Unit 3

ESS ETHICS AND SOCIAL RESPONSIBILITY

Ethical issues in management
1. Self dealing
2. Information manipulation
3. Anticompetitive behaviour
4. Opportunistic exploitation
5. Substandard working conditions
6. Environmental degradation
7. Corruption
8. Ignoring legal provisions
1. Self dealing:
• Self-dealing is an illegal act that happens when a manager acts
in their own best interest in a transaction, rather than in the
best interest of organization.
• Self-dealing can consist of actions such as using company
funds as a personal loan, assuming a deal or opportunity for
oneself, or using insider information in a stock market
transaction.
2. Information manipulation
• It occurs when managers use the corporate data for their own
financial benefits.
3. Anticompetitive behaviour:
• It includes a range of actions aimed at harming actual or
potential competitors.
• It violates the rights of end consumers since it limits their
right choice.
4. Opportunistic exploitation
• Opportunism refers to selfish behavior. Opportunists have no
consideration for other people. They are only interested in
exploiting a situation.
5. Substandard working conditions
• It arises due to unsafe working conditions or payments to the
employee below market rate.
Business Ethics
• It involves moral issues, standards and choices that guide
behaviour.
• is an individual’s personal beliefs regarding right and wrong,
good and bad.
• Business ethics are the acceptable standards of behaviour that
guide individual managers in the work place.
• Whether a manager acts ethically or unethically will depend on
many factors. These factors involve an individual’s morality,
values, personality and experiences.
• They involve respecting the mutual interest of all the
stakeholders. They define values, moral duties and obligation at
workplace.
Significance of Business Ethics
• Promotes Goodwill and image
• Helps to maintain better relation with stakeholders
• Less interference from government
• Promotes fair competition
• Promotes social responsibility
• Improve working environment
• Helps to increase market share
Promotes Goodwill and image
• Ethical business dealing helps to promote goodwill and image
in the society. For this, the concept of artificial shortage, black
marketing, inferior quality etc. must be avoided.
Helps to maintain relation with stakeholders
• Ethical behaviour helps to maintain better relation with
different stakeholders like shareholders, employee, customers,
public etc. An ethical manager always tries to fulfil the needs
and requirements of these stakeholders.
Less interference from government
• Ethical businessman never performs any business activity by
violating government rules and regulations. So, government
intervention is not necessary .
Promotes fair competition
• It promotes fair competition among the firms. It discourages
businessmen to involve in unfair trade practices like artificial
shortage, black marketing, adulteration. Etc.
Promotes social responsibility
• Business ethics guides managers to involve in social welfare
programs like participating in education, health, sports ,
environment protection etc.
Improve working environment
• It guides managers to develop a better working environment in the
organization. Like giving freedom, equality, justice, sense of
responsibility etc.
Helps to increase market share
• It helps to gain prestige and reputation in the society. In the long
run it helps increase market share of the business firm.
Corporate Social Responsibility of Business
• Corporate social responsibility is the obligation of an
organization to protect social norms and rules within which
the organization is operating.
• Business organizations are established, exist and perform
functions in the society. They need to perform business within
the existing rules, regulations and norms of society.
• It demands commitment to the welfare of society. It is about
bringing positive change in society.
• There is controversy among managers regarding the level of
social responsibility that they have to fulfill.
• Some have the opinion that only little possible fulfillment of
social responsibility is sufficient because their main motive is
to earn profit.
• Some view that fulfillment of legal and social obligations must
be sufficient.
• Similarly, some view that it is essential to go beyond legal
social obligation in some selected areas.
Areas of corporate social
responsibility
• Towards investors( shareholders)
• Toward consumers
• Toward employees
• Toward government
• Toward community(public)
Toward investors
• Investors can be owners or shareholders. They provide capital
and bear risk. They also take part in the management directly or
as a representative of shareholders. Responsibilities toward
investors should be:
• To maximize investor wealth through optimum utilization of
resources.
• To provide true and fair views of their financial status
• To ensure investor participation in management.
• To ensure safety of capital investment.
• To provide fair and regular return on investment in terms of
dividend.
Toward consumers
Consumer is the king of business. It is very necessary to satisfy
their needs. They are the main source of revenue.
Responsibilities towards consumers should be:
• To supply better quality goods at the right time in reliable
price.
• To provide after sales service on the basis of nature of
product.
• To perform research and development work for better quality
and for new products.
• To informed customers about potential dangers that causes
injury or accidents.
• To avoid unfair trade practices like black marketing,
adulteration, false advertising etc.
• To perform research and development work for better
quality and for new products.
Towards Government
A business cannot be established and perform business without co-
operation of the government. The major responsibilities of business
towards the government are:
• To follow strictly the government rules, regulations and laws.
• To pay tax to the government honestly and regularly.
• To avoid monopolistic and unfair trade practices.
• To support government policies for solving the problems of
employment, price rise, regional disparities, poverty, illiteracy
etc.
• To be impartial in political affairs.
Towards Community (public)
Business organizations perform their business activities from
them. Business organizations should take necessary steps for
the economic and social well being of the community. The
major responsibilities of business toward community are:
• To check environmental pollution and maintain
environmental ecology.
• To create employment opportunities. They should provide
equal opportunities. Disadvantaged groups should also be
employed.
• To maintain and develop social and cultural values and
norms.
• To involve in social welfare programs like education, health,
games and sport.
Toward Employees
Employees perform jobs. Their cooperation and commitment is
essential for achieving organizational goals. Responsibilities of
business towards the employees:
• To provide job security.
• To ensure employee safety and health on the job.
• To maintain good labour relations.
• To provide favourable working environment and recognition
of their performance.
• To ensure welfare facilities like further education,
promotion, medical facilities, training etc.
• To provide opportunity to participate in management and
career development.
Friedman Doctrine of Social responsibility
• “An entity’s greatest responsibility lies in the satisfaction of the
shareholders"
• The Friedman Doctrine is also referred to as the Shareholder
Theory.
• American economist Milton Friedman developed the doctrine as
a theory of business ethics that states that “an entity’s greatest
responsibility lies in the satisfaction of the shareholders.”
• Therefore, the business should always endeavour to maximize
its revenues to increase returns for the shareholders.
• However, he agreed to completion of legal provision enacted by
the government regarding fulfilment of social responsibility
such as payment of income tax, value-added tax, custom duty,
goods and service tax, clearing charge and so on.
• According to Friedman if shareholders wish to invest in social
work it is their right but managers of the firm should not make
that decision for them.
• Friedman has given more emphasis to shareholders and the
return of their investment through earning profits.
Arguments for Social Responsibility
1. Public expectation
2. Public image
3. Better environment for Business
4. Balance of responsibility with power
5. Builds strong customer relationships:
6. Long-run survival
7. Avoids government regulation:
8. Positive media attention
9. New business opportunities
6. Long-run survival
Business organisations are powerful institutions of the society.
Their acceptance by the society will be denied if they ignore social
problems. To avoid self-destruction in the long-run, business
enterprises assume social responsibility.
7. Avoids government regulation:
• Non-conformance to social norms may attract legislative
restrictions. Government directly influences the organisations
through regulations that dictate what they should do and what
not. Various agencies monitor business activities.
8. Positive media attention
• Social responsibility attracts positive media attention due to
involvement in community activities.
9.New business opportunities
• Social responsibility helps to identify new business
opportunities through constant interaction with the society.
Arguments for Social Responsibility
1. Public expectation
Business can exist only with public support and only if business
fulfills needs of society. One of main arguments for social
responsibility is that public expectations from business have
changed. Therefore if business wishes to remain in existence for a
long term it must respond to society’s needs and give society what
society wants.
2. Public image
Only that firm can enjoy better reputation in public which supports
social goals. Each firm seeks an enhanced public image so that it
may gain more customers, better employees, more responsive
money markets etc. It is possible only if business performs its
responsibilities towards society whole-heartedly which will result
in raising the value of shares and debentures held by the owners.
3.Better environment for Business
• Involvement by the business can solve difficult social problems,
thus creating a better quality of life and a more desirable
community in which to attract and hold skilled employees.
4. Balance of responsibility with power
• Business has a large amount of power in society. An equally
large amount of responsibility is required to balance it. When
power is significantly greater than responsibility, the imbalance
encourages irresponsible behaviour that works against the
public good.
5. Builds strong customer relationships
• Social responsibility builds strong relationships with customers.
Customers are willing to pay more for a product if they know a
portion of the profit is going for social cause.
The Roots / Reasons of unethical behaviour
1. No codes of ethics
2. Poor management
3. Discrimination and Harassment
4. Wrong practices
5. Habitual to Steal
6. Power
7. Loyalty
8. Unrealistic performance goals
1.No code of ethics:
Employees are more likely to do wrong if they don’t know what’s
right. Without a code of ethics, they may be unscrupulous. A code of
ethics is a proactive approach to addressing unethical behavior. It
establishes an organization’s values and sets boundaries for adhering
to those values. Everyone is accountable.
2.Poor Management
• At the managerial level, it has been seen that if the manager is not
sincere and working professionally, then his subordinates also start
acting in the same manner.
• Marking wrong attendance, appearing late at the office, killing
time by using the internet, taking long breaks, misbehaving with
the subordinates and misusing his authority are some of the
examples
3.Discrimination and Harassment
Discrimination involves not providing equal opportunity
in employment on merit but on other basis such as race,
sex, national origin, age, religion, or any other basis not
related to the job.
4. Wrong Practices
 It’s been also observed that to gain small financial
benefits for any reason, many employees collect bribe
from clients to have their task done or to disclose
organizational secrets. In the long term, this can affect
the company’s reputation as well as affect their career.
5.Habitual to Steal
• Many employees have a natural habit of stealing the
company’s stationery for their personal usages like
pens, folders, papers, and other sorts of stuff. They
often grab these items for their family or have a habit
of storing them at home.
6. Power
7. Loyalty
8. Unrealistic performance goals
Philosophical Approaches to ethics
1. Utilitarian Approach
2. Right ( Theories) Approach
3. Justice (Theories) Approach
1. Utilitarian Approach
• This theory was developed by Jeremy Bentham and John
Stuart Mill 18th and 19th centuries.
• This theory is based upon greatest happiness principles.
• This theory suggest that morality or ethics is determined by
the consequential principles
• According to this theory the action are right if they are useful
to majority of people.
• Hence, people should behave in a way that will produce the
greatest benefit to society and produce the least harm or the
lowest cost.
• In the case of business organization, every decision maker has
to make decision for the greatest good of all employees
working in the organization.
• Utilitarianism is sometimes referred to as the “ calculus of
pain because it tries to minimize pain and maximize pleasure
for the greatest number of people”
• Utility can not quantified, majority, immoral choice are the
drawbacks of this theory.
2. Right ( Theories) Approach
• It was developed in 20th century. It purposes that human
beings have certain fundamental rights that should be
respected in all decisions.
• A particular decision or behaviour should be avoided if it
interferes with the right of others.
• In an organization, many stakeholders have direct and indirect
interest over the welfare of its business activities.
• These stakeholders involve investors, employee, customers,
suppliers, government, financial institutions and so on.
• For example, investors have the right to get true and fair
information on the welfare of business activities.
• Right theories focus on respecting the right of all the
stakeholders while taking managerial decisions, and it is
unethical to violate the right of stakeholders.

3. Justice( theories) Approach

• It was developed by philosopher John Rawls.
• It proposes that decision makers be equitable, fair and
impartial in the distribution of cost and benefits to individual
and groups.
• In other words, all equals should be treated equally, for
example, all economic goods and services should be
distributed equally except when an unequal distribution would
work to everyone’s advantage.
• This theory is based on two fundamental principles of justice:
• The first principle is that each person should be permitted the
maximum amount of basic liberty.
• The second principle is that once equal basic liberty is
ensured, inequality in basic social goods is to be allowed only
if it benefits everyone.