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Unit I Importance of Business Ethics mail2me7@gmail.com Values and Ethics Nature and Goals of Business Ethics Morality, Virtues, Social Ethics Business Ethics and Law Ethics in Work Place - Ethical decision making. concepts and theories of business ethics Normative theories- ethical theories in relation to businessmanagement and Ethics- Indian ethical traditions. Values and Ethics Business ethics are related to issues of What is Right and What is wrong while doing business. The constituents of business ethics include adherence to truth, a commitment to justice and public integrity. Values are to individuals, ethics are to business. Distinction between Values and Ethics Values are personal in nature (e.g., a belief in providing customer satisfaction and being a good paymaster) while ethics is a generalized value system (e.g., avoiding discrimination in recruitment and adopting fair business practices). Business ethics can provide general guidelines within which management can operate. Values offer alternatives to choose from. For example, philanthropy as a business policy is optional. An entrepreneur may or may not possess this value and still remain within the limits of business ethics. Ethics Ethics is a branch of social science. It deals with oral principles and social values. It helps us to classify, what is good and what is bad? It tells us to do good things and avoid doing bad things. So, ethics separate, good and bad, right and wrong, fair and unfair, moral and immoral and proper and improper human action. In short, ethics means a code of conduct. Business Ethics The businessmen must give a regular supply of good quality goods and services at reasonable prices to their consumers. They must avoid indulging unfair trade practices like adulteration, promoting misleading advertisements, cheating in weights and measures, black marketing, etc. they must give fair wages and provide good working conditions to their workers. They must not exploit the workers. They must encourage the healthy competition. They must pay all their taxes regularly to the government.

Definitions:

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Business Ethics is the art and discipline of applying ethical Principles to examine and solve complex moral dilemmas -A.C. Fernando Business ethics is the study of business situations, activities, and decisions where issues of right and wrong are addressed. Andrew Crane The ethics of business is the ethics of responsibility. The business and must promise that he will not harm knowingly - Raymond C. Baumhart
In short, business ethics means to conduct business with a human touch in order to give welfare to the society. Nature or Features of Business Ethics
a. Code of conduct: Business ethics is a code of conduct. It tells what to do and

what not to do for the welfare of the society.

b. Based on moral and social values: Business ethics is based on moral and social

values. It contains moral and social principles for doing business. This includes self control, consumer protection and welfare service to society, fair treatment to social groups, not to exploit others.
c. Gives protection to social group: Business Ethics give protection to different

social groups such as consumers, employees, small businessmen, government, shareholders, and creditors etc.
d. Provides basic framework: Business ethic provide a basic framework for doing

business. It gives the social cultural, economic, legal and other limits of business. Business must be conducted within these limits.
e. Voluntary: business ethics must be voluntary. The businessmen must accept

business ethics on their own. Business ethics must be like self-discipline. It must not be enforced by law.
f. Required education and guidance: Business must be five proper education and

guidance before introducing business ethics. The businessmen must be motivated to use business ethics. They must be informed about the advantages of using business ethics. Trade Associations and Chambers of Commerce must also play an active role in this matter.
g. Relative term: Business ethics is a relative term. That is, it changes from one

business to another. It also changes from one country to another. What is considered as good in one country may be taboo in another country.

3| Page h. New Concept: Business ethics is a newer concept. It is strictly followed only in

developed countries. It is not followed properly in poor and developing countries. Need or Importance of Business Ethics:
1. Stop business malpractices: some unscrupulous businessmen do business

malpractices by indulging in unfair trade practices like black marketing, artificial high pricing, adulteration, cheating in weights and measures, selling of duplicate and harmful products, hoarding, etc. these malpractices are harmful to the consumers. Business ethics help to stop these business malpractices.
2. Improve customers confidence: Business Ethics are needed to improve the

customers confidence about the quality, quantity, price, etc. of the products. The customers have more trust and confidence in the businessmen who follow ethical rules. They feel that such businessmen will not cheat them.
3. Survival of business: Business ethics are mandatory for the survival of business.

The businessmen who do not follow it will have short term success, but they will fail in the long run. This is because they can cheat a consumer only once. After that the consumer will not buy goods from that businessman.
4. Safeguarding consumers rights: The consumer has many rights such as right to

health 5. and safety, right to be informed, right to choose, right to be heard, right to redress, etc. but man businessmen do not respect and protect these rights. Business ethics are must to safeguard these rights of the consumers.
6. Protecting employees and shareholders: Business ethics are required to protect

the interest of employees, shareholders, competitors, dealers, suppliers, etc. It protects them form exploitation through unfair trade practices.
7. Develops good relations: Business Ethics are important to develop good and

friendly relations between business and society. This will result in a regular supply of good quality goods and services at low prices to the society. It will also result in profits for the businesses thereby resulting in growth of economy.
8. Create good image: If businessmen follow all ethical rules, then they will be

fully accepted and not criticized by the society.

9. Smooth functioning: If the business follows all the business ethics, then the

employees, shareholders, consumers, dealers and suppliers will all be happy. This will result smooth functioning of the business. Goals or Rules or Principles of Business Ethics Rules or principles of business ethics are the code of conduct for businessmen. It tells us how businessmen should do business for social good. These principles are related to consumers, employees, investors, local community and the society as a whole.

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The important rules or principles of business ethics are as follows:1. Avoid exploitation of consumers: Don't cheat and exploit consumers by using

bad business practices such as artificial price rise and adulteration. 2. Avoid profiteering: Don't indulge in unscrupulous activities like hoarding, blackmarketing, sale and use of banned or harmful goods, etc., for the sake of greed to earn exorbitant profits. 3. Encourage healthy competition: Don't destroy a healthy competitive atmosphere in the market which offers certain benefits to the consumers. Do not engage in a cut-throat competition. Avoid making attempts to malign and spoil the image of competitors by unfair means. 4. Ensure accuracy: Always check and verify the accuracy in weighing, packaging and quality while supplying goods to the consumers. 5. Pay taxes regularly: Pay taxes and other charges or duties to the government honestly and regularly. Avoid bribing government officials and lobbying for special favors. 6. Get accounts audited: Maintain accurate business records, accounts and make them available to all authorized persons and authorities. 7. Fair treatment to employees: Pay fair wages or salaries, provide facilities and incentives and give humane treatment to employees. 8. Keep investors informed: Supply reliable information to shareholders and investors about the financial position and important decisions of the company. 9. Avoid injustice and discrimination: Avoid injustice and partiality to employees in transfers and promotions. Avoid discrimination among them based on gender, race, religion, language, nationality, etc. 10. No bribe and corruption: Don't give expensive gifts, secret commissions, and kickbacks, payoffs to politicians, bureaucrats, government officials and suppliers. Say no to bribe and avoid corruption. 11. Discourage secret agreement: Do not make a secret agreement with other businessmen for controlling production, distribution, pricing or for any other activity, which is harmful to the consumers. 12. Keep service before profit: Accept the principle of "service first and profit next." The customer or consumer is the most important part of any business. All business activities are done for meeting his needs and for increasing his satisfaction and welfare. 13. Practice fair business: Make your business fair, humane, efficient and dynamic. Give the benefits of these qualities to the consumers. 14. Avoid monopoly: Avoid forming private monopolies and concentration of economic power. Monopolies are bad for consumers. 15. Fulfill customers expectations: Adjust your business activities as per the demands, needs and expectations of the customers. 16. Respect consumers rights: Give full respect and honor to the basic rights of the consumers. 17. Accept social responsibilities: Honor responsibilities towards different social groups.

5| Page 18. Satisfy consumers wants: Find out and satisfy the wants of the consumers. Use the

available resources to produce good quality goods and services. Supply these goods and services regularly to the consumers. Charge reasonable prices for the goods and services. Give proper after-sales services. Do not produce goods and services, which are harmful to the health and life of the consumers. Remember, the main objective of the business is to satisfy the consumers wants. 19. Service motive: Give more importance to service and consumer's satisfaction and less importance to profit-maximization. Make profits by providing services to the consumers. Do not make profits by exploiting the consumers. 20. Protect group interests: Protect the interest of the group i.e give employees better wages and good working conditions, give shareholders better rate of dividend, give consumers good quality goods and services at low prices, etc. 21. Optimum utilization of resources: Ensure better and optimum utilization of natural and human resources and minimize wastage of these resources. Use the resources to remove poverty and to increase the standard of living of people. 22. Intentions of business: Use pure, legal and sacred means to do business. Do not use illegal, unscrupulous and evil means to do business. 23. Follow Woodrow Wilson's rules: According to the late American President Sir Thomas Woodrow Wilson, there are four important principles of business ethics. These four rules are as follows:a. Rule of publicity: According to this principle, the business must tell the people what it is going to do. It must not create doubts, misunderstanding, suspicion, secrets, etc. b. Rule of equivalent price: According to this principle, the customer must be given proper value for their money. So the business must not sell below standard, outdated and inferior (poor) goods for high prices. c. Rule of conscience in business: If the business is conducted properly, then it is beneficial to the society. Otherwise, it is harmful to the society. Therefore, the businessman must have a conscience, i.e. a morale sense of judging what is right and what is wrong. He must be very careful while taking business decisions because these decisions affect the entire society. d. Rule of spirit of service: The business must give importance to the service motive. That is, priority must be given to render service to human beings over profit. Morality, Virtues, Social Ethics in Business Ethics The ethical tradition of western virtues ethics goes back to Plato and even more importantly to Aristotle. Plato focuses on the four cardinal virtues of courage, temperance, wisdom and justice, where Aristotle expands his system to two classes of virtues. The first class constitutes virtues of thought such as wisdom and intelligence (the dianoetic virtues).the second class comprises virtues of character, resembling Platos cardinal virtues of courage, temperance, prudence and justice.

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Relating moral virtues to social preferences As social preferences in behavioral economics and virtue ethics are natural complements, the following section relates the four cardinal virtues to some central theories of behavioral economics. This means first linking the cardinal virtue of courage to risk neutrality and bounded rationality. Second, we will discuss temperance with regard to self control and discounting. Third, prudence is related to bounded rationality and social preferences. And finally, justice-as the most important ancient virtue is analyzed on the basis of economic fairness as exhibited in models of social preference. Business Ethics and Law

The word ethics is derived from the Greek word ethos meaning character and Latin word mores meaning customs Ethics defines what is good for the individual and for society and establishes the nature of duties that people owe to oneself and others in society. To better understand ethics let us understand and contrast the definition of ethics and law Law is a consistent set of universal rules that are widely published, generally accepted and usually enforced. These rules describe the ways in which people are required to act in society. Law: Rules created by the governing body of a society to maintain harmony, stability and justice in that society.

The relationship between Law and Ethics

Society has instituted the law that tells us certain conduct is unacceptable and will administer punishment. What we value impacts society: changing morals impacts our value system Society impacts the formation of law.

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Ethics in Workplace Workplace ethics are codes of conduct that influence the development of an ethical culture within the workplace. Going beyond what is considered legal in the area where the business operates, workplace ethics inspire communication between employees, allow for respect to be extended to each person within the organization, and promote customer relationships that are based on honesty and integrity. While there are core elements that tend to define a workbased code of ethics, the specific expressions of these central values vary from one corporate setting to the next. It is important to remember that workplace ethics are shaped by a factor. First, workplace policy must be in harmony with all laws and regulations that are currently in force in the jurisdiction where the business operates. This helps to ensure that basic workplace ethics prevent any pressure or coercion to engage in actions that are considered to be illegal, promote discrimination in the workplace, support unfair hiring and firing practices, or allow wages to be set that are below the minimum legal standards for the area. Ideally, workplace ethics keep employees and companies from doing the wrong thing and are used as a reference to determine if an employee has acted unethically. The right course of action is difficult to determine in many situations. Sometimes its not enough to simply ask, Is this ethical? A set of distinct moral values is required to determine morally correct actions. At the most basic level, workplace ethics keep employees from violating laws. Schwartz listed six main moral values relevant to the business community. They are respect, caring, trustworthiness, responsibility, citizenship and fairness. Many businesses use these values as a foundation for workplace ethics programs. Ethical employees adopt these values even with no company-sanctioned code. Some people believe that workplace ethics are tied to religion or theology. The goal of business ethics isnt to change peoples spiritual ideals; instead it establishes a set of values that direct workplace and corporate activity. Other misconceptions include the thought that only bad employees benefit from workplace ethics programs. In reality, the corporate landscape embodies a maze of moral gray areas, so employees at every level benefit from ethical direction. Ethical Decision Making Making good ethical decisions requires a trained sensitivity to ethical issues and practiced method for exploring the ethical aspects of a decision and weighing the considerations that should impact our choice of a course of action. Having a method for ethical decision making is absolutely essential. When practiced regularly, the method becomes so familiar that we work through it automatically without consulting the specific steps.

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Concepts and theories of business ethics Ethics Introduction

1. Ethics is derived from the Greek word Ethikos meaning character or custom.

2. Business ethos means the attitude, culture and the manner of doing business of the business community. 3. Ethics vs. Morality: morality refers to human conduct and values; ethics refers to the study of human character or behavior in relation to moral values. It is the study of what is morally right or morally wrong.

Ethics Definition Many ethicists prefer to call ethics as study and philosophy of human conduct, with an emphasis of determining right and wrong. The American Heritage Dictionary defines ethics as The study of the general nature of morals and specific moral choices; moral philosophy; and the rules or standard governing the conduct of the members of a profession.

In sum, ethics as a moral and normative science refers to principles that define human behavior as right, good and proper.

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Is a study of moral standards whose explicit purpose is to determine as far as possible whether a given moral standard (or moral judgment based on that standard) is more or less correct Personal ethics and Business ethics
Personal ethics refers to the set of moral values that form character and conduct of a

Manuel G. Velasquez

person.
Organization ethics describes what constitutes right and wrong or good and bad, in

human conduct in the context of an organization.

Organization ethics concerned with the issue of morality that arises in any situation

where employers and employees come together for the specific purpose of producing commodities or rendering services for the purpose of making profit. An organization can be defined as a group of people who work together with a view to achieving a common objective.
Organizational ethics, deals with moral issues and dilemmas organizations face both in

business sand non-business setting s that include academic, social and legal entities.

Morality and Law Morality refers to human conduct and value. Ethics refer to study of human character or behavior in relation to moral values, that is, the study of what is morally right or morally wrong. Philosopher James Rachels suggests two criteria fulfilling a minimum conception of morality reason and impartiality. Breaking an unjust law is not necessarily immoral. The legality of an action could not automatically be considered morally right. William Shaw in his bock Business Ethics Brings to focus two contexts to illustrate,

10 | P a g e 1. An action can be illegal, but morally right: During the freedom struggle many

wanted freedom fighters had hidden themselves in the houses of patriotic Indians to save themselves from prosecution and imprisonment. Though this was against the British law in India, this patriotic deed of freedom loving Indians was no doubt an admirably brave and moral action. 2. An action that is legal can be morally wrong: It will be legal for an organization which is running in loss to lay off a few employees but it is not morally right to do so. Law codifies a nations ideas, norms, customs and moral values. However, changes in law can take place to reflect the conditions of the time in which they enunciated. Religion and Morality Religion provides not only a formal system of worship, but also a prescription for social inter course. William H. Shaw quotes the most celebrated religious mandate which is found in almost all major religions of the world Do unto other as you would have them do unto you. Termed the golden rule. Morality, Etiquette and Professional codes Morality is the moral code of an individual or of a society. Etiquette is a set of rules for well mannered behavior. Etiquette is an unwritten code or rules of social or professional behavior such as medical etiquette. Morality is different from professional codes of ethics which are special rules governing the members of a profession, says of doctors, lawyers and so on.

Management and Ethics Management of any business involves hundred of decisions. Ethical issues occur in all decision making process. The success of any organization is measured by revenues, profits, cost-cutting, quality, quantity, efficiency. This objective of organization may run in direct conflict with its social commitment which is measured in terms of obligation to stakeholders, both within and outside organization Conflicts and ethical dilemmas are part and parcel of such processes. Cost-cutting may be used as a tool to enhance revenue and profit. In the process of realizing profit, the company may layoff some workers.

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For its own survival, it is necessary that the organization should maintain its competitive edge in the market. It should produce useful, safe, and quality products and services at affordable prices. While doing so, the organization should ensure that the interests of stakeholders are not adversely impacted. This requires fine balancing act on the part of organization. Normative Theories Ethics is a normative study. It aims to arrive at conclusions about what things are good or bad, or what actions are right or wrong. A normative theory aims to discover what should be, and would include sentences like companies should follow corporate governance standards or managers ought to act in a manner to avoid conflicts of interests. Normative ethics (also known as moral theory) is the study of what makes actions right and wrong. These theories offer moral principles one could appeal to in resolving difficult moral decisions.

There are different normative perspectives and ethical principles that often contradict one another. There is consequential and non-consequential normative theory. According to William H Shaw, They are following: 1. Egoism, both as an ethical theory and as a psychological theory. 2. Utilitarianism, the theory that a morally right action results in the greatest good to the largest number of people. 3. Kants ethics, with his emphasis on moral motivation and respect for persons. 4. Other non-consequential themes: duties, moral rights, and prima facie principles. The personalist theory argues that person should pursue their long-term interest, and do not dictate what others will do. Impersonal egoists argue that everyone should follow their best long-term interest. It doesnt mean that an egoist will act against the interest of society. They may be able to safeguard their interest without hurting the interest of others. When an organization performs or safeguards its interest without hurting the interest of others, then we can say that the organization acts ethically. Psychological Egoism
Ethicists who propose the theory of egoism have tried to derive their basic moral

principle from alleged fact that humans are by nature selfish creatures.

12 | P a g e According to proponents of psychological egoism, human beings are so made that they

must behave selfishly. They assert that all human actions are motivated by self-interest and there is nothing like unselfish actions. Whistle-blowing in an organization to bring to the notice of top brass the unethical acts practiced down the line, or by top executives, is an attempt by the whistle blower to either take revenge or become a celebrity. Criticism of the theory of Psychological Egoism
1. Egoism as an ethical theory is not really a moral theory at all: Those who espouse

egoism have very subjective moral standard, for they wanted to be motivated by their own best interests, irrespective of the nature of issues or circumstances.
2. Psychological egoism is not a sound theory inasmuch as it assumes that all actions of

men are motivated by self interest: It ignores and undermines the human tendency to rise above personal safety as proved in thousands of examples of personal sacrifices at the times of calamities such as floods, earthquakes and other natural disasters.

3. Ethical egoism ignores blatant wrongdoings. By reducing every human act to self-

interest and self-serving, the theory does not take a clear stand against so many personal or organizational vices such as corruption, bribery, pollution, gender and racial discrimination. Utilitarianism: Ethics of Welfare
Utilitarianism is an ethical mentalist theory holding that the proper course of action is

the one that maximizes the overall "good" of the society. The most influential contributors to this theory are considered to be Jeremy Bentham and John Stuart Mill. It is thus a form of Consequentialism, meaning that the moral worth of an action is determined by its resulting outcome. Utilitarianism was described by Bentham as "the greatest happiness or greatest felicity principle". Ethics is nothing but art of directing the actions of man so as to bring about the greatest possible happiness to all those who are concerned with these actions. Summarized, the utilitarian principle holds that An action is right from an ethical point of view if and only if the sum total of utilities produced by that act is greater than the sum total of utilities produced by any other act. The utilitarianism principle assumes that we can somehow measures and add the quantities of benefits generated by an action and deduct from it the measured quantities

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of harm that act produced, and determine thereby which action produces the greatest total benefits or the lowest total costs. Analysis of Utilitarian Theory When we analyze the utilitarian theory, there are certain inferences and implications of the theory that we must take into account: When utilitarian says that practicing the theory will lead to the greatest happiness for the greatest number, we should include the unhappiness or pain that may be encountered along with the happiness. Ones action will affect other people in different degrees and thus will have different impacts. Maximization of happiness is the objective of utilitarianism not only in immediate situation but in long term as well. Utilitarianism agrees that most of the time we do not know what would be the future consequence of our actions. Utilitarianism does not expect us to give up our own pleasure while choosing among possible actions. In organizational context it should be understood that: It provides standard for a policy action namely, if it promotes welfare of all, more than any other alternative, then it is good. The theory provides an objective means of resolving conflicts of self interest with the action for common good. The theory provides a flexible, result oriented approach to ethical or moral decision making. Problems with the Utilitarian Theory It concerns the measurement of utility. Utility is a psychological concept and it differs from person to person, place to place, and time to time. Hence, it cannot be the basis for a scientific theory. Karl Marx argues that human nature is dynamic, so the concept of a single utility for all humans is one-dimensional and not useful. It concerns with lack of predictability of benefits and costs. If they cannot be predicted, then they cannot be measured. It concerns the lack of clarity in defining what constitutes benefit and what constitutes cost. This lack of clarity creates problems, especially with respect to social issues that are given different interpretations by different social or cultural groups.

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Kantianism: Ethics of Duty Immanuel Kant's theory of ethics is considered deontological for several different reasons: Kant argues that to act in the morally right way, people must act from duty. Kant argued that it was not the consequences of actions that make them right or wrong but the motives of the person who carries out the action. Kant stressed that the action must be taken only for dutys sake and not for some other reason. When we act out of feeling, inclination, or self-interest, our actions have no true moral worth. The core idea of his theory is that an action is right in and only if we can will it to become a universal law of conduct. This means that we must never perform an action unless we can consistently will that it can be followed by everyone. Organizational Importance of Kantian Philosophy Kant introduces an important humanistic dimension to business decisions. Kant gives more importance to individuals. For Kant an action has moral worth only when it is done with a sense of duty. The two formulations of Kant are as follows: 1. To act only in ways that one could wish others to act when faced with the same circumstances. 2. Always to treat other people with dignity and respect. To sum up, to Kant, reason is the final authority for morality. Blind beliefs or rituals cannot be the foundation for morality. Normative theories Presently there are three normative theories of business ethics that have evolved over a period of time.

Stockholder Theory The stockholder theory, also known as shareholder theory, expresses the business relationship between the owners and their agents, who are the managers running the dayby-day business of the company.

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As per the theory, businesses are merely arrangements in which one group of people, namely, the shareholders advance capital to another group namely, the managers to realize certain ends beneficial to them. In this arrangement managers act as agents for shareholders. The managers are empowered to manage the capital advanced by the shareholders and duty bound by their agency relationship to carry on the business exclusively for the purpose outlined by their principals. According to the strict interpretation of the stockholder theory, managers have no option but to follow the dictates of their masters. If the stockholders vote by a majority that their company should not produce any obnoxious product which in the perception of the managers would be profitable business proposition the managers still have to abide by the decision of the owners of the company. The stockholder theory has been succinctly summarized by economist Milton Friedman who asserted thus there is one and only one social responsibility of business to use its resources and engage in the activities designed to increase its profits so long as it stays within the rules of the game, which is to stay engaged in open and free competition without deception or fraud. The theory stresses that managers should pursue profit only by legal, non-deceptive means. A lot of adverse criticism against the theory could have been avoided had the critics appreciated the stockholder theory did not stresses that managers were expected to pursue profit at all costs , even ignoring ethical constraints . The stockholder theory is also associated with the line of utilitarian argument adopted by liberal classical economists. Ones pursuit of profit, goaded by ones enlightened self interest in a free market economy leads collectively to the promotion of general interest as well, guided as it is by Adam Smiths Invisible Hand.
Apart from this Consequentialist line of thinking in support of the stockholder theory,

there is another deontological argument as well to buttress it. The argument runs like this: stockholders provide their capital to managers on the condition that they use it in accordance with their wishes. Criticism of the Stockholder Theory
Robert C. Solomon, in his Ethics and Excellence (1992) finds it not only foolish in the

theory, but cruel and dangerous in the practice and misled from its nonsensically onesided assumption of responsibility to a pathetic understanding of stockholder personality as Homo Economics.

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Many ethicists wish to dismiss the theory as impractical and even foolish, it is because of its perceived association with the utilitarian supporting argument and neo-classical economists, faith in invisible hand of the market forces.
Another criticism of the stockholder theory is based on a false analogy. It goes like this:

if governments of democratic societies have a moral justification to spend the taxpayers money for promoting the common welfare of people without taking their consent, then it might mean, by inference, that businesses are also justified in carrying out social welfare activities without the consent of the stockholders. Stakeholder theory In a narrow sense, the stakeholders are all those identifiable groups or individuals on which the organisation depends for its survival. In its empirical form , therefore the stakeholder theory argues that a corporate s success in the market place can best assured by catering to the interests of all its stakeholder , namely shareholders, customers , employees ,suppliers , management and local community . To achieve its objective, the corporate would have to adopt policies that would ensure the optimal balance among them. Normative Stakeholder theory contains theories of how managers or stakeholders should act and should view the purpose of organization. Another approach to the stakeholder concept is the so called descriptive stakeholder theory. This theory is concerned with how managers and stakeholders actually behave and how they view their actions and roles. The stakeholder theory deals with how managers should act if they want to flavor and work for their own interests. In some literature the own interest is conceived as the interests of the organization. In the past view years the concept of stakeholders has boomed a lot and academics wrote a lot about the topic. But also non-governmental organizations (NGOs), regulators, media, business and policymakers are thinking about the concept and are trying to implement it in some way or the other.

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Sa e o es t k h ld r
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However, the stakeholder theory unfortunately carries some sort of an unclear label since it is used to refer to both empirical theory of management and normative theory of business ethics often intermixed and without distinguishing one from the other . The fact that different people want different things from their relationships with organizations makes it impossible to know with certainty what stakeholders want. Stakeholder discussions often focus on allocating some measure of organizational value or outcome (e.g., who gets how much money from the firm). Too often, managers sit in an office trying to divine what stakeholders want from their relationship with the organization. Organization has an obligation) take moral precedence over derivatively legitimate stakeholders. Certainly, managers need to know what the stakeholders believe to be in their best interests prior to trying to make this happen-a first priority of sorts. If some activist group or competitor threatens the viability of the organization, managers should expend as much time and effort as necessary to deal with this threat.

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There is one final way that stakeholder theory can provide some managerial guidance in prioritizing stakeholders. Norms and standards of society, but instead introduces a brand-new set of moral considerations based on stakeholder obligations. Stakeholder Theory to claim that, the enterprise must be a moral obligation in order to legitimate the claims of stakeholders.

Critics

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It provides a response to the argument that the interests of stakeholders who are directly involved with the activities of an enterprise are already taken into account because they are engaged in voluntary transactions. Criticisms

The cause of criticism of this theory is that there is comparatively little empirical evidence to suggest a linkage between stakeholder concept and corporate performance. Stakeholder Theory does not provide an alternative answer to the question of who, or what, produces economic value. Its focus is on the distribution of the outcomes, the harms and benefits, and not on who produced the harms and benefits. It assumes value is produced by the enterprise itself and that stakeholders have a claim on some of this value because the enterprise is a creature of society. Stakeholder Theory does not make a clear distinction between enterprise and corporation, it dramatically overstates the separation of ownership and control, generalizing from corporations to all enterprises. Stakeholder Theory is limited to the problem of governance and control in large corporations the problem of moral justification of Stakeholder Theory turns on the idea that maximizing stockholder wealth or other interests of owners cannot morally be taken as more privileged than the interests of others who have a stake in the enterprise. As a normative model, the Stakeholder Theory is limited to situations where ownership is weak. At best, this would limit Stakeholder Theory to a very small number of very large corporations. Effecting change in the organization. In the assessment of Clive Smallman The stakeholder model also stands accused of opening up a path to corruption and chaos; since it offers the opportunity to the agents to divert wealth away from shareholders to others, and so goes against the fiduciary obligation owed to shareholders (a misappropriation of resources). Thus stakeholder model of corporate governance leads to corrupt practices in the hands of managements with a wide option.

The social contract theory The social contract theory is one of the nascent and evolving normative theories of business ethics. It is closely related to a number of other theories. In its most acknowledged form, the social contract theory stresses that all business are ethically duty bound to increase the welfare of the society by catering to the needs of the consumers and employees without in any endangering the principles of natural justice.

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The social contract theory based on the principle of social Contract wherein it is assumed that there is an implicit agreement between the society and any created entity such as business unit, in which the society recognizes the existence of a condition that it will serve the interest of the society in certain specified ways. The theory drawn from the models of the political-social contract theories enunciated by thinkers like Thomas Hobbes, John Locke and Jean Jacques Rousseau. All these political philosophers tried to find an answer for a hypothetical situation as to what life would be in a society in the absence of a government and tried to provide an answer by imagining situations of what it might have been the citizens to agree to form one. The social contract theory adopts the same approach as the one adopted by the political theories towards deriving the social responsibilities of a business firm. The social contract theory is based on an assumed contract between business and members of the society who grants them the right to exist in return for certain specified benefits that would accrue to them. However business firms do not provide an unmixed blessing. The interests of the public as consumers can be adversely affected by business firms when they deplete the natural resources pollute the environment and poison water bodies, help to reduce the personal accountability of its member and misuse political power through their money power. Taking into account these respective advantages and disadvantages , business firms are likely to produce the social welfare element of social contract and enjoin that business firms should act in such a manner so as to: 1. Benefit consumers to enable them reach maximization of their wants. 2. Benefit employees to enable them secure high incomes and other benefits that accrue by means of employment. 3. Ensure that pollution is avoided, natural resources are not fast depleted and workers interests are protected.

Criticism of social contract theory Critics argues that the so-called social contract is no contract at all. Legally speaking, a contract is an agreement between two or more persons which is legally enforceable provided certain conditions are observed. So the social contract is more of fiction than a true contract.

Indian Ethical Traditions Teachings of Church

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The church always supports and promotes the welfare of the poor. The churchs concern for the marginalized is always expressed through their teaching. The less privileged and the marginalized realize the fact that the wealth is in the hands of a few. This emerging awareness of the mass is supported by the church. The social teaching of the church, based on Christian ethics, comprises sets of principles, guidelines and applications which provide a compelling challenge for individuals as well as corporations in responsible citizenship.

Gandhian Principle of Trusteeship The philosophy of trusteeship implies that an industrialist or businessman should consider himself to be a trustee of wealth he possesses. He should think that he is only a custodian of his wealth meant for the purpose of business. The wealth belongs to the society and should be used for the greatest good of all. It does not recognize capital and assets as individual property. Gandhi also advocated Sarvodaya, meaning welfare for all. He was of the firm view that capital and asset should supplement each other.

Business and Islam Dr. Muzammil H Siddiqi in his article Business Ethics in Islam enumerates the following major principles drawn from the teachings of Prophet Mohammad: No fraud or deceit. No excessive oath in a sale. Need for mutual consent. Be restricting in regard to weights and measures. The prophet was very much against monopoly. Hoarding is forbidden. Transaction of things that are forbidden is also forbidden, such as intoxicants.

Ethical Theories in Relation to Business

Egoism is an ethical theory that treats self-interest as the foundation of morality. Egoism contends that an act is morally right if and only if it best promotes an agents (persons, groups or organizations) long term interests.

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Decision based on egoism mainly is intended to provide positive consequences to a given partys interest without considering the consequences to the other parties. Philosophers distinguish between two kinds of egoism: personal and impersonal.