definitions • ethics involves a discipline that examines good or
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Business Ethics: What Does It Really Mean?
Definitions• Ethics involves a discipline that examines good or
bad practices within the context of a moral duty• Moral conduct is behavior that is right or wrong• Business ethics include practices and behaviors that
are good or bad
Approaches to Ethics• Descriptive – What people do • Normative – What one should do• Analytic – The basis for developing norms
Ethics and Religion
Ethics is long term policy
• All religion, all ethics and morals spring from the basic conflict between short term and long term:
– If we limit ourselves to the short term:• Pleasures today, even at the cost of pains tomorrow, sound like a
good bargain
– If we take long term into account:• Every such pleasure which is not lasting, is avoidable
• Long term is how long:
– Do we look at our lifetime?– Do we look at the lives of our children and posterity?– Do we take the eternal view of perennial life
• Religion in its absolute form tends towards the eternal view:
– All practical adaptations of ethics are essentially truncated forms of the total religious view
Business, Morality and Religion
Morality and ethics have their roots in religion.Religion and business are mutually incompatible
• Religion deals with the inner self; business deals with the outer world
• Religion deals with contentment; business is a play of ambition
• Religion says, adjust your within to suit your without; business says, adjust your without to suit your within
Scope of Business Ethics
At the Societal Level• Concern for poor and downtrodden
• Non-discrimination
• Environmental concerns
• Sustainability of resources
• Improvement in quality of life
Stakeholder’s Level
• Employees (Job security, welfare measures, participative management, working conditions, etc)
• Customers (Quality of goods/services, pricing, safety, not to make false claims, etc)
• Shareholders (Capital appreciation, regular dividends, disclosure, protect interest of shareholders, etc)
• Banks & Financial Institutions (Safety of borrowed funds, Timely repayment of loans)
• Government (Comply with rules & regulations, Tax obligations, participation in growth of nation)
Scope of Business Ethics (Contd.)
Internal Policy Level• Fair practices relating to recruitment, selection, promotion,
compensation, layoffs, etc
• Interpersonal communication
• Motivation and grievance redressal
Personal Policy Level• Not to misuse others for personal ends
• Not to engage in politics to gain power
• Not to spoil promotional chances of others
• Not to use office facilities for personal use
• Not to fall prey to shortcuts and easy money
• Promise keeping
• Preventing physical harm to others
• Mutual help
• Respect for people and property
Ethics and MoralsDefinition of Morals
Morals are the social, cultural and religious beliefs or values of an individual or group which tells us what is right or wrong. They are the rules and standards made by the society or culture which is to be followed by us while deciding what is right. Some examples of Morals are:• Do not cheat• Be loyal• Be patient• Always tell the truth• Be generous
Morals refer to the beliefs what is not objectively right, but what is considered right for any situation, so it can be said that what is morally correct may not be objectively correct.
Ethics and MoralsDefinition of Ethics
Ethics is a branch of philosophy that deals with the principles of conduct of an individual or group. It works as a guiding principle as to decide what is good or bad. They are the standards which govern the life of a person. Ethics is also known as moral philosophy. Some examples of Ethics are:
• Truthfulness
• Honesty
• Loyalty
• Respect
• Fairness
• Integrity
Every single individual has some principles which helps him throughout his life to cope up with any adverse situation, they are known as ethics.
Comparison between Morals and Ethics
BASIS FOR COMPARISON MORALS ETHICS
Meaning
Morals are the beliefs of
the individual or group as
to what is right or wrong.
Ethics are the guiding
principles which help the
individual or group to
decide what is good or bad.
Governed By Social and cultural normsIndividual or Legal and
Professional norms
Applicability in Business No Yes
Consistency
Morals may differ from
society to society and
culture to culture.
Ethics are generally
uniform.
Expression
Morals are expressed in the
form of general rules and
statements.
Ethics are abstract.
Freedom to think and
chooseNo Yes
Ethics, Morals & Values
• Preference Value
• Instrumental Value
• Intrinsic Value
Reasons for Formal Ethical Codes
• To regulate members’ behavior– To inform them of expected behavior– To remind them that ethical behavior overrides many other
considerations– To remind them of personal responsibility
• To hold members accountable– To provide bases for judging in cases of breach– To help address situations where conflicting views of what is right are
possible
• To present profession to society– To state its ethical bases, reassure stakeholders, and give them a basis
for evaluating professionals
Types of Ethical Systems
Teleological: Focus on consequences which any action may have.
• Ethical Egoism – An action is morally right if the consequences of the action are more favourable than unfavouraqble only to the moral agent performing the action.
• Ethical Altruism - An action is morally right if the consequences of the action are more favourable than unfavourable to every one except the moral agent.
• Ethical Utilitarianism - An action is morally right if the consequences of the action are more favourable than unfavourable to every one.
Deontological: actions. “Doing right”
• Responsibilities, duties
• Rights, privileges
Virtue Ethics
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3 Models of Management Ethics1. Immoral Management—A style devoid of ethical principles and active
opposition to what is ethical.
2. Moral Management—Conforms to high standards of ethical behavior.
3. Amoral Management
– Intentional - does not consider ethical factors
– Unintentional - casual or careless about ethical considerations in business
Emphasis on Corporate Social Responsibility
Ethical Decision Making
Shaping the Organization's Ethical Climate
Developing Moral Judgment
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Developing Moral Judgment
External Sources of a Manager’s Values
• Religious values• Philosophical values• Cultural values• Legal values• Professional values
Internal Sources of a Manager’s Values
• Respect for the authority structure• Loyalty• Conformity• Performance• Results
Ethical Dilemma
Any decision where moral considerations are relevant can potentially give rise to an ethical dilemma, for example:
• A decision that requires a choice between rules
• A decision where there is no rule, precedent or example to follow
• A decision that morally requires two or more courses of action, which are in practice incompatible with each other.
• A decision that should be taken in one’s self-interest, but which appears to violate a moral principle that you support.
An ethical dilemma is a complex situation that often involvesan apparent mental conflict between moral imperatives, inwhich to obey one would result in transgressing another.Sometimes called ethical paradoxes in moral philosophy,ethical dilemmas are often invoked in an attempt to refutean ethical system or moral code, or to improve it so as toresolve the paradox.
Ethical Dilemma
There are three conditions that must be present for a situation to be considered an ethical dilemma:
• The first condition occurs in situations when an individual, called the “agent,” must make a decision about which course of action that is best. Situations that are uncomfortable but that don’t require a choice are not ethical dilemmas.
• The second condition for ethical dilemma is that there must be different courses of action to choose from.
• Third, in an ethical dilemma, no matter what course of action is taken, some ethical principle is compromised. In other words, there is no perfect solution.
Steps in Resolving an Ethical Dilemma• Identify the problem
• Identify possible courses of action
• Identify any constraints relating to the decision
• Analyze the likely effects of the possible courses of action
• Select the best course of action
WhistleblowingHow can you do the right thing and not lose your job?
• Don’t trust everyone to do the right thing—proceed with caution
• Gather the evidence you need
• Make sure you’re right
• Don’t exaggerate or overstate your case
• Wait for the right time to come forward
• Remain anonymous—the problem is the issue, not you
Globalization, Business Ethics &Competitive Advantage
• Globalization has brought about greater involvement with ethical considerations and most importantly achieving competitive advantage through business ethics.
• Globalization and business ethics are linked as they affect a company’s ability to commit to its shareholders, in particular to external investors, and preserve the trust needed for further investment and growth.
• It is increasingly important for companies to deal with ethics as a corporate strategy that, if uniquely implemented, could achieve competitive advantage for the company rather than waiting to react to possible ethical issues of importance to the targeted stakeholders.
• It is the necessity of being ethically proactive company rather than being ethically reactive company.
Business Ethics as Competitive Advantage
• As the speed of comparable tangible assets acquisition accelerates and the pace of imitation quickens, firms that want to sustain distinctive global competitive advantages need to protect, exploit and enhance their unique intangible assets, particularly integrity (building firms of integrity is the hidden logic of business ethics).
• “behavior that is trusting, trustworthy, and cooperative, not opportunistic, will give the firm a competitive advantage.”
• Sustainable global competitive advantage occurs when a company implements a value-creating strategy which other companies are unable to imitate. For example, a company with superior business leadership skills in enhancing integrity capacity increases its reputation capital with multiple stakeholders and positions itself for competitive advantage…
• Business ethics as competitive advantage involves effective building of relationships with a company’s stakeholders based on its integrity that maintains such relationships.
Applied Ethics
The application of Ethics to special arenas of human activity is called Applied Ethics.
Sub-deciplines of Applied Ethics:
• Medical Ethics
• Animal Ethics
• Environmental Ethics
• Business Ethics
• Research Ethics
• Technology & Ethics
• ICT Ethics
• Politics & Ethics
What Is a Profession?
• Extensive training, mastery of subject
• Professional association
• Standards and codes
• Self-regulating, via certifications and licensing
• Significant impact on public welfare
• Accountability to society
Professional Ethics is a set of standards adopted by
professional community
Professional Ethics: More than Following Rules
• Maturity of judgment
• Balancing a variety of considerations
• Consideration of various means to a desired end
• Supporting the profession
• Serving the welfare of the public
Need for Professional Ethics
• Responsibility to serve the public
• Complex body of knowledge
• Standards of Admission to the Profession
• Need for public confidence
Core Ethical Values
• Honesty
• Integrity
• Fidelity
• Charity
• Responsibility
• Self-Discipline
• Transparency
• Accountability
• Confidentiality
• Objectivity
• Obedience to the law
Corporate Governance refers to the relationship among theboard of directors, top management, and shareholders indetermining the direction and performance of the corporation.
Objectives of Corporate Governance:
• Transparency in decision making
• Accountability which follows from transparency
• Accountability is for safeguarding the interests of the stakeholders and investors of the organization
Corporate Governance depends on two factors:
• Commitment of the management to the principles of integrity and transparency in business operations
• Legal and administrative framework created by the government
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Corporate Governance
Setting corporate strategy, overall direction, mission or vision
Hiring and firing the CEO and top management
Controlling, monitoring, or supervising top management
Reviewing and approving the use of resources
Caring for shareholder interests
Board of
Directors
Board of DirectorsInside directors
– “Management directors”– Officers or executives employed by corporation– Family directors– Workers (Co-determination)
Outside directors– “Non-management directors”– May be executives of other firms but not employed by
board’s corporation
Interlocking Directorates
Direct Interlocking Directorate
• When two firms share a director or when an executive of one firm sits on the board of a second firm.
Indirect Interlocking Directorate
• When two corporations have directors who also serve on the board of a third firm.
Board of Directors
Nominations & Elections
Traditional Approach:
– CEO invites members to serve
– Shareholders approve in annual proxy statement
– All nominees are usually elected
Staggered Board Approach:
Corporations whose directors serve terms of more than one year, divide the board into classes, and stagger elections so that only a portion of the board stands for election each year.
Board of Directors
Nominations & Elections
Criteria for Selection
Board of
Director
Membership
•Wiling to challenge management
•Special expertise
•Availability for advice and meetings
•Expertise on global issues
•Understands key technologies
•External contacts valuable to the firm
•Detailed knowledge of industry
•High visibility in field
•Accomplished in representing firm to stakeholders
Organization of the BoardSize
– Determined by charter and bylaws– Average for publicly-held, large firm is 11 directors– Average for small/medium private firms is 7 to 8
directors
Board Role & Responsibility
• Provide/ Exercise
– Leadership and Strategic Guidance
– Objective Judgement Independent of Management
– Control over the Company
• Direct and Control the Management of the Company
• Be Accountable at all times to All Stakeholders
Board of Directors
Dimensions of Board Responsibility• Direction involves
– Formulation & Review of Company Policies, Strategies, Budgets and Plans, Risk Management Policies, Top Level HR Policies, etc
– Setting Objectives & Monitoring Performance
– Oversight of Acquisitions, Divestitures, Projects, Financial and Legal Compliance, etc
• Control Involves
– Prescribing Codes of Conduct,
– Overseeing Disclosure & Communication Processes,
– Ensuring Control Systems to Protect Company Assets
– Reviewing Performance & Realigning Action Initiatives to Achieve Company Objectives
Board of Directors
Theories of Corporate Governance
Agency Theory
Problems arise in corporations because the agents (top management) are not willing to bear responsibility for their decisions unless they own a substantial amount of stock in the corporation.
Stewardship Theory
Executives tend to be more motivated to act in the best interest of the corporation than their own self-interests. Theory argues that over time, senior executives tend to view the corporation as an extension of themselves.
Board of Directors Continuum
• Phantom: Never knows what to do.
• Rubber Stamp: Permits officers to take decisions.
• Minimal Review: Formally reviews selected issues
• Nominal Participation: Involved in limited degree in the performance and review of selected areas of management.
• Active Participation: Approves, questions, and takes final decisions on mission, strategy, policies, and objectives.
• Catalyst: Takes the leading role in establishing and modifying the mission, objectives, strategy, and policies of the organization.
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Styles of Corporate Governance
Trends in Corporate Governance
• Boards more involved in reviewing, evaluating, and shaping strategy
• Institutional investors active on boards; pressure on CEO for firm performance
• Shareholders demand directors own more than token amounts of the firm’s stock
• Non-affiliated outside directors increasing• Boards becoming smaller• Boards taking more control of board functions• Corporations becoming more global; international
experience needed • Societal expectations that boards balance profitability
and social responsibility• Diversity of board members
Corporate Social Responsibility (CSR) is about how companies manage the business processes to produce an overall positive impact on society.
CSR is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society.
Milton Friedman famously argued that the only social responsibility of the business is to maximize profit, and to do anything else, is to slide dangerously towards socialism. The incomparable strength of a free market is its ability to allocate resources efficiently, and misguided managers who struggle nobly to enhance social welfare forget their proper function in the market to compete and win. Still worse, managers who pursue the dream of CSR are using investors’ hard-earned savings, and are thus stealing from their investors
In response, CSR defenders note that business organizations do
not live in a vacuum; they owe their very existence to the
societies they inhabit. Corporations are granted access to the
society’s labour pool and its storehouse of natural resources, two
goods in which every member of the society has a stake.
Even Adam Smith, the father of capitalism, pointed out that the
efficiency of the market rests partly on transparency, the absence
of corruption, and the avoidance of manipulation. At the same
time, he did not believe that self-interested pursuit of profit was
the right way to live. Benevolence, Smith argued, is the highest
virtue.
However, interpretations of CSR are evolving. The discourse on
CSR has moved away from an emphasis on the social, economic,
and political development of the native country to more universal
concerns about environmental integrity and global welfare. In a
globalized market economy, CSR is part of modern business.
Arguments in favour of CSR
• Businesses must accommodate to social change if they have to survive.
• Businesses must take a long-term or enlightened view of self-interest and help to solve social problems in order to create a better environment for themselves.
• Businesses could improve their public image by being socially responsible.
• Government regulations could be avoided if businesses meet the changing expectations of the society, and before the issues become politicized.
• Businesses have access to enormous resources that could be used in solving social problems.
• Social problems could be turned into profitable business opportunities.
• Businesses have an obligation to help solve social problems that it has created or at least perpetuated.
Carroll’s Four Responsibilities
Carroll’s Four ResponsibilitiesEconomic - (Must do)Legal - (Have to do)Ethical - (Should do)Discretionary - (Might do)
Social Responsibility
Kohlberg’s Levels of Moral Development
• Pre-conventional Level
– Concern for Self
• Conventional Level
– Consideration for Laws and Norms
• Principled Level
– Adherence to internal moral code