UNIT -5

ETHICS IN HRM
1. MEANING OF HRM
2. MEANING OF ETHICS
3. ROLE OF HR IS PROMOTING ETHICS
4. PARTICIPANTS IN UNETHICS HRM
5. PERFORMANCE APPRAISAL
6. INCENTIVE PLANS
7. CASH AND INCENTIVE PLANS IN UNETHICAL PART
8. SEXUAL HARASSMENT
9. ETHICS IN MARETING
1!.ETHICS IN ACCOUNTING AND FIANANCE
O"#ECTIVES
TO UNDERSTAND THE NEED FOR ETHICS IN HRM
TO LEARN THE VARIOUS ETHICAL AND UNETHICAL
PRACTICES FOLLO$ED IN HRM
TO DISCUSS ISSUES RELATING TO HRM
ETHICS IN HRM
MEANING OF HRM
HRM is the process of planning, organizing, directing, and controlling the
human activities to achieve the organizational goal and individual goals.
MEANING OF ETHICS
Ethics is defined as the ability to distinguish between the right and wrong and to
act accordingly.
E%&'() '* HRM
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The affirmative moral obligations of the employer towards the employees to
maintain equality and equity ustice.
A+,-) ./ HRM ,%&'()
!asic human rights, civil and employment right. E.g. "ob security,
feedbac# from tests.
$afety in the wor# place.
%rivacy.
$ocial and organizational ustice. E.g. equity and equal opportunity.
Respect, fairness and honesty based process in the work place.
R.0, ./ HR '* P+.1.%'*2 E%&'()
13 I14+.5, +,(+6'%1,*% -*7 ),0,(%'.* %,)%)
&ollow the recruitment policy that is identification of the
recruitment needs, monetary aspects, criteria of selection and
preference etc.
&ollow the situational factors such as economic factors, social
factors, technological factors etc.
$election must be planned manner.
'void illegal questions
23 C.*76(% ,%&'() %+-'*'*2
(t is short term process training refers to instructions in technical and
mechanical operations
The main advantages are increased productivity, higher employee morale,
less supervision, less wastage, etc.
33 E*)6+, %&-% %&,+, -+, *. 4'%/-00) '* 4,+/.+1-*(, A44+-')-0
%erformance appraisal should be factual and there should not be any partially
among the employees.
)* Rewards and +isciplinary systems
,* (mprove and facilitate two way communication
-* (ncrease the variant forms of equity
Equity share capital can be increased by bonus issue, right issue, owner.s equity
P-+%'('4-*%) '* U*,%&'() HRM
EMPLO8ERS
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They indulge in unfair practices li#e one or more of the following /
0 1reating split in union leaders
0 2ot caring for ust demands of trade 3nion
0 Trying to create rift between different unions
0 !iased attitude in selections,transfers,promotions etc
0 +ifferent treatment for employees at same level.
EMPLO8EES
$ome of the common problems/
0 &alse claim of personal details li#e age,qualification etc.
0 %roducing false certificates.
0 1reating transfers, openings, promotions suiting to their own #ith and #in.
0 Ta#ing decision as per their convenience.
0 $hort listing candidates belonging to his commonly , religion or region.
G.5,+*1,*% -2,*(',)
'nnouncing the vacancies and not ta#ing any action further.
0 &unctioning of government employment offices is not transparent , not
reliable.
0 $election committees will be e4cessively caution of reservation quotas
and possible court cases rather than gaining through the responsibilities .
0 Most of the time the government selection get stuffed or delayed due to
one or another reason.
0 The government method of selections is at best suited to low paid obs
and not for senior level posts.
M-*4.9,+ 40-**'*2
0 1onsultants tend to play the caste and regional game since they are free to
operate the way they li#e .
0 They can organize selection as per their plan with the help of HR+
managers of corporate.
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0 $ome consultants guide candidates to alter the bio5data to suit the
corporate.
PERFORMANCE APPRAISAL
%erformance appraisal is the process of reviewing employee performance,
documenting the review, and delivering it to the employee in the form of
feedbac#.
O"#ECTIVES
a* 6or# related obectives
To assess the wor# of employees in relation to ob requirements
To improve efficiency
To carry out ob evaluation
To help mgt in fi4ing employees according to their capacity, interest,
aptitude and qualifications
b* 1areer development obectives
To plan career goals
To plan promotions , transfers, layoffs etc of the employees
To determine career potential
c* 7rganizational obectives
To serve as a basis for promotion or demotion
To serve as a basis for wages and salary administration and considering
pay increases and increments
%lanning suitable training and development programmes
M,%&.7)
C.*/'7,*%'-0 +,4.+%
(n this report mainly adopted govt and public enterprises. %repare the employees
immediate superior it descriptive statement
Essay of free form method
Evaluator writes a short essay on employee performance
!ias may arise
8uality depends on the writing ability of the evaluator
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9ery time consuming process
$traight ran#ing
$upervisor evaluates his subordinates and ran# them from e4ceptional to
poor
Each ran# indicates the position of the employees in relation to others
(f more than one supervisor then mean average ran# is ta#en
&ield review method
'n e4pert interviews li#e line supervisor evaluate their respective
subordinate
The e4pert obtains all important information on each employee
$uccess of this method depends upon the competence of the
interviewer
C.11.* M')%-:,
0 Halo effect5 the ratter depends e4cessively on one trait of the employee
and based on this he rates all other traits.
0 The error of central tendency 5 the method of giving average rating on all
the traits.
0 The leniency and strictness5 the ratter may be lenient or strict by
assigning high or low rates.
%ersonal preudice5 if the ratter disli#es any employee or group he may rate
them at the lower end.
Recency effect5 remembering recent actions of the employees at the time of
rating and rate them on the basis of that.
INCENTIVE SCHEMES
(ncentive or non5financial rewards and ownership plans help organizations in
gaining the commitment of the employees and create greater ob satisfaction.
T8PES
0 Halsey %lan
0 Taylor.s +ifferential %iece rate system
0 Merric# +ifferential %iece rate
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0 Rowan %lan
C-)& -*7 '*(,*%'5, 40-*) '* 6*,%&'(-0 4-+%
0 6ages are lower for women
0 'void payment of %&, gratuity, E$( plan and pension.
0 +isparity of payment of salary, scales etc
0 Role of favoritism, casteismetc
0 +elays in paying salaries, paying in installments.
Sexual harassment
$e4ual harassment, is intimidation, bullying or coercion of a se4ual nature, or
the unwelcome or inappropriate promise of rewards in e4change for se4ual
favors (t includes a range of behavior from seemingly mild transgressions and
annoyances to actual se4ual abuse or se4ual assault. $e4ual harassment is a
form of illegalemployment discrimination in many countries, and is a form of
abuse :se4ual and psychological* and bullying. &or many businesses, preventing
se4ual harassment, and defending employees from se4ual harassment charges,
have become #ey goals of legal decision5ma#ing.
S,;6-0 &-++-),1,*%'* .+2-*')-%'.*
1ommon se4ual harrasementbehaviours are/
+isrespecting and devaluing the individual, often through disrespectful
and devaluing language or verbal abuse
7verwor# and devaluation of personal life :particularly salaried wor#ers
who are not compensated*
Harassment through micromanagement of tas#s and time
7vervaluation and manipulating information :for e4ample concentration
on negative characteristics and failures, setting up subordinate for
failure*.
Managing by threat and intimidation
$tealing credit and ta#ing unfair advantage
%reventing access to opportunities
+owngrading an employee;s capabilities to ustify downsizing
(mpulsive destructive behavior
E//,(%) ./ ),;6-0 &-+-))1,*% .* .+2-*'<-%'.*)
+ecreased productivity and increased team conflict
+ecrease in success at meeting financial goals :because of team conflict*
+ecreased ob satisfaction
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<oss of staff and e4pertise from resignations to avoid harassment or
resignations=firings of alleged harassers> loss of students who leave
school to avoid harassment
+ecreased productivity and=or increased absenteeism by staff or students
e4periencing harassment
(ncreased health care costs and sic# pay costs because of the health
consequences of harassment
The #nowledge that harassment is permitted can undermine ethical standards
and discipline in the organization in general, as staff and=or students lose respect
for, and trust in, their seniors who indulge in, or turn a blind eye to, se4ual
harassment
(f the problem is ignored, a company;s or school;s image can suffer
<egal costs if the problem is ignored and complainants ta#e the issue to court
A7.4% - C0,-+ S,;6-0 H-+-))1,*% P.0'(=.
'ny organisation will have a general policy about how employees should
behave in the wor#place, but a specific se4ual harassment policy is becoming an
increasingly popular means of communicating clearly to the wor#force that
inappropriate behaviour of a se4ual nature, towards colleagues will not be
tolerated. Remember se4ual harassment whether in a verbal or physical form is
a violation of another persons intimate space, which should never occur in the
wor#place. 7rganisations should strive to create a safe respectful wor#ing
environment for staff.
E*(.6+-2, R,4.+%'*2
(t is the organisation;s responsibility to encourage staff to report incidents of
se4ual harassment by ma#ing the process accessible to all and by being
approachable and dealing allegations in a sensitive and confidential manner.
$ome organisations worry that this inflates se4ual harassment incidents, but the
reality is that very few employees would report such a serious matter unduly,
although it can happen. However, fostering a culture where staff are actively
encouraged to report incidents will quic#ly encourage staff to thin# before they
spea# or act in a se4ually inappropriate way
T-:, A00,2-%'.*) S,+'.6)0=
(t can be a difficult and an4ious e4perience for a member of staff to bring an
allegation of se4ual harassment to the attention of their employer. 7ften
employees have to overcome a number of internal barriers to do this including
concerns about how they will be perceived by staff for reporting an incident and
concerns about the effect reporting se4ual harassment might have on their long
term career within the organisation. 'll these are real fears for an employee and
it is e4ceptionally rare for an employee to report a se4ual harassment incident
ust for the sa#e of it. 's such the organisation;s response should always be one
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of ta#ing the allegation seriously and providing support to the alleged victim to
ma#e it easier for them to discuss what has happened.
'll allegations should be investigated thoroughly by staff who are trained to do
so and should be reported to the police with the permission of the victim where
required in more serious cases. Remember slapping or patting someone;s bottom
or touching another person without the individual;s consent is considered an act
of assault in the eyes of the law. 's such it is important that the organisation
does not try to cover up se4ual harassment allegations in a vain attempt to
safeguard its reputation.
E76(-%, S%-//
7rganizations should see# to spend time producing and communicating
information about se4ual harassment and about what is deemed inappropriate
behavior. %olicy documents concerning se4ual harassment should be provided
to all staff and followed up with presentations to communicate salient points.
?et staff discussing the topic in small groups so that they can learn from each
other why se4ual harassment is inappropriate as peer learning is an effective
learning strategy.
organizations should use posters around the office to highlight inappropriate
behavior. These can be a very powerful tool as it allows staff to challenge
inappropriate behavior or comments easily by drawing the attention of staff to
the posters. This often addresses issues quic#ly and easily and guilty staffs are
left in no doubt about the organization.s attitude towards inappropriate behavior,
without it being seen as an individual employee ust trying to cause a fuss. This
approach ta#es the emphasis off the employee and places it firmly onto the
organization to create a safe respectful environment.
S6)4,*7 %&, A00,2,7 O//,*7,+ D6+'*2 I*5,)%'2-%'.*)
(f an allegation of se4ual abuse is bought to the attention of the organization
then always suspend the alleged offender. 6hilst this may seem severe in the
absence of actual proof, it is unfair to as# the victim to continue to wor#
alongside the person who may have committed the se4ual harassment.
$uspending the alleged offender gives them time to reflect on what they have
done, if they #now they are guilty and send a clear message about the
seriousness in which se4ual harassment in the wor#place is viewed. (f they are
later found to be innocent then they will have lost nothing as they can return to
their post.
2ever suspend or remove the victim from the wor#place, unless they decide
they don;t want to be there, as this sends out the message that if you report
se4ual harassment you will be punished. 'lleged victims should never be
punished for reporting an incident.
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A44.'*% - C.14,%,*% I*5,)%'2-%.+
(t is never appropriate for an individual with daily involvement with either party
to investigate a se4ual harassment allegation. (t should always be underta#en in
a sensitive manner by a trained member of staff, ideally from the human
resources department.
ETHICS IN MARETING
Mar#eting ethics is the area of applied ethics which deals with the moral
principles behind the operation and regulation of mar#eting.
Ethical mar#eting refers to the application of mar#eting ethics into
the mar#eting process.
!riefly, mar#eting ethics refers to the philosophical e4amination, from a moral
standpoint, of particular mar#eting issues that are matters of moral udgment
Ethical mar#eting generally results in a more socially responsible and culturally
sensitive business community.Ethical mar#eting should be part of business
ethics in the sense that mar#eting forms a significant part of any business model.
' list of #nown unethical or controversial mar#eting strategies/
'nti5competitive practices
!ait and switch
%lanned obsolescence
%yramid scheme
9endor loc#5in = 9endor loc#5out
9iral mar#eting = guerrilla mar#eting
1) A*%'-(.14,%'%'5, 4+-(%'(,)
D614'*2> where a company sells a product in a competitive mar#et at a
loss. Though the company loses money for each sale, the company hopes to force
other competitors out of the mar#et, after which the company would be free to
raise prices for a greater profit.
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E;(06)'5, 7,-0'*2, where a retailer or wholesaler is obliged by contract
to only purchase from the contracted supplier. E4clusive dealing is because of
vertical integration, where the outlets are independent. E4clusive dealing is
illegal due to restrictive trade practice act. E4clusive dealing can be a barrier to
entry. 7ne form of e4clusive dealing is third line forcing. (t involves the supply
of goods and services on the condition that the purchase acquire goods or service
from a particular third party or a refusal to supply because the purchase will not
agree to that condition.
Eg/ @* Tied petrol stations that only deal with one petroleum supplier.
A* &ranchies forced to buy product from a host company instead of a local
provider.
"-++',+) %. ,*%+= :to an industry* designed to avoid competition by new
entrants using obligatory governmental regulations and fees that are unattainable
by smaller businesses. (t is a disadvantage for new competitors attempting to
enter the mar#et. (t includes intellectual barriers, economic and mar#et
conditions.
E;-140,)
(ndustries with high barriers of entry/
1ar ma#ing/ high upfront capital investment in manufacturing equipment>
compliance with safety and emission rules and regulation, access to parts
suppliers, development of a networ# of car dealerships, big mar#eting campaign
to establish a new car brand with consumers.
Mining/ access to inputs restricted through natural distribution and government
licenses, very specific=proprietary e4ploration #nowledge, big investment in
machinery.
(ndustries with low barriers of entry/
1omputer Hardware retailing/ everybody can start a home5based mail order
business for computer parts. (t ta#es little government permits, wholesaler are
open for every reseller, there is no need to #eep large stoc#, information is freely
available on the internet.
%hotography $ervices/ little initial capital investment, no regulation, no
economies of scale :the limiting factors are the photographer;s time and his
geographical location*.
%rice fi4ing, where companies collude to set prices, effectively
dismantling the free mar#et.
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Refusal to deal, e.g., two companies agree not to use a certain vendor.
'ny agreement which restricts or is li#ely to restrict, by any method the persons
or classes of persons to whom goods are sold or from whom goods are bought.
+ividing territories, an agreement by two companies to stay out of each
other;s way and reduce competition in the agreed5upon territories.
E4ample/ (n @BC) &M1 1orp and 'sahi chemical agreed to divide territories for
the sale of micro crystalline cellulose :refined wood pulp. used for te4turizer, anti
ca#ing agent, fat substitute* and later &M1 attempted to eliminate all vestiges of
competition by inviting smaller rivals also to collude.
<imit %ricing, where the price is set by a monopolist at a level intended to
discourage entry into a mar#et and it is illegal in many countries. The limit price
is often lower than the average cost of production or ust low enough to ma#e
entering not profitable.
Tying, where products that aren;t naturally related must be purchased together.
Resale price maintenance> where resellers are not allowed to set prices
independently.
1oercive monopoly 5 all potential competition is barred from entering the
mar#et
?overnment5granted monopoly 5 a private individual or firm to be the sole
provider
?overnment monopoly 5 the state is the sole provider
23 "-'%--*7-)9'%(& is a form of /+-67 in which the party putting forth the fraud
lures in customers by -75,+%')'*2 a product or service at a low price or with many
features, then reveals to potential customers that the advertised good is not
available at the original price or the list of assumed features is different The goal
of the bait5and5switch is to persuade buyers to purchase the substitute goods as a
means of avoiding disappointment over not getting the bait, or as a way to recover
sun# costs e4pended to try to obtain the bait. (t suggests that the seller will not
show the original product or service advertised but instead will demonstrate a
more e4pensive product or a similar product with a higher margin.
E4ample/ ' car sales showroom puts a basic car outside with a very low price
tag. 7nce the customer is interested the sales person trades them up to a more
e4pensive model.
33 P0-**,7 .?).0,)(,*(, .+ ?6'0%-'* .?).0,)(,*(, in industrial design is a
policy of deliberately planning or designing a product with a limited useful life,
so it will become obsolete or non functional after a certain period. %lanned
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obsolescence has potential benefits for a producer because to obtain continuing
use of the product the consumer is under pressure to purchase again, whether
from the same manufacturer :a replacement part or a newer model*, or from
a competitor which might also rely on planned obsolescence. !uilt5in
obsolescence is used in many different products, from vehicles to light bulbs,
from buildings to proprietary software.
E4ample/MP3 P0-=,+)
%lanned obsolescence is a fact of life when it comes to consumer electronices.
M%D players are a glaring e4ample. These units are rarely upgradable with more
memory and their lithium5ion batteries often wear out before the product does.
(n the worst case, such as with 'pple i%ods, the battery can;t be removed easily
by consumers, forcing an e4pensive service request when it runs out. These
advanced batteries are often e4pensive :EF, or more in the case of laptops, but
still pricey for smaller devices*, so e4tending the life is no trifling matter.
I*: C-+%+'72,)
' set of new in#et cartridges can cost more than the printer itself...yet you may
be prevented from using every e4pensive drop of pigment. Many in# cartridges
come with proprietary smart chips on them that disable printing when one of the
colors falls to a certain level, even if there;s really enough in# to do the ob. %lus,
the smart chips can discourage refilling or use of third5party in#.
43 V'+-0 1-+:,%'*2 -*7 5'+-0 -75,+%')'*2 . are buzzwords referring
to mar#eting techniques that use pre5e4isting social networ#s to produce
increases in brand awareness or to achieve other mar#eting obectives :such as
product sales* through self5replicating viral processes, analogous to the spread
of virus or computer viruses. (t can be word5of5mouth delivered or enhanced by
the networ# effects of the (nternet. 9iral promotions may ta#e the form of video
clips, interactive &lash games, adventurer games, e boo#s, brand able
software, images, or even te4t messages.
EG'M%<E &7R 9(R'< M'RHET(2?
H.%1-'0- Hotmail is one of the most classic e4amples of successful viral
mar#eting. They offered free e5mail to the masses, and simply attached a
signature at the bottom of each e5mail message that promoted their free service.
Every single e5mail sent by a Hotmail user contained this message, thus
spreading it li#e a virus. Recipients would see the ad, and as a result, they too
signed up for Hotmail.
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53 V,*7.+ 0.(:-'*, also #nown as proprietary loc#5in or customer loc#5in, ma#es
a customer dependent on a 5,*7.+ for 4+.76(%) and ),+5'(,), unable to use
another vendor without substantial )9'%(&'*2 (.)%). <oc#5in costs which create
?-++',+) %. 1-+:,% ,*%+= may result in -*%'%+6)% action against a 1.*.4.0=.
1ontents
@E4amples of loc#5in
o @.@$(M loc#ing
o @.A'utomobiles
$(M loc#ing may be considered a vendor loc#5in tactic as phones
purchased from the vendor will wor# with $(M cards only from the same
networ#. This creates additional hassle to the buyer as the phone cannot use a
prepaid $(M from a different vendor while on vacation :a common tactic used by
'sian tourists visiting another 'sian country* and as a result the subscriber must
also sign up the often e4pensive roaming service offered by the vendor.
'dditionally, should the subscriber wish to ta#e out a second line for any reason,
he=she must also get the line from the same vendor, as the $(M card of a
competing vendor will not wor#. $ometimes, even the $(M card from the same
vendor will not wor# and the buyer will be forced into buying another phone.
A6%.1.?'0,)
'utomobiles are often made with certain parts, such as car stereos, which might
be interchangeable. $ometimes the manufacturers will attempt to create loc#5in
by various means> in the case of a stereo, they might ma#e the stereo unit an
unusual size and shape instead of a standard one, or create a unique way for the
dashboard part of the stereo to control a 1+ 1hanger in the trun#
-* A 4=+-1'7 )(&,1, is a non5sustainablebusiness model that involves promising
participants payment, services or ideals, primarily for enrolling other people into
the scheme or training them to ta#e part, rather than supplying any real
investment or sale of products or services to the public. %yramid schemes are a
form of fraud. (t is a type of networ# mar#eting or chain mar#eting.
UNETHICAL MARETING STRATEGIES
1. "+-*7 I7,*%'%= M-+:,%'*2 S%+-%,2= @1ompanies are now bridge the gap
between their brand image and the brand identity, mar#eters are how using this
strategy to sell their product, by deceiving consumer that it is the same brand and
from the company. 1ustomers are now e4pose to different products in the
mar#eting place and are face with brand identity of a product but different
company producing this product. E4ample> a new company which into sport
products, are now using almost the spelling or name with the popular #now
2(HE and most customers can hardly tell which product is the original 2(HE
product.
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2. S%,-0%& M-+:,%'*2 S%+-%,2=/ / is strategy that encourages individuals to pass
on a mar#eting message to others, creating the potential for e4ponential growth
in the message;s e4posure and influence. $tealth Mar#eting strategy is the use of
surreptitious practices that fail to disclose or reveal the true relationship with the
company producing or sponsoring the mar#eting message .The obective would
be to ma#e someone feel that they need or want something, without actually
going out and saying buy this, our product is great, or chec# this out.
$ong Ericsson.s $tealth campaign fathom communication hired -I actors to pose
as tourists in @I cities across the 3.$. on behalf of the company :!ranscum AII)>
Hin AII-> Thomas AII)> 9ranica AIIA/ wal#er AII)*. 3nsuspecting persons
were as#ed to photograph the ta#e tourist with the newly launch T-Ci camera
phone. The actors were instructed to approach people with the simple request of
ta#ing a photo, usually near some tourist attraction li#e the Empire state building
in 2E6 J7RH. 'fter the persons obliged, the $ong5paid and scripted actors
demonstrated the mechanics of the camera phone K began tal#ing up the benefit
and features of the phone.
3. I*/'0%+-%'.* M-+:,%'*2 S%+-%,2= /
This is the act of using fa#e identities in an online discussion to promote a
product> ta#ing over a web site, conversation, or live event against the wishes or
rules set by the proprietor. (s a mar#eting practice that ta#es a specific approach
to strategy, creativity and success trac#ing, where all three are driven by a
thorough understanding of the business obective at handL 2ow days mar#eting
are also now being done on the internet and mar#eters are ta#ing advantages
using fa#e identities online discussion to promote their products. E4ample> is the
act through which a mar#eters ta#e over the website to tal# with customer online
about their products and posting=act as the owner of the site. .(nfiltration
Mar#eting is a mar#eting strategy in which mar#eters try to understand and
infiltrate consumer culture at a local level, by identifying and engaging thought
leaders and trend setters within the community and targeting their
communications. Mar#eters use various ways to try to ma#e a strong emotional
connection between consumers and the brand. (nfiltration mar#eting also utilizes
high5impact, e4citing brand sampling events at local venues. (t was pioneered by
%epsi1o in @BB, with "osta. More and more companies are choosing to use
(nfiltration Mar#eting for their products and services now.
4. / F-0),A7,(,4%'5, A75,+%'),1,*% M-+:,%'*2 S%+-%,2= is another legal
consideration in brand management. 'dvertising is considered to be false or
misleading if it could mislead consumers about a product.s place of origin,
nature, quality, or ma#er.
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There are advertising affects Tobacco 3se. The tobacco industry spends billions
of dollars each year to mar#et its products. The industry uses a mi4 of
advertising, promotion and sponsorship tactics to directly affect tobacco use and
attitudes related to tobacco. Tobacco advertising, promotion and sponsorship/
0 %romote tobacco use as customary and glamorous.
0 're deceptive and misleading.
0 6ea#en public health campaigns.
0 Target specific populations such as women, youth, and minority groups.
0 (ncrease tobacco consumption by/
'ttracting new tobacco users.
(ncreasing the amount of consumption among current smo#ers.
Reducing a smo#er.s willingness to quit.
Encouraging former smo#ers to start smo#ing again. Through advertising of its
products, the tobacco industry tries to create an environment in which tobacco
use is familiar and socially acceptable, and the warnings about its health
consequences are undermined.
17R%7R'TE RE$%72$(!(<(TJ T76'R+$13$T7MER$
1onsumer is the most important sta#eholder of a business. (f the consumer do not
but, commercial business cease to e4ist. 1onsumer spending and confidence also
are important indicators of economic activity as well as business prosperity.
@.T&, 76%= %. '*/.+1/ The consumer must be informed about the product
service, its content, purpose and use.
A.T&, 76%= *.% %. 1')+,4+,),*% .+ 9'%&&.07 '*/.+1-%'.*/about the product or
service that would hinder consumer.s free choice.
D.T&, 76%= *.% %. /.+(, .+ %-:, 6*7,+ -75-*%-2,/ of consumer buying and
product selection choice through fear or stress or by other means that constrain
rational choice.
).T&, 76%= %. %-:, 76, (-+,/ to prevent any foreseeable inuries or mishaps a
product may inflict on consumer.
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PRODUCT RELATED ETHICS
U*,%&'(-0 4+-(%'(,) +,0-%'*2 %. 4+.76(%) - ,;-140,)
0 7mitting to provide information on side effects /pharmaceutical products
0 3nsafe products /cosmetics
0 !uilt in obsolescence /M%D player
0 6asteful and unnecessary pac#aging
0 +eception on size and content /chips pac#ets
0 (naccurate and incomplete testing of products
0 Treatment of animals in product testing/ using animals for testing
products li#e cosmetics.
COMPETITION RELATED ETHICS
The competition related ethics is mainly based on the three aspects. They are as
follows> 'dvertisings, %ricing, %iracy, %redatory.
ETHICS IN ADVERTISING
The importance of advertising is Msteadily on the increase in modern society.N
That observation, made by this %ontifical 1ouncil a quarter century ago as part
of an overview of the state of communications, is even more true now.
"ust as the media of social communication themselves have enormous influence
everywhere, so advertising, using media as its vehicle, is a pervasive, powerful
force shaping attitudes and behavior in today;s world. The 1hurch stresses the
responsibility of media to contribute to the authentic, integral development of
persons and to foster the wellbeing of society. MThe information provided by the
media is at the service of the common good. $ociety has a right to information
based on truth, freedom, ustice and solidarity.M
(n today;s society, advertising has a profound impact on how people understand
life, the world and themselves, especially in regard to their values and their
ways of choosing and behaving. These are matters about which the 1hurch is
and must be deeply and sincerely concerned.
The field of advertising is e4tremely broad and diverse. 'n advertisement is
simply a public notice meant to convey information and invite patronage or
some other response. 's that suggests, advertising has two basic purposes/ to
inform and to persuade, and while these purposes are distinguishable both very
often are simultaneously present.
108 | P a g e
'dvertising is not the same as mar#eting or public relations. 'dvertising can be
very simple> it can be very comple4, involving sophisticated research and
multimedia campaigns that span the globe. (t differs according to its intended
audience, so that, for e4ample, advertising aimed at children raises some
technical and moral issues significantly different from those raised by
advertising aimed at competent adults.
%olitical advertising in the interests of parties and candidates. Many different
media and techniques employed in advertising> advertising itself is of several
different #inds/ commercial advertising for products and services> public service
advertising on behalf of various institutions, programs, and causes.
&or e4ample, the absence from advertising of certain racial and ethnic groups in
some multi5racial or multi5ethnic societies can help to create problems of image
and identity, especially among those neglected, and the almost inevitable
impression in commercial advertising that an abundance of possessions leads to
happiness and fulfillment can be both misleading and frustrating.
'dvertising also has an indirect but powerful impact on society through its
influence on media. Many publications and broadcasting operations depend on
advertising revenue for survival. This often is true of religious media as well as
commercial media.
THE "ENEFITS OF ADVERTISING
'dvertising is everywhere in today;s world, so that, as %ope %aul 9( remar#ed,
M2o one now can escape the influence of advertising.M Even people who are not
themselves e4posed to particular forms of advertising confront a society, a
culture O other people O affected for good or ill by advertising messages and
techniques of every sort.
a) Economic Benefits of Advertising
'dvertising can play an important role in the process by which an economic
system guided by moral norms and responsive to the common good contributes
to human development. (t is a necessary part of the functioning of modern
mar#et economies, which today either e4ist or are emerging in many parts of the
world and which O provided they conform to moral standards based upon
integral human development and the common good O currently seem to be Mthe
most efficient instrument for utilizing resources and effectively responding to
needsM of a socio5economic #ind.
(n such a system, advertising can be a useful tool for sustaining honest and
ethically responsible competition that contributes to economic growth in the
109 | P a g e
service of authentic human development. MThe 1hurch loo#s with favor on the
growth of man;s productive capacity, and also on the ever widening networ# of
relationships and e4changes between persons and social groups.....&rom this
point of view she encourages advertising, which can become a wholesome and
efficacious instrument for reciprocal help among men.M
'dvertising does this, among other ways, by informing people about the
availability of rationally desirable new products and services and improvements
in e4isting ones, helping them to ma#e informed, prudent consumer decisions,
contributing to efficiency and the lowering of prices, and stimulating economic
progress through the e4pansion of business and trade. (t also helps pay for
publications, programming and productions O including those of the 1hurch O
that bring information, entertainment and inspiration to people around the
world.
b) Benefits of Political Advertising
PThe 1hurch values the democratic system in as much as it ensures the
participation of citizens in ma#ing political choices, guarantees to the governed
the possibility both of electing and holding accountable those who govern them,
and of replacing them through peaceful means when appropriate.M
%olitical advertising can ma#e a contribution to democracy analogous to its
contribution to economic well5being in a mar#et system guided by moral norms.
's free and responsible media in a democratic system help to counteract
tendencies toward the monopolization of power on the part of oligarchies and
special interests, so political advertising can ma#e its contribution by informing
people about the ideas and policy proposals of parties and candidates, including
new candidates not previously #nown to the public.
c) Cultural Benefits of Advertising
!ecause of the impact advertising has on media that depend on it for revenue,
advertisers have an opportunity to e4ert a positive influence on decisions about
media content. This they do by supporting material of e4cellent intellectual,
aesthetic and moral quality presented with the public interest in view, and
particularly by encouraging and ma#ing possible media presentations which are
oriented to minorities whose needs might otherwise go un5served
Moreover, advertising can itself contribute to the betterment of society by
uplifting and inspiring people and motivating them to act in ways that benefit
themselves and others. 'dvertising can brighten lives simply by being witty,
tasteful and entertaining. $ome advertisements are instances of popular art, with
a vivacity and Qlan all their own.
110 | P a g e
d) Moral and Religious Benefits of Advertising
(n many cases, too, benevolent social institutions, including those of a religious
nature, use advertising to communicate their messages O messages of faith, of
patriotism, of tolerance, compassion and neighborly service, of charity toward
the needy, messages concerning health and education, constructive and helpful
messages that educate and motivate people in a variety of beneficial ways.
&or the 1hurch, involvement in media5related activities, including advertising,
is today a necessary part of a comprehensive pastoral strategy. This includes
both the 1hurch;s own media O 1atholic press and publishing, television and
radio broadcasting, film and audiovisual production, and the rest O and also her
participation in secular media. The media Mcan and should be instruments in the
1hurch;s program of re5evangelization and new evangelization in the
contemporary world.M
ETHICS IN ADVERTISING AND PROMOTION
Ethical pitfalls in advertising and promotional content include>
(ssues over truth and honesty. (n the @B)Is and @B,Is, tobacco used to be
advertised as promoting health. Today an advertiser who fails to tell the
truth not only offends against morality but also against law.
Taste and controversy. The advertising of certain products may strongly
offend some people while being in the interest of others. E4amples
includes/ feminine hygiene products, haemorrhoid and constipation
medication.
2egative advertising techniques, such as attac# ads. (n negative
advertising, the advertiser highlights the disadvantages of competitor
products rather than the advantages of their own. The methods are most
familiar from the political sphere.
&alse advertising or deceptive advertising is the use of false or misleading
statements in advertising. 's advertising has the potential to persuade
people into commercial transactions that they might otherwise avoid,
many governments around the world use regulations to control false ,
deceptive or misleading advertising.
ETHICS IN PIRAC8
The software industry has to deal with the threat of piracy and its impact of their
business. 6hile the activity is generally seen as illegal, the ethical implications
of software piracy can be. &irst, that of the pirate that see#s to sell their pirated
software, and the second case of pirated software obtained freely.
111 | P a g e
Today, it isn.t hard to imagine pirating software, and sometimes we may even
do it without giving it a second thought. 6ith the current ease of piracy one
can e4pect that some people will see# to turn a profit on pirated software.
1onsider someone who copies an application developed by a large company and
decides that this product is way over5priced and should be available for a much
lower price. 6ith this in mind, our pirate begins creating and distributing copies
of the application at their new, adusted price. 7f course, it is easy to see that
this sort of activity is illegal, since they are reselling copyrighted material,
which they have illegally copied, but what about the ethical implications. The
pirate in this case may thin# they are ethically right for providing the product at
a price that they feel it should be sold at. They may even seem a little noble for
doing so, after all, they are protecting the consumer, rightL This case is actually
a very wea# argument to present piracy as ethical.
The point to consider in this type of piracy. (f a company discovers the
e4istence of a pirate who is selling their product and choose not to ta#e action,
how do the ethics now applyL $uppose the company does not ta#e action
because the legal e4penses would cost more than they would be losing to the
pirate.
Ma#ing an e4ample of a pirate could reduce piracy in general and would
certainly start to give the company a reputation for not tolerating piracy of its
products, which could be beneficial in the long run. Ethically, the company is
also wrong because they are allowing the unethical act of piracy to occur when
they are able to ta#e action to stop it. Therefore, in a situation such as this, the
act of pirating a product is still an unethical act.
There are numerous e4amples in (ndia where the product, pac#age, print and
colour of pac#ages are made identical to popular brands to ta#e advantages of
brand image sales. There are hundreds of e4amples in case of soaps, detergents.
Tooth, powders, mi4ers, T9, bottled drin#s, bottled alcoholic products that
imitation is used to bas# on brand images sales of reputed products.This #ind of
unethical practices is more in case of outlets at bus stands, rural areas, railway
stations and towns, where vigilances is less and public are not too conscious of
such practices. (n cities and metros however it is difficult for traders to indulge
in piracy so easily. The customers in the city are more enlightened.
PREDATOR8
(n (ndian business environment the predatory practice is rampant. 'll the bigger
units e4ploit smaller units by not paying their dues for months and years.
Though paper credit will be DI or -I days, the actual payments is made in D to
@A months. $ome companies do not pay at all. This #ind of e4ploitation has
become plundering in reality. This unethical practice is punishable but in our
112 | P a g e
udicial system it is difficult to prove various transactions. Many of the $$(
units are suffering losses or facing closure due to these #ind predatory practices
of large size companies.
PRICING
'fter globalization, mar#et pricing has become an important weapon for both in
the international as well as domestic mar#et, and their weapon is used both in
fair and unfair manner.
$ome of the commonly practiced price related competition in (ndia is as
follows/
a. &M1? category/ frequently thetooth paste ma#ers came out with prefi4es
li#e PnewN Pe4tra whiteN, Pdouble powerN, Pbuy one get one freeN, PA,R
e4tra for same priceN, etc. 'll these slogans are price related. (n addition
to this, the quality is varied, that is CI ?mspac#ets are made instead of
@II ?ms pac#ets to show price advantages.
b. 'utomobile sector/ this is a dynamic area where there are always changes
in features, style and options. There is intense competition between
products of Maruthi3dyog <td, Hyundai Motor 1ompany, TE<17,
?eneral Motors, etc. The price variation is done by adding or deleting
certain features. 7nly e4perts in automobile field can ma#e out in the
genuine difference in each variety, each ma#e and the possible impact on
pricing. 'll customers are not capable of evaluating these aspects and
hence go by their choice of brand or whichever is low priced as per the
promotional activities.
c. 6hite goods/ the competition in washing machines, refrigerators, mi4er
grinders is too serve. Hence again to compare the price and the advantage
is bit complicated and more confusing due to too many variants and
negligence difference between the different ma#ers. 'ttention can be
diverted from price matters by highlighting on PbrandN of collaboration,
warranty, awards, won and number @ in sales in (ndia, etc. The price
factor however continues to be a guiding factor to buyers of low and
middle class category of customers.
L')% ./ 6*,%&'(-0 4+'('*2 4+-(%'(,)
P+'(, /';'*2is an agreement between participants on the same side in a mar#et to buy or
sell the same product, services, or commodity only at a fi4ed price or maintain the mar#et
conditions such that the price is maintained at a given level by controlling supply and
demand. %rice fi4ing may have the intent of ultimately pushing the price of a product as
high as possible, leading to profits, for all sellers, but price fi4ing may also have the goal
to fi4, peg, discount, or stabilize prices. %rice fi4ing require a conspiracy between two or
more sellers or buyers> the purposes to coordinate pricing for mutual benefit of the traders.
113 | P a g e
P+'(, ):'11'*2is a pricing strategy in which a mar#eter sets a relatively
high price for a product or service at first, then lowers the price over time. (t
is a temporal version of price discriminations=yield management. %rice
s#imming is sometimes referrd to as riding down the demand curve. The
obective of a price s#imming strategy is to capture the consumer surplus. (f
this is done successfully, then theoritically no customer will pay less for the
product than the ma4imum they are willing pay. (n practice, it is almost
impossible for a firm to capture this entire surplus.
&or e4amples/ (n case of +9+ players, initially in @BBI.s when +9+
player were launched the price of a +9+ players was E ,II and E )II. !y
AII@ the prices were s#immed to less than a E@II.(n AII) +9+ players were
available for as low as E,I and E-I.
P+'(, 7')(+'1'*-%'.* e4ists when sales of identical goods or services are
transacted at different prices from the same provider.The moment the seller
tries to sell the same good at different prices, the buyer at the lower price can
arbitrage by selling to the consumer buying at the higher price but with a tiny
discount.
&or E4amples/ ' +octor charging for services based on patient.s income.
P+,7-%.+= 4+'('*2is the practice of selling a product or service at a very low
price, intending to drive comprtitors out of the mar#et, or create barriers to
entry or potential new competitors. They are cannot sustain equal or lower
prices without losing money, they go out of business or choose not to enter
the business. (n many countries predatory pricing is considered anti5
competitive and is illegal under antitrust laws.
&or e4amples/ Microsoft released their web5browsers (nternet E4plorer for
free. 's a result the mar#et leader and primary competitors, 2etscape, was
forced to release 2etscape 2avigator for free in order to stay in the mar#et.
(nternet E4plorer.s free inclusions in 6indows led to it quic#ly becoming the
web browsers used by most computer users.
S64+-(.14,%'%'5, 4+'('*2is pricing above whatcan be sustained in a
competitive mar#et. This may be indicative of a business that has a unique
legal or competitive advantages, or possibility of anti5competitive behaviour
that has driven competition from the mar#et.
&or e4ample/ (n case of during 1ompany that is first to discover and
successfully manufacture a medicine to treat a certain disease. (nitially, as the
only mar#et players, the drug company may be able to charge supra
competitive prices until other companies catch up.
114 | P a g e
P+'(, 9-+is a term used in business to indicate a state of intense competitive
rivalry accompanied by a multi5lateral series of price reduction. 7ne
competitor will lower its price, and then others will lower their prices to
match. (f one of them reduces their price again, a new round of reductions
starts. (n the short5term, price wars are good for consumers, who can ta#e
advantage of lower prices. 7ften they are not good for the companies
involved. The lower prices reduce profit margins and can threaten their
survival.
"'7 +'22'*2is a form of fraud in which a commercial contract is promised to
one party even though for the sa#e of appearance several other parties also
present a bid. This form of collusion is illegal in most countries. (t is a form
price fi4ing and mar#et allocation, often practiced where contracts are
determined by a call for bids, for e4ample in the case of government
construction contracts.
D614'*2is defined as the act of a manufacturer in one country e4porting a
product to another country at a price which is either below the price it charges
in its home mar#et or is below its costs of production. 3nder the 6orld Trade
7rganization :6T7* 'greement, dumping is condemned if it causes or
threatens to cause material inury to a domestic industry in the importing
country.
A((.6*%'*2 E%&'() D,/'*'%'.*
'ccounting ethics can be defined as a set of distinct guidelines for a business
to maintain clean balance sheets, accounting for their profits, losses and
e4penses incurred and prevent it from mishandling financial reports and
statements. &or an accountant, it is very important to understand the rules and
regulations of his position in an organization. 'ny deviation from the moral
code of conduct or abusing accounting ethics can result in dire consequences for
him, such as suspension of license, termination of right to practice and severe
penalties.
C.7, ./ E%&'() '* -((.6*%'*2 -*7 /'*-*(,
'ct with honesty and integrity, avoiding actual or apparent conflicts of
interest in personal and professional relationships. ' Mconflict of interestM
e4ists when an individual;s private interests interfere or conflict in any
way :or even appear to interfere or conflict* with the interests of the
1ompany.
%rovide information that is full, fair, accurate, complete, obective,
relevant, timely and understandable, including in and for reports and
documents that the 1ompany files with, or submits to, the $E1 and other
public communications made by the 1ompany.
115 | P a g e
1omply with all applicable laws, rules and regulations of federal, state
and local governments, and other appropriate private and public
regulatory agencies.
'ct in good faith, responsibly, with due care, competence and diligence,
without misrepresenting material facts or allowing my independent
udgment to be subordinated.
Respect the confidentiality of information acquired in the course of
business e4cept when authorized or otherwise legally obligated to
disclose the information. 'c#nowledge that confidential information
acquired in the course of business is not to be used for personal
advantage.
%roactively promote ethical behavior among my associates at the
1ompany and as a responsible partner with industry peers and associates.
Maintain control over and responsibly manage all assets and resources
employed
E)),*(, O/ A((.6*%'*2 E%&'()
'ccounting ethics in the field of accounting refers to the guidelines
:consisting of udgments and moral values* that a professional needs to follow
while practicing accounting. "ust li#e the professionals in the field of medicine
or law, an accounting professional also needs to strictly adhere to the ethics that
have become a norm in accounting. The people who receive the services of an
accounting professional not only rely on his s#ill and ability, but also on his
professional integrity. %eople using the service of accounting professionals rely
on their professional competency to ta#e decisions and in the process also relies
on the ethics followed by them.
(t is due to the above reasons that the accounting professionals developed a
code of conduct that all accounting professionals need to follow. The essence of
the ethics lies in its use. The code of conduct or ethics entails an accounting
professional to adhere to high degrees of self5discipline which even goes falls
beyond the legal precincts. 6henever an accounting professional becomes a
member of organizations li#e (M', ((' and 1(', they are directed to follow the
code of conduct and ethics.
(t is the responsibility of the accounting professionals to stic# to the code of
ethics, i.e. this is the role of ethics in accounting, so that nobody loses
confidence on this noble profession. The essence of accounting ethics is in the
maintenance of professional obectivity and integrity.
116 | P a g e
E%&'(-0 P+'*('40,) ./ 4+./,))'.*-0 -((.6*%-*%
' professional accountant is required to comply with the following
fundamental principles/
B-3 Integrity
' professional accountant should be straightforward and honest in all
professional and business relationships.
B?3 Objectivity
' professional accountant should not allow bias, conflict of interest or undue
influence of others to override professional or business udgments.
B(3 Professional Competence and ue Care
' professional accountant has a continuing duty to maintain
professional#nowledge and s#ill at the level required to ensure that a client or
employerreceives competent professional service based on current
developments in practice, legislation and techniques. ' professional accountant
should act diligently and in accordance with applicable technical and
professional standardswhen providing professional services.
B73 Confidentiality
' professional accountant should respect the confidentiality of
informationacquired as a result of professional and business relationships and
should notdisclose any such information to third parties without proper and
specificauthority unless there is a legal or professional right or duty to disclose.
1onfidential information acquired as a result of professional and
businessrelationships should not be used for the personal advantage of the
professional accountant or third parties
B,3 Professional Be!avior
' professional accountant should comply with relevant laws and regulations
andshould avoid any action that discredits the profession.
U*,%&'(-0 4+-(%'(,) '* -((.6*%-*(=
The unethical practices and behavior in accounting would be misleading
financial analysis for personal gain, misuse of funds, overstating revenue, and
understating e4penses, overstating the value of corporate assets or
underreporting the e4istence of liabilities, sometimes with the cooperation of
officials in other corporations or affiliates. 7ther unethical practices would be
insider trading, securities fraud, bribery, #ic#bac#s and manipulation of the
financial mar#ets.
' maor e4ample citing the importance of business ethics concerning
accounting is the infamous case of Enron 1orporation. 6hen the real picture of
Enron was the organization racing towards ban#ruptcy, it was camouflaged by
117 | P a g e
schemes covering up for heavy losses through fictitious organizations :raptors*,
indicating profitability. (t was a situation when ethics in accounting were
definitely questionable. This #ind of scheming is as good as defrauding
investors. 'll this was an outcome of mishandled accounting and a severe audit
failure. 2ow you #now how important is accounting and ethics of accountingS
!ecause the investors rely on every bit of information generated by accountants.
'nd the cascading effects of abusing professional ethics in accounting :li#e
divulging confidential information concerning a client* are severe. 'fter the
investor;s confidence and trust are bro#en, the financial mar#et of a country
begins to collapse gradually. 'nd in no time, the economy of the country is
shattered. 'ccountability is the priority of accounting ethics in business.
%recisely, a business is no business without accounting ethics.
T&, 6*,%&'(-0 4+-(%'(,) '* -((.6*%'*2 -+, -) /.00.9)@
F+-67 S(&,1,)
0 Three categories of fraud schemes according to the 'ssociation of 1ertified
&raud E4aminers/
1. F+-6760,*% S%-%,1,*%)
0 Misstating the financial statements to ma#e the copy appear better than it is
0 3sually occurs as management fraud
0 May be tied to focus on short5term financial measures for success
0 May also be related to management bonus pac#ages being tied to financial
statements
2. C.++64%'.*
0 E4amples/
T "+'?,+=
!ribery, a form of corruption, is an act implying money or gift given that
alters the behavior of the recipient.
T I00,2-0 2+-%6'%',)
The offering, giving, receiving, or soliciting of something of value for the
purpose of influencing the action of an official in the discharge of his or her
public or legal duties.
T C.*/0'(%) ./ '*%,+,)%
6e can define a (.*/0'(% ./ '*%,+,)% as a situation in which a person has a
private or personal interest sufficient to appear to influence the obective
e4ercise of his or her official duties as, say, a public official, an employee, or a
professional.
T E(.*.1'( ,;%.+%'.*
The obtaining of property from another with the other party;s MconsentM having
been induced by wrongful use of actual or threatened force or fear.
3. A)),% M')-44+.4+'-%'.*
0 Most common type of fraud and often occurs as employee fraud.
118 | P a g e
0 E4amples/
T ma#ing charges to e4pense accounts to cover theft of asset :especially cash*
T lapping/ using customer.s chec# from one account to cover theft from a
different account
T Transaction fraud/ deleting, altering, or adding false transactions to steal
assets
O%&,+ U*,%&'(-0 4+-(%'(,) ,;-140,)
e4pense accounting padding
performance fa#ery
7verstating revenue
7verstating profits
7verstating assets
3nderstating e4penses
3nderstating liabilities
Theft of assets
M,-)6+,) %. -5.'7 6*,%&'(-0 4+-(%'(,) B/+-673@
1. M.*'%.+'*2 %&, C&,C6,)@
Reviewing and monitoring the cheques using prenumberedcheques enables to
audit for missing cheques. 'lso, cheques clearing out of sequence can be
spotted more easily. 'll cheques should be #ept under loc# and #ey, and #eys
should not be distributed. 7ther precautions include having a Mvoided chequeM
procedure and never signing blan# cheques. 'll disbursements should be
reviewed on a regular basis.
2. M-'*%-'*'*2 E140.=,,) M-*6-0@
The best way of avoiding unethical practices in the business is by maintaining
employees; manual and setting the clear standards to the employees from the
beginning. This includes the appropriate ethical tone starting form top
management to lower level management. 'n employee manual can be helpful in
establishing the principles and values to guide the organization. The rules in
employees manual will apply to everyone. (f someone is dismissed and found in
court, the manual can act as a reference that e4plains what actions can be ta#en.
3. A**6-0 +,5',9 ./ /'*-*('-0 )%-%,1,*%)@
'nnual auditing gives a clear picture of the financial transactions in a year. 'n
audit will not discover all fraud within an organization, but it will give an
opportunity to #eep an eye on the financial report of the organization. 'n audit
also tends to motivate all boo##eeping5related staff to #eep things honest
119 | P a g e
because the accountants never are sure what questions an auditor is going to as#
or what documents an auditor may request to review.
4. R,5',9 ./ ),*)'%'5, 7.(61,*%) /
$mall5business owners should control who first receives the ban# statements
and other sensitive documents. (t is not farfetched for a small5business owner to
have a separate post office bo4 for the purpose of receiving ban# statements,
customer receipts or any other sensitive documents. This helps eliminate the
possibility that someone intercepts the mail first for the purpose of stealing or
covering up an earlier theft.
5. S-/,26-+7'*2 %&, 4-=+.00@
$mall5business owners and managers should ta#e the e4tra time to review
every payroll chec# personally. 'lthough time consuming, this procedure
provides a monitor to assure employees are being paid appropriately. This can
be especially important when a business has temporary and part5time staff.
6. C&,(:'*2 ,140.=,, +,/,+,*(,)@
6hen hiring new employees, chec#ing references and perform bac#ground
chec#s that include employment, credit, licensing and criminal history. The cost
is far outweighed by the benefit. &or e4ample, a business owner should be wary
of hiring a boo##eeper with bad credit because the weight of crippling financial
obligations could turn an otherwise honest person into a thief.
7. I*7,4,*7,*% +,5',9@
'll account reconciliations and general ledger balances should have an
independent review by a person removed from the day5to5day transactions,
because theft often occurs when boo##eeping is sloppy and unsupervised.
%eople outside the direct boo##eeping function within the organization should
be familiar with the company;s boo##eeping and record system. This permits
spot chec#s and reviews, better ensuring nothing is amiss and providing a
deterrent for fraudulent activities.
M,-*'*2 ./ /'*-*(,
&inance is a branch of economics concerned with resource allocation as well as
resource management, acquisition and investment. $imply, finance deals with
mattersrelated to money and the mar#ets. To raise money through the issuance
and sale of debt and=or equity..
(ts branchofeconomicsthatstudiesthemanagementofmoneyandotherassets.
(t is managementofmoneyandcreditandban#ingand investments or
sellorprovideoncredit.
120 | P a g e
E%&'() '* /'*-*(,
Ethics in finance is about investing in socially responsible companies, i.e.
those ta#ing ethical, social, and environmental values into account when
formulation corporate strategy. &inancial ethics is, therefore, a subset of general
ethics. Ethics relates to doing things right, doing things at the right time, doing
what one can ustify, air treatment, avoiding the immoral, discharging
responsibility with undoubted integrity. Ethics in finance is concerned with the
issue of how criteria reflecting the general good and in e4cess of formal legal or
contractual obligations are incorporated into corporate financial decisions.
F'*-*(, (.7, ./ ,%&'()
' finance code of ethics informs professionals about rules and operating
procedures that they must follow to comply with industry standards, corporate
policies and government requirements. Ethics rules vary depending on role,
industry, company size and transaction.
N,,7 /.+ (.7, ./ ,%&'()
' finance code of ethics typically prevents employees from engaging in illegal
activities or act unprofessionally. 'n employee who is uncertain whether an
activity or a transaction is legal may read ethical requirements and act according
to them.
T&, (.7, ./ ,%&'() '* /'*-*(,
@. 'ct at all times with honesty, integrity and independence, avoiding actual
or apparent conflicts of interest between personal and professional
relationships.
A. +iscuss with the 1orporate 1ompliance and Ethics 7fficer, or, in the case
of the 1hief E4ecutive 7fficer, with the 1hairman of the 'udit 1ommittee
and the 1orporate 1ompliance and Ethics 7fficer, in advance, any
transaction that reasonably could be e4pected to give rise to a conflict of
interest.
D. %rovide full, fair, accurate, timely and understandable financial disclosures
in internal reports as well as all reports and other documents that are filed
or submitted by the 1ompany to the $ecurities and E4change 1ommission,
any other regulatory body or used in other public communications.
). 1omply with all applicable governmental laws, rules and regulations.
121 | P a g e
,. To provide full, fair accurate information about the financial condition
to.thepeople relating to the !usiness
-. %rotecting the financial interests of clients
F. 1onducting business with high transparency
C. 1onducting needs analysis before any product or service recommendations
B. Respecting and maintaining confidentiality of any information entrusted to
U.you
@I.3se of only sales illustrations that are completely accurate and compliant
with state and federal regulations.
N,,7 /.+ ,%&'() '* /'*-*('-0 ),+5'(,)>/'*-*('-0+,4.+%'*2>/'*-*('-0 '*5,)%1,*%
F'*-*('-0 S,+5'(,)
&inancial $ervices is to enable clients to grow and protect their wealth. This
means trillions of dollars of assets are involved. &or this reason, the &inancial
$ervices industry is also highly regulated. Regulation minimizes fraud, theft and
misuse. Ethics purifies the industry. Ethics set the standards of e4cellence for
professionals in financial services. (t is the moral rudder that holds us steady to
our course. Ethics in the financial services industry affect everyoneUeven
consumers. (f you are not a &inancial $ervices %rofessional, you.re a consumer
of &inancial $ervices
/'*-*('-0 +,4.+%'*2
Ethical and legal obligations in financial reporting have made its way into the
public spot light. The accountants who do financial reporting should be
e4pected to act in the highest standards of legal and ethical business conduct.
'ccounting has basic assumptions, theories and a principle that is operates by
which helps with the ethical aspect
F'*-*('-0 '*5,)%1,*%
Ethics and financial investment may seem li#e incompatible terms. The
economy mainly is driven by financial profit> in a global mar#et, low
production costs and high turnover are often defined as the most important
business obectives. Moral considerations seem to stand in contrast to
economically efficient production. 2evertheless, ethical investment is becoming
increasingly popular in financial mar#ets> investors pave the way for ethics into
business by supporting companies that meet investors; ethical values. !ut how
do investors decide to invest ethicallyL This paper sheds light on investment
decision processes by referring to the issue5contingent model of ethical decision
ma#ing in organisations
@
and identifies sources for the development of
mar#eting strategies for ethical investment.
122 | P a g e
U*,%&'(-0 P+-(%'(,) '* /'*-*(,
S,(6+'%',) /+-67>
$ecurities fraud also #nown as stoc# fraud and investment fraud, is a practice
that induces investors to ma#e purchase or sale decisions on the basis of false
information, frequently resulting in losses, in violation of the securities laws.
?enerally spea#ing, securities fraud consists of deceptive practices in the stoc#
and commodity mar#ets, and occurs when investors are enticed to part with
their money based on untrue statements.$ecurities fraud includes outright theft
from investors and misstatements on a public company;s financial reports. The
term also encompasses a wide range of other actions, including insider trading,
front running and other illegal acts on the trading floor of a stoc# or commodity
e4change.
M')0,-7'*2 .* /'*-*('-0 -*-0=)')
&inancial analysis of an organization is misleading when it is used to
misrepresent the organization, its situation or its prospects.
This type of deceit is sometimes used to obtain money by misdirecting people to
invest in a stoc# mar#et bubble, profiting :or assisting others to profit* from the
increase in value, then removing funds before the bubble collapses, for instance
in a stoc# mar#et crash.
"+'?,+=
!ribery, a form of corruption, is an act implying money or gift given that alters
the behavior of the recipient. The bribe is the gift bestowed to influence the
recipient;s conduct. (t may be any money, good, right in action, property,
preferment, privilege, emolument, obect of value, advantage, or merely a
promise or underta#ing to induce or influence the action, vote, or influence of a
person in an official or public capacity.
E-+*'*2) 1-*-2,1,*%
Earnings management occurs when managers use udgments in financial
reporting and in structuring transactions to alter financial reports to either
mislead some sta#eholders about the underlying economic performance of a
company or influence contractual outcomes that depend on reported accounting
numbers. Earnings management usually involves the artificial increase :or
decrease* of revenues, profits, or earnings per share figures through aggressive
accounting tactics. 'ggressive earnings management is a form of fraud and
differs from reporting error.
I*)'7,+ %+-7'*2
123 | P a g e
(nsider trading occurs when someone ma#es an investment decision based on
information that is not available to the general public. (n some cases, the
information allows them to profit, in others, avoid a loss. (n other words the
illegal #ind of (nsider Trading is the trading in a security :buying or selling a
stoc#* based on material information that is not available to the general public.'
company insider is someone who has access to the important information about
a company that affects its stoc# price or might influence investors decisions.
This is called material information.
E;-140,
Martha $tewart has been in the news for several months because the 3.$.
$ecurities and E4change 1ommission believes that Martha $tewart was told by
her friend $am 6a#sal that his company (m1lone.s cancer drug had been
reected by the &ood and +rug 'dministration before this information was made
public. This reection was a huge blow to his company and the price of its stoc#
went down dramatically. However, Martha $tewart wasn.t financially hurt
because she had her bro#er sell her )III shares before this news was made
public. (f this is true, and it should be noted it hasn.t been proven yet, then
Martha $tewart is guilty of insider trading.
F'*-*('-0 )%-%,1,*%
'll the relevant financial information, presented in a structured manner and in
a form easy to understand, are called the financial statements.
"-0-*(, )&,,%/ also referred to as statement of financial position or condition,
reports on a company;s assets, liabilities, and 7wnership equity at a given point
in time.
I*(.1, )%-%,1,*%/ also referred to as %rofit and <oss statement :or a M%K<M*,
reports on a company;s income, e4penses, and profits over a period of time.
%rofit K <oss account provide information on the operation of the enterprise.
These include sale and the various e4penses incurred during the processing
state.
S%-%,1,*% ./ +,%-'*,7 ,-+*'*2)/ e4plains the changes in a company;s retained
earnings over the reporting period.
$tatement of cash flows/ reports on a company;s cash flow activities,
particularly its operating, investing and financing activities.
E%&'(-0 '))6,) 9&'0, 7')(0.)6+, ./ /'*-*('-0 )%-%,1,*%)
&inancial statements are the heart of accounting and they communicate to users
about the financial health of an organization. 'ccountants create the financial
statements after the end of the period to report the financial results of that
period. 3sers should recognize that while financial statements are a valuable
resource, there are also issues that limit the effectiveness of the statements.
124 | P a g e
6hile disclosing the financial statement the financial manager should ma#e it
sure the financial statement are
(mpartiality, obectivity, discrimination, Equality i.e. the financial
statement should be prepared and disclosed which will benefit everyone
1onfidentiality
+ue diligence=duty of care
&idelity to professional responsibilities.
'voiding potential or apparent conflict of interest
<egality :respect for the rule of law*. The financial statement should be
prepared according to the rules n regulation stated by the law
The information provide in financial statement are (ntegrity and honesty
Transparency and openness. The financial manager should not hide any
information from the user which will be against the welfare of the user.
Efficiency
"ustice the financial statement shouldn.t be biased
Responsibility, i.e., maintaining one.s reputation and responsibility for
faults.
C-), )%67=
UTI S(-1
7f all the recent encounters of the (ndian public with the much5celebrated
forces of the mar#et, the 3nit Trust.s 3$5-) debacle is the worst. (ts gravity far
e4ceeds the stoc# mar#et downswing of the mid5@BBIs, which wiped out Rs.
AI,III crores in savings. The debacle is part of the economic slowdown which
has eliminated one million obs and also burst the information technology :(T*
bubble. This has tragically led to suicides by investors. 'nd then suspension of
trading in 3$5-)made the hapless investors more deected at the sin#ing of this
Psuper5safeN public sector instrument that had delivered a regular return since
@B-). There is a larger lesson in the 3$5-) debacle for policies towards public
savings and public sector underta#ings :%$3s*. The 3$5-) crisis is rooted in
plain mismanagement. 3$5-) was launched as a steady income fund. <ogically,
it should have invested in debt, especially low5ris# fi4ed5income government
bonds. (nstead, its managers increasingly invested in equities, with high5ris#
speculative returns. (n the late @BCIs 3T( was PpoliticizedN with other financial
institutions :&(s* such as <(1 and ?(1, and made to invest in certain favored
scrips. !y the mid5@BBIs, equities e4ceeded debt in its portfolio. The &(s were
also used to Pboost the mar#etN artificially as an PendorsementN of controversial
economic policies. (n the past couple of years, 3T( made downright imprudent
but heavy investments in stoc#s from Hetan %are#h.s favorite H5@I portfolio,
such as Himachal &uturistic, ?lobal Tele and +$8. These PtechnologyN
125 | P a g e
investments too# place despite indications that the Ptechnology boomN had
ended. 3$5-) lost half its Rs. DI,III crore portfolio value within a year. 3T(
san# Rs. D,)II crores in ust si4 out of a portfolio of )) scrips. This eroded by
-I percent. Early that year, 3$5-).s net asset value plunged below par :Rs.@I*.
!ut it was re5purchasing 3$5-) above Rs. @)S Today, its 2'9 stands at Rs. C.DI
T a massive loss for @D million unit5holders. (t is inconceivable that 3T( made
these fateful investment decisions on its own. 'ccording to insiders, the &inance
Ministry substantially influenced them/ all maor decisions need high5level
political approval. (ndeed, collusion between the &(s, and shady operators li#e
Harshad Mehta, was central to the $ecurities $cam of @BBA. The "oint
%arliamentary 1ommittee.s report documents this. (n recent months, the
&inance Ministry became desperate to reverse the post5!udget mar#et
downturn. 3T(.s misinvestment now coincided with the global technology
Pmeltdown.N 3$5-) crashed. 3T( chairman resigned. 'lthough culpable, he was
probably a scapegoat too. The Ministry has #ept a close watch on 3T(,
especially since @BBB.The 3$5-) debacle, then, is not ust a 3T( scam. (t is a
governance scam involving mismanagement by a government frustrated at the
failure of its macroeconomic calculations. This should have ensured the &inance
Minister.s e4it in any democracy which respects parliamentary norms. There are
larger lessons in the 3T( debacle. (f a well5established, and until recently well5
managed, institution li#e 3T( cannot safeguard public savings, then we should
not allow the most precious of such savings T pensions T to be put at ris#. $uch
ris#y investment is banned in many self avowedly capitalist European
economies. (n (ndia, the argument acquires greater force given the poorly
regulated, e4tremely volatile, stoc# mar#etO where a dozen bro#ers control BI
percent of trade. Jet, there is a proposal by the &inance Ministry to privatize
pensions and provident funds. !asically, the government, deplorably, wants to
get rid of its annual pension obligation of Rs. AA,III corers.
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