Business  Ethics  Tathagat  Varma  

Session  5/12:  13-­‐Aug-­‐09  

General  Business  Ethics  •  This  part  of  business  ethics  overlaps  with  the  

philosophy  of  business,  one  of  the  aims  of  which  is  to  determine  the  fundamental  purposes  of  a  company.  If  a  company's  main  purpose  is  to  maximize  the  returns  to  its  shareholders,  then  it  should  be  seen  as  unethical  for  a  company  to  consider  the  interests  and  rights  of  anyone  else.[3]  –  Corporate  social  responsibility  or  CSR:  an  umbrella  term  under  which  

the  ethical  rights  and  duQes  exisQng  between  companies  and  society  is  debated.  

–  Issues  regarding  the  moral  rights  and  duQes  between  a  company  and  its  shareholders:  fiduciary  responsibility,  stakeholder  concept  v.  shareholder  concept.  

–  Ethical  issues  concerning  relaQons  between  different  companies:  e.g.  hosQle  take-­‐overs,  industrial  espionage.  

–  Leadership  issues:  corporate  governance.  –  PoliQcal  contribuQons  made  by  corporaQons.  –  Law  reform,  such  as  the  ethical  debate  over  introducing  a  crime  of  

corporate  manslaughter.  –  The  misuse  of  corporate  ethics  policies  as  markeQng  instruments.  

Ethics  of  AccounQng  InformaQon  •  CreaQve  accounQng,  earnings  management,  misleading  financial  analysis.  

•  Insider  trading,  securiQes  fraud,  bucket  shops,  forex  scams:  concerns  (criminal)  manipulaQon  of  the  financial  markets.  

•  ExecuQve  compensaQon:  concerns  excessive  payments  made  to  corporate  CEO's  and  top  management.  

•  Bribery,  kickbacks,  facilitaQon  payments:  while  these  may  be  in  the  (short-­‐term)  interests  of  the  company  and  its  shareholders,  these  pracQces  may  be  anQ-­‐compeQQve  or  offend  against  the  values  of  society.  

•  Cases:  accounQng  scandals,  Enron,  WorldCom  

Ethics  of  Human  Resource  Management  

•  The  ethics  of  human  resource  management  (HRM)  covers  those  ethical  issues  arising  around  the  employer-­‐employee  relaQonship,  such  as  the  rights  and  duQes  owed  between  employer  and  employee.  –  DiscriminaQon  issues  include  discriminaQon  on  the  bases  of  age  (ageism),  

gender,  race,  religion,  disabiliQes,  weight  and  a^racQveness.  See  also:  affirmaQve  acQon,  sexual  harassment.  

–  Issues  arising  from  the  tradiQonal  view  of  relaQonships  between  employers  and  employees,  also  known  as  At-­‐will  employment.  

–  Issues  surrounding  the  representaQon  of  employees  and  the  democraQzaQon  of  the  workplace:  union  busQng,  strike  breaking.  

–  Issues  affecQng  the  privacy  of  the  employee:  workplace  surveillance,  drug  tesQng.  See  also:  privacy.  

–  Issues  affecQng  the  privacy  of  the  employer:  whistle-­‐blowing.  –  Issues  relaQng  to  the  fairness  of  the  employment  contract  and  the  balance  of  

power  between  employer  and  employee:  slavery,[4]  indentured  servitude,  employment  law.  

–  OccupaQonal  safety  and  health.  •  All  of  the  above  are  also  related  to  the  hiring  and  firing  of  employees.  A  

employee  or  future  employee  can  not  be  hired  or  fired  based  on  race,  age,  gender,  religion,  or  any  other  disciminatory  act.  

Ethics  of  Sales  and  MarkeQng  •  MarkeQng,  which  goes  beyond  the  mere  provision  of  informaQon  

about  (and  access  to)  a  product,  may  seek  to  manipulate  our  values  and  behavior.  To  some  extent  society  regards  this  as  acceptable,  but  where  is  the  ethical  line  to  be  drawn?  MarkeQng  ethics  overlaps  strongly  with  media  ethics,  because  markeQng  makes  heavy  use  of  media.  However,  media  ethics  is  a  much  larger  topic  and  extends  outside  business  ethics.  –  Pricing:  price  fixing,  price  discriminaQon,  price  skimming.  –  AnQ-­‐compeQQve  pracQces:  these  include  but  go  beyond  pricing  tacQcs  

to  cover  issues  such  as  manipulaQon  of  loyalty  and  supply  chains.  See:  anQ-­‐compeQQve  pracQces,  anQtrust  law.  

–  Specific  markeQng  strategies:  greenwash,  bait  and  switch,  shill,  viral  markeQng,  spam  (electronic),  pyramid  scheme,  planned  obsolescence.  

–  Content  of  adverQsements:  a^ack  ads,  subliminal  messages,  sex  in  adverQsing,  products  regarded  as  immoral  or  harmful  

–  Children  and  markeQng:  markeQng  in  schools.  –  Black  markets,  grey  markets.  

•  Cases:  Bene^on.  

Ethics  of  ProducQon  •  This  area  of  business  ethics  deals  with  the  duQes  of  a  company  to  ensure  

that  products  and  producQon  processes  do  not  cause  harm.  Some  of  the  more  acute  dilemmas  in  this  area  arise  out  of  the  fact  that  there  is  usually  a  degree  of  danger  in  any  product  or  producQon  process  and  it  is  difficult  to  define  a  degree  of  permissibility,  or  the  degree  of  permissibility  may  depend  on  the  changing  state  of  preventaQve  technologies  or  changing  social  percepQons  of  acceptable  risk.  –  DefecQve,  addicQve  and  inherently  dangerous  products  and  services  (e.g.  

tobacco,  alcohol,  weapons,  motor  vehicles,  chemical  manufacturing,  bungee  jumping).  

–  Ethical  relaQons  between  the  company  and  the  environment:  polluQon,  environmental  ethics,  carbon  emissions  trading  

–  Ethical  problems  arising  out  of  new  technologies:  geneQcally  modified  food,  mobile  phone  radiaQon  and  health.  

–  Product  tesQng  ethics:  animal  rights  and  animal  tesQng,  use  of  economically  disadvantaged  groups  (such  as  students)  as  test  objects.  

•  See  also:  product  liability  •  Cases:  Ford  Pinto  scandal,  Bhopal  disaster,  asbestos  /  asbestos  and  the  law,  

Peanut  CorporaQon  of  America.  

Ethics  of  IP,  Knowledge  and  Skills  •  Knowledge  and  skills  are  valuable  but  not  easily  "ownable"  as  objects.  Nor  

is  it  obvious  who  has  the  greater  rights  to  an  idea:  the  company  who  trained  the  employee,  or  the  employee  themselves?  The  country  in  which  the  plant  grew,  or  the  company  which  discovered  and  developed  the  plant's  medicinal  potenQal?  As  a  result,  a^empts  to  assert  ownership  and  ethical  disputes  over  ownership  arise.  –  Patent  infringement,  copyright  infringement,  trademark  infringement.  –  Misuse  of  the  intellectual  property  systems  to  sQfle  compeQQon:  

patent  misuse,  copyright  misuse,  patent  troll,  submarine  patent.  –  Even  the  noQon  of  intellectual  property  itself  has  been  criQcised  on  ethical  

grounds:  see  intellectual  property.  –  Employee  raiding:  the  pracQce  of  a^racQng  key  employees  away  from  a  

compeQtor  to  take  unfair  advantage  of  the  knowledge  or  skills  they  may  possess.  

–  The  pracQce  of  employing  all  the  most  talented  people  in  a  specific  field,  regardless  of  need,  in  order  to  prevent  any  compeQtors  employing  them.  

–  BioprospecQng  (ethical)  and  biopiracy  (unethical).  –  Business  intelligence  and  industrial  espionage.  

•  Cases:  private  versus  public  interests  in  the  Human  Genome  Project  

InternaQonal  Business  Ethics  •  While  business  ethics  emerged  as  a  field  in  the  1970s,  internaQonal  business  ethics  

did  not  emerge  unQl  the  late  1990s,  looking  back  on  the  internaQonal  developments  of  that  decade.[6]  Many  new  pracQcal  issues  arose  out  of  the  internaQonal  context  of  business.  TheoreQcal  issues  such  as  cultural  relaQvity  of  ethical  values  receive  more  emphasis  in  this  field.  Other,  older  issues  can  be  grouped  here  as  well.  Issues  and  subfields  include:  –  The  search  for  universal  values  as  a  basis  for  internaQonal  commercial  behaviour.  –  Comparison  of  business  ethical  tradiQons  in  different  countries.  –  Comparison  of  business  ethical  tradiQons  from  various  religious  perspecQves.  –  Ethical  issues  arising  out  of  internaQonal  business  transacQons;  e.g.  bioprospecQng  and  

biopiracy  in  the  pharmaceuQcal  industry;  the  fair  trade  movement;  transfer  pricing.  –  Issues  such  as  globalizaQon  and  cultural  imperialism.  –  Varying  global  standards  -­‐  e.g.  the  use  of  child  labor.  –  The  way  in  which  mulQnaQonals  take  advantage  of  internaQonal  differences,  such  as  

outsourcing  producQon  (e.g.  clothes)  and  services  (e.g.  call  centres)  to  low-­‐wage  countries.  –  The  permissibility  of  internaQonal  commerce  with  pariah  states.  

•  Foreign  countries  oken  use  dumping  as  a  compeQQve  threat,  selling  products  at  prices  lower  than  their  normal  value.  This  can  lead  to  problems  in  domesQc  markets.  It  becomes  difficult  for  these  markets  to  compete  with  the  pricing  set  by  foreign  markets.  In  2009,  the  InternaQonal  Trade  Commission  has  been  researching  anQ-­‐dumping  laws.  Dumping  is  oken  seen  as  an  ethical  issue,  as  larger  companies  are  taking  advantage  of  other  less  economically  advanced  companies.  

Ten  Principles  of  Highly  Ethical  Business  Leaders  

1.   Treat  all  employees  as  unique  individuals.  –  Don’t  reduce  people  to  a  uQlity  —  a  means  to  accomplish  your  ends.  

2.   Support  each  person’s  freedom  to  grow  and  develop.  –  Never  view  anyone  through  stereotypes,  or  as  fixed  and  unchangeable.  

3.   Communicate  to  people  by  name  with  respect.  –  Never  use  hurnul  labels  or  refer  to  a  person  by  his  or  her  job  funcQon.  

4.   Model  and  encourage  a  balanced  life  of  good  work  and  rest.  –  Don’t  make  long-­‐term  demands  on  employees  that  undermine  balanced  lives.  

5.   Honor  and  respect  families  of  others.  –  Don’t  forget  that  each  person  lives  in  a  broader  context  beyond  his  or  her  work.  

6.   Value  life,  safety,  and  health.  –  Work  processes  or  products  should  not  create  unnecessary  risk  or  harm.  

7.   Keep  your  promises.  –  Don’t  violate  wri^en  or  verbal  commitments,  or  look  for  loopholes  to  do  so.  

8.   Be  fair  and  just  in  financial  maOers.  –  Don’t  tolerate  unfair  wages,  prices,  or  financial  pracQces.  

9.   Communicate  honestly  and  truthfully.  –  Never  misrepresent  people,  products,  services,  or  facts.  

10.   Recognize  the  accomplishments  of  others.  –  Don’t  claim  the  success  of  others  for  yourself.  

Why  have  a  Code  of  Conduct  •  A  code  of  conduct  is  intended  to  be  a  central  guide  and  reference  for  users  in  support  of  day-­‐to-­‐day  decision  making.  It  is  meant  to  clarify  an  organizaQon's  mission,  values  and  principles,  linking  them  with  standards  of  professional  conduct.  As  a  reference,  it  can  be  used  to  locate  relevant  documents,  services  and  other  resources  related  to  ethics  within  the  organizaQon.  

•  A  code  is  an  open  disclosure  of  the  way  an  organizaQon  operates.  It  provides  visible  guidelines  for  behavior.  A  well-­‐wri^en  and  thoughnul  code  also  serves  as  an  important  communicaQon  vehicle  that  "reflects  the  covenant  that  an  organizaQon  has  made  to  uphold  its  most  important  values,  dealing  with  such  ma^ers  as  its  commitment  to  employees,  its  standards  for  doing  business  and  its  relaQonship  with  the  community.“  

Why  have…  •  A  code  is  also  a  tool  to  encourage  discussions  of  ethics  and  to  improve  how  employees/members  deal  with  the  ethical  dilemmas,  prejudices  and  gray  areas  that  are  encountered  in  everyday  work.  A  code  is  meant  to  complement  relevant  standards,  policies  and  rules,  not  to  subsQtute  for  them.  

•  Codes  of  conduct  offer  an  invaluable  opportunity  for  responsible  organizaQons  to  create  a  posiQve  public  idenQty  for  themselves  which  can  lead  to  a  more  supporQve  poliQcal  and  regulatory  environment  and  an  increased  level  of  public  confidence  and  trust  among  important  consQtuencies  and  stakeholders  

Common  Ethic  Code  Provisions  •  Below  are  some  common  provisions  found  in  organizaQonal  codes.  

•  The  list  of  provisions  is  not  exhausQve,  nor  are  the  category  headings  definiQve.  OrganizaQons  tend  to  label  and  categorized  their  code  provisions  in  many  different  ways  depending  on  their  unique  characterisQcs,  their  goals  for  the  code  and  so  forth.  

•  Similarly,  code  content  (i.e.  provisions)  can  vary  substanQally  across  organizaQons  depending  on  their  industry,  regulaQons/requirements  and  goals  for  the  code.  

Common…  •  Employment  PracUces  

–  Workplace  Harassment  –  Equal  Opportunity  –  Diversity  –  Fair  Treatment  of  Staff  –  Work-­‐Family  Balance  –  DiscriminaQon  –  Illegal  Drugs  and  Alcohol  –  Use  of  OrganizaQon  Property  

•  Employee,  Client  and  Vendor  InformaUon  –  Maintaining  Records  and  InformaQon  –  Privacy  and  ConfidenQality  –  Disclosure  of  InformaQon  

•  Public  InformaUon/CommunicaUons  –  AdverQsing  and  MarkeQng  –  Development  and  Fundraising  –  Clarity  of  InformaQon  –  Access  to  InformaQon  –  Transparency  of  InformaQon  

Common…  •  Conflicts  of  Interest  

–  Giks  and  GratuiQes  –  PoliQcal  AcQvity  –  Outside  Employment  –  Family  Members  

•  RelaUonships  with  vendors  –  Procurement  –  NegoQaQng  Contracts  

•  Environmental  Issues  –  Commitment  to  the  Environment  –  Employee  Health  and  Safety  

•  Ethical  Management  PracUces  –  Accuracy  of  books  and  records  and  expense  reports  –  Proper  use  of  organizaQonal  assets  –  ProtecQng  proprietary  informaQon  

•  Employment  PracUces  –  Proper  Exercise  of  Authority  –  Employee  Volunteer  AcQviQes  

•  Conflicts  of  Interest  –  Disclosure  of  Financial  Interests  

•  PoliUcal  Involvement  –  PoliQcal  AcQviQes  

Quiz  1/2  •  Why  people  engage  in  unethical  behavior?  (2.5)  •  What  are  the  major  ethical  dilemmas  of  today’s  business?  (2.5)  

•  IdenQfy  ethical  issues  in  the  following  situaQon,  and  suggest  an  ethical  response  to  those  issues:  (5)  –  Satyam  works  for  a  pharma  company  as  a  sales  rep.  He  is  based  out  of  Bangalore  but  travels  frequently  for  work.  He  a^ends  an  interview  with  a  compeQtor  on  a  weekday  in  Mumbai,  and  he  files  expense  report  with  his  company  claiming  the  travel  as  business  travel.  During  interview,  he  is  promised  heky  bonus  if  he  could  bring  at  least  25%  of  his  current  business  to  the  compeQtor  in  next  3  months.  In  Mumbai,  he  also  met  an  old  friend  over  lunch,  and  included  lunch  bill  as  business  entertainment.  While  retuning  from  Mumbai,  he  picked  up  a  Barbie  doll  for  his  boss’s  daughter  whose  birthday  was  on  coming  Sunday.  

Quiz  2/2  -­‐  Yes  /  No  1.  Business  ethics  focuses  mostly  on  personal  ethical  issues  2.  Business  ethics  deals  with  right  or  wrong  behavior  within  a  parQcular  

organizaQon  3.  Business  ethics  contributes  to  investor  loyalty  4.  If  an  acQvity  is  approved  by  most  members  of  an  organizaQon  and  it  is  

also  customary  in  the  industry,  it  is  probably  ethical  5.  The  primary  method  for  resolving  business  ethics  disputes  is  through  the  

criminal  court  system  6.  Whistle-­‐blowers  oken  retain  their  posiQons  and  conQnue  to  advance  

within  the  organizaQon  7.  A  person  who  behaves  unethically  and  is  rewarded  is  likely  to  conQnue  to  

act  unethically  8.  SocializaQon  refers  to  the  process  in  which  a  person  learns  the  values  

and  behaviors  considered  appropriate  by  the  organizaQon  9.  The  accountability  and  responsibility  for  appropriate  business  conduct  

rest  with  top  management  10.  Management’s  total  loyalty  to  maximizaQon  of  profit  is  a  principle  

obstacle  to  achieving  higher  standards  of  ethical  pracQce