IMPROVING ETHICAL DECISION- MAKING

ETHICS

MEANING:

Ethics is commonly defined as a set of principles prescribing a behaviour code, explains what

is good and right, or bad and wrong. It may also outline moral duties and obligations.

Ethics means different things to different people, but it generally boils down to a basic sense

of societal right and wrong. Within the business context, it involves making decisions that

align with that sense of right and wrong, as well as with the law. Various examples of ethical

dilemmas exist in today’s business environment. They are as follows:

EXAMPLES OF ETHICAL ISSUES IN BUSINESS

1. Discrimination:

Suppose you're the boss in a predominantly male environment. The presence of a new

female employee stirs up conflict because your company has not had a chance to

conduct sensitivity training. Some of your male employees make inappropriate

remarks to your new employee. She complains to you; in response, you sanction those

responsible for the conduct. You also wonder if it would be wise to move your new

female employee to another position where she would be less likely to draw attention.

Treating your female employee differently based on her gender or in response to a

harassment complaint may be considered discriminatory and unethical conduct.

2. Side Deals

Suppose you're a business manager with an employment contract. The contract

requires you to work solely for your employer and use your talents to attract new

clients to the business. If you begin attracting more clients than you believe your

employer can reasonably handle, you may wonder if there would be an ethical issue

with your diverting that excess business elsewhere and taking the commission. If you

don't, at minimum, disclose the idea to your employer, you will likely be in breach of

both your contractual and ethical duties.

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3. Partners

Consider you're a partner in a business and see a great deal of profitability on the

horizon. You don't believe that your partner deserves to profit from the business'

future success, because you don't like his personality. You may wonder if you could

simply take his name off the bank accounts, change the locks and continue without

him. If you proceed with this course of action, you would likely be in violation of

your ethical and legal obligation to act in good faith concerning your partner. The

better course of action may be to simply buy out his interest in the business.

4. Gross Negligence

Assume that you’re on the board of directors for a publicly traded corporation. You

and your fellow board members, in hopes of heading off early for the holidays, rush

through the investigatory process involved in a much-anticipated merger. As a board

member, you have a duty to exercise the utmost care respecting decisions that affect

the corporation and its shareholders. Failing to properly investigate a matter that

affects their interests could be viewed as gross negligence supporting a breach of your

ethical and legal duty of care.

BUSINESS ETHICS

MEANING:

Business ethics are concerned with moral issues in business just as medical ethics are

concerned with morality of medical practices and policies, or political ethics are concerned

with the morality of political affairs. In business ethics, we arrive at two things:

Looking at the problem which raises moral issues in business.

Critically examining the various problems for solving them.

Business ethics is an area of corporate responsibility where businesses are legally and

socially obligated to conduct business in an ethical manner. Business ethics includes five key

elements: honesty, integrity, trust, confidentiality and openness. Within the business world,

ethical decisions are made each day that have an impact across all organizations.

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WHAT ARE THE MAJOR ETHICAL ISSUES BUSINESS PEOPLE FACE?

The National Business Ethics Survey found that the number of organizations with formal

ethics training had greatly increased. As more organizations are finding that ethical training

helps business owners run an effective workplace, the importance of understanding what

ethical issues business people face has increased.

a. Employee Behaviour

From large corporations to small businesses, individuals involved in all types of

business often face ethical issues stemming from employee behaviour. For example,

whether an employee can spend work time checking personal email accounts, how a

manager deals with claims of harassment and to what extent a manager can "groom" a

certain employee for a promotion are all examples of ethical issues regarding

employee behaviour. There are legal consequences for some unethical employee

behaviour. For example, if a supervisor discriminated against an employee based on

her gender, religion or ethnicity when making recommendations for a promotion,

legal action could be sought. Small business owners can help to prevent ethical

problems stemming from employee behaviour by drafting a clear, attorney-reviewed

set of standards that dictate behaviour policies for employees at all levels.

b. Employee Working Conditions

In addition to employee behaviour, there are a number of ethical issues business

people must consider about employee working conditions. For example, employers

must be aware of the safety of their work environment and if they have compensated

employees for all the time they have worked. The must also consider if they have

required an employee to work an unreasonably long period of time or if they have him

doing an unusually difficult task. Just like there are legal consequences for some

unethical issues regarding employee behaviour, there are also legal consequences for

unethical working conditions. For example, an employer who requires an employee to

work without pay or who creates an unsafe working environment can face legal

action.

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c. Supplier/Customer Relations

In addition employees and business owners must consider the ethical issues involved

with their relationships between suppliers and customers. Business owners in

particular must consider whether it is ethical to do business with suppliers who have

unethical practices. When dealing with customers or clients, business people must

ensure that they use their information correctly, do not falsely advertise a product or

service, and do not intentionally do sub-standard work.

d. Small Business Ethics

Although there are ethical issues like discrimination that apply to all areas of business,

each business area has its own ethical concerns. For example, business people who act

as consultants must ensure they are giving sound advice. In the area of small business,

some major ethical issues result from hiring, firing and dealing with employees. For

example, conflicts of interest may cause ethical issues in small businesses, especially

if they are family run. When personal family issues interfere with business decisions,

this is a conflict of interest and an ethical concern.

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ETHICAL DECISION MAKING

MEANING:

The decisions leaders make are key in defining who they are and where they stand on critical

issues. When tasked with making choices, many seek to make ethical ones, establishing

themselves as individuals with values and morals. When individuals find themselves in the

position to make decisions, they should first consider some of the guidelines associated with

ethical decision-making, and keep these in mind throughout the entire decision-making

process.

EXAMPLES OF MAKING ETHICAL DECISIONS IN BUSINESS:

Business ethics includes a wide range of moral or ethical principles that arise in a business

environment. Business ethics include individuals' actions in a company as well as the

organization's actions and positions on ethical matters. For instance,

1. Going Green

Many companies have opted to play a part in helping the environment by making the

decision to go green. Office recycling is common in businesses, so employees can

help reduce environmental waste by recycling office paper, cans, bottles and other

materials. Some businesses go beyond the basic recycling and offer extensive

recycling programs, allowing employees to recycle everything from batteries to

computer equipment. Businesses make decisions to help the environment by creating

policies to reduce company waste and consumption of resources. Some companies set

timers to turn off lights at night, use refurbished office supplies or buy organic or

recycled items. Some clothing companies, for instance, sell organic shirts to help cut

back on the pollutants released into the environment by the creation of regular shirts.

2. Social Responsibility

Some businesses make the decision to actively better social conditions by improving

local economic conditions, offering opportunities to low-income people or serving

people in need. Small businesses often donate a certain percent of profits or a set

dollar amount to charities annually. Some companies become more involved, by

hiring at-risk teens or low-income people and paying fair wages. Businesses

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sometimes have an ethical policy of serving people who are normally discriminated

against, such as a bank giving business loans to women and minorities. When doing

business, companies may be faced with ethical decisions that affect social issues, such

as how much to pay employees, whom to hire and when to turn away customers that

hurt the community. Banks, for instance, face an ethical decision when deciding to

loan money to companies that damage the environment. A bank that refuses to loan

money to the destructive business is taking an ethical stand.

3. Individual Ethics

Individuals make decisions based on ethics in business settings all the time. An

employee who refuses to spread or participate in workplace gossip, for instance,

makes the decision not to spread potentially false information that is damaging to

someone's reputation. Other individual ethical decisions at work may involve being

honest, not stealing money and keeping customer information confidential.

4. Considerations

Business ethics encompass a wide variety of circumstances and can vary from

business to business, depending on the industry and the location and nature of the

individual company. Small businesses can enact ethical codes and distribute the codes

to employees to help ensure everyone in the organization is working toward the same

goal of upholding principles and procedures that are important to the company

ETHICAL DECISION MAKING CRITERIA OR PRINCIPLES OF ETHICS:

An individual may use different criteria in making ethical choices, but no single criteria is

adequate to judge:

1. Utilitarian criterion

Decisions are made solely on the basis of their outcomes or consequences. The goal

of utilitarian is to provide greatest good for the greatest number. This view tends to

dominate business decision- making. For instance, by maximising profit, a business

executive can argue he is securing the greatest good for greatest number- as he hands

out termination notice to 10% of his employees. This promotes efficiency and

productivity.

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Raising prices, selling products with questionable effect on consumer health, closing

down plants, laying-off large number of employees and similar decisions can be

justified in utilitarian terms.

Decision makers; tend to feel safe when they use utilitarianism. A lot of questionable

actions can be justified as in best interest of “the organization”. But many argue that

this respective needs to change. Increased concern in society about individual rights

and social justice suggest the need for managers to develop ethical standards based on

non-utilitarian criteria.

2. Right criterion

Another ethical criterion is to focus on right. This calls on individual to make decision

consistence with fundamental liberties and privileges as laid in the constitutions. It

means decision to respect and protect the basic rights of individuals, example- right to

speech and due process.

For instance, use of these criteria would protect whistle-blowers when they report

unethical or illegal practices by their organisation to press or government agencies on

grounds of right to speech.

3. Focus on justice criterion

This requires individuals to impose and enforce rules fairly and impartially so there is

equitable distribution of benefits and costs. It justifies paying same wages for given

job and using seniority as main determination in making retrenchment decision.

It looks at issues from the perspective of the other person or effected parties. The

questions to be asked are:

a) Have you defined the problem accurately?

b) Would you define in the same way if you stood on the other side?

c) To whom and what is your loyalty as a person and as member of organisation/

d) Whom will the decision injure?

e) Can you discuss with affected party?

f) Will the decision stand the test of time?

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GUIDELINES FOR MAKING ETHICAL DECISIONS:

1. Integrity

To make an ethical decision, the decision-maker must feel largely autonomous. If he

does not feel free to make the decision himself, but instead feels that he must make a

certain choice as a result of outside pressures, he is more likely to make a decision

that is unethical. When a decision-maker does not feel he has autonomy, the choice he

will likely make will not be his own, but instead one that he is influenced to select.

This could perhaps lead him into unethical territory, as whoever is exerting pressure

may have a hidden agenda. The decision-maker has to recognize this as the situation,

and then be guided by his integrity, allowing this to supersede any insecurity he may

have about lack of autonomy.

2. Consideration of Impact

When making decisions, the decision-maker must first consider the impact that her

decision will have upon others. By considering the lasting impact of her decision, she

can improve her chances of making an ethical decision in which all affected

individuals' needs are met to the greatest extent possible.

3. Legalities

Often laws and regulations must play a part in the decision-making process. If an

individual is making a decision with legal ramifications, he must first ensure that he

understands the laws and other rules that should necessarily impact his choices, so

that the choice he makes is in line with these laws.

4. No maleficence

Some decisions have the ability to cause harm. If an individual is making a decision

that could prove harmful to others, she must reconsider and choose the option that is

least damaging to others.

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5. Fidelity

If the decision-maker has made a commitment in the past, he must remain faithful to

it. If he makes a decision that is contrary to this commitment, this will be likely be

perceived as unethical, as he would have essentially gone back on his promise. For

example, if he agreed to stick with one supplier for a set period of time, then switches

to another before the stated time period has elapsed, the ethics of his decision may be

called into question.

6. Fairness

Decision-makers should put effort into not allowing bias to influence their decisions.

If, for instance, an individual allows her feelings for a particular person or group of

people to influence her decisions, her decision may not be an ethical one.

7. Input Receiving

Generally, ethics dictates that decision-makers should take the wants and needs of

others into consideration when making decisions. For optimal ethical decision-

making, decision-makers should give others a voice and consider the concerns or

needs expressed before arriving at an ultimate decision.

HOW TO HELP EMPLOYEES MAKE ETHICAL DECISIONS

Employees who make bad ethical decisions could cause problems such as harassment,

financial disasters, bribery, customer deception, corruption and customer deception. To

prevent ethical mishaps, put a training program in place to help employees make better

decisions. Ethical misconduct could lead to a disruption in your business dealings and pose a

threat to your organization. Not only is it important to teach employees how to make ethical

decisions, but also how to handle ethical misconduct.

Step 1: Write up a code of ethics for your business and provide each employee with a copy.

The code of ethics should outline your expectations on how you wish employees to behave

when presented with an ethical decision. Provide situational examples and give the right and

wrong way for an employee to behave. Make each employee sign a copy to acknowledge

receipt of the document.

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Step 2: Enroll employees and managers in an ethical training program. Ethics training can be

done by a live person or through Web-based training. The program should outline the

company’s ethical philosophy, how to handle complicated ethical situations and how to make

ethical decisions while at work. Attend sessions with the employees to demonstrate how

important ethics are to your company.

Step 3: Ask employees to look at each person’s perspective when making an ethical decision.

Each situation should be regarded through the eyes of the employee, business owner,

customer and vendor, when applicable. For instance, if the employee was the customer,

would she be happy to know she was being overcharged for products.

Step 4: Set an example for employees. If business owners and upper level managers are not

applying ethics into their business dealings, employees are likely to follow suit. Keep

business interactions honest when dealing with customers, vendors and employees. Your

behaviour should be in sync with your code of ethics and the company’s vision statement.

IS ETHICAL BEHAVIOUR GOOD OR BAD FOR BUSINESS?

You might think the above question is an easy one for businesses to answer? Surely acting

ethically makes good business sense? As with all issues in business studies, there are two

sides to every argument:

The advantages of ethical behaviour include:

Higher revenues – demand from positive consumer support

Improved brand and business awareness and recognition

Better employee motivation and recruitment

New sources of finance – e.g. from ethical investors

The disadvantages claimed for ethical business include:

Higher costs – e.g. sourcing from Fair-trade suppliers rather than lowest price

Higher overheads – e.g. training & communication of ethical policy

A danger of building up false expectations

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FACTORS INFLUENCING ETHICAL DECISION-MAKING BEHAVIOUR

What accounts for unethical behaviour in organisations? Is it immoral individuals or a work

environment that promote unethical activity? The answer is both. Ethical or unethical actions

are largely a function of both the individual’s characteristics and the environment in which he

works.

Following models explains ethical or unethical behaviour, i.e. factors affecting decision

making behaviour:

I. Stage of Moral Development.

II. Organisational Environment.

III. Locus of Control.

I. Stage of Moral Development:

It is an assessment of a person’s capacity to judge what is morally right. The

highest ones moral development, the less dependent he is on outside

influences and hence more he will be ethically high. For instant, adult are at

middle level of moral development- they are strongly influenced by peers and

will follow an organisation’s rules and procedures. Those individuals who

have progressed to higher stages of moral development place increased value

on the rights of others. Regardless of majority’s opinion, they are likely to

challenge the organisation practices they believe are personally wrong.

II. Organisational environment:

It refers to an employee’s perception organisation expectations. Does the

organisation encourage and support ethical behaviour by rewarding it or

discourage unethical behaviour by punishing it?

For example: written code of ethics, high moral behaviour by senior

management, performance appraisal that evaluate means as well as ends,

visible recognition and promotions for individuals who display high moral

behaviour and visible punishment for those who act unethically are some

examples of organisation environment that is likely to foster high ethical

decision-making.

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In summary, people who lack a strong moral sense are much less likely to

make unethical decision if they are constrained by an organisational

environment that frowns on such behaviour. Conversely, very righteous

individuals can be corrupted by an organisational environment that permits or

encourages unethical practices.

Thus, managers at senior level can influence the employee’s work

environment. Managers should overtly convey high ethical standards to

employees through their actions. By what managers ‘say’, ‘do’, ‘reward’,

‘punish’ and ‘overlook’, they set the ethical tone for their employees.

Managers can weed out ethically undesirable applicant at the time of

recruitment in selection process by learning about an individual’s level of

moral development and locus of control.

Managers can identify individuals whose ethical standards might be in conflict

with those of organization or who are vulnerable to negative external

influences.

III. Locus Control

It is a personality characteristic that taps the extent to which people believe

they are responsible for the events in their lives.

People with external locus control (believe what happens to them in life is due

to luck or chance) are less likely to take responsibility for their behaviour and

are more likely to rely on external influences.

People with internal control are more likely to rely on their own internal

standards of right or wrong to guide their behaviour.

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FACTORS THAT GUIDE MANAGERS TO MAKE ETHICAL DECISIONS:

Some factors are summarized below:

1. A man’s personal code of ethics- i.e. what one consider moral. It is felt older a

businessman becomes; the more ethical is his attitude.

2. The company’s formal policies are value and culture.

3. The ethical climate in the industry in the industry.

4. Government regulations. It is morality that transcends conformity to law. Deep

belief to abide the laws.

5. Behaviour of a man’s associate and superiors in the company. People look

their actions/attitudes, and emulate them how honestly they prepare travelling

bills, medical bills, sanction overtime to staff, etc.

6. Professional’s managers are more ethical. Ethical standards are deep seated in

them & they refuse to compromise.

7. As corporations become larger, their standard of ethical conduct tends to rise

because of greater public exposure/image.

A CASE STUDY-

ETHICAL ISSUES CONCERNING COCA-COLA IN INDIA

Situation Analysis:

In 2003, the community near the Coca-Cola bottling plant in Kerala, India protested against

the water scarcity and polluted water that resulted from its bottling operations. The

allegations caused the closure of the bottling plant. Coca-Cola was banned in the state for

these unethical business practices. Soon after the incident, the Centre for Science and

Environment (CSE), a Delhi-based environmental NGO, released a report indicating the

presence of pesticides, greatly exceeding European standards, in a dozen popular beverages

sold under the brand names of the Coca-Cola Company and PepsiCo. This report raised

serious protests all over India on the soft drink industries, especially Coca-Cola and PepsiCo.

Together, the companies have 90% of the India's soft drink market.

In response to the allegations, Coca-Cola denies them by saying their products are safe and

questions the lab reports presented by CSE. The University of Michigan placed the Coca-

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Cola Company on probation in 2006, and asked for an independent assessment of its

operations in India. The soft drinks were examined by an independent lab, The Energy and

Resources Institute (TERI). According to the reports the soft drinks were declared safe and

pesticide free. However, the CSE claimed that only the water was tested and not the other

ingredients; ingredients such as artificial flavours and sugar. After the reports from TERI

were published the government declared soft drinks as safe. However, the problems with

some bottling plants still remain, due to the depleting levels of ground water, day by day.

Critical Issues/Problems:

Solid waste and water issue: The communities near the bottling plant in India complained

about the passage of sludge as fertilizer, causing health and environmental damage. The most

important issue concerning these communities is the depletion of water levels caused by the

Coca-Cola bottling operations which have drastically reduced availability of water for

irrigation purposes.

Pesticides in soft drinks: The other issue concerning human health caused by Coca-Cola is

that their bottled water and soft drinks contain pesticides which were tested by the reputed

NGO, CSE.

Dual product standards: Coca-Cola is accused of having dual standards in terms of their

products and safety measures concerning human health with respect to USA, Europe and

India.

Community issue: These allegations affected Coca-Cola largely with its sales and also caused

the closure of one of their bottling plants in Kerala, India. Additionally, Coca-Cola’s products

are banned in the state of Kerala, India.

Action Taken:

Coca-Cola Company, India thought seriously about its corporate responsibility and

witnessing huge sales losses. In order to gain trust among the local communities near the

bottling plant, they improved their business practices and reduced the water usage by 34%.

Through the practice of rainwater harvesting, Coca-Cola returned substantial water to the

aquifers. They have stopped distributing sludge as Bio solids (fertilizers) to farmers for

agriculture use, and have taken initiatives with the Indian government to encourage the

development of additional solid waste disposal sites. The water used for making soft drinks is

treated with activated carbon filtration and run through a purification process to ensure that

the water is free of pesticide residue. The ingredients are also closely monitored and undergo

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various quality checks. According to the company’s factsheet, they strictly follow the product

standards which are the same all over the world.

Coca-Cola has also partnered with the NGO’s and the government to provide medical access

to poor people through regular health camps. In addition to their outreach efforts, the

company committed itself to environment responsibility through its business operations. For

example by following the practices of conserving energy and by adhering to the ban on

purchasing CFCs, Coca-Cola exhibited greater corporate responsibility.

The allegations in other ways helped Coca-Cola Company, India to show their corporate

social responsibility and to maintain good product quality standards. The initiatives all over

India helped them reach villages for a good cause and also indirectly marketed their products

with establishing a trust among the public. After all these allegations, the CSE is still not

convinced of the quality of the product. Therefore, Coca-Cola must prove that they have

upgraded their lab with sophisticated instrument which is capable of measuring pesticide

residue in soft drinks. As per the recent reports by CSE, they claim that the pesticide residue

has gone up 27 times higher than expected level by the Bureau of Indian Standards (BIS) (in

2006).

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BIBLIOGRAPHY:

Books:

S.K. Bhatia, forwarded by Dr. Abud Ahmad, Business Ethics & Corporate

Governance, Deep & Deep Publications Pvt Ltd.

C.S.V. Murthy, Business Ethics & Corporate Governance, Himalaya Publishing

house.

Website:

http://imaginecorporation.blogspot.in/2009/08/ethical-issues-concerning-coca-cola- in.html

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