Business Ethics

Case-1
• In the early 1980s, Beech-Nut a maker of baby food
was in trouble as it strove to compete Gerber Products,
the market leader
• Beech-Nut entered into an agreement with low cost
supplier of apple juice concentrate which could save
the company $250,000 annually
• One of the employee became concerned about the
quality of concentrate which was not made of apples
alone but contained large quantities of corn syrup and
cane sugar
• He brought this information to top level but they
ignored
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• Eventually investigators from the U.S. Food
and Drug Administration(FDA) confronted
Beech-Nut
• The employee whistle blowed about the
company
• In 1987, the company pleaded guilty and fined
with $2 million and managers were sentenced
to prison terms.
 Case-2
• In 2016, a Singaporean teacher has pleaded guilty in
helping six Chinese students in chat in school exams in
a highly sophisticated operation using video calling and
skin-colored earphones
• Private business is a big business in Singapore with
parents paying as much as $700 for four session
courses
• Tan Jian Yan, 32, worked for tuition center that offered
money back guarantees to Chinese students if they
failed to pass exams
• Tan Jian Yan was pleaded guilty on 27 charges of
cheating
 Ethics
• Ethics is a conception of right and wrong conduct.
• Steiner and Steiner, “Business ethics is the study of
good and evil, right and wrong, and just and unjust
actions in business.”
• Ethical principles are guides to moral behavior.
• For example, in most societies lying, stealing,
deceiving, and harming others are considered to be
unethical and immoral.
• Ethical ideas are present in all societies,
organizations, and individual persons, although they
may vary greatly from one to another.
 Unethical practices in Businesses
• Fraud, employment discrimination, bribery, data
conspiracy, disrespect of intellectual right,
environmental pollution, lack of fairness, dishonesty,
favoritism and nepotism, sexual harassment, etc
 Ethical Relativism
• Ethical relativism holds that ethical principles should
be defined by various periods of time in history, a
society’s traditions, the special circumstances of the
moment, or personal opinion.
• In this view, the meaning given to ethics would be
relative to time, place, circumstance, and the person
involved.
• In that case, the logical conclusion would be that
there would be no universal ethical standards on
which people around the globe could agree
 Business Ethics
• It is the application of general ethical ideas to business
behavior.
• It is not a special set of ethical ideas different from
ethics in general and applicable only to business.
• If dishonesty is considered to be unethical and
immoral, then anyone in business who is dishonest
with stakeholders is acting unethically and immorally.
• If protecting others from harm is considered to be
ethical, then a company that recalls a dangerously
defective product is acting in an ethical way.
 Why Business should be Ethical?
Impact of Ethics on Business & Society
• Improves the brand image
• Helps to win customer loyalty
• Helps to attract investors
• Helps to attract best employees
• Helps to attract vendors/suppliers
• Prevents or minimizes harm
• Promotes personal morality
 Causes of Ethical Problems
• Personal gain and selfish interest
• Competitive pressures on profit
• Conflict of interest
• Cross cultural contradictions
• Lack of ethical knowledge
• Greed
• Misguided loyalty
Consequences of Ethical Problems
• Reduced sales of goods
• Drop in stock price
• Negative effect on employee performance
• Tarnishes the brand image
• Less attraction from investors’ side
• Less attraction from vendor’s side
 Core Elements of Ethical Behavior
• Manager’s value
• Spirituality in workplace
• Manager’s moral development
 Managers Value
• Managers are key to whether a company and its
employees will act ethically or unethically.
• As major decision makers, they have more
opportunities than others to create an ethical tone
for their company.
• In a survey of 22,000 people in 21 countries, only
politicians ranked as less trustworthy than managers
of large companies.
 Managers Value…cont’
• The public reportedly had more confidence in
churches, the Supreme Court, television news and
newspapers, and organized labor than in business.
• In a Gallup poll conducted every 10 years, perception
of business executives’ ethics has steadily fallen.
• Differences in ethical values were found among
European employees. Researchers found that
workers in the U.K. are among the most honest in
Europe, avoiding ethical breaches that are more
common in France, Germany, and Spain.
 Managers Value…cont’
• The challenge for many moral managers is acting
effectively on their beliefs in the day-to-day life of
their organizations.
• Managers should overcome pressure, greed, fear, etc
and should act on their values.
• The future however seems to be favorable.
• A survey of 759 graduating MBA students from 11
top American business schools reported that “a
company’s CSR performance is a major factor when
selecting a new employer.”
 Managers Value…cont’
• These MBA students said they were willing to
sacrifice a portion of their salary to work for a
firm that shares their outlook.
• These results mirror another study, undertaken
by Net Impact, an international group of MBA
and graduate students, who believe corporations
should work for social good.
• Of the more than 2,000 MBA students surveyed,
nearly 80 percent said they wanted to find
socially responsible employment in their careers.
 Spirituality in Workplace
• A person’s spirituality —that is, a personal belief in a supreme
being, religious organization, or the power of nature or some
other external, life-guiding force—has always been a part of
the human makeup.
• As far back as 1976, scholars have found a positive
relationship between an organization’s economic
performance and attention to spiritual values.
• Scholars have found that spirituality positively affects
employee and organizational performance by enhancing
intuitive abilities and individual capacity for innovation, as
well as increasing personal growth, employee commitment,
and responsibility
 Spirituality in Workplace…cont’
• An individual spirituality-that is, the quality of
being with the human spirit or soul as opposed to
material or physical things- is also regarded as an
important element of ethical character
• Chaudhary (2016, p 108) puts it “You cannot do
wrong if you care for the people to whom you sell
your products and services. So to become ethical
you need to promote spiritual values such as
Bashudhaiva Kutumbakam-the attitude that the
entire world is your family”
 Spirituality in Workplace…cont’
• Best-selling books have touted the importance of
managers being sensitive to employees’ values and
spirituality as a success path.
• Ethical leadership and ethical cultures in
organizations based on a strong sense of spirituality
are seen as necessary and productive.
• However, others disagree with the trend toward a
stronger presence of religion in the workplace.
 Spirituality in Workplace…cont’
• They hold the traditional belief that business is a
secular—that is, nonspiritual— institution.
• They believe that business is business, and
spirituality is best left to churches, synagogues,
mosques, and meditation rooms, not corporate
boardrooms or shop floors.
• This, of course, reflects the separation of church and
state in the United States and many other countries.
 Spirituality in Workplace…cont’
• Beyond the philosophical opposition to bringing
spirituality into the business environment,
procedural or practical challenges arise. Whose
spirituality should be promoted? The CEO’s? With
greater workplace diversity comes greater spiritual
diversity, so which organized religion ’ s prayers
should be cited or ceremonies enacted? How should
businesses handle employees who are agnostics or
atheists (who do not follow any religion)?
 Stages of moral development and Ethical
Reasoning
Age Group Development Stage and Major Ethics Referent Basics of Ethics
Reasoning
Mature Stage 6 Universal principles: justice, fairness, Principle-centered
adulthood universal human rights reasoning
Mature Stage 5 Moral beliefs above and beyond Principle-centered
adulthood specific social custom: human rights, social reasoning
contract, broad constitutional principle
Adulthood Stage 4- Society at large: Ethics relate to Society-and law-
customs, traditions, laws centered reasoning
Early Stage 3-Social groups: Right or wrong is Group-centered
adulthood, determined by the relation with the reference reasoning
adolescence groups such as friend or family, etc
Adolescence, Stage 2- Reward seeking: Those behavior are Ego-centered reasoning
youth ethical which generate positive consequence (Ego means “self”)

Childhood Stage 1- Punishment avoidance: avoid harm, Ego-centered reasoning

obedience to power ; Rules are absolute (Ego means “self”)
 Making Ethics Work in Organization
• Top management commitment and
involvement
• Codes of ethics
• Principle based international standards
• Ethics training
• Ethics committee, officers and
Ombudspersons
• Ethics assist line or helplines
 Principle based International
Standards
• These standards are designed to offer
corporations guidance on acceptable and
unacceptable norms.
• Most popular examples of such standards
include: UN Global compact, The principles for
responsible investment, The Organization for
Economic Cooperation and Development (OECD)
guidelines for multinational enterprise, and the
Caux roundtable principles for business.
• These standards help managers develop an
internal corporate responsibility agenda for their
corporations.
 UN Global Compact
• The extent of unethical behaviors worldwide is
so widespread that even the UN got involved
in helping curb such unethical actions. In
2000, it created the UN Global Compact
 Ten Principles of UN Global Compact
Human Rights
• Principle 1: Businesses should support and respect the protection of internationally proclaimed
human rights; and
• Principle 2: make sure that they are not complicit in human rights abuses.

Labor
Principle 3: Businesses should uphold the freedom of association and the effective recognition of
the right to collective bargaining;
• Principle 4: the elimination of all forms of forced and compulsory labor;
• Principle 5: the effective abolition of child labor; and
• Principle 6: the elimination of discrimination in respect of employment and occupation.

Environment
Principle 7: Businesses should support a precautionary approach to environmental challenges;
• Principle 8: undertake initiatives to promote greater environmental responsibility; and
• Principle 9: encourage the development and diffusion of environmentally friendly technologies.

Anti-Corruption
Principle 10: Businesses should work against corruption in all its forms, including extortion and
bribery.
 Ethics Training Programs
• One of the way, companies can take to build in
ethical safeguards is to offer employee ethics
training.
• This is generally the most expensive and time-
consuming element of an ethics program.
• Studies have shown that only 20 to 40 percent of
small businesses formally offer ethics training to
their employees, often using less formal ways to
communicate ethical values and procedures.
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• Larger businesses, by contrast, usually conduct regular
ethics training.
• Most ethics and compliance training programs focus on
making sure employees know what the law requires
and the company expects.
• Few firms, however, systematically measure the
effectiveness of this effort or consider the impact of
new training approaches.
• Some experts argued that the explosion of web-based
ethics training may not be as effective as the more
traditional but expensive face-to-face training.
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• These training programs include
– Encouraging ethical behavior
– Ethics audit
– Corporate ethics awards: Ethisphere Magazine
honors ethical leadership and business practices
worldwide based on an Ethical Quotient (EQ)
score; American Business Ethics Award
– Whistle blowing
 Whistle blowing
• A whistleblower is a person who exposes any kind
of information or activity that is deemed
illegal, unethical, or not correct within
an organization that is either private or public.
• The information of alleged wrongdoing can be
classified in many ways: violation of company
policy/rules, law, regulation, or threat to public
interest/national security, as well as fraud,
and corruption.
 Continue…whistle blowing
• Those who become whistleblowers can choose to
bring information or allegations to surface either
internally or externally. Internally, a whistleblower
can bring his/her accusations to the attention of
other people within the accused organization such as
an immediate supervisor.
• Externally, a whistleblower can bring allegations to
light by contacting a third party outside of an
accused organization such as the media,
government, law enforcement, or those who are
concerned.
 Continue…whistle blowing
• Whistleblowers, however, take the risk of facing stiff
reprisal and retaliation from those who are accused
or alleged of wrongdoing.
• Because of this, a number of laws exist to protect
whistleblowers
 Points to consider while Whistle
Blowing
• Magnitude of consequences
• Probability of effect: Probability that the action will
actually take place and will cause harm to many people
• Temporal immediacy: The length of time between the
present and the possibly harmful event.
• Proximity: Emotional proximity or situations in which the
ethical question relates to a victim with some emotional
attachment to the whistleblower.
• Concentration of Effort: The more the number of people
involved, the more unethical. according to this principle,
stealing $1,000 from one person is more unethical than
stealing $1 from 1,000 people.
 Ethics committee, officers and
Ombudspersons
• In order to institutionalize ethical business
practices, an Ethics Committee can be formed at
board level or form senior level executives.
• Alternatively, provision of Ethics Officer can be
made to solely look after ethical and compliance
issues.
• Ethics officers generally report directly to CEO and
may have some access to board. Besides, an
independent and impartial resource person- aka
Ombudsperson- can also be hired to look after
various critical workplace issues including sexual
harassment and discriminations.
 Ethics committee, officers and
Ombudspersons…cont’
Ethics officers are responsible for following:
1.Assessing the needs and risks than an organization wide
ethics program must address
2.Developing and distributing a code of conduct or ethics
3.Conducting training program for employees
4.Establishing and maintaining a confidential service to
answer employees’ questions about ethical issues
5.Making sure that the company is in compliance with
government regulations
6.Monitoring and conducting ethical conduct
7.Taking action on possible violation of the company’s
code
 Ethics Assist or Help lines
• When employees may be troubled about some
ethical issue but may be reluctant to raise it with
their immediate supervisor, they can place a call
on the company’s ethics assist lines or help lines.
• It has typically three uses:
– to provide interpretations of proper ethical behavior,
when asked,
– to create an avenue to make known to the proper
authorities allegations of unethical conduct, and
– to give (and take) information about ethical issues to
(from) wide array of stakeholders, not just employees.