BUSINESS ETHICS

Presented by Robin Shah BE Biotechnology

Contents
I. What is business? II. Defining Ethics III. Models of management ethics IV. Ethical Behavior V. Business Ethics VI. Stages of consciousness of Business Ethics VII.Ethics in business VIII.Need of Business Ethiccs IX. Conclusion

What is Business?
It can be defined as a primary economic institution through which people in modern societies carry on the task of producing and distributing goods and services.

Defining Ethics
The word ethics is derived from the Latin word ethicus and the Greek word ethikos, meaning characters and manners. Ethics can be interpreted as the method of systemizing, defending & recommending concepts of right & wrong behavior.

3 Models of Management Ethics

Moral Immoral Amoral

1. Moral ManagementConforms to high standards of ethical behavior. 2. Immoral ManagementA style devoid of ethical principles and active opposition to what is ethical. 3. Amoral Management
Intentional - does not consider ethical factors Unintentional - casual or careless about ethical considerations in business

Moral, Immoral and Amoral

A petrol bunk owner engaged in selling both petrol and diesel to the customers for a profit is an example of amoral conduct. But, if the owner indulges in mixing petrol with kerosene and sells it to the customer, then his act is said to be immoral.

Choice between right and wrong is termed as Moral Judgment.

 In many situations lines between right and wrong are blurred. Such situations can lead to ethical dilemmas. When faced with ethical dilemmas, its important to consider outcomes of the decision-making process. One way of dealing with ethical dilemmas is by using the four way test to evaluate decisions. This test involves asking four questions: Is my decision a truthful one? Is my decision fair to everyone affected? Will it build goodwill for the organization? Is the decision beneficial to all parties who have a vested interest in the outcome?

What is Ethical Behavior?

What will you do?

1. A customer asked for a product from us today. After telling him our price, he said he could not afford it. I know he could get it cheaper from a competitor. Should I tell him about the competitor or let him go without getting what he needs? What is the guideline for us? The societal interest or the personal interest? 2. My boss told me that one of my employees is among several others to be laid off soon, and that I'm not to tell my employee yet or he might tell the whole organization which would soon be in an uproar. Meanwhile, I heard from my employee that he plans to join his daughter in an engineering college. What should I do?

Sources of Ethical Norms

Neighbors Fellow Workers Regions of Country

Family
The Individual Conscience Friends

Profession

Employer

The Law

Religious Beliefs

Society at Large

Warren Buffets rule of thumb for ethical conduct

I want employees to ask themselves (when they are in doubt about whether a particular conduct is ethical or not) whether they are willing to have any contemplated act appear the next day on the front page of their local paper to be read by their spouses, children and friends with the reporting done by an informed and critical reporter. [Berkshire Hathaways code of ethics] Character of a man is what he does, when he thinks that no one is looking - Anonymous

Business Ethics
Business ethics can be defined as written and unwritten codes of principles and values that govern decisions and actions within a company. In the business world, the organizations culture sets standards for determining the difference between good and bad decision making and behavior. For example Azim Premji tells all his employees whatever that is, Grey is Black. That means even if there is some kind of doubt about a transaction, do not go for it.

WHO IS RESPONSIBLE FOR CREATING ETHICS IN AN ORGANIZATION ?

A companys managers play an important role in establishing its ethical tone. If managers behave as if the only thing that matters is profit, employees are likely to act in a like manner. A companys leaders are responsible for setting standards for what is and is not acceptable employee behavior.

Its vital for managers to play an active role in creating a working environment where employees are encouraged and rewarded for acting in an ethical manner.

Other Factors Impacting Organizational Ethics

Corporate culture Existence and application of a written code of ethics Formal and informal policies and rules Norms for acceptable behavior Financial reward system System for recognizing accomplishment Company attitude toward employees How employees are selected for promotions Hiring practices Applications of legal behavior Degree to which professionalism is emphasized The companys decision making processes Behaviors and attitudes of the organizations leaders

Stages of Ethical Consciousness in Business

Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6 Law of the Jungle Anything for profit Profit maximization in the short-term Profit maximization in the long-term Stakeholder concept Corporate Citizenship
Source: ICMR Centre of Management Research

Stages of Ethical Consciousness in Business

The first three stages are coming under Aggressive Capitalism. Profit maximization is the main objective of the organization and the objective has to be achieved at any cost. The last three stages are coming under conscious capitalism. Here organizations are aiming for long term profit . They believe on the value premise that ethics can not be diluted if they have to survive in the long run.

Stages of Ethical Consciousness in Business

Law of jungle : This implies corporate are ready to earn the profit by applying money, muscle, mafia, media as well as political power. For example: Removal of tribal people in the name of industrialization without offering any kind of compensation or rehabilitation package.

Stages of Ethical Consciousness in Business

Anything for profit : According to this, Earning profit is only ethics for business. Organization can do anything such as bribing the Government, misrepresentation of statement, window dressing etc. For example- Telecom Companies like Unitech & Swan purchased Unified Access Service (UAS)licenses from Telecom Ministry of Government of India after paying Rs 1658 crore. It has created a confusion about the mind of all rational individuals how the rate of Rs 1600 crore determined as far back as in 2001 has been applied for a license given in 2007 without any indexation. The possibility can not be ignored that companies might bribe the Telecom Minister to get the license at very cheap rate.

Stages of Ethical Consciousness in Business

Short Term Profit Maximization : The focus is on short term gain rather than long term viability of business. Often black marketers do hoarding of essential commodities to create an artificial demand for the product so that they will be able to offload their stock at a higher price. For example- After the general election of 1998, Mr. Atal Behari Bajpayee led National Democratic Alliance came into power. In the same year, the assembly elections were going to happen in Delhi, Madhya Pradesh and Rajasthan . Just couple of months before election, onion price went up like anything. As a consequence incumbent BJP lost the assembly poll to each state as they were unable to control the price hike of necessity commodity like onion. After the assembly election, when Government raided different go downs, it was found that huge amount of onion was hoarded by blackmarketers.

Stages of Ethical Consciousness in Business

Long Term Profit Maximization : Here goal of the company is achieving long term sustainability and creating a sound brand equity. Therefore in the short run they are ready to incur some cost. For example: Mahindra & Mahindra, a major player in Indian Auto Ancillary market, is also selling tractor side by side.

The auto major is transferring these tractor selling outlets by adding a repertory of agricultural operation & advice. The new move is known as Samriddhi. Independent of the fact that whether the farmer has the tractor of M& M or not, they can come their to solve their agricultural problems. Each Samriddhi center has an agricultural expert and a lab technician.
When farmer walks into Samriddhi center, expert asks about their problem and farming practices. The nature of assistance is lab tests on farmers land , advice on the crops nature, schedule, utilization of fertilizer, demonstration of farming technique on different seeds. Advises are available at free of cost.

Stages of Ethical Consciousness in Business

Stakeholder Concept : Here the objective of the organization is not limited to the maximization of wealth of the shareholders but the emphasis is given to maximize the satisfaction of all the stakeholders such as creditors, suppliers, employee, customer & society as a whole. For example Marico is in business of cooking oil but Marico spends time and money telling people how to go easy on it. Marico launched the Saffola Healthy oil. Saffola is made in such a way that consumer will be able to use less of it than other oils. Company has 9 to 6 phone line where anyone can talk with nutrition expert for diet related queries. The expert does not promote saffola. It facilitates the common people to know their state of health. In the year 2009-10, with every pack of saffola, company gave away two coupon of free lipid profile test. The Saffola health Heart foundation set up in 1991 holds free heart and cholesterol check up . For heart patient, it involved cardiac rehabilitation workshop which included session by cardiologist, physiotherapist etc.

Stages of Ethical Consciousness in Business

Corporate Citizenship: The companys focus is on societal marketing concept. Apart from earning profit, they always prefer to maintain a human face . For Example : Tata Steel , mentioned in one of its Article of Association (AOA) that company shall be mindful of social and moral responsibility to consumers, employees, shareholders as well as local community. All civic amenities in 103 year old city Jamshedpur is managed by the subsidiary of Tata Steel by Jusco. Tata Steel had done this just to ensure that their employees could reside nearby the factory . As a result productivity of the workers would not be reduced due to wastage of time , labor and energy for reaching to their workplace.

Ethics in Business
Business Ethics towards Employees: Payment of right wages and salaries. Provision of proper facilities. Proper personnel policies relating to promotion, performance appraisal, transfers, etc; Business Ethics Towards Customers: Right pricing. Ethical promotion including advertising. Provision of proper information about products etc.

Business Ethics Towards Competitors: Fair competitive practices. Restraining from maligning competitors names. Restraining from instigating employees, suppliers or dealers or competitors etc.

Ethics in Business
Business Ethics Towards Government: Timely filing returns and other records. Payment of proper dues including taxes. Supporting Government in social development activities, etc; Business Ethics Towards Suppliers: Proper supply contact. Timely payment of dues. Restraining from pressure tactics on the dealers, etc; Business Ethics Towards Dealers: Timely delivery of products. Proper dealer contact. Restraining from pressure tactics on the dealers, etc;

Ethics in Business
Business Ethics Towards Shareholders/Stakeholders: Provision of proper information. Timely payment of dividend. Restraining form insider trading on the stock markets, etc;

Business Ethics Towards Financial Institutions: Proper information about firms financial position. Timely repayment of advances and interest

Need of Business Ethics

Protection of Consumer rights Social Responsibility

Concept of Socialism
Interest of Industry (Small and Large) Consumer Movement

Better Relations between Business & Society

Public expects business to exhibit high levels of ethical performance and social responsibility. Encouraging business firms and their employees to behave ethically is to prevent harm to society. Promoting ethical behavior is to protect business from abuse by unethical employees or unethical competitors. High ethical performance also protects the individuals who work in business.

Conclusion
Ethics are important not only in business but in all aspects of life because it is an essential part of the foundation on which of a civilized society is build.

A business or society that lacks ethical principles is bound to fail sooner or later. In the globalized era, we find that Ethics will be one of the enablers of competitiveness.

Thank You
If business is ethical, then making loss is unethical