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1-Business Ethics &Corporate Governance.

Apr 07, 2018

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    1-BUSINESS ETHICS &

    CORPORATE GOVERNANCE.

    ETHICS INBUSINESS,CULTURE

    &ETHICS,BUSINESS ETHICS &

    PROFIT etc

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    Ethics In Business. Ethics deals with Ideals.

    Hence ethics is said to be Normative Science.

    A Normative Science seeks to determine Norms, Ideals,Standards or Values.

    It is generally recognized that there are three Ideals of HumanLife, Viz, Truth, Beauty, and Goodness.

    They correspond to three aspects of our experience: Thinking,

    Feeling and Willing.

    Logic deals with the Ideal of Truth, Aesthetic deals with Beauty,and Ethics is concerned with the Ideal of Good.

    Ethics is not concerned with Human Conduct as it is, but as itOught To Be.

    It passes Judgments of Value upon Human Actions withreference to the Moral Ideal.

    The Judgments of a Normative Science like Ethics areJudgments of Value, stating whether a Particular Conduct is inConformity with the Moral Ideal or the Ideal Of Goodness.

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    Ethics In Business (Contd).

    Moral Judgments are not descriptive, but are Prescriptive.

    They state What we Ought to Do, not What we Actually do. They evaluate our Conduct as Right or Wrong.

    Since Ethics is the Normative Science of Conduct, its Functionis to Judge the Moral Worth of Conduct with reference to aNorm or Ideal or Standard. The Scope of Ethics is very wide.

    Ethics covers virtually all aspects of our life, for there is noConduct which is free from Moral Considerations.

    As A Science of Conduct, it is concerned with the Ideal orStandard to which our Conduct should Conform to.

    Hence Ethics enquire into the Nature of the Springs of Action

    or Impetus, the Forces that Impel men to Action, Motives,Intentions, Nature of Voluntary and Involuntary Actions etc.

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    Postulates (Pre Suppositions) Of Ethics.

    To pass Moral Judgment on a Conduct, Ethics requires thatthe concerned Person must:

    1) Perform the Deed out of his own Free-Will and not Compelledto do it by some overwhelming Force.

    2) Be in possession of fully developed Rational Faculty, whichcan help him Distinguish Right from Wrong, Good fro Bad,and

    3) Not lose his normal Personality, i.e. he must have a Unifiedand Continuous Mental Life.

    Actions which fulfill the above criteria, come under the Scopeof Moral Judgment. All other Actions do not come under theScope of Moral Judgment.

    Stages Of Voluntary Action: 1) Every Voluntary Action isactuated by a Spring of Action, that acts as the Impetus. Itis a feeling of a Need or Want. Example: When you feelThirsty, you Desire to drink water. Thus the first stage of aVoluntary Action is Mental or Internal.

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    Postulates (Pre Suppositions) Of Ethics (Contd)

    2) The Second Stage of Voluntary Action is the External orBodily Stage of Action taken to Satisfy the Need orWant. When you feel Thirsty, you may find a glass of waterand drink it.

    3) In this External or Bodily Stage, if proper means are Adopted,the Object of Desire is attained and want is removed. TheRemoval of Want brings us Satisfaction.

    Thus the First Stage of a Voluntary Action is Mental orInternal, the Second is External or Bodily Stage and the ThirdStage is that of

    Consequences. Motive Or Intention-What is the Object Of Moral Judgment?

    The Feeling of Want itself is not sufficient to move us to act.When a man is moved into Action, he must have , besides themere feeling, the Conception of an End to be attained.

    The Motive that induces us to Act is the thought of DesirableEnd.

    When, for example, a father punishes his son, the Good ofthe Son is his Motive. Causing Pain to the Son is not thefathers Motive, but it is a part of his Intention.

    Thus Intention is a broader term, which includes the Motiveor the Idea of the End, and the Idea of Means.

    In short, Intention=Motive+ Means Adopted.

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    Motive Or Intention-What is TheObject Of Moral Judgment?( contd) An important question which arises in Ethics: When we judge a

    Conduct as Good or Bad, do we judge it by its Motive alone or byConsequences?

    According to some, if the Consequences are good, the Conduct isGood, if the Consequences are Bad, Conduct too is Bad.

    But this is not always so. Sometimes the Motive may be Good, but the

    Result may be Bad. Example: A Surgeon performs an operation, with utmost care to cure a

    patient, but despite that, the patient dies. In this case, Motive is Good,but the Consequence is Bad. The action of the Surgeon cannot betermed as Morally Bad, simply because Consequence turns out to beBad.

    Another important Principle to be noted is that Means adopted are asimportant as the End. In other words to achieve a Good End, theMeans adopted should also be Good.

    Hence, we conclude that Morality of Action is judged by the Intentionof the doer, the term Intention being used in a wide sense to cover

    both immediate or remote Intention, Conscious or UnconsciousIntention, Formal and Material Intention.

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    Importance Of Ethics In Business. Ethics in Business matters, because there is much evidence to prove

    that Unethical Behavior can cost a Company its Reputation, affect its

    Share Price and lower its Profits. Some of the Scandals in Business World have their origin in scant

    regard to Morality.

    Business Ethics are Rules of Business Conduct by which Propriety ofBusiness Activities may be judged.

    There is a growing realization all over the world that Ethics is Vitally

    Important for any Business and the Progress of the Society. Experience has shown that Good Ethics is Good Business.

    Commerce through Corruption, Administration through Bribery andPolitics through Blackmail in India has become the Rule rather thanexception.

    Corruption, Bribery and Nepotism are nothing but degradation of

    Values and Professional Ethics. Ethics and Human Values can save a Soulless Society from total

    death.

    We must remember that Business satisfies only Hunger of b=Body.Values satisfy Hunger of Heart and Soul.

    Ethical Behavior is essential for Long Term Success in Business.

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    Importance Of Ethics In Business.(Contd)

    Ethical Behavior is essential from both Macro and Micro-

    Perspective. According to Macro-Argument, Unethical Behavior distorts

    the Market System, that leads to an inefficient allocation ofresources.

    The Micro-Argument highlights the importance of Ethics to

    the Individual Firm. Unethical Behavior leads to decreased long term

    Performance.

    The Market System leads to a more efficient way of allocatingResources than any Command System.

    The conditions required for efficient operation of the MarketSystem are:

    1) The Right to Own and Control Property.

    2) Freedom of Choice in Buying and Selling Goods andServices.

    3) The Availability of Perfect Information regarding these Goods

    and Services.

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    Unethical Behavior From AMacro Perspective.

    1) Bribery: Bribery reduces the freedom of choice by changing theconditions, under which a Decision is made. A Bribe is used tomake one choice more attractive to a Decision Maker. Greaterappeal is created by enhancing the Personal Gain associated withthe choice by the addition of an unearned Income Payment.

    2) Coercive Acts: Coercive Acts, in the form of Threats that prevent aSeller from dealing with certain Customers, decrease effectiveCompetition. This usually results in higher prices and often poorerProducts.

    3) Deceptive Information: Deceptive Information creates falseimpressions and leads Buyers to select Goods and Services thatprovide less Satisfaction than those which they would have

    purchased, had accurate information been available to them.4) Theft: Theft may lead to Break-Down of a Market. Theft increase the

    cost of providing Goods and Services.

    5) Unfair Discrimination: Unfair Discrimination often results in thepurchase of Services from less capable people or Sale of Goodsand Services to less capable People. This will result in lower level of

    Satisfaction.

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    Macro Perspective-Ethics And Trust.

    Ethics is closely associated with Trust.

    In order to develop Trust, Behavior must be Ethical.

    If Trust is Important, and Ethical Behavior is necessary toobtain Trust, then Ethics is as Important as Trust.

    Trust in a Business setting reduces Costs, makes life morepleasant and improves Efficiency.

    Two Norms are to be Honored in all situations:

    1) Commitments are to be honored in all situations.

    2) One ought to produce a Good Product and stand by it.

    Every Commercial Transaction has an element of Trustwithin itself and Business would not run smoothly ifBusiness People do not Trust each other.

    Trust involves three fundamental Issues:1) Predictability.

    2) Dependability.

    3) Faith.

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    Macro Perspective-Ethics And Trust (Contd).

    1) Trust In Supplier Relations: Suppliers provide a Firm withProducts and Services it needs to conduct Business.

    An Exchange Relationship is based on Trust between bothParties that each will honor his Commitment and minimizeSurprise. This will reduce the risk involved in the BuyingProcess.

    2) Trust In Customer Relationships: The Companys contactwith a Customer is mostly through its Sales Force.

    A Salesman earns a Customers Trust by being Dependable,Honest, Competent and Customer Oriented.

    Customers rely on Suppliers to provide Goods and Servicesof Acceptable Quality as Promised at Reasonable Prices.

    3) Trust In Employee Relations: Trust applies to Peers as wellas Superiors and Sub-Ordinates. The following factorspromote Trust:

    a) Open Communications.b) Giving Employees a Greater Share in the Decision Making.c) Sharing Of Critical Information.d) Trust Based Sharing of Perceptions and Feelings.e) Trust is an Important Element in the Employee Empowerment

    Process.

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    Moral Standards& Business Ethics. Moral Standards provide tools for judging the Moral Value of a

    Decision. Moral Standards are the Yardsticks of BusinessEthics.

    They provide the basis for deciding whether an act is Right orWrong.

    According to David Fritzche Business ethics is the Process ofevaluating Decisions, either Pre or Post, with respect to theMoral Standards of Societys Culture.

    In order to evaluate Decisions, we need a Tool Box of MoralStandards. Moral Standards consist of Specific Moral Normsand General Moral Principles.

    Moral Norms Prohibit certain types of Behavior, such as Lying,Stealing, and Killing.

    We shall use Integrative Social Contracts Theory as thefoundation for evaluating the Ethical Dimension of Decisions.

    Integrative Social Contracts Theory is a Normative Theory ofBusiness Ethics and it allows for Moral Diversity amongvarious Cultures, while maintaining Certain Universal Norms.

    A Social Contract is an Informal Agreement regardingBehavioral Norms that are developed from shared Goals,Beliefs, and Attitudes of Groups of People.

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    Integrative Social Contracts Theory.

    Corporations enhance the Welfare of Society through theSatisfaction of Consumers and interest of Workers byLeveraging Corporations Special Advantages. This is the MoralFoundation of the Corporation.

    The Social Contract also serves as a Tool to measure thePerformance of Productive Organizations.

    When such Organizations fulfill the terms of the SocialContract, they are Morally justified. When they do not, theyshould be condemned.

    Hyper Norms are Universal and impose certain conditions on

    all Business Activity. The Macro-Social Contract functions at Global Level, provided

    specific conditions under which Micro-Social Contracts may bedeveloped.

    Micro Social Contracts are Community Contracts developed to

    guide Business Activity.

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    Integrative Social Contracts Theory (Contd).

    The Essentials of Social Contracts theory are shown below:

    Hyper Norms. Universal.

    1) Personal Freedom.2) Physical Security.

    3) Political Participation.

    4) Informed Consent.

    5) Ownership of Property.

    6) Right of Subsistence.

    7) Equal Dignity to All Humans.

    Macro Social Contract. Globally Based.

    1) Moral Free Space.

    2) Free Consent with Right to Exist.3) Compatible with Hyper Norms.

    4) Priority Levels.

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    Integrative Social Contracts Theory(Contd).

    Micro Social Contract. Community Based.

    Individual Norms:

    1) Do Not Lie In Negotiations.

    2) Honor All Contracts.

    3) Give Job Preference To Natives.4) Give Preference To Local Suppliers.

    5) Provide A Safe Work Place.

    Hyper Norms are Universal Norms that are Equally applicableto all persons Worldwide. Hype Norms provide the Basis forevaluating all other Norms.

    They stand for the Basic Principles that are Fundamental toHuman Existence: Example- Human Rights, Ownership ofProperty, Right to Live etc.

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    Consequentialist Principles. Consequentialist Principles Focus on the Outcome of a

    Decision.

    A Decision is Ethical or Unethical based on the Consequences

    of the Decision. Egoism: Egoism is a Standard that focuses on Self Interest.

    Egoism is equated with an Individuals Personal interest. Decisions based on Egoism provide the most favorable

    Consequences for that Party, regardless of the Consequencesto other Parties.

    This does not mean that other Parties must be harmed by aDecision. However, benefits beyond the Party of Interest are ofno concern to the Decision Maker.

    Self Interest may be Short-Run or Long-Run. Long-Run SelfInterest is often called Enlightened Self Interest, because itconsiders both the direct and indirect Consequences of an Act

    over an extended period of time. Long-Run Self Interest takes into account the Impact of a

    Decision on the relevant Stakeholders and the expectedreaction of the Stakeholders.

    Adam Smith has argued that Societys Interest is better served,when an Individual peruses Long-Run Self Interest.

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    Utilitarianism. According to the Utilitarian Principle, a Decision is Ethical, if

    it provides a greater net Utility than any other alternativeDecision.

    The Decision Maker should evaluate each alternativeDecision, determine the negative and positive Utilities arisingfrom all alternatives and then select the one that yields theGreatest Net Utility.

    By using a Consequentialist Approach, a Manager will facesome difficulties as under.

    1) It is very difficult to foresee all the Consequences of aBusiness Decision. Accurate Forecasts of outcomes are

    required, in situations, where little Data is available.2) Many Decisions have Consequences that are not easily

    measured, and often lack common measurement units.

    3) Maximizing Net Utility may require actions that cause harm tosome people.

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    Non-Consequentialist Principles.

    Non-Consequentialist Principles consist of a set of Rules. The Outcome of a Specific Decision is irrelevant and what matters is

    whether the Decision is Ethical. The Rules provide the guide to Ethical Decision Making. Non-Consequentialist Principles are either Rights Principles or

    Justice Principles. Rights Principles: Rights Principles grant a person Moral or Human

    Rights by virtue of being a Human being. These Rights are also

    associated with Duties. It is ones Duty not to violate the Right ofothers, just as it is the Duty of others to not violate his Rights. Gerald Cavanagh has cited Six Rights that are basic to Business

    Activity. These include:1) Life and Safety.2) Truthfulness.

    3) Privacy.4) Freedom of Conscience.5) Freedom of Speech.6) Private Property. These Rights also create Prima Facie Duties.

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    Non Consequentialist Principles (Contd).

    2) Justice Principles: Justice is associated with issues ofRights, Fairness, and Equality. A Just Act respects yourRights. A Just Act treats you Fairly.

    Principles of Justice may be divided into Three Types-Distributive- Justice, Retributive Justice, and CompensatoryJustice.

    1) Distributive Justice: Society has many benefits like Income,Wealth, Jobs, Education, Leisure, etc and burdens like Work,Taxes, Social and Civil Obligations, which can be allocatedbased on a) Equal Share to Each Person b) Based on Need c)Based on Effort d) Based on Merit e) Based on SocialContribution.

    2) Retributive Justice: Retributive Justice is concerned withPunishment for Wrong Doing. The severity of Punishmentshould be in proportion to the magnitude of the Crime.

    3) Compensatory Justice: Compensatory Justice is concernedwith compensating the Party Injured by the Wrongful Act.This includes necessary Medical Treatment and Services andGoods that are needed to Rectify the Injury.

    B i Ethi & P fit

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    Business Ethics & Profits. Frequently, the impression of most people is that Ethics and Business

    are mutually opposed to each other, and that if a company is Ethical, itcan forget about making Profits.

    People also frequently seem to believe that a Profitable company must

    necessarily be Unethical. This is like saying that a company can makeProfits only through Unethical Means. This is absolutely wrong. There are examples galore, from the pages

    of history, where not only have Ethical Companies made Profits, butmore importantly, it is only Ethical Companies which discharged itsSocial Responsibilities, that have survived Competition and TurbulentChanges through the years and have contributed to Social Welfareand have continued to flourish undiminished.

    No doubt, all commercial Organizations are in Business to earnProfits. Earning Profits in itself is not Unethical. However, it is veryimportant that you use only Ethical Means to Earn Profits anddefinitely not Unethical Means.

    In fact we can say that it is Unethical for any company to make losses,because company has a moral obligation to reward its Shareholders

    and also take care of all its Stakeholders like Employees, Suppliers,Creditors, Customers, Financial Institutions etc.

    A Company, which cannot make Profits and makes Losses, misutilizesnational resources, cannot pay back Creditors, does not make for itsShareholders, makes huge liabilities, upsets the Economy, promotesinefficiency and most importantly, cannot discharge its SocialResponsibility.

    Thus instead of Profits being Contradictory to Ethics, Business Ethicsdictates that the first responsibility of Business is to remain Profitable.

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    Business Ethics & Profits (Contd).

    Businesses should earn Profits, generate Revenue for theShareholders, Employees and the Society and should also takecare of the interests of all its stakeholders. Hence, we can saythat it is unethical not to make Profits.

    Also it is Equally important to determine as to how much Profita Company should make and what means are to adopted tomake the targeted Profit.

    We must remember that Means are as Important as the Ends.For achieving the End of Making Profits, Company should useonly Ethical Means

    Also the Company should use only Ethical Strategies to earnReasonable Profits and should not charge exorbitant Prices fortheir Products and Services. Further, the Quality,Specifications and Commitments made should be strictlyadhered/fulfilled to all its Customers.

    Businesses should be Economically Viable, should act asTrustees of all Stakeholders and the Society and should alsofollow the Law of the Land, where they are conductingBusiness.