1-BASICS OF CORPORATE GOVERNANCE & BUSINESS ETHICS.

MORAL PHILOSOPHY &BUSINESS:1) Concept & Nature of Business Ethics 2) Business Ethics & Profits.
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Concept & Nature of Business Ethics.

What is Ethics? The word Ethics has been derived from Latin word Ethicus, and Greek word Ethicos and both have been derived from the word Ethos, meaning Character or Manners. Ethics is thus said to be the Science of Morals; a Treatise on this; Moral Principles; Recognized Rules of Conduct. The Character of a man is expressed in terms of his Conduct. Conduct of a person is a series of Actions, which when put together, can be termed as Good, Bad, Right or Wrong, Moral or Immoral However, they may be amoral also, which means they are beyond the sphere of Morality. For example, eating his lunch is an amoral conduct of a man. If he steals the lunch of another person to eat it, then it is Immoral. Thus, Right, Wrong, Good, Bad, Moral, Immoral are termed as Moral Judgments. Moral Judgment requires Moral Standards by which we judge Human Conduct. Thus, Ethics can also be termed as The Science of Character of a person as Right or Wrong Conduct or Action.

Nature of Ethics.
1) Firstly, the Concept of Ethics deals with Human beings only, because only Human beings have been endowed with the freedom of choice and the means of Free Will. Only a Human being can distinguish between good and evil, between right and wrong. Only a Human being can distinguish between the end which he wishes to pursue and the means to gain the end. Hence, only for a Human being, does the Question of Ethics, Values, and Moral Conduct arise. Secondly, the study of Ethics today has become a set of Systematic Knowledge about Moral Behavior and Conduct. Hence the study of Ethics is a Science-a field of Social Science. Thirdly, the Science of Ethics is a Normative Science. Normative Sciences Judge the value of facts in terms of an ideal. Hence, Ethics is concerned with Judgment of Value or What Ought To Be. Ethics seeks to determine the nature of the Norm, Ideal or Standard, and seeks to enquire into the fitness of Human Action to this Ideal. Fourthly, Ethics deals with Human Conduct, which is Voluntary Human Conduct and not forced or coerced by other persons or circumstances. That is exactly why injuring or even killing a person who has to come to kill you is not considered as a Moral or Legal Offence, where as a cold 3 Blooded Murder is considered to be the highest kind of Moral and Legal Crime.

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Nature of Ethics (Contd).

Ethics deals with Ideals. Hence ethics is said to be Normative Science. A Normative Science seeks to determine Norms, Ideals, Standards or Values. It is generally recognized that there are three Ideals of Human Life, Viz, Truth, Beauty, and Goodness. They correspond to three aspects of our experience: Thinking, Feeling and Willing. Logic deals with the Ideal of Truth, Aesthetic deals with Beauty, and Ethics is concerned with the Ideal of Good. Ethics is not concerned with Human Conduct as it is, but as it Ought To Be. It passes Judgments of Value upon Human Actions with reference to the Moral Ideal. The Judgments of a Normative Science like Ethics are Judgments of Value, stating whether a Particular Conduct is in Conformity with the Moral Ideal or the Ideal Of Goodness. 4

Nature of Ethics (Contd).

Moral Judgments are not descriptive, but are Prescriptive. They state What we Ought to Do, not What we Actually do. They evaluate our Conduct as Right or Wrong. Since Ethics is the Normative Science of Conduct, its Function is to Judge the Moral Worth of Conduct with reference to a Norm or Ideal or Standard. The Scope of Ethics is very wide. Ethics covers virtually all aspects of our life, for there is no Conduct which is free from Moral Considerations. As A Science of Conduct, it is concerned with the Ideal or Standard to which our Conduct should Conform to. Hence Ethics enquires into the Nature of the Springs of Action or Impetus, the Forces that Impel men to Action, Motives, Intentions, Nature of Voluntary and Involuntary Actions etc.
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Postulates (Pre Suppositions) Of Ethics.

1) 2) To pass Moral Judgment on a Conduct, Ethics requires that the concerned Person must: Perform the Deed out of his own Free-Will and not Compelled to do it by some overwhelming Force. Be in possession of fully developed Rational Faculty, which can help him Distinguish Right from Wrong, Good fro Bad, and Not lose his normal Personality, i.e. he must have a Unified and Continuous Mental Life. Actions which fulfill the above criteria, come under the Scope of Moral Judgment. All other Actions do not come under the Scope of Moral Judgment. Stages Of Voluntary Action: 1) Every Voluntary Action is actuated by a Spring of Action, that acts as the Impetus. It is a feeling of a Need or Want. Example: When you feel Thirsty, you Desire to drink water. Thus the first stage of a 6 Voluntary Action is Mental or Internal.

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Postulates (Pre Suppositions) Of Ethics. (Cont)

2) The Second Stage of Voluntary Action is the External or Bodily Stage of Action taken to Satisfy the Need or Want. When you feel Thirsty, you may find a glass of water and drink it. In this External or Bodily Stage, if proper means are Adopted, the Object of Desire is attained and want is removed. The Removal of Want brings us Satisfaction. Thus the First Stage of a Voluntary Action is Mental or Internal, the Second is External or Bodily Stage and the Third Stage is that of Consequences. Motive Or Intention-What is the Object Of Moral Judgment? The Feeling of Want itself is not sufficient to move us to act. When a man is moved into Action, he must have , besides the mere feeling, the Conception of an End to be attained. The Motive that induces us to Act is the thought of Desirable End. When, for example, a father punishes his son, the Good of the Son is his Motive. Causing Pain to the Son is not the fathers Motive, but it is a part of his Intention. Thus Intention is a broader term, which includes the Motive or the Idea of the End, and the Idea of Means. 7 In short, Intention=Motive+ Means Adopted.

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Motive Or Intention-Moral Judgment.

An important question which arises in Ethics: When we judge a Conduct as Good or Bad, do we judge it by its Motive alone or by Consequences? According to some, if the Consequences are good, the Conduct is Good, if the Consequences are Bad, Conduct too is Bad. But this is not always so. Sometimes the Motive may be Good, but the Result may be Bad. Example: A Surgeon performs an operation, with utmost care to cure a patient, but despite that, the patient dies. In this case, Motive is Good, but the Consequence is Bad. The action of the Surgeon cannot be termed as Morally Bad, simply because Consequence turns out to be Bad. Another important Principle to be noted is that Means adopted are as important as the End. In other words to achieve a Good End, the Means adopted should also be Good. Hence, we conclude that Morality of Action is judged by the Intention of the doer, the term Intention being used in a wide sense to cover both immediate or remote Intention, Conscious 8 or Unconscious Intention, Formal and Material Intention.

Objectives of Ethics, & Business Ethics.

The Primary Objective of Ethics is to define the highest good of man and set a standard for the same. In doing so, Ethics has to deal with several inter-related and complex problems which are Psychological, Legal, Commercial (Economic), Philosophical, Sociological and Political in nature. Objectives of Ethics: The Objectives of Ethics are manifold. EthicsStudies Human Behavior and makes evaluative assessment about them as Moral or Immoral. (a Diagnostic Goal) Establishes Moral Standards and Norms of Behavior. Makes Judgments upon Human Behavior based on these Standards and Norms. Prescribes Moral Behavior and makes recommendations about how to or how not to behave (Therapeutic Goal). Expresses an opinion or attitude about Human Conduct in general. Business Ethics: Business Ethics is nothing but the application of Ethics in Business. Business Ethics proves that Business can be, and have been, Ethical and still make Profits. Till recently, Business Ethics was thought of as being a Contradiction of Terms. Thankfully, not any more. Today more and more interest is being given to the 9 application of Ethical Practices in Business Dealings and the Ethical Implications of Business.

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Business Ethics & Profits.

Frequently, the impression of most people is that Ethics and Business are mutually opposed to each other, and that if a company is Ethical, it can forget about making Profits. People also frequently seem to believe that a Profitable company must necessarily be Unethical. This is like saying that a company can make Profits only through Unethical Means. This is absolutely wrong. There are examples galore, from the pages of history, where not only have Ethical Companies made Profits, but more importantly, it is only Ethical Companies which discharged its Social Responsibilities, that have survived Competition and Turbulent Changes through the years and have contributed to Social Welfare and have continued to flourish undiminished. No doubt, all commercial Organizations are in Business to earn Profits. Earning Profits in itself is not Unethical. However, it is very important that you use only Ethical Means to Earn Profits and definitely not Unethical Means. In fact we can say that it is Unethical for any company to make losses, because company has a moral obligation to reward its Shareholders and also take care of all its Stakeholders like Employees, Suppliers, Creditors, Customers, Financial Institutions etc. A Company, which cannot make Profits and makes Losses, misutilizes national resources, cannot pay back Creditors, does not make for its Shareholders, makes huge liabilities, upsets the Economy, promotes inefficiency and most importantly, cannot discharge its Social Responsibility. 10 Thus instead of Profits being Contradictory to Ethics, Business Ethics dictates that the first responsibility of Business is to remain Profitable.

Business Ethics & Profits (Contd).

Businesses should earn Profits, generate Revenue for the Shareholders, Employees and the Society and should also take care of the interests of all its stakeholders. Hence, we can say that it is unethical not to make Profits. Also it is Equally important to determine as to how much Profit a Company should make and what means are to adopted to make the targeted Profit. We must remember that Means are as Important as the Ends. For achieving the End of Making Profits, Company should use only Ethical Means Also the Company should use only Ethical Strategies to earn Reasonable Profits and should not charge exorbitant Prices for their Products and Services. Further, the Quality, Specifications and Commitments made should be strictly adhered/fulfilled to all its Customers. Businesses should be Economically Viable, should act as Trustees of all Stakeholders and the Society and should also follow the Law of the Land, where they are conducting Business.
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What Is The Role Of Managers?

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To whom are Top Managers Responsible? Whose interests should they Serve? What Goals should they strive to achieve? The following are the answers to these three questions: Managers as Economic Actors. According to widely accepted view, the Managers Role is to make sound Economic Decisions that enable the Firm to succeed in a Competitive Market. They have an Obligation to operate a Corporation in the Shareholders Interest. Managers As Trustees. Managers are entrusted with enormous assets and given charge to manage these assets Prudently and Profitably. Employees, Suppliers, Customers, Investors, and other so called Stake-holders have a stake in the success of the Firm and Managers are expected to meet all their Legitimate Expectations and to balance any conflicting interests. Managers as Trustees have a Fiduciary Duty to act in all matters in the interest of the designated Beneficiaries. Managers As Quasi-Public Servants. Managers have many Attributes of Government Officials , such as Power to make Major Investment Decisions for Society. They participate in Political Process and Co-Operate with Political Bodies, including Regulatory Agencies. Managers are expected to 12 demonstrate Corporate Leadership.

Relationship Between Business & Ethics.

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There are basically Three Views on Relationship between Business & Ethics: The Unitarian View: This view is of the Opinion that Business is only a sub set or sub-structure of Moral Structure of the Society. According to this view, Business and Morality cannot be separated and Businesses should play the Rules of Morality and Ethics of the Community, which guides the activities of the Community. This view was emphasized by the Church and other religious institutions, which said that Businesses must exist only to do good for the Society. The Separatist View: Dramatically opposite to the Unitarian View, classical Economists like Adam Smith and Milton Friedman asserted that the only Goal of Business should be Profit Maximization and the Ethics and Morality play no role in Business Conduct and should be left to Churches& Government Agencies. The Integrated View: This view was proposed by Talcott Parsons wherein he sought to Integrate Ethical Behavior and a New Area called Business Ethics. This view states that Business is an Economic Entity and it has the Right and Need to make Profits, but it must also discharge its obligations to the Society where it exists and operates. Profit is certainly not a Dirty Word, but neither is Morality and Ethics in Business.
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 Ethics in Business matters, because there is much evidence to prove that Unethical Behavior can cost a Company its Reputation, affect its Share Price and lower its Profits. Some of the Scandals in Business World have their origin in scant regard to Morality. Business Ethics are Rules of Business Conduct by which Propriety of Business Activities may be judged. There is a growing realization all over the world that Ethics is Vitally Important for any Business and the Progress of the Society. Experience has shown that Good Ethics is Good Business. Commerce through Corruption, Administration through Bribery and Politics through Blackmail in India has become the Rule rather than exception. Corruption, Bribery and Nepotism are nothing but degradation of Values and Professional Ethics. Ethics and Human Values can save a Soulless Society from total death. We must remember that Business satisfies only Hunger of Body. Values satisfy Hunger of Heart and Soul. 14 Ethical Behavior is essential for Long Term Success in

Importance Of Ethics In Business.

Importance Of Ethics In Business. (Contd)

1) 2) 3) Ethical Behavior is essential from both Macro and MicroPerspective. According to Macro-Argument, Unethical Behavior distorts the Market System, that leads to an inefficient allocation of resources. The Micro-Argument highlights the importance of Ethics to the Individual Firm. Unethical Behavior leads to decreased long term Performance. The Market System leads to a more efficient way of allocating Resources than any Command System. The conditions required for efficient operation of the Market System are: The Right to Own and Control Property. Freedom of Choice in Buying and Selling Goods and Services. The Availability of Perfect Information regarding these Goods 15 and Services.

NATURE OF ETHICS IN BUSINESS.

In Business Activities, most Ethical Questions could be of Two TypesOvert and Covert. Overt Ethical Problems like Bribery, Theft, Sabotage, Collusion, etc are clear for everyone to see and are generally considered reprehensible. Most people deplore it and Businesses take care not to be so openly Unethical. Hence, most problems in Business sphere are Covert Ethical Problems. Covert Ethical Problems are Most Complex, not so Transparent and generally defy Ethical Solutions. These Types of Problems occur in Corporate Acquisitions, Marketing and Personnel Policies, Capital Investment, Market War etc. They are difficult to locate, eliminate and are consequently much more dangerous and threatening to Business. For a Decision to be Ethical, it should possess the following characteristics. It should be: a) Right---that which is morally correct and due; b) Equitablethat which is just and equal; c) Good---that which brings in the highest good for all concerned; d) Properthat which is appropriate and acceptable; e) Fairthat which is honest and due; f) Justthat justice is not only done, but is also seen to have been done.
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Nature of Ethics in Business (Contd).

Ethics is unstructured, i.e. it does not have a structured format or framework. It is abstract in Concept. Hence, it does not have Universal Acceptance, mainly because : Ethics depends on our Moral Standards, Moral Standards depend on our Value Systems; The Value System of People depends upon their background and Childhood Experience; and The background and experience of People are vastly different. Hence, the Ethical Practices of people are also different. Ethical Decisions should express some obligations to others. If a Decision merely results in benefits only to oneself, then it is not an Ethical Decision. The very concept of being Ethical means that it results into some Good for the Large Society and not just for oneself.
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a) b) c) d)