ethics concept

7/29/2019 Ethics Concept

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BECG Business EthicsChapter 1


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What is business?

Business an activity performed with profitmotive

People find fault with profit motive is itethical


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What is the contribution of businessto the society?

Employment

Provide products and services to societywith efficiency

Wealth creation

Innovation


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Can society manage withoutbusiness entities?

Communism Utopian environment

They failed sustain themselves

Capitalism proved to be successful


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Business and Society

Business is a necessary But we need toensure that it fulfills its responsibilities forwhich it is functioning


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Stakeholders

Stake interest, claim, share

Stakeholder- individual or group that hasone or more of the various kinds of stakesin the business

Who are the stakeholders of Business ?


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Stakeholders

Shareholders and investors Employees and Managers Customers

Suppliers and other business partners Local community Government Social Pressure groups

Media Trade bodies Competitors


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Morality

What is Morality?

Morality standards that an individual or agroup has about what is right and wrong,or good and evil


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Moral Standard

When will you call a standard as moral standard ?

Deals with matters which has seriousimplications for the human beings

Cannot be established or changed by anyauthoritative bodies

Preferred over other values including self-

interest Based on impartial considerations

Associated with emotions


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Ethics

Then, what is ethics?

Morality is a field

Moral standards may give conflicting options

Ethics a discipline that examines howmoral standards apply to our lives

It answers the question of whether the moralstandards are reasonable and supportedby good reasons right or wrong


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Ethics

Ethics Ethikos (Greek word) Characteror Custom

Other topics also deal with Morality

Social Science, Psychology


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Where did these ethical standardscome from?

Religion

All religions talk more or less in similar toneabout ethical standards


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Golden Rule of Ethics

"Treat others only as you consent to beingtreated in the same situation."

GR forbids this combination:

I do something to another person.

I'm unwilling that this be done to me in thesame situation.


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Golden Rule in Religions

Hinduism This is the sum of duty; do naught onto otherswhat you would not have them do unto you(Mahabharata, 5: 1517))

JudaismWhat is hateful to you, do not do to yourneighbor. (Talmud, Shabbat 31a; Tobit 4:15)

Christianity Therefore all things whatsoever ye wouldthat men should do to you do ye even so to them(Matthew 7:12)

Buddhism-Hurt not others with that which pains yourself(Udanavarga 5:18)

Islam - "None of you is a believer until he wishes for hisbrother what he wishes for himself." (40 Hadith of An-Nawawi 13 )


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Religion does not clarify everything aboutethical rules.


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Ethical relativism

Societal requirements also determine(Ethical relativism)

Sacking employees in US and India

Abortion Japan and Europe

Birth control measures among the Muslims

in Turkey and Iran


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Why ethics in Business

Why study ethics in business ?

Individuals need to follow ethical standardsbut what about corporations?

Two views about business and ethics


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Business and Ethics

Unitarian View

Business activities are part of the ethical system

Separatist view

Adam Smith Business need not worry aboutethics- The invisible hand will ensure that

Milton Friedman Business should concentrate onproduction and distribution of goods. Its the duty

of the government to focus on social problems


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Business and Ethics

Global business Frauds

Barings, Enron, WorldCom, GlobalCrossing, Arthur Andersen, Parmalet,Refco,

Indian Business Frauds

Cooperative Banks, DSQ Software, GTB,CRB Scam, Satyam

M d th i f thi


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Modern theories of ethics

I - Teleological Theories

1. Egoism2. Utilitarianism

II - Deontological Theories

1. Universalism2. Principle of Rights

Principle of Justice

III - Virtue ethics

Principle of Care


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Teleological Theories

Moral Worth of Actions determined by itsConsequences

Egoism - Jeremy Bentham (1748-1832),

Utilitarianism - John Stuart Mill (1806-1873)


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Utilitarianism

Greatest happiness for greatest number ofpeople

Maximization of good and minimization of evil

Only the ends are important and not the means An action is morally right if the net benefits

(utility) over costs are greatest compared with

the net benefits of all other possible choices Cost- Benefit Analysis


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Issues with Utilitarianism

Problem of measurement

Problem with rights and justice The caseof Ford Pinto

Ford Pinto- Small car introduced in 1971-Involved in fatal accidents -

1978 case Ford has located the fuel tank

behind the rear axle instead of above itAny hit from the rear side would cause adamage to fuel tank resulting fire accident


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Ford officials came to know about it in1972 itself. They found design changesolution also which implemented would

have resulted in changes in the productionsystem.

The estimated cost for the productionchange was $11 per vehicle. This $11 perunit cost applied to 12 million cars resultsin an overall cost of $137 million.


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It was estimated that making the change would result ina total of 180 less burn deaths, 180 less serious burninjuries, and 2,100 less burned vehicles.

These estimates were multiplied by the insurance costfigured by the National Highway Traffic Safety

Administration. These figures were $200,000 per death,$67,000 per injury, and $700 per vehicle equating to thetotal "societal benefit" is $49.5 million. Since the benefit

of $49.5 million was much less than the cost of $137million, Ford felt justified in its decision not to alter theproduct design.

The risk,/benefit results indicate that it is acceptable for180 people to die and 180 people to burn if it costs $11per vehicle to prevent such casualty rates. On a case bycase basis, the argument seems unjustifiable, butlooking at the bigger picture complicates the issue andstrengthens the risk/benefit analysis logic.


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Teleological theories In Business

Egoism a corporation ought to do whateveris in the corporations best interest (which is

also the best interest of its shareholders) Utilitarianism one ought to seek to producethe greatest possible balance of good overevil, or the least possible balance of evil over

good, for all who will be affected by onesactions the stakeholder versus stockholderapproach to management decision-making


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Deontological Theories

Moral Worth of an action determined by rightduties, not consequences


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Universalism

Immanuel Kant (1724-1804)

A person should choose to act if and only ifhe/she would be willing to have everyperson on earth in that same situationexactly that same way

Means are also equally important along

with ends


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Issues with Universalism

Not clear in certain situations


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Principle of Rights

Everybody have certain rights

Actions should respect the rights

Means are important than endsRights cannot be overridden by Utility


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Problems with rights theory

Conflict among rights

Positive and Negative rights

Who or what defines the Positive Rights


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Principle of Justice

Fair treatment to each person

Distributive JusticeRetributive Justice

Compensatory Justice


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Distributive Justice

Different people put forth claims on societys

benefits and burdens and all claims cannotbe satisfied


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Egalitarianism Justice as Equality

Every person should be given exactly equalshares of societys or a groups benefits

and burdens

But human beings are not equal in theirability, talent and requirements

Political equality and economic equality


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Capitalism Justice based on Contribution

Benefits should be distributed according tothe contribution the individual makes to asociety, a task, a group or an exchange

How do you measure contribution?


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Whether it is based on Effort orProductivity or Value in the market


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Socialism Justice based on needs and abilities

Work burdens should be distributed according topeoples abilities, and benefits should be

distributed according to peoples needsLouis Blanc (1811-1882) and then Karl Marx

(1818-1883) , Lenin (1870-1924)

Is it possible? Will people accept it?


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Family Structure

Communists attempted to build familyculture at the societal level


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Issues

Without any connection between level ofwork and the compensation who will work?

Violates the individual rights


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Justice as fairness : John Rawls (1921-2002)

Each person has an equal right to the mostextensive basic liberties compatible with similarliberties for all

Social and economic inequalities are arranged sothat they are both

To the greatest benefit of the least advantaged

persons and Attached to offices and positions open to all

under conditions of fair equality of opportunity


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Retributive Justice

Justice of punishing persons for wrong doing

1. Person being punished actually didwrong

2. The wrong doing must have beencommitted knowingly

3. Punishment should be proportional to thewrong


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Compensatory Justice

Justice of restoring to a person what theperson lost when he or she was wrongedby someone else


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Ethics of Care

Obligation to exercise special care towardthose particular persons with whom wehave valuable close relationships


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Virtue Ethics

Ethical behavior is not enough

It is an alternative to theories of Ethics

Aristotle

Both Kantian and utilitarian systems try to provideguiding principles for actions that allow a person todecide how to behave in any given situation.

Virtue ethics, by contrast, focuses on what makes agood person, rather than what makes a good action


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Ethics and Law

Statues laws created by the legislativebodies

IPC, Company law, Factories Act

RegulationsEnacted by boards and agencies subjected

to the statutory power always

subordinate to the lawConstitutional Law- Foundation of the legal

system


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Law

Law- Consistent set of universal rules thatare widely published, accepted andenforced. It also defines the requirement

that one must act or must not act in agiven situation


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Law

Consistent Degree of firmness

Universal applicable to all

Published Available in written form

Accepted Everybody should accept it

Enforced mechanism to enforce


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Law and Moral Standards

Law is based on moral code to a greaterextent

An action can be legal but morally wrong

An action can be moral but illegal

Law has other considerations Sovereignty,Bringing order in the society etc


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Formulation of Law

Individual Process

Group Process

Society Process

Political Process


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Individual Process

Individual have norms, beliefs and Values

Norms Expected behavior

Belief about the ethical standards to befollowed

Values- priorities that person establishesfor his/her norms

M lit L d E i


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Morality, Law and Economicconsiderations

On many issues Moral, legal and economicconsideration suggest different pathsresulting in conflicts in decision making.

The case of Tiruppur
http://f/BECG%20slides/Cases-%20legal%20ethical%20conflict.pdfhttp://f/BECG%20slides/Cases-%20legal%20ethical%20conflict.pdf


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Pollution Problems in Tiruppur

Legally

Close down the dying and bleaching units

Economically

Dont close down as Triuppur can grow in post-quota regime. Develop some other centerparallelly to ensure a long term replacement

MorallyDilemma Closing down will lead to job lose

continuing will spoil agricultural activities

A l i Ethi l th i t


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Applying Ethical theories toBusiness

Unitarian View Business entities are part of thesociety hence they need to adopt ethicalpractices

But how to apply ethical standards to Businessentities?

To apply to the organization as a whole Citi bankin 1992 Scam- Ford Pinto - who is responsible

Or to the individuals who are responsible for itEnron

A li ti f Ethi l th i i


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Application of Ethical theories inBusiness

Theory of Corporate Moral Excellence

Ethics and Stakeholders theory

Ethics and Corporate Governance

Th f C t M l


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Theory of Corporate MoralExcellence

Corporations have two sets of values

Espoused Values

Values in Practice

Differences between the above two will

result in violation of ethical norms

Theor of Corporate Moral


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Theory of Corporate MoralExcellence

How to overcome the problems?

1. Values, attitudes and beliefs

2. Shape mission, policies, structure andstrategies based on values (Cultureshould reflect the values)

3. Organizational procedures and processshould facilitate the values


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Ethics and Stakeholders theory

Act in a responsible manner by payingattention to the needs and rights of theprimary stakeholders


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Ethics and Corporate Governance

Code of Conduct

Managers are working for Stakeholders notfor personal gains (except the salary)


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Value System of a Company


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Value systems of Corporate

The value system of the firms guide thepractices, if the promoters are seriousabout it


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Murugappa Group

Profile : 29 companies

Agri, Finance, Ceramics, Finished SteelProducts

Commercial
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Murugappa Group

The fundamental principle of economicactivity is that no man you transact withwill lose; then you shall not.

- Arthashastra

Values and beliefs of Murugappa group
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Values and beliefs of Murugappa group

Adhere to ethical norms in all dealings with shareholders, employees,customers, suppliers, financial institutions and the government.

Provide value for money to customers through quality products andservices.

Treat people with respect and concern; provide opportunities to learn,contribute and advance; recognize and reward initiative, innovativeness andcreativity.

Maintain: An organizational climate conducive to trust, open communicationand team spirit and a style of operation befitting our size but reflectingmoderation and humility.

Manage the environment effectively for harnessing opportunities.

Discharge responsibilities to various sections of society and preserve theenvironment.

Grow in an accelerated manner, consistent with values and beliefs, bycontinuous organizational renewal.
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Ethical norms- with shareholders

In early nineties Murugappa family realizedthat there are many opportunities availablein the liberalized market -

Professionals can do a better job in wealthcreation- 1993- MCB was established

N.S.Ragavan appointed as non-executiveChairman of Murugappa Corporate Board-2001


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2002- P.S.Pai Executive Chairman for athree year term which got extended for thefourth year- Till October 2006

2006 A family member becomeChairman To ensure better control overprofessional managers

Murugappa Corporate Board
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Ethical norms- with Employees

Encourage employees to be entrepreneurs(suppliers)

Young engineers-Encourage them to

pursue further studies

No strike in the last 30 years 30,000employees

Empowered employees


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Ethical norms- with Customers

Tata Group- JJ.Irani- Comments aboutMurugappa Group in CUMI function

"the Tatas of South India- in terms of

integrity and ethics,


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With Suppliers

Scope Information solutions Quote thecorrect price in project proposals Mutualtrust


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With Government & Society

License raj- Never bribed officials appliedfor around 20 licenses got only 3

Got out of IMFL business in 1989

IMD DISTINGUISHED FAMILY


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IMD DISTINGUISHED FAMILY

BUSINESS AWARD 2001

Earlier given to only European Business

Criteria

The company should be under family ownership and

Management for at least three generations. It should be a market leader and respected in the

Industry.

It should have international business activities

Should have effectively linked tradition and innovation. The company Should be a good corporate citizen.

Should practice effective Corporate Governance system.
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ethics concept

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