics are:

1. Right

2. Proper

3. Just

The question that needs to be asked is, “what is right, proper and just?”

Social Economics-Changing Environment

These terms and questions are important for any business executive who has to take multi-decisions in ways that are beyond his own control.The ethics of management is coined with the above three terms and the determination of what is right, proper, and just in the decisions and actions that affect other people.- goes far beyond simple questions of bribery, theft and collusion. Collusion is a secret agreement to deceive.

Ethical Theories

Two Categories:

1. Teleological – Ends / Outcome

2. Deontological – Process / Means

Ethical Theories

Teleological – Ends / Outcome

Virtue of the end achieved rather than the actions taken

Concept of goodness-fundamental principle

Concept of rightness and duty is in its context to goodness.

Ethical Theories

Teleological – Ends / Outcome

Utilitarianism

• Jeremy Bentham (1748-1832) and John Stuart Mill (1806-1873)

• Directs us to make decisions based on the greatest “good” (or utility) for the greatest number as the end result.

Ethical Theories

Utilitarianism

• Cost-benefit analysis is the most basic form of utilitarian analysis

• Follow the decision that provides for the greatest overall gain

• Strong, powerful theory because it is liberal

Ethical Theories

Utilitarianism

• This approach is superficially easy to apply:

• Majority rule

• Profit/loss statements

Ethical Theories

Utilitarianism

• Complexities:

• Measure of Happiness/Unhappiness

• When the majority rules, who protects the minority?

• Who ensures that new opinions are expressed so that intellectual growth is possible?

Ethical Theories

Distributive Justice

• Teleological approach

• Contemporary Harvard philosopher, John Rawls

• Based on concept of fairness

• Ethical decisions are those that lead to an equitable distribution of goods and services

Ethical Theories

Distributive Justice

• “Veil of Ignorance”

• Prevented us from knowing our status in society (Intelligence, wealth, appearance)

• Rawls argues that we will make the most just and fair decision under this framework

Ethical Theories

Deontological theories

1. Immanuel Kant (1724-1804)

• Based on rules and Principles that govern decisions

• Vision of ethics measured by the rightness of rules rather than by consequences.

• E.g. Cheating

Ethical Theories

Deontological theories1. Immanuel Kant (1724-1804)

Cont’d…• Universal laws applicable to whole

of Mankind• Regardless of situation, rules apply• Golden rule-Act upon others only as

you would have others act upon you.

Ethical Theories

Deontological theories

2. Chinese scholar Confucius (551 BC)

• What you do not wish done to yourself, do not do to others

• Do not wish for quick results, nor look for small advantages

• When you see someone of worth, think of how you may emulate.

Ethical Theories

Deontological theories

2. Chinese scholar Confucius (551 BC)• When you see someone unworthy,

examine your own character.• Wealth and rank are what people desire,

but unless they are in the right way, they may not be possessed

• Feel kindly toward everyone, but be close only with the virtuous

Ethical Theories

Deontological theories3.Religion• No theory or approach to the evaluation

of actions is more rule-based than religion

• E.g. Ten Commandments govern behavior

• Faith, rather than reason, intuition or secular knowledge, provides the foundation of a moral life built on religion.

Ethical Theories

Deontological theories

4. W.D. Ross

• He typically holds that certain actions are right not because of some benefit to ourselves or others but because of the nature of these actions or the rules from which they follow.

Ethical Theories

Deontological theories

4. W.D. Ross• Duties of fidelity-keep promises, both

explicit and implicit: to tell the truth• Duties of reparation-to compensate• Duties of gratitude• Duties of justice-ensuring that goods are

distributed according to people’s merits or demerits

Ethical Theories

Deontological theories

4. W.D. Ross• Duties of Beneficence-to do whatever we

can to improve the condition of others• Duties of self-improvement-to improve

our own condition with respect to virtue and intelligence

• Duties of non-malfeasance-to avoid injury to others

Ethics and Indian Management

Karma Yoga of Swami VivekanandaThe Goal-Isolation from dependenceWhen purusha finds that he is free and does not require anything to complete himself, then freedom is attainedEveryone must work, but what matters is how to work and in what way one should work

Ethics and Indian Management

Karma Yoga of Swami Vivekananda

If we work with proper understanding, it becomes the means for freedom.

If we work without understanding, then work leads to bondage and misery.

Work in Freedom and in Slavery

Ethics and Indian Management

Karma Yoga of Swami Vivekananda

Bliss is found when we work without expectations of any rewards, without any motives, as masters of our own mind, and not as slaves to our motives.

Work your best in the situation you are placed

Ethics and Indian Management

Karma Yoga of Swami Vivekananda

Right Attitudes to work

Law of cause and effect

Be a Master, not a Slave

Ethics and its Relation to Values, Norms and Morals

Ethics and its Relation to Values, Norms and Morals

Values, Attitudes, Morals and Norms combined together form Ethics.

Nature of Values

Milton Rokeach-

Values represent basic convictions that a specific mode of conduct (or end state of existence) is personally or socially preferable to an opposite mode of conduct (or end state of existence)

Nature of Values

Values have both Content and Intensity attributes.

Content specifies that a mode of conduct is Important

Intensity specifies how important it is.

Values are the most stable and enduring characteristics of individuals.

Nature of Values

Values are the most stable and enduring characteristics of individuals.

They are the basis upon which attitudes and personal preferences are formed as well as the basis for crucial decisions.

Values and Attitudes

Some researchers see values as consisting of large sets of related attitudes