Business Ethics and Corporate Governance

Prof. Abhay Singh

Borivali January, 2010

No part of this document must be reproduced for distribution without prior consent from Prof. Abhay Singh.
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CONTENTS

Topics: 1. Evolution of Ethics in Business 2. Relationship between ethics and Corporation Excellence

3. Corporate Governance
4. Ethics in International scenario

5. Moral Evolution of the firm

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Session Plan:
Evaluation Plan:

(i)

End-term examination

: 40
: 20 : 20 : 10

(ii) Mid-term examination (iii) Presentation (iv) Assignment/Test

(v) CP/ Attendance

Total Reference Books:

: 10
: 100

(1) Ethics of Management by Chakraborty

(2) Business Ethics (A Stakeholder & Issues Management Approach) by Joseph W Weiss
(3) Business Ethics & Corporate Governance-ICFAI (4) Business Ethics-concepts & cases by Manuel G Velasquez

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Business Ethics & Corporate Governance-Objective:

Business Ethics is about the intersection between business and ethics and is fundamental to the relationship between business and society at large.

Why does an organization exist in the first place? How does it treat its stakeholders? Business ethics engages these essential questions and is also about the purpose, values, and transactions of and among individuals, groups, companies, and their global alliances.

The importance of ethics is demonstrated by the fact that most people choose to maximize their own benefits when economic and political decisions have to be made and are only prevented from acting against the common interest by governments.

And thus, the need to have Corporate Governance i.e system by which companies are directed and controlled.

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Unit1: Evolution of Ethics in business

(A) History of Corporate Governance: Kautilyas(Chanakya) Arthashastra is the oldest book (around 300 B.C) on Management available to the world. This masterpiece covered a wide range of topics and also recommended that the king shall not consult with any advisor who had a vested interest in the outcome of a particular project.

establishment of an ethical code of conducta topic which has received a great deal of
attention now during the past few years after corporate scandals.

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Unit1: Contd.....

the codification of accounting rules into one uniform system to prevent problems in translating financial data between disparate methods of accounting a subject

which the international accounting community is dealing with in terms of the

convergence of accounting standards.

In the western world The East India Company introduced a Court of Directors, separating

ownership and control (U.K., the Netherlands) in 1600s.

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Unit 1: Contd....

(B) Trusteeship Management : Gandhian philosophy of wealth management: The advancing processes of globalisation worldwide have been accompanied by deepening divisions and conflictsboth within and between societies. We see around us a spreading culture of wars that justifies the use of coercive means to realise the desired ends. And the situation at the start of the 21st century has become further aggravated with the emerging crisis of control over natural resources. The conflict over competing claims to natural resources witnesses an effort to grab a greater share of the resources; and it also involves different ways of using the resources.

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Unit 1: Contd....

The effects of these competing claims have given rise to resistance in multiple forms. The most significant among them is the voice of resistance opposing the corporate houses, government and the development idiom that gives priority to the commercial use of local resources over their use for subsistence.

Against this backdrop, it is appropriate to revitalise the Gandhian ideology of the trusteeship.

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Unit 1: Contd....

Gandhian Principle of Trusteeship:

Trusteeship principle advocated by Gandhiji provides a means of transforming the present

capitalist order of society into an egalitarian one.

It is in many ways different from the concept from socialism as Gandhiji did not believe in using force either by the individual or by the state.

Trusteeship, as a concept is not absolute but relative in time and space to the needs of the society.

Trusteeship is freedom of ownership, of property in the hands of community and the state but as a trustee of the masses.

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Unit 1: Contd.....

It does not rest at providing equal opportunity.

It believes in generating wealth with efficiency where the index of measurement is not
wealth accumulation but wealth distribution in the society.

Its means are non-violent and therefore does not believe in forceful methods adopted but the states for reducing class conflicts.

Gandhiji envisaged an egalitarian society free from exploitation of man by man. It believes in class collaboration.

Irrepressible desire to acquire wealth and power is at the root of all individual, social, economical and political conflicts.

Gandhiji however believed that restructuring of institutions would be of no avail unless men

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Unit 1: Contd....

who operate these institution accept , within their own volition, the implicit ethics of the new

system.
He believed that the change in the man is the basic to the change in the society. The freedom, must come from within. Ghandhiji therefore put primary emphasis on change of mind and secondarily, but not less specifically on material forces of production. For, it is the mind from which emanates not only intellectual (competence) to manage material forces but also attitude, social behavior etc. which determine whether to use the power of possession for good or bad, to exploit or to serve those who do not possess, to be compassionate or cruel, to accumulate for personal gain or to use for social good.

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Unit1: Contd....

Once the right attitude to the use of possession of material-economic power is established, the ownership becomes a matter of secondary importance.

When the principle of trusteeship is accepted by any individual voluntarily and without any reservation, certain concomitants flow from such acceptance:1. Simplicity of life style, the rejection of all extravagance and the flaunting of wealth is the first and the immediate result. 2. It rules out any wrong means outside the legal and moral framework, in his pursuit of wealth. Even surplus wealth already in ones possession is regarded as wealth held in trust for society by an individual, to be utilized only for the benefit of society. Where then is the question of acquiring more wealth by adopting unfair or unjust or unfair means?
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Unit 1: Contd.....

3.

Any activity harmful to society (although it may result in wealth to particular institution or

individual) has thus to strictly avoided.

4. One has to treat others as human beings and not as units of labour to be purchased at the lowest price for increasing production and maximizing profits. 5. One stands committed to giving full opportunities to workers in the enterprise, to learn to take greater responsibility, and to participate in decision making at all levels, according to the actual and potential capacities. This includes the decision, of the formula for apportioning profits and surpluses generated by the institute. 6. Since trusteeship presupposes voluntary acceptance, all violence is scrupulously avoided. Trusteeship is to promoted only by love and persuasion.

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Unit1: Contd....

(C) Normative Ethics: Normative ethics is the branch of philosophical ethics that investigates the set of questions that arise when we think about the question how ought one act, morally speaking? It is the attempt to provide a general theory that tells us how we ought to live. Unlike meta-ethics, normative ethics does not attempt to tell us what moral properties are, and unlike applied ethics, it does not attempt to tell us what specific things have those properties. Normative ethics just seeks to tell us how we can find out what things have, what moral properties, to provide a framework for ethics.

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Unit1: Contd.....

For any act, there are three things that might be thought to be morally interesting:

First, there is the agent, the person performing the act;

Second, there is the act itself; Third, there are the consequences of the act. There are three types of normative ethical theory

(i) virtue, (ii) deontological, and (iii) consequentialist each emphasising one of these elements.

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Unit1: Contd.....

(i)

Virtue Ethics: This first normative ethical theory, virtue theory, concentrates on the moral character of the agent.

According to virtue theory, we ought to possess certain character traits--courage, generosity, compassion, etc.--and these ought to be manifest in our actions.

We therefore ought to act in ways that exhibit the virtues, even if that means doing what

might generally be seen as bad or bringing about undesirable consequences.

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(ii) Deontology: Normative theories of the second type, deontological theories, concentrate on the act being performed. According to deontological theories, certain types of act are intrinsically good or bad, i.e. good or bad in themselves. These acts ought or ought not to be performed, irrespective of the consequences.

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Unit1: Contd....

(iii) Consequentialism: The third approach to normative ethics is consequentialism. Consequentialist theories hold that we ought always to act in the way that brings about the best consequences. It doesnt matter what those acts are; the end justifies the means. All that matters for ethics is making the world a better place.

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Application:

To give an example, then, suppose that a man bravely intervenes to prevent a youth from being
assaulted. The virtue theorist will be most interested in the bravery that the man exhibits; this suggests that he has a good character. The deontologist will be more interested in what the man did; he stood up for someone in need of protection, and that kind of behaviour is intrinsically good. The consequentialist will care only about the consequences of the mans actions; what he did was good, according to the consequentialist, because he prevented the youth from suffering injury.

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