Business Ethics & Corporate Governance : Overview

With the growing strength of consumer movements and rising levels of awareness among stakeholders, corporations are realizing that stakeholders and consumers are no longer indifferent to unethical practices like financial irregularities, tax-evasion, poor quality products and services, kick-backs, non-compliance with environmental issues, and hazardous working conditions.

Many Indian companies too have recognized the importance of integrity, transparency, and open communications.

They believe that the goodwill resulting from adopting and successfully implementing a code of business ethics will, in the long run, translate into economic gains. Today, investors want to ensure that the companies they invest in are not only managed properly, but also have proper corporate governance.

They regard corporate governance as a control mechanism that ensures the optimum use of the human, physical and financial resources of an enterprise.

Companies have now begun to integrate ethics into their corporate cultures and concentrate on putting appropriate corporate governance mechanisms in place.

Chapter 1

SUMMARY: This chapter provides an insight into the subject of ethics and business ethics. Many philosophers have expressed different views about ethics. But they all agree that, in

essence ethics deals with what is right or wrong.

Similarly the term business is defined as a primary economic institution through which people in modern societies carry on the task of producing and distributing goods and services.

Thus, business ethics is nothing but an application of ethical judgments to business activities. There was an argument whether ethics should form a part of business or not. This resulted in three different views: Unitarian view, Separatist view and Integration view. Unitarian view argues that morality and ethics are related to business.

The Separatist view expressed that, business should concentrate on profits, and ethics and morality do not form a part of business. The Integration view defined a new area called business ethics, where ethical behavior and business are integrated. The external forces like government, market system, law and services will guide the ethical behavior of the business. Finally, the chapter discusses about the need or necessity for business ethics - business in order to survive in the long run should concentrate on the welfare of the society.

Business Ethics : Chapter 2

SUMMARY: In this chapter we first discussed the three categories of ethical theories: metaethics, normative ethics and applied ethics. Metaethics is the study of the origin and meaning of ethical concepts. Broadly, it deals with metaphysical, psychological and linguistic issues. While normative ethics establishes certain moral standards for human behavior. Normative ethics is further classified as: teleological, deontological and virtue ethics.

According to teleological ethical theory, an action is considered morally correct if the consequences of that action are more favorable than unfavorable. Deontological ethical theory focuses on certain fundamental duties such as duties to God, duties to oneself and duties to others. Applied ethics deals with specific controversial issues like capital punishment, abortion and nuclear war.

In the second part of the chapter, we examined the effect of unethical practices on the market system. Unethical practices like coercion, deceptive information, theft and bribery hamper the effective functioning of the market system. For business to be successful in the long run, it must build up relationships of trust with its suppliers, customers and employees.

The chapter ends with a discussion of the Integrative Social Contract Theory. Social contract theory is an informal agreement concerning behavioral norms. It comprises of three elements: hypernorms, macro social contract and micro social contract. Hypernorms are universal norms that apply to all individuals. Macro social norms provide global norms while micro social norms are developed for community.

The Ethical Organization and its Corporate Code : Chapter 3

SUMMARY: In this chapter we discussed the characteristics of an ethical organization and the development and implementation of a corporate code.

Three theories are commonly used to judge the ethical nature of organizations: theory of corporate moral excellence, ethics and stakeholder theory and ethics and corporate governance. According to the first theory, the

culture and values of an organization play an important role in developing an ethical organization.

The second theory states that the behavior of the management towards its stakeholders plays a pivotal role in building an ethical organization.

And according to third theory, good governance is necessary for building an ethical organization.

Organizations frame corporate codes that lay down ethical standards for employee behavior. The development of a corporate code involves identifying the key behavior, reviewing the codes containing the key behavior, communicating by distributing copies of the code and, finally, updating the codes according to the laws and regulations.

Once the code is developed, it has to be implemented. An approach proposed for implementing the corporate code involves organizational structure, coordination, motivation and communication.

If an organization develops a corporate code to guide the behavior of its employees, and if the company's' Espoused and Values in practice are aligned then the organization can be termed as ethical organization.

Ethics and Rule of Law : Chapter 4

SUMMARY: In this chapter, we discussed law, moral standards, the formation of law and problems associated while formulating law.

Law can be defined as a set of rules, established to govern individual behavior.

It also provides a basis for decision making when one is confronted with an ethical dilemma. Moral

standards, however, only deal with "right" and "wrong" behavior.

The moral standards and the law are related to each other since they deal with certain common issues.

This chapter also discusses the formulation of laws. Four processes are involved in the formulation of laws: individual, group, society and political.

The chapter ends with a discussion of problems associated with transforming moral standards to legal requirements.

Business Ethics and Environment : Chapter 5

SUMMARY: This chapter deals with environmental ethics, environmental issues and the green initiatives adopted by various companies. Environmental Ethics is concerned about moral basis of environmental responsibility.

This concern inturn gave rise to three approaches: Anthropocentrism approach, axiological approach and eco-centric approach. The first approach focuses on the utility that human beings can derive by protecting the environment. According to the second approach it is moral responsibility of human beings to protect animals.

The last approach is a blend of first and second approach, which states environment has to be influenced by taking such activities, which are

aimed at preserving environment.

The chapter discusses some of the environmental issues that Western Europe has had to face problems due to water pollution, while India has been severely affected by air pollution. The causes for the Bhopal gas tragedy in India were also examined. Companies are becoming more environment conscious and are adopting green policies. The chapter examines a few such green initiatives:

Environmental friendly technology, green tourism, green community and environmental campaigning.

Environmental friendly technology encourages the development and use of technology that will reduce waste and pollution. Green tourism is aimed at preserving the landscape. Green community aims at transparency of environmental activities of organizations.

Environmental counseling programs are conducted to voice their ideas and opinion on environmental issues. In this chapter, we also examine India's greenest companies: ABB, ICI and Tata Iron and Steel. The chapter concludes with a look at the Government of Indians polices for preserving the environment.

Ethical Issues in Strategic Management : Chapter 6

SUMMARY: In this chapter, we discussed, strategic management - an overview, ethical issues in strategic management, ethical decision-making model, and principles underlying an ethical approach to strategic management. Organizations while making strategic decisions face some ethical issues.

Ethical issues such as setting vision, senior manager's remuneration, implementing strategic change, changes in organization ownership and global strategic operation question the

management to what extent such decisions are proper. In such a scenario mangers make use of ethical decision model, to make a right decision.

And while taking decisions an organization should know the principles that enable an ethical approach to take strategic decisions.

These principles are spelt out in three theories: stakeholders' theory, strategy and ethics, loyalty and psychological contract and cultural relativism.

Ethical Issues in Marketing Management : Chapter 7

SUMMARY: The chapter looks at the importance of marketing ethics for an organization. With public attention focused on ethics, there is a need for stricter controls in business practices, right from framing marketing strategies to finally delivering a product to the consumers.

The chapter examines significant factors, individual factors and opportunity factors that have a bearing on the ethical nature of marketing decisions. In the context of marketing mix, the importance that product, place, price and promotion have been discussed.

In this context the importance of environmental factors on the manufacturing of the products have been dealt with. Ethical issues play an important role in the promotional activities.

Especially the impact on children due to such ads has been discussed. Also the ethical aspects involved in the service aspects like people, physical evidence and process have been discussed. The chapter concludes with a discussion of the ethical issues involved in marketing research.

Ethical Issues in Operations Management : Chapter 8

SUMMARY: The chapter discusses the importance of ethics in operations management and the role of operations mangers in implementing ethical decisions.

Through detailed training programs and bringing about heightened awareness among the employees regarding the ethical issues, managers can make ethics as an important part of the decision-making process.

In every decision from people management in the area of human resources to key decisions regarding suppliers, the interests of both the internal and external customers must weigh equally in the minds of the operations manager.

The chapter also discusses the ethical dilemmas that managers face while implementing their decisions.

Ethical Issues in Purchase Management : Chapter 9

SUMMARY: The purchasing function has been disregarded for a long time, but now it is being scrutinized closely because of its interaction with suppliers and external market.

The chapter has highlighted the importance of the purchasing function and the impact just-in-time has on achieving product quality through long-term contract and fair prices.

Ethical issues in purchasing- favoritism, accepting of gifts by suppliers, disclosing confidential information were also discussed.

Purchase managers often favor suppliers who are also good customers. Thus developing a mutually beneficial relationship. In some cases, purchasing managers discriminate in favor of suppliers who are close to the top management so that they can gain the support and confidence of the top officials.

UK and US were touched on briefly. A research study on the way buyers activities are perceived (as ethical or unethical) was reserved.

Ethical Issues in Human Resource Management : Chapter 10

SUMMARY: The attitude of a business towards its employee’s acts is a litmus test for its ethical character. The relationship between the business and its employees is based on the employment contract.

In this chapter we discussed various ethical issues in personnel management activities like: hiring, remuneration and retrenchment. An ethical organization follows the principle of ethical selection for hiring prospective employees.

According to this principle an organization should hire a person who is expected to contribute the maximum towards enhancing long-term owner value.

According to the principle of ethical selection factors like age, gender, religion and nationality are irrelevant for hiring a person.

Ethical remuneration rewards only those acts of an employee that contribute to long-term owner value. We also discussed the impact of retrenchment on employee morale and how companies can minimize the adverse effect of retrenchment.

Ethical Issues in Finance : Chapter 11

SUMMARY: The attitude of a business towards its employee’s acts is a litmus test for its ethical character. The relationship between the business and its employees is based on the employment contract.

In this chapter we discussed various ethical issues in personnel management activities like: hiring, remuneration and retrenchment. An ethical organization follows the principle of ethical selection for hiring prospective employees.

According to this principle an organization should hire a person who is expected to contribute the maximum towards enhancing long-term owner value.

According to the principle of ethical selection factors like age, gender, religion and nationality are irrelevant for hiring a person.

Ethical remuneration rewards only those acts of an employee that contribute to long-term owner value. We also discussed the impact of retrenchment on employee morale and how companies can minimize the adverse effect of retrenchment.

Ethical Issues in Accounting & Other Functions : Chapter 12

SUMMARY: The chapter has discussed some of the ethical issues related to accounting. It also discusses the importance of financial statements and examines how some companies manipulate

their financial statements. In this context the frauds that are committed in financial statements have been discussed with emphasis on fictitious revenues, fraudulent timing revenues, concealed liabilities and revenues, improper disclosures and fraudulent asset valuations.

There are two types of accounts, they are financial accounts that are used to report to the shareholders the financial position of the firm and the Internal management accounts that are essential to regulate internal business activities. The transparency in disclosure of these accounts is important and the role of accountant has been discussed in this context.

The role of auditor and the rules governing the professional conduct of business have been discussed in detail. Ethical audit a tool that helps business owners to be accountable has been discussed and its main objectives have been summarized. The ethical aspects in information technology have been discussed with reference to hacking and the information technology act.

Ethical Dilemmas at Workplace : Chapter 13

SUMMARY:

This chapter examines ethical dilemmas faced by employers and employees in the workplace.

Dilemmas at work relate to power, authority and trust and secrecy, confidentiality and loyalty.

Ethical dilemmas at the work place can be resolved either by the employer (manager) or the employee.

Nash lists a number of questions that will help mangers solve such dilemmas.

Employees can adopt the ‘believe' approach to resolve dilemmas.