Unit 2 Management of Ethics

UNIT 2 MANAGEMENT OF ETHICS (30%)

2.1 Ethics Analysis (Hosmer Model)

2.2 Ethical Dilemma

2.3 Ethics in Practice

2.4 Ethics for Managers

2.5 Role and Function of Ethical Managers

2.6 The organizational size

2.7 Profitability and Ethics

2.8 Cost of Ethics in Corporate ethics Evaluation

2.9 Business and ecological/ environmental issues in the Indian Context and case studies

MANAGEMENT OF ETHICS

As seen earlier business ethics is concerned with corporate ethics and managing ethics.
Managing ethics mainly concern with the ethical quality of the decisions and actions taken by
managers of an organization. Its main objective is to ensure that the managers especially
executive managers behave ethically and take decisions that are ethically correct.

On one hand where corporate ethics ensures that the corporate objectives and decisions at
corporate level are ethical and that there is ethical code of conduct prescribed for employees of
the organisation, the management of ethics ensures that every employee of the organisation
behaves according to the corporate ethical standards.

2.1 ETHICS ANALYSIS (HOSMER MODEL)

Hosmer has suggested a model for ethical analysis of management decisions. It is helpful in
analysing the ethical dilemmas of international managers.

HOSMER STUDY

The model was developed on the basis of research conducted on HR problem relates to
employee drug testing issue of a company that faces the problem of low productivity and
low quality. It is suspected that it is due to drug and alcohol abuse. The testing for chemical
depending is an invasion of personal privacy and the test does not always give accurate result.
The management has information that less than 20 percent of the workforce uses drugs and
 Unit 2 Management of Ethics

alcohol. However, if the test is carried out, the other 80 percent will also have to go through
the indignity of tests. The managerial dilemma is whether to go for drug test or not.

Based on this research Hosmer proposed a model of ethical Analysis which is now applied
generally. Hosmer model has financial, legal, organizational, social and personal aspects as
parts of content of managerial dilemma. It may lead to better working environment once the
problem is solved.

THE SIX STEPS OF HOSMER’S MORAL REASONING PROCESS (HMRP):

1. Identify the Moral Issue

2. Identify Additional Facts Helpful to Making a Decision

3. Identify the Alternatives Available to Apply to the Problem

4. Identify the Personal Impacts to the Decision Maker
5. Apply Three Leading Contemporary Theories of Business Ethics: Shareholder,
Stakeholder, and Virtue
6. Conclude with a Decision

HMRP STEP 1: IDENTIFY THE MORAL PROBLEM

A quick and dirty way of identifying the moral issue is asking who has been harmed and whether
they have been harmed in a significant way.

Of course, people are harmed all the time. People lose all the time. It’s one thing to lose; it’s
another thing to create an ethical dilemma. Just because your favorite team loses a game, or you
lose a job or another company or another individual wins a bid does not mean that there is an
ethical dilemma. In a capitalist society, there are winners and losers. Fair or not, the free market
system is the one we find ourselves in, and this decision-making framework assumes that to be
the case.

In identifying a moral issue, one is looking at a situation where there has been harm to a
vulnerable party
who has been unable to protect him or herself.
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HMRP STEP 2: ADDITIONAL FACTS

Business students and business people tend to do quite well in finding many additional facts
and identifying questions that they want to have answers before they make a conclusion.
That’s healthy. One of the best things one can do in making an ethical analysis is to find
additional facts so that there will no scope for gossiping. This step thus becomes the
opportunity to recognize the additional facts that would be helpful to know. One still must
often make a decision based on insufficient information; life tends to require that. But this is
an opportunity to identify three or four additional facts that would be helpful to know in
making a moral decision. Of course, these facts need to be relevant. Additional facts need
not be determinative, but they do need to be appropriate.

HMRP STEP THREE: AVAILABLE ALTERNATIVES

Step three looks at alternatives. Sometimes, we may think of an ethical issue as an either-or
choice. You must either do the saintly thing or risk selling your soul. Frequently there are
a lot of options in between.

1. What are the best economic alternatives?

2. What are the legal alternatives?
3. Does the given decision results in greater benefits than damages for society as a
whole, not just for our organization as part of that society?
4. Is the decision self-serving, or would we be willing to have everyone else take the
same action when faced with the same circumstances?
5. We understand the need for social cooperation; will our decision increase or decrease
the willingness of others to contribute?
6. We recognize the importance of personal freedom; will our decision increase or
decrease the liberty of others to act?
7. 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?
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HMRP STEP 4: IDENTIFY PERSONAL IMPACTS

Personal impacts are not the impacts on the various human beings that are affected by a
corporate decision. It is how far the decision is affecting the decision-maker. Personal
impacts apply to the following:

 Assume that you are in the position of being the decision-maker or a person who’s
making a recommendation to the decision-maker. In that position, what are the
consequences to you as a person and what are the consequences to your career resulting
from the decision you make? Recognize that from a career standpoint, it can cut both
ways. So, recognize that in many situations, the personal impacts could go in a couple
of different directions.

HMRP STEP 5: APPLYTHREE MORAL FRAMEWORKS

Professor Hosmer’s Step Five applies ten ethical principles drawn from thousands of years of
philosophy. The modification is to reduce these to three leading, contemporary business
ethics frameworks which capture the historical philosophies and place them into a business
application.

SHAREHOLDER THEORY:

The correct way to state the legal duty of managers to shareholders is that managers should
carry out the lawful directives of shareholders.

Shareholders are the principals and agents are the managers.

To be sure, shareholders will be interested in profit. But shareholders may also hold non-
economic directives (aadesh) as well such as adhering to standards of journalistic excellence,
or employing a percentage of individuals with disabilities, or commitment one’s business to
fostering peace.

There are companies that do each of these things and if their shareholders are comfortable
with these objectives, there is nothing illegal about them. So, don’t just assume that the only
thing that matters in a corporation is profit; there may be more.

Moreover, what is in the short-term interest of the shareholders and what is in the long-term
 Unit 2 Management of Ethics

interest may be two different things, even just in terms of making money.

Finally, because corporations are creatures of the law, they should obey the laws that govern
them.

STAKEHOLDER THEORY:

Derived from Kantian principles (right Theory) of human dignity, the stakeholder position is
that businesses should be run for the benefit of anyone affected by the action because we
ourselves would like to be treated as an end rather than a means to an end. To prioritize what
stakeholders to consider, evaluate whether a basic right has been affected; whether vulnerable
parties are protected; and whether there is a way to great a greater good for a greater
number.

VIRTUE THEORY:

Rather than just considering what duties people in business might have (both shareholder
and stakeholder theories are deontological theories of ethics), virtue theory asks what would
be exemplary.

Because people seem to think that everyone has different virtues, you might take time to
“elect” the virtues that a class thinks are most important.

One has to prepare a list of virtues, define them and apply them to the cases at hand.

HMRP STEP SIX: CONCLUSION

Step six calls for a conclusion. This could be to choose the Justice approach in the Stakeholder
Theory. It could be to choose maximizing profitability in the short term. It could be a mix of a
variety of the frameworks. For example, one would design a solution based on respecting rights
and protecting the vulnerable because in the long term, such attention is going to create the
greatest good for the greatest number, which will also equate with long-term shareholder value.
 Unit 2 Management of Ethics

Example:
your best friend is asking you to show an answer to a question in the
examination. Q whether you will tell the answer or not.
Step 1 identify moral issues: what will be the harm if you tell the answer and what will
be the harm if you do not tell the answer.
 Risk of being caught in act that will result in suspension and punishment.
 Eventually ur friend will not learn and will remain incompetent
 It will create a burden on you as he will then always expect u to show
answer in other future exam.
 My friend will get more marks than me.
 Examination will lose its essence/purpose.
 This will motivate other to do the same.
 Friendship will end.
 Friend will fail exam.
 I will be socially rejected.

Step 2 collect information

Additional Step 3
Sr. No. Question Alternative 1 Alternative 2
Show deny
1 What are the best economic alternatives? 1
2 What are the legal alternatives? 1
3 Does the given decision results in greater 1
benefits than damages for society as a whole, not
just for our
organization as part of that society?
4 Is the decision self-serving, or would we be 1
willing to have everyone else take the same
action when faced with the same circumstances?
5 We understand the need for social cooperation; 1
will our decision increase or decrease the
willingness of
others to contribute?
6 We recognize the importance of personal 1
freedom; will our decision increase or decrease
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the liberty of
others to act?
7 Lastly, we know that the universe is large and 1
infinite, while we are small and our lives are
short; is our personal improvement that
important, measured
against the immensity of that other scale?
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Sr. Question Alternative Alternativ Weightage according

No. 1 e2
Show deny personal Shareholder Stake virtue Step
impact step 5 6
step 4
1 What are the 1 90% 90% 180
best economic
alternatives?
2 What are the 1 4% 4% 25 33
legal
alternatives?
3 Does the 1 2% 2% 50 10 64
given decision
results in
greater
benefits than
damages for
society as a
whole, not just
for our
organization
as part of
that
society?
4 Is the decision 1 1% 1% 10 12
self-serving,
or would we
be willing to
have everyone
else take the
same action
when faced
with the same
circumstances?
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5 We 1 1 1 10 25 36
understand the
need for social
cooperation;
will our
decision
increase or
decrease the
willingness of
others to
contribute?
6 We recognize 1 1 1 30 10 42
the
importance of
personal
freedom; will
our decision
increase
or
decrease the
liberty of
others to act?
7 Lastly, we 1 1 1 10 10 22
know that the
universe
is
large and
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infinite,
while we are
small and
our lives are
short; is our
personal
improvemen
t that
important,
measured
against
the
immensity
of
that
othe
r
scale?

2.2. ETHICAL DILEMMA

Dilemma is from a Greek for "double proposition." It was originally a technical term of logic,
but we use it now for any time you have a problem with no satisfactory solution.
A dilemma is a tough choice. When one is in a difficult situation and each option looks
equally bad or equally good, you're in a dilemma.

MEANING:

A tough choice when in a given situation each option looks equally ethical and unethical.
Ethical dilemma occurs when the decision-maker has to chose among actions that looks
equally good or equally bad on the grounds of ethical analysis.
Thus ethical dilemma occurs when ethical analysis fails.
A dilemma is described as a grim problem apparently incapable of a satisfactory solution or a
situation involving choice between equally unsatisfactory alternatives (Davis, Aroskar,
Liaschencko, and Drought, 1997). It is concept appraised by Sletteboe (1997) who recognized
three circumstances that can give rise to a dilemma. These include two or more alternatives to
choose between; a wanted option leads to unwanted consequence; and a choice where one
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does not know what is the right thing to do. He also suggested five defining features of
dilemma as there were engagement, equally unattractive alternatives, awareness of the
alternatives, the need for a choice, and uncertainty of actions.

TYPES OF ETHICAL DILEMMAS IN ORGANISATION

1. FACE-TO-FACE ETHICAL DILEMMAS

This arises mainly because of human element at work. People make social interaction and
relation at work. These informal relations create certain type of expectations. However,
organisation have specific expectation from each employee. When expectation of
organisation and of social relations oppose each other, we say there is face-to-face dilemma.

For example:

Suppose you are a purchase manager.

Suppose you are a Recruiting officer in a reputed organisation. Your uncle (kaka) asks you to
recruit his son in your company. What you will do?
Friends have started business together as partners. If there is a disagreement regarding
business processes and one wants to break partnership. Than it might create a difficult choice
whether to break partnership or not.

CORPORATE-POLICY DILEMMAS

Managers have to make certain policy decisions based on the corporate policy or corporate
directive that might seem to be unethical or that might increase the scope of being mis-used.
However, manger has to make policy decision. At the time when manager feels that the
policy made by him is unethical or which might result in an unethical practice in future than
such is known as corporate-policy ethical dilemmas.
 Eg. Your R&D department has modemized one of your products. It is not really •new
and improved you know printing these statements on the package and using it in
advertisement will increase its sales. What would you do?
 You are interviewing a former product manager who just left a competitor's company.
You are thinking of hiring him. He would be more than happy to tell you the coming
years. What you will do?
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 You have a chance to win a big account that will mean a lot to you and your company
assistant recommends sending a i-phone to him, What would you do?
 You produce an anti- dandruff shampoo that is effective with one application. The
purchasing agent hinted that he would be influenced by a gift. Your assistant says that
the product would turn over faster if the instructions on the label two applications.
What would you do?
 You work for a cigarette company and till now you have not been convinced that
smoking cigarettes causes cancer but now there is an report across your desk that
clearly establishes the connection between smoking and cancer. What would you do?

FUNCTIONAL AREA ETHICAL DILEMMA

Manager perform wide rage of functions in the organisation. These functions sometimes have
unethical choice associated with them, or the choice is equally bad at that time what manager
feels is called functional area dilemmas.
Example
Suppose you an accounts manager and being accounts manger you have prepare and
maintain accounts in such a way that they would used by investors, auditors, tax collectors,
trade union, etc. to make respective decision.

Investor would invest in a company whose balance is showing higher profit. Thus, being
accountant, you would be interest to show the account in such a way that your company seems
sound. However, at the same time you want that your account book should as such that it
results in less tax as possible. What to do?

DILEMMA OF LEADER

Being a leader one has to make difficult choices that will have great say on the effectiveness
of organisation. Often leader has to make unethical choices in order to have greater good for
greater number of people (organisation) that time he/she faces dilemmas of being leader.

Some of them are as follows:

 Identifying the conflict issues in the organization and trying to avoid them

 Deciding different methods to motivate employees

 Managing fairness in subordinates performance appraisals

 Protecting secret information of the organization

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 Identifying the areas of interest of customers, employees, suppliers, owners and the staff

 Taking action against the reports of complaints in the organization

 Handling different problems of employees

 Taking corrective action against employees

2.3 ETHICS IN PRACTICE

There is difference between optimum usage and practical usage of any given element. It is not
possible to apply ethics at maximum/idealistic manner in organisation however one applies
ethics in practical manner.
There are several theories of ethics. They may result into opposing decision each claiming to
be ethical. Moreover, it would be very tedious for individual to assess action on each theory
and approach and then make a choice. Thus, being organisation one has to develop a single
set of principles that might guide managers to understand which principle to apply when so
that the objectives of business are achieved. This single set of principles is termed as ethics in
practice. Ethics in practice is based on following rationale.

1. There are many approaches and theories of ethics. Thus, there is a confusion in mind of
employee which one to apply. Hence, organization require ethics in practice.
2. Each employee will choose approach to ethics based on his/her personality and
attitude. Organisation does not want such thing it want certain amount of uniformity.
3. Organisations are entities aimed for specific goal (eg. growth, profit, etc.) these goals
can not be compromised. Thus, organisation has to device ethics in practice that
would allow organisation to be ethical without compromising their fundamental goals.

PRINCIPLE OF ETHICS IN PRACTICE

1. HUMAN DIGNITY

Those thing or decision or actions that violates human dignity are unethical in an organisation.
The manger of the organisation has to choices in accordance with human dignity.
Eg.
1. Harassment at work is unethical as it is against human dignity.
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2. Verbally abusing employees of competitor’s firm.

2. HUMAN RIGHTS

In practice it is expected that organisation or the members of organisation perform action

such that no human right should be denied or violated.
Eg.
1. Adulteration in food. Completely against human right and has be treated as unethical
activity.
2. Putting hazardous affluents in river.
3. JUSTICE

Manager will make sure that there is no injustice done to employee, customer or stakeholder.
In case of ethical dilemmas manager has to see to it that there is greater justice to greater
number of people.
Eg.
1. In Fisher industry 50% of the catch is wasted and not used for consumption as food.
One of the reason is lack of technology. So is it ethical , no.
4. BENEFICENCE

It is concerns human welfare, reducing the harms and optimizing the benefits of greater
number of people. Whatever action a manger makes whether it is benefiting organisation,
employee and society at large.
Eg. The working condition is very harsh and the appropriate care is not taken of employee
and more over not compensated for such harsh condition then it is unethical.
5. CULTURAL DIVERSITY

Customers or employees or stakeholder come different cultural background having different

moral standards. And being organisation on has accept to the point that it is not affecting
organisation’s process; it induce pluralism, and there should be certain amount tolerance for
these differences.
6. SOLIDARITY, EQUITY AND CO-OPERATION

Organisation believes that employee has to display feeling of solidarity (unit) accompanied
with co-operation there has to be equity. If organisation is treating employees with equity
there will be no co-operation.
7. RESPONSIBILITY TOWARDS ENVIRONMENT

Managers have the responsibility of doing ethical things from a business perspective and
ensuring everything is thought and executed in the best interest of all the stakeholders and the
 Unit 2 Management of Ethics

company in general. Following are ethics for manager across various classes of managers:

2.4 ETHICS FOR MANAGER

A. ETHICS FOR MANAGERS AT ALL LEVELS AND FUNCTIONS

1. Honesty: Managers, when given the responsibility of leading a team, need to be

truthful and honest in their dealings. They are expected to provide correct statements
and guide the team in the right direction.
2. Integrity: Managers who are ethical usually demonstrate high levels of personal
integrity. They tend to follow their convictions and do what they feel is right even
when they are tempted to do otherwise. Managers who have high personal integrity
are upright, honorable, and principled.
3. Loyalty: The role of ethics in management is immense. And this can be gauged from
the fact that ethical managers are loyal and never disclose any information they have
gained from confidence for their personal advantage. These managers usually
demonstrate fidelity and remain worthy of trust. They also remain loyal to their
colleagues and companies, all through their contractual period.
4. Fairness: Managers who are fair do not exercise their power arbitrarily. They treat all
individuals with fairness and have high tolerance levels. These managers are generally
open-minded and admit if they are wrong and change their beliefs and positions when
required.
5. Respect: Ethical managers tend to exhibit various qualities including autonomy,
human dignity, and interest in all those who have contributed to the success of the
company, rights, and privacy. These managers tend to be courteous and treat all
employees with equal dignity and respect, irrespective of their national origin, race.
B. ETHICS FOR LEADER

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.

Thus Ethics of Manager+ Personal Moral Principle = Ethics for leader.

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C. ETHICS FOR MARKETING MANAGER

Marketing function comprise of sales, advertisement and promotion, after-sales

services and market research. Each of the function has unique ethical issues that has to
be addressed by marketing manager and organisation. Following are some actions that
are considered to be unethical and should be avoided by marketing manager.

Not supplying the products made by the company as per the order
Not accepting responsibility for the defective product
Not giving details about the hidden costs, such as transportation cost, while making
the contract with the client
Making false commitments to the customers about the benefits of the product
Giving wrong prices to the customers during advertising
Using outmoded service equipment which can be harmful for the
Overbilling the service charges, when the customer is not aware of the actual rates
A biased research report is prepared to suit the marketing manager.
D. ETHICS FOR HR MANAGER

HR manager have to perform several functions viz. recruitment, trining,

administration, IR, OD, HRD, etc. there are several ethical issues concerning HR.
being an ethical HR manager one should avoid following actions or activities:

Recruitment on the basis of financial favours

Recruitment of the relatives of other employees
Recruitment of less acceptable men when there are better suited women available for the
job.
Employing children below fourteen years for the job
Giving less than minimum wages fixed by the government
Arranging training only for favourite employees, whether they deserve it or not
Experimenting with trainees by asking them to set their own timetable for Training
Tampering leave records of the employees
Giving leaves continuously to favourite employees
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E. ETHICS FOR FINANCIAL MANAGER

Finance manager have to perform several functions viz. accounts, costing, finance,
audit, etc. there are several ethical issues concerning Financial manager. Being an
ethical Finance manager, one should avoid following actions or activities:
Overestimating promoters’ capital utilization
Overbudgeting project costs
Showing inflated salaries and getting receipts from employees for an amount larger
than what they actually get
Playing inflated vendor bills in order to get discounts or commissions
Ignoring major deviations from the budgets
Rejecting the tender having lowest cost among all due to personal
reasons
Helping in hiding black money in order to reduce the tax payable amount

F. ETHICS FOR PRODUCTION MANAGER

Production manager has to perform several function viz. production planning,

material handling, purchase, quality control, etc. being ethical production manager one
has to avoid following activities:
Taking commission from vendor.
Giving purchase order to firm friend or relative.
Undue wastage or conscious wastage of material and other resources.
Adulteration in product.
Untreated soild and liquid effluents are discharged in environment that leads to
environmental pollution.
2.5 ROLE AND FUNCTION 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.
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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.
Sometimes Ethical decision-making problems arise for managers and leaders when decisions
involve amoral 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, the manager has to make the best possible decision based on
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 this kind of decision-making role and function of ethical manager comes handy.

According to Gerald Cavanagh and his colleagues role of ethical manger is to make ethical
decision. And to make ethical decision there is a stipulated decision-making framework. This
framework includes following aspects that help manger to take ethical decisions
1. DUTIES ( DEONTOLOGICAL
APPROACH) From chapter 1 notes

2. RIGHTS

From chapter 1 notes

3. UTILITARIANISM (TELEOLOGICAL
APPROACH) From chapter 1 notes

4. JUSTICE

From chapter 1 notes

5. ETHICS 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
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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.

2.6 ORGANISATIONAL 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 (managing through elaborate rules,
policies and stipulated procedures) and the division of labour(high specialization) 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 of the law.
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.
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In addition, independent profit centers within a decentralized organization may deviate from
organizational objectives. As they have authority to make decision they may exercise it
unethically. Such structure also promotes unethical behavior among organizational members
because there are independent profit centers which make their own decisions and sometimes
these units deviate from organizational objectives and serve their individual interests.
Decentralized structures run on employee empowerment but if the employees misinterpret
their power; this may lead to immoral acts by employees. There are also chances that middle-
level managers when get pressure from the top may exert unnecessary pressure on lower
level employees and this may again lead to unethical behavior in the organization.

Thus both centralized or decentralized structures have scope of unethical activity however the
nature of operations of unethical activities differ and so as the management of ethics differs
with difference in structure.

For managing ethics there are several measures that an organisation can take raging from
legality to compassionate behavior. All the bellow mentioned aspects are important for both
centralized and decentralized organisation. However, certain aspects are more important for
centralized organisation rather than decentralized organisation, vice versa, and they are as
under:

Centralized Decentralized
Maximum Legality Maximum Rationality
Maximum responsibility Maximum accountability
Maximum Work Commitment Maximum engagement
Maximizing responsiveness Maximum Resilience
Maximum Deontological approach Maximum Teleological approach

2.7 PROFITABILITY AND ETHICS

The words mentioned in this topic fall as some of the important terms to be understood while
working on any business strategies. While profit is something that can be measured in
monetary terms (quantitative) while, ethics is measured subjectively or by the actions taken.
But the relationship of these terms is something which has raised a controversy in the minds
of people.
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Ultimately, both of these terms end up resulting in one point viz., Reputation. It is considered
to be one of the most prominent factors to measure an organization’s corporate success.
Many companies end up performing some unethical tasks which show them at good numbers
on the ‘success ladder’. But this success is temporary and leads to the creation of
controversies.

PROFIT OVER ETHICS:

Profit is one of the missions for any business. Profits are needed to pay back investors as well
as give salaries to employees. That should not lead to unethical practices. Profits can be
earned along with practicing ethically.

There have been many scenarios where unethical practices have caused the organization to go
into serious controversies. Some of the examples are given below:

Maggi instant noodles ban in the year 2015: Occurred due to excessive quantities of
Mono Sodium
Glutamate aka MSG, despite writing “No MSG” on the packet.

Volkswagen scenario in 2016: It was noticed that the car company was cheating on
the emission tests for more than seven years after it failed a Federal Trade
Commission (FTC) test

Nirav Modi and Geetanjali jewels: The jewelry giants which had created a huge buzz
nationally as well as globally due to unethical practices done by their owners in Punjab
National Bank. This scam also gave a bad mark on PNB’s reputation.

So, overall, before these scams came into a scenario, these companies were having a
successful path and were earning huge profits. Still unethical practices in marketing prevail to
earn more profits in this market.

ETHICS OVER PROFITS:

An investor will look at the financial performance of a company, whereas the customer will
look at the reputation of the company before purchasing. Sometimes, customers also look at
the social cause of the company. It is necessary to maintain a reputation in the market to
grow.
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Many organizations like Tata, Starbucks, Wipro, Walmart, are known for their ethical practices all
over the world. These companies have good profits but are ethical. They are successful because
they have developed a balance between ethics and profits.
BALANCED APPROACH

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 of ethics:
1. LEADERSHIP BY EXAMPLE

The organisations having balanced approach often leads by example. The top
management especially the founding members of the organisation exercise high level
of ethical standards. They act as role model for others employees. Company owners,
executives and managers sets the highest examples of attitude and ethical conduct for
their employees. "Do what I say, not what I do," is a parental anachronism with no
value in management.
2. COMPANY-WIDE ETHICAL AWARENESS

The organisations having balanced approach invest lot of time, energy and efforts in
generating awareness towards ethical principles and benefits of ethical behavior to not
only the employees but also to other stakeholders.
3. STRONG MANAGEMENT OF REVENUE GENERATION AND REPORTING

Maximum unethical practices occurs where there are chances of financial gain i.e. at
revenue generation centers. Organisations having balanced approach exercises strong
managerial controls on revenue generation centers so as to put check on any
possibility of unethical practices. Corporate temptation to stretch ethical behavior in
revenue generation and reporting is universal.
4. HIGH LEVEL OF INTERNAL TRUST

The level of trust within a company should reflect the level of trust the company
solicits from customers. Balanced approach organisation encourages customers to put
their complete trust in the product or service. this is possible when organisation and
employees trust one another. These type of organisation invest in behavioral training
that leads to increased trust among employees. 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
 Unit 2 Management of Ethics

outcome is never in doubt because of the trust the team shares.

5. FORMAL AND ACTIVE COMPLIANCE PROGRAM

Ethical profitability (balanced approach) organisation always tries to operating within

the boundaries of the law. Legal compliance limits unethical behavior, but it does not
define ethical behavior. 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 behavior.
(Even federal sentencing guidelines recommend lower fines if such violations occur
contrary to the existence and enforcement of compliance codes.)
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2.7 COST OF ETHICS IN CORPORATE

Operating in an ethical way may incur additional costs to a business when compared with
other organisation and companies who may not do business in the same way.
Additional cost an ethical company has bear in comparison to unethical company.
1. Direct Cost:
a. Higher raw material cost:
i. ethical organisation would not prefer adulterated raw material.

ii. Will give preference to renewable material.

iii. Organic material.

iv. Like purchase from ethical vendor.

b. Human resource Cost:

i. Labour cost per unit will be higher.

ii. Labour welfare cost will be higher.

iii. Labour safety and security cost will be higher.

c. Effluent treatment cost

d. Marketing Cost
i. Rejected product cost

ii. Better quality cost

e. R&D Cost
2. Indirect cost:
a. Tax evasion
b. CSR activity
c. Audit rigorous audit and will higher ethical auditors.
d. Legalities compliance cost
e. Ethical marketing
f. Ethical R&D
g. Transparency Cost eg. in Australia the origin of the product has to mentioned on
the packet

2.8 ETHICS EVALUATION

Ethical — Evaluation should not reflect personal or sectoral interests. Evaluators must have
professional integrity, respect the rights of institutions and individuals to provide information
in confidence, and be sensitive to the beliefs and customs of local social and cultural
environments. When considering an ethical issues it is advised that you follow a stepwise
 Unit 2 Management of Ethics

approach in your decision-making process

 Recognize there is an issue Identify the problem
 who is involved Consider the relevant facts, laws and principles
 Analyze and determine possible courses of action
 Implement the solution
 Evaluate and follow up

2.9 BUSINESS AND ECOLOGICAL/ ENVIRONMENTAL ISSUES IN THE INDIAN

CONTEXT

There are many environmental issues in India.

Air pollution, water pollution, garbage domestically prohibited goods and pollution of the
natural environment are all challenges for India.

Nature is also causing some drastic effects on India. The situation was worse between 1947
through 1995. According to data collection and environment assessment studies of World
Bank experts, between 1995 through 2010, India has made some of the fastest progress in
addressing its environmental issues and improving its environmental quality in the world.
Still, India has a long way to go to reach environmental quality similar to those enjoyed in
developed economies. Pollution remains a major challenge and opportunity for India.
Environmental issues are one of the primary causes of disease, health issues and long term
livelihood impact for India. Major environmental issues are forests and agricultural
degradation of land, resource depletion (such as water, mineral, forest, sand, and rocks),
environmental degradation, public health, loss of biodiversity, loss of resilience in
ecosystems, livelihood security for the poor.

The major sources of pollution in India include

the rapid burning of fuel wood and biomass such as dried waste from livestock as the primary
source of energy, lack of organised garbage and waste removal services, lack of sewage
treatment operations, lack of flood control and monsoon water drainage system, diversion of
consumer waste into rivers, cremation practices near major rivers, government mandated
protection of highly polluting old public transport, and continued operation by Indian
government of government-owned, high emission plants built between 1950 and 1980.
 Unit 2 Management of Ethics

The environmental issues can be classified into

1. Air pollution
2. Water pollution
3. Land Pollution and
4. Noise pollution

Air pollution, poor management of waste, growing water scarcity, falling groundwater tables,
water pollution, preservation and quality of forests, biodiversity loss, and land/soil
degradation are some of the major environmental issues India faces today.

India's population growth adds pressure to environmental issues and its resources. Rapid
urbanization has caused a buildup of heavy metals in the soil of the city of Ghaziabad, and these
metals are being ingested through contaminated vegetables. Heavy metals are hazardous to
people's health and are known carcinogens.
 Unit 2 Management of Ethics

• Food safety (including food justice, impacts of additives, etc.)

• Genetic engineering or modification (includes GMOs)

• Global environmental issues (in recognition that environmental issues cross borders)

• Global Warming

• Habitat loss (destruction, fragmentation, changed use)

• Intergenerational equity (recognition that future generations deserve a healthy environment)

• Intensive farming

• Invasive species (weeds, pests, feral animals, etc.)

• Acidification (includes algal bloom, coral reef loss, etc.)

• Air quality (air pollution, ozone pollution, ties to human health with asthma, diesel emissions,
etc.)

• Biodiversity (conservation of biological diversity)

• Climate change (encompasses "global warming", greenhouse effect, loss of glaciers, climate
refugees, climate
justice, equity, etc)

• Conservation (nature and animal conservation, etc.)

• Consumerism (linking the state of consumers within the economy to environmental

degradation and social
malaise, planned obsolescence)

• Deforestation (illegal logging, impact of fires, rapid pace of destruction, etc.)

• Desertification

• Eco-tourism

• Endangered species / threatened species (CITES, loss of species, impact of chemical use on
species, cultural
use, species extinction, invasive species, etc.)

• Energy (use, conservation, extraction of resources to create energy, efficient use, renewable
energy, etc.)

• Environmental degradation

• Environmental health (poor environmental quality causing poor health in human beings,
bioaccumulation,
poisoning)
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• Land degradation

• Land use planning / Land use (includes urban sprawl)

• Natural catastrophes (linked to climate change, desertification, deforestation, loss of natural

resources such
as wetlands, etc.)

• Nuclear power, waste and pollution

• Over-exploitation of natural resources (plant and animal stocks, mineral resources (mining),
etc.)

• Overfishing (depletion of ocean fish stocks)

• Ozone depletion (CFCs, Montreal Protocol)

• Pollution (air, water, land, toxins, light, point source and non-point source, use of
coal/gas/etc., reclaimed land issues)

• Population issues (overpopulation, access to reproductive control (reproductive health), etc.)

• Reduce, reuse, recycle (and refuse) (ways to reduce impact, minimise footprint, etc.)

• Soil conservation (includes soil erosion, contamination and salination of land, especially
fertile land; see also desertification and deforestation)

Toxic chemicals (persistent organic pollutants, prior informed consent, pesticides, endocrine
disruptors, etc.) •

Waste (landfills, recycling, incineration, various types of waste produced from human
endeavors, etc.)

• Water pollution (fresh water and ocean pollution, Great Pacific Garbage Patch, river and
lake pollution, riparian issues)

• Water scarcity

SOME OTHER ENVIORNMENTAL ISSUES

➢ Bio diversity : The number of living things in an environment

More bio diversity leads to
stronger ecosystem. When biodiversity is not preserved, animals become threatened,
endangered or extinct.

Solution to protect biodiversity is to pass laws which can protect species and endangered
species

➢ Over population: The current population in India as on 2020 is 13.80 crores approximately.
Larger population leads to more scarcity of resources .

Solution to avoid overpopulation and Education Fight against poverty

 Unit 2 Management of Ethics

➢ Acid Rain : Acid rain, or acid deposition, is a broad term that includes any form of
precipitation with acidic components, such as sulfuric or nitric acid that fall to the ground
from the atmosphere in wet or dry forms. This can include rain, snow, fog, hail or even dust
that is acidic.

Issues in acid rain: Acid rain destroys crops and plant life. It can affect drinking water. Acid
breakdown carbonate on tombstones and statues.

Solution : Burn less sulfur coal, Develop alternative energies

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