Business Ethics

Ethics
• Ethics is a conception of right and wrong conduct.
• Steiner and Steiner, “Business ethics is the study of
good and evil, right and wrong, and just and unjust
actions in business.”
• Ethical principles guides to moral behavior.
• For example, in most societies lying, stealing,
deceiving, and harming others are considered to be
unethical and immoral.
• Ethical ideas are present in all societies,
organizations, and individual persons, although they
may vary greatly from one to another.
 Unethical practices in Businesses
• Fraud, employment discrimination, bribery, data
conspiracy, disrespect of intellectual right,
environmental pollution, lack of fairness, dishonesty,
favoritism and nepotism, sexual harassment, etc
 Ethical/Moral Relativism
• https://youtu.be/518FR6SbY_k
 Ethical/Moral Relativism
• Ethical relativism holds that ethical principles should
be defined by various periods of time in history, a
society’s traditions, the special circumstances of the
moment, or personal opinion.
• In this view, the meaning given to ethics would be
relative to time, place, circumstance, and the
person involved.
• In that case, the logical conclusion would be that
there would be no universal ethical standards on
which people around the globe could agree
 Business Ethics
• It is the application of general ethical ideas to
business behavior.
• It is not a special set of ethical ideas different from
ethics in general and applicable only to business.
• If dishonesty is considered to be unethical and
immoral, then anyone in business who is dishonest
with stakeholders is acting unethically and immorally.
• If protecting others from harm is considered to be
ethical, then a company that recalls a dangerously
defective product is acting in an ethical way.
 Dimension of Ethics
• Normative ethics/Prescriptive ethics: Theories that seeks
to provide guidelines (should/must) for determining
what actions are morally right or wrong. It is concerned
with establishing principles and standards that can be used
to evaluate moral conduct and make moral judgments.
Example:
• Women should earn the same salary as men.
• People should drive electric cars instead of consuming
fossil fuels.
• Companies should not use child labor.
• Child abortion should be banned
 Dimension of Ethics Cont..
• Descriptive ethics: Theories that seeks to describe and analyze how
people actually behave and think about ethical issues. Unlike
normative ethics, which focuses on providing guidelines for
determining what actions are morally right or wrong, descriptive ethics
is concerned with describing the moral beliefs, values, and practices
that exist in different societies and cultures.

Example:
• Research conducted by anthropologist Richard Shweder on the
cultural differences in attitudes towards abortion. Shweder found that
while some cultures view abortion as morally wrong and unacceptable,
others view it as a necessary and acceptable practice. In some cultures,
for example, abortion is seen as a way to prevent the birth of children
who would not be able to survive due to poverty or illness.
 Why Business should be Ethical? Impact of
Ethics on Business & Society
• Improves the brand image
• Helps to win customer loyalty
• Helps to attract investors
• Helps to attract best employees
• Helps to attract vendors/suppliers
• Prevents or minimizes harm
 Causes of Ethical Problems
• Personal gain and selfish interest
• Competitive pressures on profit / Short-Run
Goals
• Conflict of interest
• Cross cultural contradictions
• Lack of ethical knowledge
• Unclear Policies and Process Loopholes
Consequences of Ethical Problems
• Reduced sales of goods
• Drop in stock price
• Negative effect on employee performance
• Tarnishes the brand image
• Less attraction from investors’ side
• Less attraction from vendor’s side
 Core Elements of Ethical Behavior
1. Manager’s value
2. Spirituality in workplace
3. Manager’s moral development
 1. Managers Value
• Managers are key to whether a company and its employees will act
ethically or unethically. It starts from Managers (Top Levels)
• As major decision makers, they have more opportunities than others to
create an ethical tone for their company.
• For example, if a manager values honesty and transparency, they are more
likely to create an environment where employees feel comfortable
reporting ethical violations or concerns. On the other hand, if a manager
prioritizes profit over all else, they may be more likely to tolerate or even
encourage unethical behavior if it benefits the bottom line.
How Organization Cultures Form
 2. Spirituality in Workplace
• Spirituality in workplace are the aspects of the
workplace, either in the individual, the group, or the
organization, that promote individual feelings of
satisfaction through spirituality
• Scholars have found that spirituality positively affects
employee and organizational performance by
enhancing intuitive abilities and individual capacity
for innovation, as well as increasing personal growth,
employee commitment, and responsibility
 Spirituality in Workplace…cont’
• Workplace spirituality effects can be seen at three
levels: individual level, organizational level and a
combine of individual and organizational level
• Firstly, at the individual level within organizations,
workplace spirituality is defined as “the individual’s
experience of energy, joy, and awareness of
alignment between one’s value and one’s
meaningful work, a sense of connection to others,
something larger than self, and transcendence”
 Spirituality in Workplace…cont’
• Secondly, workplace spirituality at the
organizational level is described as consisting
of a culture or spiritual climate with value,
purpose and vision of the organization
• Workplace spirituality is crucial for developing
strong bonds with a co-worker, finding one’s
purpose of life and having consistency
between individual’s core belief and
organizational values at the workplace
3. Managers’ Development and Reasoning

• Managers’ Development and Reasoning is

another core element of ethical character in
the workplace.
• Managers are likely to be at different stages of
moral development and reasoning.
• Higher moral development and reasoning ,
higher will be the ethical behavior in the
workplace.
 Stages of moral development and Ethical Reasoning

• https://youtu.be/bounwXLkme4
 Stages of moral development and Ethical Reasoning
Age Group Development Stage and Major Ethics Referent Basics of Ethics
(how we see right or wrong?) Reasoning

Mature Stage 6 Universal principles: justice, fairness, Principle-centered

adulthood universal human rights reasoning

Mature Stage 5 Moral beliefs above and beyond specific Principle-centered

adulthood social custom: human rights, social contract, reasoning
broad constitutional principle
Adulthood Stage 4- Society at large: Ethics relate to customs, Society-and law-
traditions, laws centered reasoning

Early Stage 3-Social groups: Right or wrong is Group-centered

adulthood, determined by the relation with the reference reasoning
groups such as friend or family, etc
Adolescence, Stage 2- Reward seeking: Those behavior are Ego-centered reasoning
youth ethical which generate positive consequence (Ego means “self”)

Childhood Stage 1- Punishment avoidance: avoid harm, Ego-centered reasoning

obedience to power ; Rules are absolute (Ego means “self”)
Ways to Make Ethics Work in Organization

1. Top management commitment and involvement

2. Codes of ethics: written guide of ethical
behavior
3. Principle based international standards
4. Ethics training
5. Ethics committee, officers and Ombudspersons
6. Ethics assist line or helplines
1. Top Level Management Commitment and
Involvement
• Top management are responsible for
formulating vision and mission statements
• Top management are responsible for forming
ethics committee, ethics officers
• Top management are responsible for
allocating budget for maintaining ethics
 2. Codes of Ethics
• A code of ethics is a written guide to acceptable and
ethical behavior as defined by an organization
• It outlines uniform policies, standards, and
punishments for violations.
• The purpose of such policies and codes is to provide
guidance to managers and employees when they
encounter an ethical dilemma.
Eg:
• Non Tolorence of Discrimination, Harassment,
abusive behavior
• Open and Honest Communication Culture
 Code of ethics Continue….
• Typically, ethics policies cover issues such as developing
guidelines for accepting or refusing gifts from suppliers, avoiding
conflicts of interest, maintaining the security of proprietary
information, and avoiding discriminatory personnel practices.
• Yet, researchers have found that a written ethics policy being an
important factor is insufficient by itself to bring about ethical
conduct.
• Companies must circulate ethics policies frequently and widely
among employees and external stakeholder groups.
• The creation of an ethics policy must be followed up with
employee training so that the policy’s provisions actually
influence day-to-day company activities.
3. Principle based International Standards

• These standards are designed to offer corporations

guidance on acceptable and unacceptable norms.
• Most popular examples of such standards include:
UN Global compact, The principles for responsible
investment, The Organization for Economic
Cooperation and Development (OECD) guidelines for
multinational enterprise, and the Caux roundtable
principles for business.
• These standards help managers develop an internal
corporate responsibility agenda for their
corporations.
 UN Global Compact
• The extent of unethical behaviors worldwide is
so widespread that even the UN got involved
in helping curb such unethical actions. In
2000, it created the UN Global Compact
 UN Global Compact
• https://youtu.be/atmQmo4ABe0
 Ten Principles of UN Global Compact
• Human Rights
– Principle 1: Businesses should support and respect the
protection of internationally proclaimed human rights
– Principle 2: make sure that they are not complicit in
human rights abuses.
• Labour
– Principle 3: Businesses should uphold the freedom of
association and the effective recognition of the right to
collective bargaining;
 Continue…
– Principle 4: the elimination of all forms of forced and
compulsory labour;
– Principle 5: the effective abolition of child labour; and
– Principle 6: the elimination of discrimination in respect of
employment and occupation.
• Environment
– Principle 7: Businesses should support a precautionary
approach to environmental challenges;
 Continue…
– Principle 8: undertake initiatives to promote
greater environmental responsibility; and
– Principle 9: encourage the development and
diffusion of environmentally friendly technologies.
• Anti-Corruption
– Principle 10: Businesses should work against
corruption in all its forms, including extortion and
bribery.
 4. Ethics Training Programs
• One of the way, companies can take to build in
ethical safeguards is to offer employee ethics
training.
• This is generally the most expensive and time-
consuming element of an ethics program.
• Studies have shown that only 20 to 40 percent of
small businesses formally offer ethics training to their
employees, often using less formal ways to
communicate ethical values and procedures.
Elements of Ethical Training Programs…
• These training programs include (elements of
training program)
– Encouraging ethical behavior
– Ethics audit
– Corporate ethics awards: Ethisphere Magazine
honors ethical leadership and business practices
worldwide based on an Ethical Quotient (EQ) score;
American Business Ethics Award
– Whistle blowing
– Ethics reasoning
 Encouraging Ethical Behavior
• Training programs can develop managers to
encourage and manage ethical climate within
organization
• Business can encourage ethical behavior by
employees by limiting their opportunity to
engage in misconduct
• Knowledge about following framework can be
gained through such training programs:
Encouraging Ethical Behavior…cont’
– Establish standard and procedures to prevent and
detect criminal or misconduct
– Be responsible towards ethics and make others
responsible
– Exclude individuals with a history of illegal or
unethical conduct from positions of substantial
authority
– Periodically communicate standards and
procedures to all employees from the lowest up to
the BODs
Encouraging Ethical Behavior…cont’
– Monitor the organization for criminal or
misconduct, and set up a system for reporting
– Develop reward system for those employees who
help in maintaining ethical behavior
– Regularly develop and organize motivational and
awareness programs to encourage corporate
culture and ethical behavior
 Ethics Audit
• Companies today are beginning to appreciate the
need to follow up on their ethics initiatives and
principles.
• Ethics audits are mechanisms or approaches by
which a company may assess or evaluate it’s ethical
climate or programs.
• Ethics audits are intended to carefully review such
ethics initiatives as ethics programs, codes of
conduct, ethics training programs, etc.
 Ethics Audit….cont’
• In such an audit, the auditor—either a hired outside
consultant or an internal employee—is required to
note any deviations from the company’s ethics
standards and bring them to the attention of the audit
supervisor.
• Benefits of ethics audit:
- Identify potential risks and liabilities and improve legal
compliance
- Can be a key in improving organizational performance
- Improved relationships with stakeholders
 Whistle blowing
• A whistleblower is a person who exposes any kind of
information or activity that is deemed
illegal, unethical, or not correct within
an organization that is either private or public.
• The information of alleged wrongdoing can be
classified in many ways: violation of company
policy/rules, law, regulation, or threat to public
interest/national security, as well as fraud,
and corruption.
 Continue…whistle blowing
• Those who become whistleblowers can choose to
bring information or allegations to surface either
internally or externally. Internally, a whistleblower
can bring his/her accusations to the attention of
other people within the accused organization such as
an immediate supervisor.
• Externally, a whistleblower can bring allegations to
light by contacting a third party outside of an
accused organization such as the media, government,
law enforcement, or those who are concerned.
 Continue…whistle blowing
• Whistleblowers, however, take the risk of facing stiff
reprisal and retaliation from those who are accused
or alleged of wrongdoing.
• Because of this, a number of laws exist to protect
whistleblowers
• Elements of whistle blowing process: The whistle
blower, the act or complaint, the party to whom the
complaint is made and finally the organization
against which the complaint is made
 Characteristics of Whistle blowing
• There must be real information to release to be called
“whistle blowing”
• Whistle must be blown with moral motive to correct some
wrong doing
• Whistle against wrongdoing of an organization can be blown
only by its member or former member
• It must be clear to whom the whistle regarding wrong doing
is to be blown (internal or external)
• Information about wrong doing must be released voluntarily
• The information about the wrongdoing must be released
outside normal channels
 Points to consider while Whistle Blowing
• Magnitude of consequences
• Probability of effect: Probability that the action will
actually take place and will cause harm to many people
• Temporal immediacy: The length of time between the
present and the possibly harmful event.
• Proximity: Emotional proximity or situations in which the
ethical question relates to a victim with some emotional
attachment to the whistleblower.
• Concentration of Effort: A person must determine the
intensity of the unethical practice or behavior. For example,
according to this principle, stealing $1,000 from one person
is more unethical than stealing $1 from 1,000 people
 Consequences of Whistle Blowing
• To whistleblower
• To the organization
• To the society
 To the Whistleblower
• Exclusions from decisions and work activity
• Cold shoulders from coworkers
• Verbal abuse from coworker and management
• Reduced opportunities for promotion
• Cut in hours or pay
• Transfer to relatively unattractive area
• Threat from anonymous as well as known persons
• Job loss
 To the Organization
• Negative Impact
– Financial turmoil
– Lower stock value
– Problem of public relation to organization
– Possibility of bankruptcy
• Positive impact (Internal whistleblower)
– Possibility of corporate governance
– Strong competitive position
– Identification of problem
 To the Society
• Combat corruption in public and private
entities
• Establishes ethical foundation of society
• Motivation to other businesses to follow
ethics
• Overall societal development
 Ethics Reasoning
• Ethical reasoning is the ability to identify, assess,
and develop ethical arguments from a variety of
ethical positions.”
• It integrates ethical questions into the intellectual
work required in the course of business or life
• Ethical questions concern judgments of right and
wrong, good and bad, as well as matters of
justice, fairness, virtue, and social responsibility.
 5. Ethics committee, ethics officers or Ombudspersons

• In order to institutionalize ethical business practices,

an Ethics Committee can be formed at board level
or form senior level executives.
• Alternatively, provision of Ethics Officer can be made
to solely look after ethical and compliance issues.
• Ethics officers generally report directly to CEO and
may have some access to board. Besides, an
independent and impartial resource person- aka
Ombudsperson- can also be hired to look after
various critical workplace issues including sexual
harassment and discriminations.
 Ethics committee, officers and Ombudspersons…cont’

Ethics committee or officers are responsible for following:

1.Assessing the needs and risks that an organization wide
ethics program must address
2.Developing and distributing a code of conduct or ethics
3.Conducting training program for employees
4.Establishing and maintaining a confidential service to
answer employees’ questions about ethical issues
5.Making sure that the company is in compliance with
government regulations
6.Monitoring and conducting ethical conduct
7.Taking action on possible violation of the company’s code
 6. Ethics Assist or Helplines
• When employees may be troubled about some ethical
issue but may be reluctant to raise it with their
immediate supervisor, they can place a call on the
company’s ethics assist lines or helplines.
• It has typically three uses:
– to provide interpretations of proper ethical behavior
queries, when asked,
– to create an avenue to make known to the proper
authorities allegations of unethical conduct, and
– to give (and take) information about ethical issues to (from)
wide array of stakeholders, not just employees.
Group Article Review Presentation
• 12ft | What’s the Matter with Business Ethics?
• 12ft | What Is Organizational Culture? And Why Should
We Care?
• 12ft | Building an Ethical Company
• 12ft | Ethical Breakdowns
• 12ft | How to Design an Ethical Organization
• 12ft | Ethics in Practice
• 12ft | The Ethical Roots of the Business System
• 12ft | Throw Out Your Assumptions About Whistleblowin
g
• 12ft | Business as Usual Will Not Save the Planet
• 12ft | Productivity Is Soaring at Top Firms and Sluggish Ev