I - Ethics

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Business Ethics &

Corporate Governance

Unit I

“Ethics”

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Contents

Introduction, Concept of Ethics

Meaning & Types of Values

Ethical Actions – Morals, Morality

Moral Development Pyramid

Beliefs, Religiousness & Law

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Introduction

Latin word „Ethicus‟, Greek word „Ethicos‟

Derived from „Ethos‟ meaning Character or manners

Recognised rules of conduct, source of morals

Right or wrong & Good or bad

Principles of behaviour Concise Oxford Dictionary: „ethics‟ is relating to morals,

treating of moral questions, morally correct.‟

Standards, rules that govern behaviour

Ethics is doing what is right to achieve what is good Branch of philosophy (having morality as its subject

matter) & a normative science as it is concerned withnorms of human conduct

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Introduction

From top management to employees, ethics iseverybody‟s business

Not only high profits but also conduct business ethicallyat the same time, simultaneously

Problems in business are multifold

Ethics is set of principles prescribing a behaviour code

Three terms to define ethics – RIGHT, PROPER, JUST

Ethics is concerned with norms for the conduct of peopleas members of society.

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Meaning of Ethics

Character

of a Man

Conduct

of aPerson

Series

ofActions

Good or

BadRight orWrong

Moral or

Immoral

Moral Standards

Known asmoral

judgement

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What Should We Do?

WHAT – Answer to „what‟ determined & affected by „WE‟

SHOULD – Indicates normative act, what ought to bedone

WE – Refers to the rational & responsible person obligedto act by virtue of his duty, situation, position/office

DO – Action which follows

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Evolution of Ethics Emerged as a part of theological discussions before 1960

Catholic teachings emphasised need for morality inbusiness

Ralph Nader raised issue of consumer safety from unsafeautomobiles

All thesese issues cried for a moral solution Protestant seminaries developed ethics as part of their

curriculum

1960‟s, sharp rise of social issues in business

Business practices were subject to scrutiny 1970‟s, institutes started research, analysis & began to

write

Businessmen became more concerned for public image

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Concept of Ethics

The concept of ethics deals with human beings only

Human beings can distinguish between good & bad

Human beings can distinguish between the end hewishes to pursue & the means to gain that end

Study of ethics is a field of social science

Ethics evaluates human action

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Objectives of Ethics Define the highest good of man & set a standard for the

same

To deal with several interrelated & complex problems which

may be psychological, legal, commercial, philosophical,sociological & political in nature

Study the human behaviour

Establish moral standards / norms of behaviour

Make judgements upon human behaviour based on thesestandards & norms

Prescribes moral behaviour

Makes recommendations as to how to or how not tobehave

Expresses an opinion or attitude about human conduct ingeneral

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Nature of Ethics

Study of ethics is a normative science. It judges, „what

ought to be‟

Study of ethics has become a set of systematicknowledge about moral behaviour & conduct

Ethics deals with human conduct

It is an area dealing with moral judgement regardingvoluntary human conduct

Business can be ethical & still earn profits

Ethics deals with human beings only as they areendowed with freedom of choice & means of free will

Fulfilling social responsibilities

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6 Primary Sources of Ethics – George & John

Steiner Religion

Philosophical Systems

The Legal System

Code of Conduct

Genetic Inheritance

Cultural Experience

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Sources

1. Religion – 10 commnadments in Bible

It plays a vital role in shaping our societal ethics

Many businessmen built their ethics upon religion

Christians – Bible, Muslims – Quran, Jews – Torah,Hindus – Bhagwata Geeta

“When in Rome, do as the Romans do”

Golden Rule – “Act in a way you would expect others to

act towards you” or

“Do unto others as you would have them do unto you”

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Sources2. Philosophical Systems

The quality of pleasure to be derived from an act was theessential measure of its goodness by Epicureans

Stoic is a disciple of philosopher Zeno (opened school).The Stoics (like Puritans) advocated a hardworking,

thrifty lifestyle Important for moral development

3. The Legal System

It educates us about ethics

Represents a rough approximation of society‟s ethical

standards

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Sources4. Code of Conduct

Steiner & Steiner – 3 primary categories of codes:

Company Codes

Brief, highly generalised, expressed broadexpectations about fit conduct.

Company Operating Policies

Policies as to Customer complaints, Gifts, Hiring,Decision making, Serve as a guide for all incompany, Work as a shield.

Code of Ethics

Professional code of Ethics by various bodies(Lawyers, CA‟s, CS, Doctors, etc)

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Sources

5. Genetic Inheritance

Quality of goodness is a product of genetic traitsstrengthened over time by the evolutionary process

Socio-biologists say genetic inheritance is a source for

ethics

6. Cultural Experience

Rules, customs & standards transmitted from generationto generation for appropriate conduct

Individual values are shaped in a large extent by normsof the society

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Types of Ethics Transactional Ethics

Concept of common interests (occurring simultaneously)

Same interest, coincides in time but do not affect each other

Morality is involved

Dependent on each other (Vegetable Vendor) in order to run things smoothly

Principle of Honesty

Principle of Reciprocity Participatory Ethics

It involves shared interests

It is a privileged part of business ethics

Parties join alliance voluntarily

Recognitional Ethics Self directed actions. As long as the actor is his own beneficiary, &

no legitimate claims are raised by others, no moral qualficationsare due. (Eg, Age of Retirement)

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Advantages of Ethics

Prevents harm to society

Ethical business behaviour is expected by public

Improves profitability

Fosters business relations

Increases employee productivity Reduces criminal penalties

Protects business against unscrupulous employees& competitors

Protects employees from harmful actions byemployer

Allows business to work consistently

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Ethical Problems

Selfishness of a few

Competitive pressure on profits

Clash of personal values & business goals

Targets to achieve Cross cultural contradictions in global business

operations

Bribery & Corruption

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Role of managers in ethics

Social responsibility

Ownership of corporation divorced from its management

Manager is key to this approach

Managers/Individuals have to take ethical decisions

A strong sense of leadership is asked in business today

Need to meet expectations & urgent requirements ofsociety

Management has become „affected with public interest‟ Should have a moral vision

Must have purpose of his life‟s work

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Values and Ethics - Meaning Values are general term referring to what people

regard as good or bad, desirable, forbidden, justified, etc

Values are potent sources of conflict, cooperation,control & self-control

Values are within ourselves

Values are the means which we use to reach theend i.e., our goals

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Types of ValuesValues are of many types. It includes:

Cultural Norms Represent expectations of business clients,

customers, employees, public, etc.

Moral Imperatives

These values are not easy to measure. They are deepseated feelings & ideas that manifest themselves asbehaviour or conduct.

More General & Controlling values

Capable of judging the acceptability of the prudential& technical value.

Ethical values can rule overrule the technical &prudential values.

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Classification of Values

A Classification of Values in General

Values

Primary

Values

Terminal Values orInstrumental Values

(Means to an End)

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Classification of ValuesCriteria for Accepting Values

Criterial of Universalisability Greatest good for the greatest number

Values Required to be Optimised

Controlled Greed

Pursuit of Pleasure Efficiency & Work Ethics

Compassion & Charity

Piety

Truth

Transparency & Honesty

Evolutionary Destiny

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Contd.. Sacrifice

Stoic Dignity Truth & Cooperation

Righteousness in envy, pride, anger & Violence

Fraternity

Tolerance, pluralism

Gratitude & Respectfulness

Harmony with self, society & nature

Values in the Nature of Rights of Beneficiaries

Right to Privacy

Individual Choice

A minimum standard of life

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Contd..

Institutionalising Ethical Implementation of Values

Distributive justice

Democratic dispassionate discourse Market Systems

Ensuring organization is used as vehicles for ethicalsynergy

Respect for: Law, professional codes, rituals &symbols

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Features of Values

D – Descriptive (is)

N – Normative (ought to be)

A – Analytical (why)

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Morals Morals are one‟s personal guiding principles

Morals implies conformity with generally acceptedstandards of goodness in conduct or character

Morals means the idea of a social rule

Moral rules call upon people to refrain from doing merely

whatever they want

Moral rules are not enforced or legislated by anyauthority or specific body.

It is generally used to describe who people are (eg, a

moral person)

Morals can be general rules or statements

They are not written down rules for conduct

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Sources of Moral Standards Family, Friends, Various societal influences

Schools, Television, Magazines, Associations Experience & learning

Intellectual Development

Moral standards are associated with special emotions &special vocabulary

They deal with matters that we think can seriously injure orbenefit human beings

They are not established or changed by decisions of anyauthoritative bodies

They are to be preferred to other values including self interest

They are based on impartial considerations

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Morality Latin route – ‘Morales’ meaning behaviour

Morality of a society are that set of rules or principles orideals which all RATIONAL members of that societyaccept. They also apply it to their own or other‟s

behaviour

Everyone in the society participates in enforcing morality It is an informal concept

Morality is the standards that an individual or a grouphas about what is right & wrong; good or evil

It is used as a synonym to ethics It is a basic concept of how we as responsible citizens

act

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Characteristics of Morality While making moral judgements on an action of a person, 3characteristcis seem to stand out:

Moral judgements are said to be universally applicable

Moral judgements override all other considerations

Moral praise is given for a moral action (or person) & moralblame is apportioned to an immoral action (or person)

Actions, persons, systems can be termed as moral or immoral

Ethics & morality have different concepts

Ethico-moral actions pertain to a set of actions engineeredby the characters & expressed through behaviours

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Illustration

“A Society is unjust “In American Society, 41% “American Society

if it does not treat of Negroes fall below the is unjust.”

Minorities equal to poverty line as compared to

Whites.” 12% of Whites.”

MoralStandards

Factual Informationconcerning the

policy, institution, orbehaviour under

consideration

Moral judgment onthe rightness or

wrongness of thepolicy, institution, or

behaviour

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Moral Development as per Kohlberg

Lawrence Kohlberg, an American psychologist

3 major levels in moral development of an individualnamely;

Preconventional

Conventional

Post Conventional

Most people operate on one level or the other

Slide various levels in different situations for goals or needs

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Levels in Brief Level 1

child is able to respond to rules & social expectations & can apply labels good, bad,right, wrong; Right or wrong as Pleasure or Painful respectively

If you ask a 5 year child, Why Stealing is Wrong? The answer would be becausemummy will scold me.

He will see situation from his point of view and not as per morals

Level 2

Maintain expectations of family, friends, peers; Does not only conform to

expectations, but also exhibit loyalty to that group & norms If you ask a adolescent, Why stealing is wrong? The answer would be: this is what

my family, friends taught me.

Level 3

No longer accepts the values of group & takes a view that impartially takeseveryone‟s interests

Questions the law & values that society has adopted & redefines them in terms ofself chosen moral principles

If you ask a adult, Why Stealing is Wrong? The answer would be: as it is fair toeveryone, justice, human rights, society‟s overall welfare.

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Preconventional Level Stage I – Punishment & Obedience Orientation

Infant learns to react to punishment & begins to associates actions to

punishment. Child‟s reason to do right is to avoid punishment

Little awareness to other‟s needs & desires

Learns how to avoid painful experience

Stage II – Instrumental & Relative Orientations

Learns the meaning of praise

Right actions are those which satisfies his own needs

Learns to maximize his pleasure by pleasing his parents, teachers,

elders Does not understand that reward is for right action or obeying rules

Sense of morality is largely unborn

He is bound by reactions of pain & pleasure

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Conventional LevelStage III – Interpersonal Concordance Orientation

The child has grown into a young adolescent

Learnt to conform to the norms learnt at home, school & street Knows how to react to the expectations of parents & others

„Good boy / Nice girl Morality‟

Good behaviour for who feel loyalty

Right action is conformity to what is generally expected in role as son, etc

Stage IV – Law & Order Orientation

Grows in conformity with laws of the society

Understands the expected actions of good citizen

Fulfils his role as a citizen of the society, see people part of socialsystem

Lives with conventional rules that govern that role

People are content at this level, occasionally rising to level III

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Beliefs

Standards of thought

Ways that the senior executives in organisation wantothers to think

Criteria of thought

Ways an individual expects people to think aboutgiven concepts

Intention is to encourage ways of thinking & patternsof attitude that will prove way towards wanted

behaviour

Eg, Afforestation, Energy conservation

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Religiousness & Law

Buddhism

Holy Books

Christianity

Hinduism

Jainism

Gandhism

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Documents

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