nsb bebe unit 2 chapter 3
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Unit 2 syllabus
Managing Ethics - Frame work oforganizational ethic theories and sources,ethics across cultures, factors influencing
business ethics, ethical decision making,ethical values and stakeholders, ethicsand profit, Corporate governanceStructure of boards, reforms in boards,
compensation issues, ethical leadershipfor improved Corporate governance andbetter business education
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Ethics in Organisations
Ethics in Business:
Ethics alone can determine companys success in the longrun
Balancing of conflicting interests. (personal and professional ethics)
All societies approve honesty, keeping promises, helping others,respecting others rights
All societies disapprove/forbid lying, stealing, deceiving and harmingothers
Questionable acts!
Kickbacks, Bribery, Corruption Theft, Collusion, Moneylaundering(diverting without regulators knowledge)drug sales,terrorism, gambling and smuggling
Individual making profits at others cost
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Sources & Development of Business Ethics
Genetic Inheritance: Evolutionary forces of natural selectioninfluence the development of traits
Religion: Belief that religion provides ethical principles andstandards (example:Ten commandments in Christianity)
Philosophical Systems: Pleasure principle Versus Indifferenceto pleasure or pain
The legal system: Law tries to educate the people
Codes of Conduct: Company code, company operating
policies, Code of Ethics
Cultural Experiences
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Arguments favouring Business Ethics
Ethics govern all voluntary human activities. Business is a voluntaryactivity.
No business exists when we think it is moral to break agreements orsteal competitors secrets or cut throats of others. Minimaladherence to ethics is therefore necessary
Companies that combined good history of profits with exemplaryethical standards survive for hundreds of years. Perpetuity beingone of the principles of business, business does not exist withoutethics (Examples of such companies: HP, Intel, Cisco, Procter &Gamble to name a few
Mutual co-operation always help
Just (ethical) organisations will have always have loyal customersinternal and external
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Business Ethics
Corporates to tackle four types of social issues to constitute totalcorporate social responsibility:--Economic issues; Legal issues,
Ethical issues and Philanthropic issues:
Economic Issues: Profit Versus acceptable profit producing required
goods and services to the society. Maximisation of profits andoptimisation of profits with social concerns.
Legal Issues: Business houses to comply with legal requirements of
the country in which they operate. Economic missions should be
within the framework of law. Legal and economic issues existtogether.
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Business Ethics
Ethical Issues: Sometimes business houses need to respectstandards set by society even though law may be silent on theissue. Examples are standards, norms, interest of stakeholders(consumers, employees, shareholders and the community).Environment protection, civil rights, consumer movements.Corporates to show higher level of performance than currentlyrequired by law. Coporates should recognise Justice,. Rights and
utilitarianism.
Philanthropic Issues: Business houses shoud be good corporatecitizens, which implies that they should involve themselves inactivities desirable to promote human welfare or goodwill. Examplesare contributions (direct or indirect) to art, education, community
work, rehabilitation of identified targetted population. Humanity is thecatchword.
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Imp Terminologies in Business Ethics
Teleology: Look at the consequences of actions/decisions (the ends); It is the
doctrine of final causes
Deontology:
Approach to determine the ethics by looking at the process of
decision (the means). It is the science of duty
Ethical Reasoning
Identifying the nature of ethical problem and then deciding thecourse of action which gives the best ethical result
Utilitarian Ethics It is a teleological approach which aims at greatest good for the
greatest number (cost benefit analysis which gives overall gain)
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Imp Terminologies in Business EthicsMoral Reasoning:
It is a science or moral development. Sometimes the local courtsdecide the moral reasoning. It is a study in psychology that overlapswith moral philosophy. It is also called moral development. Underconditions of uncertainty, accept the court to decide moral reasoning
Ethical Congruence:
A state where values, behaviours and perceptions are aligned isknown as ethical congruence
Theory of Ammorality:
Business need not always work under the full framework of societysethical ideals
Managers act selfishly because of market mechanisms which givesmaximum benefits to stakeholders
Justifying some issues unethical at workplace but at personal life thesame issues become unethical.
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Imp Terminologies in Business Ethics
Distributive Justice: It is a teleological approach which leads to equitable distribution of
goods and services
Whistle Blowing:
Disclosure by present or past employees about any illegal, orillegitimate practices in the company involving the employees. In
other words, sounding an alarm from within the very organisation inwhich people work aiming to spotlight neglect or abuses thatthreaten the public interest.
Compensatory Justice and Retributive Justice:
Both are concerned with rectification of the wrongs. Compensatingjustice is the correct way of correcting wrongs in private dealings (EgRelief to accident victims/survivors, failure to fulfil the contract.Retributive Justice is awarding punishment which acts as a deterrentEg Punishment of fine/imprisonment/death penalty for crimesrape,murder, assault, theft, robbery etc
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Imp Terminologies in Business EthicsCorporate Culture
It is the set of shared values of the people who form an organisation
serving the interests of the public in any manner. It defines the
existential purposes, functions and what is important for them. Every
employee developing a sense of belonging and exhibiting a uniform
behaviour towards internal and external customers
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The 4 Concepts of EthicsThe 4 Concepts of Ethics
Relativism Egoism
Utilitarianism Deontologism
TheThe 44ConceptsConcepts ofof
EthicsEthics
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The 4 Concepts of EthicsThe 4 Concepts of Ethics
Relativism
There is no universal standard by which morality can be judged
What is correct for one society may be wrong for another
Ethics and morality are relative
There are no absolutes - murder, slavery, torture, rape OK
What is meant by a society? Sub-societies
Leads to conclusion - each persons opinion is correct
Nothing that anyone does is morally wrong
Egoism
One ought to act in his or her own self interest
Ethical behavior is that which promotes ones own self interest
Does not mean should not obey laws - only do so if in self interest
Problem - Externalities associated with private actions - OK to dumptoxic wastes as long as dont get caught
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The 4 Concepts of EthicsThe 4 Concepts of Ethics
Utilitarianism
The morality of an action can be determined by its consequences
An action is ethical if it promotes the greatest good for the greatest
number
Ends justify the means
Deontologism
Derived from the Greek word for Duty
Actions are not justified by their consequences. Factors other thangood outcomes determine the rightness of actions
Means are important
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Organisational Ethics
Employees obligations to the firm Punctuality
Follow Dress Code
Work to the best of his/her abilities
Respect the employer, colleagues and customers
Take care of the organisations property and interests Follow reasonable and lawful orders/instructions. (Illegal Orders or
orders that threaten employees health and safety may be ignored)
Obey safety rules
Ask for help in case of need
Know employee expectations
Dont discriminate or harass others at workplace Dont put yourself or others at a risk ofINJURY in the workplace
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Organisational Ethics
Employees rights
Right of right wages
Protection from unfair dismissal
Sick leave, Annual leave, public holidays, familyleaveand long service leave
Freedom to belong to or not belong to a union
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Organisational Ethics
Firms duties to the Employees: Compensation (Wages and benefits)
Job Satisfaction ( skill development, training, workshops, seminars)
Working Environmentfree of hazards, congenial, avoiding injuries
Job ProfileJob description
Health and Safety
Growth Prospects (career prospects)
Job rotation ( Task identity, Task significance, Exposure, Autonomy,Feedback and also internal security reasons)
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Organisational Ethics
Organisational Ethics Programme Company integrates core values(honesty, integrity, trust, fairness
and respect) into its policies, practices and decisions
Compliance with legal standards and adherence with internal rulesand regulations
Right kind of behaviour of individuals and groups in the organisation
Companies need to put ethical codes in writing
Companies need to impart training program on ethics
Ethical image of a company brings goodwill and loyalty of internaland external customers
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Organisational EthicsImportance of Ethics to an organisation
Substantial improvement of society
Maintains a moral course even in turbulent times
Cultivates strong team work and productivity as the behaviours arealigned with the organisational values
Employee growth is strong and not tilting
Employee face reality both good and bad which improves theirconfidence
Creates productive work environment which avoids downsizing
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Organisational EthicsImportance of Ethics to an organisation (contd..)
Good public image developed
Companies and employees become socially more responsible
Public can understand the companys values and its existentialpurpose
Diversity can be easily managed in this globalised era
Inappropriate turnover can be controlled. Companies incur cost onaccount of loss of valuable experienced people and also on accountof development of new personnel. Pay is not always the primaryfactor
When a company integrates its values into its culture, it reflectsthrough employees attitude and conduct.
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Organisational Ethics
Code of Ethics of a successful companyHighlights
National interest supremecontribution to economicdevelopment, not undertaking any activity detrimental tothe national interest of those nations in which thecompany operates
Financial Reporting and Records: Fair and accurateconformance to the accounting standards whichrepresent the generally accepted guidelines, principles,laws and regulations of the country in which the
company operates. High standards of internal control isalso a must.
Transparency and good governance
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Organisational Ethics
Code of Ethics of a successful companyHighlights
CompetitionSuccessful competition which promote theprogressive and judicious liberalisation of trade and investment of acountry.
Equal opportunity without regard to race, religion, caste, colour,ancestry, marital status, sex, age, nationality, disability and veteranstatus
Employee policies and practices in a manner that ensures equalopportunity to those eligible on merits
Conduct socially responsible and socially responsive activities
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Organisational Ethics
Ethics in an organization refers to rules (standards,principles & values) governing the conduct of
organizational members and the consequences of
organizational decisions
Defining appropriate behavior Establishing organizational values
Nurturing individual responsibility
Providing leadership & oversight
Relating decisions to stakeholder interests Developing accountability
Relating consequences
Auditing & improvement
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Factors influencing standards of behabiour
Three general sets of factors influencing the standards ofbehaviour in an organization:
Individual factors: Level of education; Moral Values;Value related attitudes, Culture and Integration of
Personal goals & organizational goals
Social factors: Culture, Interpersonal relationship
Opportunity: the amount of freedom an organizationgives an employee to behave ethically if he or shemakes that choice. Deviations if monitored/punishedencourage ethical behaviour
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Principles of Employee Conduct
10% :Follow their own beliefs
40%:Try to follow company policies and rules
40%:Go along with the work group
10%:Take advantage if the risk is low
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Myths about Organisational ethics
Its easy to beethical
Unethical behavior is part of any organization
There are no rewards for being ethical
Ethical behavior will prevent me from being
Successful
Work is like a sport, push the rules & try not to get
caught
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Supporting Ethical decision making
culture, values & programs
compliance & leadership
recognition of the role of co-workers & managers
balancing stakeholder interests
management of situational pressures
rewards beyond short-term performance
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CorporateGovernance
Corporate governance is a process whereby people atthe helm of affairs direct, monitor and lead corporations,
and thereby create, modify or destroy the structures and
system under which they operate
The structure specifies the allocation of rights and
responsibilities among different participants in theorganisationBoard, Shareholders, and other
stakeholders
Corporate governance spells out the rules and
procedures for making decisions on corporate affairs Corporate governance implies that ethics is as important
as economics, fair play as important as financial
success, morals as vital as market share.
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CorporateGovernance
Concept of Corporate governance emerged to overcome
the corporate failures and widespread dissatisfaction
among the stakeholders
It reduces failures and dissatisfaction.
The three integrated principles of Corporate Governanceare: a) Integrity and Fairness; b) Transparency and
Disclosures and c) Accountability and Responsibility
Efficiency of corporate governance determines the
health of the capital market and the economy particularly
when FDIs and FIIS are flowing in a globalised economy
Corporate governance take care of investors with proper
valuation of securities. It ensures that there is no insider
trading
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CorporateGovernance
Accountability:
Means answerability. Every person in the organisation
should report to his superior how the work has been done
and how authority has been used. Every person thus
becomes answerable to the top management. The top
management is answerable to the stakeholders. However,the principle is that every employee is answerable to one
superior only.
It is necessary to protect interest of small investors,
gullible public, and to protect fleecing of rural people andto ensure maximum value to the firm in the long run
It is ensured through audit committees.
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CorporateGovernance
Accounting Standards: Institute of Chartered Accountants of India has
prescribed the accounting standards to ensure transparency and
uniformity in accounting practices. Accounting standards are written
statements issued from time to time re: financial measurements and
disclosures used in producing a set of fairly presented financial
statements.
Accounting Disclosures: Means that all financial information regardingbusiness transactions must be given in full. Financial statements
would be incomplete, unreliable and misleading unless supported by
important facts. Change in accounting policies, methods and
procedures should be recorded and presented
Whistle Blowing is allowed. It is a mechanism for employees to reportto the management about unethical behaviour, fraud and violation of
companys code of conduct etc
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CorporateGovernance
Need for corporate Governance:
Ever increasing number of operational players on account of LPG
Competition is successful when standards are met
Complex market conditions (Intl institutions like WTO etc)
Preventing corporate failures
Constituents of Corporate Governance:
Board of directors: stewarding the company and giving directions
and controlling the management
Shareholders: appointing the directors and auditors and to hold the
BOD accountable for getting proper information in a transparent
fashion.
Management: Running the company by putting in place adequate
control systems, ensuring their operations and to provide
transparent information correct and timely.
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CorporateGovernance
Requirements for good corporate governance
Board and its powers: Role, Responsibilities, Powers, and the
accountability of the Board, CEO and the Chairman
Legislation: Legislative and regulatory framework
Code of Conduct: Communication of code of conduct to allstakeholders and ensuring that they are properly understood
Board of Independence: Some members of the board should be
independent not having any commercial dealings with the company.
They shall have independent powers as well
Board Skills: Board members shall have a combination of skills andexpertise--operational, technical, financial, legal and also
government/regulatory
Management Environment: Setting up of clear objectives and ethical
framework, good planning, having right people etc
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CorporateGovernance
Requirements for good corporate governance (contd..)
Board appointments and reappointments: through extensive
research
Board Induction and Training:
Board Meetings: forum for board decision makingwell plannedagendas with papers ready for decision
Strategy setting:
Business and Community Obligations
Financial and Operational reporting
Monitoring the board performance Audit committee
Risk Management
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CorporateGovernance
Objectives of corporate governance:
Adequate disclosures and effective decision making to
achieve corporate objectives
Transparency in business transactions
Statutory and legal compliances
Protection of shareholder values
Commitment to values and ethical conduct of business
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CorporateGovernance
Functions of the Board; Strategy formulation, budgets, business plans
Monitoring the effectiveness of implementation
Selecting, Compensating, monitoring key executives and overseeing
succession planning
Executive and board remuneration Proper process of nomination and selection of board members
Monitoring and managing conflicting interests of management,
board members and shareholders and preventing abuse of inter
related party transactions
Ensuring integrity of the corporations accoutning and financialreporting (including audit)
Overseeing the process of disclosure and communications.
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CorporateGovernance
Composition of the Board of Directors:
Not less than 50% to be non-executive directors
If the chairman is executive: minimum 50% to be
independent directors
If the Chairman is non-executive: independent directors
could be one third
Types of directors: a) Full time executive director who is
normally a paid employee of the company; b) Non-
executive but non independent director who is normally a
promoter or having high stakeholder; and c) Independentdirectors known as nominee directors representing some
institutions like lenders or the government
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