ETHICS & FM

SUBJECT – MANAGEMENT
SUBJECT CODE – 17 UNIT
-X

9987181729

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Chapter Nos. Contents of Unit X Pages

1 Ethics and Management System 3-9

2 Value Based Organisation 1-6
3 Social Responsibility of Managers 1-11
4 Corporate Governance and Ethics 1-12
5 Environmental Ethics 1-5

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 CHAPTER 1

ETHICS AND MANAGEMENT SYSTEM

Concept of Ethics
The term ethics (ethics is used both in singular and plural forms) comes from Greek
word ethos meaning character, guiding beliefs, standards, or ideals that pervade a group,
community or people. As a field of study, ethics is that branch of philosophy which is
concerned with moral human character and conduct; it prescribes mass moral principles that
define what ought to be. As a behavioral pattern, ethics relates to behavior that is ethical.
According to Freeman,
Freeman, “Ethics refer to a set of moral principles which should play a
very significant role in guiding the conduct of managers and employees in the opera
operation of
any enterprise”.

Features of Ethics
1. Ethics is involved in all types of human behavior, whether in business context or other
context.
2. Ethics contains personal and professional conduct and prescribes what is ethical conduct
and what is unethical conduct.
3. Ethics is a social phenomenon. Since different societies differ in terms of their norms,
what constitutes an ethical behavior in a society may be treated as unethical behavior in
other societies.
4. Ethics does not rest on feelings of approval or disapproval
disapproval but on the careful
examination of the reality of the society.
5. Ethics is not necessarily coexistensive with law even though law enshrines many ethical
judgments of a society. Law emerges out of ethical standards of the society but it is not
necessary
ary that law includes all ethical standards. Further, it may include even some
unethical standards to suit a situation.

Approaches to Ethics
Managers report that the most critical quality of ethical decision making is
consistency. Thus, they often try to adopt a philosophical approach that can provide the
basis for the consistence they seek. There are three fundamental ethical approaches for
executives to consider: the utilitarian approach, the moral rights approach, and the social
justice approach.

1. Utilitarian Approach:
Managers who adopt the Utilitarian approach judge the effects of a particular action on
the people directly involved, in terms of what provides the greatest good for the greatest
number of people. The utilitarian approach focuses on actions,
actions, rather than on the

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 motives behind the actions. Potentially positive results are weighed against potentially
negative results. If the former outweigh the latter, the manager taking the utilitarian
approach is likely to proceed with the action. That some people might be adversely
affected by the action is accepted as inevitable.

2. Moral Right Approach:

Managers who subscribe to the moral rights approach judge whether decisions and
actions are in keeping with the maintenance of fundamental individual and group rights
and privileges. The moral rights approach (also referred to as deontology) includes the
rights of human beings to life and safety, a standard of truthfulness, privacy, freedom to
express one’s conscience, freedom of speech, and private property.

3. Social Justice Approach:

Managers who take the social justice approach judge how consistent actions are with
equity, fairness, and impartiality in the distribution of rewards and costs among
individuals and groups. These ideas stem from two principles known as the liberty
principle and the difference principle. The liberty principle states that individuals have
certain basic liberties compatible with similar liberties by other people. The difference
principle holds that social and economic inequities must be addressed to achieve a
more equitable distribution of goods and services.
In addition to these defining principles, three implementing principles are essential
to the social justice approach.
According to distributive justice principle, individuals should not be treated
differently on the basis of arbitrary characteristics, such as race, sex, religion or national
origin. This familiarly principle is embodied in the Civil Rights Act.
a. Fairness Principle:
It means that employees must be expected to engage in cooperative activities
according to the rules of the company, assuming that the company rules are deemed
fair.
b. Natural – Duty Principle:
It points up a number of general obligations, including the duty to help others who
are in need or danger, the duty not to cause unnecessary suffering, and the duty to
comply with the just rules of an institution.

BUSINESS ETHICS
Meaning of Business Ethics:
Business ethics deals with determining rules or behaviour of business enterprises. It
determines rightness or wrongness of actions of businessmen. “It is the study of what is
ethically permissible and of what is positively virtuous, in regard to business activity”.
‘Management Ethics’ is a concept closely related to the concept of social
responsiveness of a firm. It is “the discipline of dealing with what is good and bad, or right
and wrong or with moral duty and obligation”.
“It is the set of moral principles that governs the actions of an individual or a group”.

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 Business ethics is the application of ethical principles to business relationships and
activities. It governs the way a business runs and carries its operations. It determines the
standard of behaviour that guides managers in their work.

Features of Business Ethics

1. It determines issues that business houses face in operating their activities.
2. It draws distinction between what is right or wrong, fair or unfair, just or unjust.
3. It is an important component of corporate social responsibility that demands business
houses to engage in socially responsible behaviours.
4. It demands that corporate houses should not only be profit making units, they should be
good corporate citizens also.
5. It demands that corporate houses should obey the law. Legal obedience is an ethical
content that ensures long run survival and prosperity of business houses.
6. It defines not just what business managers do (descriptive ethics) but also why they
should be doing so (normative ethics).
7. It is broader than law. There may be business activities that are ethical but illegal or,
unethical but legal.

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 CHAPTER - 2
VALUES BASED ORGANISATION
Values that a person has one of the major forces shaping his behaviour. Therefore,
the values are the core of ethical or unethical behaviour. Values are convictions and a
framework of philosophy of an individual on the basis of which he judges what is good or
bad, desirable or undesirable, ethical or unethical.
Rokeach,, a noted socio-psychologist,
socio has defined values as “global
global beliefs that
guide actions and judgement across a variety of situations”.
situations
He further says: “values
values represent basic convictions that a specific mode of
conduct (or end state of existence) is personally or socially preferable to an opposite
mode of conduct (or end state of existence)
existence)”
Kluckhohn, C.. (1951) define value as ‘a
‘a conception, explicit and implicit,
distinctive of an individual,l, or characteristics of a group,. Of the desirable
which influences the selection from available modes, means and ends of action action.’

Features of the values:

1. Part of Culture:
Values are elements of culture, and culture is the complex of values, ideas, attattitudes,
and other meaningful symbols to shape human behaviour in the society. Every society
has its own culture and people in that society adhere to cultural requirements.
2. Learned Responses:
Human behaviour represents learned phenomenon. This is because Human beings live in
a society having certain cultural characteristics which prescribes to behave in a particular
way. Cultural field represents a set of stimuli to an individual and also a set of responses
appropriate to those stimuli. The individual either
either is directly rewarded for adopting those
responses (alternatively punished for not adopting) or indirectly associated with other
stimulus situations that are rewarding. Through this process, the individual are
encultured or socialized, that is, the respo
responses
nses of a set of culture become his own set of
response tendencies.
3. Inculcated:
Values are inculcated and are passed through generation to generation by specific
groups and institutions. Such transmission starts from the family from where the
socialization
cialization process starts. Apart from family, educational, religious, and ethnic
institutions also transmit cultural values from one generation to another.

4. Social Phenomenon:
Values are a social phenomenon, that is, cultural habits are shared by aggregates
aggrega of
people living in organised society. An individual’s way of thinking and behaving is
not culture, rather group behaviour constitutes culture.

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5. Gratifying Responses:
Values exist to meet the biological and other needs of the individual in the society. Thus,
element in the culture becomes extinguished when they no longer are gratifying to
members of the society.

6. Adaptive Process:
Culture is adaptive, either through a dialectical process or evolutionary process. Dialectical
or sharply discontinuous change occurs when the value system of a culture become
associated with the gratification of only one group or class in the environment. In such a
case, other classes of the society reject the logic of the values system and replace it with a
new value system, such as through revolution or other methods.

Types of values:
Different authors have given different classification of values the classification of values
facilitates an understanding of why people have different attitudes and reveal different
pattern of behaviour.
1. Allport et al’s value classification:
Allport et al have classified personal values into six categories: economic, theoretic, political,
social, aesthetic, and religious based on the orientation of people towards certain things.
a. Economic:
People having values of economic orientation attach importance to what is useful.
They are concerned with the practical affairs of the work.

b. Theoretic:
People having values of theoretic orientation involve themselves in the use of rational,
critical, and empirical processes. They strive to discover truth.

c. Political:
People having values of political orientation place great emphasis on power. They
remain interested in gaining power and using it to influence others.

d. Social:
People having values of social orientation attach importance to love and affection.
They acre for the interest of others and are sympathetic to them.

e. Aesthetic:
People having values of aesthetic orientation put emphasis on artistic values and
harmony. It is not necessary that they themselves are creative or artistic but have love
for these.

f. Religious:
People having values of religious orientation attach importance to unity.

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 Allport et al’s suggest that a person may have different values in different degrees but
he is affected more by the most important values held by him.

1. Classification given by M. Rokeach:

There are two types of values:
1. Terminal values
2. Instrumental values
1. Terminal Values:
These are the values that a person wants to achieve during his life time. They represents
the end state or the purpose of person’s existence
2. Instrumental Values:
These relate to means for achieving the desired results. They refer to preferable modes
of behaviour or means of achieving the terminal values.

Terminal values (“ends”) Instrumental values (“means”)

Comfortable life Ambition
Sense of accomplishment Courage
Family security Honesty
Mature love Helpfulness
Self respect Independence
Wisdom Imagination

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 CHAPTER 3

SOCIAL RESPONSIBILITY OF MANAGERS

Social responsibility (SR) of managers particularly in business organizations has, of

late, been one of the most talked about and widely supported subjects. Traditionally
business basis objective has been defined in terms of profit maximization. The first break
came in 1930s when the view was advanced and accepted that managers of large l companies
must make decisions which maintain an equitable balance among the shareholders,
employees, customers, suppliers and general public. Managers were considered trusties for
these interests. Such a view was later developed as the social responsibility.
responsibility.
The phrase social responsibility is widely used in the literature of sociology,
anthropology, economics, politics, and business management. However, conceptually as well
as in practice also, this has been a volatile, vague, and confused area. Conc
Conceptually, people
are not very clear what the exact meaning of SR is and what they are expected to do under
this. From practical point of view, the response from business has gone on providing a
spectrum ranging from mere lip lip-sympathy to multi- lakh rupees concrete programmes in
our country. From conceptual point of view, SR has been defined by Davis Davis: “Social
Responsibilities refer to the businessman’s decisions and actions taken to reasons at
least partially beyond the firm’s direct economic or technical interest”.
interest
This is a broad definition of SR and prescribes actions not related to the interest of
the organization. Still broader view has been suggested by the Andrews when he says: ““By
social responsibility, we mean the intelligent and objective concern for the welfare
of society that restrains individual and corporate behaviour from ultimately
destructive activities no matter how immediately profitable and leads in the
direction of positive contributions to human betterment, variously as the latter may
be defined.”

Features of SR:
1. The SR contains three types of behaviour-
behaviour positive, neutral and negative. The negative
and neutral aspects of behaviour are as important as positive.
2. Every person in the society has a social obligation to fulfill. However, the emphasis is on
social responsibility of management as a group because it is in a position to use a
resource of the society in the way it likes. Therefore, it must be conscious about its SR.
3. SR involves fulfilling obligations to various parties concerned with the functioning of an
organization. Some of these parties are concerned directly, other may be concerned
indirectly.
4. The standard fixed for fulfilling obligations to various parties are to be decided
according to the social norms and expectations. Therefore,
Therefore, these obligations may vary
from society to society.

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Nature of Social Responsibility:
1. Focus on business firms:
Though both business and non business organizations should be responsible towards
society, the focus is more on business firms to look after social interests.

2. It deals with moral issues:

Companies have specified policies and programme to look after interest of their
employees and other stakeholders. These programmes are devised from the need to do
what is right and just for the society as well.

3. It is commensurate with the objective of profit maximization:

Social goals are discharged by the organizations which are economically sound. A
financially unviable enterprise are passed to consumers in the form of increased prices of
goods and services.

4. It is pervasive activity:
Social responsibility is not just the obligation of top level managers. Managers at all
levels are involved in discharging of social responsibilities.

5. It is a continuing activity:
Social responsibility is not catering to the interests of society once or twice. It is
important for organizations to continuously engage in social issues if they want to
survive and grow in the long run. The economic and social issues, in fact go hand in
hand.

Levels of Social Responsibility:

A Hierarchy of the extent to which business units discharge social responsibilities
is developed by R. Joseph Monsen. Starting from the lowest level, there are four level
of hierarchy:

1. Obeyance of the law:

Manager feels that are discharging social responsibility by merely obeying the law.
2. Catering to public expectations:
Social responsibility goes beyond merely obeying the law. In addition to abiding by legal
framework of the country, social responsibility also caters to public expectations from
the business enterprises (for example, providing job opportunities, quality goods,
controlling pollution etc.).
3. Anticipation of public expectations:
At a still higher level, business firms not only fulfill what society expects from them
but also anticipate needs of the society and devise programmes to fulfill those needs.
4. Creation of public expectations:
At the highest level of hierarchy, managers not only cater to public demands but also set
standards of social responsibilities and want the society to be benefited by those
standards.
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 CHAPTER 4

CORPORATE GOVERNANCE AND ETHICS

Concept and Definition
Corporate governance is a newly introduced system for managing a company in the
best interest of all its stakeholders though in the context of state administration, the concept
of governance is quite old, where it is referred to as the system of directing and controlling
the activities off a state, particularly in princely states and empires. We may find the concept
of state governance even in the writings of Kautilya.
The term ‘governance’ as applied in the state governance has been derived from the
Latin word that suggests the notion of ‘steering’. The sense of steering a society can be
contrasted with the traditional ‘top down’ approach of governments ‘driving’ society or the
distinction between ‘power in’ to contrast to government ‘power over’.
In corporate sector, however, the concept of governance cannot be applied in the
same form in which governance used to be applied in princely states because these states
were sovereign and had right to frame governance rules and enforce them. Companies do
not enjoy such sovereignty but they function within the legal framework of the country
concerned. For example, Indian companies function according to the provisions of the
Companies Act, 1956 and directions of other bodies constituted by the government in this
regard. For example Securities and Exchange Board of India (SEBI) has been authorized by
the government to regulate the functioning of those companies whose shares are listed in
any stock exchange in India or Abroad. Corporate governance is a system b by which
companies are directed and controlled based on code of good corporate practices. However,
since corporate governance has entered management field only recently and legal
framework governing corporate sector varies from country to country, corporate governance
contents and, consequently, its definition lack unanimity. For example, Adrian Cadbury,
Chairman of Cadbury has defined corporate governance as follows:
“Corporate government is concerned with holding the balance between the
economic and sociall goals between the individual and communal goals. The corporate
framework is there to encourage the efficient use of resources and equally requires
accountability for the stewardship of those resources. The aim is to align as nearly as
possible the interestst of individuals, corporations and society.”
Shleifer and Vishny defined corporate governance as follows: “Corporate
governance deals with the ways suppliers of finance to corporations assume themselves of
getting a return on their investment”.
World Bank has defined corporate governance as follows: “Corporate governance is
for promoting fairness, transparency and accountability”.
Corporate governance is concerned primarily with holding balance between
economic and social goals and between individuals and and community goals. Corporate
governance is:
1. A relationship among stakeholders that is used to determine and control the strategic
direction and performance of organizations.
2. Concerned with identifying ways to ensure that strategic decision are made effectively.
effec

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3. Used in corporations to establish order between the firm’s owners and top level
managers.

Corporate Governance and Corporate Management:

Corporate governance defines the way a corporate enterprise should be governed. It
describes corporate values, norms and ethics. It directs the development of the corporate
enterprise. Having defined the framework of corporate functioning, corporate, management
deals with management (planning, organizing, etc.) of corporate enterprises within the
framework of its governance. It deals with use of corporate resource so that maximum value
addition is made to corporate wealth (assets) within the broad parameters defined in the
corporate governance.

Objectives of Corporate governance:

1. To align corporate goals with goals of its stakeholders (society, shareholders etc.)
2. To strengthen corporate functioning and discourage mismanagement.
3. To achieve corporate goals by making investments in profitable investments outlets.
4. To specify responsibility of the board of directors and mangers in order to ensure
good corporate performance.

Code of Corporate Governance:

For practicing corporate governance in organizations, code of corporate governance is
required. Code of corporate governance is just like any other professional code and
prescribes the practices that the organizational should follow to achieve their objectives. In
India context, code of corporate governance the required because the company laws which
prescribes how a company can be managed, only prescribes procedural matters and the
penal provisions if any offence is committed in the form of non conformity to these
procedures. These do not prescribe good corporate management practices. Code of
corporate governance prescribes such practices.
1. Board of directors:
The boards of directors guide company’s operations control them and provide objective
judgment, independent of management, to the company. The board remains
accountable for all its actions to the shareholders. The basic responsibilities of the board
include: strategic development of the company, maintaining good member relations,
protecting company’s assets and fulfilling all legal requirements.
2. Audit committee:
Companies must have an audit committee responsible for their financial reporting. This
committee shall have access to all the financial information, and power to investigate any
activity within its term of reference, seek information from any employee for effective
financial reporting. The purpose of appointing audit committee is to present and disclose
correct sufficient and credible financial information of the company to its stakeholders.

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3. Remuneration Committee:
The report recommended setting up a remuneration committee to determine and
account for the company’s policy on remuneration of its directors. Remuneration also
includes pension rights and compensation payment to them.

4. Accounting Standards and Financial Reporting:

The committee recommended issuing accounting standards by the Institute of Chartered
accountant of India regarding upgrading of accounting standard and financial reporting
system in India. Companies are required to present
I. Consolidated accounts for all subsidiaries and
II. Financial reporting for each of their product segments, so that shareholders have
complete financial picture of the company in one segment only.

5. Management:
While the board of directors ensures that the corporate policies and strategies are laid
according to the code of corporate governance, management of the company ensures
that these policies and strategies are implemented successfully for effective attainment
of corporate objectives. The role of management should be clearly defined by the board
of directors.
6. Shareholders:
Shareholders are owners of the company. They have the right to obtain timely
information from the company, right to transfer and register their shares, right to
participate and vote in shareholders’ meetings, right to elect members of the board etc.
these rights recommended that shareholders evaluate corporate governance
performance of the company. Shareholders participate in company’s general body
meetings to ensure that company is functioning for their interest. In this regard, the
committee recommended that company’s quarterly results and various financial
presentations may be put up on company’s website for access by shareholders.

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 CHAPTER - 5

ENVIRONMENTAL ETHICS

Introduction:
Our Dependence on the Environment:
We are dependent on the environment for our needs and wants. There is urbanization in the
economy with advancement in science and technology, but directly or indirectly we are
dependent on the environment in almost all spheres of the economy. Our dependence on
the environment can be explained in the following ways:
1. We depend on environment for use of resources. These are two types of resources in the
economy: renewal and non-renewable.
non
a) Renewable resources:
Renewable resources are those that are either totally replaced through natural
process or are almost inexhaustible. They are generated by natural process and can
be used indefinitely if our rate of consumption does not exce
exceed their rates of
replenishment. They are biobased and natural, for example wind and solar power.
b) Non-renewable
renewable resources:
Non-renewable
renewable resources are also called depletable resources for example, wind,
coal, gas, or oil. They cannot be replaced on consumption. Consumption of non
non-
renewable resources reduces their availability in future. Most energy resources
currently in use are non-renewable.
non
2. We depend on the environment for dumping the waste products. In the contemporary,
lifestyles, solid
olid waste are increasing at a rate faster than the rate at which nature breaks
them. We are using more resources than can be replaced by nature. We put solid waste
into land areas, release effluents into our streams and exhaust waste gases into the
atmosphere.
here. We can meet our economic and social needs and allow our next generation
also to meet their needs if we understand the difference between sustainable and
unsustainable practices.
a) Sustainable practices:
These practices provide ongoing economic and social
social benefits without degrading the
environment. They facilitate the resources to be recycled.
b) Unsustainable practices:
These practices meet our immediate need for resources. Over a period of time,
however, these practices deplete or damage natural resources
resources so that resources

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 cannot be used by future generations. The resources cannot be recycled and,
therefore, get exhausted on constant use.

Business and Environment:

The natural environment consists of the renewable and non-renewable resources
used by the firm in their production processes. The renewable resources are air, water and
solar energy which can be replenished and non-renewable resources are oil, coal, wood etc.
which cannot be replenished.
Though air, water and solar energy can be replenished, business firms are harming
these resources by dumping industrial wastes in water and polluting the air and affecting the
ozone layer. Increasing industrialisation is affecting the natural environment by disposal of
chemical wastes in land, air and water. It also affects the food supply which can be harmful
on consumption. “The environment damage to water, earth and air caused by industrial
activity of mankind is harmful for future generations”.
There is need to create a sustainable economy where materials are processed in a cyclical
form. Waste products of one industry should be used as inputs of another industry. Business
enterprises should use these resources wisely. They are trying to adopt methods of
production that restrict environmental; pollution. Legislative measures are also enforced by
the Government (Pollution Control Board) to protect the natural environment. Even the
renewable sources have to be used judicially so that their rate of consumption does not
exceed the rate of replenishment. We cannot afford economic growth at the cost of benefits
to future generations. A sustainable economy requires that we:
1. Use the renewable resources at a rate slower than the rate of their regeneration.
2. Generate and emit wastes in the environment at a rate slo0wer than the environment’s
ability to absorb them.
3. Develop alternative substitutes for depletion of non-renewable resources.
Our whole production and consumption system should be revamped to make it friendly
to conservation of natural resources. We need to make trade-offs between our immediate
requirements and environmental sustainability both in production and consumption.

Environmental Responsibility
There is a strong consensus that business has ethical responsibility towards environment
that includes both human and non-human world. A wide range of environmental
responsibility of business includes taking care of issues like air and water pollution, toxic
waste disposal etc.
Business response towards environment can be studied under two heads

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 1. Responsibility to Humans:
Business has responsibility of not causing harm to others and if caused, compensate
them for the same. If the business dumps toxic chemical into a river, it can be held
liable for any illness that results from use of that water for drinking or cooking
purposes.
Responsibility of business towards humans as pat of their environment policy
can be studied under two models –
i. Liability Model:
It determines the limit of corporate liability once the business harm to society is
proved.
ii. Regulatory Model:
Rather than compensating for harm done to humans, this model requires business
firms to meet a wide range of regulatory standards that aim at preventing
environmental harm. It believes in prevention rather than cure (prevention is better
than cure).
In liability model, the burden of proof for environmental responsibility is on
environmental groups but in regulatory model, it is on the companies themselves.
Rather than environmental groups proving that toxic waste disposal is harmful for the
society, companies have to prove that this disposal is not harmful and, therefore, may
be allowed to dispose of.

Responsibility to Non-Humans:
Business has responsibility not only towards humans but also towards non-humans
like animals, plants and other natural objects. Singer and Regan argued that natural objects
have moral standing and based on aesthetic, spiritual and moral values, businesses have
moral responsibilities towards them. Christopher Stone made a legal case for protecting
these natural objects. He claimed that trees, animals and other natural objects should be
legally recognised and protected. The compensatory and regulatory models must also apply
to businesses that are involved in farming agriculture, food service, recreation, medical and
commercial research etc. they should adopt practices that avoid causing harm to animals.

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 SAMPLE QUESTIONS
1. Ethics provide
(A) Consumer Autonomy (B) CSR (C) Justice (D) All of these
Ans. D
(Dec. 2012, Paper-II)

2. Company seeking ethical standard must purport to

(A) Good Employee Relation (B) Better Production Portfolio
(C) Economy of Scale (D) Public Disclosure and Publishing
Ans. D
(Dec. 2012, Paper-II)

3. The evaluation of Business activities and behaviour as right or wrong is called

(A) Corporate Governance (B) Business Ethics
(C) Social Responsibility (D) None of the above
Ans. B
(Dec. 2012, Paper-III)

4. Match the following :

List – I List – II
(a) Work ethics (i) includes taking care of issues like air and water
pollution, toxic waste disposal etc.
(b) Values (ii) is an organisation’s obligation to benefit Society
in ways that transcend the prime business objectives
of maximizing profit.
(c) Environmental responsibility of (iii) is a characteristic attitude of a group towards a
business what constitutes the morality of work.
(d) Corporate Social Responsibility (iv) determine the overall personality of an
individual and the organization that he is working
for.
Codes :
(a) (b) (c) (d) (a) (b) (c) (d)
(A) (i) (ii) (iii) (iv) (B) (iv) (iii) (ii) (i)
(C) (iii) (iv) (i) (ii) (D) (ii) (i) (iv) (iii)
Ans. C
(Reconducted of June 2013, Paper-III)

5. Which one of the following is not a principle of corporate Governance ?

(1) Transparency (2) Accountability (3) Feasibility (4) Responsibility
Ans. 3
(June 2015, Paper-III)

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