Ethico-Legal Frameworks for Managerial Ethics

1. Vision, Values and Organisational Culture

The vision, mission, and values statements form the foundation for all activities in an
organization. The vision\mission statements describe what the organization is and what
they want to achieve in the future. ... The values statement defines how people in the
organization should behave. It provides a guideline for decision making.

A. Vision and Mission Statements of Famous MNCs

• “To connect the world’s professionals to make them more productive and
successful.”-LinkedIn. Their Values-“being members first, relationships matter,
be open-honest and constructive, demand excellence, take intelligent risks, and
act like an owner.”
• “To be Earth’s most customer-centric company, where customers can find and
discover anything they might want to buy online, and endeavors to offer its
customers the lowest possible prices.”—Amazon. Their Values-Customer
Obsession, Ownership, Invent and Simplify, Learn and Be Curious, Hire the
Best, The Highest Standards, Think Big, Bias for Action, Earn Trust, Deliver
Results
• “To give people the power to share and make the world more open and
connected.”—Facebook. Their Values-be bold; focus on impact; move fast; be
open; and build social value
• “To give everyone the power to create and share ideas and information instantly,
without barriers.”—Twitter. Their Values- Grow our business in a way that
makes us proud. Recognize that passion and personality matter. Communicate
fearlessly to build trust. Defend and respect the user's voice. Reach every person
on the planet. Innovate through experimentation. Seek diverse perspectives. Be
rigorous. Get it right.
• “To build the Web’s most convenient, secure, cost-effective payment
solution.”—PayPal. Their values- “collaboration, demonstrating integrity, trust,
respect, empathy, innovation, wellness, and inclusion.
• “To enrich people’s lives with programmes and services that inform, educate
and entertain.”—BBC. Their values-Trust is the foundation of the BBC. We're
independent, impartial and honest. We put audiences at the heart of everything
we do. We respect each other and celebrate our diversity.
• “To organize the world’s information and make it universally accessible and
useful.”—Google. Their values--“Focus on the user and all else will follow, Fast
is better than slow, Democracy on the web works, You can make money without
doing evil, There's always more information out there, and great just isn't good
enough.
• “We will provide branded products and services of superior quality and value
that improve the lives of the world’s consumers.”—P&G. Their values-
Integrity, Leadership, Ownership, Trust and Passion for Winning.
 • “To be the most reliable global network for customers and suppliers, that
delivers value through products and services. To be a responsible value creator
for all our stakeholders.”—Tata Sons Vision Statement.. Their values:--
Integrity--We will be fair, honest, transparent and ethical in our conduct;
everything we do must stand the test of public scrutiny. Responsibility--We will
integrate environmental and social principles in our businesses, ensuring that
what comes from the people goes back to the people many times over.
Excellence--We will be passionate about achieving the highest standards of
quality, always promoting meritocracy. Pioneering--We will be bold and agile,
courageously taking on challenges, using deep customer insight to develop
innovative solutions. Unity--We will invest in our people and partners, enable
continuous learning, and build caring and collaborative relationships based on
trust and mutual respect.
• “To build a global enterprise for all our stakeholders, and great future for our
country; to give millions of young Indians the power to shape their destiny; the
means to realize their full potential…” Vision Statement of the Reliance
Group—their values-Customer Value, Ownership Mindset, Respect, Integrity,
One Team, Excellence.

B. Study the Organisational Culture and Climate

• What is the difference between organisational culture and climate and work ethos? Is
there an Ethical Infrastructure?
• Are there Formal\Informal Systems? Enumerate them.
• Is there an agreed-upon set of values?
• Is there a Code of Ethics? If both a Code of Ethics and a Set of Values are missing, then
there cannot be an Ethical Infrastructure. You have to start from scratch then. And bide
your time.
• If there is no formal\informal ethical infrastructure, then your job is to nudge your
seniors in the HR division to push for one, over time and at the right time.
• If there is a weak one ethical infrastructure, then you have to be alert to potential scams
and scandals. If Top management is open to strengthening the practice of ethics in the
org, then introduce the concept of Ethics Audits.

C. What are Ethics Audits?

• Ethical audit determines the internal and external consistency of a company's values
base. ... The results provide important management information, and can (and ideally
should) be used to report on the company's social and ethical performance, either as
part of the annual report or as a supplementary report.
• An ethics audit is a process used to evaluate several dimensions of the ethical conduct
of an organisation. It assesses how well (or poorly) an organisation conforms to agreed
benchmarks of ethical standards. It addresses the ultimate responsibility and
corresponding accountability of the organisation’s leadership to promote and ensure
 that its management at all levels and its staff behave in an ethical way and, by doing so,
refrain from acts of fraud and corruption. It may include assessment of ‘soft’ elements
(like tone at the top and tone at the middle) as well as ‘hard’ elements (the codes and
procedures established to stimulate monitor and reinforce ethical conduct throughout
the organisation).
• An audit of ethics does not assess the ethical behaviour of individuals. Neither is it
aimed at detecting or investigating (suspicions of) wrongdoings, such as fraud or
corruption. This is the field of special or forensic audits.
• One of the main challenges the audit of ethics faces is the need of measuring cultural
dimensions and impacts. Auditing ethics and culture struggles with the difficulty of
assessing soft controls and considering subjective information while still needing to
identify observable measures and sufficient evidence. Although perception information
needs to be used, this information can be inaccurate and must be combined with
objective data and criteria to maximise the reliability of assessment findings. Collecting
meaningful information for this purpose will be complex and it can also be costly.
• EXAMPLES of processes or areas inherently vulnerable to ethical breaches
• -Public procurement
• -Payment of subsidies, grants, benefits and allowances
• -Granting/issuing licenses, permits, passports, identity cards, etc.
• -Regulating and setting standards
• -Inspection/audit
• -Enforcing laws and regulations
• -Sensitive information about security threats, defence, taxes, health care,
• companies, etc.
• -Handling or custody of money
• -Managing valuable goods
• -Buying, selling and managing real estate
• HR professionals play a crucial role in shaping corporate ethical codes, policies and
procedures and then communicating and teaching that information to the workforce. In
many companies, the top HR manager either serves as the de facto chief ethics and
compliance officer or works with the person in that role to manage ethics and
compliance programs. Apart from the chief executive officer, there may be no more
important ethical role model in the organization than an HR manager.
• An ethics audit resembles a financial or operational audit. It involves interviews with
employees and managers, reviews of records and other information, and, sometimes,
observations of processes and practices.
• Does the firm have an agreed upon, jointly formulated Code of Conduct? If not, then
seminars need to be organised, involving as many executive level employees to arrive
at a jointly agreed upon Code of Conduct and Ethical principles in different areas of
operations. Once this code and principles are in place, then one can use this code and
principles as the lodestone to whet the actual practices in the firm. And that becomes
the Ethics Audit.
• "What are you auditing against?" The answer requires a distinction between two
disciplines frequently lumped together in corporate America: ethics and compliance.
Ethics refers to the amorphous area of behavior. Compliance refers to adherence to legal
regulations. A company may be fully compliant yet still engage in unethical practices.
There are many countries around the world that don’t have antitrust laws. A company
could in theory engage in price fixing in those countries. Compliance audits compare
internal behaviors to external regulations. Ethics audits compare internal behavior to
internal guidelines on behavior—guidelines that exist in corporate codes of conduct and
ethics-related policies and procedures. Of course, some compliance problems may stem
from ethical lapses; others may arise from process or operational bugs. That’s why
many business leaders conduct ethical audits in tandem with financial or operational
audits. For example, what does an ethical violation related to bribery or conflict of
interest look like? "Be very descriptive in your policies and procedures about what these
things mean," she recommends. Also, have managers and employees establish
performance goals related to ethics and compliance so employees can be evaluated
against those objectives. The greater specificity in ethics-related policies and
procedures paves the way for ethics-related performance objectives and metrics. These
metrics help enable more-tangible ethics audits. "One of the most difficult challenges
is making this highfalutin-sounding concept of ethics actually become very granular,"
she adds.
• (The hotline system is managed by a third-party provider, an arrangement that Woods
says strengthens objectivity and independence. The committee conducts ethics audits
as part of an annual internal audit process. In addition, a divisional controller, an HR
employee and Woods conduct spot ethics audits on the recommendation of the
committee. Whether or not corporate leaders seek outside help on ethics audits depends
on the nature and magnitude of the issues. "If the issue involves something very
important to the company, it helps to get an outside perspective and the impartial
judgment that a third party provides," Crane says. "If the company conducts the audit
internally and outside stakeholders are paying close attention to the issue, it can be more
difficult to say, ‘Yes, we audited our ethics internally and everything is just fine.’ That
may be received as a matter of the fox guarding the henhouse.)
• The most common ethics audits examine conflicts of interest, access to company
information, bidding and award practices, giving and receiving gifts, and employee
discrimination issues.
• The actual audits are time-consuming and based on checklists. They involve a team that
typically consists of an HR professional, an internal auditor, legal managers, and an
ethics and compliance manager. The team visits an area of the organization to conduct
research in response to a specific incident or as part of an ongoing auditing cycle.
D. How does one conduct an EA?

To start, choose a random sample of employees and/or managers from selected

work sites (about 20 employees at each location). Interview employees without the
presence of their supervisors. Provide a standard questionnaire to each Ethics
Auditor to be used in these interviews to ensure consistency.
Best practice is to communicate to the employee before the interview begins that
they are being questioned to assess how well the company has communicated the
appropriate guidelines. However, they respond, they are not at fault and are not
being judged.
Code of Conduct Audit:
Employee Interview Questions

Self-auditing your ethics program will help to ensure that it is functioning as

intended, and that all business units and staff functions are complying with its
requirements. Interviews with employees and managers can be used to assess
understanding of important areas of an ethics and compliance program. Use the
sample questions below in your interviews for a code of conduct audit, hotline
reporting mechanism audit, or leadership commitment audit.
1. Does the employee understand their role in complying with the standards
established by the code of conduct?

2. Does the employee believe the company is

serious about ethics and compliance? If
not, why not?

3. What does the employee think are the

company’s risks regarding ethics and
compliance?

4. Does the employee know the name and

contact information of their Ethics
Officer/Advisor, or the person they can
contact to report wrongdoing?
The answers to the above questions should be
summarized to form an opinion regarding the
effectiveness of the Code of Conduct training
program.

Hotline Reporting Mechanism Audit:

Employee Interview Questions
1. Does the employee know that there is a
hotline number they can use to report
concerns?
2. Does the employee know where to find
the hotline number?
3. Does the employee know that there will
be no retaliation for reporting a concern
even if it turns out to be unsubstantiated?
If the employee answers that they fear
retaliation, ask why. Is there any evidence
of retaliation?
4. Does the employee know the name and
contact information of their Ethics
Officer/Advisor, or the person they can
contact to report wrongdoing?
The answers to the above questions should
be summarized to form an opinion
regarding the effectiveness of the hotline
reporting mechanism.

Leadership Commitment Audit: Manager Interview Questions

1. What do you think is your role in establishing an ethical culture?

2. What specific things do you do to promote an ethical culture within your

organization?

3. What do you do to ensure that employees know how to voice their concerns
without
fear of retaliation?
Assess the effectiveness of leadership commitment to ethics and compliance asking
the following questions during interviews with managers.
Manager answers should include all or most of the following:
If manager responses do not cover the above, this could indicate the message of
ethical behavior has not flowed from the top leadership down to the supervisors
who directly manage the company’s day-to-day business. Therefore, internal audit
should recommend corrective actions such as additional training, communication,
and coaching.
1. Lead by example
2. Ensure that employees receive a copy of the code of conduct
3. Ensure that employees understand the company’s ethics standards
4. Create a culture that encourages employees to comply with company policies
and voice questions and concerns
5. Respond immediately to concerns that are raised
6. Ensure that employees complete required ethics and compliance training
7. Be cognizant of ethics exposures and take appropriate mitigating actions
8. Reiterate on a regular basis that there will be no retaliation for reporting a
concern

Step 1. Company Values

An organization should have clearly stated values to establish its culture of ethics
and compliance. Values that shape a company’s ethical culture through daily work
practice could include: integrity, respect, diversity, safety, conscientiousness,
creativity, and more. For instance, safety is our company’s number one value — it
might not seem an obvious choice, but our people work in nuclear plants,
manufacturing, and construction worksites that may contain dangerous hazards.
Thus, we’ve made safety a top value that is fundamental to our ethics programs and
prioritized in our peoples’ everyday work practices.

Step 2. Code of Ethics and Code of Conduct

The values chosen in Step 1 should be incorporated into the organization’s code of
ethics — our guidelines about behavior and principles to govern decision-making
— and the code of conduct, which applies the code of ethics to a range of situations
and actions. Both documents should also include high-level guidelines regarding
ethics and compliance risk areas. For the code of conduct to be effective at guiding
everyday work practices, it should give direction to employees on applying the code
of ethics to specific issues that are important to the company. For example, if an
employee is working in a foreign country, the code of conduct should provide
guidance on complying with the Foreign Corrupt Practices Act rules regarding gifts,
gratuities, and entertainment.

Of course, having a formal code of conduct doesn’t guarantee real-world

compliance. A code of conduct audit will assess whether the code of ethics and code
of conduct that exists in paper form is understood and internalized by employees in
their lived experience. Internal audit should:

Ensure the code of conduct is provided to all employees, directors, and agents
Assess what is done to ensure that employees understand the code of conduct and
are familiar with its requirements.
Internal audit should also assess whether the employee code of conduct training is
effective in ensuring employees understand its requirements.

Step 3. Risk Assessment

Once your company has a code of ethics that employees understand and believe in,
the next step is to understand compliance risks as well as risks in the code of conduct
guidelines that you provided. To accomplish this, perform a risk assessment to
ascertain whether your company is focusing on current business risks as a result of
changes in organizations, business practices, and laws and regulations. When
preparing each business unit risk assessment for compliance with applicable laws
and regulations, be sure to include issues that stem from the code of conduct
guidelines such as anti-kickback, anti-bribery, protection of company assets, or
harassment issues.

Step 4. Ethics and Business Conduct Policies

An effective ethics and compliance program should include policies and procedures
addressing the particular risks facing a company. For example, policies and
procedures relevant to international trade should address risks related to import and
export controls, anti-boycott measures, and money laundering, among others.

An ethics and business conduct policies audit will assess whether employees are
aware of, understand, and are following these policies. Internal audit should
examine the list of policies to see if high risk areas from the risk assessment and the
code of conduct are addressed. For current policies, conduct employee interviews
to assess awareness of relevant policies. Ask employees how well they understand
their responsibilities in connection with ethics and business conduct policies,
naming each policy individually.
If an employee says they are not aware of the company’s guidelines on a listed
policy, refer them to the relevant section of the code of conduct and the applicable
policy.
Identify policies with which the majority of the employees were not familiar so that
additional training can be provided in these areas.
Step 5. Awareness Training Audit
It is not sufficient for a company simply to have policies in place — there must be
a program that trains employees to be aware of relevant ethics and compliance
issues. When developing or evaluating a training program, you will want to
consider:

How is this training delivered to employees? Is it an online program or live

sessions? Is the delivery method adequate to reach all employees who must take the
ethics and compliance courses?
How is one considered to have completed a course? Is there a quiz after a training
course with a minimum score requirement?
If a tracking mechanism is used to see the completion status of required courses,
what percent of the employees have completed their required courses? What
recourse is taken to follow up with employees who have not completed or passed
training?
Step 6. Inquiry and Reporting Mechanisms
It’s important that your ethics and compliance program includes a process for
employees, suppliers, customers and others who do business with your company to
ask questions or report concerns about ethics or violations of laws, regulations, and
company policies. To assess the process for investigating concerns reported through
mechanisms, such as the company hotline, internal audit should consider the
following:

Is there a prioritization of concerns received based on the severity of the issues

raised?
Is there a formal protocol for deciding who investigates what?
Is there a formal protocol to ensure that all investigations are done using certain
guidelines and consistent standards for thoroughness?
Were investigations documented in formal reports?
Were investigations completed in accordance within the established timeline?
Were the investigations thorough enough to reach a conclusion regarding the
validity of the concerns?
Was there any explanation for actions taken, or not taken, as a result of the concerns
received and investigations done?
Was ensuing actions taken with appropriate management approvals and
consultation with functional experts (e.g. Law, HR)?
Were the callers made aware of the results of the investigations?
Step 7. Communication Program
Develop a communication plan to increase ethics awareness and remind employees
that ethics and compliance are important to the company. The most effective
communication programs should engage all audiences with specific messages about
ethics using a variety of media. Effective communication program components
include:

Separate pages on ethics and compliance in the company’s internal and external
websites.
Internal ethics blogs from senior executives to help set the tone from the top.
Incorporate a variety of messages, short videos, and Q&A about ethics issues in the
company’s newsletter.
Ethics posters with the toll-free hotline number and ethics officer contact
information should be displayed prominently at locations where employees gather
frequently. Posters should clearly state that concerns can be reported anonymously,
and that there will be no retaliation for reporting a concern even if it turns out to be
unsubstantiated.
Ensure that the code of ethics, code of conduct, and ethics messages are distributed
in all native languages of employees.
A strong communication program will keep ethics and compliance top of mind for
all employees!

Step 8. Ethics and Compliance Program Assessment and Evaluation

At all points in the process of implementing an ethics and compliance culture, it is
important to maintain continuous program evaluation. There should be regular
internal and external audits of your ethics program, and an assessment of how often
internal controls are tested. Conduct employee surveys and focus groups to assess
employee impressions of the ethics and compliance culture. A constant vigilance
and program evaluation is necessary to maintain a strong culture of ethics.

Step 9. Leadership Commitment

To achieve and maintain an ethical company culture, there must be strong
commitment from the top to create the perception that ethics and compliance is
important to the company. Leadership commitment may be the final step in this list,
but it is fundamental throughout the previous eight steps that management take
responsibility for demonstrating through their actions the importance of ethics and
compliance. There are many ways that organizational structure and activities can
demonstrate leadership commitment:

Have the CEO make a statement to formalize your company’s commitment to the
highest ethical conduct in all aspects of your business.
The leader of the Ethics organization can report directly to the Board of Directors
or Chief Executive Officer.
An Ethics and Compliance Committee with a senior executive as Committee
Chairman can provide leadership and oversight to the ethics program and review
the status of ethics program-related activities. The committee itself might consist of
senior leaders from Legal, Human Resources, Internal Audit, Operations,
Communications, Security, IT and other departments.
 A culture of ethics and compliance starts at the top, but most employees at a
company will never meet the CEO — for them, ethical culture is what they see up
front every day. The message of ethical behavior should flow from the top
leadership down to the lower-level supervisors who directly manage the company’s
business on a day-to-day basis, and from them to all employees.

To be effective, ethics can’t just be a program administered by the Ethics and

Compliance function — an ethical culture must be a process and a responsibility
shared by all employees. Developing a strong culture of ethics that employees
believe in will help to ensure that internal controls are not being circumvented due
to lax ethical standards on the ground. Following these nine steps will help enable
internal audit to implement, audit, and monitor an ethical culture where the
organization’s values are embodied in its people’s everyday work practices.

Rate the following using a through e, where:

a = Does not describe at all
b = Does not describe well
c = Describes somewhat
d = Describes well
e = Describes exactly
1. ______ Managers in my company often engage in behaviors that I consider
unethical.
2. ______ In order to succeed in my company, it is often necessary to compromise
one’s ethics.
3. ______ Top management in my company has let it be known in no uncertain
terms that unethical behaviors will
not be tolerated.
4. ______ If a manager in my company is discovered to have engaged in unethical
behavior that results primarily in
personal gain (rather than corporate gain), he or she will be promptly reprimanded.
5. ______ If a manager in my company is discovered to have engaged in unethical
behavior that results primarily in
corporate gain (rather than personal gain), he or she will be promptly reprimanded.
SCORING—POINTS PER ITEM
Item 1 + Item 2 + Item 3 + Item 4 + Item 5 = Total/5 = CEV
a=5 a=5 a=1 a=1 a=1
b=4 b=4 b=2 b=2 b=2
c=3 c=3 c=3 c=3 c=3
d=2 d=2 d=4 d=4 d=4
e=1 e=1 e=5 e=5 e=5
Add the scores from all items and divide by 5 to get your CEV score.

E. Corporate Governance
CG is all about safeguarding the interests of all the stakeholders, both internal and external of
the company. This responsibility lies with the Board of Governors and they will be held legally
liable if this function is not being followed. So who constitutes the Board and how can you
stipulate an ideal mix of talent in the Board and stipulating their rights and duties become very
important to ensure good corporate governance. In addition, they also need to ensure the long-
term growth of the company and to give back to the society from which they have earned their
profits. Therefore, the relevance of CSR.
And if there are any obvious and visible weaknesses in this area, the company can be in danger
of indulging in unethical practices. Hence the relevance of CG for ethics.
So running a kingdom justly and wisely was already thought of by Kautilya\Chanakya centuries
ago in India in the form of the Arthshastra Treatise. This treatise also included tips on
geopolitics. In the Corporate world, this treatise was formulated as CG.
Fairness, transparency, accountability and legal compliance are the four fundamental tenets of
CG. The Principles of CG are:
1. Growth of shareholder wealth—The BP disaster story’’loss of wealth of $100 billion
for the shareholders\ Moratorium on all drilling in the Gulf of Mexico—so loss for BP\Exxon
and others\ bad for the tourism industry in the Gulf\ for the real estate industry\ fishing industry.
The cause of the disaster—to save1 $ 4m a day, by cutting down on safety standard, they end
of losing 100 b dollars of shareholder value. Short term shareholder value thinking is the cause.
2. Full Disclosure of actions
3. Best mmgt practices---Shareholders vs Stakeholders
4. Compliance
5. Following Ethical standards.
• SEBI had constituted a Committee on Corporate Governance under the Chairmanship
of Shri Kumar Mangalam Birla, Member, SEBI Board to promote and raise the standard of
Corporate Governance in respect of listed companies. The SEBI Board in its meeting held on
January 25, 2000 considered the recommendation of the Committee and decided to make the
amendments to the listing agreement in pursuance of the decision of the Board, it is advised
that a new clause, namely clause 49, be incorporate in the listing agreement as under :
• Clause 49: Corporate Governance
• I. Board of Directors
The company agrees that the board of directors of the company shall have an optimum
combination of executive and non-executive directors with not less than fifty percent of the
board of directors comprising of non-executive directors. The number of independent directors
would depend whether the Chairman is executive or non-executive. In case of a non-executive
chairman, at least one-third of board should comprise of independent directors and in case of
an executive chairman, at least half of board should comprise of independent directors.
• II Audit Committee.
• The company agrees that a qualified and independent audit committee shall be set up
and that :
• The audit committee shall have minimum three members, all being non-executive
directors, with the majority of them being independent, and with at least one director having
financial and accounting knowledge;
• The chairman of the committee shall be an independent director;
• The chairman shall be present at Annual General Meeting to answer shareholder
queries;
• The audit committee should invite such of the executives, as it considers appropriate
(and particularly the head of the finance function) to be present at the meetings of the
committee, but on occasions it may also meet without the presence of any executives of the
company. The finance director, head of internal audit and when required, a representative of
the external auditor shall be present as invitees for the meetings of the audit committee;
• The Company Secretary shall act as the secretary to the committee.
• The audit committee shall meet at least thrice a year. One meeting shall be held before
finalisation of annual accounts and one every six months. The quorum shall be either two
members or one third of the members of the audit committee, whichever is higher and minimum
of two independent directors.
• The audit committee shall have powers which should include the following:
• to investigate any activity within its terms of reference.
• to seek information from any employee.
• to obtain outside legal or other professional advice.
• to secure attendance of outsiders with relevant expertise, if it considers necessary.
• The company agrees that the role of the audit committee shall include the following.
• Oversight of the company’s financial reporting process and the disclosure of its
financial information to ensure that the financial statement is correct, sufficient and credible.
• Recommending the appointment and removal of external auditor, fixation of audit fee
and also approval for payment for any other services.
• Reviewing with management the annual financial statements before submission to the
board, focusing primarily on;

The Penn Central Transportation Company was created in 1968 via a merger between the
Pennsylvania and New York Central railroads. The Pennsylvania Railroad dated back to 1846,
and the New York Central railroad dated back to 1853.

The year prior to the massive merger, both companies were profitable, but Penn Central
immediately ran into problems. The first year following the merger, the combined company
generated a net loss of $2.8 million. The following year, losses ballooned to $83 million. By
1970, net losses had growth to $325.8 million.
When the U.S. government refused to guarantee $200 million in emergency loans, Penn Central
was forced to declare bankruptcy in June of 1970. At the time, Penn Central was the sixth
largest corporation in the U.S., and its bankruptcy was the largest in American history. Penn
Central’s infamous failure remained the largest U.S. bankruptcy for more than 30 years until
Enron eclipsed it in 2001.
• SEC Speech post-Enron Goldschmid

Before I tell you where I think we are heading, let me spend some time on what went wrong
during the 1990s and early 2000s. Put bluntly, at least in my view, we witnessed systemic
failure. The checks and balances that we thought would be provided by independent directors,
independent auditors, securities analysts, investment bankers, and — even before this audience
I must add — lawyers, too often failed. The regulatory checks represented by the SEC and
federal and state legal constraints also proved inadequate, in meaningful part, I think, because
of scarce resources and overly protective case law and legislation.

Arthur Levitt, SEC Chairman in 1998-The centerpiece of his speech was the importance of
corporate governance, and particularly, corporate audit committees. What do you get from an
active audit committee? Some who champion the idea of an active audit committee say it will
stop venal, hard-core fraud. That I do not consider realistic. An active audit committee will not,
when acting alone, be able to catch thieves in most circumstances. Even the most active and
effective auditors will have some trouble when hard-core fraud is involved. There are
techniques being developed today to try to reach hard-core misconduct, including forensic
auditing and other techniques. But when no red flags are flying, even when an audit committee
acts reasonably, it will be difficult to spot fraud that is concealed and hard-core. The dangers
of hard-core fraud, in short, will only be somewhat deterred or mitigated by an active audit
committee.
(The reasons for the failure of Penn Central and the origin of Corporate Governance laws: It
appears, however, based on the information in this and other sections that the Penn Central
board failed in its obligations. In particular, it failed to see to the integrity of management and
it failed to see to the compliance by management with the laws governing the company,
including the provisions of the Federal securities laws.
The failure of the Penn Central board to effectively monitor management arose from several
circumstances. One circumstance was the change in the complexity of corporate matters as a
result of the merger and the diversification efforts. The directors of the Pennsylvania Railroad
in particular had served on a company with a long and conservative financial and operating
history. The railroad performed basic functions in a largely unchanging way.
In such a situation, a board seat was more a matter of business honor than an active business
responsibility. On the New York Central, generally a more dynamic railroad, the majority of
directors were overshadowed by the active ownership interest of Robert Young and Allen and
Fred Kirby and the active management of Alfred Perlman. Under these conditions, the boards
tended to miss the management and financial complexity of the proposed merger. Even after
the merger, the directors only slowly awakened to what was happening.
Another circumstance limiting the effectiveness of the board was the limited amount of
information it sought or received. In the merged company, directors were furnished only with
(1) a voluminous docket of routine capital expenditure authorizations for numerous individual
transactions, (2) a treasurer's report giving the current cash balances, and (3) a sheet listing
revenues and expenses for the railroad for the period between the board meetings.The directors
had no cash or income forecasts or budgets; they had no guidelines to measure performance;
they had no capital budgets; they had no information describing the earnings or cash
performance of the subsidiaries. For all this vital information, they were forced to rely on oral
presentations by management.
The board meetings were largely formal affairs which were not conducive to discussion or
interrogation of management. Some of the directors had little opportunity to consult with other
directors outside of the environment of the board meetings.
In extreme cases, directors were isolated from the company or other directors. Otto Frenzel,
located in Indianapolis, spoke with other directors only at board meetings, which, as indicated,
allowed only limited communication. Seymour Knox, who was in Latin America and in North
Carolina much of the time from September 1969 to May 1970, attended only one board meeting
during this extremely critical period.
The board failed in two principal ways. It failed to establish procedures, including a flow of
adequate financial information, to permit the board to understand what was happening and to
enable it to exercise some control over the conduct of the senior officers. Secondly, the board
failed to respond to specific warnings about the true condition of the company and about the
questionable conduct of the most important officers. As a result, the investors were deprived
of adequate and accurate information about the condition of the company.)

If you think about Enron and WorldCom and others, at least generically, what went wrong?
Start with independent directors. "Yet too often, . . . boards were disinterested and disengaged.
. . . They are dominated by associates and friends of senior management. . . . Many outside
directors have lacked expertise in the relevant industry, and in accounting and financial
reporting issues. Thus, boards were too rarely equipped to uncover and derail the determined
efforts of management to cook the company's books.
Turning to accountants and auditors, during the 1980s and 1990s, increasingly complex
businesses turned more and more often to their auditors for help with non-audit services, such
as asset valuations, merger advice, and computer system design and implementation. But when
an accounting firm provides both audit and extensive consulting services to an audit client, the
auditor's independence may well suffer, particularly when the consulting services are
significantly more lucrative and more voluminous than the audit services. An auditor who
wants to retain an audit client's non-audit business may be less likely to question management,
and that is a serious problem. Recent data reported to the SEC indicate that, on average, non-
audit fees of large public accounting firms comprise 73 percent of total fees; in other words,
$2.69 in non-audit fees for every dollar of audit fees.
Furthermore, the scandals in the 1990s and early 2000s occurred against a backdrop of
diminished exposure to liability under both state and federal laws. In 1994 the Supreme Court,
as Jill indicated, eliminated aiding and abetting liability. Even before that, the Supreme Court
had shortened the statute of limitations for securities fraud. And state legislatures enacted so-
called shield statutes to limit or eliminate director monetary liability for failures of duties of
care.
Corporate directors and other gatekeepers act properly for many reasons: pride,
professionalism, reputation, et cetera. But the cumulative effect of these regulatory, case law,
and legislative developments "made the legal risks" — and here I am quoting from Steve Cutler
again — "associated with abdicating their gatekeeping role appear tolerable." Now, let me
underscore those words: ". . . made the legal risks associated with abdicating their gatekeeping
role appear tolerable.”

SEBI and CG: A concern that many markets around the world share in relation to poor
corporate governance is the abuse of related party transactions (RPTs). This
is particularly true in markets where controlling ownership is predominant.
Judging by the frequent reporting of RPTs, this calls for the relevant
authorities and companies to be vigilant and have in place an effective
oversight framework through which abusive RPTs can be identified,
prevented or stopped. As many high profile cases have shown, abusive
RPTs damage shareholders value, tarnish the company’s reputation with
investors, both domestic and foreign, and undermine investor confidence in
the integrity of the financial market as a whole.
Concentrated ownership and widespread use of company groups is a
common feature of listed companies in India; most companies are closely
held by families or the state. This provides more scope for RPTs involving
controlling shareholders, and increases the probability of abuse if not
conducted at arms-length. Hence, there is a need to determine and assess
the effectiveness of minority shareholder protection and the monitoring and
prevention of abusive RPTs.
The International Accounting Standards Board (IASB) defines related
party transactions as a transfer of resources, services, or obligations between
related parties regardless for which a price is charged. The Financial
Accounting Standards Board (FASB) in the United States defines them as a
transaction between related parties even though it might not be given
accounting recognition; for example, one entity may receive services from a
second, related entity without charge and without recording a receipt of
services.
Not all RPTs are detrimental to the interest of the company or its
shareholders. Some transactions can be legitimate and serve practical,
commercial purposes. If companies are prohibited from entering into such
transactions, their ability to maximise shareholder value can suffer.
The various types of RPTs that are commonly observed are:
• Financial assistance through provisions of loans, guarantees and
collateral
• Asset sales and purchases between related parties
• The sale, purchase or supply of any goods, materials or services in
the ordinary course of business
• Bailouts
Some products or services do not have comparable benchmarks in the
marketplace, however, as they are available only within a closed group. For
example, a pharmaceutical conglomerate holds all of its patents with one
company. If other companies have to manufacture those products, they
might have no choice but to transact with the related party for using such
rights. In that case, there might not be any transaction available in the
marketplace that can serve as a useful benchmark to assess whether the
transactions was conducted at arm’s length.
In India, most companies are family-owned and/or closely held (OECD
2012). Hence, the corporate governance framework in India should
emphasise monitoring/regulating connected transactions involving
controlling shareholders (so called “promoters”) and related entities.
Several factors are relevant to any discussion of related party
transactions in India and underpin the reason for a large number of such
transactions. Given that the number of family-owned businesses is very
high, it follows that they will have closer ties with other businesses owned
by the same family or its relatives. The desire and opportunity to deal with a
known party will be greater.
Also, a large number of listed companies in India are subsidiaries of
multinational corporations. Owing to regulations (such as Foreign Exchange
Management Act and Regulations) that regulate the flow of capital between
the overseas parent and an Indian subsidiary, the companies may engage in
certain RPTs to facilitate transfers between the parent company and the
subsidiary, without compromising statutory requirements.
In its commitment to converge Indian
Generally Accepted Accounting Principles (GAAP) with International
Financial Reporting Standards (IFRS), ICAI has published Indian
Accounting Standards 24 on Related Party Disclosures, which substantially
reflects the standards set forth in International Accounting Standard
(IAS) 24.
Currently, the appointment and removal of independent directors is done
through election by a majority. Thus, independent directors occupy their
position at the request of the controlling shareholders and therefore must act
in accordance with the will of the majority. This, in effect, hinders these
directors from expressing their opinions independently and honestly and
thereby limits their efficacy and defeats the purpose of appointing
independent directors.
A lack of specialized courts to try commercial cases is a major obstacle
to effective enforcement. The Companies Act 2013 provides for the
establishment of Special Courts for the speedy trial of offences under the
Companies Act. Section 436 provides that all offences under the Companies
Act shall be subject to trial only by the Special Court established for the area
where the offence is committed. The Act also empowers the Special Courts
to try “in fast track” any offence under the Companies Act that is punishable
with imprisonment for a term not exceeding three years. The India-OECD
Policy Dialogue also highlighted the need for these courts to try corporate
offences and noted that the provisions in the Companies Act 2013 are
expected to speed up the enforcement machinery dealing with abusive
RPTs.
• Sarbannes-Oxley Act
The Sarbanes-Oxley Act of 2002 is a law the U.S. Congress passed on July 30 of that year to
help protect investors from fraudulent financial reporting by corporations. Also known as the
SOX Act of 2002 and the Corporate Responsibility Act of 2002, it mandated strict reforms to
existing securities regulations and imposed tough new penalties on lawbreakers. The act took
its name from its two sponsors—Sen. Paul S. Sarbanes (D-Md.) and Rep. Michael G. Oxley
(R-Ohio).
The new law set out reforms and additions in four principal areas:
Corporate responsibility
Increased criminal punishment
Accounting regulation
New protections
Three of its key provisions are commonly referred to by their section numbers: Section 302,
Section 404, and Section 802. Section 302 of the SOX Act of 2002 mandates that senior
corporate officers personally certify in writing that the company's financial statements "comply
with SEC disclosure requirements and fairly present in all material aspects the operations and
financial condition of the issuer." Officers who sign off on financial statements that they know
to be inaccurate are subject to criminal penalties, including prison terms.

Section 404 of the SOX Act of 2002 requires that management and auditors establish internal
controls and reporting methods to ensure the adequacy of those controls. Some critics of the
law have complained that the requirements in Section 404 can have a negative impact on
publicly traded companies because it's often expensive to establish and maintain the necessary
internal controls.

Section 802 of the SOX Act of 2002 contains the three rules that affect recordkeeping. The first
deals with destruction and falsification of records. The second strictly defines the retention
period for storing records. The third rule outlines the specific business records that companies
need to store, which includes electronic communications.
Sarbanes–Oxley or SOX, is a United States federal law that set new or expanded requirements
for all U.S. public company boards, management and public accounting firms. A number of
provisions of the Act also apply to privately held companies, such as the willful destruction of
evidence to impede a federal investigation.
The bill, which contains eleven sections, was enacted as a reaction to a number of major
corporate and accounting scandals, including Enron and WorldCom. The sections of the bill
cover responsibilities of a public corporation's board of directors, add criminal penalties for
certain misconduct, and require the Securities and Exchange Commission to create regulations
to define how public corporations are to comply with the law.

The Sarbanes-Oxley Act of 2002 came in response to financial scandals in the early 2000s
involving publicly traded companies such as Enron Corporation, Tyco International plc, and
WorldCom. The high-profile frauds shook investor confidence in the trustworthiness of
corporate financial statements and led many to demand an overhaul of decades-old regulatory
standards.

Sarbanes-Oxley now requires that the audit committee take "direct responsibility" for
appointing, evaluating, and firing, if necessary, the outside auditor. This establishes a
relationship that ought to encourage more candid communications by auditors and much more
effective oversight by the independent directors.

Identity Theft: *Someone steals your personal financial information, such as credit card
number or bank account number, to make fraudulent withdrawals from your account.
Sometimes people will use the information to open credit or bank accounts and leave the victim
liable for all the charges. Identity theft may lead to damaged credit rating, bounced
checks/denied payments, and being pursued by collection agencies.
Investment Fraud: This type includes selling investments or securities with false, misleading
information. It could be false promises, hiding facts, and insider trading tips.
Securities Fraud: Securities fraud is illegal or unethical activity carried out involving securities
or asset markets in order to profit at the expense of others. ... Securities fraud can also include
false information, pump-and-dump schemes, or trading on insider information. It is a felony
that can attract prison sentences and fines.
Mortgage and Lending Fraud: *A third-party may open a mortgage or loan using your
information or using false information. In another case, lenders may sell mortgage or loans
with inaccurate information, deceptive practices, and other high pressure sales tactics. 4. Mass
Marketing Fraud:* The fraud is committed through mass mailings, telephone calls, or spam
emails. It also includes fake checks, charities, lotteries, honor society invitations, and more.
These modes are used to steal personal financial information or to raise contributions to
fraudulent organisations.
Chicanery: The definition of chicanery is using trickery or dishonest means to deceive or
achieve some purpose.
Larceny: Felonious stealing using tricks, chicanery, fraud etc
Misdemeanour: A minor wrongdoing, attracting less than Ione year in prison and a fine.
Felony: A crime regarded in the US and many other judicial systems as more serious than a
misdemeanour and that can involve more than one year in prison, like murder, rape, serious
assault that causes serious bodily harm, promoting prostitution, kidnapping, theft arson drug
crimes.
Securities Fraud: the illegal activity of providing false information to someone so that they will
invest in something, it includes insider trading.
Investment Scam: Ponzi schemes, Time-sharing schemes
Insider Trading: the illegal buying and selling of company shares by people who have special
information because they are involved with the company. Insider trading is a white-collar crime
that is often prosecuted as a felony and often includes jail time and steep fines.

F. Corporate Social Responsibility and Stakeholder Theory

Proper distribution of the Wealth—Milton Friedman and the concept of maximising

shareholder value will ensure proper distribution of wealth. False, if this
maximising is done by unethical processes. Shareholders do not own corporations,
they own shares, legally speaking. The idea of Friedman was that as long as you
maximise the shareholder’s wealth, we maximise the return to society, because the
shareholders are residual beneficiaries of dividends. This thinking is flawed
according to corporate lawyers. Because this concept does not describe the reality
in the corporate world. In dead firms or firms that are being liquidated, shareholders
get the residual wealth, but in live firms, shareholders do not get a penny, unless the
firms declare a dividend. But one might argue, that they get more thru capital
appreciation than dividends—but other stakeholders, like the employees, the
directors and creditors get increased benefits much before the shareholders do. And
the Board of Directors is nominated by themselves and not by the shareholders,
when the cooperation is incorporated. So in reality, shareholders have very little
real power. It’s the Board that has all the power! Fishing with dynamite will get you
more fish in the short term than fishing with worms, but in the long term, there
won’t be any fish! This is what is happening in the corporate world, where
everybody is focussing on short-term shareholder value, by all kinds of unethical
creative accounting practices—the last decade in the US is called the Lost Decade
because the shareholders got nothing, in fact, they lost money!! That is why CG has
taken on a very important position in corporate affairs.
The triple bottom line (TBL) is a framework or theory that recommends that
companies commit to focus on social and environmental concerns just as they do
on profits. The TBL posits that instead of one bottom line, there should be three:
profit, people, and the planet. A TBL seeks to gauge a corporation's level of
commitment to corporate social responsibility and its impact on the environment
over time. The idea was that a company can be managed in a way that not only
earns financial profits but which also improves people's lives and the planet. TBL
theory holds that if a firm looks at profits only, ignoring people and the planet, it
cannot account for the full cost of doing business. By focusing on these three
interrelated elements, triple-bottom-line reporting can be an important tool to
support a firm's sustainability goals.
Measuring the TBL: A key challenge of the TBL, according to Elkington, is the
difficulty of measuring the social and environmental bottom lines. Profitability is
inherently quantitative, so it is easy to measure. What constitutes social and
environmental responsibility, however, is somewhat subjective. How do you put a
dollar value on an oil spill—or on preventing one, for example? There can be dire
repercussions of ignoring the TBL in the name of profits; three well-known cases
are the destruction of the rainforest, exploitation of labor, and damage to the ozone
layer.
The Social bottom line measures your business’ profits in human capital, including
your position within your local society. Your social bottom line is increased by
having fair and beneficial labour practices and through corporate community
involvement, and can also be measured in the impact of your business activities on
the local economy. After all, if your business is not nurturing positive relationships
with your community, your client base and employee pool shrinks accordingly. The
social bottom line questions the belief that the less a business pays its work force
the longer it can afford to operate. Instead, the social bottom line measures the long-
term sustainability of business human capital, with the understanding that a business
that is also a desirable workplace will always be able to operate into the future, since
there will be a work force striving to be part of the business. Essentially, corporate
interests and labour interests are seen as interdependent.
The Triple Bottom Line approach to sustainability takes the view that the smaller
impact your business has on the environment and the fewer natural resources you
consume, the longer and more successful your business will be.
Controlling your Environmental bottom line means managing, monitoring, and
reporting your consumption and waste and emissions. This is typically the work of
your EHS department, though most sustainable business models also make waste
reduction and green policies corporate-wide values across all levels of management.
A sustainability committee is often required to communicate your sustainability
solution and sustainability goals across all departments.
Measuring and reporting your environmental bottom line is certainly possible,
though depending on the size of your business, it can be a time-consuming and
difficult process. However, EHS or corporate sustainability software can make the
process much quicker and cost effective. Your business needs a healthy workforce
with diverse skills, different perspectives, and the workforce must be content
enough to deliver growth.
Your business can only operate in an economic situation that sees your supply chain
and local businesses thrive. If your city or region becomes a dead zone
economically, your own business won't have access to people or resources in the
long term.
Your business needs good stewardship of natural resources to ensure they are
available 5 - 10 years down the road and beyond.
Unlike the traditional method, the Triple Bottom Line allows you to see your
business as a social and environmental entity and measure it along these
parameters.Over the last 50 years, environmentalists and social justice advocates
have struggled to bring a broader definition of bottom line into public consciousness
by introducing full cost accounting. For example, if a corporation shows a monetary
profit, but their asbestos mine causes thousands of deaths from asbestosis, and their
copper mine pollutes a river, and the government ends up spending taxpayer money
on health care and river clean-up, how do we perform a full societal cost benefit
analysis?
An example of an organization seeking a triple bottom line would be a social
enterprise run as a non-profit, but earning income by offering opportunities for
handicapped people who have been labelled "unemployable", to earn a living by
recycling. The organization earns a profit, which is ploughed back into the
community. The social benefit is the meaningful employment of disadvantaged
citizens, and the reduction in the society's welfare or disability costs. The
environmental benefit comes from the recycling accomplished.
In 1981, Freer Spreckley first articulated the triple bottom line in a publication
called 'Social Audit - A Management Tool for Co-operative Working'. In this work,
he argued that enterprises should measure and report on financial performance,
social wealth creation, and environmental responsibility. The phrase "triple bottom
line" was articulated more fully by John Elkington in his 1997 book Cannibals with
Forks: the Triple Bottom Line of 21st Century Business'.
The concept of TBL demands that a company's responsibility lies with stakeholders
rather than shareholders. In this case, "stakeholders" refers to anyone who is
influenced, either directly or indirectly, by the actions of the firm. Examples of
stakeholders include employees, customers, suppliers, local residents, government
agencies, and creditors. According to the stakeholder theory, the business entity
should be used as a vehicle for coordinating stakeholder interests, instead of
maximizing shareholder (owner) profit.

An enterprise dedicated to the triple bottom line seeks to provide benefit to many
constituencies and not to exploit or endanger any group of them. The "up streaming"
of a portion of profit from the marketing of finished goods back to the original
producer of raw materials, for example, a farmer in fair trade agricultural practice,
is a common feature. In concrete terms, a TBL business would not use child labour
and monitor all contracted companies for child labour exploitation, would pay fair
salaries to its workers, would maintain a safe work environment and tolerable
working hours, and would not otherwise exploit a community or its labour force. A
TBL business also typically seeks to "give back" by contributing to the strength and
growth of its community with such things as health care and education. Quantifying
this bottom line is relatively new, problematic and often subjective. The Global
Reporting Initiative (GRI) has developed guidelines to enable corporations and
NGOs alike to comparably report on the social impact of a business.
The planet, environmental bottom line, or natural capital bottom line refers to
sustainable environmental practices. A TBL company endeavors to benefit the
natural order as much as possible or at the least do no harm and minimize
environmental impact. A TBL endeavour reduces its ecological footprint by, among
other things, carefully managing its consumption of energy and non-renewables and
reducing manufacturing waste as well as rendering waste less toxic before disposing
of it in a safe and legal manner. "Cradle to grave" is uppermost in the thoughts of
TBL manufacturing businesses, which typically conduct a life cycle assessment of
products to determine what the true environmental cost is from the growth and
harvesting of raw materials to manufacture to distribution to eventual disposal by
the end user.
Currently, the cost of disposing of non-degradable or toxic products is born
financially by governments and environmentally by the residents near the disposal
site and elsewhere. In TBL thinking, an enterprise which produces and markets a
product which will create a waste problem should not be given a free ride by society.
It would be more equitable for the business which manufactures and sells a
problematic product to bear part of the cost of its ultimate disposal.
Ecologically destructive practices, such as overfishing or other endangering
depletions of resources are avoided by TBL companies. Often environmental
sustainability is the more profitable course for a business in the long run. Arguments
that it costs more to be environmentally sound are often specious when the course
of the business is analyzed over a period of time. Generally, sustainability reporting
metrics are better quantified and standardized for environmental issues than for
social ones. A number of respected reporting institutes and registries exist including
the Global Reporting Initiative, CERES, Institute 4 Sustainability and others.
The stakeholder theory is a theory of organizational management and business
ethics that accounts for multiple constituencies impacted by business entities like
employees, suppliers, local communities, creditors, and others. It addresses morals
and values in managing an organization, such as those related to corporate social
responsibility, market economy, and social contract theory. In the traditional view
of a company, the shareholder view, only the owners or shareholders of the
company are important, and the company has a binding fiduciary duty to put their
needs first, to increase value for them. Stakeholder theory instead argues that there
are other parties involved, including employees, customers, suppliers, financiers,
communities, governmental bodies, political groups, trade associations, and trade
unions. Numerous articles and books written on stakeholder theory generally credit
Edward Freeman as the "father of stakeholder theory.
=Stakeholder theory drives more than profits and productivity. There are ethical
benefits of practicing it as well. Companies find that the mental health of the
workforce is greatly improved as their job satisfaction increases. It also will elevate
the status of the company’s social-economic status in the local community. When
one company practices stakeholder theory, it creates healthy competition among
other companies, where all can thrive and help benefit their stakeholders.
Edward Freeman’s stakeholder theory holds that a company’s stakeholders include
just about anyone affected by the company and its workings. That view is in
opposition to the long-held shareholder theory proposed by economist Milton
Friedman that in capitalism, the only stakeholders a company should care about are
its shareholders - and thus, its bottom line. Friedman’s view is that companies are
compelled to make a profit, to satisfy their shareholders, and to continue positive
growth.
By contrast, Dr. Freeman suggests that a company’s stakeholders are "those groups
without whose support the organization would cease to exist." These groups would
include customers, employees, suppliers, political action groups, environmental
groups, local communities, the media, financial institutions, governmental groups,
and more. This view paints the corporate environment as an ecosystem of related
groups, all of whom need to be considered and satisfied to keep the company
healthy and successful in the longterm.
Dr. Freeman’s books describe how a healthy company never loses sight of everyone
involved in its success. Stakeholder theory says that if it treats its employees badly,
a company will eventually fail. If it forces its projects on communities to
detrimental effects, the same would likely happen. “A company can’t ignore any of
its stakeholders and truly succeed,” Dr. Freeman said in an interview. “There might
be short-term profits, but as stakeholders become dissatisfied, and feel let down, the
company cannot survive.”
Prof Craig McDonald: “In other words, corporate responsibility and business ethics
don’t need their own special focus inside the company, as long as the company
practices true stakeholder theory for all its stakeholders, from suppliers and
employees to factory workers and environmentalists. Of course, it doesn't always
work out this way, maybe because we don't know what our real values are until we
are in a position that tests them, or maybe… things went pear-shaped, despite our
good will…The bottom line is, figure out what your values are, what your context
is, what the consequences of your actions will be. Then decide what to do in a
knowledgeable and responsible manner.”
The dominant view of the modern corporation in management literature is that the
exclusive obligation of the corporation is to maximize shareholder return,
constrained only by an obligation to obey the law and (on Friedman’s interpretation)
respect conventional morality. Support for this view comes from agency theory,
firm-as-contract theory, neo-classical economic theory and so on. And although it
has been variously criticized in the literature as myopic (Blair, 1998, 47), and
descriptively inaccurate and unacceptable (Donaldson and Preston, 1998, 191), it
remains, as Freeman points out (1998, 125), a view that scholars and managers alike
“continue to hold sacred”. Whether the focus is practical or theoretical, the effect
of this dominant view is to set managers within a tightly constrained moral
environment quite unlike that of any of the other environments in which moral
agents are likely to find themselves. And this, of course, is the source of the
perplexity for business ethics. Seen from a moral perspective, the dominant view
is seriously truncated. Not only does it place severe limits on the obligations of
managers to people directly affected by their actions, it constrains any attempt to
propose that managers and the companies they manage should be concerned on
ethical (as opposed to instrumental or strategic) grounds for the wider social,
environmental and economic impacts of their activities and the general conditions
of the societies in which they conduct business. That is to say, the answers the
dominant view implies for our two questions seem seriously flawed.
Applied to the activities of investor owned corporations, this principle requires that
managers acknowledge that all corporate stakeholders have equal moral status and
acknowledge that status in all their activities.
Unfortunately, it is simply not the case that ethical treatment of even primary
stakeholders is required to ensure their continued participation of primary
stakeholders. Just as gauging the reasons of management for acting as they do is
not relevant, so too, gauging the reasons of primary stakeholders for cooperating or
continuing to participate in a wealth generating relationship with a corporation is
not relevant on this view. What counts is what can be measured, namely,
performance. The difficulty is that long term primary stakeholder participation can
be and has been achieved in a variety of ways, many of them unethical. These
include deception (health implications of working with asbestos for which the
Thetford mines in Quebec, Canada is an illustration, or marketing strategies in the
tobacco industry), coercion (for example, labour conditions under military
dictatorships as is currently reported to be the case in Burma and the Sudan), brute
necessity in the face of severe deprivation (for example people working under
appalling labour conditions in factories in underdeveloped countries and South
Africa under apartheid), and so on. Indeed corporate history is filled with examples
of companies that have been successful by conventional marketing and financial
standards both by and while cutting sharp ethical corners.
Indeed unethical behaviour traditionally has centred in many cases in ensuring that
stakeholders, who, under ethical management systems, would be primary
stakeholders, do not become primary stakeholders; that is to say, do not acquire the
leverage that would give them the power to disrupt or block a corporation from
achieving its objectives. All of this is to say nothing of what Clarkson describes as
secondary stakeholders. Here examples of unarguably unethical treatment by
successful corporations of their stakeholders are legion. Clarkson’s comments in
this regard are again ironically revealing. Secondary stakeholders are those affected
by or capable of affecting corporation corporate activity. However, they are not
essential for a corporation’s survival even though they may on occasion be able to
cause significant damage (1998, 260). What success will require is that these
stakeholders be managed effectively if they must be managed at all. What counts,
remember, is performance. Stakeholders who are marginal, politically,
economically or socially speaking, can safely ignored, on this interpretation of
stakeholder theory. This is likely to be particularly true of involuntary stakeholders,
whose participation is not by choice. Here it may be possible and indeed historically
has been possible to off-load or externalize costs without serious risk to the
corporation involved or to impose terms that are anything but fair.The point here is
not that those advocating the business case would condone unethical behaviour
where success either called for or tolerated it. Rather, while the business case for
business ethics offers pragmatic reasons for ethical treatment of stakeholders, it
opens the door to pragmatic arguments for ignoring them as well. And even where
it is obvious that unethical behaviour may create significant risks for managers, the
theory cannot differentiate between being and appearing to be ethical.
Management theory is prescriptive. Its purpose is to provide an account that will
guide management decision making in ways designed to increase the chances for
success. Descriptive stakeholder theory, too, appears to be and is implicitly
recognized to be prescriptive. Why is this so? The question, as I hope to show, is
central to moving to a clear understanding of the foundations of corporate social
responsibility.Management theories are prescriptive because they are built on
assumptions about the nature and purpose of private sector investor owned
corporations. What virtually all management theories assume is that the purpose of
a management theory is to provide the foundations for successful management.
Successful managers are managers who do well what managers are supposed to do.
The role of managers is in turn defined by the nature and purpose of the corporation.
The purpose of the corporation on conventional accounts is to maximize profits for
the benefit of the people who have invested in it and who are by virtue of their
investment the corporation’s owners. Managers, therefore, have an obligation to
maximize share value for the benefit of investors.Shareholder theory defines
managers as agents and investors as their principals (Goodpaster 1998, 115). As
agents, managers have fiduciary obligations that derive from their role as agents.
Those obligations are ethical in nature. And so shareholder theorists like Milton
Friedman correctly conclude that on their account of the matter, managers have
ethical obligations, namely, the obligation to maximize profits. With respect to
other stakeholders, however, the only obligation is to think strategically. The value
of any object of strategic thinking vi David Hume, the Scottish enlightenment
philosopher, is most often identified as the source of this insight. It is restated by
many twentieth century philosophers. One of the most direct and influential of
those restatements can be found in The Language of Morals, by R.M.Hare
is instrumental. Its value resides in its utility for the achievement of corporate
objectives. What is important here is to recognize that conventional shareholder
theories (I shall call them conventional management theories since they dominate
the thinking of the business community and business educators at this moment in
history) is that they are prescriptive. They prescribe a set of fiduciary obligations
that have ethical content. They also provide a framework for strategic decision
making whose goal is to determine the strategic (i.e. instrumental) value of anything
or anyone that might serve to either enhance or impede accomplishing the primary
purpose of the corporation which is to maximize profits for the benefit of
shareholders.
There are two ways to interpret this view. The first asserts that while agents have
obligations to principals, they remain moral agents in their own right. The second
interpretation would see agents as moral agents by proxy; that is to say, they take
on the moral personality of their principals. Both interpretations add pieces to the
business ethics puzzle. Neither, however, provides an adequate account as it stands.
The first interpretation has two strengths. First, it points to one of the disturbing
aspects of agency theory as it tends to be interpreted in management contexts. The
conventional view is that managers are agents of investors who invest in
corporations with a view to maximizing share value and therefore the value of their
financial investment. The sole moral responsibility of managers is then to ensure
the achievement of profit maximization on behalf of investors. Frequently, this
view accepts that management should act within the constraints of law and
conventional morality, though the justification for respecting these two constraints
is less than clear.viiWhat is striking about this view is the degree to which is seems
to require that agents surrender their character as moral agents. The manager
becomes an instrument at the service of investors for the pursuit of their pecuniary
interests. This of course is viewed as a clear strength of shareholder theories.
Accountability, it is argued, is clear and direct on this account. Shareholder theories
locate clearly the responsibility of managers, identify clearly and unambiguously to
whom they are accountable and provide a standard by which performance can be
measured. What is more, shareholder theories allow for the alignment of the moral
responsibilities of management, i.e. their fiduciary obligations, with their self
interest through systems of rewards and penalties. This approach is illustrated by
systems of remuneration whose obvious goal is to align the interests of managers
with those of shareholders by generating very significant financial rewards in return
for increasing the value of the shares of the companies they manage. On this view,
an ideal system would align the interests of shareholders and senior management so
tightly that the need to appeal to the fiduciary obligations of managers would
become otiose. The effect is to turn managers into “pure” agents whose goals and
objectives as managers are solely those of their principals whose goals and
objectives are assumed in turn to be profit maximization. No publicly held
corporation or management theorist would publicly espouse the view just described,
of course. The reasons are obvious. Stripping human beings of their character as
moral agents is to strip them of their character as human beings. It is, as Kant put
it, to see managers as means only. This view of manager/agents constitutes,
therefore, a fundamental challenge to the view that moral personality is inalienable.
The view that moral personality or agency cannot be relinquished, sold or otherwise
alienated by individuals (i.e. by moral agents) is a fundamental tenant of law.viii It
is also a fundamental tenant of post renaissance morality as it has evolved in western
liberal democratic societies. It follows on both legal and moral grounds that any
theory of management must make a place for moral agency in its account of the role
and responsibilities of managers. The alternative is to accept that corporations and
their agents operate in a social and economic space that is fundamentally amoral in
character.
On the second interpretation, Goodpaster may be suggesting that managers are
moral agents by proxy; that is, as agents, they take on the moral personality or moral
character of their principals. This view is subject to severe criticism as our
discussion of the first interpretation above implies. However, it does have the merit
of pointing out that investors are also moral agents. Moral agency by its nature
constrains the pursuit of pure self interest. It follows that investors have an
obligation to evaluate all their actions in light of their impact on others. Those
others, as we have already seen, are by definition the corporation’s stakeholders.
Goodpaster’s own extension of stakeholder theory is to argue that while managers
have obligations to stakeholders, they differ in character from the obligations
managers have to shareholders. The obligations to shareholders, he suggests, are
fiduciary obligations. The obligations to stakeholders are non fiduciary obligations.
The problem with this view is that it derives the obligations that managers have to
stakeholders not from their role as managers but rather from their status as human
beings. As people or human beings, managers on this account have a general moral
 obligation to take into account the impact of what they do on those likely to be
affected by their decisions, that is to say on their stakeholders. In this respect,
managers are no different from anyone else. As managers, however, managers have
a moral obligation only to maximize profits for investors.
Some critics, such as political philosopher Charles Blattberg, say stakeholder theory
is problematic. They claim that the interests of various stakeholders cannot be
balanced against each other.
This is because stakeholders represent such a large and diverse group. You can’t
please every stakeholder. One or more stakeholders will have to take a backseat to
other, more dominant ones, which is likely to create discord. This will disrupt the
benefits associated with stakeholder theory.
Also, who will wield the most influence? Some stakeholders might find that they’re
not impacting decisions as much as another group. The different power levels and
spheres of influence can be a problem. Even those with seemingly more influence
might not feel that they’re getting what they want. Hence stakeholder management
comes into play and a stakeholder prioritising strategy needs to be worked out and
“communicated” effectively and periodically.
Shareholder theory, however, fails a crucial test, a test of internal, prescriptive
coherence. Understanding the nature of that failure lies at the root of finding a sound
normative foundation for stakeholder theory. Typically, shareholder theories accept
that managers have this as their central obligation. However, also typically,
shareholder theorists accept that managers have a responsibility to pursue their
goals and objectives within the constraints of law and conventional morality.
Setting aside the issue of conventional morality for the moment, this assumption
raises a significant question. How does shareholder theory justify the proposition
that managers should work within the constraints of law? To put this another way,
what is the answer of shareholder theory to the question: “what policy should
govern a corporation’s approach to fulfilling its legal obligations?” The obvious
answer is that failure to work within the constraints of law generates risks. Further,
taking the risks associated with breaking the law is inconsistent with the fiduciary
responsibilities entailed by the obligation to maximize shareholder wealth.
Corporation should obey the law if breaking the law generates risks that are
incompatible with their fiduciary obligations.

G. Whistleblower Policy
1. Whistleblower Law in India and the US and Europe

a. Why do people blow the whistle?

i. Primarily for moral reasons---to make the world a better place to live in, for public
health, safety, justice and altruism. It is not out vendetta or to make money.
ii. Take the case of Eric Benarzi, former Deutsche Bank employee, who exposed the
wrongdoing of inflating the Bank’s net worth. Benarzi won USD 8.5 m from the SEC as
Whistleblower bounty, but he refused the award, because he felt that the SEC had not punished
the erring employees enough.
iii. They like to rise above the loyalty to their superiors\friends\group\tribe for the greater
good.
iv. The increasing inequality of income globally and therefore a sense of injustice has led
to perceptible increase in the number of whistle blowers. This is aided by social media, easier
access to public data, like the RTI Act in India and the increased interest in investigative
journalism globally.
v. Also, with the overall increase in absolute wealth globally (and therefore a reduction in
absolute poverty), people are more willing to look beyond their “in-group” and speak up for
justice. This is a global phenomenon.
2. Robots can be the future whistle blowers, because they don’t have loyalties.
3. Whistle blower Protection and the Truth: July 1978, the US Congress passes the US’
first Whistleblower Protection Law. And July 16th is National Whistleblower’s Day in the US.
Since 2000, in the US, the Supreme Court has backed the Whistleblower. In 1978, there was
only one country with a Whistleblower Law, now there are 30 countries. Who is a
whistleblower? They are individuals who use freedom of speech to challenge abuses of power
to betray the public trust. They also serve another important function—they warn the public in
advance of disasters coming their way. In the Holland, they are called the “bell-ringers”, in
Germany, they are called the “lighthouse keepers”, in Africa, they are called “public sentinels”,
because they are defending the people. They are the opposite of the “mythical monkeys”—it is
the duty of an ethically sensitive person to see evil, hear what the evil-doer is saying and speak
to the world of the evil being perpetrated.
4. Whistleblowing is like “committing the truth” and is treated like “committing a crime”.
So there can be a big price to pay. But you will do this only when you are the cross-roads of
your life; when the crime is unbearable for you to live with. The case of Cathy Harris, the
Customs Inspector Whistleblower—profiling African American women for drug-trafficking.
With no evidence—purely on suspicion and racial bias, or for sexual harassment or even to
earn overtime. After full luggage check, they go for full body search-then ultra sound and
questioning for 4 days in the Customs offices and govt hospitals, during which time they ae not
allowed to inform their families about their whereabouts—they just vanish into thin air for four
agonising days and then they reappear, maybe with an apology from the Authorities. Harris
blows the whistle on this practice and the truth comes out and the Supreme Court reduces the
inspection from 4 days to 2 hours!
5. In 2000, 5000 gallons of nuclear waste couldn’t be accounted for from the Hansford
Nuclear Waste dump, where all of America’s nuclear waste is dumped, including plutonium,
to which if you are exposed for a certain amount of time, you are maimed for life or even killed.
A whistleblower brought out the truth—that it was not 5000 gallons, but 440 billion gallons
and that it was dumped over the years in the Columbia River, that supplies water to the entire
northwest of the US and Canada. Divers were sent into the river to check for radiation and sure
enough the waters were radioactive!! Billions of dollars were spent to clean up the river and
now it’s safe. Whistleblowers change the course of history—that is the point being made. Even
in the corporate world.
6. They need protection from all kinds of pressures like:
• Isolation by the top management/peer group out of fear of the top management and
selfish interests.
• Retaliation: Informal investigation, Internal Inquiry, Days in court, financial pressures,
peer pressures, bribery, loss of job, death threats.
• Hostile Witnesses and an apathetic public
• From the Law
7. Whistleblower Policy in India
a. Employees who reveal fraud, corruption or mismanagement to the senior management
are called internal whistleblowers. Employees who report fraud or corruption to the media,
public or law authorities are external whistleblowers. Indian whistleblowers are protected
under the Whistleblower Protection Act India.
b. Draft Rule 12.5 of the Companies Act, 2013 and Section 177(9) makes it compulsory
for listed companies, companies accepting deposits from public and companies borrowing
more than Rs. 50 crore from banks or public financial institutions to have a whistleblowing
policy and establish a vigil mechanism for directors and employees to report their genuine
concerns. A vigil committee has to be set up to ensure the vigil mechanism in the company and
whistleblower policy is effectively implemented in the company.
c. Additionally, the Securities and Exchange Board of India (SEBI) amended the
Principles of Corporate Governance in 2003. Clause 49 of the Listing Agreement now includes
the formulation of a Whistleblower policy in Indian companies. A company may establish a
mechanism for employees to report concerns regarding unethical behavior, actual or suspected
fraud or violation of the company’s code of conduct or ethics policy. However, it is currently
not mandatory for companies to have a whistleblowing policy in place.
d. In India, whistleblowers are protected by the Whistle Blowers Protection Act, 2014.
The law provides for the protection of their identity and also has strict norms to prevent their
victimization. For instance, an organization cannot initiate proceedings against a whistleblower
pending a probe into allegations. The same sections have been adopted in the Companies Act,
which applies to listed companies, and are a part of the Securities and Exchange Board of
India’s governance norms. All listed and public sector firms need to have a whistleblower
policy that outlines procedures and recourses available to complainants.
e. Whistleblowing may sometimes be used to settle personal vendettas or manipulate the
stock market. To prevent this from occurring, the audit committee that investigates the
allegations will examine them for their merit. If a complaint is proven to be frivolous, the
complainant can face a jail term of up to two years.
f. India has a poor track record in dealing with insider trading. To improve success rates,
the market regulator recently introduced a tipping mechanism. Sebi will award up to ₹1 crore
for information and successful action against insider traders. It has also created a “cooperate
and confidentiality" mechanism. This means that if someone guilty of violating securities law
is willing to assist in the larger probe, the person will be given exemption from penal action
and their identity will be kept confidential.
g. A whistleblower in India is protected under Indian law, but it is not as effective as it is
in the US, where a separate entity takes care of such incidences. “It is incumbent upon the
Directors (usually the top management) of a company to investigate complaints of wrongdoing
by the erring top management, which usually defeats the purpose, primarily because of lack of
appropriate legislation.” The Companies Act, 2013 makes it mandatory for entities listed on
the stock exchanges to set up an audit committee to investigate whistleblower complaints. It
also provides safeguards against their victimisation, but it does not provide a mechanism to
protect them. The safeguards are entirely dependent on the policies drafted by the companies
themselves.
h. The Whistle-Blowers Protection Act, 2014, notified on May 12, 2014, has not been
implemented so far. In a recent clarification, the Ministry of Personnel, Public Grievances and
Pensions said the law may require further amendments before being introduced. The Act
pertains to government and public sector enterprises, to provide a mechanism to investigate
alleged corruption and misuse of power by public servants, and also protect anyone who
exposes alleged wrongdoing in government bodies, projects and offices.
8. Whistleblower Policy in the US
• The False Claims Act of 1986, which protects the whistleblower from legal action.
Spectacular success after 34 years, where 85% of the claims from corporates for tax evasion,
misappropriation, insider trading etc comes from whistleblower activity and not independent
investigatons by SEC and others.
• 42% of all fraud cases in the US are brought to light by whisltleblowers. A great weapon
against corruption.
• The office of the Whistleblower Protection Program enforces protections for employees
who suffer retaliation for engaging in protected activities under more than 20 federal laws. The
investigation of complaints of retaliation against employees is conducted by investigators in
OSHA’s (Occupational Safety and Health Administration). The investigators are neutral fact-
finders; they do not work for either the complainant or respondent (employer).
9. Whistleblower policies in Europe and OECD countries: DEFINITION OF
WHISTLEBLOWER PROTECTION
“Legal protection from discriminatory or disciplinary action for employees who disclose to the
competent authorities in good faith and on reasonable grounds wrongdoing of whatever kind
in the context of their workplace”. More OECD countries have put in place dedicated
whistleblower protection laws in the past five years than in the previous quarter century.
Among respondents to the 2014 OECD Survey, 84% have enacted a dedicated whistleblower
protection law or legal provision(s) related specifically to protected reporting or prevention of
retaliation against whistleblowers in the public sector. However, these laws have usually been
reactive and scandal-driven instead of forward looking. Ad hoc protection through fragmented
provisions continues to be the norm, which risks providing less comprehensive protection than
a dedicated whistleblower protection law that has more ability to clarify and streamline the
processes for disclosing wrongdoing and provide remedies for victims of retaliation.
86% of companies surveyed for the 2015 OECD Survey on Business Integrity and Corporate
Governance had a mechanism to report suspected instances of serious corporate misconduct,
but over one-third of these either did not have a written policy of protecting whistleblowers
from reprisals or did not know if such a policy existed.
An effective whistleblower protection system depends on clear and effective communication.
Informing both employers and employees about their rights and responsibilities and the
resources available to them is crucial for creating an environment of trust, professionalism and
collegiality that supports the tenets of integrity in both the workplace and society.
10. LEGAL PROTECTION FOR WHISTLEBLOWERS IN OECD COUNTRIES
At the national level, protection for whistleblowers may originate either from comprehensive
and dedicated laws on whistleblower protection, or from specific provisions in different laws
and/or sectoral laws. Of the 32 OECD countries that responded to the 2014 OECD Survey on
Public Sector Whistleblower Protection, 27 reported a dedicated whistleblower protection law
or legal provision(s) that calls for
the protection of whistleblowers under certain circumstances (not always for reporting of
corruption offences), with 13 having passed a dedicated law that protects public sector
whistleblowers.
In some countries, these laws also provide protection to private sector whistleblowers. The
majority of OECD countries that provide legal protection to whistleblowers do so through
provisions found in one or more laws, such as anti-corruption laws, competition laws, company
laws, employment laws, public servants laws and criminal codes. However, the degree of
protection afforded within the provisions of these laws varies and is less comprehensive than
the protection provided for within dedicated laws, which often provide more clarity and
streamline the processes and mechanisms involved in disclosing a wrongdoing.
11. Whistleblower Process
Most people who perceive that there is some wrongdoing often do not know the specific law
that would apply,” says Bellace. “As a result, they don’t actually have a good grasp of whether
unlawful wrongdoing or probable wrongdoing has occurred. Moreover, and this has happened
in some cases, they begin to access material that they might not have the right to access. So, I
find these three points problematic from an employee’s vantage point. And even if you do
know the law and do have proof, there will be a considerable period of time before you can
have your position validated, and you may be without your job during that period of time.
That’s a difficult proposition.”
Prep for XLRI Lectures on AI and HE – Module D

1. Introduction to a future world of AI and HE: Robots make ever more

accurate predictions about what books we enjoy or where to vacation next; drive cars
more safely than we do; make predictions about health before our brains sound alarms;
offer solid advice on what jobs to accept, where to live, what kind of pet to adopt, if it
is sensible for us to be parents and whether it is wise to stay with the person we are
currently with – based on a myriad of data from people relevantly like us. Internet
advertisement catering towards our preferences by assessing what we have ordered or
clicked on before is a mere shadow of what is to come.
Future machines might be composed and networked in ways that no longer permit easy
switch-off. More importantly, they might display emotions and behavior to express
attachment: they might even worry about being turned off, and be anxious to do
something about it. Or future machines might be cyborgs, partly composed of organic
parts, while humans are modified with non-organic parts for enhancement.

Distinctions between humans and non-humans might erode. Ideas about personhood
might alter once it becomes possible to upload and store a digitalized brain on a
computer, much as nowadays we can store human embryos.
Any rights to security and privacy are potentially undermined not only through drones
or robot soldiers, but also through increasing legibility and traceability of individuals
in a world of electronically recorded human activities and presences. The amount of
data available about people will likely increase enormously, especially once biometric
sensors can monitor human health.
There will be challenges to civil and political rights arising from the sheer existence of
these data and from the fact that these data might well be privately owned, but not by
those whose data they are. Leading companies in the AI sector are more powerful than
oil companies ever were, and this is presumably just the beginning of their ascension.
AI and inequality, and the connection between that topic and human rights. To begin
with, we should heed Thomas Piketty’s warning that capitalism left to its own devices
in times of peace generates ever increasing economic inequality. Those who own the
economy benefit from it more than those who just work there. Over time life chances
will ever more depend on social status at birth.
We also see more and more how those who either produce technology or know how to
use technology to magnify impact can command higher and higher wages. AI will only
reinforce these tendencies, making it ever easier for leaders across all segments to
magnify their impact. That in turn makes producers of AI ever more highly priced
providers of technology. More recently, we have learned from Walter Scheidel that,
historically, substantial decreases in inequality have only occurred in response to
calamities such as epidemics, social breakdowns, natural disasters or war. Otherwise it
is hard to muster effective political will for change.

2. Should AGI\AMA be allowed?: Is it OK to throw the switch that saves five lives
by directing a runaway trolley onto a side track, where it will kill one person who would
have been safe? Well, . . . Deontology says it’s wrong to allow preventable deaths;
Utilitarianism says fewer deaths is better; Virtue ethics says the virtuous person can
make hard choices.
Since none of the ethical traditions will singly satisfy the whole world, some scientists
are proposing a secular “AI Safety Engineering” field. A common theme in AI safety
research is the possibility of keeping a superintelligent agent in a sealed hardware so as
to prevent it from doing any harm to humankind. Such ideas originate with scientific
visionaries such as Eric Drexler who has suggested confining transhuman machines so
that their outputs could be studied and used safely.

Similarly, Nick Bostrom, a futurologist, has proposed [9] an idea for an Oracle AI
(OAI), which would be only capable of answering questions. Finally, in 2010 David
Chalmers proposed the idea of a “leakproof” singularity [12]. He suggested that for
safety reasons, AI systems first be restricted to simulated virtual worlds until their
behavioral tendencies could be fully understood under the controlled conditions.
Similarly we argue that certain types of artificial intelligence research fall under
the category of dangerous technologies and should be restricted.
Classical AI research in which a computer is taught to automate human behavior in a
particular domain such as mail sorting or spellchecking documents is certainly ethical
and does not present an existential risk problem to humanity. On the other hand, we
argue that Artificial General Intelligence (AGI) research should be considered
unethical. This follows logically from a number of observations. First, true AGIs will
be capable of universal problem solving and recursive self-improvement.
Consequently, they have potential of outcompeting humans in any domain essentially
making humankind unnecessary and so subject to extinction. Additionally, a truly AGI
system may possess a type of consciousness comparable to the human type making
robot suffering a real possibility and any experiments with AGI unethical for that reason
as well.
A similar argument was presented by Ted Kazynsky in his famous manifesto [26]: “It
might be argued that the human race would never be foolish enough to hand over all
the power to the machines. But we are suggesting neither that the human race would
voluntarily turn power over to the machines nor that the machines would wilfully seize
power. What we do suggest is that the human race might easily permit itself to drift into
a position of such dependence on the machines that it would have no practical choice
but to accept all of the machines decisions. As society and the problems that face it
 become more and more complex and machines become more and more intelligent,
people will let machines make more of their decision for them, simply because
machine-made decisions will bring better result than man-made ones. Eventually a
stage may be reached at which the decisions necessary to keep the system running will
be so complex that human beings will be incapable of making them intelligently. At
that stage the machines will be in effective control. People won't be able to just turn the
machines off, because they will be so dependent on them that turning them off would
amount to suicide. ” ( Kaczynski, T.: Industrial Society and Its Future. The New York
Times (September19, 1995)

Algorithms can do anything that can be coded, as long as they have access to data they

need, at the required speed, and are put into a design frame that allows for execution of

the tasks thus determined. In all these domains, progress has been enormous. The

effectiveness of algorithms is increasingly enhanced through “Big Data:” availability of

an enormous amount of data on all human activity and other processes in the world

which allow a particular type of AI known as “machine learning” to draw inferences

about what happens next by detecting patterns. Algorithms do better than humans

wherever tested, even though human biases are perpetuated in them: any system

designed by humans reflects human bias, and algorithms rely on data capturing the

past, thus automating the status quo if we fail to prevent them. But algorithms are

noise-free: unlike human subjects, they arrive at the same decision on the same problem

when presented with it twice.

An important question arises: How should machines be constrained, such that they act
morally acceptable towards humans? This question concerns Machine Ethics – the search
for formal, unambiguous, algorithmizable and implementable behavioral constraints for
systems, so as to enable them to exhibit morally acceptable behavior. After pointing out
why this is important, we will argue that there is one feasible supplement for Machine
Ethics: Machine Explainability – the ability of an autonomous system to explain its actions
and to argue for them in a way comprehensible for humans. Responsibility, transparency,
auditability, incorruptibility, predictability, and a tendency to not make innocent victims
scream with helpless frustration: all criteria that apply to humans performing social
functions; all criteria that must be considered in an algorithm intended to replace human
judgment of social functions; all criteria that may not appear in a journal of machine
learning considering how an algorithm scales up to more computers. This list of criteria is
by no means exhaustive, but it serves as a small sample of what an increasingly
computerized society should be thinking about. A rock has no moral status: we may crush
it, pulverize it, or subject it to any treatment we like without any concern for the rock itself.
A human person, on the other hand, must be treated not only as a means but also as an end,
that is, a human person has moral status.

While it is fairly consensual that present-day AI systems lack moral status, it is unclear
exactly what attributes ground moral status. Two criteria are commonly proposed as being
importantly linked to moral status, either separately or in combination: sentience and
sapience (or personhood). These may be characterized roughly as follows:

Sentience: the capacity for phenomenal experience or qualia, such as the capacity to feel
pain and suffer

Sapience: a set of capacities associated with higher intelligence, such as self- awareness
and being a reason-responsive agent.

Superintelligence

Good (1965) set forth the classic hypothesis concerning superintelligence: that an AI
sufficiently intelligent to understand its own design could redesign itself or create a
successor system, more intelligent, which could then redesign itself yet again to become
even more intelligent, and so on in a positive feedback cycle. Good called this the
“intelligence explosion.”

Kurzweil (2005) holds that “intelligence is inherently impossible to control,” and that
despite any human attempts at taking precautions, by definition . . . intelligent entities have
the cleverness to easily overcome such barriers.” . Yet it does not follow that the AI must
want to rewrite itself to a hostile form. This presents us with perhaps the ultimate challenge
of machine ethics: How do

you build an AI which, when it executes, becomes more ethical than you? If we are serious
about developing advanced AI, this is a challenge that we must
meet. If machines are to be placed in a position of being stronger, faster, more trusted, or
smarter than humans, then the discipline of machine ethics must commit itself to seeking
human-superior (not just human-equivalent) niceness.

Ethical Dilemmas that will arise in the AI-infested future world of ours: The case of the AI
robot that needs the electricity vs the human patient on life support. If the decision is in
favour of the robot, then it has acquired moral status!!

The debate over Autonomous Weapon Systems (AWS) has begun

in earnest with advocates for the absolute and immediate banning of

AWS development, production, and use planting their flag first. They

argue that AWS should be banned because these systems lack human

qualities, such as the ability to relate to other humans and to apply

human judgment, that are necessary to comply with the law. In

addition, the weapons would not be constrained by the capacity for

compassion, which can provide a key check on the killing of civilians. There are counter-
arguments:- AWS has the potential to ultimately save human lives (both civilian and
military) in armed conflicts; AWS is as inevitable as any other technology that could

potentially make our lives better; and to pass on the opportunity to

develop AWS is irresponsible from a national security perspective.

a. Human-in-the-loop or semi-autonomous systems require a

human to direct the system to select a target and attack it, such

as Predator or Reaper UAVs.

b. Human-on-the loop or human-supervised autonomous systems

are weapon systems that select targets and attack them, albeit

with human operator oversight; examples include Israel’s Iron

Dome and the U.S. Navy’s Phalanx Close In Weapons System

(or CIWS).
c. Human-out-of-the-loop or fully autonomous weapon systems

can attack without any human interaction; there are currently

no such weapons.

The real issue is hegemonistic competition among nations—AWS can’t be stopped, unless
research on this is banned like a Nuclear Non-Proliferation Treaty. At their core,
autonomous weapon systems must be able to distinguish combatants from non-combatants
as well as friend from foe. LOAC is designed to protect those who cannot protect
themselves, and an underlying driver is to protect civilians from death and combatants rom
unnecessary suffering. Everyone is in agreement on this. There is a UN Law on this called
the LOAC = Law of Armed Conflict or the UN Humanitarian Law that signatory countries
have to adhere to. Counter to Counter-arguments: For instance, “How does this technology
impact the likely successes of counter-insurgency operations or humanitarian
interventions? Does not such weaponry run the risk of making war too easy to wage and
tempt policy makers into killing when other more difficult means should be undertaken?”
Will countries be more willing to use force because their populations would have less to
lose (i.e. their loved ones) and it would be politically more acceptable?

2. Eco-Ethics of AI: Harm also need not be directly to persons, e.g., it could also
be to the environment. In the computer industry, “e-waste” is a growing and urgent
problem, given the disposal of heavy metals and toxic materials in the devices at the
end of their product lifecycle. Robots as embodied computers will likely exacerbate the
problem, as well as increase pressure on rare-earth elements needed today to build
computing devices and energy resources needed to power them. Networked robots
would also increase the amount of ambient radiofrequency radiation, like that created
by mobile phones—which have been blamed, fairly or not, for a decline of honeybees
necessary for pollination and agriculture, in addition to human health problems.

3. Need for an Ethical Theoretical Framework to be in-built in

AMA’s: Due to the inherent autonomy of these systems, the ethical considerations
have to be conducted by themselves. This means, that these autonomous cognitive
machines are in need of a theory, with the help of which they can, in a specific situation,
choose the action that adheres best to the moral standards. Why are AI scientists veering
towards Aristotle’s Virtue Ethics to be the most probable ethics theory usable in AGI
or AMAs? (Artificial General Intelligence and Autonomous Moral Agents)? Applied
to AI ethics this means that a machine cannot have practical wisdom (and thus can’t act
morally) before it has learned from realistic data. Machine learning is the improvement
of a machine’s performance of a task through experience and Aristotle’s virtue ethics
is the improvement of one’s virtues through experience. Therefore, if one equates the
task performance with virtuous actions, developing a virtue ethics-based machine
appears possible. Aristotle’s ergon argument and the AMA’s arête. Clear understanding
of Eudaimonia—it’s not maximising of happiness or pleasure, but successfully
conducting one’s life according to one’s argon. A virtuous machine programed to
pursue eudaimonia would therefore not be prone to wireheading, which is the artificial
stimulation of the brain’s reward center to experience pleasure. This partition originated
in Aristotle’s soul theory in which he lists virtues of reason (dianoetic virtues) next to
virtues of character (ethical virtues) as properties of the intelligent part of the soul. The
virtues of reason comprise the virtues of pure reason and the virtues of practical reason.
Pure reason includes science (epist ̄em ̄e), wisdom (sophia) and intuitive thought
(no ̄us). Practical reason on the other hand refers to the virtues of craftsmanship
(techn ̄e), of making (poi ̄esis) and practical wisdom (phron ̄esis). According to this
subdivision in pure and practical reason, there exist two ways to lead a good life in the
eudaimonic sense: the theoretical life and the practical life. AI systems can lead a
theoretical life of contemplation, e.g. when they are applied to scientific data analysis,
but to lead a practical life they need the capacity for practical wisdom and morality.
This distinction in theoretical and practical life of an AI somewhat resembles the
distinction into narrow and general AIs, where narrow AI describes artificial
intelligence systems that are focused on performing one specific task (e.g. image
classification) while general AI can operate in more general and realistic situations.
In contrast to deontology and consequentialism, virtue ethics has a hard time giving
reasons for its actions (they certainly exist, but are hard to codify). While deontologists
can point towards the principles and duties which have guided their actions, a
consequentialist can explain why her actions have led to the best consequences. An
AMA based on virtue ethics on the other hand would have to show how its virtues,
which gave rise to its actions, have been formed through experience. This poses an even
greater problem if its capability to learn virtues has been implemented as an artificial
neural network, due to it being almost impossible to extract intuitively understandable
reasons from the many network weights. Without being able to give reasons to one’s
 actions, one cannot take over responsibility, which is a concept underlying not only our
insurance system but also our justice system. If the actions of an AMA produce harm
then someone has to take responsibility for it and the victims have a right to explanation.
Furthermore, by discussing several virtues in detail, we showed that virtue ethics is a
promising moral theory for solving the two major challenges of contemporary AI safety
research, the control problem and the value alignment problem. A machine endowed
with the virtue of temperance would not have any desire for excess of any kind, not
even for exponential self-improvement, which might lead to a superintelligence posing
an existential risk for humanity. Since virtues are an integral part of one’s character, the
AI would not have the desire of changing its virtue of temperance. Learning from
virtuous exemplars has been a process of aligning values for centuries (and possibly for
all of human history). Thus building artificial systems with the same imitation learning
capability appears to be a reasonable approach.
Deontology and Utilitarianism pose problems for humans, when it comes to ethical
dilemmas—it becomes even more difficult to algorithimise solutions to dilemmas into
AMAs. Also, in Deontology, there is no room for learning, the imperatives are
categorical—difficult to determine what is good for oneself, let alone universalize the
same to all.
Utilitarianism as an ethical theory for AMAs fail again in the hedonistic calculations.
The time available to do this calculation and the act. In fact, the problem is
computationally intractable when we consider the ever-extending ripple effects that any
act can have on the happiness of others across both space and time. And if the
calculation is not required, as in Rule Utilitarianism of J.S. Mill, and only virtues and
well-established social\human rules are needed, then why not go to Virtue Ethics?

What are the machine learning methodologies to install morality into AMAs? Not all of
our devices need moral agency. As autonomy increases, morality becomes more necessary in
robots, but the reverse also holds. Machines with little autonomy need less ethical sensitivity.
A refrigerator need not decide if the amount someone eats is healthy, and limit access
accordingly. In fact, that fridge would infringe on human autonomy.

There is the Bottom-up Approach and the Top Down Approach. In the former, there are three
techniques:
a. The Neural Networks Method: This functions similarly to neurons: connections
between inputs and outputs make up a system that can learn to do various things,
from playing computer games to running bipedally in a simulation. By using that
learning capability on ethical endeavors, a moral machine begins to develop. From
reinforcement of positive behaviors and penalty of negative ones, the algorithm
learns the pattern of our moral systems. One downside to this is the uncertainty
regarding what the algorithm learned. When the army tried to get a neural net to
recognize tanks hidden in trees, what looked like a distinction between trees, tanks,
and partly concealed tanks turned out to be a distinction between a sunny and cloudy
day!! Solution: having two neural networks working side by side. The first learns
the correlation between input and output, challenging situation and ethically right
decision, respectively. The second algorithm focuses on learning language and
connects tags or captions from an input and explains what cues and ideas the second
algorithm used to come up with a course of action.
b. Genetic Algorithms: Large numbers of simple digital agents run through ethically
challenging simulations. The ones that return the best scores get “mated” with each
other, blending code with a few randomizations, and then the test runs again (Fox,
2009). After the best (or acceptably best) scores based on desired outcomes are
achieved, a new situation is added to the repertoire that each program must surpass.
In this way, machines can learn our moral patterns. Once they have matured
ethically, they can be put thru a neural network method for more accurate ethical
outcomes. Again the downside is we cannot tell what it learned or whether it will
make mistakes in the future.
c. Scenario Analysis Method: Teaching AI by having it read books and stories and
learn the literature’s ideas and social norms. After analyzing the settings and events
of each scenario, the program would save the connections it made for later human
inspection. If the program’s connections proved ‘good,’ it would then receive a new
batch of scenarios to test through, and repeat the cycle. One downside to this
approach involves painstaking human analysis. Neural net (the first method) could
work in tandem with a scenario analysis system to alleviate the human requirement
for analysis. Same downsides as the first two methods—the AMA will not be
perfect ethically all the time. As of yet, we do not have a reliable method to develop
an artificial moral agent.
What are the essential ingredients needed to be a true AMA that
has human-like qualities? To build an artificial moral agent, DeBaets (2014) argues
that a machine must have embodiment, learning, teleology toward the good, and empathy. If
the AMA is an ethereal entity, like God, then it will be difficult to convince human beings that
it was the AMA that solved this particular problem, just as no amount of miracles can convince
man of the existence and imminence of God, unless an embodied godman or woman does it.
So an essential ingredient is embodiment.

The second ingredient is the ability to learn from the past and from its own actions\mistakes.
In short, it needs to have memory. The third ingredient is a teleology for the good and the fourth
ingredient is empathy. These last two ingredients need a kind of “consciousness” that is there
in humans.

The first two ingredients can be inputted through machine learning techniques. How do you
input the next two? For a machine to empathize with and understand emotions of others, it must
have emotion itself. Thus, if robots do not have consciousness or mental states, they cannot
have emotions and therefore cannot have moral agency. Additionally, if a machine innately
desires to do good, it must have some form of inner thoughts or feeling that it is indeed doing
good, so teleology also requires consciousness or mental states. A claim to insanity, that is, not
having a teleology for doing good, can get you off the hook in a court of law!!

The argument against the need to have a teleology towards good and empathy, in short against
the need to have consciousness, is that we don’t have a foolproof method of measuring
consciousness in humans, then why do we insists on consciousness in robots? People can fake
emotions and get away with it and we accept that. In theory, a robot could imitate or fake
emotional cues as well as humans display them naturally. People already tend to
anthropomorphize robots, empathize with them, and interpret their behavior as emotional. For
consistency in the way we treat human display of emotion and interpret it as real, we must also
treat robotic display of emotion as real. Compassion could be the reason an autonomous car
veers into a tree rather than a line of children, but the appearance of compassion could also
serve the same effect. Beavers’ (2011) discussion of classical utilitarianism, referencing Mill
(1979), claims that acting good is the same as being good. The same applies to humans, as far
as we can tell from the outside. In other words, a ‘good’ and ‘moral’ robot is one that takes
moral and good actions. Thus, while we may not get true teleology, functional teleology can
suffice.
Also, philosophers have long puzzled about the nature of the mind. One question is if

there is more to the mind than the brain. Whatever else it is, the brain is also a complex

algorithm. But is the brain fully described thereby, or does that omit what makes us

distinct, namely, consciousness? Consciousness is the qualitative experience of being

somebody or something, its “what-it-is-like-to-be-that”-ness, as one might say. If there

is nothing more to the mind than the brain, then algorithms in the era of Big Data will

outdo us soon at almost everything we do.

4. AI and the Future of HR and Employment:

If society needs fewer workers due to automation and robotics, and many social benefits
are delivered through jobs, how are people outside the workforce for a lengthy period
of time going to get health care and pensions?
In 2013, for example, there were an estimated 1.2 million robots in use. This total rose
to around 1.5 million in 2014 and is projected to increase to about 1.9 million in 2017.5
Japan has the largest number with 306,700, followed by North America (237,400),
China (182,300), South Korea (175,600), and Germany (175,200). Overall, robotics is
expected to rise from a $15 billion sector now to $67 billion by 2025.6.
Amazon has organized a “picking challenge” designed to see if robots can
“autonomously grab items from a shelf and place them in a tub.” The firm has around
50,000 people working in its warehouses and it wants to see if robots can perform the
tasks of selecting items and moving them around the warehouse. During the
competition, a Berlin robot successfully completed ten of the twelve tasks. To move
goods around the facility, the company already uses 15,000 robots and it expects to
purchase additional ones in the future.
In the restaurant industry, firms are using technology to remove humans from parts of
food delivery. Some places, for example, are using tablets that allow customers to order
directly from the kitchen with no requirement of talking to a waiter or waitress. Others
enable people to pay directly, obviating the need for cashiers. Still others tell chefs how
much of an ingredient to add to a dish, which cuts down on food expenses.
The Stock Exchange and Trading has now been fully taken over by AI. The role of
brokers has come down by more than half.
Machine-to-machine communications and remote monitoring sensors that remove
humans from the equation and substitute automated processes have become popular in
the health care area. There are sensors that record vital signs and electronically transmit
them to medical doctors. For example, heart patients have monitors that compile blood
pressure, blood oxygen levels, and heart rates. Readings are sent to a doctor, who
adjusts medications as the readings come in. According to medical professionals,
“we’ve been able to show significant reduction” in hospital admissions through these
and other kinds of wireless devices.
There also are devices that measure “biological, chemical, or physical processes” and
deliver “a drug or intervention based on the sensor data obtained.”22 They help people
maintain an independent lifestyle as they age and keep them in close touch with medical
personnel. “Point-of-care” technologies keep people out of hospitals and emergency
rooms, while still providing access to the latest therapies.
Unmanned vehicles and autonomous drones are creating new markets for machines and
performing functions that used to require human intervention. Driverless cars represent
one of the latest examples. Google has driven its cars almost 500,000 miles and found
a remarkable level of performance. Manufacturers such as Tesla, Audi, and General
Motors have found that autonomous cars experience fewer accidents and obtain better
mileage than vehicles driven by people.
Bill Gates recently observed that “the emergence of the robotics industry ... is
developing in much the same way that the computer business did 30 years ago.”
In some countries, robots are quite literally replacements for humans, such as Japan,
where a growing elderly population and declining birthrates mean a shrinking
workforce . Robots are built to specifically fill that labor gap. And given the nation’s
storied love of technology, it is therefore unsurprising that approximately one out of 25
workers in Japan is a robot. While the US currently dominates the market in military
robotics, nations such as Japan and South Korea lead in the market for social robotics,
such as elderly-care robots. Other nations with similar demographics, such as Italy, are
expected to introduce more robotics into their societies, as a way to shore up a
decreasing workforce; and nations without such concerns can drive productivity,
efficiency, and effectiveness to new heights with robotics.
However, researchers and policy makers are underequipped to forecast the labor trends
resulting from specific cognitive technologies, such as AI.
5. Robot Rights: If robots acquire autonomous status and human qualities, then
don’t they have rights? A person does not have to be able to speak to have rights.
Indeed, small infants whose ability to reason, communicate and do many other things
that we tend to identify with intelligence is still in the process of formation have their
rights protected by law. The issue is thus not really rights for artificial intelligences so
much as rights for machine persons. It is the definition and identification of the latter
that is the crucial issue.
Nevertheless, the distinction would seem to be a valid one for as long as it remains a
meaningful one: machines that develop their own personhood in imitation of humans
will probably deserve to be recognized as persons, whereas mere simulacra designed as
an elaborate contrivance will not.
Some soldiers have emotionally bonded with the bomb-disposing PackBots that have
saved their lives, sobbing when the robot meets its end. And robots are predicted to
soon become our lovers and companions. they will always listen and never cheat on us.
Given the lack of research studies in these areas, it is unclear whether psychological
harm might arise from replacing human relationships with robotic ones.
If there indeed is more to the mind than the brain, dealing with AI including humanoid
robots would be easier. Consciousness, or perhaps accompanying possession of a
conscience, might then set us apart. It is a genuinely open question how to make sense
of qualitative experience and thus of consciousness. But even though considerations
about consciousness might contradict the view that AI systems are moral agents, they
will not make it impossible for such systems to be legal actors and as such own property,
commit crimes and be accountable in legally enforceable ways. After all, we have a
history of treating corporations in such ways, which also do not have consciousness.
Principle of Substrate Non-Discrimination: If two beings have the same functionality
and the same conscious experience and differ only in the substrate of their
implementation, then they have the same moral status.
Principle of Ontogeny Non-Discrimination: If two beings have the same functionality
and the same consciousness experience, and differ only in how they came into
existence, then they have the same moral status.
Parents have special duties to their child which they do not have to other children, and
which they would not have even if there were another child qualitatively identical to
their own. Similarly, the Principle of Ontogeny Non-Discrimination is consistent with
 the claim that the creators or owners of an AI system with moral status may have special
duties to their artificial mind which they do not have to another artificial mind, even if
the minds in question are qualitatively similar and have the same moral status.
Even if we accept this stance, however, we must confront a number of novel ethical
questions which the aforementioned principles leave unanswered. Novel ethical
questions arise because artificial minds can have very different properties from ordinary
human or animal minds. To illustrate why some of our moral norms need to be
rethought in the context of AI reproduction, it will suffice to consider just one exotic
property of AIs: their capacity for rapid reproduction. Given access to computer
hardware, an AI could duplicate itself very quickly, in no more time than it takes to
make a copy of the AI’s software. Moreover, since the AI copy would be identical to
the original, it would be born completely mature, and the copy could begin making its
own copies immediately. Absent hardware limitations, a population of AIs could
therefore grow exponentially at an extremely rapid rate, with a doubling time on the
order of minutes or hours rather than decades or centuries. So our ethical norms during
the maturing period of human beings will bypassed by AMA, because they don’t have
a maturing period!

6. The Value Alignment Problem: There is an urgency to making sure these

developments get off to a good start. The pertinent challenge is the problem of value
alignment, a challenge that arises way before it will ever matter what the morality of
pure intelligence is. No matter how precisely AI systems are generated we must try to
make sure their values are aligned with ours to render as unlikely as possible any
complications from the fact that a superintelligence might have value commitments
very different from ours. That the problem of value alignment needs to be tackled now
is also implied by the UN Guiding Principles on Business and Human Rights, created
to integrate human rights into business decisions. These principles apply to AI. This
means addressing questions such as "What are the most severe potential impacts?",
"Who are the most vulnerable groups?" and "How can we ensure access to remedy?"
However, these laws have long been regarded as too unspecific. Various efforts have
been made to replace them, so far without any connection to the UN’s Principles on
Business and Human Rights or any other part of the human-rights movement. Among
other efforts, in 2017 the Future of Life Institute in Cambridge, MA founded around
MIT physicist Max Tegmark and Skype co-founder Jaan Tallinn, held a conference on
Beneficial AI at the Asilomar conference center in California to come up with principles
to guide further development of AI. Of the resulting 23 Asilomar Principles, 13 are
listed under the heading of Ethics and Values. Among other issues, these principles
insist that wherever AI causes harm, it should be ascertainable why it does, and where
an AI system is involved in judicial decision making its reasoning should be verifiable
by human auditors. Such principles respond to concerns that AI deploying machine
learning might reason at such speed and have access to such a range of data that its
decisions are increasingly opaque, making it impossible to spot if its analyses go astray.
The principles also insist on value alignment, urging that “highly autonomous AI
systems should be designed so that their goals and behaviors can be assured to align
with human values throughout their operation” (Principle 10). The ideas explicitly
appear in Principle 11 (Human Values) include “human dignity, rights, freedoms, and
cultural diversity.”
Use of AI in court proceedings might help generate access to legal advice to the poor
(one of the projects Amnesty pursues, especially in India); but it might also lead to
Kafkaesque situations if algorithms give inscrutable advice.

5. Human Enhancement, The Person and Post-Human

Personhood: GRZEGORZ HOLUB
• Gene Modification: These interventions consist in replacing a so-called
"bad" gene with a "good" one, or a "good" one with a "better" one. The aim is
to create the best possible chromosome, which will bring with it the guarantee
of a desired phenotype.

• Regenerative medicine: Successful recreation of vital organs (reared

from stem cells) combined with a switching-off of genes responsible for the
aging process can substantially contribute to a prolongation of human life.

• Nano-Medicine: Nano-robots the size of bacteria can be introduced into

the human organism as devices that monitor and repair damaged cells and
tissues.
• Changing Human Psyche: Chips have been introduced into human
beings for purposes of tracking and computer-assisted control of biological
functions. Minds are connected through the internet and there may be no barrier
in principle to direct mind-reading and thought-sharing across human minds.
Uploading of human minds to artificially intelligent systems represents one of
the most radical possibilities for human development.

• Naturalist Definition of Human Personhood: Joseph Fletcher

presents a very advanced set of such factors pointing to intelligence, self-
awareness, self-control, sense of time, sense of futurity, sense of the past,
capacity to relate to others, concern for others, communication with other
persons, control of existence, curiosity, change and changeability, balance of
rationality and feeling, idiosyncrasy, and neocortical function.

• The Personalist Definition of Human Personhood: The

Personalist approach characterizes the person as the entity who possesses both
exteriority and interiority, each of which complements the other. As Roger
Scruton rightly states, "Personhood is not a property that I possess, but my way
of being me". The personalist definition believes in all three dimensions of
immanence, individuality, sociality, if not transcendence. The naturalist
perspective believes only in the exterior or demonstrable traits of human beings.
The former is therefore almost impossible to emulate onto a software. It can’t
be enhanced!!

• Ethics of Enhancement: Naturalism is usually associated with

utilitarian ethics, while Personalism is deontological in its beliefs. Even a
general understanding of utilitarianism will allow us to understand that most
enhancement interventions will be considered morally praiseworthy. They
promise to increase a general wellbeing of groups and societies and specifically
good consequences of various kinds. With personalism of any variety, the
person is always considered as an end in itself and as such should never be
treated as a means to an end. Furthermore, we can introduce a further distinction
between the essential good of the person and goods for the person--the former
is associated with the fundamental structure of the person, and we can call it the
ontological good. The latter concern various factors, which the person needs for
 her development, wellbeing, and fulfilment. Goods for the person cannot be
identified with the essential good of the person. Thus, therapy is ok with the
personalist view of human personhood, because they tend to remove those
impediments which prevent the development of a person's potential, but not
enhancement. Thus, if it is highly controversial whether we can change the
human entity, it is equally doubtful whether we can upgrade its fundamental
good. Moreover, it is clearly impossible to move from goods for the person to
the essential good of the person, or to put it differently, even a radical
enhancement of the former cannot substantially better the latter. One thing here
is certain: the personalist position rejects radical enhancements and thus
questions the possibility of transforming the human beings into posthuman
persons. A different conclusion may be drawn from the utilitarian position. It
will favor almost any type of enhancement, including radical ones. From this
latter perspective, each and every enhancement must be assessed in the light of
future consequences or general wellbeing. Thus, this position seems to be more
open for further developments in enhancement debates, including a discussion
on posthuman personhood.

• Transhumanism: The transhumanism term was coined in 1957 by Julian

Huxler, UNESCO’s first Director-General. According to the definition by the
World Transhumanist Association, transhumanism is a philosophy whose
essence is to use technology to overcome biological limitations of the man and
improve the human condition. This overcoming and improvement are
understood as freeing the man from illnesses, ageing processes, and achieving
the state of full happiness, permanent, top excitement, as well as replacing many
organs and the entire body eventually, with artificial elements, better than the
original biological ones.
The core of the transhumanist idea of perfection is the assumption that it is
possible to use technology in a way that allows human biology to be radically
changed, or even overcome. As a result, the man will enter an intellectual level
that is yet unknown and unachievable to us, biological humans.
Transhumanism is a philosophy rooted in the postulates of the Enlightenment
and transhumanists perceive themselves as heirs of the philosophy of
humanism. Exactly like the philosophy of the Enlightenment, it is
transhumanism that is based on the claim that human nature can be corrected.
 Also, transhumanism promotes the Enlightenment notion of the supremacy of
mind and the idea of using science to overcome human limitations.
Transhumanism is thus called evolutionary humanism, where evolution is seen
as a progression from human to transhuman to posthuman.
Without doubt, the transhumanistic progress is a dehumanizing process. With every
stage of this progress, man will become less human. According to transhumanists,
however, man should not be afraid of being dehumanized even if the result of this
process means disconnecting him from the homo sapiens species. The loss of species
affiliation is not a threat according to them. It is not linked to losing the status of
existence. The post homo sapiens state is post-human, but not post-existential.
Transhumanism is thus a technical redefinition of the evolution of man.
Transhumanism introduces the category of a cyborg, a man of second stage evolution.
The world of posthumans is a quasi-perfect world; it is a paradise where everyone lives
like God.The posthuman will achieve an intellectual state that incredibly exceeds the
intellectual state of the geniuses that we know; he will be absolutely resistant to all
illnesses, full of energy and forever young; he will be capable of controlling all his
psychological processes to the full extent; he will never get tired, weary or irritated; and
he will also achieve the permanent state of happiness, full love, peace, and states of
conscience that are completely unknown for us now. Furthermore, the posthuman will
fulfil the cybernetic dream of the machine-man interface, as it will be possible to upload
the final cyborg with everything that is available in the memory of the machine.
 The Penn Central Fiasco
• Penn Central was a combination of railroad systems from three railroads: the
Pennsylvania Railroad (PRR), New York Central Railroad (NYC) and the New York,
New Haven and Hartford Railroad (NH).
• These labor-intensive, short-haul services were vulnerable to competition from
automobiles, buses, and trucks, particularly where facilitated by four-lane
highways. In 1956, the U.S. Congress passed the Federal-Aid Highway Act of 1956.
This law authorized construction of the Interstate Highway System, which
provided an economic boost to the trucking industry.
• Another problem was the inability to respond to market conditions. At the time,
U.S. railroads were regulated by the Interstate Commerce Commission (ICC),
which did not allow railroads to change rates it charged both shippers and
passengers. Reducing costs was the only way to survive and become profitable,
but the ICC restricted what cost-cutting could take place. A merger seemed to be
a promising way out of a difficult situation.
 The Penn Central Fiasco
• The merger was not a success. An implementation plan was
drawn up, but not carried out. Attempts to integrate
operations, personnel and equipment were unsuccessful,
due to clashing corporate cultures, incompatible computer
systems and union contracts

• By then the railroad had entered bankruptcy proceedings —

specifically on June 21, 1970. The nation's sixth largest
corporation had become its largest bankruptcy[2] (the Enron
Corporation's 2001 bankruptcy eclipsed this in large measure)
 The Penn Central Fiasco
• The securities of carriers regulated by the Interstate Commerce
Commission (ICC)are generally exempt from the disclosure requirements of
the Federal securities laws.
• Directors and officers of those regulated companies (ICC regulated) may
find a conflict in their responsibilities to their stockholders and in their
responsibilities to serve the public interest
• For a considerable period before the bankruptcy, Penn Central had
maintained a policy of paying dividends out of borrowings rather than
admit there were no real earnings. Stockholders were led to believe they
were being paid dividends when in effect they were really receiving
moneys from borrowed capital. It was this policy in particular which lulled
the small investors into trusting in the safety of their investments.
 The Penn Central Fiasco
• Another circumstance limiting the effectiveness of the board was the
limited amount of information it sought or received. In the merged
company, directors were furnished only with a voluminous docket of
routine capital expenditure authorizations for numerous individual
transactions,
• a treasurer's report giving the current cash balances, and
• a sheet listing revenues and expenses for the railroad for the period
between the board meetings.
• The directors had no cash or income forecasts or budgets; they had no
guidelines to measure performance; they had no capital budgets; they had
no information describing the earnings or cash performance of the
subsidiaries. For all this vital information, they were forced to rely on oral
presentations by management.
 The Penn Central Fiasco
• When Penn Central had exhausted all reasonable capital sources in the United States, it was able
to borrow overseas because of the goodwill established by other U.S. companies.
• A number of banking and other financial institutions made loans to and engaged in other
commercial transactions with Penn Central while maintaining their control relationships through
membership on the Board of Directors of the carrier.
• Commercial paper which was continuously rolled over so as to serve the purpose of long-term
financing and used not to finance commercial transactions but to meet cash requirements arising
from physical improvements and operating losses.
• An elaborate and ingenious series of steps was concocted to create or accelerate income,
frequently by rearranging holdings and disposing of assets, and to avoid or defer transactions
which would require reporting of loss.
• It might also be noted that in order to evade this obligation, a Penn Central public relations officer
suggested that requests for information about the status of the company might be dealt with by
"saying that we are considered to be in registration at this time and are not free to talk."
 The Penn Central Fiasco
The board failed in two principal ways. It failed to establish
procedures, including a flow of adequate financial information,
to permit the board to understand what was happening and to
enable it to exercise some control over the conduct of the
senior officers.
Secondly, the board failed to respond to specific warnings
about the true condition of the company and about the
questionable conduct of the most important officers. As a
result, the investors were deprived of adequate and accurate
information about the condition of the company.
 The Penn Central Fiasco
• The independent directors on the boards were disinterested and
disengaged. . . . They are dominated by associates and friends of senior
management. . . . Many outside directors have lacked expertise in the
relevant industry, and in accounting and financial reporting issues. Thus,
boards were too rarely equipped to uncover and derail the determined
efforts of management to cook the company's books
• During the 1980s and 1990s, increasingly complex businesses turned more
and more often to their auditors for help with non-audit services, such as
asset valuations, merger advice, and computer system design and
implementation. But when an accounting firm provides both audit and
extensive consulting services to an audit client, the auditor's independence
may well suffer, particularly when the consulting services are significantly
more lucrative and more voluminous than the audit services
 The Penn Central Fiasco-Self-Regulation

Furthermore, the scandals in the 1990s and early 2000s occurred against
a backdrop of diminished exposure to liability under both state and
federal laws. In 1994 the Supreme Court eliminated aiding and abetting
liability. Even before that, the Supreme Court had shortened the statute
of limitations for securities fraud. And state legislatures enacted so-
called shield statutes to limit or eliminate director monetary liability for
failures of duties of care.
 The Penn Central Fiasco-Risks of Self-
Regulation
Corporate directors and other gatekeepers act properly for many
reasons: pride, professionalism, reputation and so on. But the
cumulative effect of these regulatory, case law, and legislative
developments made the legal risks associated with abdicating their
gatekeeping role appear tolerable.
 Corporate Governance
CG is all about safeguarding the interests of all the
stakeholders, both internal and external, of the
company. This responsibility lies with the Board of
Governors\Directors and they will be held legally
liable if this function is not being followed.
So who constitutes the Board and how can you
stipulate an ideal mix of talent in the Board and
stipulating their rights and duties become very
important to ensure good corporate governance
 Corporate Governance
• Fairness, transparency, accountability and legal compliance are the
four fundamental pillars of CG.
• And if there are any obvious and visible weaknesses in this area, the
company can be in danger of indulging in unethical practices. Hence
the relevance of CG for ethics.
• Fairness refers to equal treatment. All shareholders should receive
equal consideration for whatever shareholdings they hold. In addition
to shareholders, there should also be fairness in the treatment of all
stakeholders including employees, communities and public officials.
• Transparency means openness, a willingness by the company to
provide clear and accurate information to shareholders and other
stakeholders. Transparency is about building trust in the management
of the company amongst its stakeholders
 Corporate Governance
• Accountability: Disclosure of material matters concerning the organisation’s
performance and activities should be timely and accurate to ensure that all
investors have access to clear, factual information which accurately reflects
the financial, social and environmental position of the organisation.
Organisations should clarify and make publicly known the roles and
responsibilities of the board and management to provide shareholders with a
level of accountability.
 Corporate Governance
Accountability means that actions have consequences. When corporate
governance embodies the principle of accountability, shareholders know that
performance will be measured. They know that good performance will be
rewarded, and poor performance will not. And, most importantly, they know that
misconduct will not be tolerated.
Many executives have been enjoying the benefits of the pay-for-performance
boom, without necessarily delivering increased performance. In fact, the
development of the golden parachute has often meant that, in practice, executives
have been rewarded handsomely for failure.
Specifically, Section 951 of the Dodd-Frank Act[24] requires public companies to
conduct shareholder advisory votes to approve the compensation of executives, at
least once every three years.[25] In addition, companies soliciting votes to approve
merger or acquisition transactions must disclose, and in some circumstances hold a
shareholder advisory vote on, any golden parachute compensation arrangements.
 Corporate Governance
Legal Compliance
The Organizational Sentencing Guidelines (OSG) form the basis for
punishing organizations guilty of criminal violations of federal law in the
US. The OSG make it clear that the board plays a pivotal role in
compliance.
Among other things, the OSG require that "the organization's governing
authority shall be knowledgeable about the content and operation of
the compliance and ethics program and shall exercise reasonable
oversight with respect to the implementation and effectiveness of the
compliance and ethics program. The failure to meet these standards is
likely a breach of the board member's fiduciary obligations
 The Sarbannes-Oxley Act, 2002
• Also known as the SOX Act of 2002 and the Corporate Responsibility
Act of 2002, it mandated strict reforms to existing securities
regulations and imposed tough new penalties on lawbreakers
• The act took its name from its two sponsors—Sen. Paul S. Sarbanes
(D-Md.) and Rep. Michael G. Oxley (R-Ohio).
• Sarbanes–Oxley or SOX, is a United States federal law that set new or
expanded requirements for all U.S. public company boards,
management and public accounting firms. A number of provisions of
the Act also apply to privately held companies, such as the wilful
destruction of evidence to impede a federal investigation.
 The Sarbannes-Oxley Act, 2002
• Section 302 : Officers who sign off on financial statements that they know to be
inaccurate are subject to criminal penalties, including prison terms.
• Section 404 : requires that management and auditors establish internal controls
and reporting methods to ensure the adequacy of those controls
• Section 802 : contains the three rules that affect recordkeeping. The first deals
with destruction and falsification of records. The second strictly defines the
retention period for storing records. The third rule outlines the specific business
records that companies need to store, which includes electronic communications
• Sarbanes-Oxley now requires that the audit committee take "direct
responsibility" for appointing, evaluating, and firing, if necessary, the outside
auditor. This establishes a relationship that ought to encourage more candid
communications by auditors and much more effective oversight by the
independent directors.
 Corporate Governance in India
• SEBI had constituted a Committee on Corporate Governance
under the Chairmanship of Shri Kumar Mangalam Birla,
Member, SEBI Board to promote and raise the standard of
Corporate Governance in respect of listed companies.
• The SEBI Board in its meeting held on January 25, 2000
considered the recommendation of the Committee and
decided to make the amendments to the listing agreement in
pursuance of the decision of the Board.
• Clause 49: Constitution of the Board of Directors; Audit
Committee.
 Definitions of Financial Wrongdoings
• Misdemeanour:
A minor wrongdoing, attracting less than one year in prison and a fine.
• Felony:
A crime regarded in the US and many other judicial systems as more
serious than a misdemeanour and that can involve more than one year
in prison, like murder, rape, serious assault that causes serious bodily
harm, promoting prostitution, kidnapping, theft arson drug crimes.
• Securities Fraud:
The illegal activity of providing false information to someone so that
they will invest in something, it includes insider trading.
 Definitions of Financial Wrongdoings
• Securities Fraud
Securities fraud is illegal or unethical activity carried out involving
securities or asset markets in order to profit at the expense of others. .
Securities fraud can also include false information, pump-and-dump
schemes, or trading on insider information. It is a felony that can
attract prison sentences and fines…the Wolf on Wall Street—pump and
dump!
Corporate Governance
Whistle-Blower Policy
 Whistle Blower Policy and Corporate
Governance
• Why do people blow the whistle? Research covering a large number
of whistleblowers has come up with these reasons:
• Primarily for moral reasons---to make the world a better place to live in, for
public health, safety, justice and altruism. The case of Edward Banarzi of
Deutsche Bank
• With the overall increase in absolute wealth globally, individuals are willing to
rise above the loyalty to their superiors\friends\group\tribe for the greater
good.
• The increasing inequality of income globally and therefore a sense of injustice
has led to perceptible increase in the number of whistle blowers. This is aided
by social media, easier access to public data, like the RTI Act in India and the
increased interest in investigative journalism globally.
• Out of vendetta or to make money.
 Whistle Blower Policy and Corporate
Governance
• What is a Whistleblower’s Function?
• In the Holland, they are called the “bell-ringers”, in Germany, they are called
the “lighthouse keepers”, in Africa, they are called “public sentinels”, because
they are defending the people.
• They are the opposite of the “mythical monkeys”—it is the duty of an
ethically sensitive person to see evil, hear what the evil-doer is saying and
speak to the world of the evil being perpetrated. The case of the Hansford
Nuclear Waste dump.
 Whistle Blower Policy and Corporate
Governance
• History of Whistle Blower Policy in the US and India

• July 1978, the US Congress passes the US’ first Whistleblower Protection Law.
In 1978, there was only one country with a Whistleblower Law, now there are
30 countries.

• And July 16th is National Whistleblower’s Day in the US.

• Since 2000, in the US, the Supreme Court has backed the Whistleblower. The
case of Cathy Harris of the US Airport Customs
 Whistle Blower Protection Policy—The US
• The False Claims Act of 1986, which protects the whistleblower from
legal action. Spectacular success after 34 years, where 85% of the
claims from corporates for tax evasion, misappropriation, insider
trading etc comes from whistleblower activity and not independent
investigatons by SEC and others.
• 42% of all fraud cases in the US are brought to light by
whisltleblowers. A great weapon against corruption
• The investigation of complaints of retaliation against employees is
conducted by investigators in OSHA’s (Occupational Safety and Health
Administration). The investigators are neutral fact-finders; they do not
work for either the complainant or respondent (employer).
The Age of Transhumanism
Are we becoming post-humans?
 The Age of Transhumanism
• The transhumanism term was coined in 1957 by Julian Huxley, UNESCO’s first
Director-General
• A philosophy whose essence is to use technology to overcome biological
limitations of the man and improve the human condition
• This overcoming and improvement are understood as freeing the person from
illnesses, ageing processes, and achieving the state of full happiness, permanent,
top excitement, as well as replacing many organs and the entire body eventually,
with artificial elements, better than the original biological ones.
 What is Human Enhancement?
• Therapy-uplifting from below human “normality” to “normality”

• Enhancement- uplifting from “normality” to “ubernormality”

• Through developments in NBIC, the neuro-biological nature of man

will be altered unrecognizably

• The aim of the transhumanist movement is the creation of a better,

super-intelligent, more moral human species called the “post-human”
species
 The Age of Transhumanism

• Exactly like the philosophy of the Enlightenment, it is transhumanism that is based on

the claim that human nature can be corrected.

• Transhumanism is thus called evolutionary humanism, where evolution is seen as a

progression from human to transhuman to posthuman.

• Man should not be afraid of being dehumanized even if the result of this process means
disconnecting him from the homo sapiens species.

• The post homo sapiens state is post-human, but not post-existential. Transhumanism
introduces the category of a cyborg, a person of second stage evolution
What Are The Human Enhancements So Far?
• Hans Moravec, former director of robotics at Carnegie-Mellon
University and developer of advanced robots for both NASA and the
military, popularized the idea of living perpetually via a digital
substrate.
• He envisioned a procedure in which the entirety of the information
encoded within the neurons of a human brain could be read, copied,
and uploaded to a computer
• Immortality through software existence.
• Embodied Cognition is the opposite of brain emulation. That the body
is an extension of the mind and helps the mind to think and recognize
and decide.
 What Are The Human Enhancements So Far?
• The Bionic Man-Jesse Sullivan
• Braingate--allows a person to manipulate objects in the world using only the mind
• Cochlear Implants and Night Vision and Silent Talk
• Affective BCIs: Electrocorticography (ECoG) and Electroencephalography (EEG)
• Exoskeletons and Flexible Battlesuits-MIT’s Soldier Nanotechnologies
• Reciprocyte-an artificial nano-red blood vessel
• Pharmacological Enhancements. Stimulant drugs-Ritalin and Adderall, used by
many college students to boost concentration and ward off sleep; Provigil, used
to improve working memory and brighten mood; Anabolic steroids ; Viagra;
Aricept-improves verbal and visual memory; Resvestrol– life extender.
What Are The Human Enhancements So Far?
• Cybernetic Enhancements-Brain Implants for unlimited memory and
computing capacity
• Genetic Enhancements : Genetic Modification and the Aryan Race;
hair color, eye color, skin tone, height, weight, facial structure—
Inheritable enhancements; Athleticism, and even IQ, personality, and
other mental traits.
• Nanotechnology Enhancements: Nanobots and Inventive medicine—
postpone ageing.
• Moral Enhancement: ??
 The Ethics of Human Enhancement
• Ethical Issues of Affective Brain–Computer Interfaces: a system that uses
neurophysiological signals to extract features that are related to affective
states (e.g. emotions and moods). Data protection and informed consent,
neurohacking, marketing and political manipulation, inauthentic\fake
emotions
• Exacerbated Social Inequality
• Exacerbated Corporate Inequality at all Managerial Levels
• The Ethics of Autonomy , Choice and Social Life of the first Transhumans
• The Ethics of the Emaciated Family
• The Ethics of the Imbalanced Transhuman
 The Ethics of Human Enhancement
• The Geo-Ethics of the Aryan Race
• Decease-free longevity for the privileged
• Superintelligence for the enhanced
• 4IR is about replacing labour with capital; low and medium human skills
with high human skills and even high human skills with AI and Cyborgs.
• In the first two revolutions, capital needed labour. In the 3IR, capital
created diverse new jobs, which needed low-skilled labour, like Uber
drivers and Zomato delivery boys.
• The 4IR is about finding a cheaper and exponentially more productive
labour-substitute called AI and Post-humans.
• Ethical Implications: The Pink Slip \Capital vs Labour Decisions\Profit
Maximisation vs Universal Minimum Wage\Social Unrest
The Age of Transhumanism
What Are The Human Enhancements So Far?
• Hans Moravec, former director of robotics at Carnegie-Mellon
University and developer of advanced robots for both NASA and the
military, popularized the idea of living perpetually via a digital
substrate.
• He envisioned a procedure in which the entirety of the information
encoded within the neurons of a human brain could be read, copied,
and uploaded to a computer
• Immortality through software existence.
• Embodied Cognition is the opposite of brain emulation. That the body
is an extension of the mind and helps the mind to think and recognize
and decide.
 What Are The Human Enhancements So Far?
• The Bionic Man-Jesse Sullivan
• Braingate--allows a person to manipulate objects in the world using only the mind
• Cochlear Implants and Night Vision and Silent Talk
• Affective BCIs: Electrocorticography (ECoG) and Electroencephalography (EEG)
• Exoskeletons and Flexible Battlesuits-MIT’s Soldier Nanotechnologies
• Reciprocyte-an artificial nano-red blood vessel
• Pharmacological Enhancements. Stimulant drugs-Ritalin and Adderall, used by
many college students to boost concentration and ward off sleep; Provigil, used
to improve working memory and brighten mood; Anabolic steroids ; Viagra;
Aricept-improves verbal and visual memory; Resvestrol– life extender.
What Are The Human Enhancements So Far?
• Cybernetic Enhancements-Brain Implants for unlimited memory and
computing capacity
• Genetic Enhancements : Genetic Modification and the Aryan Race;
hair color, eye color, skin tone, height, weight, facial structure—
Inheritable enhancements; Athleticism, and even IQ, personality, and
other mental traits.
• Nanotechnology Enhancements: Nanobots and Inventive medicine—
postpone ageing.
• Moral Enhancement: ??
 The Ethics of Human Enhancement
• Ethical Issues of Affective Brain–Computer Interfaces: a system that uses
neurophysiological signals to extract features that are related to affective
states (e.g. emotions and moods). Data protection and informed consent,
neurohacking, marketing and political manipulation, inauthentic\fake
emotions
• Exacerbated Social Inequality
• Exacerbated Corporate Inequality at all Managerial Levels
• The Ethics of Autonomy , Choice and Social Life of the first Transhumans
• The Ethics of the Emaciated Family
• The Ethics of the Imbalanced Transhuman
• The Geo-Ethics of the Aryan Race
• Decease-free longevity for the privileged
• Superintelligence for the enhanced
The Ethics Of Artificial
Intelligence
 The Ethics of Artificial
Intelligence
• Issac Asimov’s Three Laws of Robotics:
• A robot may not injure a human being or, through inaction, allow a human
being to come to harm.
• A robot must obey the orders given it by human beings except where such
orders would conflict with the First Law.
• A robot must protect its own existence as long as such protection does not
conflict with the First or Second Laws.
 A Brief History of AI
• Algorithms and Machine Learning:
• Artificial intelligence is based on the assumption that the process of human thought
can be mechanized.
• In 1951, Marvin Minsky with Dean Edmonds, built the first neural net machine, the
SNARC, Stochastic Neural Analog Reinforcement Calculator, that started to mimic the
human brain.
• In 1955, Allen Newell and Herbert A. Simon created the "Logic Theorist“ that solved
the venerable mystery of mind\body existence. Was the mind an ethereal substance
that was not made of matter? These people proved that the mind was a replicable
neural network that worked on chemistry and electricity, whereas theirs worked on
mechanical parts, electricity and algorithms!
• The Turing Test: If a machine could carry on a conversation (over a teleprinter) that
was indistinguishable from a conversation with a human being, then it was
reasonable to say that the machine was "thinking".
 What is Big Data and Strong AI?
• Big data refers to a collection of data that cannot be captured,
managed, and processed by conventional software tools within a
certain time frame.
• Big data means that instead of random analysis (sample survey), all
data is used for analysis!
• General intelligence is the ability to solve any problem, rather than
finding a solution to a particular problem. Artificial general
intelligence (or "AGI") is a program which can apply intelligence to a
wide variety of problems, in much the same way as humans can. Also
referred to as "strong AI“.
• “Strong AI” is predicted to become reality in 2045!!
 What is this AI Revolution?
• It is the programmed agglomeration of algorithms that enable this
intelligence, embodied or disembodied, to analyse Big Data at super
speeds that the unenhanced human brain cannot and arrive at
correct and safe conclusions to make decisions.
• The fuel is Big Data and the technology is Machine learning
• AI can be with “man-in-the-loop”; “man-on-the loop” or “completely
independent”
• When AI becomes recursive and learns to create its own algorithms
and becomes independent and goes beyond human intelligence and
control, the point of “Singularity” would have arrived.
 The Value Alignment and Control Problems
• How do you ensure that the values of AMAs are aligned to that of Human Beings?
• Due to the inherent autonomy of these systems, the ethical considerations have
to be conducted by themselves. This means, that these autonomous cognitive
machines are in need of a theory, with the help of which they can, in a specific
situation, choose the action that adheres best to the moral standards.
• Which Ethical Tradition between Deontology, Utilitarianism and Virtue Ethics is
currently favoured and why?
• Deontology has a serious problem when it comes to ethical dilemmas. To lie to
save a life..not allowed in Deontology. How do you algorithimize this in an AMA?
• There is no room for learning in Deontology—the imperatives are categorical.
How do you assess what is “good” for you, let alone for others?
• Utilitarianism as an ethical theory for AMAs fail again in the hedonistic
calculations. The time available to do this calculation and the act is so limited.
• The calculation becomes even more complicated when fecundity and propinquity
have to be considered.
 The Value Alignment Problem
• Why are AI scientists veering towards Virtue Ethics?
• Because Machine learning is the improvement of a machine’s
performance of a task through experience and Aristotle’s virtue ethics is
the improvement of one’s virtues through experience.
Aristotle’s Soul Theory
VIRTUES OF REASON VIRTUES OF CHARACTER
Craftmanship= Techne
Science=episteme
Manufacturing = Poesis
Wisdom=Sophia
Practical Wisdom = Phronesis
Intuitive Thought= Nous

VIRTUES OF PURE REASON VIRTUES OF PRACTICAL REASON

Practical Life = Practical Wisdom and
Theoretical Life = Weak AI Morality = Strong AI
 The Value Alignment Problem
• Whatever be the Ethical Tradition employed, the AMA has to be able
to explain to humans, their logic for arriving at their decisions.
• There is a need for an “Explainability” algorithm, that is inputted
parallelly into the AMA. Without “explainability” there can be no legal
responsibility, like some one claiming insanity.
• While AMAs based on deontology can point towards the principles
and duties which have guided their actions, a consequentialist AMA
can explain why its actions have led to the best consequences.
• An AMA based on virtue ethics on the other hand would have to
show how its virtues, which gave rise to its actions, have been formed
through experience. A tough call for Machine Learning.
 The Value Alignment Problem
• AMAs based on Virtue Ethics solves the two major challenges of contemporary AI
safety research, the control problem and the value alignment problem.

• A machine endowed with the virtue of temperance would not have any desire for
excess of any kind, not even for exponential self-improvement, which might lead
to a superintelligence posing an existential risk for humanity. Since virtues are an
integral part of one’s character, the AI would not have the desire of changing its
virtue of temperance.
 Should We Allow AGIs?—The Control Problem
• True AGIs will be capable of universal problem solving and recursive self-improvement.

• Consequently, they have potential of outcompeting humans in any domain essentially making humankind
unnecessary and so subject to extinction.

• Kurzweil holds that “intelligence is inherently impossible to control,” and that despite any human attempts at
taking precautions, by definition . . . intelligent entities have the cleverness to easily overcome such barriers.”

• This presents us with perhaps the ultimate challenge of machine ethics: How do you build an AI which, when it
executes, becomes more ethical than you?

• “AI Safety Engineering” field emerging: A common theme in AI safety research is the possibility of keeping a
superintelligent agent in a sealed hardware so as to prevent it from doing any harm to humankind-- Eric
Drexler
Should We Allow AGIs?—The Control Problem
• Nick Bostrom, a futurologist, has proposed an idea for an Oracle AI (OAI), which would be only capable of

answering questions.

• Finally, in 2010 David Chalmers proposed the idea of a “leakproof” singularity. He suggested that for safety

reasons, AI systems first be restricted to simulated virtual worlds until their behavioral tendencies could be fully

understood under the controlled conditions.

• The Ted Kaczinsky Manifesto: ….What we do suggest is that the human race might easily permit itself to drift into

a position of such dependence on the machines that it would have no practical choice but to accept all of the

machines decisions…. we will be so dependent on them that turning them off would amount to suicide.”

• Technological slavery.
 The Ethics of AI
• The Ethics of Economic Inequality—Between nations and within nations. Need for
a Universal Minimum Wage Solution—Thomas Picketty
• The ethics of human substitution by industrial robots in employment-not a
problem in economies with declining birthrates and shrinking populations
• Since AGI can outsmart human cognitive and emotional intelligence, then they
are sapient and especially sentient and capable of robot suffering. Using such
robots as a means would then be unethical
• The issue of collateral damage and trigger-happiness in AI Warfare
• The ethics of increasing E-Waste due to robotisisation, including radio-frequency
radiation
• The Ethics of Face Recognition Technology-Loss of Privacy vs Reduction in Crime
• The Ethics of Singularity- Should we allow this?
A Dystopian View of AI