Business Ethics Unit-3

8/12/2019 Business Ethics Unit-3

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Business Ethics & Corporate Govern

UNIT - III


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Ethics in Finance

Interest in finance ethics is growing, however, many people in finance believe

receive some attention in finance education.

Financial sector in India

1. Major Financial Regulators - 7

a. RBI (Reserve Bank of India), b. SEBI (Securities Exchange Board of India), c.

Markets Commission), d. IRDA (Insurance Regulatory and Development Autho

(Pension Fund Regulatory and Development Authority), f. MOF (Ministry of F

(High Level Co-ordination Committee on financial markets).

2. Major Financial Markets - 4

a. Commodities Market, b. Equities Market, c. Debt Market, d. Foreign Exchan

3. Players in Indian Financial Market 11

a. Brokers, b. Firms, c. Banks, d. Financial Institutions, e. Foreign Institution

f. Mutual Fund Managers, g. Investors, h. Exchanges, i. Depositories, j. Custod

Registrars.


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Ethical violations (Financial Related)

1. Insider Trading

Insider trading is the trading of a corporations stock or other securities b

with potential access to non-public information about the company. Such

motivated by the possibility of generating extraordinary gain with the helinformation (information not yet made public). It gives the trader an unfa

other traders in the same security.

2. Stakeholder Interest & Stockholder Interest

Shareholders hold shares in the company - that is they own part of it

Stakeholder have an interest in the company but do not own it unless they

shareholders.

3. Campaign Financing

Campaign finance refers to all funds that are raised and spent in order to pr

candidates parties or policies in some sort of electoral contest. Now a days so

may be utilized for campaign financing by organisations.

4. Ponzi Scheme

Ponzi scheme is a fraudulent operation that pays returns to its investors from

or the money paid by subsequent investors, rather than from profit earned by organisation running the operation.


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Examples of unethical temptations

1. Make exaggerated claims to counter exaggerated claims

of a competitor.

2. Offer a customer an unauthorized gift in return for their

business.

3. Conceal information from a customer in order to get thei

business and to meet your sales goals.

4. Exposing confidential information about one customer t

another in order to facilitate a sale.


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Code of Ethics to be followed in Financial Matters

Protecting the financial interests of clients

Conducting business with high transparency

Conducting needs analysis before any product or service recom

Respecting and maintaining confidentiality of any informatio

you

Use of only sales illustrations that are completely accurate with state and Central Government regulations

Knowing when to refer clients to another professional wh

situation is outside your area of practice or skill sets.


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Curbing Unethics in Finance

Improving standards of financing and see that the financing has been made a

accepted norms and standards.

Comprehensive laws and rule in finance should be followed especially, Gener2005 and amended Rules 2010.

Pledging of shares banks and financial institutions give loans against shaloans any shareholder can pledge shares to the lender and it should be made of ri

Weak links in Financial should be avoided.

Proper Auditing should be made.

Institutional investors should make investment after careful monitoringinvestment.


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Ethics in Marketing

Marketing Ethics means a standard by which a marketing action may be judged

right marketing action is expected to contribute to overall societal gain both in

run. Marketing ethics is the area of applied ethics which deals with moral prinoperation and regulation of marketing. The importance of marketing ethics ar

social issues as a result of marketing products or services. Marketing ethics

development, pricing, general code, customer service, advertisement stand

relations and corporate marketing ethics and policies.

Issues relating to Marketing Ethics

Marketing provides compelling stories to keep up with something Marketing targets children directly bypassing parents even though children ca

make reasoned choices.

Marketing misleads and uses deception (fraud) to persuade consumers to buy

Marketing intrudes (encroach) into the privacy of consumers, direct marketin

case in point.


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Ethical Issues in Connection with

Marketing

1. Product Issues(Non-availability, lack of services after sales, showing fake sam

size and content)

2. Pricing Issues(Hoarding goods to obtain high price, offering gifts and chargin

3. Distribution Issues(poor handling of goods, distribution without insurance)

4. Promotion (mainly advertising) Issues (faculty advertisements, misusing med

5. Green washing or green sheen, is a form of spin (propaganda) in which

relations) or green marketing is deceptively (dishonestly) used to promote th

an organizationsaims and policies are environmentally friendly.6. Pyramid Scheme (Chain / Multi-level Marketing) - A business model that prom

payments or services primarily for enrolling other people into the scheme.


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Controversial Marketing Strategies

1. Anti Competitive Practices

Dumping - Where a company sells a product in a competitive market at acompany loses money foe each sale the company hopes to force other commarket, after which the company would be free to raise prices for a greater pro

Exclusive Dealing - Where a retailer or wholesaler is obliged by contract to othe contracted supplier.

Price Fixing - Where companies join together to set prices effectively dismantli

Refusal to Deal - e.g., two companies agree not to use a certain vendor.

Dividing Territories - An agreement by two companies to stay out of each othecompetition in the agreed upon territories.

Limit Pricing - Where the price is set by a monopolist at a level intended to dothers into market

Tying - Where products that are not naturally related, but must be purchased to

Resale Price Maintenance - Where resellers are not allowed to set prices indep

Absorption of a Competitor or Competing Technology - Where the powerful opts or swallows its competitor rather than see it either compete directly another firm.


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Subsidies- From government which allow a firm to function without being profan advantage over competition or effectively barring competition.

Regulations - Which place costly restrictions on firms that less wealthy firmsimplement.

Protectionism - (system of imposing duties on imports), Tariffs and Quotasinsulation from competitive forces.

Patent Misuse and Copyright Misuse - such as fraudulently obtaining a patent, form of intellectual property; or using legal devices to gain advantage in an unr

2. Bait and Switch - Bait and switch is a form of fraud used in retail sales(Firbaited or attracted by merchants advertising products or services at a lowcustomers visit the store, they discover that advertised goods are not availa

are pressured by sales people to consider similar, but higher priced items)

3. Planned obsolescence It is the built -in obsolescence in industrial desigmakes the consumer to purchase again.

4. Vendor lock in / Vendor lock out - Vendor lock in also known as proprcustomer lock-in, makes a customer dependent on a vendor for products andto use another vendor without substantial costs.


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Ethics Influencing Ethical Marketing Behavio

SOCIAL CULTURES AND NORMS

BUSINESS CULTURE AND

INDUSTRY PRACTICES

CORPORATE CULTURE AND

EXPECTATIONS

PERSONAL MORAL P

AND ETHICAL BEH


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Ethics in Marketing

1. Marketing action shall not do any harm knowingly

2. Marketing action shall not knowingly promote conflict of interest

3.Marketing action shall be honest and fair and serve customers and other

stakeholders

4. Marketing action should be discharged in good faith to all parties

concerned

5. Marketing action should deliver products and services that are safe and f

for their intended users. 6. Marketing action can quickly and systematically redress grievances.

7. Marketing system should follow all applicable laws and regulations.


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ETHICS IN HRD

Meaning of HRD

Human Resource Development (HRD) as a profession is an interdisciplinary fie

systematic training and development, career development and organizationimprove processes and enhance the learning and performance of individuals.

Ethical issues are becoming crucial in recruitments. Companies with tarnished (imp

have to face problem in recruiting top talents.

Ethical Dimension and issues in Human Resource Management

Ethics is a code of moral principles and values that governs the behaviours of a

with respect to what is right or wrong. Human resources are the centre stage of eand are the main source of wealth creation. They are the repositories(store) of kn

and implicit are the generators of value; they are the transmitters of value. So the

to follow ethical code of moral principles while dealing with Human resource.


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Ethical Dimensions In HRD

Ethics in the context of human resource development is the amalgamation of vemployees, organizationsown norms, external stakeholders and society at large.

Employees Ethics Organizational Ethics

Social Ethics

External Stakeholder Ethics

Code of Ethics for HRD to be practiced by an HR Manager

Human resource developer should strive for excellence at all times and upholdprofession and pride of the nation by practicing the following code of conduct.

HRD professional should:

Provide highest quality of service in all activities relating to the development of hu

Rely on professional knowledge while making decisions

Provide appropriate prior information before undertaking any service

Exercise honesty and integrity in the discharge of professional duties


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Maintain a reasonable level of awareness of activity and undertake efforts to maint

Respect diversity of values, attitudes and opinions that differ from them

Not exploit/harass any person or engage in discriminatory practices

Act well within the framework of law and or public standards

Provide training, supervision to employees to perform jobs responsibly, competen

Hire knowledge and expertise from other personnel for the enhancement of

profession

Constantly strive to practice the principles, values and skills of professional manag

Exercise honesty and integrity in the discharge of professional duties.

Not take undue advantage of position, power and confidentiality entrusted

Resolve the conflict in a way that permits the fullest adherence to these standards

Cooperate in ethics investigations, proceedings, and the resulting activities o

organization involved with performance improvement, training, instruction or lear


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ETHICS AND BUSINESS STRATEGY

Business Strategy describes how a particular business intends to succeed in

place against its competitors. It therefore represents the best attempt that the

make at defining and securing the future of that business.Unethical Business Strategies may not be the norm in many business but it certai

in a lot of different companies. These unfair business practices can hamper th

restricting their rights to engage in fair business practices.

Unethical Business Practices

1. Corporate Spying : an unethical strategic decision

2. Unfair Pricing : an unethical strategic decision

Ethical Decision Making

Ethical Decision making is a process that considers various ethical principles, ru

the maintenance of relationships to guide or judge individual or group decision

process of evaluating and choosing among alternatives the best decision in ethica


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Components of Ethical Decision Making

Commitment

Consciousness

Competency

Identify the Ethical Problem

Collect relevant Information

Evaluate the Information

Consider Alternatives

Make a Decision Act or Implement

Review the Action

Areas where Unethical Practices are followed while framing Strategic Dec

Formulating of strategies

Performing strategic evaluation and control


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Influence of Organizational Culture in Ethic

Organizational Culture is the collective behavior of people that are part of an

also formed by the organization values, visions, norms, working language, system

includes beliefs and habits as away of perceiving and even thinking and feelin

culture effects the way people and groups interact with each other with

stakeholders.

Importance of Ethics in Organizational Culture

Ethics corresponds to basic human needs

Values create credibility with public Laws cantprotect society, but ethics can

Benefits of managing ethics in work place

Improve society interactions

Cultivate strong team work and employee growth

Promotes a strong public image


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Organisation Culture the Key to Improve the Work Place Ethics.

Effectiveness of program depends on the culture of the organisation

Strong ethical culture are in part themselves a product of formal progra

Ways To Create Better Ethical Culture

Bring visible role model

Communicating ethical expectations

Providing ethical training

Respect the background of employees and subordinatesComponents of Ethical Culture

Ethical values and norms are a central component of organisational culture

A code of ethics guides when ethical decision arise

Managers serve as ethical role models


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ETHICS COMMITTEE

An Ethics Committee is a committee dedicated to the ethical rights and moemployees. It deals with concepts such as good and evil, rights and wrong, virtueand crime, etc. The committee is concerned with inner guiding moral princ

beliefs that people use to analyze or interpret a situation and then decide whaappropriate way to behave. These committees may formulate policies, develop and in context of these norms, evaluate the companyscompliance with them.

Need for Ethics Committee: To protect human subject; To check for ethical vagood things; obligation not to harm intentionally; Autonomy; Justice; DignityTruthfulness and honest; No influence/coercion.

Seven Possible Roles for an Ethics Committee

Contribute to organisation's ethics and compliance standards and procedures. Assume responsibilities for overall compliance with those standards and proce

Oversee the use of due care in delegating discretionary responsibility.

Communicate the organisationsethics and compliance standards and procedu

Monitor and audit compliance

Oversee enforcement, including the assurance that discipline is uniformly appl

Take the steps necessary to ensure that the organisation learns from its experie


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The Ethical Audit is the systematic evaluation of an organisations ethi

performance to determine whether it is effective.

Regular, complete, and documented measurement of compliance wprocedures

Helps to identify the firmscurrent standards, policies and risk areas.

Scope of the Ethical Audit

Scope is determined by the type of business, risks faced and the opportunities to

Benefits of an Ethics Audit

Identify potential risks and liabilities and improve legal compliance

Can be key in improving organisational performance

Improved relationship with stakeholders

ETHICAL AUDIT


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Ethics Auditing Process

Secure top management and board commitment

Establish an ethics audit committee

Define the scope of ethics audit

Review the organisational mission, goals and values in relation to ethics

Collect and analyze relevant information

Verify the results through an outside agent

Report the finding to - Ethics Audit Committee, managers and stakeholders

Purpose of an Ethics Audit

Identify pertinent ethical issues in their practice setting

Review and assess the adequacy of their current practices

Design a practical strategy to modify current practices as needed

Strategic importance of Ethics Auditing

Should be conducted regularly

Provide a benchmark of overall effectiveness of ethics initiatives

Can demonstrate the positive impact of ethical conduct and social responsibilit

Business Ethics Unit-3

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