Alempijevi Aleksandar, 740/13Vujanovi Filip, 741/13*Ethics in business

Dictionary meaning: system of morals, rules and conduct.The origin of this word is from ETHOS which means character.Ethics is defined as the ability to distinguish between right and wrong and act accordingly.*

Ethics are no more in religious texts; they are a part of business lawIf you think business and ethics are aliens, you are mistakenNot only are ethics respected in business, they are a part of the lawAs a part of Sarbanes Oxley law, directors have to sign an ethics declarationThis law enacted in pursuance of series of corporate scandals:Enron, WorldCom, Tyco, etc.In India also, this has been implemented: all directors annually sign Code of Corporate EthicsThis is part of Corporate Governance CodeClause 49 of the Listing Agreement*

Are ethics and business compatible?In an extreme, altruistic sense, business and ethics may seem incompatible:Earning profits may also be a unethicalIn Islamic finance, earning interest is unethicalAll possessions stem from insecurity; insecurity comes from mistrust:Therefore, possession itself may be unethical in extreme sense Lots of businesses may need violence of some degree:E.g., Medical researchWhere do we draw the line between business and morality:If the approach is subjective, then ethics lose their meaning as everyone defines ethics to suit ones convenienceIs there a universal, perennial definition of ethics?*

Why ethics is important in business?To gain the goodwill of the community.To increase the lifetime of an organization.Produce safe and effective products.Provide excellent service & Maintain customers.Develop and maintain strong employee relations - Suffer less turnover- Enjoy better employee moraleSuppliers and other business partners prefer companies that operate in a fair and ethical manner

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Why is business ethics important for a company?Protects and improves sales, reputation and company image.Improves faithfulness and engagement of its employees.Prevents business loss.Empowers communication channels for interest groups.Helps to retain license to operate.Decreases risk.

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When did ethics begin?In most cultures, ethics are connected with divine origins:Babylonian civilization received laws of Hammurabi from sun godGod gave 10 commandments to MosesIn Greek civilization, Plato says that god Zeus gave morality to help mankindManusmriti Samhita incorporates earliest code of social and legal ethics in India

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Ethics is long term policyAll religion, all ethics and morals spring from the basic conflict between short term and long term:If we limit ourselves to the short term:Pleasures today, even at the cost of pains tomorrow, sound like a good bargainIf we take long term into account:Every such pleasure which is not lasting, is avoidableLong term is how long:Do we look at our lifetime?Do we look at the lives of our children and posterity?Do we take the eternal view of perennial lifeReligion in its absolute form tends towards the eternal view:All practical adaptations of ethics are essentially truncated forms of the total religious view*

Long termism in businessIssues of corporate ethics have taken the form of short-termism vs. long-termismIf businesses are focused on long term stability and growth, they are ethical:Short term strategies, aimed at earning per share for the year in question, compromise on longer interestsWarren Buffet has often stressed on long term strategiesInvestigations into Fannie Mae suggested that the entire senior management was intensively focused on earnings guidanceCapital market orientation of companies force them to be tempted by short term targets:Increasingly, the entire system of how companies are evaluated by analysts, investors and stock markets leads to a short term approachMcKinsey survey [March 2006] shows that companies are focused on short term strategies due to market pressures*

Can it be ethical, if it is not legal?Is law the embodiment of ethics? The essence of ethics is long-termismLaws are contemporaryNot all laws are based on foundations of ethicsLaws change every quarter; surely every yearThe way present-day laws are made, they are full of errors and aberrationsHence, it is possible to draw lines of distinction between law and ethics*

A possible, incomplete, practical guide to ethics in businessIf there is a rule, and an exception to the rule, the idea should be to fit into the rule and not fit into the exceptionIf short term and long term interests clash, long term should prevail:How long is long term may be 5-7 yearsConduct which violates code of ethics of a self-regulatory organization is unethicalWhile the eventual aim should be total ethics, there is nothing wrong in progressing towards ethics in stagesWhere business relations are based on long-term faith, a conduct that breaches the faith is unethicalE,g. cheating of a business partnerLaws that are founded on principles of morality and good business conduct should not be violatedIf business using investors/lenders money becomes unsuccessful, ethics requires minimal personal expenses and maximum effort to restore businessIf a conduct is unethical, anything done to cover it is also unehtical*

Warren Buffets rule of thumb for ethical conductI 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]

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A General Framework of the Ethical Decision-Making ProcessETHICAL SITUATIONCHARACTERISTICS OF THE DECISION MAKERSIGNIFICANT INFLUENCES

OUTCOMES

DECISION*

Individual Characteristics of the Decision Maker that Influence the Ethical Decision-Making ProcessETHICAL SITUATIONCHARACTERISTICS OF THE DECISION MAKERSIGNIFICANT INFLUENCES

OUTCOMES

DECISION

* Achievement motivation* Knowledge* Need for affiliation* Experience* Ego strength* Risk taking* Locus of control *

Significant Influences on the Ethical Decision-Making ProcessETHICAL SITUATIONCHARACTERISTICS OF THE DECISION MAKERSIGNIFICANT INFLUENCES

OUTCOMES

DECISION

* The organization* Technology* Work* Significant others; customers,* The law peers, immediate supervisor,* Economics top managers, family, friends,* Professionalism other opinion leaders*

Outcomes that Result from the Ethical Decision-Making ProcessETHICAL SITUATIONCHARACTERISTICS OF THE DECISION MAKERSIGNIFICANT INFLUENCES

OUTCOMES

DECISION

* Performance* Feedback* Rewards * Promotions* Satisfaction* Learning

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Elements of the Ethical SituationETHICAL SITUATIONCHARACTERISTICS OF THE DECISION MAKERSIGNIFICANT INFLUENCES

OUTCOMES

DECISION

* Opportunity* Ethical decision history* Moral intensity of the situation*

THE ESSENCE OF ETHICS I(Article by Williams)Codes of ethics do not necessarily lead to ethical behavior.The core values we profess are not necessarily those by which we live.Build ethics into organization policies and practices.Make sure quality and service and integrity permeate the entire organization.Develop high expectations of all members of your organization.

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THE ESSENCE OF ETHICS II (Article by Williams)Create an organizational culture that

encourages...open and honest communicationcontinual learningpersonal developmentrespect for people*

*ConclusionIn order to win the game, you need to plan. To plan information is imperative. Get it through legal and ethical means. Its fact that to win consistently, you need to play by rules. In life play hard and play fair. In life and business: Ethical Standards must be Set, Ethical Standards must be Met.

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*The business environment is still not good even for the most successful businessmen.Business ethics in SerbiaFalse representation of business performance, improper relationship with clients, hiding information, employment of relatives and setting bugged the phones are just some examples of bad business in Serbia, recognized some of the owners of the largest companies.We still have a privileged monopolists, who were not ethical, but are illegal.We need to remove politics from companies and public administration, in order to have a more serious administration.

Thank you!*

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