Lecture Notes- Business Ethics - WordPress

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Mgmt study material created/ compiled by - Commander RK Singhrajeshsingh r k@rediffmail.comBUS INESS ETHI CS(Ple a se no te th a t th ese no tes a re n o t co mp reh en sive and th erefo rea d d i t io n a l r e a d i n g i s r e c o m m e n d e d f r o m d i v e r s e s o u r c e s )BooksEthics and Mgmt by HosmerBusiness Ethics by ShekherBusiness Ethics by Chakrobarthy (Oxford publication)Sy l la b us1.Evolution of thought of ethics in business2.Culture & ethics3.Overview of ethics value system, attitudes, beliefs and life patterns4.Social, economical values & responsibilities5.Trusteeship Management- Gandhian philosophy of wealth management6.Ethics and Indian management7.Basic framework of normative ethics8.Ethics and decision making9.Social responsibility of business - ethical aspects of corporate policy10.Morality and rationality in formal organisation11.Moral relations between individual and organisations12.Relation between ethics and corporate excellence13.Approaches for developing various orientate towards ethical business behaviour.W ha t i s e t hi c s ?Ethics means norms for the conduct of people in social groupings.Ethics is derived from Greek Word “Ethos” which means culture – the prevalent behaviourin the society. Thus, it is a code of conduct which has social acceptance.Ethics has often been misunderstood to be conforming to law. On the contrary, ethics isabout voluntarily conforming to what is good/acceptable/desirable behaviour without thePage 1 of 46 - Business Ethics (Ver 1.2 - 31.03.2007)Jamnalal Bajaj Institute of Mgmt Studies

Mgmt study material created/ compiled by - Commander RK Singhrajeshsingh r k@rediffmail.comforce of any legal/social obligation. The key word here is VOLUNTARILY. It is aboutchoosing to do some thing that is not mandated by the law or not doing some thing that ispermitted by the law but may cause harm to some one.Ethics are not universal. Ethics are derived from social values. Word “Ethnicity” is aderived word from Ethics which means relating to a specific social group. Thus, a set ofethical values relate to certain group which may not completely match with other group.Ethics keep changing from place to place, group to group, country to country and time totime. What is considered ethical today may have been considered unethical a few centuriesback. What is ethical in one religious group may be considered unethical in other group.So, ethics are time and space dependent. Ethics are what you have learnt from the societyas right or wrong behaviour. Law of the land might change from time to time but ethicsremain relatively constant over a fairly long period of time. Whatever is bound by the law,does not remain “ethics” any longer. An ethical practice today might be coded into a lawtomorrow. That practice would loose the high ground of ethics from that moment becauseethics is about “voluntarily conforming to a good behaviour”.Ethics almost always appear on the fringes of the law. It might often cross the boundarieseither way by small margins. What it means is that some thing which is lawful could stillbe unethical and even vice versa. Ethics is what a true human being is expected to do in acertain situation without the binding of law. No breach of law is committed by a personwho accosts and demands his outstanding loan from his debtor in front of marriage party ofthe debtor’s daughter. But would any person support such an act? It would be termedoutright unethical. (He should consider himself lucky if does not get beaten up by some self appointedconscience keepers of the society). Similarly, many consider Robin Hood to be perfectly ethical,though his acts were out rightly unlawful. It is widely accepted norm that any act whichachieves greater good for greater number of people is ethical. Even a refusal to foregoone’s lawful right would be termed unethical if it is going to cause a disproportionate andcatastrophic loss to other person.Business is as old as human civilisation. Laws came into existence much much later. Butcode of ethics began to take roots when man began to live in groups. Laws are nothing butformal codification of ethics of the society. But laws are constrained by the infinitecontingencies and subjectivities of the situations to codify every thing. Thus, ethics willcontinue to be there to guide the mankind on to the right path. Ramayana is believed to bethe oldest treatise on code of ethics. Bhagwad Gita is similarly treated as most scholarlybook on code of ethics.Role of ethics in business has been a perpetual issue. It has been gaining importance in therecent times due to geographical spread, growing size of businesses and their ever growingcapability to impact the lives of millions and millions of people. It has also beenhighlighted by the colossal scams in some businesses in recent times. The purpose ofbusiness is to earn profits. And almost every business tries to maximise its profits. But thequestion that arises here is how much profit and at what social and other costs? In a marketplace, beyond a certain point, one man’s profit is at the cost of loss to some one else.Market forces generally are able to balance the amount of profit among all participants in atrade. But situations arise when there is concentration of power, legal or illegal, in certainPage 2 of 46 - Business Ethics (Ver 1.2 - 31.03.2007)Jamnalal Bajaj Institute of Mgmt Studies

Mgmt study material created/ compiled by - Commander RK Singhrajeshsingh r k@rediffmail.compockets which can be exploited to usurp unduly large share of profit to great detriment ofothers. Any amount of law making can not cover every contingency. At such times, a goodcorporate citizen is expected to limit his greed and not indulge in irrational behaviour eventhough the existing laws may be helpless in curbing such practices. Sense of fair playshould prevail.Take the case of TCS IPO. The IPO was heavily oversubscribed at the upper band ofoffering. There was nothing stopping Tata management from charging maximum amountfrom its subscribers. Yet the management decided to charge Rs 50 less than it could have.It was a profit the company left voluntarily for its prospective shareholders to encash. Onthe other hand take the case of Allahabad Bank IPO. Share prices just before the IPO weremanipulated to almost twice its earlier prices and then sold at the maximum offeringdespite share prices having fallen at the time of actual allotment. Allahabad Bank can notbe nailed legally, but were they ethical?Tatas have been at the forefront in establishing and financing various institutions of socialand national relevance like Tata Institute of Fundamental Research, Tata Institute of SocialSciences, Tata Cancer Hospital, IISc and so on. Tatas have no legal commitment to investsuch huge sums in these esteemed centres of social and national cause. And yet they do itout of corporate ethics of considering it as their pay back to society.In the western world, oldest work on ethics is by Aristotle, a Greek philosopher andstudent of Plato, from 384 to 322 BC. And the latest work is by English philosopherGeorge Edward Moore who wrote about 70 years ago.Between these two extremes was the German philosopher Emmanuel Kant who lived in18 th Century. His idea of ethics was to think of an act and then trying to universalise it.(Each person committing that act). Check if it leads to any contradiction. If it leads to nocontradiction, it is ethical. If it does, it is not. For example, if every poor person is allowedto steal wheat from rich person, a stage will eventually be reached when no rich would beleft with any wheat to be stolen by remaining poor. This is a contradiction. Therefore, it isnot ethical. But a reverse stipulation does not lead to a situation where some people wouldbe left who could not exercise the option. Thus, not stealing is ethical.Another closely related word is “Moral”. The two are used almost as synonyms but there issubtle difference between the two. While ethics begin from the smallest issues, moralitygenerally addresses issues of grave consequences.As per Webster, ethics is the discipline that deals with that which is good or bad or withmoral duty and obligation. It is branch of philosophy considered as normative science.Thus, ethics is a system of values, relating to human conduct and motives.Business ethics are not different from ethics in normal sense. It is ethics applied in conductof business activity. According to Peter Drucker, “there neither is a separate ethics ofbusiness nor is one needed.” What is ethical in other walks of life is ethical in business andPage 3 of 46 - Business Ethics (Ver 1.2 - 31.03.2007)Jamnalal Bajaj Institute of Mgmt Studies

Mgmt study material created/ compiled by - Commander RK Singhrajeshsingh r k@rediffmail.comvice versa. Yet, if a separate definition is needed for Business Ethics, then, “Controllinggreed in the face of unrestricted profit opportunity is Business Ethics.Many Pharmaceutical companies have been often accused of unethical behaviour. Theyhave been accused of profiteering in the face of human suffering by charging exorbitantprices for their new formulations. But it is premature to make a judgement in absence ofconcrete data about their investments, risks and rewards, etc.Law and EthicsThe law is a formal set of rules and standards that is associated with significant legitimatepower and authority (to inflict punishment) in society. Ethics on the other hand, is far lessformal – sometimes not even written down set of values – which are to be observedmorally.Simply stated – Law is obedience to the enforceable whereas ethics is obedience tounenforceable (from Module from International Trade Centre).Page 4 of 46 - Business Ethics (Ver 1.2 - 31.03.2007)Jamnalal Bajaj Institute of Mgmt Studies

Mgmt study material created/ compiled by - Commander RK Singhrajeshsingh r k@rediffmail.comETHI CAL DIL EM MASE th i c a l Di le m m aWhen all choices are deemed undesirable because of potentially negativeethical consequences, or more than one choice appear correct making itdifficult to select the course of action.Ethical dilemmas often arise when a person has responsibility towards more thanone entity and they are on conflicting course. In the day to day situations, think of a manwhose wife and mother are constantly on the war path. He is expected to take care of hismother who has given him birth, suffered unaccounted miseries and made innumerablesacrifices for years in bringing him up. But he also has responsibility towards his wife whohas given up her entire clan of loved ones to be with him. Whose side does he take in thiswar? Either way, he is betraying one person. It is an ethical dilemma that he faces on dailybasis.A manager has responsibility towards his company, his boss, his mates, society, his family,and so on. Quite often he finds his boss asking him to give him cover for some goof-up hemay have committed or asked to project some inflated figures to allow boss project a betterimage of the department which will enable him a promotion. Now, if he follows boss’sorders, he is betraying his company. If he does not, he is betraying his boss. Similarly, thecompany may want him to do some thing which may be against larger interests of thesociety. Company may want him to spy on competitors. If he does so, he will be workingagainst the society; and if he does not, then he is betraying the company. And when hebetrays the company, he will have to either resign or be fired and then his wife and childrenmay suffer as a consequence of his action. Which side should he take?Take the most classical case of Jalianwala Bagh firing on 13 April 1919.The order to fire on those peaceful, innocent, unarmed and un-warned gathering of Indianpeople was given by British General O’Dyer. He wanted to quell the rebellion against hisgovernment among the Indian masses through some exemplary punishment to people whohad dared to defy ban on assembly of people in Amritsar. But the soldiers who actuallyfired the bullets were all Indians. Those Indian soldiers had responsibility towards theirBritish masters and also towards their countrymen. Being in the military, where thephilosophy is to “ Do or die, but not to question why”, should they have refused the ordersof General Dyer which were against their country as well as humanity?OrWhat choice did the American Pilots, who dropped nuclear bombs on Hiroshima andNagasaki, two cities of Japan, on 06 and 09 Aug 1945, have? They were fully aware ofhuman costs of their actions in terms of deaths of lacs of innocent people. Should they haverefused in the name of their responsibility to humanity?Page 5 of 46 - Business Ethics (Ver 1.2 - 31.03.2007)Jamnalal Bajaj Institute of Mgmt Studies

Mgmt study material created/ compiled by - Commander RK Singhrajeshsingh r k@rediffmail.comC o m m o n Et hi c a l D i l e m m a s f o r B us i ne s s M a na g e r s Honesty in advertising and in communications with superiors, clients, andgovernment. Problems relating to special gifts, entertainment, and kickbacks. Overlooking wrong doings of othersCr it e r i a f o r Et hi c a l D e c is i o n M a k in g Utilitarian Approach Individualism Approach Moral-Rights Approach Justice ApproachUtilitarian Approach – Moral behaviour that produces the greatest good for thegreatest number.Individualism Approach – Acts are moral when they promote the individual'sbest long-term interests (e.g., the “golden rule”). This rule works on the principlethat unethical approaches may lead to short term gains but harm the long terminterest.Moral-Rights Approach – Behaviour that acknowledges that every human beinghas some fundamental rights (e.g., free consent, privacy, due process)Justice Approach – Standards of equity, fairness, and impartiality.Teleological Theory – Consequence Theory. It states that moral worth of anaction/practice is determined solely by the consequences of action or practice. Insimple words, ethicality of an action is determined solely by the results it produces.Deontological Approach – It is exact opposite of Teleological approach. Itbelieves that Actions are not justified by their consequences. Factors other thangood or bad outcomes determine the rightness or wrongness (ethicality) of actionsor practices. It believes that value of action lies in motives. (I personally endorse thisview. We have all read the story of sparrow who decided not to fly south when winters came. Howshe was revived from frozen condition by warmth of cow dung and then how a cat pulled it out ofcow dung, cleaned and ate it up. Morale of the story – Every guy who throws shit at you is not yourenemy and every guy who pulls you out of shit is not your friend).F a c t o r s Af f e c t i ng Et h ic a l C h o ic e s(a)For the ManagerPage 6 of 46 - Business Ethics (Ver 1.2 - 31.03.2007)Jamnalal Bajaj Institute of Mgmt Studies

Mgmt study material created/ compiled by - Commander RK Singh(b)(i)Level or stage of moral development(ii)Learned Ethicsrajeshsingh r k@rediffmail.comThe Organization(i)Systems(ii)CulturePr o c e s s o f M o r a l D e v e lo p m e ntMoral values are not born characteristics but are acquired gradually over a period of time.A newly born child has no moral values. He learns them as he grows from hissurroundings. Some are taught to him by his family and teachers, some he acquires fromreading religious literature and some he learns by observing and feeling. This process canbe broadly categorised into three distinct categories: 1.Pre-Conventional Level – Person follows the dictates of law and good behaviourout of fear of punishment or expectation of reward. In the early stage of childhood,he is taught by mother, father and teachers to follow certain rules and he does thatmore out of fear of punishment or for promised reward. This is pre-ethical stage orpreparation stage for ethics2.Conventional Level – Person conforms to the behavioural standards to meet theexpectations of peers and society to avoid ridicule and gain acceptance.3.Post-Conventional (Principled) Level – Person develops a personal, internal set ofstandards and values which he is not willing to compromise even in the face ofthreat or personal loss. He sticks to these values for his own sake (About 20% ofadults reach this stage fully or partially)G u id e l i ne s f o r D e a li ng w it h Et hi c a l Di le m m a s1.Do you think it is right ? (Don’t worry about legal status. Every thing legal is not ethical nor isevery ethical decision legal. Ethics transcends legality).2.Is it beneficial? To whom? How much?3.Is it harmful? To whom? How much?(You should not be considering your own benefit/harm. You are out of this benefit/loss calculation.Ethics are profit/loss neutral as far as you are concerned. When in dilemma, it is about peoplearound you)F ur t he r G ui d e l in e s f o r D e a li ng w i t h E t hic a l D ile m m a s1.Would you be willing to allow others to do to you what you are considering?2.Would you like your family to know?3.Would you like your decision printed in the newspaper?Page 7 of 46 - Business Ethics (Ver 1.2 - 31.03.2007)Jamnalal Bajaj Institute of Mgmt Studies

Mgmt study material created/ compiled by - Commander RK Singh4.rajeshsingh r k@rediffmail.comHave you consulted others who are objective and knowledgeable?E th i c a l Re s p o ns i b ili ti e sTo be ethical, an organization should seek a higher standard than merely obeying the law: Act with equity, fairness, and impartiality Respect the rights of individuals Act for the common goodPage 8 of 46 - Business Ethics (Ver 1.2 - 31.03.2007)Jamnalal Bajaj Institute of Mgmt Studies

Mgmt study material created/ compiled by - Commander RK Singhrajeshsingh r k@rediffmail.comTRUST EESHIP MAN AGEMENTGa n d h i a n P h i l o s o p h y o f W e a l t h M a n a g e m e n t(C o u r t e s y - A r t i c l e p u b l i s h e d i n E c o T i m e s - 0 2 J u l 0 2b y P i y a M u k h e r j e e , v i s i t i n g fa c u l t y a t J B I M S )Trusteeship, as applicable to the corporate world, refers to the act of holding and managingresources on behalf of the stakeholders of the firm. “What’s new about that”, one mayquery. Given that the traditional take on wealth has almost always been tilted towardsowners of corporations, this concept brings in an element of equity, by placing otherstakeholders such as employees, customers and society on the same rung as large and smallshareholders.The idea is that all wealth, including human, financial and technological resources, belongsto society and the rewards accruing from their use must revert to society at large. Theprinciples of trusteeship can be traced to the concept of collective endeavour andcommunity living. Briefly, these are: Resources must be held and utilised for the benefit ofsociety. Managers are the trustees of the stakeholders and must work towards optimisingstakeholder value, not merely maximising shareholder value. The small investor has asmuch a say in decisions as the large investor.Thus, the overall approach is towards the macro and the long-term perspective, rather thanthe short-term, micro perspective which is often geared exclusively to suit the shareholderand top management. At first sight, this seemingly idealistic concept invariably raises a fewprotests. “The owner/s must be rewarded for bearing risks and supplying expertise”:Definitely. But the reward must be in proportion to the skills and expertise supplied. Theincreasing instances of ethical transgressions on the part of leaders and CEOs indicates theneed for better balance in the risk-reward relationship. The Enron fiasco and the sale ofshares worth over 70m by erstwhile chief Rebecca Mark, a few months before itsbankruptcy, is a case in point. “Corporations exist for profits”: They exist to fulfil the needsof society and in the process, generate profits. Moreover, even if profits were to be the onlydeterminant of policies, trusteeship would stil

BUSINESS ETHICS (Please note that these notes are not comprehensive and therefore additional reading is recommended from diverse sources) Books Ethics and Mgmt by Hosmer Business Ethics by Shekher Business Ethics by Chakrobarthy (Oxford publication) Syllabus 1. Evolution of thought of ethics in busi

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