Micro Link Information Technology & Business College

Postgraduate School
Business Administration (MBA)

MODULE FOR ETHICS AND CORPORATE SOCIAL

RESPONSIBILITY

JUNE, 2020
MEKELLE –TIGRAI-ETHIOPIA

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 CHAPTER ONE

INTRODUCTION TO BUSINESS ETHICS

Learning Objectives

After reading this chapter you should be able to understand:

• The meaning of ethics and business ethics.

• The importance of business ethics.

• The various types of Ethics.

• Code of conduct etc.,

Activity 1.1
What is ethics in the context of your organization? Explain.

1.1.Introduction
Some years ago, one sociologist asked business people, "What does an ethic mean to you?" Among
their replies were the following:

"Ethics has to do with what my feelings tell me is right or wrong." "Ethics has to do with my
religious beliefs."
"Being ethical is doing what the law requires."

"Ethics consists of the standards of behaviour our society accepts." "I don't know what the
word means."
Definition & Nature of business ethics:
The term "ethics" is derived from the Greek word "ethos" which refers to character or customs or
accepted behaviours. The Oxford Dictionary states ethics as "the moral principle that governs a
person's behaviour or how an activity is conducted". The synonyms of ethics as per Collins
Thesaurus are - conscience, moral code, morality, moral philosophy, moral values, principles, rules
of conduct, standards.

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Ethics refers to well- founded standards of right and wrong that prescribe what humans ought to do,
usually in terms of rights, obligations, benefits to society, fairness, or specific virtues.

Ethics is a set of principles or standards of human conduct that govern the behaviour of
individuals or organizations. Using these ethical standards, a person or a group of persons or an
organization regulate their behaviour to distinguish between what is right and what is wrong as
perceived by others. It is not a natural science but a creation of the human mind. For this reason,
it is not absolute and is open to the influence of time, place and situation.

In bygone times, kings used to keep food testers who ate the food prepared for the king before it was
offered to him. This was royal clinical research to find out if the food was poisoned. The practice
did not raise eyebrows because the king was regarded as the most important person in the
kingdom, and his life was more precious than that of anyone else. It was the ethics of the time.
— Ethics can be defined as the discipline dealing with moral duties and obligation, and
explaining what is good or not good for others and for us.
— Ethics is the study of moral decisions that are made by us in the course of performance of
our duties.
— Ethics is the study of characteristics of morals and it also deals with the moral choices
that are made in relationship with others.
— Ethics is concerned with truth and justice, concerning a variety of aspects like the
expectations of society, fair competition, public relations, social responsibilities and corporate
behaviour.

1.2.Business Ethics

Business ethics is a form of applied ethics. In broad sense ethics in business is simply the
application moral or ethical norms to business. Business ethics refers to a 'code of conduct' which
businessmen are expected to follow while dealing with others. 'Code of conduct' is a set of
principles and expectations that are considered binding on any person who is member r of a
particular group. The alternative names for code of conduct are 'code of ethics' or 'code of practice'.

Business ethics comprises the principles and standards that guide behaviour in the conduct of
business. Businesses must balance their desire to maximize profits against the needs of the
stakeholders. Maintaining this balance often requires tradeoffs. To address these unique aspects of
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businesses, rules - articulated and implicit, are developed to guide the businesses to earn profits
without harming individuals or society as a whole.

The coverage of business ethics is very wide as it deals with norms relating to a company and its
employees, suppliers, customers and neighbours, its fiduciary responsibility to its shareholders. It
reflects the philosophy of business, one of whose aims is to determine the fundamental purposes of a
company.

Business ethics stands for the saneness or purity of purpose that is upheld through carefully
designed actual practices of business enterprises. It is an embodiment of conscience concern
towards execution of business processes in tune with the nobility of the purpose.
1.2.1. SCOPE OF BUSINESS ETHICS

Ethical problems and phenomena arise across all the functional areas of companies and at all
levels within the company which are discussed below:
Ethics in Compliance

Compliance is about obeying and adhering to rules and authority. The motivation for being
compliant could be to do the right thing out of the fear of being caught rather than a desire to be
abiding by the law. An ethical climate in an organization ensures that compliance with law is
fuelled by a desire to abide by the laws. Organizations that value high ethics comply with the laws
not only in letter but go beyond what is stipulated or expected of them.
Ethics in Finance

The ethical issues in finance that companies and employees are confronted with
include:

— In accounting - window dressing, misleading financial analysis.

— Related party transactions not at arm‘s length

— Insider trading, securities fraud leading to manipulation of the financial markets.

— Executive compensation.

—Bribery, kickbacks, over billing of expenses, facilitation payments.

— Fake reimbursements

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Case of unethical practice

Mr. A, is a respected senior officer in the company, he enjoyed all the benefits and perquisites from
the company including car with driver, medical facility, reimbursements of certain expenditures.

During the months September, October, December it was observed that his telephonic
reimbursements were on a rising note, from 2:00 pm it went up to 5:00 p.m. The matter was
reported and was investigated. It was found that Mr. A has made arrangements with the Telephone
Company for making a single bill for two telephone numbers at his residence.

Case of unethical practice

A middle level executive, Ayanna based in Mekelle, opts for a 3 day training programme in Wukro,
which happens to be his hometown. He also applies leave for 3 days immediately following the
training which is granted to him. Ato Ayanna reaches the venue of the training. On the first day,
registers himself, takes the training kit, attends the training for two hours, befriends a dealing officer
and arranges to have the presentations etc. sent to him. He does not attend the training programme
thereafter.

1.2.2. Characteristics of Business Ethics:

(i) A Discipline:

Business ethics are the guiding principles of business function. It is the knowledge through which
human behaviour is learnt in a business situation.
(ii) Ancient Concept:
Business ethics is an ancient concept. It has it origin with the development of human civilization.
(iii) Personal Dignity:
The principles of ethics develop the personal dignity. Many of the problems of ethics arise due to
not giving dignity to individual. All the business decisions should be aimed by giving dignity to the
customers, employees, distributors, shareholders and creditors, etc. otherwise they develop in
immorality in the business conducts.

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(iv) Related to Human Aspect:
Business ethics studies those activities, decisions and behaviours which are concerned with human
aspect. It is the function of the business ethics to notify those decisions to customers, owners of
business, government, society, competitors and others on good or bad, proper or improper conduct
of business.

(v) Study of Goals and Means:

Business ethics is the study of goals and means for the rational selection of sacred objects and their
fulfilment. It accepts the principles of ―Pure goals inspire for pure means‖ and ―Means justifies the
end‖. It is essential that goals and means should be based on morals.
(vi) Different from Social Responsibility:
Social responsibility mainly relates to the policies and functions of an enterprise, whereas business
ethics to the conduct and behaviour of businessmen. But it is a fact that social responsibility of
business and its policies is influenced by the business ethics.
(vii) Greater than Law:
Although the law approves various social decisions, but the law is not greater than ethics. Law is
usually related to the minimum control of social customs whereas ethics gives importance to
individual and social welfare actions.

1.3.Ethics Theories:
Ethical theories are based on the previously explained ethical principles. They each emphasize
different aspects of an ethical dilemma and lead to the most ethically correct resolution according to
the guidelines within the ethical theory itself. People usually base their individual choice of ethical
theory upon their life experiences.
1.3.1. Deontology
The deontological theory states that people should adhere to their obligations and duties when
analyzing an ethical dilemma. This means that a person will follow his or her obligations to another
individual or society because upholding one's duty is what is considered ethically correct (1,2).
For instance, a deontologist will always keep his promises to a friend and will follow the law. A
person who follows this theory will produce very consistent decisions since they will be based on
the individual's set duties.

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Deontology provides a basis for special duties and obligations to specific people, such as those
within one's family. For example, an older brother may have an obligation to protect his little sister
when they cross a busy road together. This theory also praises those deontologists who exceed their
duties and obligations, which is called "supererogation" (1). For example, if a person hijacked a tr ain
full of students and stated that one person would have to die in order for the rest to live, the person
who volunteers to die is exceeding his or her duty to the other students and performs an act of
supererogation.

Although deontology contains many positive attributes, it also contains its fair number of flaws. One
weakness of this theory is that there is no rationale or logical basis for deciding an individual’s
duties. For instance, businessman may decide that it is his duty to always be on time to meetings.
Although this appears to be a noble duty we do not know why the person chose to make this his duty.
Perhaps the reason that he has to be at the meeting on time is that he always has to sit in the same
chair. A similar scenario unearths two other faults of deontology including the fact that sometimes a
person's duties conflict and that deontology is not concerned with the welfare of others. For instance,
if the deontologist who must be on time to meetings is running late, how is he supposed to drive? Is
the deontologist supposed to speed, breaking his duty to society to uphold the law, or is the
deontologist supposed to arrive at his meeting late, breaking his duty to be on time? This scenario of
conflicting obligations does not lead us to a clear e thically correct resolution nor does it protect the
welfare of others from the deontologist's decision. Since deontology is not based on the context of
each situation, it does not provide any guidance when one enters a complex situation in which there
are conflicting obligations.

1.3.2. Utilitarianism

The utilitarian ethical theory is founded on the ability to predict the consequences of an action. To a
utilitarian, the choice that yields the greatest benefit to the most people is the choice that is ethically
correct. One benefit of this ethical theory is that the utilitarian can compare similar predicted
solutions and use a point system to determine which choice is more beneficial for more people. This
point system provides a logical and rationale argument for each decision and allows a person to use it
on a case-by-case.

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There are two types of utilitarianism, act utilitarianism and rule utilitarianism. Act utilitarianism
adheres exactly to the definition of utilitarianism as described in the above section. In act
utilitarianism, a person performs the acts that benefit the most people, regardless of personal feelings
or the societal constraints such as laws. Rule utilitarianism, however, takes into account the law and
is concerned with fairness. A rule utilitarian seeks to benefit the most people but through the fairest
and most just means available. Therefore, added benefits of rule utilitarianism are that it values
justice and includes beneficence at the same time.

As with all ethical theories, however, both act and rule utilitarianism contains numerous flaws.
Inherent in both are the flaws associated with predicting the future. Although people can use their life
experiences to attempt to predict outcomes, no human being can be certain that his predictions will
be true. This uncertainty can lead to unexpected results making the utilitarian look unethical as time
passes because his choice did not benefit the most people as he predicted (1,2). For example, if a
person lights a fire in a fireplace in order to warm his friends, and then the fire burns down the house
because the soot in the chimney caught on fire, then the utilitarian now seems to have chosen an
unethical decision. The unexpected house fire is judged as unethical because it did not benefit his
friends.

Another assumption that a utilitarian must make is that he has the ability to compare the various types
of consequences against each other on a similar scale. However, comparing material gains such as
money against intangible gains such as happiness is impossible since their qualities differ to such a
large extent.

A third failing found in utilitarianism is that it does not allow for the existence of supererogation or
heroes. In other words, people are obligated to constantly behave so that the most people benefit
regardless of the danger associated with an act (1). For instance, a utilitarian who sacrifices her life to
save a train full of people is actually fulfilling an obligation to society rather than performing a
selfless and laudable act.

As explained above, act utilitarianism is solely concerned with achieving the maximum good.
According to this theory an individual's rights ma y be infringed upon in order to benefit a greater
population. In other words, act utilitarianism is not always concerned with justice, beneficence or
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autonomy for an individual if oppressing the individual leads to the solution that benefits a majority
of people. Another source of instability within act utilitarianism is apparent when a utilitarian faces
one set of variable conditions and then suddenly experiences a change in those variables that causes
her to change her original decision. This means that an act utilitarian could be nice to you one
moment and then dislike you the next moment because the variables have changed, and you are no
longer beneficial to the most people.

Rule utilitarianism also contains a source of instability that inhibits its usefulness. In rule
utilitarianism, there is the possibility of conflicting rules (1). Let us revisit the example of a person
running late for his meeting. While a rule utilitarian who just happens to be a state governor may
believe that it is ethically correct to arrive at important meetings on time because the members of the
state government will benefit from this decision, he may encounter conflicting ideas about what is
ethically correct if he is running late. As a rule utilitarian, he believes that he should follow the law
because this benefits an entire society, but at the same time, he believes that it is ethically correct to
be on time for his meeting because it is a state government meeting that also benefits the society.

1.3.3. Rights

In the rights ethical theory the rights set forth by a society are protected and given the highest
priority. Rights are considered to be ethically correct and valid since a large or ruling population
endorses them. Individuals may also bestow rights upon others if they have the ability and resources
to do so. For example, a person may say that her friend may borrow the car for the afternoon. The
friend who was given the ability to borrow the car now has a right to the car in the afternoon.

A major complication of this theory on a larger scale, however, is that one must decipher what the
characteristics of a right are in a society. The society has to determine what rights it wants to uphold
and give to its citizens. In order for a society to determine what rights it wants to enact, it must decide
what the society's goals and ethical priorities are. Therefore, in order for the rights theory to be
useful, it must be used in conjunction with another ethical theory that will consistently explain the
goals of the society (1). For example in America people have the right to choose their religion
because this right is upheld in the Constitution. One of the goals of the founding fathers' of America
was to uphold this right to freedom of religion. However, under Hitler's reign in Germany, the Jews
were persecuted for their religion because Hitler decided that Jews were detrimental to Germany's
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future success. The American government upholds freedom of religion while the Nazi government
did not uphold it and, instead, chose to eradicate the Jewish religion and those who practiced it.

1.3.4. Casuist

The casuist ethical theory is one that compares a current ethical dilemma with examples of similar
ethical dilemmas and their outcomes. This allows one to determine the severity of the situation and
to create the best possible solution according to others' experiences.

One drawback to this ethical theory is that there may not be a set of similar examples for a given
ethical dilemma. Perhaps that which is controversial and ethically questionable is new and
unexpected. Along the same line of thinking, a casuistically theory also assumes that the results of
the current ethical dilemma will be similar to results in the examples. This may not be necessarily
true and would greatly hinder the effectiveness of applying this ethical theory.

1.3.5. Virtue

The virtue ethical theory judges a person by his character rather than by an action that may deviate
from his normal behaviour. It takes the person's morals, reputation and motivation into account when
rating an unusual and irregular behaviour that is considered unethical. For instance, if a person
plagiarized a passage that was later detected by a peer, the peer who knows the person well will
understand the person's character and will be able to judge the friend. If the plagiarizer normally
follows the rules and has good standing amongst his colleagues, the peer who encounters the
plagiarized passage may be able to judge his friend more leniently. Perhaps the researcher had a late
night and simply forgot to credit his or her source appropriately. Conversely, a person who has a
reputation for scientific misconduct is more likely to be judged harshly for plagiarizing because of his
consistent past of unethical behaviour.

One weakness of this ethical theory is that it does not take into consideration a person's change in
moral character. For example, a scientist who may have made mistakes in the past may honestly have
the same late night story as the scientist in good standing. Neither of these scientists intentionally
plagiarized, but the act was still committed.

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1.4. What Are the Causes of Unethical Behaviour in the Workplace?
What is an Unethical Behaviour?
The Civil Service Commission of Philippines defined an unethical behaviour as any behaviour
prohibited by law. In a dynamic business environment, a ―large gray area‖ exists that makes it
difficult and unclear to distinguish what is ethical. An unethical behaviour would therefore be
defined as one that is not morally honourable or one that is prohibited by the law. Much
behaviour will fall in the classification including corruption, mail and wire fraud, discrimination and
harassment, insider trading, conflicts of interest, and improper use of company assets, bribery and
kickbacks, compliance procedures, ethical relations with others, disciplinary action, fraud, illegal
business donations, patent infringement and product liability. Unethical behaviours that stimulated
interest in ethics include Watergate events, Lockheed Scandal, the 1972 United States presidential
election, illegal business donations and bribery of foreign officials in order to induce business
abroad. Today, the most common ones are false communication, collusion, conflicts of interest,
gifts and kickbacks, health services providers‘ unfair practices, insider trading, discrimination and
harassment, and embezzlement.

1.4.1. False Communications

False communications fall into various categories. They include falsification of auditor‘s or
controller‘s report or any form of manipulation that does not tell the whole truth. These include
cheating on tax returns or inappropriate depreciation schedule and wrong expenses. Feeding the
public with wrong report of the organization‘s business performance to make the organization look
good is another common practice. In 2001, Enron gave wrong information about their loss because
Ken Lay, the CEO of Enron, was advised by some trusted Enron executives to report only $1.2
billion of the $7 billion in losses because it was felt that the amount could be explained reasonably
without doing more damage to the falling stock price of the company (Collins, 2007, 3). Similar
to this was the case of Manville Corporation. The top management of the Corporation
suppressed, for decades, evidence which proved that asbestos inhalation was killing their
employees.

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1.4.2. Collusion
Collusion, especially with competitors, to fix prices, is an unfair business practice today. This
could be considered stealing from customers. However, there are differences of opinion on
whether or not price fixing is stealing from customers.
1.4.3. Gifts and Kickbacks
Some organizations do not allow their employees to receive gifts from clients during normal course
of business. Those who do, generally provide guide lines on limitations as to the amount an
employee can receive as gift. Sometimes a buyer may request for kickbacks or entertainment
which, if not provided, may lead to the loss of the customer. An employee frequently receives
pressure from the management to behave unethically or to obtain profitable business at any cost,
which may include the use of any possible dirty tricks. The employees who desire to be retained or
promoted have no choice but to dance to the tune of the management. This is because there were
cases of those who refused to behave unethically the way management instructed and were fired or
nearly fired .

1.4.4. Conflict of Interest

Conflict of interest occurs when ones private interest interferes or appears to interfere in any way
with the interest of the organization. According to Sliglitz, it can be argued that there is no
conflict of interest because, based on Adam Smith‘s view, the individuals, when pursuing their
own self- interest are actually pursuing the general interest of society (Sliglitz, 2003, 2). Some
examples of conflicts of interest are:

- diverting from the organization for personal benefit, a business opportunity,

- using the organization‘s assets for personal benefit,

- accepting any valuable thing from the organization‘s customers or suppliers, and

- having a financial interest in an organization‘s competitor.

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 1.4.5. Unethical practices in the Health Care Sector

There are three common unethical practices in the Health Care Sector. The first is refusing to
provide health care services to the patients who have no medical insurance. Some Health Centres do
not admit patients who have no insurance unless they can provide evidence that they have the ability
to pay for the health service. The second unethical practice in the health care sector is over treating
patients to boost income. The third is doing surgery at surgical centres instead of the hospital so
that the doctors do not have to ―pull call at any hospital‖

1.4.6. Insider Trading

Insider trading is an unethical behaviour which occurs when a person who has access to
confidential information uses or shares the information for securities trading purposes or any other
purpose except the conduct of regular company business. The confidential information of the
company is not to be used for achieving personal gain neither is they to be disseminated
Directly or indirectly, to friends, family members and other outsiders who may in turn trade on or
misuse the information.

1.4.7. Discrimination and Harassment

Discrimination involves not providing equal opportunity in employment on merit but on other
basis such as race, sex, national origin, age, religion, or any other basis not related to the job.
Harassment is a derogatory comment or unwelcome sexual advances .

1.4.8. Wrong Doing

A large number of people, including top management, are involved in wrong doing both in the
public and in the private sectors. These wrong doings include theft and fraud in public property
and transactions.
1.5.Why People Behave Unethically
Dedicated employees, who are usually honest, sometimes behave unethically because of four
rationalizations: that no one will ever find out, that the behaviour is not really illegal, that it is in the
best interest of the organization, and that the organization will protect them. Although the costs of
unethical behaviour are hard to measure, they can add, according to research, more than 20% to the
cost of doing business. The costs will include low wages, unemployment, and poverty. If top
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management wants to improve organizational performance, they must stand firm that ethical
methods are the only ways business should be done.

1.5.1. Causes of Unethical Behaviours

The study that was commissioned by American Management Association (AMA) and which was
conducted by the Human Resource Institute (HRI) using 1121 managers and Human Resource
experts as participants, revealed that the leading cause of unethical corporate behaviour is
―pressure to meet unrealistic business objectives and deadlines.‖ The study also showed that
the second leading factor that causes unethical behaviour is the desire to further one‘s career while
the third leading factor is the desire to protect one‘s .

Job pressure, according to the study, causes employees to engage in unethical behaviours that
include cutting corners on quality control, covering up incidents and lying to customers. Ignorance is
another major cause of unethical behaviours. Ignorance that the acts are unethical and not knowing
the seriousness of the consequences when caught are causes of unethical behaviours.
Competition for scarce resources, power or position can cause individuals to e n g a g e in unethical
behaviours. An attempt to improve their corporate competitive positions made managers to take
immoral actions. The cause of the unethical behaviours in organizations is the presence of a
―few bad apples‖ among organizational actors. The primary cause of unethical behaviours can be
traced to lack of maintaining the type of consistent leadership that is necessary for running an ethical
organization. This exposes the employees to opportunities that make them engage in unethical
behaviours.

Recommendations

There are three ethical responses to unethical behaviours: exit, voice and loyalty. With respect to
―exit it is recommended that if one cannot live with the behaviour, or the behaviour does not meet
one‘s ethical standards, one should leave. The second response, ―voice, is to express discomfort with
and opposition to the unethical behaviour. The third response, ―loyalty, supports the idea of remaining
in the organization and trying to change it instead of leaving.

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 In order to restore and maintain a culture that upholds honest and ethical behaviours, the
organizational leaders must verbally promote ethical environment and relentlessly ―walk the
talk,‖ by making ethical behaviour part of the organization‘s agenda. They need to establish
codes of business conduct to guide employees’ behaviours. There should be the establishment of
annual business ethics training for the employees and a good whistle blowing mechanism. Since
job pressure was identified as major cause of unethical behaviour, in order to reduce the pressure,
communications and commitment by top management are recommended.

Conclusion

Today, there is a tremendous loss of confidence in corporate conduct and there is an urgent need to
work towards restoring it. Although ethics education seem to produce limited evidence of changing
behaviours, the commitment of management to monitor annual ethics education for all employees
will produce the desired favourable results. There should be clear communication to the employees
of what are honourable and expected behaviours in the organization. They must maintain and stand
firm on a clear cut policy that ethical methods are the only way of doing business.

People act unethically for a number of reasons. Unethical behaviour is defined as behaviour that
contravenes rules designed to maintain the fairness and morality of a situation. An example of
unethical behaviour is a representative of a company taking kickbacks from a salesman for
preferential treatment. Behaviour like this is motivated by various things.

Self-check
What are the factors that cause unethical behaviour in a given business organization?

1.5.2. Kinds of Unethical Behaviour in

Business Theft
Theft at work comes in a variety of forms, and oftentimes employees do not view it as unethical
behaviour, believing no one gets hurt by the action. Employees take home office supplies, use business
computers for personal tasks, pad expense accounts and abuse sick time or allotted personal days.
Unethical behaviour also includes having another employee punch a time card, or not punching out
for lunch hours or other non-approved time off. Though these may seem like minor infractions, they
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eventually have an impact on the bottom line of the company, which then hurts all employees. Theft
also affects employee morale and is disheartening to those who choose to behave ethically.

Vendor Relationships

Businesses that buy from and sell products to other businesses are sometimes subject to unethical
behaviour. The practice of accepting gifts from a vendor in exchange for increased purchasing is not
only unethical, it may have legal repercussions. The same can be said for offering customer
kickbacks to increase his purchasing habits. Ethics policies often contain guidelines for giving or
accepting gifts with vendors or other business associates, such as a cap on the value of the gift.
Other businesses strictly forbid giving gifts or any other item with monetary value. This is a
safeguard to prevent any perception of unethical behaviour.

Bending the Rules

Bending the rules in a business situation is often the result of a psychological stimulus. If an
employee is asked to perform an unethical task by a supervisor or manager, he may do it because his
allegiance to authority is greater than his need to abide by the rules. Turning the other way to avoid
trouble for another employee is still unethical, even though the motivation may be empathetic. For
example, knowing that a co-worker is having issues outside work justifies watching him leave early
each day without reporting it. Withholding information that can change an outcome also falls under
the umbrella of unethical behaviour, even if the perpetrator believes he is doing what is in the best
interest of the business. For example, if a poor earnings report is withheld until after a stockholder
meeting.

Environmental issues

Unethical behaviour by companies, such as releasing pollutants into the air, can affect cities, towns,
waterways and masses of people. Though accidents can occur, the release of harmful toxins into the
environment due to lax safety standards, improper maintenance of equipment or other preventable
reasons is unethical. If a business willingly continues production of a product knowing inherent
environmental risks exist, it can certainly be categorized as unethical behaviour.
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Wages and Working Conditions

Other unethical practices include not paying workers a fair wage, employing children under the legal
working age and unsafe or unsanitary working conditions. Any practices that are not in compliance
with fair labour standards and federal working guidelines fall into this category.

1.6.Work ethics

Work ethic is a value based on hard work and diligence. It is also a belief in the moral benefit of work
and its ability to enhance character.
Workers exhibiting a good work ethic in theory would be selected for better positions, more
responsibility and ultimately promotion. Workers who fail to exhibit a good work ethic may be
regarded as failing to provide fair value for the wage the employer is paying them and should not be
promoted or placed in positions of greater responsibility.

Five Characteristics of a Good Work Ethics

Reliability
Reliability goes hand in hand with a good work ethic. If individuals with a good work ethic say they
are going to attend a work function or arrive at a certain time, they do, as they value punctuality.
Individuals with a strong work ethic often want to appear dependable, showing their employers that
they are workers to whom they can turn. Because of this, they put effort into portraying -- and
proving -- this dependability by being reliable and performing consistently.

Dedication

Those with a good work ethic are dedicated to their jobs and will do anything they can to ensure that
they perform well. Often this dedication leads them to change jobs less frequently, as they become
committed to the positions in which they work and are not eager to abandon these posts. They also
often put in extra hours beyond what is expected, making it easy for their employers to see that they
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 are workers who go beyond the rest of the workforce and truly dedicate themselves to their
positions.

Productivity

Because they work at a consistently fast pace, individuals with a good work ethic are often highly
productive. They commonly get large amounts of work done more quickly than others who lack
their work ethic, as they don't quit until they've completed the tasks with which they were presented.
This high level of productivity is also due, at least in part, to the fact that these individuals want to
appear to be strong workers. The more productive they are, the more beneficial to the company they
appear to those managing them.

Cooperation

Cooperative work can be highly beneficial in the business environment, something that individuals
with a strong work ethic know well. Because they recognize the usefulness of cooperative practices -
- such as teamwork -- they often put an extensive amount of effort into working well with others.
These individuals commonly respect their bosses enough to work with any individuals with whom
they are paired in a productive and polite manner, even if they do not enjoy working with the
individuals in question.

Character

Those with a good work ethic often also possess generally strong character. This means they are self-
disciplined, pushing themselves to complete work tasks instead of requiring others to intervene. They
are also often very honest and trustworthy, as they view these traits as befitting the high- quality
employees they seek to become. To demonstrate their strong character, these workers embody these
positive traits daily, likely distinguishing themselves from the rest.

1.7.Code of conduct

Code of conduct or what is popularly known as Code of Business Conduct contains standards of
business conduct that must guide actions of the Board and senior management of the Company.
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The Code may include the following:

▪ Company Values.

▪ Avoidance of conflict of interest.

▪ Accurate and timely disclosure in reports and documents that the company files
before Government agencies, as well as in Company's other communications.
▪ Compliance of applicable laws, rules and regulations including Insider
Trading Regulations.
▪ Maintaining confidentiality of Company affairs.

▪ Non-competition with Company and maintaining fair dealings

with the Company.
▪ Standards of business conduct for Company's customers, communities,
suppliers, shareholders, competitors, employees.

• Prohibition of Directors and senior management from taking corporate

opportunities for themselves or their families.

▪ Review of the adequacy of the Code annually by the Board.

▪ No authority of waiver of the Code for anyone should be given.

The Code of Conduct for each Company summarises its philosophy of doing business.

Although the exact details of this code are a matter of discretion, the following principles have been
found to occur in most of the companies:

— Use of company's assets;

— Avoidance of actions involving conflict of interest;

— Avoidance of compromising on commercial relationship;

— Avoidance of unlawful agreements;

— Avoidance of offering or receiving monetary or other inducements;

— Maintenance of confidentiality;

— Collection of information from legitimate sources only.

— Safety at workplace

— Maintaining and Managing Records

19
 — Free and Fair competition

— Disciplinary actions

To create a code of ethics, an organization must define its most important guiding values,
formulate behavioural standards to illustrate the application of those values to the roles and
responsibilities of the persons affected, review the existing procedures for guidance and
direction as to how those values and standards are typically applied, and establish the
systems and processes to ensure that the code is implemented and effective. Codes of ethics are
not easily created from boilerplate. Ideally, the development of a code will be a process in which
Boards and senior management actively debate and decide core values, roles, responsibilities,
expectations, and behavioural standards.

Model Code of Business Conduct & Ethics

Commitment to ethical professional conduct is a MUST for every employee of the company in all
of its businesses/units/subsidiaries. This code, consisting of imperatives formulated as statements of
personal responsibility, identifies the elements of such a commitment. It contains many, but not all
issues, employees are likely to face.

The code is intended to serve as a basis for ethical decision- making in the conduct of professional
work. It may also serve as a basis for judging the merit of a formal complaint pertaining to
violation of professional ethical standards.

It is understood that some words and phrases in a code of ethics and conduct document are
subject to varying interpretations and that any ethical principle may conflict with other ethical
principles in specific situations. Questions related to ethical conflicts can best be answered by
thoughtful consideration of fundamental principles rather than reliance on detailed regulations.
In case of conflict, the decision of the Board shall be final.

Applicability

This code is applicable to the Board Members and all employees in and above Officers level
(hereinafter collectively referred to as "Employee(s)").
All employees must read and understand this code and ensure to abide by it in their day-to-day
activities.

20
General Moral Imperatives

Contribute to society and human well being

This principle concerning the quality of life of all people, affirms an obligation to protect
fundamental human rights and to respect the diversity of all cultures. We must attempt to ensure
that the products of our efforts will be used in socially responsible ways, will meet social needs and
will avoid harmful effects to health and welfare of others. In addition to a safe social environment,
human well-being includes a safe natural environment. Therefore, all of us who are accountable
for the design, development, manufacture and promotion of company's products, must be alert
to, and make others aware of, any potential damage to the local or global environment.
Avoid harm to others
"Harm" means injury or negative consequences, such as loss of property, property damage or
unwanted health and environmental impacts. This principle prohibits use of men, material and
technology in ways that result in harm to our consumers, employees and the general public. Well-
intended actions, including those that accomplish assigned duties, may lead to harm unexpectedly.
In such an event, the responsible person or persons are obligated to undo or mitigate the
negative consequences as much as possible.

Be honest and trustworthy

Honesty is an essential component of trust. Without trust an organization cannot function
effectively. All of us are expected not to make deliberately false or deceptive claims about our
products/systems, but instead provide full disclosure of all pertinent limitations and problems.

Be fair and take action not to discriminate

The values of equality, tolerance, respect for others, and the principles of equal justice
govern this imperative. Discrimination on the basis of race, sex, religion, age, disability, national
origin, or other such factors is an explicit violation of this code.
Practice integrity in our inter-personal relationships
In our relationships with colleagues, we should treat them with respect and in good faith. In the same
way we ourselves would expect them to treat us. The principle to be adopted to guard against
loose talk or in its worst form-character assassination is not to say anything behind one's back
and never utter something, which cannot be put in writing.

21
Honour confidentiality
The principle of honesty extends to issues of confidentiality of information. The ethical concern is
to respect all obligations of confidentiality to all stakeholders unless discharged from such
obligations by requirements of the law or other principles of this code.We therefore, will maintain
the confidentiality of all material non-public information about company's business and affairs.

Professional Responsibilities

❖ Live the Company's Values-each day.

We must live the Company's Values-each day. For quick reference our core values are:
❖ Ownership

This is our company. We accept personal responsibility and accountability to meet

business needs.
❖ Passion for winning

We all are leaders in our area of responsibility with a deep commitment to deliver results.
We are determined to be the best at doing what matters most.
❖ Passion development
People are our most important asset. We add value through result driven training and we
encourage & reward excellence.

❖ Consumer focus

We have superior understanding of consumer needs and develop products to

fulfil them better.

❖ Teamwork

We work together on the principle of mutual trust and transparency in a boundary less
organization. We are intellectually honest in advocating proposa ls, including recognizing
risks.
❖ Innovation

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 Continuous innovation in products and process is the basis of our success.

Integrity
We are committed to the achievement of business success with integrity. We are honest with
consumers, business partners and each other.

Strive to achieve the highest quality, effectiveness and dignity in both the processes and products
of professional work

Excellence is perhaps the most important obligation of a professional. We must strive to achieve the
highest quality, effectiveness and dignity in all that we are responsible for each day.

Acquire and maintain professional competence

Excellence depends on individuals who take responsibility for acquiring and maintaining
professional competence. We must participate in setting standards for appropriate levels of
competence, and strive to achieve those standards.

Know and respect existing laws

We must obey existing local, state, national, and international laws unless there is a compelling
ethical basis not to do so. We should also obey the policies, procedures, rules and regulations of the
company. Violation of a law or regulation may be ethical when that law or rule has inadequate
moral basis or when it conflicts with another law judged to be more important. If one decides to
violate a law or rule because it is viewed as unethical, or for any other reason, one must fully
accept responsibility for one's actions and for the consequences.

Accept and provide appropriate professional review

Quality professional work depends on professional reviewing and critiquing. Whenever appropriate,
individual members should seek and utilize peer review as well as provide critical review of the
work of theirs.

Manage personnel and resources to enhance the equality of working life

Organizational leaders are responsible for ensuring that a conductive environment is created
for fellow employees to enable them delivering their best. We all, therefore, are responsible for

23
ensuring human dignity of all our colleagues, ensuring their personal and professional development
and enhancing the quality of working life.

Deal with the Media tactfully

We should guard against being misquoted and finding ourselves compromised. Our role as
individuals is always to be tactful and to avoid comment and to pass enquiries to those who are
authorized to respond to them.

Be upright and avoid any inducements

Neither directly nor through family and other connections indirectly, should we solic it any
personal fee, commission or other form of remuneration arising out of transactions involving
Company. This includes gifts or other benefits of significant value, which might be extended at
times, to influence business-especially during bulk purchase of commodities for the organization
or awarding a contract to an agency etc. We are likely to be offered various gifts by
vendors/parties/agencies and people associated with Company under different wraps or generally
on personal celebrations or functions or religious festivals etc.

Our flow of communication is not rigid and people are free to express themselves at all levels.
However, this informality should not be misunderstood. What it means is that though there is a free
exchange of opinions in the process of arriving at a decision, but after the debate is over and a policy
consensus has been established, all are expected to adhere and abide by it, even when in certain
instances we may not agree with it individually. In some cases policies act as a guide to action, in
others they are designed to put a constraint on action. We all must learn to recognise the difference
and appreciate why we need to observe them.

Conduct ourselves in a manner that reflects credit to the Company

All of us are expected to conduct ourselves, both on and off-duty, in a manner that reflects
credit to the company. The sum total of our personal attitude and behaviour has a bearing on the
standing of Company and the way in which it is perceived within the organization and by the public
at large.

24
 Be accountable to our stakeholders

All of those whom we serve, be it our customers, without whom we will not be in business, our
shareholders, who have an important stake in our business and the employees, who have a vested
interest in making it all happen- are our stakeholders. And we must keep in mind at all t imes
that we are accountable to our stakeholders.

"Inside information" gained from the Company or otherwise must not be used for personal
gains. We undertake to comply with the Company's Code of Conduct for Prevention of Insider
Trading.

Identify, mitigate and manage business risks

It is our responsibility to follow our institutionalized Company's Risk Management Framework to

identify the business risks that surround our function or area of operation and to assist in the
company-wide process of managing such r isks, so that Company may achieve its wider
business objectives. All of us should continuously ask ourselves "What can go wrong and what am
I doing to prevent it from going wrong."

Protect Company's properties

We all are perceived as Trustees of Company's properties, funds and other assets. We owe fiduciary
duty to each stakeholder, as their agent, for protecting the Company's assets. We, therefore, must
safeguard and protect the Company's assets against any misappropriation, loss, damage, theft, etc.
by putting in place proper internal control systems and procedures and effectively insuring the same
against any probable fire, burglary, fidelity and any other risk.

Compliance with the Code

As employees of Company, we will upheld and promote the principles of this code

The future of the organization depends on both technical and ethical excellence. Not only is it
important for employees to adhere to the principles expressed in this Code, each employee should
encourage and support adherence by other employees.

Treat violations of this code as inconsistent association with the organization

Adherence of professionals to a code of ethics is largely a voluntary matter. However, if any of

25
us do not follow this code by engaging in process misconduct, the matter would be reviewed by
the Board and its decision shall be fina l. The Company reserves the right to take appropriate
action against the guilty employee.
Miscellaneous

Continual updation of code

This code is subject to continuous review and updation in line with any changes in law,
changes in company's philosophy, vision, business plans or otherwise as may be deemed necessary
by the board.
Credo

Most Companies skip the important part of developing the company's credo. A good credo
gives the company a reason to exist; it develops the spirit of employees motivating them at all
times. It is a statement of common values that allows employees to understand the importance of
the stakeholders and services provided. It is the force which makes them work together to achieve a
consistent high standard.

Sam Walton, founder of Wal-Mart, established the "Three Basic Beliefs" as his company's credo.
These are:

− Respect for the Individual

− Service to our Customers

− Strive for Excellence

Johnson & Johnson

The overarching philosophy that guides business in Johnson & Johnson is their Credo termed
as 'Our Credo', a deeply held set of values that has served as the strategic and moral compass for
generations of Johnson & Johnson leaders and employees.

The Credo challenges Johnson & Johnson to put the needs and well- being of the people we serve
first. It also speaks to the responsibilities it has to its employees, to the communities in which the
company lives and works and the world community, and to its shareholders. Johnson and Johnson
believes that its Credo is a blueprint for long-term growth and sustainability that's as relevant today as
when it was written.

26
SAIL

Credo of SAIL talks about stakeholder respect, and ethical practices to be followed in the company:

We build lasting relationships with customers based on trust and mutual benefit. We up hold
highest ethical standards in conduct of our business.

We create and nurture a culture that supports flexibility, learning and is proactive to
change.

We chart a challenging career for employees with opportunities for advancement and
rewards.

We value the opportunity and responsibility to make a meaningful difference in

people's lives.

Mr. X sends a report of the training as soon as he returns. His reporting officer summons him and
asks him where he was during the training. At first, Mr. X reacts in a defensive manner that he was at
the training. The reporting officer then tells him that the organization in order to extend the training
to other employees had got in touch with the programme organizers requesting them for a one to one
meeting with Mr. X already present and were informed of the absence. When confronted with this,
Mr. X had to admit that he had not attended the training programme.

Ethics in Marketing

Marketing ethics is the area of applied ethics which deals with the moral principles behind the
operation and regulation of marketing. The issue of marketing ethics is not limited to the kind of
products alone. It also deals with how such products are delivered to the customers. The ethical
issues confronted in this area include:

— Pricing: price fixing, price discrimination, price skimming.

— Anti- competitive practices like manipulation of supply, exclusive dealing

arrangements, tying arrangements etc.
— Misleading advertisements.

— Contents of advertisements.

— Use of decision

27
 — Children and marketing.

— Surrogate advertising: Many liquor firms carry advertisements of products like apple
juice, soda water etc.
— Black markets, grey markets.

Ethics in Production

This area of business ethics deals with the duties of a company to ensure that products and
production processes do not cause harm. Some of the more acute dilemmas in this area arise out of
the fact that there is usually a degree of danger in any product or production process and it is
difficult to define a degree of permissibility, or the degree of permissibility may depend on the
changing state of preventative technologies or changing social perceptions of acceptable risk.

— Defective, addictive and inherently dangerous products and

—Ethical relations between the company and the environment include pollution, environmental
ethics, carbon emissions trading — Ethical problems arising out of new technologies for eg.
Genetically modified food — Product testing ethics.

The most systematic approach to fostering ethical behaviour is to build corporate cultures that link
ethical standards and business practices.

More and more companies recognize the link between business ethics and financial performance.
Companies displaying a "clear commitment to ethical conduct" consistently outperform companies
that do not display ethical conduct.

1.8.Public Good:

1. Attracting and retaining talent

People aspire to join organizations that have high ethical values. Companies are able to attract
the best talent and an ethical company that is dedicated to taking care of its employees will be
rewarded with employees being equally dedicated in taking care of the organization. The ethical
climate matter to the employees. Ethical organizations create an environment that is trustworthy,
making employees willing to rely, take decisions and act on the decisions and actions of the co-
employees. In such a work environment, employees can expect to be treated with respect and

28
 consideration for their colleagues and superiors. It cultivates strong teamwork and productivity and
support employee growth. Retaining talented people is as big a challenge as getting them in the first
place. Work is a means to an end for them, not an end in itself. The relationship they have with their
employer must be a mutual, win- win one, in which their loyalty should not be taken for granted.
Talented people will invest their energy and talent only in organizations with values and beliefs that
match their own. In order to achieve this match, managers need to build cultures, compensation and
benefits packages, and career paths that reflect and foster certain shared values and beliefs.
2. Investor Loyalty

Investors are concerned about ethics, social responsibility and reputation of the company in which
they invest. Investors are becoming more and more aware that an ethical climate provides a
foundation for efficiency, productivity and profits. Relationship with any stakeholder,
including investors, based on dependability, trust and commitment results in sustained loyalty.
3. Customer satisfaction

Customer satisfaction is a vita l factor in successful business strategy. Repeat

purchases/orders and enduring relationship of mutual respect is essential for the success of the
company. The name of a company should evoke trust and respect among customers for enduring
success. This is achieved by a company that adopts ethical practices. When a company because of
its belief in high ethics is perceived as such, any crisis or mishaps along the way is tolerated by
the customers as a minor aberration. Such companies are also guided by their ethics to survive a
critical s ituatio n. Preferred values are identified ensuring that organizational behaviours are
aligned with those values. An organization with a strong ethical enviro nment places its customers'
interests as foremost. Ethical conduct towards customers builds a strong competitive position. It
promotes a strong public image.
4. Regulators
Business should act ethically not only to benefit itse lf and its reputation but also all
the key stakeholders.
Regulators eye companies functioning ethically as responsible citizens. The regulator need not
always monitor the functioning of the ethically sound company. The company earns profits and
reputational gains if it acts within the confines of business ethics.

To summarize, companies that are responsive to employees' needs have lower turnover in staff.

— Shareholders invest their money into a company and expect a certain level of return
29
 from that money in the form of dividends and/or capital growth.
— Customers pay for goods, give their loyalty and enhance a company's reputation in return for
goods or services that meet their needs.
— Employees provide their time, skills and energy in return for salary, bonus, career progression
and learning.
CONCLUSION
In making ethics work in an organization it is important that there is synergy between vision
statement, mission statement, core values, general business principles and code of ethics. A
commitment by corporate management to follow an ethical code of conduct confers a variety of
benefits. An effective ethics program requires continual reinforcement of strong values.
Organizations are challenged with how to make its employees live and imbibe the organization
codes and values. To ensure the right ethical climate, a right combination of spirit and structure is
required.

Corporate Ethics is much needed to stress the importance of sustainability, social development,
stakeholders, consumer satisfaction and service orientation in place of profit orientation. Ethics
point out what is good and what is bad, so also what is right or wrong. It brings to the notice of the
business community the importance of honesty, sincerity and fairness which makes them alert and
socially conscious. This also expedites a better relation between business and the society. It
reconciles conflicting interest of various sections of the society such as workers, shareholders,
consumers, distributors, suppliers, competitors and government.

Self-check Question: What are the attributes of public good? Explain

30
 Review Questions

1. Define ethics.

2.Define business ethics.

3.Mention the various objects of ethics.

4.Explain the nature of ethics.

5.How ethics and law are related?

6.Explain ethical code.

7.Explain any two ethical problems that you have faced in your life.

31
 CHAPTER TWO
ETHICS THEORY AND BEYOND

Learning Objectives
After reading this chapter, students will be able to:
• Explain management of ethics.
• Explain the models of ethics
• Explain the nature of ethics in management
• Explain the role of ethics

Activity 2.1
What do you think the role of ethics in business? Explain.

2.1. Management of Ethics

Organizational ethics is the ethics of an organization, and it is how an organization responds to an
internal or external stimulus. Organizational ethics is interdependent with the organizational culture.
Although, it is akin to both organizational behaviour (OB) and industrial and organizational
psychology as well as business ethics on the micro and macro levels, organizational ethics is neither
OB or I/O psychology, nor is it solely business ethics (which includes corporate governance and
corporate ethics). Organizational ethics express the values of an organization to its employees and/or
other entities irrespective of governmental and/or regulatory laws.

The Foreign Corrupt Practices Act (FCPA) restricts the United States business firms from engaging
in bribery and other illegal practices internationally. There are laws that have the same type of
prohibition for European companies which create a disadvantage competitively for both European
and U.S. firms. Such laws are not a restricting element to organizations that have highly elevated
ethical behaviour as part of their values. Organizations that lack ethical practices as a mandatory
basis of their business structure and corporate culture, have commonly been found to fail due to the
absence of business ethics. Corporate downfalls would include, but are not limited to, the recent
Enron and WorldCom scandals, are two primary examples of unethical business practices
concerning questionable accounting transactions.

Employees, the community, and corresponding industries. Ethical business practices of organizations
has resulted in a solid financial bottom- line. This has been seen through greater sales and increased
revenue by companies retaining talented personnel and attracting newly skilled employees. More
importantly, an ethical organization will have the ability to retain employees that are experienced and
knowledgeable (generally referred to as human capital). This human capital results in less employee
turnover, less training time for new employees, and greater output regarding services (or production
of goods).

Ethics Analysis (Hosmer Model)

Manager's Decision Checklist
What are the best economic alternatives?
1. What are the legal alternatives?
2. Does a given decision result in greater benefits than damages for society as a whole, not just
for our organization as part of that society?
3. Is the decision self-serving, or would we be willing to have everyone else take the same action
when faced with the same circumstances?
4. We understand the need for social cooperation; will our decision increase or decrease the
willingness of others to contribute?
5. We recognize the importance of personal freedom; will our decision increase or decrease the
liberty of others to act?
6. Lastly, we know that the universe is large and infinite, while we are small and our lives are
short; is our personal improvement that important, measured against the immensity of that other
scale?

2.2. The Nature of Ethics in Management

"Right" and "proper" and "fair" are ethical terms. They express a judgment about our behaviour
towards other people that is felt to be just. We believe that there are right and wrong ways to behave
towards others, proper and improper actions, fair and unfair decisions. These beliefs are our moral
standards of behaviour. They reflect our sense of obligation to other people, our sense that it is better
to help rather than to harm other people.
Moral problems are truly managerial dilemmas. They represent a conflict between an organization's
economic performance (measured by revenues, costs and profits) and its social performance (stated
in terms of obligations to persons both within and outside the organization).
Characteristics of Moral Problems in Management
 1. Most ethical decisions have extended consequences.
2. Most ethical decisions have multiple alternatives.
3. Most ethical decisions have mixed outcomes.
4. Most ethical decisions have uncertain consequences.
5. Most ethical decisions have personal implications.

Analysis of Ethical Problems in Management Economic Analysis (Pareto optimality)

Ethics are not relevant in business, beyond the normal standards not to lie, cheat, or steal. All that is
necessary is to maintain price-competitive markets and recognize the full costs of production in
those prices, and then the market system will ensure that scarce resources are used to optimally
satisfy consumer needs. A firm that is optimally satisfying consumer needs, to the limit of the
available resources, is operating most efficiently and most profitably. Consequently, business
managers should act to maximize profits, while following legal requirements of no conclusion and
equal opportunity and adhering to personal standards of truthfulness and honesty. Profit
Maximization leads automatically from the satisfaction of individual consumer wants to the
generation of maximum social benefits. Profit maximization is the only moral standard needed for
management.
If we look at microeconomic theory as an ethical system of belief, explaining our responsibility to
others within the company and within the society - to employees, customers, suppliers, distributors,
and residents of the local area - then is simply falls apart because of the unlikely assumptions about
human nature and human worth.
Legal Analysis
The law can be defined as a consistent set of universal rules that are widely published, generally
accepted, and usually enforced. These rules describe the ways in which people are required to act in
their relationships with others within a society. They are requirements to act in a given way, not just
expectations or suggestions or petitions to act in that way. The law is a guide to managerial decisions
and actions, but it is not enough. And certainly, the absence of a law is not enough to excuse some of
those decisions and actions.
Ethical Analysis
Philosophic analysis, based on rational thought processes. The view is that a manager should always
act in accordance with either a single principle of behaviour or a single statement of belief that is
"right" and "proper" and "just" in and by itself. This is "moral reasoning": logically working from a
first principle through to a decision on the duties we owe to others.
Philosophy is the study of thought and conduct. Normative philosophy is the study of proper thought
and conduct; that is, how we should behave.
Morality refers to the standards of behaviour by which people are judged, and particularly to the
standards of behaviour by which people are judged in their relationships with others. Ethics, on the
other hand, encompasses the system of beliefs that supports a particular view of morality. The
difference between morality and ethics is easy to remember if one speaks of moral standards of
behaviour and ethical systems of belief.
Ethical Relativism - Are there objective universal principles upon which one can construct an
ethical system of belief that is applicable to all groups in all cultures at all times? Fortunately there is
one principle that does seem to exist across all groups, cultures, and times and that does form part of
every ethical system; that is the belief that members of a group do bear some form of responsibility
for the well-being of other members of that group.

Five Major Systems with Relevance to Managerial Decisions

Managers should use all five systems to think through the consequences of our actions on multiple
dimensions.
Eternal Law - Moral standards are given in an Eternal Law, which is revealed in Scripture or
apparent in nature and then interpreted by religious leaders or humanist philosophers; the belief is that
everyone should act in accordance with the interpretation.
Utilitarianism: A Teleological Theory - Moral standards are applied to the outcome of an action or
decision; the principle is that everyone should act to generate the greatest benefits for the largest
number of people. Differs from the economic concept of cost/benefit analysis in that the distribution
of the costs and benefits has to be included as well. (Utilitarianism fails because we can probably all
agree that there are some actions that are simply wrong, despite great apparent net benefits for a
huge majority.)
Universalism: A Deontological Theory - The reverse of teleological theory. Moral standards are
applied to the intent of an action or decision; the principle is that everyone should act to ensure that
similar decisions would be reached by others, given similar circumstances. (Immoral acts can be
justified by persons who are prone to self-deception or self- importance, and there is no scale to judge
between "wills".
 Distributive Justice - Moral standards are based upon the primacy of a single value, which is
justice. Everyone should act to ensure a more equitable distribution of benefits, for this promotes
individual self-respect, which is essential for social cooperation. (Dependent upon acceptance of the
proposition that an equitable distribution of benefits ensures social cooperation.)
Contributively Liberty - Moral standards are based upon the primacy of a single value, which is
liberty. Everyone should act to ensure greater freedom of choice, for this promotes market
exchange, which is essential for social productivity. (Dependent upon the acceptance of the
proposition that a market system of exchange ensures social productivity.)

ETHICAL DILEMMA

• Managers are responsible for upholding the ethical code and helping others to do so as outline
the role managers must play in implementing internal ethical standards and aligning the
organization with external standards
• Managers hold positions of authority that make them accountable for the ethical conduct of
those who report to them.
• Managers monitor the behaviour of employees in accordance with the organization's
expectations of appropriate behaviour, and they have a duty to respond quickly and appropriately to
minimize the impact of suspected ethical violations.
• Managers may be responsible for creating and/or implementing changes to the ethical codes
or guidelines of an organization.
• Managers may also be subject to a particular code of professional ethics, depending on their
position and training. Fiduciary duty is an example that applies to some managerial roles.

2.3. The Role of Ethics

Morality and ethics

Morality refers to the social norms and values that guide both individuals and their interaction with
their fellow human beings and communities, and with their environment. In all of these types of
interaction there are important values at stake; rules and norms that are to protect these values; duties
implied in social roles and positions that can foster these values and further these rules; and human
virtues or capabilities that enable us to act accordingly. These moral factors are usually interwoven
with religious practices and social power structures.
Ethics is a systematic and critical analysis of morality, of the moral factors that guide human conduct
in a particular society or practice. As fisheries represent an interaction between humans and the
aquatic ecosystem, fisheries ethics deals with the values, rules, duties and virtues of relevance to
both human and ecosystem well-being, providing a critical normative analysis of the moral issues at
stake in that sector of human activities.

When actual moral values, rules and duties are subjected to ethical analysis, their relation to basic
human interests shared by people, regardless of their cultural setting, is particularly important. Moral
values may change, and moral reasoning asks whether the practices that are traditionally and
factually legitimated by religion, law or politics are indeed worthy of recognition. Indeed, the
development of ethics in the past century has been characterized by a tendency to revalue and
overthrow the moral conventions that have guided the interaction between the sexes, between human
beings and animals and between human beings and their environment. A more recent task of ethics
is to resist those tendencies of globalization, marketization and technologization that erode both
biodiversity and valuable aspects of cultural identity - and may even have effects that threaten
human rights. Although these tendencies are often presented as value-neutral, they carry with them
hidden assumptions that are potential sources of inequity and abuse.

Human interests
implies material well-being, as well as the conservation of a productive ecosystem, and relates to
fisheries as a provision of food and livelihood.
, or human self-determination, relates to access to fishing resources, fishers' self-control and other
life options related to fisheries. lates to the distribution of the benefits of fishing and to the
ownership of scarce resources.

In attempting to identify which traditional and innovative practices are worthy of recognition, a
moral argument asks whether - and how - actual moral factors further the well-being of human and
non-human creatures. Moral reasoning always relates to the basic interests of humans and other
sentient beings and to the value of the environment that sustains both human and non-human life.
An ethical analysis can play an important part in identifying human and nonhuman interests and the
value of the ecosystem as a whole. It also asks how these values and interests may be threatened or
undermined and how they may be furthered or protected. Ecosystem well-being is of crucial
importance both in itself and for basic human interests and long-term social benefits. In this
document, the main focus is on the way in which fishing policies and practices affect the living
conditions, interests and well-being of fishers and fishing communities, as well as the well-being of
the ecosystem. This is in keeping with sustainable development, the dominant concept of
environmental ethics, enshrined in the FAO concept of responsible fisheries.

Basic human interests

A major aspect of an ethical analysis of fisheries must be to clarify the human interests and social
benefits that can be considered necessary conditions for leading a decent human life. Basic human
interests are related to the main tasks that humans need to undertake in life in order to satisfy their
needs and lead their lives in coexistence with others. In line with classical ethical thought, these
interests can be divided into three main categories: (i) Welfare: People need basic goods to survive
and care for their offspring; (ii) Freedom: People seek to regulate their own affairs and realize their
life plans in accordance with their own or culturally defined values; (iii) Justice: People need to find
ways to share social benefits and burdens and facilitate peaceful coexistence.
In this context, moral analysis aims to show, for example, how the human interests in welfare,
freedom and justice are relevant and how they relate to social benefits in the management of
fisheries.
These basic interests are intricately connected to the capabilities necessary for leading a decent
human life and, thus, to the vulnerabilities against which people must be protected. They constitute
the moral values that moral reasoning aims to defend, e.g. by framing fundamental principles that
serve to guide our moral interaction and to protect basic moral interests.
At the most general level, the related vulnerabilities against which people must be protected are:
poverty, domination and injustice.

2.4. ETHICS IN PRACTICE:

Although different ethical theories may have different priority principles and reasoning behind them,
a consensus has been forming about the main principles of bioethics:[1]
• Human dignity, human rights and justice, which refers to the duty to promote universal respect
for the human person. In the context of fisheries, this principle relates, for example, to fishers' self-
determination, access to fishing resources and the right to food. It is best represented by a rights-
based approach in ethics that emphasizes the protection of the personal domain of each individual. It
may require, however, the establishment of individual or community rights, the exact nature of
which will depend on local conditions.
• Beneficence, which concerns human welfare, reducing the harms and optimizing the benefits of
social practices. In the context of fisheries, this principle needs to be observed when the effects of
policies and practices upon the livelihoods of fishing communities are evaluated. The principle
relates to working conditions (safety on board), as well as food quality and safety. The issue of
genetically modified organisms should also be addressed in this context (FAO, 2001b). This principle invites
an ethical approach to fisheries that puts consequences to general welfare in focus.
• Cultural diversity, pluralism and tolerance, which relates to the need to take different value
systems into account within the limits of other moral principles. The pressing moral issues in
fisheries take different shapes across different cultures, and it is an important moral demand that
people themselves define how their interests are best served in a particular cultural setting. This
principle squares well with dialogical ethics, which stresses the actual participation of those
concerned.
• Solidarity, equity and cooperation, which refers to the importance of collaborative action, sharing
scientific and other forms of knowledge, and non-discrimination. In the context of fisheries, this
principle underpins the moral imperative to eradicate poverty in developing countries and ensure
equity within fisheries and between sectors. It also requires transparent policies and stresses the need
to reduce the gap between producers and consumers. This principle is relevant at the level of policy
as well as at the individual level of virtues and professional duties to further trust and tolerance
among stakeholders.
• Responsibility for the biosphere, which concerns the interconnections of all life forms and the
protection of biodiversity. This principle stresses that ecosystem well-being is a sine qua non
condition of sustainable fisheries providing for the needs of future generations, as well as for the
lives of those who currently rely on the natural environment and are responsible for its use. This
principle combines ethical reasoning based on rights and on consequences for human welfare, as
well as on individual virtues and duties to respect the environment.

2.5. ETHICS FOR MANAGERS:

In a broad construction of the ethical role of the manager, managing and leading can be said to be
inherently ethics- laden tasks because every managerial decision affects either people or the natural
environment in some way—and those effects or impacts need to be taken into consideration as
decisions are made. A narrower construction of the ethical role of the manager is that managers
 should serve only the interests of the shareholder; that is, their sole ethical task is to meet the
fiduciary obligation to maximize shareholder wealth that is embedded in the law, predominantly
that of the United States, although this point of view is increasingly accepted in other parts of the
world. Even in this narrow view, however, although not always recognized explicitly, ethics are at the
core of management practice.

The ethical role of managers is broadened beyond fiduciary responsibility when consideration
is given to the multiple stakeholders who constitute the organization being managed and to nature, on
which human civilization depends for its survival. Business decisions affect both stakeholders and
nature; therefore, a logical conclusion is that those decisions have ethical content inherently and that
managerial decisions, behaviours, and actions are therefore inherently ethical in nature. Whenever
there are impacts due to a decision, behaviour, or action that a leader or manager makes, there are
ethical aspects to that decision or situation. While some skeptics claim that business ethics is an
oxymoron, the reality is that decisions and actions have consequences, and that reality implies some
degree of ethics, high or low. Thus, ethics and the managerial role cannot realistically be teased apart.

Ethical Leadership

The ethical role of managers, or what the business ethicist Linda Treviño and her colleagues call
ethical leadership, is a combination of being a moral person and being a moral manager. Being a moral person
rests on a combination of key traits such as integrity, honesty, and trustworthiness. Integrity involves not only
forthrightness and honesty or truthfulness but also consideration for the soundness of the whole entity that one
manages as well as of the society in which the organization is located. Integrity also means firm adherence to a
code, such as an ethical code of conduct. Thus, being a moral person suggests that the individual has integrity and
can be trusted.

In addition to these traits, being a moral person also involves behaviours such as doing the right thing,
concern for people, being open, and standards of personal integrity. The essence of ethics, of course,
is doing the right thing, especially under difficult circumstances, and that involves being able to reason
well about what the right thing to do actually is. To be able to reason well about a difficult ethical
situation, a person needs to be open to learning from multiple sources about the situation while taking
care not to harm people and actually attempting to treat people well in the decision- making process or
when decisions are being implemented. To be able to make good decisions ethically, an individual
needs to have thoughtfully developed his or her personal set of standards or values, a personal code of
conduct or integrity. Personal standards allow an individual to think through a decision with a clear
rationale in mind.

When decisions involving ethical considerations need to be made, Treviño and her colleagues
argue, the moral person sticks to her or his core values, tries to be objective and fair, exhibits
concern for society and the welfare of those in society, and follows ethical decision-making rules.
But being a moral person is not the only requirement for becoming a moral leader. Moral leadership
also includes being a moral manager, which involves recognition that the leader or manager serves as
a role model for others in all his or her duties. It also means providing rewards and discipline around
the ethical and unethical decisions made by others, so that a clear message is sent about what
behaviours are and are not acceptable in the organization or situation. In addition, moral management
means communicating openly, explicitly, and frequently about ethics and values.

One question that frequently arises in considering the ethics of management is whether individuals
can be considered moral leaders or managers in their work lives if they act unethically in their
personal lives or vice versa. Considering that an individual's character is reflected in all his or her
decisions and actions, such an inconsistency would reflect badly on the individual as a whole. The
branch of ethical theory called virtue ethics explores this relationship in depth.

2.6. ROLE & FUNCTIONS OF ETHICAL MANAGERS:

Managers in both large and small enterprises face difficult ethical situations daily as they attempt to
do their jobs. Since management decisions inherently involve ethical considerations, however, it is
important that managers recognize the ethical elements that are embedded in their day-to-day job
functions. They need to be able to reason through ethical decisions, just as they would reason through
any managerial problem facing them. Many times, ethics- laden situations involve issues that are
clearly right or wrong when judged by the manager's or organization's values or code of conduct.
Furthermore, most managerial decisions and actions are legal, although there are occasions when a
certain decision would clearly go beyond legal boundaries and be illegal. Assuming that the law itself
is just, these decisions are not really ethically problematic in that what to do to make an ethically
sound decision is quite clear. In these cases, making a decision to break the law or to do something
that disagrees with a code of conduct or set of values is clearly unethical. It is not difficult to know
what the right thing to do is in such situations.

Ethical decision- making problems arise for managers and leaders when decisions involve a moral
conflict—that is, a moral situation in which a person must choose between at least two equally bad
choices, or when there are multiple ethical considerations, some of which conflict with each other. In
such circumstances, which are common in business, the manager has to be able to think through the
consequences and ethical implications of the decision thoroughly and mindfully so that the best
possible decision can be made given the constraints, implications, and ethical considerations. If the
decision itself cannot be reframed as a situation in which all parties can benefit—that is, a win-win
situation—then the manager needs a decision-making framework to help.

To help managers think through ethical moral conflicts, the business ethicists Gerald Cavanagh and
his colleagues have developed a decision- making framework that relies on the ideas of philosophers
and ethicists and applies those ideas to business decisions. This approach combines four methods of
ethical reasoning rights and duties, utilitarianism, justice, and the ethics of care— into a framework
that helps managers and leaders step through a logical thinking process to sort out the ethical
dimensions of a difficult and inherently conflict situation.

Rights and Duties

Rights are justifiable claims or entitlements, frequently based on the law or other authoritative
documents, such as treaties and international declarations that allow people to pursue their own
interests. Rights can be viewed as the positive things that people are allowed to do, but they come
with an obverse side as well, in the form of duties or obligations that go along with the rights. For
example, in democracies, one right is the ability to vote. Along with that right comes the duty to
exercise that right by actually voting. In many countries, employees are granted certain rights, such
as the right to safe working conditions or a minimum wage, and employers have corresponding
duties to ensure that these conditions are met. These rights are based on laws and regulations. Other
rights are based on moral grounds and are frequently written into international treaties, such as the
United Nations Declaration of Human Rights and the Natural Environment. Such rights include
respect for human dignity, which enables communities, organizations, and societies to thrive. In
BA7402 BUSINESS ETHICS, CORPORATE SOCIAL
RESPONSIBILITY & GOVERNANCE
using Cavanagh's ethical decision- making framework to assess a moral conflict, one question that
needs to be asked involves rights and duties: Would this decision respect the rights and duties of the
individuals involved?

Utilitarianism

A second way of reasoning through a moral conflict involves using utilitarian analysis, or
assessment of the greatest good of the greatest number. This type of cost-benefit analysis is a very
common management approach, but as the framework suggests, it may not be a sufficient basis by
itself to make an ethical decision in a moral conflict. In a utilitarian analysis, the harms and benefits
of a decision to the different parties that would be affected by the decision are evaluated, with some
sort of weight given to the various harms and benefits that assesses their degree. Most utilitarian
analysis focuses on the good of the group or collective as a whole over that of any given individual,
unless the most serious harm is to the individual—for example, if the decision would be fatal to the
individual. Putting the collective, which can include an organization's interest, over that of the
individual avoids the problem of self- interest. A second question in the ethical decision- making
framework for managers, then, would be as follows: Who will be affected by the decision and to
what extent will the various parties affected by this decision be harmed or benefited?

Justice

Principles of justice are a third way for managers to reason about ethical decisions. Just decisions
require fairness, equity, and impartiality on the part of decision makers, particularly with respect to
the ultimate burdens and benefits that will accrue from the decision. The philosopher John Rawls has
discussed the justice criterion in terms of a concept of what he terms distributive justice, which
invites decision makers to make a decision behind a veil of ignorance that suggests that they do not
know where in the system they will be after the decision is made. This veil-of- ignorance
consideration forces managers to take into account the fairness of the decision to any party that will
be affected. Similarly, the philosopher Immanuel Kant suggests that justice can be taken into account
using the concept of ―categorical imperative; that is, one should only act a given way or make a
given decision if the decision maker can agree that it would be all right if any person in a similar
situation acted that way. Alternatively, one can think of the categorical imperative as asking the
35
SCE DEPARTMENT OF MANAGEMENT SCIENCES
decision maker whether this action or decision would be all right if it became a universal law. In
considering justice, then, decision makers have to ask How does this decision square with the canons
of justice?

Ethic of Care

In addition to assessing a moral conflict from the perspective discussed above, ethical managers and
leaders also need to look at the impact of a decision on the network of relationships that will be
affected. This perspective is called the ethic of care. Based on feminist writings, the ethic of care
proposes that one's moral responsibilities vary according to how closely one is linked to other people.
That is, if a person is very close to another person, say, a family member, there will be more moral
responsibility for ensuring the well-being of the family member than the well-being of an unrelated
person. In an organizational context, using an ethic of care, more consideration might be given to the
impact of a decision on long-term employees, who are more tightly connected to the organization and
its goals, than to its impact on newly hired employees.

2.7. COMPARATIVE ETHICAL BEHAVIOUR OF MANAGERS:

Managers, according to Gerald Cavanagh, can use a combination of ways of moral reasoning based
on rights, justice, utility, and care when they face a moral conflict and when these different ways of
reasoning conflict, as they often do. To decide effectively, managers need to take several factors into
consideration as they weigh decisions based on the principles of rights, justice, utility, or care. For
example, they can consider whether there are overriding factors in the decision. If a decision might
result in the death of a person made one way and the unemployment of a group of persons made
another way, then the overriding factor might be the life-death decision. There are, however, no clear
rules for making such decisions, and the judgment of the decision maker is needed to determine
which of the relevant factors should carry the most weight.

Another consideration is whether one criterion is more important in a particular situation than others.
For example, if the rights of a whole group of people are to be overrun by a decision, that factor might
override the fact that one or two individuals would not be treated fairly when the decision is made.
Similarly, a consideration might be whether there are incapacitating factors (such as force or
violence) that would come into play in making the decision—for instance, to stop a strike, which
might violate a person's right to strike but forestall the destruction and injury if the strike turned
violent. The decision can be considered ethical when there is no intent to make an unethical decision,
when a bad effect is simply a by-product, and when the good outcome is sufficiently good that it
outweighs the bad.

Other decision- making aids for managers include thinking about whether they would want their
decision made public—for example, to appear on the front page of a newspaper or on television. If
they are uncomfortable with such transparency, it would be well to apply an ethical analysis to the
decision. For managers operating in different countries around the world, it is useful to remember that
virtually every nation of the world has at its core some version of the Golden Rule: Do unto others as
you would have others do unto you. By keeping some of these principles in mind, managers can avoid
the problem of relativism in their decision making. Relativism suggests that a decision is all right if it
is apparently culturally acceptable, irrespective of the consequences or harms.

Moral Development

The ethical decision making framework for managers relies on reasoning using the principles of
rights, justice, utility, and care. It presupposes that managerial decision makers have the capacity to
reason from principles in making an ethical decision. Unfortunately, not everyone reasons from moral
principles in making ethical decisions. A good deal of research on individual development suggests
that people develop their cognitive reasoning skills over time and to different levels, generally termed
preconvention, conventional, and post conventional.

Research on moral reasoning in men by Lawrence Kohlberg and on women by Carol Gilligan
indicates that moral reasoning passes through similar stages, lagging behind cognitive development,
which must come first. At the preconvention stage of development, the rationale for ethical decision
making is rewards and punishments or self- interest. Most managers have passed beyond the
preconvention stage to the conventional stage of development. In the early stages of conventional
reasoning, individuals use their peer group as a reference
point for determining what is right and wrong. At the later stages of conventional reasoning,
individuals focus on the rules, regulations, and norms of society as bases for their ethical decisions.
Only at the post conventional stages of development, which only about 20% of adults reach, does
reasoning from principles emerge.

Reasoning from moral principles is a relatively high- level or post conventional skill. The fact that
only about 20% of adults reach the post conventional level of development highlights the need for
ethical leaders and managers who are able to reason not just from society's or their peer group's
norms but also from core principles such as those discussed above so that decisions can be made with
multiple stakeholders' needs and interests in mind. Some of the needed principles are laid out in
organizational or more generalized codes of conduct, which can also help managers in their decision-
making roles.

CODES OF ETHICS:

Most large corporations today have developed codes of conduct internally, which are intended to
provide guidance for managers confronting ethical situations and moral conflicts. Such codes of
conduct need to be supplemented by internal systems, such as reward and information systems,
promotion and hiring practices, recognition systems, and organizational culture and communication
systems, that support their implementation.

Strong top management commitment to and communication about values and ethical conduct is a
core element of ethical leadership from the top of the organization. Ethical leadership is essential to
managers and employees at all levels of the enterprise when they are faced with difficult ethical
decisions and moral conflicts. Codes of conduct alone can seldom be sufficient for managers to come
to good decisions unless they are supported by these other aspects of the organization.

In addition to company or organizational codes of conduct, many of which have been developed
internally by companies to articulate their own value systems, a number of codes and principles have
emerged globally to help managers think about their ethical responsibilities. Some of these are quite
spare and lay out fundamental principles, based on globally agreed on documents signed by many
nations, such as the United Nations Global Compact with its 10 core principles or the OECD
Guidelines for Multinational Enterprises. Others are more elaborate and have been developed by
business groups or multi sector alliances to help guide business decision making. Again, as with
 internal codes of conduct, these principles are helpful guides but cannot address every unique
situation. As a result, codes need to be supported by the organization's managerial decision making,
its culture, its reward systems, and the communication that exists about ethical practices within the
firm.

2.8. Managers and Ethics in Organizations

Many managers find it difficult to speak about and sometimes even recognize ethical issues, a
difficulty that the management theorists James Waters and Frederick Bird called the moral muteness
of managers. Recognizing that management is an inherently ethical task and that the practices of the
company embody a set of values or ethics, the management scholar Jeanne Liedtka suggests that
there does exist a set of ethically based management practices that can help managers lead their
companies effectively and so that they are competitive. By examining numerous organizational
improvement initiatives, she determined that they shared common practices and common sets of
values that could help an organization achieve its goals most effectively.

The ethics of effective and competitive business practices identified by Jeanne Liedtka include
creating a shared sense of meaning, vision, and purpose that connect the employees to the
organization and are underpinned by valuing the community without subordinating the individual
and seeing the community's purpose as flowing from the individuals involved. A second
characteristic that ethical leadership can provide is developing in employees a systems perspective,
which is linked to the post conventional stages of cognitive and moral reasoning discussed above, so
that a value of serving other community members and related entities in the broader ecosystem
emerges. Another theme is that of emphasizing business processes rather than hierarchy and structure,
which is based on valuing work itself intrinsically and focusing on both ends and means in decision
making, not just the ends. Localized decision making, particularly around work processes, provides a
value of responsibility for individual actions, and using information within the system is supported by
values of truth telling, integrity, and honesty, the characteristics of moral persons, as well as
transparency about and access to needed information.

Organizations with these types of ethically based approaches also focus on development for both
employees and the organization as a whole, which means valuing individuals as ends, not as means to
ends (a key ethical principle), and focusing on learning and growth. Such approaches also encourage
dialogue and related freedom of expression with a commitment to seek common ground when there are
differences of opinion. Ethical leaders can also foster the capacity of others and themselves to take
multiple perspectives simultaneously—in other words, to move toward post conventional levels of
reasoning so that they can understand other points of view and make better decisions. The final element
that managers can think about in their roles as ethical leaders is creating a sense of commitment and
ownership among organizational members by emphasizing promise keeping, instilling a sense of
urgency about the tasks of the enterprise, and encouraging engagement rather than detachment among
organizational members.

COMPETITIVENESS:
Any organization, public or private, large or small, faces internal and external uncertainties that
affect its ability to achieve its objectives. The effect of uncertainty on an organization's objectives
is "risk." Risk management, commonly known in the business community as enterprise risk
management (ERM), can provide for the structured and explicit consideration of all forms of
uncertainty in making any decision. The overarching principle of ERM is that it must produce value
for the organization. It is the culture, processes and structures that is directed towards taking
advantage of potential opportunities while managing potential adverse effects.

Corporations face the task of managing their risk exposures while remaining profitable and
competitive at the same time. Managing risks is not a new challenge, yet it may get overlooked due
to several reasons. The challenges and demands of contemporary markets, customer
expectations, regulatory authorities, employees and shareholders present organizations with an
interesting array of contradictions.

Risk management can enhance the environment for identifying and capitalizing on opportunities to
create value and protect established value. Efficient managers who undertake risk, use a
variety of risk management solutions that transcends through traditional insurance risk transfer
products.

The rapidly changing global economy has created an expanding array of risks to be managed to
ensure the viability and success of an enterprise. Historically, the practice of risk management has
been confined to the traditionally insurable risks such as loss from fire, earthquakes, wind, flood,
legal liability and other relatively straightforward potential causes of loss. Solutions involving the
purchase of insurance were emphasized, with focus on type of coverage, adequacy of limits and
cost of risk transfer. Over the last thirty years, most major corporations have evolved a much more
sophisticated view of risk management, encompassing traditional risk management concerns and
adding new issues arising from the changing internal and external environments within which they
work. Now, it is understood that every aspect of a company's operational and financial activity
contains the potential for risk that can negatively and meaningfully affect the success and viability
of the organization.

Risk basically refers to the variations in the outcomes that could occur over a specified period in a
given situation. If only one outcome is possible, the variation and hence the risk is zero. If many
outcomes are possible, the risk is not zero. The greater the variation , the greater the risk.

Risk may also be defined as the possibility that an event will occur and adversely affect the
achievement of the Company's objectives and goals. A business risk is the threat that an event or
action will adversely affect an organization‘s ability to achieve its business objectives/targets.
Business risk arises as much from Risk Management and Internal Control 199 possibility that
opportunities will not be realized as much from the fact that certain threats could well
materialize and that errors could well be made.

Risks may be broadly classified under the following heads:

(a) Industry & ServicesRisks:

These risks can be broadly categorized as follows, namely:

Economic risks such as dependence on one product, one process, one client, one industry, etc. in
the short and long term.
Services risks
Market structure
Business dynamics
Competition risks affecting tariffs prices, costs, revenues and customer preferences
Customer relations risks
 Reputational risk
(b) Management and Operations Risks:

These risks relate broadly to the company's organisation and management such as planning,
monitoring,
and reporting systems in the day to day management process
namely:
Risks to Property
Clear and well defined work processes
Changes in Technology/upgradation
R&D risks
Agency Network Risks
Personnel risks such as labour turnover risks involving replacement risks, training risks, cost risks,
skill risks etc. There are also unrest risks due to strikes and lockouts. These risks
affect the
company's business and earnings.
Environmental and Pollution Control regulations, etc.
Locational benefits near metros, railway stations, ports, cities, etc.
(c) Market Risks:

These risks relate to market conditions namely:

Raw material rates
Quantities, quality, suppliers, lead time, interest rates risks and forex risks namely, fluctuationrisks
and interest r a t e risk in respect of foreign exchange transactions.

(d) Political Risks:

These risks relate to political uncertainties namely:

Elections
War risks
Country/Area risks

Insurance risks like fire, strikes, riots and civil commotion, marine risks, cargo risks, etc.
 Fiscal/MonetaryPolicy Risks including Taxationrisks.

(e) Credit Risks:

These risks relate to commercial operations namely:

Creditworthiness risks

Risks in settlement of dues by clients

Provisions for doubtful and bad debts

(f) Liquidity Risks:

These are financial risk factors namely:

Financialsolvencyand liquidityrisks

Borrowing limits, delays

Cash/Reserve management risks

Taxrisks.

(g) Disaster Risks:

These risks relate to disasters from following factors:

Natural risks like fires, floods, earthquakes, etc.

Man-made risks arising under the Factories Act, Mines Act, etc.

Risk of failure ofeffective Disaster Management plans formulated by the company.

(h) Systems Risks:

These risks relate to the company's systems namely:

System capacities

System reliability

Obsolescencerisks

Data Integrityrisks
ORGANIZATION SIZE:
An organization's structure is important to the study of business ethics. In a Centralized
organization, decision- making authority is concentrated in the hands of top- level managers, and
little authority is delegated to lower levels. Responsibility, both internal and external, rests with
top management. This structure is especially suited for organizations that make high-risk decisions
and whose lower- level managers are not highly skilled in decision making. It is also suitable for
organizations in which production processes are routine and efficiency is of primary importance.

These organizations are usually extremely bureaucratic, and the division of labour is typically
very well defined. Each worker knows his or her job and what is specifically expected, and
each has a clear understanding of how to carry out assigned tasks. Centralized organizations stress
formal rules, policies, and procedures, backed up with elaborate control systems. Their codes of
ethics may specify the techniques to be used for decision making.

Because of their top-down approach and the distance between employee and decision maker,
centralized organizational structures can lead to unethical acts. If the centralized organization is
very bureaucratic, some employees may behave according to "the letter of the law" rather than the spirit.

In a decentralized organization, decision- making authority is delegated as far down the chain of
command as possible. Such organizations have relatively few formal rules, and coordination and
control are usually informal and personal. They focus instead on increasing the flow of information.
As a result, one of the main strengths of decentralized organizations is their adaptability and early
recognition of external change. With greater flexibility, managers can react quickly to changes in
their ethical environment. Weakness of decentralized organizations is the difficulty they have in
responding quickly to changes in policy and procedures established by top management. In addition,
independent profit centers within a decentralized organization may deviate from organizational
objectives.

PROFITABILITY & ETHICS:

In the fallout from Enron and others, many investors are paying closer attention to a company's
ethics, as well as their profits. These investors realize that a corporate focus on profits alone with little
regard to ethical standards, conduct and enforcement—may result in short-term revenue gain, but
long-term profitability may be limited. In cases like Enron, long-term viability is limited too.

Consider this balance between profits and ethics to be "ethical profitability." Well-balanced
companies not only consistently reward owners, investors and employees with profitable
performance; they also genuinely focus on these five key areas:

Leadership by example

The chasm between managing and managing well is wide and deep. To manage is to merely lead
employees. To manage well is to lead employees effectively, ethically and without arrogance.
Company owners, executives and managers must set the highest examples of attitude and conduct
for their employees. "Do what I say, not what I do," is a parental anachronism with no value in
management.
Company-wide ethical awareness

Most employees, when not at work, practice personal ethics in areas such as caring for others, being
kind and honest, and not harming others. Do these same people, when they arrive at work, maintain
their personal guidelines? In-the-office ethical behaviour includes demonstrating trustworthiness to
managers and co-workers, respecting privacy and avoiding conflicts of interest. Ethics knows no
time clock.

Occasional classes can help, by reminding employees of the simplicity of determining ethical
behaviour. In a nutshell, examine questionable action and speech, and determine if it's harmful to
yourself or another. If it is, avoid that behaviour. Employees with any sort of religious background
will recognize this ethic of reciprocity as familiar. The Bible's Golden Rule is a good example.

Strong management of revenue generation and reporting

Corporate temptation to stretch ethical behaviour in revenue generation and reporting is universal.
From excessive cost-cutting to expand short-term market-share, to outright lies about revenue to
positively affect stock price, it's easy to see why an otherwise intelligent, educated corporate officer
can end up behind bars for condoning such behaviour.
To overcome these temptations, revenue-related managers must establish and maintain a firm stance
on ethical marketing, advertising, selling and reporting. This requires regular dissemination and
enforcement of codes of conduct.

High level of internal trust

The level of trust within a company should reflect the level of trust the company solicits from
customers. If customers are encouraged to put their complete trust in the product or service, then
company teams must do the same with each other. Management must guide this internal process.

An increase in trust is a reduction in risk and uncertainty, which in turn will keep the revenue
generation process flowing smoothly. Another advantage of running a high-trust organization is
improved internal flexibility and creativity. Instead of being constantly monitored, the person to
whom a task is assigned can accomplish it the best way possible. The outcome is never in doubt
because of the trust the team shares.

Formal and active compliance program

Ethical profitability is far more than merely operating within the boundaries of the law. Legal
compliance limits unethical behaviour, but it does not define ethical behaviour. An organizational
ethics doctrine does have legal benefits. Properly written, published and disseminated ethical codes
will reduce corporate risk if an employee creates a criminal or civil problem because of poor ethical
behaviour. (Even federal sentencing guidelines recommend lower fines if such violations occur
contrary to the existence and enforcement of compliance codes.)

The true test of ethical profitability is whether or not the company is a positive example to its
employees, to its customers and even to other companies. Such companies practice the truest form of
leadership-by-example. They reach for a higher bar.
2.9. COST OF ETHICS IN CORPORATE ETHICS EVALUATION:

Operating in an ethical way may incur additional costs to a business when compared with other
retailers and companies who may not do business in the same way. For example, Primark bears the
cost of carrying out all audits. Then there are its costs associated with working with ethical partners.
An example of this is Primark‖s partnership with Nari Uddug Kendra (NUK). This is an organisation
supporting women's rights and health in Bangladesh. See more information and read an interview
with NUK on the Primark website.

NUK has more than 20 years experience in addressing women's rights and labour issues in the
ready-made garment sector in Bangladesh. Through this partnership, Primark seeks to identify and
address key issues around equal rights, opportunities for growth and career enhancement, as well as
training needs within some of its key suppliers in Bangladesh. NUK's expertise in this area helps
Primark provide employees and middle management at factories with more intensive support and
training on ethical issues.

Costs to Primark of working in an ethical way include:

the employment of the global Ethical Trade team

training its buyers on all ethical trade issues
managing and paying for external audits
helping suppliers put right issues raised by audits, through training and support from the
Primark Ethical Trade team.

However, rather than seeing these activities as costs, Primark believes that they enable the business
to operate in a sustainable and well- managed way. Through its remediation programme, Primark's
team of ethical managers work with factories to help them find ways of putting issues right and
developing sustainable practices. This provides a benefit to the supplier but also in the long term to
Primark, who gains from having suppliers all working to its standards.
Transparency in business

Transparency is an important part of this process. Transparency means the business is open to
people seeing how it manages its relationships with suppliers. In turn, suppliers‖ practices also need
to be transparent. The alternative would be for an organization to ignore ethical behaviour. However,
this would rapidly lead to a decline in brand reputation and consumers could move to purchasing
from competing retailers behaving more ethically. Operating in the 'right way' is therefore not just
appropriate for ethical reasons, but is also good business practice.

Activity 2.2
Consider you are a bank manager. How your unethical behaviour can affect the profitability of your
bank? Explain.
 Review Questions
1. What is the cost of ethics in corporations? Explain.
2. Discuss the link between and operational risks.
3. Explain the nature of ethics in management.
4. Compare and contrast teleological theory and deontological theory.
5. Explain the roles f ethics.
6. Explain the roles of ethical managers.

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 CHAPTER THREE

CORPORATE SOCIAL RESPONSIBILITY

Learning Objectives
After reading this chapter you should be able to understand:

• The meaning need for CSR.

• Its evolution and challenges

• The regulations of CSR.

• The future of CSR activities

3.1. Definition of Corporate Social Responsibility(CSR):

The heart of corporate governance is transparency, disclosure, accountability and integrity. It is to be

borne in mind that mere legislation does not ensure good governance. Good governance flows from
ethical business practices even when there is no legislation.
Noble laureate Milton Friedman defined Corporate Governance as "the conduct of business in
accordance with shareholders' desires, which generally is to make as much money as possible, while
conforming to the basic rules of the society embodied in law and local customs. Governance is
concerned with the intrinsic nature, purpose, integrity and identity of an organization with primary
focus on the entity's relevance, continuity and fiduciary aspects.

The root of the word Governance is from 'gubernate', which means to steer. Corporate governance
would mean to steer an organization in the desired direction. The responsibility to steer lies with the
board of directors/ governing board. Corporate or a Corporation is derived from Latin term "corpus"
which means a "body". Governance means administering the processes and systems
placed for satisfying stakeholder expectation. When combined Corporate Governance means a set of systems
procedures, policies, practices, standards put in place by a corporate to ensure that relationship with various
stakeholders is maintained in transparent and honest manner.

Corporate social responsibility refers to the approach that an organization takes in balancing its
responsibilities toward different stakeholders when making legal, economic, ethical, and social
decisions. What motivates companies to be “socially responsible” to their various stakeholders? We
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hope it’s because they want to do the right thing, and for many companies, “doing the right thing” is a
ey motivator. The fact is, it’s often hard to figure out what the “right thing” is: What’s “right” for one
group of stakeholders isn’t necessarily just as “right” for another. One thing, however, is certain:
Companies today are held to higher standards than ever before. Consumers and other groups consider
not only the quality and price of a company’s products but also its character. If too many groups see a
company as a poor corporate citizen, it will have a harder time attracting qualified employees, finding
investors, and selling its products. Good corporate citizens, by contrast, are more successful in all these
areas.

3.2. The Corporate Citizen

Presents a model of corporate responsibility based on a company’s relationships with its stakeholders.
In this model, the focus is on managers—not owners—as the principals involved in all these
relationships. Here, owners are the stakeholders who invest risk capital in the firm in expectation of a
financial return. Other stakeholders include employees, suppliers, and the communities in which the
firm does business. Proponents of this model hold that customers, who provide the firm with revenue,
have a special claim on managers’ attention. The arrows indicate the two-way nature of corporation-
stakeholder relationships: All stakeholders have some claim on the firm’s resources and returns, and
it’s management’s job to make decisions that balance these claims.

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Fig. The Corporate Citizen
Let’s look at some of the ways in which companies can be “socially responsible” in considering the
claims of various stakeholders.
Owners
Owners invest money in companies. In return, the people who run a company have a responsibility to
increase the value of owners’ investments through profitable operations. Managers also have a
responsibility to provide owners (as well as other stakeholders having financial interests, such as
creditors and suppliers) with accurate, reliable information about the performance of the business.
Clearly, this is one of the areas in which WorldCom managers fell down on the job. Upper-level
management purposely deceived shareholders by presenting them with fraudulent financial statements.

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Fiduciary Responsibilities
Finally, managers have a fiduciary responsibility13 to owners: They’re responsible for safeguarding the
company’s assets and handling its funds in a trustworthy manner. This is a responsibility that was
ignored by top executives at both Adelphia and Tyco, whose associates and families virtually looted
company assets. To enforce managers’ fiduciary responsibilities for a firm’s financial statements and
accounting records, the Sarbanes-Oxley Act of 2002 requires CEOs and CFOs to attest to their
accuracy. The law also imposes penalties on corporate officers, auditors, board members, and any
others who commit fraud.

Employees
Companies are responsible for providing employees with safe, healthy places to work—as well as
environments that are free from sexual harassment and all types of discrimination. They should also
offer appropriate wages and benefits. In the following sections, we’ll take a closer look at each of these
areas of responsibility.

Safety and Health

Though it seems obvious that companies should guard workers’ safety and health, a lot of them simply
don’t. For over four decades, for example, executives at Johns Manville suppressed evidence that one
of its products, asbestos, was responsible for the deadly lung disease developed by many of its
workers.Saul W. Gellerman, “Why ‘Good’ Managers Make Bad Ethical Choices,” Harvard Business
Review on Corporate Ethics (Boston: Harvard Business School Press, 2003), 49–66. The company
concealed chest X-rays from stricken workers, and executives decided that it was simply cheaper to pay
workers’ compensation claims (or let workers die) than to create a safer work environment. A New
Jersey court was quite blunt in its judgment: Johns Manville, it held, had made a deliberate, cold-
blooded decision to do nothing to protect at-risk workers, in blatant disregard of their rights.

Freedom from Sexual Harassment

What is sexual harassment? The law is quite precise: Sexual harassment occurs when an employee
makes “unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of
a sexual nature” to another employee who doesn’t welcome the advances.
• It’s also sexual harassment when “submission to or rejection of this conduct explicitly or implicitly
affects an individual’s employment, unreasonably interferes with an individual’s work performance or

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creates an intimidating, hostile or offensive work environment To prevent sexual harassment—or at
least minimize its likelihood—a company should adopt a formal anti-harassment policy describing
prohibited conduct, asserting its objections to the behavior, and detailing penalties for violating the
policy. Employers also have an obligation to investigate harassment complaints. Failure to enforce
anti-harassment policies can be very costly.

Equal Opportunity and Diversity

People must be hired, evaluated, promoted, and rewarded on the basis of merit, not personal
characteristics. This, too, is the law—namely, Title VII of the 1964 Civil Rights Act. Like most
companies, P&G has a formal policy on hiring and promotion that forbids discrimination based on race,
color, religion, gender, age, national origin, citizenship, sexual orientation, or disability. P&G expects
all employees to support its commitment to equal employment opportunity and warns that those who
violate company policies will face strict disciplinary action, including termination of employment.

Equal Pay and the Wage Gap

The equal pay requires equal pay for both men and women in jobs that entail equal skill, equal effort,
equal responsibility, or similar working conditions. What has been the effect of the law after forty
years? In addition, men often have better job opportunities. For example, a man newly hired at the
same time as a woman will often get a higher-paying assignment at the entry level. Coupled with the
fact that the same sort of discrimination applies when it comes to training and promotions, women are
usually relegated to a lifetime of lower earnings.

Building Diverse Workforces

In addition to complying with equal employment opportunity laws, many companies make special
efforts to recruit employees who are underrepresented in the workforce according to sex, race, or some
other characteristic. In helping to build more diverse workforces, such initiatives contribute to
competitive advantage for two reasons: (1) People from diverse backgrounds bring new talents and
fresh perspectives to an organization, typically enhancing creativity in the development of new
products. (2) By reflecting more accurately the changing demographics of the marketplace, a diverse
workforce improves a company’s ability to serve an ethnically diverse population.

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Wages and Benefits
At the very least, employers must obey laws governing minimum wage and overtime pay. A minimum
wage is set by the federal government, though states can set their own rates. By law, employers must
also provide certain benefits—social security (which provides retirement benefits), unemployment
insurance (which protects against loss of income in case of job loss), and workers’ compensation
(which covers lost wages and medical costs in case of on-the-job injury). Most large companies pay
most of their workers more than minimum wage and offer considerably broader benefits, including
medical, dental, and vision care, as well as pension benefits.

Customers
The purpose of any business is to satisfy customers, who reward businesses by buying their products.
Sellers are also responsible—both ethically and legally—for treating customers fairly. There are four
consumer rights:
1. The right to safe products. A company should sell no product that it suspects of being unsafe for
buyers. Thus, producers have an obligation to safety-test products before releasing them for public
consumption. The automobile industry, for example, conducts extensive safety testing before
introducing new models (though recalls remain common).
2. The right to be informed about a product. Sellers should furnish consumers with the product
information that they need to make an informed purchase decision. That’s why pillows have labels
identifying the materials used to make them, for instance.
3. The right to choose what to buy. Consumers have a right to decide which products to purchase, and
sellers should let them know what their options are. Pharmacists, for example, should tell patients when
a prescription can be filled with a cheaper brand-name or generic drug. Telephone companies should
explain alternative calling plans.
4. The right to be heard. Companies must tell customers how to contact them with complaints or
concerns. They should also listen and respond. Companies share the responsibility for the legal and
ethical treatment of consumers with several government agencies.

For obvious reasons, most communities see getting a new business as an asset and view losing one—
especially a large employer—as a detriment. After all, the economic impact of business activities on
local communities is substantial: They provide jobs, pay taxes, and support local education, health, and
recreation programs. Both big and small businesses donate funds to community projects, encourage

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employees to volunteer their time, and donate equipment and products for a variety of activities. Larger
companies can make greater financial contributions. Let’s start by taking a quick look at the
philanthropic activities of a few U.S. corporations.

Financial Contributions
Many large corporations donate a percentage of sales or profits to worthwhile causes. Retailer Target,
for example, donates 5 percent of its profits—about $2 million per week—to schools, neighborhoods,
and local projects across the country; its store-based grants underwrite programs in early childhood
education, the arts, and family-violence prevention.Target Brands Inc.,
Volunteerism
Many companies support employee efforts to help local communities. Patagonia, for example, a maker
of outdoor gear and clothing, lets employees leave their jobs and work full-time for any environmental
group for two months—with full salary and benefits; so far, more than 850 employees have taken
advantage of the program.
Supporting Social Causes
Companies and executives often take active roles in initiatives to improve health and social welfare in
the United States and elsewhere. Microsoft’s former CEO Bill Gates intends to distribute more than $3
billion through the Bill and Melinda Gates Foundation, which funds global health initiatives,
particularly vaccine research aimed at preventing infectious diseases, such as polio Noting that children
from low-income families have twice as many cavities and often miss school because of dental-related
diseases, P&G invested $1 million a year to set up “cavity-free zones” for 3.3 million economically
disadvantaged children at Boys and Girls Clubs nationwide. In addition to giving away toothbrushes
and toothpaste, P&G provided educational programs on dental hygiene. At some locations, the
company even maintained clinics providing affordable oral care to poor children and their families.
Proctor & Gamble recently committed to provide more than two billion liters of clean drinking water to
adults and children living in poverty in developing countries. The company believes that this initiative
will save an estimated ten thousand lives.

3.3. NEED FOR CSR:

Corporate social responsibility (CSR) promotes a vision of business accountability to a wide range of
stakeholders, besides shareholders and investors. Key areas of concern are environmental protection
and the wellbeing of employees, the community and civil society in general, both now and in the

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future. The concept of CSR is underpinned by the idea that corporations can no longer act as isolated
economic entities operating in detachment from broader society. Traditional views about
competitiveness, survival and profitability are being swept away.
Some of the drivers pushing business towards CSR include:
1. The shrinking role of government
In the past, governments have relied on legislation and regulation to deliver social and
environmental objectives in the business sector. Shrinking government resources, coupled with a
distrust of regulations, has led to the exploration of voluntary and non-regulatory initiatives instead.
2. Demands for greater disclosure
There is a growing demand for corporate disclosure from stakeholders, including customers,
suppliers, employees, communities, investors, and activist organizations.
3. Increased customer interest
There is evidence that the ethical conduct of companies exerts a growing influence on the purchasing
decisions of customers. In a recent survey by Environics International, more than one in five
consumers reported having either rewarded or punished companies based on their perceived social
performance.

4. Growing investor pressure

Investors are changing the way they assess companies' performance, and are making decisions based
on criteria that include ethical concerns. The Social Investment Forum reports that in the US in
1999, there was more than $2 trillion worth of assets invested in portfolios that used screens linked
to the environment and social responsibility. A separate survey by Environics International revealed
that more than a quarter of share-owning Americans took into account ethical considerations when
buying and selling stocks .

5. Competitive labour markets

Employees are increasingly looking beyond pay checks and benefits, and seeking out whose
philosophies and operating practices match their own principles. In order to hire and retain skilled
employees, companies are being forced to improve working conditions.
6. Supplier relations
As stakeholders are becoming increasingly interested in business affairs, many companies are taking
steps to ensure that their partners conduct themselves in a socially responsible manner. Some are
introducing codes of conduct for their suppliers, to ensure that other companies' policies or practices
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do not tarnish their reputation.

Some of the positive outcomes that can arise when businesses adopt a policy of social responsibility
include:

1. Company benefits:
• Improved financial performance;
• Lower operating costs;
• Enhanced brand image and reputation;
• Increased sales and customer loyalty;
• Greater productivity and quality;
• More ability to attract and retain employees;
• Reduced regulatory oversight;
• Access to capital;
• Workforce diversity;
• Product safety and decreased liability.
2. Benefits to the community and the general public:
• Charitable contributions;
• Employee volunteer programmes;
• Corporate involvement in community education, employment and homelessness
programmes;
• Product safety and quality.

3. Environmental benefits:
• Greater material recyclability;
• Better product durability and functionality;
• Greater use of renewable resources;
• Integration of environmental management tools into business plans, including life-cycle
assessment and costing, environmental management standards, and eco-labelling.
Nevertheless, many companies continue to overlook CSR in the supply chain - for example by
importing and retailing timber that has been illegally harvested. While governments can impose
embargos and penalties on offending companies, the organizations themselves can make a
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commitment to sustainability by being more discerning in their choice of suppliers.
The concept of corporate social responsibility is now firmly rooted on the global business agenda.
But in order to move from theory to concrete action, many obstacles need to be overcome.
A key challenge facing business is the need for more reliable indicators of progress in the field of
CSR, along with the dissemination of CSR strategies. Transparency and dialogue can help to make a
business appear more trustworthy, and push up the standards of other organizations at the same time.

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 CHAPTER FOUR
Environmental Responsibility

LEARNING OBJECTIVES
After reading this chapter you will be able to:
• Identify threats to the natural environment, and explain how businesses are addressing them.
• Define sustainability and understand why companies are now focusing on environmental and
socially responsibility issues.
Activity 4.1
Visit one manufacturing organization in village and assess whether it pollutes the environment or not.
Support your report with detail data analysis.

Today, virtually everyone agrees that companies must figure out how to produce products without
compromising the right of future generations to meet their own needs. Clearly, protecting natural
resources is the right thing to do, but it also has become a business necessity. Companies’ customers
demand that they respect the environment. Let’s identify some key environmental issues and highlight
the ways in which the business community has addressed them.

4.1. Land Pollution

The land we live on has been polluted by the dumping of waste and increasing reliance on agricultural
chemicals. It’s pockmarked by landfills stuffed with the excess of a throwaway society. It’s been strip-
mined and deforested, and urban sprawl on every continent has squeezed out wetlands and farmlands
and destroyed wildlife habitats. Protecting the land from further damage, then, means disposing of
waste in responsible ways (or, better yet, reducing the amount of waste). At both national and global
levels, we must resolve the conflicts of interest between those who benefit economically from logging
and mining and those who argue that protecting the environment is an urgent matter. Probably
municipalities must step in to save open spaces and wetlands.
Clothing manufacturer Patagonia has for years been in the forefront of efforts to protect the land. Each
year, the company pledges either 1 percent of sales revenue or 10 percent of profits (whichever is
larger) to protect and restore the natural environment.

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4.2. Air Pollution
It’s amazing what we can do to something as large as the atmosphere. Over time, we’ve managed to
pollute the air with emissions of toxic gases and particles from factories, power plants, office buildings,
cars, trucks, and even farms. In addition, our preferred method of deforestation is burning, a major
source of air pollution. In some places, polluted air causes respiratory problems, particularly for the
young and elderly. Factory emissions, including sulfur and other gases, mix with air and rain to
produce acid rain, which returns to the earth to pollute forests, lakes, and streams. Perhaps most
importantly, many experts—scientists, government officials, and businesspeople—are convinced that
the heavy emission of carbon dioxide is altering the earth’s climate. Predictions of the effect of
unchecked global warming include extreme weather conditions, flooding, oceanic disruptions, shifting
storm patterns, droughts, reduced farm output, and even animal extinctions

Curbing global warming will require international cooperation. More than 190 nations (though not the
United States) have stated their support for this initiative by endorsing the Kyoto Protocol, an
agreement to slow global warming by reducing worldwide carbon-dioxide emissions. What can
business do? They can reduce greenhouse emissions by making vehicles, factories, and other facilities
more energy efficient. In response to a government ban on chlorofluorocarbons, which damage the
ozone layer, DuPont has cut its own greenhouse emissions by 72 percent over the last twenty years
through improvements in manufacturing processes and a commitment to increased energy.

4.3. Water Pollution

Water makes up more than 70 percent of the earth’s surface, and it’s no secret that without it we
wouldn’t be here. Unfortunately, that knowledge doesn’t stop us from polluting our oceans, rivers, and
lakes and generally making our water unfit for use. Massive pollution occurs when such substances as
oil and chemicals are dumped into bodies of water. The damage to the water, to the marine ecosystem,
and to coastal wildlife from the accidental spilling of oil from supertankers and offshore drilling
operations can be disastrous, and the cleanup can cost billions. Most contaminants, however, come
from agricultural fertilizers, pesticides, wastewater, raw sewage, and silt that make their way into water
systems over time.

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4.4. Sustainability
Over the past ten to fifteen years, most of our large corporations have adopted measures that would
have pleased environmentalists. These initiatives fall under the umbrella called “sustainability.” But
what does sustainability mean? There are, of course, many definitions, but here is one that should work
for us: sustainability—the principle of providing products today that don’t compromise the ability of
future generations to meet their needs. Meeting business needs and protecting the environment are not
mutually exclusive. They must do both.

Google, like many other companies who are proactive in environmental and social responsibility issues
often have a “triple bottom line” focus. They believe that the current reporting model of one bottom
line—profit—does not capture all the dimensions of performance. They argue instead that companies
should measure performance using three separate bottom lines: profit, people, and planet (or the 3Ps).
In addition to reporting profit through their income statement, companies should also report their
progress in being socially responsible to other people (stakeholders, including employee, customers,
owners) and to the planet (the environment).Triple bottom line: It consists of three Ps: profit, people,
and planet.

Self-check
Explain the various forms pollutions created by business organizations.

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 Review Questions
1. Explain the concept of sustainability supported with local examples.
2. Discuss air pollution supported with local examples.
3. Discuss water pollution supported with local examples.
4. Discuss land pollution supported with local examples.

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 CHAPTER FIVE
STAGES OF CORPORATE RESPONSIBILITY

LEARNING OBJECTIVE
After reading this chapter, you will be able to:
List the stages of corporate responsibility.
Activity 5.1
Some business organizations pollute the local environment either the local river or land . Do they
accept their wrong doing? Explain.

We expect companies to recognize issues of social importance and to address them responsibly. The
companies that do this earn reputations as good corporate citizens and enjoy certain benefits, such as
the ability to keep satisfied customers, to attract capital, and to recruit and retain talented employees.
But companies don’t become good corporate citizens overnight. Learning to identify and develop the
capacity to address social concerns takes time and requires commitment. The task is arduous because
so many different issues are important to so many different members of the public—issues ranging
from the environment, to worker well-being (both at home and abroad), to fairness to customers, to
respect for the community in which a company operates.

5.1. The Five Faces of Corporate Responsibility

Faced with public criticism of a particular practice, how does a company respond? What actions does it
take to demonstrate a higher level of corporate responsibility? According to Harvard University’s
Simon Zadek, exercising greater corporate responsibility generally means going through the series of
five different stances summarized in Figure 5.1. below:

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 Fig. 5.1 The Five Faces of Corporate Responsibility
1. Defensive. When companies are first criticized over some problem or issue, they tend to take a
defensive, often legalistic stance. They reject allegations of wrongdoing and refuse to take
responsibility, arguing that fixing the problem or addressing the issue isn’t their job.
2. Compliant. During this stage, companies adopt policies that acknowledge the wishes of the public.
As a rule, however, they do only what they have to do to satisfy their critics, and little more. They’re
acting mainly to protect brands or reputations and to reduce the risk of litigation.
3. Managerial. When it becomes clear that the problem won’t go away, companies admit that they
need to take responsibility and action, so they look for practical long-term solutions.
4. Strategic. At this point, they may start to reap the benefits of acting responsibly. They often find that
responding to public needs gives them a competitive edge and enhances long-term success.
5. Civil. Ultimately, many companies recognize the importance of getting other companies to follow
their lead. They may promote participation by other firms in their industries, endorsing the principle
that the public is best served through collective action.

Self-check
Compare and contrast the five stages of corporate social responsibility.

5.1.1. The Defensive Stage

As the documentary film Super Size Me demonstrated, a steady diet of McDonald’s burgers and fries
will cause you to gain weight. It was certainly inevitable that one day the public would make a
connection between the rising level of obesity in the United States and a diet heavy in fat-laden fast
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foods. McDonald’s fast food/obesity link got a lot of attention in 2002 when obese adults and teenagers
filed suits against the company, claiming it was responsible for their excess pounds.

5.1.2. The Compliant Stage

In early 2004, the public’s attention was drawn to McDonald’s “super-size” options. Despite the fact
that a super-sized meal delivered more than fifteen hundred calories, one in ten customers went for the
upgrade. McDonald’s faced daily criticisms on its super-sizing campaign, from nutritionists, doctors,
advocacy groups, and lawyers who held it up as a “grossly overweight” poster child for U.S. obesity
concerns. And the company feared public criticism would escalate when the movie Super Size Me hit
the theaters. The documentary tells the story of a young man who gained twenty-four pounds and
wrecked his health by eating only McDonald’s food for a month. Even worse, one scene shows him
getting sick in his car after trying to wolf down a super-size meal. So McDonald’s immediately moved
from the defensive stage to the compliant stage and announced that it was eliminating its super-size
option by the end of 2004.

5.1.3. The Managerial Stage

Criticism of McDonald’s continued as customers stayed away and its profits plummeted. The company
searched for ways to win back customers and keep them long-term. To do this, it would have to come
up with a healthier menu. Though McDonald’s had served salads for years, they weren’t very good.
The company got serious about salads and introduced new, improved “premium salads,” complete
with Newman’s Own salad dressing (a nice public relations touch, as all profits on the salad dressings
are donated to charities). The company also improved the Happy Meal by letting kids substitute apple
slices and low-fat milk for the usual fries and soda. Oprah Winfrey’s personal trainer was brought in to
promote an adult version of the Happy Meal, called the GoActive meal, which includes a salad, a
bottle of water, a book on nutrition, and a clip-on pedometer that measures the number of steps you
take. The fat calories in Chicken McNuggets were lowered by coming out with all-white-meat
McNuggets. And to appease those between-meal munchies, the company added a fruit-and-walnut
salad to its menu. McDonald’s goal was to convince customers that it had turned a corner and would
forever more offer healthy choices to both adults and children.

5.1.4. The Strategic Stage

The new focus on healthy choices worked, and customers started returning. McDonald’s salads were

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well received and accounted for about 10 percent of sales. Overall, things improved financially for the
company: Sales increased and profits rose. To complete the transition to a healthier image, McDonald’s
came up with a new theme: helping adults and children live a balanced, active lifestyle. To go along
with the theme, it launched a new active-life public-awareness campaign with the tagline “It’s what I
eat and what I do…I’m lovin’ it.” McDonald’s demonstrated its concern for the health of its customers
through permanent menu changes and an emphasis on the value of physical fitness. Even Ronald
McDonald, the company’s mascot, helped out by shooting hoops with NBA basketball star Yao Ming.
The company launched a program called GoActive to help people find fun ways to build physical
activity and fitness into their daily lives.

5.1.5. The Civil Stage

McDonald’s hasn’t advanced to the final stage yet; it hasn’t enlisted the cooperation of other fast-food
companies in encouraging children and adults to eat healthier foods. It’s difficult to predict whether it
will assume this role in the future, or even whether the company will stick with its healthier lifestyle
theme. Indeed, it’s hard to reconcile McDonald’s commitment to helping people eat healthier with a
promotion in the Chicago area that gave a free forty-two-ounce “super-size” soda to anyone buying a
Big Mac and fries.

Summary
Faced with public criticism of a particular practice, a company is likely to progress through five
different stages:
1. Defensive. When first criticized over some problem, companies take a defensive stance. They reject
allegations of wrongdoing and refuse to take responsibility.
2. Compliant. During this stage, companies do only what they have to do to satisfy their critics, protect
brands or reputations, and reduce the risk of litigation.
3. Managerial. When it’s clear that the problem won’t go away, companies take responsibility and look
for long-term solutions.
4. Strategic. At this point, they may start to reap the benefits of acting responsibly. Responding to
public needs gives them a competitive edge and enhances long-term success.
5. Civil. Ultimately, companies recognize the importance of getting other companies to follow their
lead. They enlist the cooperation of other companies in supporting the issue of concern to the public.

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 Review Questions
1. Explain the civil stages of corporate social responsibility.
2. Explain the defensive stages of corporate social responsibility.
3. Discuss the compliant stage of corporate social responsibility.
4. Explain the managerial stage of corporate social responsibility

5. Compare and contrast between strategic and managerial stages of corporate social

responsibility.

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