Business Ethics & Corporate Governance

Unit I

Ethics

Contents

Introduction, Concept of Ethics

Meaning & Types of Values

Ethical Actions Morals, Morality Moral Development Pyramid Beliefs, Religiousness & Law

Introduction

Latin word Ethicus, Greek word Ethicos Derived from Ethos meaning Character or manners Recognised rules of conduct, source of morals Right or wrong & Good or bad Principles of behaviour Concise Oxford Dictionary: ethics is relating to morals, treating of moral questions, morally correct. Standards, rules that govern behaviour Ethics is doing what is right to achieve what is good Branch of philosophy (having morality as its subject matter) & a normative science as it is concerned with norms of human conduct

Introduction

From top management to employees, ethics is everybodys business Not only high profits but also conduct business ethically at the same time, simultaneously Problems in business are multifold Ethics is set of principles prescribing a behaviour code Three terms to define ethics RIGHT, PROPER, JUST Ethics is concerned with norms for the conduct of people as members of society.

Meaning of Ethics Character of a Man Conduct of a Person Series of Actions Good or Bad Right or Wrong Moral or Immoral Known as moral judgement

Moral Standards

What Should We Do?

WHAT Answer to what determined & affected by WE SHOULD Indicates normative act, what ought to be done

WE Refers to the rational & responsible person obliged to act by virtue of his duty, situation, position/office
DO Action which follows

Evolution of Ethics

Emerged as a part of theological discussions before 1960 Catholic teachings emphasised need for morality in business Ralph Nader raised issue of consumer safety from unsafe automobiles All thesese issues cried for a moral solution Protestant seminaries developed ethics as part of their curriculum 1960s, sharp rise of social issues in business Business practices were subject to scrutiny 1970s, institutes started research, analysis & began to write Businessmen became more concerned for public image

Concept of Ethics

The concept of ethics deals with human beings only Human beings can distinguish between good & bad

Human beings can distinguish between the end he wishes to pursue & the means to gain that end
Study of ethics is a field of social science Ethics evaluates human action

Objectives of Ethics

Define the highest good of man & set a standard for the same To deal with several interrelated & complex problems which may be psychological, legal, commercial, philosophical, sociological & political in nature Study the human behaviour Establish moral standards / norms of behaviour Make judgements upon human behaviour based on these standards & norms Prescribes moral behaviour Makes recommendations as to how to or how not to behave Expresses an opinion or attitude about human conduct in general

Nature of Ethics

Study of ethics is a normative science. It judges, what ought to be Study of ethics has become a set of systematic knowledge about moral behaviour & conduct Ethics deals with human conduct It is an area dealing with moral judgement regarding voluntary human conduct Business can be ethical & still earn profits Ethics deals with human beings only as they are endowed with freedom of choice & means of free will Fulfilling social responsibilities

6 Primary Sources of Ethics George & John Steiner

Religion

Philosophical Systems
The Legal System Code of Conduct Genetic Inheritance Cultural Experience

Sources
1. Religion 10 commnadments in Bible It plays a vital role in shaping our societal ethics Many businessmen built their ethics upon religion Christians Bible, Muslims Quran, Jews Torah, Hindus Bhagwata Geeta When in Rome, do as the Romans do Golden Rule Act in a way you would expect others to act towards you or Do unto others as you would have them do unto you

Sources
2. Philosophical Systems The quality of pleasure to be derived from an act was the essential measure of its goodness by Epicureans Stoic is a disciple of philosopher Zeno (opened school). The Stoics (like Puritans) advocated a hardworking, thrifty lifestyle Important for moral development 3. The Legal System It educates us about ethics Represents a rough approximation of societys ethical standards

Sources
4. Code of Conduct Steiner & Steiner 3 primary categories of codes: Company Codes Brief, highly generalised, expressed broad expectations about fit conduct. Company Operating Policies Policies as to Customer complaints, Gifts, Hiring, Decision making, Serve as a guide for all in company, Work as a shield. Code of Ethics Professional code of Ethics by various bodies (Lawyers, CAs, CS, Doctors, etc)

Sources
5. Genetic Inheritance Quality of goodness is a product of genetic traits strengthened over time by the evolutionary process Socio-biologists say genetic inheritance is a source for ethics 6. Cultural Experience Rules, customs & standards transmitted from generation to generation for appropriate conduct Individual values are shaped in a large extent by norms of the society

Types of Ethics

Transactional Ethics

Concept of common interests (occurring simultaneously) Same interest, coincides in time but do not affect each other Morality is involved Dependent on each other (Vegetable Vendor) in order to run things smoothly Principle of Honesty Principle of Reciprocity It involves shared interests It is a privileged part of business ethics Parties join alliance voluntarily

Participatory Ethics

Recognitional Ethics Self directed actions. As long as the actor is his own beneficiary, & no legitimate claims are raised by others, no moral qualfications are due. (Eg, Age of Retirement)

Advantages of Ethics

Prevents harm to society Ethical business behaviour is expected by public Improves profitability Fosters business relations Increases employee productivity Reduces criminal penalties Protects business against unscrupulous employees & competitors Protects employees from harmful actions by employer Allows business to work consistently

Ethical Problems

Selfishness of a few Competitive pressure on profits Clash of personal values & business goals Targets to achieve Cross cultural contradictions in global business operations Bribery & Corruption

Role of managers in ethics

Social responsibility Ownership of corporation divorced from its management Manager is key to this approach Managers/Individuals have to take ethical decisions A strong sense of leadership is asked in business today Need to meet expectations & urgent requirements of society Management has become affected with public interest Should have a moral vision Must have purpose of his lifes work

Values and Ethics - Meaning

Values are general term referring to what people regard as good or bad, desirable, forbidden, justified, etc Values are potent sources of conflict, cooperation, control & self-control Values are within ourselves

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

Types of Values
Values are of many types. It includes: Cultural Norms

Represent expectations of business clients, customers, employees, public, etc. These values are not easy to measure. They are deep seated feelings & ideas that manifest themselves as behaviour or conduct. Capable of judging the acceptability of the prudential & technical value. Ethical values can rule overrule the technical & prudential values.

Moral Imperatives

More General & Controlling values

Classification of Values
A Classification of Values in General

Primary Values
Values
Terminal Values or Instrumental Values (Means to an End)

Classification of Values
Criteria for Accepting Values

Criterial of Universalisability Greatest good for the greatest number Controlled Greed Pursuit of Pleasure Efficiency & Work Ethics Compassion & Charity Piety Truth Transparency & Honesty Evolutionary Destiny

Values Required to be Optimised

Contd..

Sacrifice Stoic Dignity Truth & Cooperation Righteousness in envy, pride, anger & Violence Fraternity Tolerance, pluralism Gratitude & Respectfulness Harmony with self, society & nature

Values in the Nature of Rights of Beneficiaries

Right to Privacy Individual Choice A minimum standard of life

Contd..
Institutionalising Ethical Implementation of Values

Distributive justice Democratic dispassionate discourse Market Systems Ensuring organization is used as vehicles for ethical synergy Respect for: Law, professional codes, rituals & symbols

Features of Values

D Descriptive (is) N Normative (ought to be) A Analytical (why)

Morals

Morals are ones personal guiding principles Morals implies conformity with generally accepted standards of goodness in conduct or character Morals means the idea of a social rule Moral rules call upon people to refrain from doing merely whatever they want Moral rules are not enforced or legislated by any authority or specific body. It is generally used to describe who people are (eg, a moral person) Morals can be general rules or statements They are not written down rules for conduct

Sources of Moral Standards

Family, Friends, Various societal influences Schools, Television, Magazines, Associations Experience & learning Intellectual Development Moral standards are associated with special emotions & special vocabulary They deal with matters that we think can seriously injure or benefit human beings They are not established or changed by decisions of any authoritative bodies They are to be preferred to other values including self interest They are based on impartial considerations

Morals - Ethical & Unethical

Ours Morals Actions Moral Standards

Ethical

Harmony

Unethical

When the actions are in harmony with morals, it is ethical. When the actions are not in harmony with moral standards, disharmony comes into picture.

Morality

Latin route Morales meaning behaviour Morality of a society are that set of rules or principles or ideals which all RATIONAL members of that society accept. They also apply it to their own or others behaviour Everyone in the society participates in enforcing morality It is an informal concept Morality is the standards that an individual or a group has about what is right & wrong; good or evil It is used as a synonym to ethics It is a basic concept of how we as responsible citizens act

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

Moral judgements are said to be universally applicable Moral judgements override all other considerations Moral praise is given for a moral action (or person) & moral blame is apportioned to an immoral action (or person)
Actions, persons, systems can be termed as moral or immoral Ethics & morality have different concepts Ethico-moral actions pertain to a set of actions engineered by the characters & expressed through behaviours

Illustration
Factual Information concerning the policy, institution, or behaviour under consideration Moral judgment on the rightness or wrongness of the policy, institution, or behaviour

Moral Standards

A Society is unjust if it does not treat Minorities equal to Whites.

In American Society, 41% American Society of Negroes fall below the is unjust. poverty line as compared to 12% of Whites.

Moral Development as per Kohlberg

Lawrence Kohlberg, an American psychologist 3 major levels in moral development of an individual namely; Preconventional Conventional Post Conventional

Most people operate on one level or the other

Slide various levels in different situations for goals or needs

Levels in Brief

Level 1

child is able to respond to rules & social expectations & can apply labels good, bad, right, wrong; Right or wrong as Pleasure or Painful respectively If you ask a 5 year child, Why Stealing is Wrong? The answer would be because mummy will scold me. He will see situation from his point of view and not as per morals Maintain expectations of family, friends, peers; Does not only conform to expectations, but also exhibit loyalty to that group & norms If you ask a adolescent, Why stealing is wrong? The answer would be: this is what my family, friends taught me. No longer accepts the values of group & takes a view that impartially takes everyones interests Questions the law & values that society has adopted & redefines them in terms of self chosen moral principles If you ask a adult, Why Stealing is Wrong? The answer would be: as it is fair to everyone, justice, human rights, societys overall welfare.

Level 2

Level 3

Stage I Punishment & Obedience Orientation

Preconventional Level

Infant learns to react to punishment & begins to associates actions to punishment. Childs reason to do right is to avoid punishment Little awareness to others needs & desires Learns how to avoid painful experience

Stage II Instrumental & Relative Orientations

Learns the meaning of praise Right actions are those which satisfies his own needs Learns to maximize his pleasure by pleasing his parents, teachers, elders Does not understand that reward is for right action or obeying rules Sense of morality is largely unborn He is bound by reactions of pain & pleasure

Conventional Level
Stage III Interpersonal Concordance Orientation

The child has grown into a young adolescent Learnt to conform to the norms learnt at home, school & street Knows how to react to the expectations of parents & others Good boy / Nice girl Morality Good behaviour for who feel loyalty Right action is conformity to what is generally expected in role as son, etc

Stage IV Law & Order Orientation

Grows in conformity with laws of the society Understands the expected actions of good citizen Fulfils his role as a citizen of the society, see people part of social system Lives with conventional rules that govern that role People are content at this level, occasionally rising to level III

Post Conventional Level

Stage V Social Contract Orientation

Contracts & Individual rights Aware that people hold a variety of conflicting views & opinions & emphasize fair ways of reaching consensus by agreement or consent All values & norms are relative and all should be tolerated The person is conscious of the moral laws & acts as per it Able to give Rational defence of morals that guide him Such defence is true subject matter of morality Some people wish to live as per moral principles as they understand what makes principles right They know they have to live true to their inner conviction Ethical principles not concrete but abstract He does right because of commitment to moral principles

Stage VI Universal Ethical Principles Orientation

Beliefs

Standards of thought Ways that the senior executives in organisation want others to think Criteria of thought Ways an individual expects people to think about given concepts Intention is to encourage ways of thinking & patterns of attitude that will prove way towards wanted behaviour Eg, Afforestation, Energy conservation

Religiousness & Law

Buddhism

Holy Books
Christianity Hinduism Jainism Gandhism