Unit 1- Business Ethics & Corporate Governance

Unit 1- Business Ethics & Corporate Governance

Rachna Bansal Jora

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Unit 1- Contents

• Introduction to Business Ethics, • Ethics, Morals & Values, • Concepts of Utilitarianism and Universalism • Theory of rights• Theory of Justice • Virtue ethics• Ethics of care • Law and Ethics • The Nature of Ethics in Management• Business Standards and Values • Value Orientation of the Firm.

Values

• Values are fundamental belief of an individual .

• They are standards/ parameters.• They are what an individual believes to be

having worth and important in their life.

Moral

• Moral are the values, a system of beliefs which gets its authority from something outside the individual- a higher being (society).

Ethics

• The principle of conduct governing an individual or group.

• Ethics of individual decisions and actions are defined socially not individually.

Business Ethics• Business ethics refers to the moral principles

which should govern business activities.• Purpose of Business Ethics is to

– Regulate objectives (ends) of business– The means to achieve the objective

• A set of moral principles which should play a significant role in guiding the conduct of managers and employees in the operation of enterprise.

Levels of Business Ethics

International Level

Societal Level

Stakeholders Level

Organization’s level

Individual Level

Need & Relevance

• Environmental Pressure• Enlightened Self Interest• Moral Consciousness• Legal Requirements

Principles of Business Ethics

• Be trustful• Keep an open mind• Meet Obligations• Have clear documents• Become community involved• Maintain accounts• Be respectful

Utilitarianism/ Telelogical Theory

• Given by Jeremy Bentham & John Stuart Mill

• An action is judged as good or right on the basis of its consequences. Ends of an action justify the means taken to reach those ends.

• Example Bhakhra Nangal Dam was (capturing lands and roads did harm to a few farmers but the entire state of Punjab was benefitted)

Utilitarianism

Consequentialist Principles • An action is morally right if it produces the

greatest good for the greatest number of people.• An action is morally right if the net benefits over

costs are greater for all affected, compared with the net benefits of all other possible choices.

• An action is morally right if its benefits are greatest for each individual and if these benefits overweigh the costs and benefits of the alternatives.

Criteria used in utilitarianism

• Rule based: general rules are used as criteria for deciding the greatest benefits to be calculated.

• Act Based: analyze a particular action or behavior to determine whether the greatest utility can be achieved.

Problems with Utilitarianism

• No agreement about the definition of good for all.

• No agreement about who decides, but rather their consequences.

• Actions are not judged.• Cost benefit analysis of non monetary

stakes i.e. Health & safety• Principle of justice and rights are ignored

Universalism/ Deontological

• Given by Immanuel Kant• Regardless of consequences this

approach is based upon universal principles such as justice, rights, fairness, honesty and respect.

• This approach believes in categorical imperative (The moral principle that behavior should be determined by duty)

Parts of categorical Imperative

1. First part states that a person should choose to act if and only if she or he would be willing to have every person on the earth, in the same situation, act exactly the same.

2. Second part says a person should act in a way that respects and treats all others involved as ends as well as means to an end.

Criticism of universalism

• Imprecise and lack practical utility.• Hard to resolve conflicts of interest.• Difficult to take an absolute decision when

limited resources, time and conflicting values are factors.

Theory of Rights • Rights are individual entitlements to

freedom of choice and well being. • In the rights ethical theory the rights set

forth by a society are protected and given the highest priority.

• Rights are considered to be ethically correct and valid since a large or ruling population endorses them.

• Legal rights are the entitlements that are limited to a particular legal system and jurisdiction.

• Moral rights/ human rights are universal and based on norms in every society

• Natural rights are those that are moral while conventional are those created by humans and reflect society's values.

• Exp. The right to life, The right to liberty, The right to pursue happiness

• The concept of rights based ethics is that there are some rights, both positive and negative, that all humans have based only on the fact that they are human.

• Negative rights refers to the duty that others have to not interfere with actions related to a person’s rights.

• Positive rights imposes a duty on others to provide for your needs to achieve your goals, not just protect your right to pursue them.

Limitations of rights based theory

• This justification that individuals are entitled to rights, can be used to disguise and manipulate, selfish, unjust political claims and interests.

• Protection of rights can exaggerate certain entitlements in society at the expense of others.

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Theory of Justice

• Principle of justice deals with fairness and equality.

• Moral authority which decides what is right and wrong concerns the fair distribution of opportunities as well as hardships to all.

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Principles of Justice

• All individual should be treated equally.• Justice is served when all person have

equal opportunities and advantages to society’s opportunities and burdens.

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Types of justice- Richard DeGeorge

• Compensatory Justice: compensating someone for a past harm or injustice

• Retributive justice: serving punishment to someone who has inflicted harm on another.

• Distributive justice: fair distribution of benefits and burdens

• Procedural justice: fair decision practices, procedures, and agreements among parties.

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Problems with theory of justice

• Other than the state and judiciary who decides who is right or who is wrong.

• Who has the moral authority to punish whom?

• Can opportunities and burdens be fairly distributed to all?

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Virtue Ethics• Founders are Plato and Aristotle• Virtue ethics emphasize moral character in contrast

to moral rules or consequences of actions.• Virtue ethics is grounded in ‘Character Traits’ that is

‘a disposition which is well entrenched in its processor’.

• Virtue ethics focuses on the type of person one ought to be, not on specific actions that should be taken.

• It is grounded in good character, motives and core values.

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Virtue Ethics- Critiques

• Does not offer precise guidelines of obligation.

• Can't correctly assess the occasional tragic actions of virtuous people.

• Virtue theory does not provide a list of intolerable acts.

• Character traits change and unless they are not practiced, there is risk of loosing proficiency.

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Ethics of Care

• Ethics of care is an ethic that emphasizes caring for the concrete well being of those near to you.

• We have an obligation to exercise special care toward those particular persons with whom we have valuable close relationships, particularly relations of dependency.

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Ethics of care

• According to this approach the moral task is not to follow universal and impartial moral principles, but instead to attend and respond to the good of particular concrete persons with whom we are in a valuable and close relationship.

• Compassion, love, friendship, and kindness are the sentiments or virtues that normally manifest this dimension of morality.

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Ethics of Care- Objections

• An ethic of care can degenerate into unjust favoritism.

• Its demands can lead to burnout.

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LAW

• Law can be defined as a consistent set of universal rules that are widely published, generally accepted, and usually enforced. These rules describe the ways in which people are required to act in their relationships with others in a society. They are requirements to act in a given way, not just expectations or suggestions to act in that way. Since the government establishes law, the government can use powers to enforce laws.

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Ethics

• The word ethics is derived from the Greek word ethos (character), and from the Latin word mores (customs). Together they combine to define how individuals choose to interact with one another. In philosophy, ethics defines what is good for the individual and for society and establishes the nature of duties that people owe themselves and one another.

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Law and Ethics

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Nature of Ethics in Management

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Business Standards & Values

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Value orientation of the firm