Business Ethics Notes
What is Ethics?
Oxford Dictionary: Ethics is defined as a system of moral principles, rules, and conduct, or as a science of morals.
Origin: The word 'ethics' comes from the Latin 'Ethicus' or Greek 'Ethicos,' derived from 'ethos' meaning character.
Character: It is an intrinsic, core factor unlike behavior.
Ethics: The study of morality and the application of reasons for decisions, with morality being tied to social norms, values, and beliefs.
Standards: Ethics involves standards of right and wrong that prescribe human conduct in terms of rights, obligations, societal benefits, fairness, and virtues.
Nature: Ethics isn't a natural science but a creation of the human mind, influenced by time, place, and situation.
Definition: Ethics commonly refers to the rules and principles defining right and wrong conduct of individuals.
Ethical Behavior: Accepted as right or good within a moral code.
Work Environment: Ethics can be prescribed and imposed by the environment.
Business Ethics
Crane: Business ethics is the study of business situations, activities, and decisions where issues of right and wrong are addressed.
Baumhart: Business ethics is the ethics of responsibility, requiring business people to promise no knowing harm.
General Meaning: Business ethics applies ethical values to business behavior at individual and organizational levels.
Scope: It covers all aspects of business conduct, including boardroom strategies, employee and supplier treatment, sales techniques, and accounting practices.
Moral Principles: Business ethics are moral principles that guide a business’s conduct and transactions, similar to personal and professional guidelines.
Areas of Focus:
Finance and Accounting: Creative accounting, earnings management, financial analysis, insider trading, securities fraud, facilitation payments.
Human Resource Management: Executive compensation, affirmative action, workplace surveillance, whistleblowing, safety, servitude, union busting, sexual harassment, employee raiding.
Sales and Marketing: Price fixing, discrimination, greenwashing, spamming, addictive messages, marketing to children, false advertising, negative campaigning.
Implementation: Business ethics implements suitable policies and practices related to controversial subjects.
Issues include: corporate governance, insider trading, bribery, discrimination, social responsibility, and fiduciary responsibilities.
Trust: Developing trust between consumers and market participants.
Evolution: The concept began in the 1960s with rising consumer awareness of social and environmental issues.
Beyond Morality: Business ethics reconciles legal requirements with competitive advantage.
Sustainability: Corporate ethics emphasizes sustainability, considering resources for future generations.
Recognition: On December 9, 2021, Wintrust Financial Corporation received the Better Business Bureau’s Torch Award for Ethics.
Ethical Standards: Wintrust is recognized for its ethical standards and fair business practices, providing relationship-centric banking solutions.
Definition: Business ethics determines right and wrong, with basic global standards dictating unethical practices.
Unsafe working conditions: Considered unethical due to worker endangerment.
Example: A crowded work floor with only one exit which could cause people to be trapped in the event of a fire.
Grey Areas: Determining ethical practices is difficult when lines are blurred.
Example: Company A provides Company B's negotiator with top-tier accommodations, potentially bordering on bribery, to secure better supply prices.
Parts of Business Ethics
History: While ethical considerations arose with first companies, recent history traces to the 1970s in the U.S., based on academic principles and research.
Scandals: Scandals highlight ethical lapses, such as companies using child labor, derived from its close relationship and usage when scandals occur.
Integration: Integration involves incorporating ethics into a company's core, made a standard part of their operational blueprint.
Features of Business Ethics
Code of Conduct: A set of guidelines dictating acceptable and unacceptable behavior within a business.
Moral & Social Values: Rooted in moral and social principles, providing rules for conducting business.
Protection of Social Groups: Safeguarding the interests of consumers, employees, small businesses, government, shareholders, creditors, etc.
Basic Framework: Establishing social, cultural, legal, and economic limits for business operations.
Voluntary: Ideally self-regulated rather than legally enforced.
Education & Guidance: Requires education and guidance, with active involvement from trade associations and chambers of commerce.
Relative Term: Varies across businesses and countries.
New Concept: More developed in richer nations.
Context and Relevance of Business Ethics Today
Global Crisis: Modern global crises have questioned the legitimacy of capitalism due to ethical failures.
Unethical Behaviors: Signs include greed, excessive leverage, conflicts of interest, complex financial instruments, and herd behavior.
Moral Compass: Business leaders need to apply personal moral compasses for ethical decisions.
Customer Focus: Businesses should prioritize satisfying customers above all stakeholders for success and profitability.
Limitations of Management: “Modern” management has reached its limits.
Volatile World: Companies struggle to cope with an ever-changing world.
Soul-Stirring Ideals: Mundane activities must incorporate deeper ideals like honor, truth, love, justice, and beauty.
Shareholder Wealth Inadequate: Maximizing shareholder wealth lacks emotional power to mobilize human energies.
Credence to Human Ideals: Tomorrow’s management must value beauty, justice, and community along with efficiency, advantage, and profit.
New Skills: Tomorrow’s managers need reflective learning, system-based thinking, creative problem-solving, and values-driven thinking.
Training Programs: Business Schools and companies must redesign training programs to help executives develop such skills and reorient management systems to encourage their application.
Universal Human Values: Values like truth, beauty, goodness, and harmony are applicable to all human activity.
Intrinsic Nature: Practical value application requires consideration of the unique nature of the activity.
Principles of Business Ethics
Accountability: Businesses and Individuals are responsible for ethical practices of the firm.
Care and Respect: Professional interactions should be responsible and respectful, firms should make sure the workplace is safe and harmonious.
Honesty: Transparent communication fosters employee trust.
Avoid Conflicts: Minimize conflicts of interest; excessive competition can be disastrous.
Compliance: Adherence to all rules and regulations.
Loyalty: Faithfulness to the organization and upholding brand image, grievances should be dealt with internally.
Relevant Information: Providing comprehensive, comprehensible information, disclosing all facts.
Law Abiding: Adhering to corporate laws protecting societal rights, avoidance of discrimination.
Fulfilling Commitments: Ethical agreement fulfillment.
Standard Ethical Practices for Businesses
Corporate Responsibility: Organization working as a separate legal entity with certain moral and ethical obligations.
Includes the Employees, Customers and Shareholders.
Social Responsibility: Making profits should not compromise society; therefore, Corporate Social Responsibilities (CSR) are common.
The focus is on environmental protection, causes, and awareness.
Personal Responsibility: Act responsibly with honesty, diligence, punctuality, and perform expected duties. Individuals should settle dues in time and avoid criminal acts.
Technology Ethics: Includes consumer privacy, personal information, and intellectual property fair practices.
Fairness: Avoiding favoritism, ensuring equal opportunities for growth and promotion.
Trustworthiness and Transparency: Maintaining transparency in business practices and financial reports.
How Business Ethics Improve Bottom Line
Increased Productivity:
Committed Employees: Employees work harder and are more committed to helping the company reach its goals when they perceive fair treatment.
Example: Paying above-market wages, even when not required, can reflect a moral choice.
Retain best employees.
Greater Customer Loyalty:
Example: Fully disclosing facts, avoiding practices such as selling reconditioned appliances as new.
Impact on revenue and profit: Customer satisfaction and repeat purchases.
Customer acquisition costs more than retention.
Positive Brand Image:
Reputation: Maintaining high ethical standards can lead to industry leadership.
Recognition: “Best Places to Work” awards.
Attract and retain top talent & Customers.
Loyal customers willing to pay more due to trust.
Avoiding Negative Publicity:
Consequences: Unsavory reputations and negative publicity can result from unethical standards.
Communication: In the Internet age, dissatisfied customers quickly spread grievances, significantly affecting sales and profits.
Opening up Opportunities:
Develop joint ventures, marketing alliances or partnerships with other businesses
Both parties must have trust in each other
Five Bottom Lines of Future
Economic Bottomline:
Wealth Creation: Basic and fundamental responsibility of business, a business that doesn't create wealth is unethical.
Focus: On causative factors, such as Technology, Productivity, Quality, Customer, Service, Innovation.
Human Bottomline: Key Result Areas: Leadership, Teamwork, Motivation, Creativity, Ethics, Values, Wellness.
Social Bottomline:
Social Environment: Organization as an integral part of the larger social context; long-term well-being depends on the well-being of the society.
Development goal of larger community: align communal life with the organizational goal with the developmental goals of the larger community that is part of it.
Environmental Bottomline:
Part of Nature: Human groups drawing resources from nature have a responsibility to use them prudently; harmonize with the laws of nature and the natural environment.
Evolutionary Bottomline:
*Humans are unfinished projects; need to reach highest potential (profession growth and evolution).
*The world provides a more effective field of experience for accelerated inner growth than an isolated ashram, monastery or forest.
Significance of Business Ethics
Leads to Profit: Boosts sales, revenue, customer attraction, and workforce development.
Retain talented employees & positive image of company: If both the employees and an employer follow business ethics with enthusiasm without getting indulged in unscrupulous activities, it will create a positive image in the society of the organization.
Safer environment for employee & Safeguard Consumer Rights: If business ethics are strictly followed, it will safeguard consumer rights as well. Not only will they get complete information about what they are consuming, but their grievances can be redressed ethically.
Smooth flow: Business ethics help the company to get talented employees on board which ultimately reduces the recruitment cost and brings productivity in the company.
Four Fundamental Ethical Principles:
Respect for Autonomy: The obligation to respect people's decisions about their own lives; also known as the principle of human dignity, that gives us a negative duty not to interfere with the decisions of competent adults, and a positive duty to empower others for whom we’re responsible.
*honest dealings & keeping promises.Beneficence: Obligation to bring about good in actions & take positive steps to prevent harm.
*conflicts directly with respecting the autonomy of other persons.Non-maleficence: The obligation not to harm others: “First, do no harm”. Where harm cannot be avoided, minimize it. Don’t increase the risk of harm to others, it's wrong to waste resources that could be used for good.
*Each action must produce more good than harm.Justice: Obligation to provide others with what they're owed or deserve. Treat all people equally, fairly, and impartially.
*Impose no unfair burdens, work for the benefit of those who are unfairly treated.
Ethical Dilemma
Definition: A problem in decision-making between two options neither of which is acceptable.
Examples: Every person may encounter an ethical dilemma in almost every aspect of their life.
*Taking credit for others’ work, offering a client a worse product for your own profit, utilizing inside knowledge for your own profit.
How Ethics Dilemma is Solved
Approaches include:
Refuting the paradox by carefully analyzing the situation.
Choosing the alternative that offers the greater good while also minimizing of the lesser evil using value theory approach.
Finding alternative solutions by carefully re-considering the problem.
Common Ethical Issues in Business
Unethical Accounting:
“Cooking the books” is a serious problem, especially in publicly traded companies.
Sarbanes-Oxley Act,2002 create financial reporting requirements mean to protect consumers
Social Media Ethics:
Widespread use raises questions about employee conduct.
Companies must elucidate social media policies in order to avoid ambiguity.
Harassment and Discrimination: Racial discrimination, sexual harassment, wage inequality – are all costly ethical issues that employers and employees encounter on a daily basis across the country.
Health and Safety: All employees have a right to a safe working environment and work conditions.
Corporate espionage and nondisclosure: Stealing an organization’s intellectual property or illegally distributing private client information constitutes corporate espionage.
Why it can be helpful to require mandatory nondisclosure agreements.
Addressing Ethical Dilemmas
Ethical dilemmas arise from personal character, conflicting values, or conflicting goals.
Organizational Ethics Dilemma Exists Between profitability/competitiveness, and stakeholders.
Approaches to Solve an Ethical Dilemma
Peeps into Mythology (From Mahabharata)
*Drona was conscious of the reality that powerful instruments in the hands of ‘value-weak’, ‘skill-strong’ individuals are apt to be used destructively.
*The acharya in Drona could initially snub and bridle the father in him. Yet later on, even a man of his willpower and wisdom succumbed to familial emotions.Ethical Dilemma Experience
*The sensible solution would seem to be that the two bosses met and resolved their conflicts . But that would never happen – each party continuing to use the junior accountant to fight out their egoistic battles through proxy.Ethical Culture- Shock for Finance GM
*It was transpired that apparently this sum was spent by him in Delhi to entertain certain senior officials who held the key to his confirmation as the MD (he happened to be an MBA from a leading management institute).Ethical Moral obligation on ACC
*If it failed 2 months after installation was our moral responsibility to stand behind this job because this customer gave the job to this man based on the ACC name. I replaced the material and sent my engineer out to install it.Ethical dilemma Arnav
*He is shocked to find below aver- age grades in almost all the parameters of performance. He knows this cannot be a correct assessment but hesitates to probe into this.
STEPS TO RESOLVING AN ETHICAL DILEMMA
1 Considering the options available
2Considering Consequences-Positive and Negative of each option
3Analysing Action
4Decision making and Commitment
5Evaluate the system
Resolving and Ethical Dilemma -Case Study
List the alternative courses of action available.
What are the Options?
Think carefully about the range of positive and negative consequences associated with each of the different paths of action available.
such As: Who/what will be helped by what is done, Who/what will be hurt, What kinds of benefits and harms are involved and what are their relative values and what are the short-term and long- term implications.
Make decision and act with commitment.
Evaluate the system.
Code of Ethics
A code of ethics should reflect top managements’ desire for compliance with the values, rules, and policies that support an ethical climate.
Six Core Values Corporate code of ethics often contains six core values or principles in addition to more detailed descriptions and examples of appropriate conduct.
These include trust worthiness, respect, responsibility, fairness, caring, and citizenship.
Code of Conduct (Continued)
Ideal Code of Ethics
Reasonable code of conduct - Have reasonable ethical code of conduct, which can reasonably complied with. Top management- Should always follow ethical practices. No Discrimination- Should not discriminate amongst its stakeholders without solid reasons etc.
Monitoring: Stakeholder Grievances, Ethics Workshop, Ethics counselors/ethics committees and Vigil Mechanism .
Meaning: The Code of Conduct outlines specific behaviours that are required or prohibited as a condition of ongoing employment
Principles followed : -Use of company’s assets, Avoidance of actions involving conflict of interests ,Avoidance of compromising on commercial relationship, Maintaining confidentiality, Collection of information from legitimate sources only etc.
*The terms “Code of Ethics” and “Code of Conduct” are often mistakenly used interchangeably but ethics gover decision-making and conducts gover actions
Both Ethical Code and conduct are similar
Advantages of Business Ethics More and more companies have begun to recognize the relation between business ethics and financial performance. Companies displaying a “clear commitment to ethical conduct” consistently outperform those companies that do not display an ethical conduct. A company that adheres to ethical values and dedicatedly takes care of its employees is rewarded with equally loyal and dedicated employees.
Attracting and retaining talent,Investor Loyalty, Customer satisfaction.Regulators.Any organisation that acts within the confines of business ethics not only earns profit but also gains reputation publicly.
*CASE STUDIES ON BUSINESS ETHICS . Apple Suppliers & Labour Practices,Artic Offshore Drilling & Negotiating Bankruptcy.
ANTI CORRUPTION
Bribery and Corruption – Global Scenarios
A. US: The deterrence of bribery and corruption ..and the core aim of the Foreign Corrupt Practices Act (FCPA) is to prohibit companies and their individual officers from influencing foreign officials with any personal payments or rewards.
B. UK: The Bribery Act 2010 is an Act of the Parliament of the United Kingdom that covers the criminal law relating to bribery.
ANTI BRIBERY LAWS
The following Anti-Bribery laws have been discussed in this section: 1. Prevention of Corruption Act, 1988 (The PCA) 2. Lokpal and Lokayukta Act, 2013 (LLA) 3. ICSI Anti-Bribery Code.