Lecture # 08

(Chapter # 04: Social and Ethical Aspects of Business)

Meaning of Ethics

 Ethics can be defined broadly as a set of moral principles or values.

 ‘Ethics’ means moral philosophy which teaches people their duties and the reason for it – duties which are voluntarily
self-imposed.
 These are precedents and conventions which should be honored not by the force of law but by moral force.
 Ethics is about voluntarily conforming to what is good/ acceptable/ desirable behavior without the force of any legal/
social obligation. The key word here is VOLUNTARILY.

Law and Ethics

• The law is a formal set of rules and standards that are associated with significant legitimate power and authority (to
inflict punishment) in society. Ethics on the other hand, is far less formal – sometimes not even written down set of
values – which are to be observed morally.

• Simply – Law is obedience to the enforceable whereas ethics is obedience to unenforceable.

Business Ethics

• Business ethics is, company’s attitude and conduct towards its employees, customers, community and shareholders. It
is the study of business action individual or corporate with special attention to its moral adequacy.

Ethical Behavior

• A system that confirms the beliefs of the society.

• Business is being run within that system.
• Corporate Citizenship is a practice of the company confirmed by the society.
• Ethical Behavior in Managerial Practices include:
 Responsibility towards employees.
 Relationship with other organizations.
 Interaction with Government.
 Plans to initiate ethical behavior towards people.
 To initiate ethical programs

Ethical Dilemma in Business

• An ethical dilemma is a situation a person faces in which a decision must be made about the appropriate behavior.

• A manager has responsibility towards his company, his boss, his mates, society, his family and so on.

• If he follows boss’s unethical / illegal / unexpected orders, he is betraying his company. If he does not, he is betraying
his boss. Similarly, the company may want him to do some thing which may be against larger interests of the society.

• Company may want him to spy on competitors. If he does so, he will be working against the society; and if he does
not, then he is betraying the company. And when he betrays the company, he will have to either resign or be fired and
then his wife, children ultimately family may suffer as a consequence of his action. Which side should he/she take?
Fairness and Honesty

• Fairness and honesty are at the heart of business ethics and relate to the general values of decision makers.

• At a minimum, businesspersons are expected to follow all applicable laws and regulations. But beyond obeying the
law, they are expected not to harm customers, employees, clients, or competitors knowingly through deception,
misrepresentation, coercion, or discrimination.

Communications

• Communications is another area in which ethical concerns may arise (false and misleading advertising, as well as
deceptive personal-selling tactics, anger consumers) and can lead to the failure of a business.

• Truthfulness about product safety and quality are also important to consumers.

Organizational Relationship

• The relationship and behavior of organizations toward customers, suppliers, and others in their workplace may also
generate ethical concerns. Ethical behavior within an organization involves keeping organizational / company secrets,
meeting obligations and responsibilities, and avoiding undue pressure that may force others to act unethically.

• Managers, in particular, because of the authority of their position, have the opportunity to influence employee’s
actions in different ways.

Conflict of Interest

• A conflict of interest (COI) is a situation in which a person or organization is involved in multiple interests, financial
or otherwise, one of which could possibly corrupt the motivation or decision-making of that individual or
organization.
• It is a situation in which a person is in a position to derive personal benefit from actions or decisions made in their
official capacity.
• Conflict of interest is a situation in which an internal auditor, who is in a position of trust, has a competing
professional or personal interest. Such competing interests can make it difficult to fulfill his or her duties impartially.
• A conflict of interest exists even if no unethical or improper act results.

Corporate Social Responsibility

• To think about benefiting the society and avoid harmful activities for the society is called Corporate Social
Responsibilities.

• These include:

– Ethical attitude towards customers.

– Dealing with employees.
– Ethical communication with Government and local bodies.
– Ethical behavior towards stake holders

Social Responsibility: Meaning

 Social responsibility refers to the organization’s obligation to take actions that protect and improve the welfare of the
society as a whole.
  There are four dimensions of social responsibility:
i) Economic, ii) Legal, iii) Ethical and iv) Voluntary.
 Earning profit is the economic foundation. A business whose sale objective is to maximize profits is not likely to
consider its social responsibility although its activities will probably be legal. Finally, voluntary responsibilities are
additional activities that may not be required but which promote humane welfare and goodwill.

 Legal and Economic concerns have long been acknowledge in business but voluntary and ethical issues are more
recent concerns.

Social Responsibility of Business

A] Responsibility towards Customers

B] Responsibility towards Employees
C] Responsibility towards Suppliers
D] Responsibility towards Owners
E] Responsibility towards Investors
F] Responsibility towards Competitors
G] Responsibility towards Government
H] Responsibility towards Environment
I] Responsibility towards Society

A] Responsibility towards Customers

1) Supply quality products
2) Take care of the needs
3) Regularity of supply
4) Charge reasonable price
5) Inform the using methods
6) After-sales service
7) Settled quickly the grievances
8) Ensure stability of utility
9) Should not produce or sold illegal & harmful products

B] Responsibility towards Employees

1) Timely and regular payment of wages and salaries
2) Proper working conditions and healthy environment
3) Provide job security
4) Provide better living conditions
5) Timely promotion and award
6) Participation in decision making
7) Free & fair promotional & requirement policies

C] Responsibility towards Suppliers

1) Giving orders in timely and regularly
2) Fair terms and conditions
3) Availing reasonable credit period
4) Timely payment of dues
5) Providing information and counseling
6) Timely unload and warehousing facilities

D] Responsibility towards Owners

1) Run the business efficiently
2) Proper utilization of capital and other resources
 3) Growth of capital
4) Regular and fair return

E] Responsibility towards Investors

1) Ensuring safety of their investment through proper mgt. of funds
2) Regular payment of interest
3) Timely repayment of principal amount
4) Access to information

F] Responsibility towards Competitors

1) Not to offer exceptionally high sales commission
2) Not to offer to customers heavy discounts and /or free products in every sale
3) Not to defame competitors through false or ambiguous advertisements
4) Cooperate with each other

G] Responsibility towards Government

1) Follow guidelines in setting business
2) Payment of fees, taxes, duties regularly and honestly
3) Avoid monopolistic and restrictive business attitudes
4) Not to indulge in corruption through bribing and other unlawful activities.

H] Responsibility towards Environment

1) Preventing water pollution
2) Reprocessing of waste water
3) Preventing air pollution
4) Preventing land pollution
5) Recycling of waste material
6) Processing of smoke
7) Reprocessing of heat

I] Responsibility towards Society

1) To help the weaker and backward sections of the society
2) To maintain and promote social and cultural values
3) To generate employment
4) To protect the environment
5) Supports in sports, communication and infrastructure development and other social activities

Steps in Implementing CSR

Step 1: Raising CSR awareness inside the organization.

Step 2: Assessing corporate purpose in its societal context.
Step 3: Establishing a vision and a working definition for CSR.
Step 4: Assessing current CSR status.
Step 5: Developing a CSR integrated strategic plan.
Step 6: Implementing CSR integrated strategic plan