BECG unit 1

8/2/2019 BECG unit 1

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BUSINESS ETHICS

AND

CORPORATE GOVERNANCE


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ETHICS

Ethics is a Greek word Meaning Character

norms, morals and ideals prevailing in a group,

society.

# Standardized form of conduct/behavior understoodand accepted in a particular field of activity.

# Moral principles or set of values. They give an idea

of what is right or wrong, true or false, fair or unfair,just or unjust, proper or improper


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# Ethics is fundamental, personal trait which one

adopts and follows as a guiding principle or

basic Dharma in ones life.

# Most cases run parallel to law and shows due

consideration to others rights, interests in a

civilized society.

# Compassion on other hand induces a person to

give more than what ethics might demand.

# Every rational human being practices ethics for

his own and others wellbeing and society


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Business Ethics

Rules of biz conduct, by which propriety (correct

conduct) of biz activities may be judged. Ethicalprinciples are dictated by society and underlie

broad social policies.

Biz ethics also relate to the behavior of the

managers. Focus is in people, how individuals

fulfill the ethical requirements of business.

Deepak Parekh : Do not do something that you

would be ashamed of, if it becomes public


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# Carter McNamara Defined

Biz ethics is generally coming to know what isright or wrong in the work place and doing whatis right, in regard to effects of products/servicesand in relationships with stake holders

# It is now become a management discipline,especially since the birth of the Socialresponsibility of Business to society and to allstakeholders.

# Robert Kreitner - Highly publicized accountsof corporate misconduct in recent years have leadto wide spread cynicism about biz. Ethics

# Gallop Poll - 18% professionals rated high inethics in USA.


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Principles of Business Ethics

Four principles of ethics ( Decision Making Criteria)

1. Utilitarian Criteria: Decisions are made solely on the basis

of their outcomes or consequences. The goal is to provide

greatest good for the greatest number.

For instance, firing employees, raising prices, selling products

with questionable quality, closing down plants, laying off large

number of employees and similar decisions can be justified in

utilitarian terms.

Decision makers tend to feel safe. A lot of questionable

actions can be justified as in the best interests of the

organization.

Many argue that this perspective needs to change.


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2. Rights Criteria: Another critical criteria is to focus on rights.

To make decisions consistent with fundamental liberties and

privileges as laid in the constitution. Decisions to respect andprotect the basic rights of individuals.

3. Focus on Justice Criteria: This requires individuals to impose

and enforce rules fairly and impartially so there is equitabledistribution of benefits and costs.

It looks at issues from the perspective of the other persons or

affected parties. The questions to be asked are :

i) Have you defined the problem accurately?ii) Would you define in the same way if you stood on the other

side.


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iii) To whom and what is your loyalty as a person and as a

member of the organization.

iv) Whom will the decision injure?

v) Can you discuss with affected party?

vi) Will the decision stand the test of time?

4) Ethics of care:Advocated by Manuel G.Velasquez. Individual cannot exist in

isolation from caring relationship of others.

Relationships are necessary for self to exist and should be

maintained and nurtured.Ethics of care means that we have an obligation to exercise

special care towards those particular persons with whom we

have valuable close relations particularly relations of

dependency - key concept in ethics of care


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Compassion, concern, love, friendship and kindness are all

sentiments or virtues that normally manifest this dimension of

morality.

Emphasizes on two moral demands

a) We exist in a web of relationships and should preserve and

nurture those concrete relation ships with specific persons.

b) We should exercise special care for those whom we are

concretely related by attending to their needs, values, well-

being by responding positively who are dependent on our care.


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The Importance of Ethics in Business

Unfortunately, in recent years an alarming number of

unethical situations have been arisen in American as

well as Indian organizations.

1. Ethical behavior is usually associated with important

positive consequences.

Honesty in ones professional dealings promotes trust and

establishes the foundation for relationship development.

Business in particular depends on acceptance of rules and

expectations, mutual trust and fairness. Thus ethical businessis good business. On the contrary unethical behavior can cause

serious financial losses, injury or loss of life and in some cases

the perpetrators sentenced to jail.


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2. From personal perspective, ethical errors end careers morequickly than any other mistakes in judgment and accounting.

Lying, stealing, cheating on contracts and so on undermine the

very foundation upon which the business professional world isbuilt. Ethical behavior is especially important for

organizational leaders because they influence the ethical

climate for every one else. Leaders are role models. When they

make ethical blunders, they are held especially accountable.

No one can excuse immorality.

3.Ethical behavior is empowering all the parties.

The managers ethical behavior establishes organizational

climate of supportiveness, honesty and trust. This climate in

turn empowers employees.


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4.Ethical behavior is intrinsically valuable.

Those who know that they are honest, who behave humanly in

their dealings with others, who are fair and concerned with the

welfare of people and the organization are rewarded withpeace of mind.

Managers who treat people with honesty and integrity, will

earn those peoples trust and make them more willing to

support the organization.


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Role of ethics in Business

1.Ethics have a considerable influence - Ethics help the

market to its best.

2. The government, laws and lawyers cannot resolve some

key problems of business and protect the society :ethics can.

Ethics only can resolve futuristic issues such as technology

races ahead much faster than the government regulations.

3.Ethical activity is valuable in itself, because it enhances the

quality of lives and the work we do. Business has an ethical

responsibility for fairness for humanity, e.g. employees.


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Conceptual Model for Business Ethics

Peter Madsen explains that business ethics can broadly be

divided into separate areas. The three Cs model.

1. Compliance of rules: Laws

Principles of morality

Policy of the company and fairness.

2. Contribution the business can make to society: The core values

Quality of ones products and services

By providing jobs to people

Use fullness of activities to surrounding community and

Quality of work life (QWL) influenced by ethical and moral values.


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3. The consequence of business activity:

Towards environment inside the plant and outside the organization

and community. e.g Union Carbide - Bhopal tragedy.

Social responsibility towards share holders, bankers, suppliers,customers and employees of the organization.

Good public image. Sound business practices so that public image is

not tarnished.


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Scope of Business Ethics

Ethical issues are there everywhere, at all levels of business

activity.

a) Societal level:

- Concern for poor and downtrodden.

- No discrimination against any particular section or a group.- Concern for clean environment.

- Preservation of scarce resources for posterity.

- Contributing to better quality of life.


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b) Stake holders level:

(i)Employees-

- Security of job.

- Better working conditions.- Participative management.

- Welfare facilities.

(ii)Customers-

- Better quality of goods.- Goods and services at reasonable price.

- Not to corner stocks and create securities.

- Not to practice discriminatory pricing.

- Not to make false claims about products inadvertisements.


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(iii)Shareholders-- Ensure capital appreciation

- Ensure steady and regular dividends.

- Disclose all relevant information.

- Protect minority share holders interest.

- Not to window dress balance sheets.

- Protect interests in times of mergers, amalgamations andtakeovers.

(iv)Banks and other lending institutions.

- Guarantee safety of borrowed funds.

- Prompt repayments of loans.


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(v) Government

- Complying with rules and regulations.

- Honesty in paying taxes and other dues.

- Acting as partner in the progress of the country.

c) Internal policy level:- Fair practices relating to recruitment, compensation, lay-

offs, perks, promotion,etc.

- Transformational leadership to motivate employees to aim

at better and higher things in life.- Better communication at all levels.


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d) Personal policy level:

- Not to misuse others for personal ends.

- Not to indulge in politics to gain power.

- Not to spoil promotional chances of others.

- Not to use office car, stationary, and other facilities for

personal use.

- Not to fall prey to shortcuts and easy money.- Promise keeping.

- No violence, i.e. preventing and not causing physical harm

to others.

- Mutual help.- Respect for persons and property.


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Social responsibility of BusinessBusiness depends on society for various needs. Such as

money, people and skills. Also depends on society for

markets where products are sold.

In other words, it depends on society for its existence,

sustenance and growth.

being so much dependent, business has definiteresponsibility towards society.

Therefore social responsibility of business means theobligation of business enterprise to ensure policies aremade and implemented in line with values and objectivesof the society.


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CHANGING VIEWS OF MANAGEMENTRESPONSIBILITY

PhaseI : Profit maximizing management.

Adam Smiths Wealth of Nations. Entrepreneurs produce

what people want and make profits. Competition will bring

down prices. What is good for business is good for thenation.

PhaseII : Trusteeship Management.

As the corporates have grown in sizein addition to profitmaking, they serve as trustees of all stakeholders.

Emphasised concern for others as well as ones own.


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PhaseIII : Quality- of- Life Management.

Contrasts with both profit maximizer and trustee manager.

Equation changed to what is good for society is good forcompany

QOL management would neither produce nor sell unsafe

or shoddy goods.

It also considers government as a partner in joint effort tosolve societys problems.

Modern Views:

A case for social responsibility-modern view.

Peter Drucker argued that management should assumesocial responsibility and consider demands made by the

society on the enterprise.


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The social responsibility of business involves ETHICS

Management should focus on the following-

1) Right leadership

2) Top management commitment

3) Responsibility for disciplining wrong doers

4) Provide mechanism for whistle blowing5) Orientation and training programs.


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Social responsibility Approaches

1) Social OppositionFeel no obligation to society.

2) Social ObligationObligation only to obey the laws.

3) Social response positionGo beyond legal requirements.

4) Social contributionHave deep obligation to society.

Responsible citizen eager to contribute to the improvement

of the society.


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Business and its interestgroupsTwo broad categories

1. Internal interest groups

- Owners

- Employees

2. External interest groups- Consumers

- Government

- Society

- Creditors, Suppliers, Distributors, Dealers.

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BECG unit 1

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