MMPC-020

Business Ethics and CSR

School of Management Studies

Indira Gandhi National Open University
New Delhi
COURSE DESIGN AND PREPARATION TEAM
Prof. K. Ravi Sankar Prof. G. Subbayamma
Director, SOMS, IGNOU SOMS,IGNOU, New Delhi
New Delhi
Prof. Srilatha
Mr. S. Venkateswaran SOMS, IGNOU, New Delhi
Former DGM & Company Secretary
The Lakshmi Vilas Bank Ltd. Prof. Neeti Agrawal
Tamil Nadu SOMS, IGNOU, New Delhi

Prof. Anjali C. Ramteke

Prof. G. Venkat Raman
SOMS, IGNOU, New Delhi
IIM, Indore
Prof. Kamal Vagrecha
Prof. P.V.K Sasidhar
SOMS, IGNOU, New Delhi
Professor, SOEDS, IGNOU
New Delhi Prof. Nayantara Padhi
SOMS, IGNOU, New Delhi
Prof. Shital Jhunjhunwala
Faculty of Commerce and Business, Prof. Rajeev Kumar Shukla
Delhi School of Economics SOMS, IGNOU, New Delhi
Prof. Renu Jatana Sh. T.V. Vijay Kumar
Professor (Retd.) SOMS, IGNOU, New Delhi
Mohan Lal Sukhadia University
Udaipur Dr. Venkataiah Chittipaka,
Associate Professor, SOMS
Dr. Divya Kirti Gupta IGNOU, New Delhi
Associate Professor,
GITAM Hyderabad Business School Dr. Saurabh Jain
Hyderabad Assistant Professor
SOMS, IGNOU, New Delhi
Dr. Anjana Hazarika
Associate Professor Course Coordinator & Editor
O.P Jindal Global University Dr. Leena Singh
Sonepat SOMS, IGNOU, New Delhi

Acknowledgement : Parts of this course is adopted from the course material of Programme Post
Graduate Diploma in Corporate Social Responsibility of School of Extension and Development Studies

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 Indira Gandhi National Open University, 2022
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 MMPC-020
Business Ethics and CSR
Indira Gandhi National Open University
School of Management Studies

BLOCK-1
Ethics and Business 9

BLOCK-2
Evolution and Concept of CSR 63

BLOCK-3
Corporate Social Responsibility in India 125

BLOCK-4
CSR Implementation and Sustainability 183
 Course Contents
Pages

BLOCK INTRODUCTION 7
Block 1 ETHICS AND BUSINESS 9
Unit 1 Business Ethics: An Overview 13
Unit 2 Concepts and Theories of Business Ethics 26
Unit 3 Ethical Dilemmas 38
Unit 4 Ethics in Business 51
Block 2 EVOLUTION AND CONCEPT OF CSR 63
Unit 5 CSR: An Overview 67
Unit 6 Business Strategy in CSR 82
Unit 7 CSR in Global Context 95
Unit 8 Business Ethics and CSR: Linkages 110
Block 3 CORPORATE SOCIAL RESPONSIBILITY IN 125
INDIA
Unit 9 CSR in Indian Context 129
Unit 10 CSR Legislation and Policy Guidelines 144
Unit 11 CSR in Public Sector Units (PSUs) 163
Block 4 CSR IMPLEMENTATION AND SUSTAINABILITY 183
Unit12 CSR Reporting Process & Auditing 187
Unit 13 Roles and Responsibilities of CSR Department 209
Unit 14 CSR and Sustainable Development 222
MMPC-020 BUSINESS ETHICS AND CSR
In recent years, Ethics and Corporate Social Responsibility (CSR) have emerged
as buzzwords in business world. This course focuses on several important aspects
such as Theories of Business Ethics, Business Strategy linkage with CSR, Legislation
and Policy Guidelines in India, CSR Reporting process and Auditing etc.
Block 1 provides an overview of business ethics, clarifies their significance in today’s
changing world, and draws a line between ethics and law. It explores various ethical
perspectives, including consequentialism (teleology) and non-consequentialism
(deontology), as well as some current perspectives on ethical theories of business.
Further, explains various approaches to overcome ethical dilemmas and understand
the concept of Social Accounting and its linkages with Ethical Decision-Making.
Block 2 traces the evolution of Corporate Social Responsibility. Shareholder to
stakeholder relationship has been explained in detail, which suggests that the prime
goal of CSR is to create value for stakeholders. Then, it also focuses on integrating
CSR into management practices, as integral part of business strategy. This block
also explains the relationship between Sustainable Development Goals (SDGs) &
CSR in a very elaborate manner as the SDGs and CSR initiatives in India are closely
related to each other.
Block 3 discusses in detail all the aspects of Corporate Social Responsibility (CSR)
in Indian context. It touches upon the topics such as phases of development, various
models and trends of CSR in India. Then, the evolution of CSR Law under Companies
Act 2013 has been explained in detail where all the salient aspects such as quantum
of spending, committee constitution, audit etc have been covered. Further, the
importance of CSR in public sector enterprises (PEs/PSUs) and the specific guidelines
issued by government for them have been discussed in detail.
Block 4 covers the topics such as the implementation of CSR policies, its reporting
and auditing process, roles & responsibilities of CSR department and sustainable
development. Reporting and Auditing process of CSR focuses on aspects laid down
under CSR Rules 2014 (The Companies Act 2013). Then, the formation and
functioning of CSR department, the roles and responsibilities of board regarding
CSR, tax issues of CSR etc. have been discussed.
 Block-1
ETHICS AND BUSINESS
BLOCK 1 ETHICS AND BUSINESS
This block explains the importance of ethics in business, different theories of ethics
and different approaches of overcoming ethical dilemmas in businesses. Unit 1 gives
an overview of business ethics and explains how these are important in globalized
world; it also distinguishes ethics from law. Unit 2 discusses different ethical
approaches such as consequentialism (teleology) and non-consequentialism
(deontology) and some contemporary views on ethical theories of business. Unit 3
explains various approaches to confront and overcome ethical dilemmas and understand
the concept of Social Accounting and its linkages with Ethical Decision-Making.
Further, Unit-4 explains how ethical mandate of business is changing now a days.
Unit 1 elaborates on the topic that Ethics are not limited to everything mentioned
in the form of legal codes and is made legally mandatory. Then it discusses the
relevance of ethics in businesses in globalized world and further, relates the concept
of sustainability to business ethics. Next, it explains the importance of business ethics
education in the management curriculum and why managers should be thorough with
the concept of ethics.
Unit 2 discusses the concepts and theories of Business Ethics in detail. There are
two schools of ethical theories: consequentialism (teleology) and non-consequentialism
(deontology). Along with these two schools of theories several contemporary concepts
related to business ethics have also been touched upon in this unit. Further, critical
evaluation of the theories discussed above has been done.
Unit 3 explains several ways of overcoming Ethical Dilemmas in managerial decision
making given by experts such as Ethical Navigation Wheel (given by Kvalnes &
Ovarenget), Moral Compass (given by Lynn Paine), Ethical Check Points (given
by Rushworth Kidder) and later ethical dilemmas have been interlinked to other
related concepts like stakeholder management & social audit.
Unit 4 attempts to sensitize future managers about the need to look at ethical aspects
of the business from an individual, business, and society (IBS) framework. To
appreciate ethical decision-making, one needs to look at the various issues at the
individual, organizational, and societal levels. Understanding the contours of the
relationship between the three entities will give a holistic picture of ethics in business.
Ethics and Business

12
 Business Ethics:
UNIT 1 BUSINESS ETHICS : AN OVERVIEW An Overview

Objectives
After reading this unit, you should be able to:
 Distinguish Ethics from Law
 Appreciate the Relevance of Business Ethics during today’s age of
Globalization and Sustainability
 Appreciate the Relevance of Business Ethics Education
 Understand the distinction between Shareholders’ Approach and
Stakeholders’ Approach to Management
Structure
1.1 Introduction
1.2 The Distinction between Business Ethics and Law
1.3 Relevance of Business Ethics
1.4 Globalization and Business Ethics
1.5 Sustainability and Business Ethics
1.6 Business Ethics Education in Management Curriculum
1.7 Effectiveness of Business Ethics Instruction
1.8 Is Business Ethics An Oxymoron?
1.9 What is a Business For? The Two Dominant Views
1.10 Summary
1.11 Keywords
1.12 Self-Assessment Questions
1.13 References/Further Readings

1.1 INTRODUCTION
What is business ethics? Does Business ethics education serve any purpose? Does
Business Ethics education lead to any desirable outcomes? Before addressing such
questions, let us try to understand what one means by ethics. Business ethics regards
the application of ethical issues in managerial decision-making. Just like engineering
ethics and medical ethics, the business management domain also considers ethics
an essential part of managerial decision-making. Business ethics as an academic
discipline guides us to find answers to specific questions about evaluating decisions
as ethical or unethical, right, or wrong. Without a systemic study in the form of
business ethics, decision-making is bound to be fraught with opinions and individual
biases. To quote two eminent business scholars, Andrew Crane, and Dirk Matten,
“business ethics is the study of business situations, activities, and decisions where
13
Ethics and Business issues of right and wrong are addressed.’ It is pertinent to note that the distinction
between right and wrong is based on moral criteria rather than one based on financial
and strategic considerations.

1.2 THE DISTINCTION BETWEEN BUSINESS

ETHICS AND LAW
One of the essential things while studying business ethics is to remember that it is
distinct from Law. Ethics is not limited to everything mentioned in the form of legal
codes and is made legally mandatory. It is impossible to lay down the dos and don’ts
in the form of written Law. Therefore, it is not rare to see some landmark judgments
in the courts of Law invoking the spirit of the Law to justify their decisions. The
Law is, at best, a common minimum acceptable standard in any civilized society.
However, some moral and ethical questions are not necessarily covered by the Law.
For instance, no legal system makes it mandatory for grown-up children to be loyal
and faithful to their parents in their old age.
Similarly, no law states that couples should be loyal to each other. Further, the Law
covers many issues meant for regulatory purposes and ensuring civic order in any
society. Such legal mandates need not necessarily have ethical implications.
A philosopher quipped once, ‘where physics ends, metaphysics begins’. ‘Similarly,
one can argue that business ethics begins where the Law ends’. Many of the legal
requirements today are by-products of society’s moral and ethical values evolution.
For instance, growing activism by environmental groups to encourage sustainable
business practices and demand for recognizing women and LGBT rights in the
workplace have led to new legislation. Though these issues have been identified
by Law only recently, we need to bear in mind that these are pregnant with ethical
implications. More than two centuries back, it was considered unethical to consider
widow remarriage, discuss girl child rights, and allow women to participate in public
affairs. The renaissance movement in India by people like Raja Rammohun Roy,
Vidyasagar, and the contributions of people like Jyotirbai Phule paved the way for
social reforms. Over time, their efforts have led to a drastic change in the condition
of women in our society. Their efforts in social reforms have led to revisiting morality
and ethics in a patriarchal society like ours. In traditional and modern societies, the
sense of what constitutes ethics is conditioned by the prevailing power equations. In
a caste-ridden society, the upper castes determine the criteria to judge ethical conduct.
Similarly, in a patriarchal society, the males decide what constitutes ethics and morality
regarding a woman’s conduct. Even in advanced industrial societies, corporates still
deal with the grievances of women who have complained of the glass ceiling for
their career growth. Therefore, it is relevant to keep in mind that the subject of
ethics and morality are closely related to existing power structures. At a given time,
a particular power structure also plays a critical role in providing legal forms to
genuine ethical concerns.
Civil society organizations have repeatedly highlighted issues like climate change,
LGBT rights, and women’s rights in the workplace. From time to time, the media
has raised these issues, causing an increasing public awareness. Growing public
awareness about these issues leads to change in social perceptions about the right
and wrong that prevails in a society. In the case of corporate organizations, increasing
14
public awareness of issues like global warming has led to initiatives in the field of Business Ethics:
An Overview
sustainability. As an acronym in some quarters, CSR is also understood as Corporate
Sustainability and Responsibility. Growing media coverage of ozone layer depletion
and environmental sustainability has also compelled the government to develop
environmental protection laws. In short, after reaching an inevitable crescendo, today’s
ethical concerns are bound to attract government attention to introduce legal
mechanisms.

1.3 RELEVANCE OF BUSINESS ETHICS

In today’s world, corporate organizations are increasingly getting sandwiched between
state regulatory agencies and increased vigilance on the part of civil society
organizations and the media spotlight. Whereas democratic governments are
accountable to the people and must face the electorate, political leaders are keen
to address public demands. In the process, corporates are at the receiving end.
Even in an authoritarian state like China, the government is susceptible to public
criticism of corporate organizations. Every year the fifteenth of March is celebrated
as consumer rights day, and at least one corporation is publicly reprimanded and
shamed for violating consumer rights.
Moreover, corporates are increasingly sensitive to brand perception. Every time
the media reports about corporate wrongdoing, corporate reputation is dented. With
the onset of economic globalization in the 1990s, social media’s tremendous spread
and growth translated to reputations being made and marred in minutes or even
seconds. Therefore, business ethics education is more critical to sensitize prospective
managers about the ethical aspects of decision-making and emphasize stakeholder
management. Business ethics scholarship has advanced some compelling reasons
to underline the relevance of business ethics education.
First, corporate organizations, especially big ones like Google, Amazon, Facebook,
Twitter, Tencent, and Alibaba, are becoming very influential. These corporate
organizations are not only influential in their home state but also have a global appeal.
Business ethics in the form of courses like Business, Government, and Society help
us understand the implications of the overwhelming influence of large MNCs and
other corporate organizations on society. For instance, the onset of the COVID
epidemic and the consequent lockdowns led to the rise of online entertainment.
Growing demand for online entertainment has caused easy access to adult content
for children, and parental monitoring of the online activities of young children has
become a nightmare.
Further, the explosion of online entertainment companies like Over The Top (OTT)
media services have damaged intra-family interactions. Second, there was a time
when business organizations had limited resources and skills to address social causes.
Milton Friedman would say, ‘the only business is to do business.’ However, today’s
corporate organizations are endowed with a highly skilled workforce and more than
adequate financial resources to seek solutions to social issues. We are in a world
where the United Nations has invited businesses to participate in the Millennium
Sustainable Development Goals. In many cases, we are witnessing the emergence
of Public-Private Partnership (PPP) arrangements to address social causes. Further,
some corporates consider social issues an opportunity to develop new products
and services. 15
Ethics and Business Stakeholder management has become challenging with the growing complexities in
which industrial and post-industrial societies function. Growing public skepticism
of the corporate world has ironically coincided with increasing demands to play a
far more constructive role. Business ethics education helps sensitize managers about
a firm’s legal and social obligations in today’s complex world with a highly dense
network stemming from multiple sources. Meeting societal expectations is possible
only when budding managers understand and appreciate the nuances of stakeholder
management. Finally, business ethics education helps us to have a better sense of
the numerous ways in which managerial decision-making impacts multiple
stakeholders. Business ethics education equips the participants with better decision-
making skills and provides skills beyond the workplace; business ethics education
holds immense potential to enrich our personal and professional lives.

1.4 GLOBALIZATION AND BUSINESS ETHICS

The onset of liberalization, privatization, and globalization since the 1990s has altered
the ethical landscape for businesses. Economic globalization has made national
boundaries permeable. The growing overseas corporate engagement has translated
to an increasing need for corporates to be more sensitive to cultural issues. For
instance, to operate in Middle East markets, corporates must be extremely sensitive
to local customs and culture while projecting women in their marketing strategies
due to the prevailing gender biases in that society. If corporates are insensitive to
cultural sensitivities in foreign markets, they are highly likely to face backlash, especially
from the conservative elements of those societies. Second, with the saturation of
western markets, western MNCs and other significant corporate houses have hardly
any choice but to invest in emerging markets. These markets are characterized by
blind spots and ‘institutional voids’ and have different legal frameworks. Lack of
familiarity with the legal and political environment has also led to ethical breaches.
Business ethics education enables budding managers to be sensitive about the legal
and social obligations of the firm in unfamiliar ecosystems. Finally, increased
permeability of the national boundaries and what some call the ‘deterritorialization’
of business organizations have translated to the growing influence of MNCs. The
big corporate organizations are only accountable to a minority of shareholders. This
lack of accountability has led to growing suspicions about corporate organizations
and their democratic deficit. This democratic deficit translated in to a lack of
accountability has meant the growth of anti-globalization protests and clamor for
greater corporate responsibility.

1.5 SUSTAINABILITY AND BUSINESS ETHICS

The understanding of sustainability has been confined to environmental sustainability.
Global warming, green house gas emissions, and their impact on ozone layer depletion
have meant the regulation of businesses by the government. In the US, the
Environmental Protection Agency’s stringent emission norms led to the German
automobile giant Volkswagen resorting to unethical practices and later recalling 11,000
cars from the market. However, sustainability has come to be understood by different
corporate organizations. For British Petroleum, ‘ sustainability’ means coming up
with new products and services; for Shell, it is an integral part of its business
principles. Today, automobile industry players, logistics, and many other industries
16
must contend with demands to adopt sustainable business practices. In some instances, Business Ethics:
An Overview
there is pressure on corporates to dissuade from engaging in those initiatives, which
might lead to displacing the marginalized or eroding local cultures. Recently, sustainability
is also being viewed from the prism of economic and social considerations.

1.6 BUSINESS ETHICS EDUCATION (BEE) IN

MANAGEMENT CURRICULUM
The place of BEE in management education has been a matter of intense debate.
William Donham, the second Dean of Harvard Business School, opined those growing
complexities in societies mean that managerial decision-making in general and ethical
decision-making can no longer find answers from sources anchored in religious and
legal texts. He was hinting about businesses that had to contend with critical social
problems in managerial decision-making. Business ethics was introduced in the
Harvard Business School curricula in 1928, only to be dropped later in 1935. Later,
Business Ethics was reintroduced in the year 1958 in the form of a course titled
‘Business, Society and Individual.’ In 1988, business ethics was introduced in the
form of a study titled ‘Decision-making and Ethical Values.’
The role and relevance of business ethics education have been a matter of intense
debate in business ethics scholarship. Initial discussion regarding business ethics as
a separate academic subject veered around its relevance as a subject of considerable
importance. Once there was a grudging acceptance, there were debates on whether
the matter should be a stand-alone one or could be added as a separate module
to sensitize business school participants about the ethical aspects of business across
various functional areas. However, the sudden rise in corporate scandals in the form
of Enron and WorldCom in the early years of the twenty-first century first decade
led to a growing feeling that management education has long undermined the role
of ethical decision-making. The ever-increasing number of corporate wrongdoings
led to accreditation agencies taking a stand that business ethics should be made a
compulsory stand-alone course. Therefore, most business schools have made business
ethics education an integral part of their curriculum.
In the early part of the twenty-first century, the Late Prof Sumantra Ghoshal, a
renowned academic, made a scathing attack on management education in a hard-
hitting article in the prestigious Academy of Management Learning and Education.
According to Ghoshal, a considerable part of the blame for the corporate scandals
should be attributed to the toxic education imparted to participants in scientific
education. The so-called scientific models encourage participants to consider profit-
making as business organizations be-all and end-all motives. Ghoshal argued that
management theories like the game, agency, and transaction cost analysis had left
management empty of human and social connections.
In his work’ From Higher Aims to Hired Hands, ‘Rakesh Khurana, a Harvard
academic,’ contends that a kind of market fundamentalism took hold in business
education. The new logic of shareholder primacy absolved management of any
responsibility for anything other than financial results.’ George Akelr of and Robert
Schiller, in their book ‘Animal Spirits,’ argue that corporate scandals are a direct
offshoot of toxic teaching in B schools. Their main submission is that business cycles
are connected to swings in personal commitments to ethical practices. Citing the
example of executives, Akelr of and Schiller argue that during financial crises, they
17
Ethics and Business tend to rationalize unethical conduct in the workplace and justify it by saying ‘everyone
is getting away with it. ‘Financial executives develop innovative financial instruments
that neither make sense to the regulators nor fail to foresee the fallouts in advance.
In his book ‘How the Mighty Fall’ Jim Collins argues that management executives
tend to degenerate into unethical conduct through five stages. The five stages are
mentioned in the paragraph below.
In the first stage, executives are afflicted with hubris, where they tend to view success
as something they deserve rather than earn it through arduous work without cutting
ethical corners. In the second stage, the executives tend to have a ruthless pursuit
of more, making them myopic and losing track of organizational interests. Third,
the executives tend to be in a state of risk denial. This denial leads to what some
researchers term a mental condition called ‘hedonistic adaptation,’ where we tend
to always ask for more wealth and power and be in an illusionary world where we
derive happiness from our material well-being. Finally, such executives look for solutions
and capitulate due to their fascination with the irrelevant. Jim Collins, like many
others, concludes by submitting that the unethical conduct among managerial
executives results from toxic teaching in business schools. This toxic teaching leads
to a) exacerbating destructive social values, 2) undermining human values, and 3)
giving overwhelming influence to profit maximization at the expense of all other
objectives.
The new wave of criticism paved the way for new forms of responsible management
.and learning. Responsible management and learning manifested in different forms.
To begin with, it took the shape of ‘teaching’ by instructors. This endeavor was
followed by Management schools coming up with initiatives like ‘organizing responsible
management education. Such initiatives at the level of the Management school take
the shape of providing stand-alone courses on Ethics, Corporate Social Responsibility,
and Sustainability. Yet another critical part of responsible management is the learner,
who must commit to ‘responsible individual learning.’ Finally, the onus of responsible
management and learning also lies with the business organizations committing
themselves to build a specific ethical climate.

1.7 EFFECTIVENESS OF BUSINESS ETHICS

INSTRUCTION
Business Ethics instruction in management education has been a contentious issue
for a longtime. Ethics instruction in management schools has been met with skepticism.
First, it is argued that college participants have already developed their ethical
standards by the time they enroll themselves in a management school. Second,
management education has been primarily influenced by the rationale of maximizing
shareholder value, and ethics instruction runs counter to this objective. Third, growing
corporate scandals reflect the failure of ethics instruction. However, business ethics
instruction has become integral to management education despite cynicism.
Accreditation agencies like Equis, the Association of Advanced Collegiate School
of Business (AACSB), and the Association of MBAs (AMBA) are now insisting
on the mandatory inclusion of business ethics instruction. Corporate scandals like
the Enron Crisis in 2001 and later the role of credit rating agencies and investment
banks in the unfolding of the 2008 subprime crisis have brought the spotlight back
on business ethics education.
18
Two business ethics scholars, Robert A Giacalone and Donald T Wargo, in their Business Ethics:
An Overview
work’ roots of Global Financial Crisis, are in Our B-schools’, contend that most
of the financial executives involved in corporate scandals are products of B schools.
They further argue that there is a high correlation between the recent unethical
behavior of several MNCs and MBA degree holders in their ranks. Giacalone and
Wargo diagnose the problem by pointing out that bad management theories and
the cult of profit maximization have led to excessive corporate greed forcing managers
to cut ethical corners. The Chicago school assumes that human beings are primarily
motivated by economic interests. Further, the advancement of profit maximization
as the sole objective of the corporation has inspired management theories that advocate
self-interest and opportunistic behavior, causing managers to become opportunistic
and selfish.
Activity 11
The participants can be asked to engage in a reflective exercise. The following can
be some of the activities they can be engaged in:
1. What are your views on the current issues facing the world? The issues
can range from the organizational climate in your workplace, the current
issues of national relevance, and the ethical issues related to climate change,
the Ukraine war, etc. Participants are encouraged to reflect on the ethical
aspects of issues involved
2. Once they can identify a particular set of issues as right and wrong, they
should be asked to produce an objective criterion for terming things as
good/bad or better/worse.
3. Participants may be asked to produce five terms/phrases that capture the
essence of what they mean by good/bad or better/worse
4. This activity can conclude with participants reflecting on the following: What
are the ethics/values we need to collectively cultivate within us if this better
world is to be made possible? In short, what are our responsibilities and
roles in this world in our personal and professional capacities?
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Activity 21
1. Who are your heroes/idols within your organizational setting, national and
international domains that you think are demonstrating the virtues you have
highlighted in Activity 1, and who is violating them?

1
Activity 1 and 2 are drawn from Ross Donald’s published paper in the Journal of Business
Ethics Education.
McDonald, R. (2015). Leveraging change by learning to work with the wisdom in the room:
educating for responsibility as a collaborative learning model. Journal of business ethics,
131 (3), 511-518. 19
Ethics and Business 2. How does the corporate world convey/reinforce some values cited through
marketing and advertisement?
3. Do corporate organizations subtly influence our choices of values and
consumption patterns and therefore hypnotizes us to express ourselves
autonomously in modern consumer culture?
The idea behind the above activity is to encourage and even compel participants
to engage in the act of discovering their ethical personalities and examine whether
their actions are in alignment with their ideals and ethical values. Engaging in
such an exercise will have two-fold benefits a) Enables them to fundamentally
ask questions about where, when, how, and why we act in contradiction to
our values. b) When we engage in peer learning with such activities, we can
appreciate how different people have different value systems, and there is no
one-size-fits-all approach to ethical challenges in the workplace. A deep dive
into such an exercise helps participants develop a sense of sympathy and empathy
towards others. We will deal with ethical decision-making issues in a later unit.
In the last twenty years, new research in behavioral psychology has pointed
out that in some instances of ethical decision-making with a strong affiliation
with the ethical issues involved, our ethical decision-making stems from our
emotional impulses/affect/ social intuition. On the other hand, in those contexts
where our emotional affiliation to the ethical issues involved in a specific ethical
dilemma is low, invariably, the concerned individual tends to be rational and
calculative in decision-making.
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1.8 IS BUSINESS ETHICS AN OXYMORON?

The term ‘business ethics’ has always been viewed cynically. In business, many
contend that maximizing profits and ethical decision-making are equivalent to a very
antagonistic relationship. In short, cynics refer to business ethics as an oxymoron.
Either one can engage in ethical decision-making or maximize profits. Perhaps therefore
the inclusion of business ethics as an indispensable part of management education
has always been a matter of contention until recent times. As mentioned in the preceding
sections of this unit, the frequent occurrence of ethical breakdowns in the corporate
world has led to a clamor for making business ethics education an integral part of
management education.
The accreditation agencies like the AACSB (US-based Association of Advanced
Collegiate School of Business), AMBA (UK-based Association of MBAs), and
Equis have insisted on the inclusion of business ethics education in the management
education curricula. Since then, business schools have more seriously taken business
ethics education. While some schools have introduced business ethics education
courses as stand-alone, others offer them as elective courses. Some schools introduced
20
modules related to ethical practices in business in functional areas like marketing, Business Ethics:
An Overview
accounting and finance, Organizational Business &Human Resources, and corporate
strategy. Despite the growing consensus on the inclusion of ethics education in business
school curricula, it still invokes animated debates and discussions. These discussions
generally veer around the pedagogical tools employed, innovative ways to encourage
participant-centered learning, and equipping would-be managers with the right skill
sets to enable them to confront ethical dilemmas in the workplace. We will look at
some of the ethical decision-making approaches in other units. However, before we
discuss these issues in the latter sections, we need to ask ourselves the oft-repeated
education, is business ethics education an oxymoron? This question brings us to the
fundamental debate in business ethics education: shareholder versus stakeholder views.
The shareholders’ view espoused by Nobel laureate and famous economist Milton
Friedman and identified with the Chicago school believes that the fundamental
‘business of business is to do business.’ As per this school, the sole objective of
business is to maximize shareholder value by maximizing profits. Milton Friedman
argued that if the managers follow the Law of the land and the local community’s
social customs, their sole objective is to maximize profits and increase shareholder
value. Friedman further contends that the manager’s mandate is to maximize
shareholder value. The two major arguments advanced in this regard are as follows.
First, the manager should always seek to maximize shareholder value because he
is responsible for investing shareholders’ money to maximize profit. Under any
circumstances, a manager should not try to engage in actions that promote the welfare
of other stakeholders in the social responsibility of business. If the manager wants
to engage in activities by invoking the firm’s social responsibility, then a manager is
desisting away from one’s primary mandate. Suppose the manager is concerned
about external stakeholders. In that case, one should not invest the shareholders’
money in the name of doing good to others but start one’s own business and prioritize
investments per one’s priorities. Second, since the manager is not trained to think
like a public policy maker, a manager should only focus on the profit maximization
of the firm and leave the task of addressing the needs of other stakeholders to the
public policymakers.
The table below mentions some of the most common arguments in the shareholders
versus stakeholders debate.

Figure 1.1 Social Responsibility of Business

For Against
 Long-run self-interest  Profit Maximization should be
the sole purpose of a firm
 Corporate Reputation
 Digressing from its core functions
 Corporations need to fulfill may lead to dilution of its
their obligations as per their primary role as an economic
covenant with the society agent seeking to optimize its
 Lack of pro-active approach activities for larger social interest
may lead to government  Managers lack skills to address
regulations likely to make firms social issues
less competitive
 Corporations are likely to play
 Adherence to local social and Robin Hood invoking concerns
cultural practices of social justice 21
Ethics and Business
 Converting social problems as  Corporations’ social involvement
opportunities would increase its power and
hurdle the prospects of
 During contemporary times
pluralistic division of powers in
business has adequate resources
society
to partner with government and
NGOs to tackle social problems

1.9 WHAT IS A BUSINESS FOR?

THE TWO DOMINANT VIEWS
The shareholder theory of management is ardently advocated by the Chicago School
of Economics, which assumes that human beings are homo economicus, economic
agents, and seek maximization of their economic welfare. Milton Friedman is the
most prominent advocate of maximizing the shareholders’ value. He argued that
‘few trends could so thoroughly undermine the very foundations of our free society
as the acceptance by corporate officials of a social responsibility other than to make
as much money for their stockholders as possible. On the other hand, another
distinguished economist, Paul Samuelson, argued in favor of stakeholder management.
He contended,’ A large corporation these days not only may engage in social
responsibility, but it had also damn well better try to do so.’
However, it was Edward Freeman, in his celebrated work, ‘Strategic Management:
A Stakeholder Approach’ who made a very scholarly contribution to the field of
stakeholder management and came up with four fundamental propositions in this
regard:
1. Separation Fallacy: Business and Ethics can be managed separately.
2. The Integration Thesis:
a) Most business decisions have an ethical content or an implicit ethical view.
b) Conversely, most ethical decisions have some business content or implicit
view of business.
3. Open Question Argument a) If this decision is made:
 For whom is value created, and for whom is it destroyed?
 Who is harmed and/or benefited by this decision?
 Whose rights are enabled/whose values are realized by this decision?
 What kind of person will I become if I take this decision?
4. The Responsibility Principle
Most people, most of the time, want to, do, and should accept responsibility for
the effects of actions on others.
Edward Freeman’s stakeholders’ approach has gained significant importance over
time in business ethics literature. In recent times corporate governance failures have
led to calls for businesses to be more responsible in their ethical conduct. It is a
22
fact that a corporation is a legal person. The question is, does the idea of corporate Business Ethics:
An Overview
personhood entail the belief that a corporation should be an ethical person as well?
In the context of the above arguments put forward by the shareholders and
stakeholders, examine the merits and demerits of their statement by clicking the
following YouTube links comprising of clippings from the Hollywood movie ‘Other
People’s Money:
For shareholders’ view: https://www.youtube.com/watch?v=62kxPyNZF3Q
For stakeholders’ view: https://www.youtube.com/watch?v=xJRhrow3Jws
After watching the videos, you can discuss the following case to address the question:
What’s the purpose of a corporation? Is it merely to earn profits, or does it have
any social responsibility? Assuming it does, what kind and form should such
responsibility take? The case brings out the philosophical differences between the
two schools of management: stakeholder and shareholder management.
The online gaming industry is one of the fastest-growing industries today. The
popularity of these games stretches across gender, religion, and national boundaries.
These games also have a strong appeal to consumers who are on the other side of
the forties. The outbreak of the Covid pandemic forced many to look for online
entertainment. Whereas the challenge for the MNCs was to go for the kill and develop
more entertaining games, the challenge for consumers was to dissuade themselves
from being addicted to these games. Some online gaming companies have evolved
from merely coming up with entertaining online games for entertainment to highly
innovative games. The idea now was not simply to be service providers but how
to keep the consumers hooked and even addicted to online games.
There were numerous ways in which online gaming companies sought to outcompete
their rivals to garner maximum market share. Some companies developed massively
multiplayer (MMP) role-playing games (RPG). These MMP, RPGs are video games
where players connect with hundreds of thousands of other gamers each other virtually
through the internet. In many cases, these games are about role-playing. Players
are expected to create live characters free to roam in the fantasy world. The players
are accessible in the virtual world to make their allies and new friends. The players
have the freedom to determine the character’s fate, with each character gaining
strength as an individual player plays for more hours. The live characters mean that
when the players log off, their online allies and guilds will likely be defeated by
other allies and guilds. Therefore, there is tremendous pressure on the players to
be glued to their screens and not log off. One game for Sony Online was tagged
‘plays game, pause life.’ Further, logging off meant that the live characters in the
virtual world were likely to be subjected to attacks by other players when a specific
player was offline.
Online gaming companies have developed further innovations in how the games are
designed. These companies have also marketed their offerings in numerous ways.
Free online coaches to help gamers sharpen their skills, investing in new servers
dedicated to specific games and options to enable migration of the virtual characters
to a different world with an extra fee. These marketing efforts have led to a growing
addiction to online games among the youth. Numerous mental health studies have
inferred that these online games, like other toxic substances, give temporary pleasure
by activating dopamine. Addiction to online games is increasingly becoming a public 23
Ethics and Business health issue. However, some psychologists argue that the blame for addiction to
online gaming lies on the consumer.
Based on the above case, reflect on the following:
a) Do online gaming companies have any social responsibility not to produce
these games which are highly addictive?
b) Is it fair to argue that it is not the online game developers that are to be
blamed but weak individuals who seek temporary psychological refuge in
online games and get addicted?
c) Do you justify the mad pursuit of profits by online gaming companies at
the expense of many youths who tend to degenerate into deplorable mental
conditions and, in extreme cases, even commit suicide?
d) What arguments can one raise to support or oppose the opinion that specific
industries like tobacco, alcohol, food& beverages (F&B), and online gaming
companies must be socially more responsible than others?
In the context of the above case, discuss the following questions:
a) Identify the chief protagonists in the case.
b) Identify the ethical issues involved in the case.
c) Apply the various concepts related to shareholders versus stakeholders’
management in the context of the case.

1.10 SUMMARY
Business ethics instruction has witnessed numerous debates between scholars of
management education. Business ethics can be defined as an academic discipline
that enables business school participants and business executives to find answers
to specific questions concerning decisions as ethical or unethical. It is essential to
understand that there is a fundamental distinction between laws and ethics. Whereas
laws are codified, ethical concepts and frameworks are not delineated in a designated
book or statute. Further, ethics is also contextual. The need for business ethics
education and its relevance in management education has been an intense debate.
Growing insistence on the part of prestigious accreditation agencies has led to
increasing relevance of business ethics instruction in management curricula.
Globalization and the growing footprint of the corporation have introduced new
dimensions to ethical decision-making. Recent developments in the last three decades,
like economic globalization, environmental sustainability, increasing role of technology,
have infused new life into the shareholder versus stakeholder debate. These debates
have compelled us to revisit the fundamental question: What area corporation and
its purpose? It is naïve to dismiss business ethics education as an oxymoron. By
introducing us to ethical dimensions of managerial decision-making, business ethics
education exposes business school participants to various ethical approaches and
frameworks in managerial decision-making.

1.11 KEY WORDS

Business Ethics : Business ethics is the prescribed code of conduct for
businesses. It is a set of guidelines for dealing with various
24 procedures ethically.
Law : Law is a rule of conduct developed by the government or Business Ethics:
An Overview
society over a certain territory.
Stakeholder : Stakeholder management is the process by which you organize,
Management monitor and improve your relationships with your stakeholders.
Globalization : It is the word used to describe the growing interdependence
of the world’s economies, cultures, and populations, brought
about by cross-border trade in goods and services, technology,
and flows of investment, people, and information.
Sustainability : Sustainability means meeting our own needs without
compromising the ability of future generations to meet their
own needs
Responsible : It is concerned with how change initiatives in organizations
Management and groups of managers within organizations, may learn and
Learning change in socially and environmentally responsible ways.

1.12 SELF-ASSESSMENT QUESTIONS

Which of the following statements would be true?
1. The legal and ethical obligations of the firm are the same. Justify.
2. Corporations have no other purpose but to earn profits at any cost. Justify
3. Business ethics is an oxymoron. Justify.
4. Globalization and sustainability have introduced new complexities to
managerial decision-making. Justify.
5. In today’s world, corporations are compelled to reexamine the shareholder
versus stakeholder approaches to management. Justify.

1.13 REFERENCES/FURTHER READINGS

Crane, A., Matten, D., Glozer, S., & Spence, L. (2019). Business ethics: Managing
corporate citizenship and sustainability in the age of globalization. Oxford
University Press, USA.
Andriof, J., & McIntosh, M. (Eds.). (2017). Perspectives on corporate citizenship.
Routledge.
Wood, D. J., Logsdon, J. M., Lewellyn, P. G., & Davenport, K. S. (2015). Global
Business Citizenship: A Transformative Framework for Ethics and Sustainable
Capitalism: A Transformative Framework for Ethics and Sustainable Capitalism.
Routledge.

25
Ethics and Business
UNIT 2 CONCEPTS AND THEORIES OF
BUSINESS ETHICS
Objectives
After reading this unit, you should be able to:
 Understand the relevance of basic ethical frameworks in dealing with dilemmas
in the workplace
 Appreciate the basic ethical approaches in ethical decision-making (EDM)
 Develop a critical overview of the traditional ethical approaches
 Develop awareness of some of the consequentialist, duty-oriented, and
contemporary views on ethical theories of business
Structure
2.1 Introduction
2.2 Traditional Ethical Theories
2.3 Teleological Ethical Systems/Consequentialist Ethical Theories
2.4 Deontological Ethical Systems
2.5 Contemporary Approaches
2.6 Limitations of Existing Theories
2.7 Business Ethics: Going Beyond Cynicism
2.8 Summary
2.9 Keywords
2.10 Self-Assessment Questions
2.11 References/Further Readings

2.1 INTRODUCTION
In our daily lives, we come across various ethical dilemmas. These ethical dilemmas
that we confront in our personal lives tend to become more complex in managerial
decision-making in the business world. In our personal lives, we enjoy more autonomy
since our decision-making affects a limited number of people. In the world of business,
managerial decision-making involves many stakeholders. The manager must identify
not only stakeholders but also prioritize their importance.
Furthermore, a manager must engage in stakeholder management without
compromising shareholder value maximization. In our personal and professional lives,
we are fundamentally faced with three kinds of dilemmas a) Right versus Wrong
Dilemmas, which are perhaps the easiest ones to resolve b) Wrong versus Wrong
Dilemmas, which challenge us to choose a path that is likely to give us lesser pain
and c) Right versus Right Dilemmas which prompts us to choose a path that gives
us more pleasure. However, there are fundamental issues that we need to consider.
First, how do we decide what is right and what is wrong? Second, how do we
26
decide which choices are exercised to give us less pain or pleasure? Third, a certain Concepts and Theories of
Business Ethics
sense of right and wrong depends on ‘moral relativism.’ For instance, exchanging
gifts in a managerial capacity in the USA is strictly prohibited and comes under the
law’s ambit. The Foreign Corrupt Practices Act (FCPA) deals with corrupt activities
like exchanging gifts in international business. However, in a country like China,
exchanging gifts is an accepted way of doing business and developing networks
and relationships. (Called guanxi in Mandarin). In fact, in China, developing your
networks and relationships in business is impossible without engaging in gift exchanges.
The above examples regarding gift exchanges highlight the utility of theory in business
ethics education in the context of moral relativism. Instances like this have prompted
many to question the efficacy of business ethics education and the relevance of
normative ethical theories in business ethics education. Responding to these
challenges, some scholars have suggested two extreme positions: ethical absolutism
and ethical relativism. On the one hand, there are a particular set of ethical norms
that are eternal and universally applicable. Such ethical principles have also been
referred to as ‘hyper norms, ‘ defined as ‘norms sufficiently fundamental to evaluate
lower-level moral norms. ‘According to ethical absolutism, right and wrong are
objective qualities that can be rationally determined. The other end of the spectrum
comprises ethical relativism. Relativists contend that there are no universal rights
and wrongs. The above example regarding the exchange of gifts in international
business is appropriate.
Most of the normative theories bear salience to one form of ethical absolutism. Existing
theories like Utilitarianism, Teleology, and Deontology are examples of ethical
absolutism. These theories provide general guidance but do not provide any
readymade answers to ethical dilemmas managers confront in the business world.
For instance, ethics of deception during business negotiations, exchanging gifts in a
professional capacity, and questions related to the ethical implications of romance
in the workplace constitute grey areas of ethical decision-making. To Donaldson
and Dunfee, two eminent business ethics scholars, normative theories fail to provide
reliable anchors and foolproof solutions to ethical dilemmas.
On the other hand, ethical relativism provides flexibility to ethical decision-making.
Still, it gives ample scope to the concerned subjects to justify unethical conduct in
the name of ethical relativism, leading us to examine the middle path between ethical
absolutism and ethical relativism. A section of business ethics scholarship has termed
this middle path as pluralism. Pluralism seeks to arrive at some minimal consensus
on fundamental principles and rules in a particular social context, despite differing
moral convictions and backgrounds. To engage in nuanced ethical decision-making
and apply pluralism, one needs to have some basic grounding in normative ethical
theories.

2.2 TRADITIONAL ETHICAL THEORIES

There are two schools of ethical theories: consequentialism (teleology) and non-
consequentialism (deontology).Teleological theories derive their name from the fact
that these theories are based on the consequences of the moral judgment we make
and the actions we perform in resolving ethical dilemmas. The word ‘teleology’ is
derived from ‘teleos,’ meaning consequences or purpose (of our judgement/action),
and ‘logus,’ meaning study. On the other hand, deontological theories advocate for 27
Ethics and Business moral judgement/actions based on a sense of duty and responsibility. ‘Deontology’
comprises two words: ‘deont,’ meaning duty/responsibility, and ‘logus’, meaning
study. To illustrate the difference between the two theories, one can cite the following
example.
Let’s say that we are taking an examination in an examination hall. Invigilators oversee
the whole process by keeping strict vigil. Imagine that the invigilator steps out of
the examination hall for a minute or two, providing a window of opportunity to cheat.
It is fair to say that there is a universal consensus that cheating is an unfair practice.
However, assuming one is tempted to cheat, what can be the moral reasoning to
arrive at a moral judgment? Consider a student’s reasoning that they should not be
cheating because they can be dismissed from the program, debarred from the
placement process, or even rusticated. One can reason that this kind of ethical or
moral reasoning is teleological. The student doesn’t cheat due to the likely
consequences rather than the conviction that cheating is unethical. Suppose the same
student reasons that irrespective of the results, they will not cheat because they
must be ethical in not cheating and securing better grades. One can say that their
moral reasoning is non-consequential or deontological.
The following figure is a diagrammatic representation of the consequentialist and
non-consequentialist theories in business ethics:

Motivations Outcomes
Actions
/Principles

Source: Crane, A., Matten, D., Glozer, S., & Spence, L. (2019). Business ethics: Managing
corporate citizenship and sustainability in the age of globalization. Oxford University Press,
USA, p90

As depicted in the above diagram, the theories based on outcomes/purposes/

consequences are consequentialist ethics. As explained earlier, moral judgement is
based on intended outcomes in consequentialist approaches. In contrast, in the case
of non-consequentialist theories, moral judgement is based on rights and duties and
not on intended outcomes. In other words, the means take priority over the ends/
consequences.
In the following section, we discuss salient features of deontological and teleological
ethical systems. These discussions will be followed by brief explanations of the
significant ethical approaches belonging to the two major ethical systems.
Activity 1
Write a short note about traditional ethical theories.
..........................................................................................................................
..........................................................................................................................
..........................................................................................................................
..........................................................................................................................
28
 Concepts and Theories of
2.3 TELEOLOGICAL ETHICAL SYSTEMS/ Business Ethics
CONSEQUENTIALIST ETHICAL THEORIES
According to teleological ethics, ethical decision-making is determined by measuring
the probable consequences or outcomes. The most cited teleological ethical system
is Utilitarianism. Jeremy Bentham, an English legal scholar, and philosopher originally
advocated the utilitarian school of thought. According to Bentham, human actions
are determined by the consequences of an action and are based on the pleasure-
pain principle. The same principle in economics and management has been interpreted
as cost-benefit analysis. Some other ethical theories associated with teleological
ethical systems are egoism and distributive justice theory put forward by John Rawls,
one of the most influential political thinkers of the twentieth century. Let us briefly
examine some of the significant ideas of the teleological moral system.
Egoism
The idea of egoism dates to Greek times and is attributed to some great Greek
philosophers like Plato. In the more recent times following the renaissance and
reformation in Europe, people like Adam Smith were deeply influenced by egoism.
According to egoism, the decision maker’s short-term and long-term interests
determine the moral rightness of an action. Adam Smith reasoned that there should
be no moral qualms with the pursuit of self-interest by individuals. Smith argued
that the goal of individual self-interest produces morally desirable outcomes for society
through the ‘invisible hand of the marketplace. For instance. Let us take the case
of a good or service provider producer. It is in the self-interest of the manufacturer
or service producer to deliver the best possible quality of goods and services because
satisfied customers are going to repeat the orders due to the satisfaction, they derive
from quality products and services. In such a case, better quality products and services
not only work in favour of the customers but are directly associated with the self-
interest of the producer or service provider. In other words, proponents of ethical
egoism contend that those actions which lead to the ‘greatest good of the greatest
number’ are morally desirable.
Though based on enlightened self-interest, ethical egoism has been subject to criticism.
The most compelling criticism of egoism is that it is impossible to determine objective
parameters to draw distinctions between enlightened self-interest and the desire to
pursue selfish objectives. Second, some scholars argue that ethical egoism is not
necessarily a teleological theory but a hybrid theory. Why hybrid? It is argued that
though the ultimate purpose of ethical egoism is the ‘greatest good of the greatest
number,’ an individual pursues ethical egoism to fulfil the larger good; therefore, it
is considered a hybrid theory.
Utilitarianism
The utilitarian school was founded by two famous British philosophers, Jeremy
Bentham, and John Stuart Mill. Bentham contended that the ‘pleasure-pain’ principle
conditions human beings’ actions. In other words, human beings tend to follow those
actions that give them more pleasure and avoid those that cause pain. Whereas
Bentham focussed on the ‘pleasure-pain’ principle in quantitative terms, John Stuart
Mill argued that it is not the quantity of pleasure that we derive from specific desirable
actions to maximize pleasure and minimize pain but the quality of pleasure that matters.
29
Ethics and Business Mill asserted that ‘an Aristotle dissatisfied is better than a pig satisfied’. ‘In other
words, Bentham and Mill associated ethical decision-making with the quantity and
quality of pleasure stemming from a specific action.

Utilitarianism has been a persuasive philosophy in managerial decision-making since

it puts the ‘utility’ of a decision in terms of cost-benefit analysis as the moral centre.
Despite concerns expressed regarding the quantification of pleasure and pain in
philosophical inquiries, the emergence of quantitative tools in the form of statistical
modelling and advanced methodological approaches have equipped managers to
engage in robust cost-benefit analysis and enable them in managerial decision-making.
Furthermore, since the utilitarian theory advocates the maximization of pleasure at
a societal level, it translates to the objective of achieving the ‘greatest good of the
greatest number.’ Through cost-benefit analysis, managers can also engage in healthy
stakeholder management by measuring the cost-benefit analysis of their decision-
making on the various stakeholders and resolving their ethical dilemmas.

Despite its merits, Utilitarianism has been the subject of criticism. First, advocates
of Utilitarianism have found it defines difficult owing to the element of subjectivity.
Since every individual is encouraged to maximize pleasure, justifying the pleasure-
maximizing tendencies of anti-social elements is untenable. Second, irrespective of
the emergence of advanced methodological approaches and quantitative techniques,
it is impossible to quantify the quality and quantity of pleasure. Third, the philosophy
of ‘greatest good of the greatest number’ can sometimes be interpreted as the tyranny
of the majority. Utilitarian thinking can be invoked to justify the compromises on
the interests of the minorities to advance the cause of the majority.

Distributive Justice

One of the giants among philosophers of the twentieth century, John Rawls, advocated
that the criteria for ethical decision-making should be distributive justice. Rawls
identified the idea of justice with ‘fairness’ and contended that ethical actors or decisions
are those that lead to an equitable distribution of goods and services. Rawls made
a persuasive argument in his celebrated work, ‘Justice as Fairness,’ through the
concept of the ‘veil of ignorance. ‘According to ‘the veil of ignorance,’ Rawls calls
upon individuals in society to imagine that they are oblivious of their socioeconomic
status. Further, they are supposed to assume that they belong to the worst-off sections
in such an imaginary society.

Additionally, being the worst-off social sections, Rawls asks what socioeconomic
order they prefer. Rawls argues that in such circumstances, individuals would like
to consider those actions and decisions fair, favouring the least advantaged sections
of society. To substantiate his thoughts further, Rawls produced the idea of the
‘difference principle, which he used to advocate that it is fair to treat unequal
unequally. His arguments have been justified to defend affirmative action in favour
of weaker sections of society. In the corporate world, Rawls ‘difference principle
is invoked to initiate policies addressing the cause of women’s workforce by enabling
them to overcome the existing biases that inhibit their inclusion. For instance,
arrangements like providing crèches facilitating childcare for working mothers and
paid maternity leaves are discussed very seriously. Some corporate organizations
have gone ahead to implement these policies.
30
 Concepts and Theories of
2.4 DEONTOLOGICAL ETHICAL SYSTEMS Business Ethics

As mentioned earlier, the deontological ethical system is based on rules/regulations

that determine decision-making. The German philosopher Immanuel Kant advanced
the most persuasive arguments in favour of the deontological ethical approach. Kant
believed that the moral concept of goodwill determines the rightness of an act rather
than its consequences. Apart from Kantian ethics, other sources of deontological
systems are religion and some Asian philosophical traditions like Confucianism. Some
philosophers have argued that Aristotle’s virtue ethics theory can also be considered
part of deontological ethical systems.
Kantian Idea of the Categorical Imperative
As mentioned above, Kant had a belief in the concept of goodwill. But how does
a person bestowed with goodwill develop a sense of right and wrong? Anticipating
such a question, Kant produced the idea of the ‘categorical imperative.’ The idea
of ‘categorical imperative’ meant that one should propagate only those principles
and take recourse to only those actions and thought processes that they, as a rational
agent, would prescribe as universal rules and laws. In other words, the idea of
‘categorical imperative’ connotes the principle ‘do unto others as you would like
others to do unto you.’
It is worth emphasizing that Kant’s imperative is not conditional but categorical.
The prefix ‘categorical’ means any moral act or judgement should be adopted as
an end, irrespective of its consequences. Kantian categorical imperative meant
that any rational agent could exercise ‘autonomous, self-legislating wills that can
potentially become universal prescriptions for ethical conduct. On this basis, Kant
argued that every individual has the inherent capacity to discover the ‘right’ thing
to do. Therefore, the right actions emanating from rational individuals promise to
qualify as universal laws.
Kantian morality recognized specific universal rules (also called hyper norms) across
time and space, like the right to privacy and freedom of speech and expression.
However, when an individual faces a conflict between two categorical imperatives
or a right versus right dilemma, what is the right thing to do? Which rule should be
given priority? Kantian morality does not provide a clear-cut answer to such a moral
conflict. Another source of deontological ethics is religion. All religions worldwide
propagate that the means are always more important than the ends.
In the last few years, business ethics scholars have revived another school of thought
as part of deontological ethics. This school traces its intellectual inspiration to Aristotle’s
virtue ethics which attaches utmost importance to individual character. Aristotle wrote
about virtue ethics in one of his famous works Nichomachean Ethics. Aristotle
argues that ethical decision-making is more about habitual exercise. Along with other
Greek philosophers like Plato, Aristotle contended that an individual should pay
heed to the question,’ What is the best sort of life for human beings to live?’ rather
than engaging in thought and conduct, which are determined by consequences. Aristotle
argues that an individual should habitually engage in character building regularly to
make oneself ethically sound in ethical decision making. Aristotle’s virtue ethics can
be likened to the importance of bringing rigor to the art of any artist or athlete by
regular practice. Just like elite athletes and athletes hone their skills by minimizing
31
Ethics and Business the scope for errors to enhance their muscle memory, people should consider
character-building a part of their regular lives. Practicing ethical conduct regularly
might develop ethical memory (akin to the muscle memory of sportspersons or an
artist), enabling one to perform the right action without fear of consequences
unhesitatingly.

2.5 CONTEMPORARY APPROACHES

The contemporary approaches to business ethics are new. Though these theories
are not commonly referred to in business ethics, these theories offer exciting
perspectives in the context of ethical decision-making from a managerial perspective.
Some leading contemporary approaches are a) Feminist Ethics, b) Discourse Ethics,
and c) Postmodern Ethics. The following sections briefly describe these current
approaches.
Feminist Ethics
Feminist ethics assumes that people have different orientations regarding approaching
and organizing social life. Feminist ethics theorists contend that most of the existing
ethical theories are based on the ethical orientations of men. For instance, the theory
of ‘rights ‘legitimizes the individual’s right over that of the community. Feminist ethics
highlights that women are more caring than men, and their ethical orientations are
primarily determined by ‘ethics of care’. ‘Feminist ethics perceive organized life as
individuals deeply enmeshed in interpersonal relationships. Compared to other ethical
approaches, feminist ethics emphasizes empathy, caring for one another, and avoiding
causing harm to others. In short, this theory speaks of a) ethics of care, b) advocates
recognition of the unique and moral voice of women, and c) stresses human
relationships and emotion-based virtues
In the context of business ethics, the feminist theory argues that organizational
functioning in business should be bereft of gender biases. They do not say for any
preferences for women workforce but argue for a certain kind of gender orientation
whereby the male and female workforces are treated at par. Feminist ethics theorists
underline the relevance of harmonious relations in organizational functioning and do
away with those stereotypes which stem from a patriarchal approach.
Discourse Ethics
Discourse ethics advocates the adoption of norms only after a thorough and rational
reflection of the impact of ethical conflicts on all the relevant stakeholders. In this
sense, discourse ethics is dynamic, unlike traditional ethical theories based on fixed
norms. As per discourse ethics, ethical decision-making involves norm generation
on a case-to-case basis rather than adopting conventional norms about deontological
and teleological moral systems that cannot be defended via rational arguments.
Discourse ethics advocates that the concerned stakeholders meet for norm generation.
Discourse ethics theorists also call upon the powerful groups to avoid flexing their
muscle power while negotiating for norm generation and finding a peaceful settlement
to disputes. Discourse ethics in managerial decision-making seeks to engage external
stakeholders like consumer groups, civil society organizations, and governmental
regulatory agencies. Discourse ethics calls upon managers to be conscious of not
only the legal obligations but also the social obligations of the firm. In today’s corporate
32
world, environmental ethics, corporate social responsibility, and ideas like Porter’s Concepts and Theories of
Business Ethics
creation of shared value are increasingly becoming relevant in managerial decision-
making.
Postmodern Perspectives
As the term ‘postmodern’ suggests, this perspective is fundamentally opposed to
the various theoretical approaches that emerged in modern Europe ever since the
Reformation, Enlightenment, and Renaissance period. Post-modernist theorists argue
that reality is too complex to be viewed from a singular lens of the ‘grand narratives
in the form of liberalism, Marxism. According to post-modernist thinkers, everything
is relative. It is an approach that views ‘morality’ as a by-product of our emotional
impulses. It calls for questioning the established norms and practices and following
inner convictions and the ‘gut feelings of the individual concerned.
Although some critics are critical of postmodern ethics, stating that it does not provide
any reliable anchors to enable ethical decision-making, defenders of postmodern
ethics have come out with compelling arguments suggesting its relevance in business
ethics. First, post-modernist ethics does not believe in separating the personal from
the professional. It argues that morality constitutes the inherent ethical personality
of the concerned subject, and personal morality is bound to affect managerial decision-
making. Due to these reasons, some have criticized postmodern ethics by arguing
that allowing managers to follow their moral impulse justifies questioning established
practices and create tensions in the workplace. Another feature of post-modernist
ethics is its emphasis that reality is too complex to be viewed from the singular
lens of ‘grand narratives. Therefore, it urges managers to contextualize their decision-
making. In other words, it encourages managers to ‘think local, act locally.’ For
instance, the act of gift exchanges in a professional capacity is considered not only
unethical in the USA but illegal as well. However, suppose one believes the business
environment in China. In that case, gift exchanges are integral to developing business
networks (called guanxi in Mandarin) and are not only accepted but encouraged.
The table below is a diagrammatic representation summing up the three broad
categories of ethical theories:
Ethical Theories

Traditional Contemporary Post-Modern

Virtue Feminist Discourse

Consequential/Teleological Non-Consequential/ Deontological

Ethics of Duties Ethics of Rights

Egoism Utilitarianism Justice as Fairness 33

Ethics and Business Activity 2
Differentiate between Traditional and Contemporary Theories of Ethics.
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2.6 LIMITATIONS OF EXISTING THEORIES

The abovementioned theories are criticized because they fail to reflect complex
business situations, which are rife with grey areas in decision-making. Business
negotiations, gift exchanges, romance in the workplace, and the practice of
compensating CEOs with hefty bonuses are issues laced with ethical issues. Kantian
deontology, Utilitarianism, and Shareholder theory can provide minimal guidance.
None of these theories have readymade answers to address the problems like gender
biases in the workplace and industry-specific ethical decision-making.
Elaborating on the shortcomings of existing theories, two eminent business ethics
scholars have argued for what they call an ‘integrated social contract theory.’ Citing
the example of defining what constitutes unethical compensation, they say that it is
not feasible to describe it with any of the existing theories. Citing reasons supporting
their contentions that all humans function with what they call ‘bounded moral rationality.’
Further responding to the reasons behind bounded morality argued a) human beings
have the finite human capacity, b) ethical theories have limited capacity to capture
moral truth, and c) economic systems are dynamic with no fixed set of rules and
regulations, making ethical dos and don’ts cast in stone. Therefore, it is argued that
bounded moral rationality leads to a) moral relativism owing to temporal and spatial
differences, b) grappling with abstract ethical theories that invariably fail to solve
ethical dilemmas, and c) dealing with ethical dilemmas stemming from culture-specific
appeals.

2.7 BUSINESS ETHICS: GOING BEYOND CYNICISM

The subject of business ethics has often been dismissed as an oxymoron. However,
in the past few years, numerous scandals like the Cambridge Analytic a scandal,
the Volkswagen diesel gate scandal, and the We Work scandal involving its founder
CEO Andy Neumann have pointed out the growing role of economic globalization
and technology impact on a firm’s decision making. Given the above description
regarding various theories, a wide array of questions needs our consideration while
discussing the question of business ethics:
 Who are the chief protagonists or the central actors, and what should they
do while facing an ethical dilemma in the workplace?
 What course of action do the concerned subjects need to take?
 What values are at stake, and how does one prioritize values?
 Whenever there is a ‘right versus right’ dilemma, how do we accord priority
34 to one set of principles at the cost of others
  In the words of Edward Freeman, how does one grapple with the questions Concepts and Theories of
Business Ethics
of ‘integration thesis,’ fulfilling ‘responsibility principle’ and engaging in ‘open
question argument.’
According to one of the leading business ethics scholars, Lynn Sharpe Paine, unlike
the common perception, ethical decision-making is an integral part of the managerial
agency for the following reasons.
1) To treat ethical decision-making as a matter of subject to be exempted is to
fail to acknowledge that, like any other human activity, it is fallacious to treat
business ethics as an oxymoron. Ethical dilemmas in the world of business are
no different from the kind of dilemmas that we face in our daily lives.
2) Business organizations are not entities like Robinson Crusoe on islands. Businesses
being an integral part of society’s functioning, issues like ethics of marketing
and advertisement, a firm’s legal and social obligations are impregnated with
the impact of the firm’s decision-making on society.
3) Lastly, discussing the implications of managerial decision-making regarding ethical
dilemmas is pertinent because, inevitably, one ends up debating the merits and
demerits of ethical theory. For instance, can a direct application of a specific
ethical theory resolve the ethical and moral challenges in the workplace, or given
the complexities of decision-making, which is rife with grey areas, calls for special
considerations that end up challenging the basic principles of existing ethical
theories.
It is worth mentioning that specific social roles are believed to be governed by certain
special norms. For instance, a doctor or nurse must be more sensitive to patients’
feelings in the medical profession. Notwithstanding the virtues of speaking the truth
and the validity of the saying, ‘ honesty is the best policy, doctors need to exercise
discretion while counselling patients regarding their illness. A patient suffering from
an acute disease can get demoralized if the doctor speaks blatant truth without
considering the ethics of care. Similarly, in some Norwegian countries, those in the
profession of audits and accounts must undergo an ethical training course once every
three years to renew their license. Although professionals associated with this profession
complain that they are subjected to rigorous ethical standards, the rationale behind
such a mandate is that accounting professionals must practice the virtue of transparency
to the utmost. Similarly, civil engineers involved in bridge construction must exhibit
the highest degrees of honesty to ensure that they do not compromise the safety of
passengers and other civilians. Since certain sections are involved more directly in
serving society and bearing a direct impact on social welfare, they need to abide
by existing certain norms. In the world of business, the Food and Beverage Industry,
the tobacco industry, online gaming industry, and aeronautical industry directly impact
individuals’ health. Therefore, divorcing ethics from managerial decision-making is
tantamount to gross neglect of a firm’s social responsibilities.
Apart from the above considerations, ethical decision-making in a firm is strongly
associated with the distribution of power in a business organization. A centralized
bureaucratic power structure may lead to a lack of tolerance for constructive
discussions and provide space for the difference of opinion. Such organizations are
liable to suffer from the pitfalls of rigid power structures and groupthink. Furthermore,
as one ascends in the hierarchy of managerial decision-making in a corporate
organization, the responsibility of making sound managerial decision-making and
35
Ethics and Business stakeholder management gets more pronounced. For instance, a new entrant in a
business organization is not subjected to the same pulls and pushes of ethical decision-
making as a middle-rung manager or a CEO. As the saying goes,’ with great power
comes great responsibility. Each role in corporate hierarchy brings in its own set of
unique challenges.
In this unit, we have discussed various ethical approaches. Each of these approaches
guides us from one angle. While it is true that no one approach is a universal answer
to moral decision-making, knowledge of these approaches enables us to make ethically
informed decisions. These approaches complement each other rather than being
mutually exclusive to each other. Further, the complex business world does not give
decision-makers any scope to dogmatically apply these theories. Invariably ethical
managerial decision-making demands a pragmatic approach since humans are not
only rational beings but also experience a wide gamut of emotions. However, deciding
on the most practical way of resolving an ethical dilemma also requires a basic
understanding of various ethical approaches.

2.8 SUMMARY
In this unit, we have discussed an array of ethical theories. While none of the views
can claim their superiority over the other, each is of immense significance in enriching
the way we approach ethical decision-making. Each of the ethical approaches sheds
light on ethical perspectives from different perspectives, and the same problem can
work in a complementary rather than mutually excluding problem. The diagrammatic
representation of the various ethical approaches potentially enables business actors
to comprehend an ethical issue that one confronts in the workplace, the associated
problems and dilemmas, and workable solutions and justifications.

2.9 KEYWORDS
Traditional Ethical : Traditional ethical theories are concerned with what
Theories kinds of actions are right and wrong, how the world is
and how it ought to be, what kinds of decisions are
made and what kinds of decisions ought to be made.
Teleological Theories : The Teleological class of theories provide one with a
two-step approach to determining the right course of
action: first, determine the proper end and then decide
the means for achieving it.
Deontological Theories: The deontological class of ethical theories states that
people should adhere to their obligations and duties
when engaged in decision making when ethics are in
play.
Utilitarianism : Utilitarianism is often equated with the concept of “the
greatest good for the greatest number of people.
Post-Modernism : Post-modernism is not based on universal or unchanging
principles. According to post-modernist thinkers,
everything is relative. It is an approach that views
‘morality’ as a by-product of our emotional impulses.
36
 Concepts and Theories of
2.10 SELF-ASSESSMENT QUESTIONS Business Ethics

1) Is ethical theory of any use in the real world of managerial decision-making?

Discuss by citing some examples from current business practices.
2) Of the various ethical theories discussed in this unit which ethical theory is most
applied to overcome ethical dilemmas in workplace? Why do you think this is
so?
3) Discuss the various merits and demerits of each of the ethical approaches
discussed in this unit.

2.11 REFERENCES/ FURTHER READINGS

Crane, A., Matten, D., Glozer, S., & Spence, L. (2019). Business ethics: Managing
corporate citizenship and sustainability in the age of globalization. Oxford
University Press, USA.
Beauchamp, T. L., Bowie, N. E., & Arnold, D. G. (Eds.). (2004). Ethical theory
and business. New York: Pearson Education.
De George, R. T. (2011). Business ethics. Pearson Education India.

37
Ethics and Business
UNIT 3 ETHICAL DILEMMAS
Objectives
After reading this unit, you should be able to:
 Appreciate the nuances involved in ethical decision-making
 Develop an ability to avoid knee-jerk reactions to ethical dilemmas
 Understand various approaches to confront and overcome ethical dilemmas
 Understand the concept of Social Accounting and its linkages with Ethical
Decision-Making
Structure
3.1 Introduction
3.2 Ethical Approaches to Ethical Decision-Making
3.3 Overcoming Ethical Dilemmas
3.4 Ethical Navigation Wheel and Overcoming Ethical Dilemmas
3.5 Lynn Paine’s Concept of Moral Compass
3.6 Kidder’s Ethical Checkpoints
3.7 Ethical Dilemmas, Stakeholder Management and Social Accounting
3.8 Summary
3.9 Key Words
3.10 Self-Assessment Questions
3.11 References/Further Readings

3.1 INTRODUCTION
We are confronted with the challenges of ethical decision-making in our daily lives.
Invariably we also make judgments about the ethical aspects of the events that happen
around us. Often, our reaction to the events we do not deserve in our perception
is to react by stating, ‘it’s not fair.’ Responses like this bear ample proof that each
of us has our understanding of what constitutes ‘fairness’ and ‘justice’. Like any of
us, the people in our personal and professional lives constantly judge our actions.
Ethical decision-making is challenging because our efforts are constantly under scrutiny.
It is pertinent to understand and appreciate the various aspects of ethical decision-
making. But a more fundamental question is what constitutes an ethical decision.
Multiple factors include an ethical decision. However, some important ones are as
follows:
a) Other-regarding actions: Utilitarian thinkers like Bentham divided human
activities into self-regarding and other-regarding. In the context of ethical
decision-making, managers need to be very conscious of other-regarding
actions, that is, those actions which the manager as an agency of the firm.
38
 Since the firm’s legal and social obligations tend to get fulfilled by the Ethical Dilemmas
managerial agency and managerial decision-making has a bearing on the
social good, it is pertinent for managers to consider the impact of their
actions on others
b) Availability of More than One Choice: Any ethical decision-making
involves a sense of moral judgement, which determines our choice to prioritize
one action over others that are available to us. The availability of more
than one ethical choice leads us to face ethical dilemmas.
c) Perception of Our Actions by Other Stakeholders: It is not enough to
analyze our actions and ethical choices through the lens of self-regarding
and other regarding. A manager also needs to consider other stakeholders’
perceptions regarding their actions. If others perceive managerial decision-
making to impact other stakeholders’, welfare of different stakeholders and
have ethical implications, then a certain degree of managerial caution is
required.
Thomas Jones, a prominent scholar on ethical decision-making, advanced a four-
stage process. According to the Jones model, individuals experience a process whereby
they 1) Recognize a moral issue (moral recognition), 2) Engage in moral judgement,
that is, determining which action is the most appropriate ethical choice 3) Establish
a moral intent and 4) Finally act according to intentions. In the latter sections, we
discuss some prominent ethical decision-making theories and models that enable
us to overcome ethical dilemmas.
Let us take the example of an ethical issue that has garnered much attention in
business organizations and involves a high likelihood of clashing personal and
professional ethical issues. The media often covers stories of senior executives losing
their jobs owing to some romantic entanglements in the workplace. Male and female
executives have been fired for romantic involvement with their subordinates. Often,
romantic entanglements in the office involve ethical issues related to conflict of interest
and abuse of authority. Cases of romantic involvement in professional lives raise
the following questions: a) To what extent romantic involvement in offices is a private
matter, and b) To what extent may an employer restrict personal liberties in romantic
matters?
Some corporate organizations have employment rules that overtly discourage their
employees’ freedom to date co-workers. These rules have attracted wider attention
today due to the growing number of women in the workplace. Although this issue
is rife with ethical implications, it has been covered far more extensively by scholars
belonging to the legal domain. Several reasons cause corporate organizations to
dissuade employees from engaging in romantic involvements. First, employers advance
the argument that the organization has a moral duty to protect its employees from
sexual harassment in the workplace and prevent the possibility of adultery by married
employees. Second, there are specific sectors in the industry where employee romance
restrictions are based on the inherent conflict of interest. Third, some corporate
organizations perceive romantic involvement between their employees as a significant
irritant to efficiency at the workplace. The argument advanced is that romance in
the workplace severely impacts overall workplace productivity and should be banned.
Finally, employers are highly vigilant about workplace romance. This vigilance is
owing to a) possibility that a breakdown of workplace romance can vitiate the
39
Ethics and Business workplace environment and b) in case of superior-subordinate romantic involvement,
possibilities of conflict of interest may lead to other co-workers raising grievances
on the grounds of favoritism.
Considering the discussion above, we can divide the factors affecting ethical decision-
making into two broad categories: a) individual and b) situational factors. Individual
factors concern the individual ethical personalities making a particular decision. These
factors about an individual’s ethical biases stem from one’s natural traits and
socialization. Situational factors include a specific context that determines the ethical
decision-making of the protagonists. These situational factors include incentive
systems, job roles, and the prevailing ethical climate in the organization. Situational
factors are further classified into a) issue-related factors: depending on and b) context-
related factors.

3.2 ETHICAL APPROACH TO ETHICAL DECISION-

MAKING
In his work “The role of Ethics in the Framing of Decisions,” Miquel Baston explains
how ethical approaches can be adopted to improve decision-making and labels
this challenge as a ‘structuring problem.’ Baston describes this problem as ‘the point
in which the contributions of ethics could be recovered to improve the theory of
decision.’ Further, Baston contends that the structure of a decision problem comes
from finding answers to the following questions: a) what can I do in this situation?
B) What outcome will the action have? And c) what is the goal? Each of these
questions can be briefly elaborated on as follows:
a) What can I do in this situation? It involves exercising all the faculties
possible to determine the feasibility of exercising the various possible actions
open to them. This phase is known as ‘operating’ the decision problem.
This stage involves assessing the costs and the objective assessment of
weighing options to arrive at the most efficient options available. This stage
consists in summoning all the courage and fortitude
b) What outcome will the action have? This question involves engaging in
a cost-benefit analysis of the results of the action the subject decides to
perform. This stage involves ‘predicting’ the outcomes of the step. It assesses
the protagonist’s knowledge to be prudent and exercise one’s moral faculties
to determine which action will lead to the most just and fair solution. This
stage calls for developing the ability to establish a sense of certainty regarding
the various possible outcomes that are likely to follow
c) What is the Goal? Assessing the costs and benefits of the actions possible
involves determining the subject’s final motives while acting. In short, it
consists in evaluating the various outcomes of an effort. This stage involves
a certain sense of moral intent and moral will to execute a specific action
finally.

3.3 OVERCOMING ETHICAL DILEMMAS

We are frequently confronted with ethical challenges in our daily lives and are often
40 in a dilemma regarding the right thing to do. While the judgements we make to
exercise our decision-making in our daily lives. Whereas the decision-making in Ethical Dilemmas
our capacities only affect our immediate family and us, relatives and friends’ decision-
making in a professional capacity can make a difference to a larger ecosystem. An
engineer who takes bribes and ignores the construction of unsafe bridges and a
doctor who prescribes expensive drugs for commissions they get from medical
representatives are examples of wrong ethical choices made by people in their
professional capacities. In the corporate world, managerial decision-making is more
challenging because of the grey areas managers are likely to face. Therefore, business
ethics education has paid great attention to ethical decision-making.
Business ethics scholarship has summarized ethical decision-making dilemmas of
managers by mentioning five tensions a) personal morality versus professional ethics,
b) individual welfare versus community welfare, c) short term versus long term, d)
corporate need versus corporate greed, and e) error in judgement versus arrogance.
The managerial agency being confronted with decision-making not only has to maximize
shareholder returns but also ensure fulfillment of the legal and social obligations of
the firm. In dealing with the dilemmas involving shareholder versus stakeholder
management, the managers face the ‘dirty hands’ problem. Joseph Badaracco Jr.,
one of the formidable scholars in business ethics scholarship, calls it the ‘right versus
dilemma.’
Badaracco’s landmark work, ‘The Functions of the Executive’ on managers and
business organizations, talks about the ‘four spheres of Executive Responsibility.’
According to Badaracco Jr., every manager has four spheres of executive
responsibility. To begin with, they have their own set of individual values and ethical
personalities. While consequentialist approaches influence someone’s ethical values,
others adopt a duty-oriented approach. Further, the manager is also motivated to
uphold the rights of the shareholder and employees and even held accountable
whenever the customers’ rights stand violated. In addition, the manager is the custodian
of organizational values and is influenced by Aristotle’s virtue ethics. Aristotle’s virtue
ethics advocates that virtuous conduct is more of a habit than a choice. Those who
are habitually ethical experience less moral inertia while doing the right thing whenever
confronted with an ethical dilemma. Finally, managers must contend with the various
pulls and pressures and engage in a game of tug of war where he is pulled in multiple
directions by one set of values against another. During such situations, the manager
must be pragmatic.
Further, he should summon the courage to fulfill his managerial role and stay true
to his ethical choices. In Machiavellian terms, the manager must use his discretion
to play the ‘lion’ and the ‘fox’ when the situation demands. But when does the manager
play the ‘lion,’ and when does he play the ‘fox.’ This dilemma raises a fundamental
issue in ethical decision-making. Since a manager’s ethical decision manifests their
moral judgement, it is pertinent to understand the process.
In the context of ethical dilemmas, business ethics education has been primarily
influenced by Kohlberg’s theory of moral development and later James Rest’s moral
schemas. In the last twenty years, a group of scholars in the domain of behavioral
psychology called social intuitionists have provided new insights into individual
decision-making. It is worth understanding the dominant view in ethical decision-
making scholarship as advanced by Lawrence Kohlberg and James Rest which laid
the foundations for studying ethical decision-making by highlighting the cognitive
moral development of individuals. 41
Ethics and Business Lawrence Kohlberg is widely recognized as a leading authority on that individuals’
cognitive moral development occurs through three main stages: pre-conventional,
conventional, and post-conventional. Further, these three stages were divided into
two or more sub-stages. Kohlberg suggested that in the pre-conventional stage,
an individual’s moral development is conditioned by the deterrent effect of punishment
by authorities in social institutions like family and school. In the conventional stage
individual’s morality is conditioned by an individual’s propensity to act following
the mandate of the social mores and avoid indulging in those actions, which may
lead to the breakdown of systems. Dan Ariely, a behavioral economist, in his work
‘The Honest Truth about Dishonesty,’ has put forward the concept of the ‘fudge
factor,’ which highlights that humans tend to view themselves as honest even when
they engage in deceitful behavior. This behavior stems from humans engaging in
conduct that synchronizes with social mores. In the post-conventional stage, Kohlberg
suggests that an individual’s moral development reaches a stage tendency stem from
where he can elevate his overall moral personality and has a self-imposed obligation
to engage in actions that make others happy. This personal obligation arises from
one’s social contract with the larger society to abide by the legal and social mandate.
Rest spoke of four components in ethical decision-making, namely, moral sensitivity,
moral judgment, moral motivation, and moral character. Let us try to understand
each of these components. Most of us, unlike the saints with the clairvoyant ability
and hard-headed criminals, are constantly challenged with ethical decision-making.
We invariably get confused about the right thing to do during such times. In other
words, we face ethical dilemmas. But facing a dilemma implies recognizing the co-
existence of certain rights and wrongs in which we face dilemmas. Therefore, moral
sensitivity or recognition is the awareness of conflicting ethical values. The person
concerned is aware of ethical problems and engages in the process of ethical self-
inquiry, like a) how does my behavior impact others, b) what are the various possible
courses of action, and then determines the outcomes of each strategy. In short, this
stage forces one to engage in moral reasoning, which facilitates one’s transit to the
second component, moral judgement. Moral judgment is about choosing between
the various courses of action after determining the various aspects of an ethical
problem. It is essential to remember that the moral reasoning one exercises to choose
a particular course of action over another determines moral judgment. Rest argued
that defective reason stemming from insecurities, greed, and egocentric behavior
clouds moral judgment. Business ethics education has conventionally based itself
on the understanding that moral reasoning always precedes moral judgement.
The third component in Rest’s model comprises moral motivation, whereby the subject
is motivated by the twin factors of rewards and emotions. These rewards need not
necessarily be monetary but can also extend to non-monetary ones. The final
component in Rest’s model comprises moral character. Let us try to limit ourselves
to the first two components. According to Rest’s model, moral reasoning precedes
moral judgement. But as mentioned earlier, a new group of behavioral psychology
thinkers like social intuitionists has argued that moral judgement precedes moral
reasoning, and the latter is merely an ex post facto justification of the former.

3.4 ETHICAL NAVIGATION WHEEL AND

OVERCOMING ETHICAL DILEMMAS
Scholarship in business ethics has not confined itself to dealing with the challenges
42 of ethical dilemmas. Scholars also have advanced frameworks to help managers
confront the challenge of ethical decision-making. As against Badaracco Jr’s Ethical Dilemmas
understanding of an ethical dilemma in terms of right versus right, two Norwegian
scholars, Kvalnes and Ovarenget, perceive a moral dilemma as a situation that calls
for a choice between two wrongs. The subject facing the moral dilemma is confronted
with a situation where two moral values or duties are equally compelling. Still, only
one of the two existing choices can be exercised. The two Norwegian scholars
have advanced a six-step ethical navigation wheel to overcome ethical dilemmas.
The following is a diagrammatic representation of the ethical navigation wheel.

Law

Ethics Identity

What do
You do?

Economy Morality

Reputation

Source: Kvalnes, Ø., & Øverenget, E. (2012). Ethical navigation in leadership training. Nordic
Journal of Applied Ethics, (1), 58-71

One of the noticeable distinctions in the ethical navigation wheel is the distinction
between ethics and morality. In our daily lives, we tend to use these two words
interchangeably, but in the case of the ethical navigation wheel, there is a clear distinction
that is brought out between the two. Morality is understood as a set of beliefs and
values developed over time. In this regard, morality stems from a certain kind of
socialization that we experience instead of our close association and interactions
with family, friends, school, and college. Ethics is a systematic approach that helps
us deal with challenges stemming from moral relativism by equipping us with normative
tools.
The six steps in the ethical navigation wheel are not to be considered as a universal
solution that starts by asking questions arising from the legal aspects of the dilemma
and ends with the ethical ones. Depending on the subject facing the dilemma, one
can navigate from any section of the wheel to the other end. Prioritization and
weightage to each of the aspects of the navigation wheel is a matter of individual
choice. Each of the six elements in the navigation wheel can be briefly described
as follows:
1) Law (Is it Legal): If a manager faces an ethical dilemma, one can begin by
asking whether the managerial action is legally acceptable. Sometimes the 43
Ethics and Business legal obligations may not be the most preferred course of action, but the
manager is obliged to fulfill the legal obligations of the firm and ensure that
his actions do not violate the law of the land
2) Identity (Mapping with Values): Different professions can identify with a
separate set of values. For instance, it is expected that professionals in
finance and accounting are objective and transparent, and health professionals
are expected to prioritize ethics of care. Therefore, managers need to map
their decision-making with the values of their industry
3) Morality (Is it Right?): A manager facing a dilemma needs to question whether
their decision-making is as per their morality. Morality, in this sense, is about
one’s basic understanding of right and wrong. Even though different individuals
experience various kinds of socialization, there is some basic consensus
on what constitutes morality among people belonging to a particular
ecosystem. For instance, there is an Indian sense of morality, a Chinese
sense of morality, and an American sense of morality. A certain sense of
right and wrong is determined by a certain sense of morality derived from
unique socialization patterns. In China, exchanging gifts in the professional
world helps develop a friendship (guanxi in mandarin); therefore, it is not
identified with corruption. In the west, exchanging gifts in a professional
capacity is considered a bribe; it is not only unethical but also illegal.
4) Reputation (Impact on the Goodwill): Firms are very conscious of their
image in the public domain. In today’s world, where news travels extremely
fast via social media, managers need to be very wary of the impact of their
decision-making. Reputations come down like cards if important stakeholders
perceive managerial decision-making poorly. Dissatisfied stakeholders can
cause more than a dent in corporate reputation; therefore, managerial
decision-making should consider stakeholder management’s merits.
5) Economy (Impact on Firm’s Profits): In managerial decision-making, the
most acute challenge for managers is to make the right kind of choices in
the face of dilemmas that compel them to choose between the corporation’s
profits and the optimal ethical outcomes.
6) Ethics (Challenge of Justifying): To justify the ethical choices, we need to
scan our proposed action through two principles, namely a) principle of
equality and b) principle of publicity. The principle of equality states that
similar cases should be treated equally. The only condition where a distinction
can be drawn between two identical points is when they are morally different
in at least one aspect. For instance, when do we know that a gift is a bribe?
Using the principle of equality, we need to ask a series of questions. Some
of these questions can be 1) Who is the giver and receiver 2) When was
the gift given (before the contract, during the execution of a contract, or
at the fag end of the contract), and what were the motives of the gift giver,
etc. If the answer to these questions is different, then we can safely infer
that a gift is other than a bribe.
The principle of publicity is about the conviction that we can defend our actions in
the public domain without any sense of moral guilt. Suppose we can confidently
44 defend our activities during our interactions with colleagues in the workplace, or
we can share the decision we have taken with the people we love the most. In that Ethical Dilemmas
case, we can be particular about the ethicality of our actions. In the case of ethical
dilemmas, one can focus on all six questions on the navigation wheel. The conditions
considering the various tensions amount to those between economy versus identity,
law, morality, ethics, and reputation.
Activity 1
Draw the six-step ethical navigation wheel to overcome ethical dilemmas and explain
each point briefly.
..........................................................................................................................
..........................................................................................................................
..........................................................................................................................
..........................................................................................................................

3.5 LYNN PAINE’S CONCEPT OF MORAL

COMPASS
Harvard University Lynn Paine offers a four-part ‘moral compass’ for guiding
managerial decision-making. Paine recommended that managers develop the habit
of examining the ethical aspects of every major and even the most routine decisions
with/her team. Paine’s four frames closely resemble Edward Freeman’s stakeholder
management theory and argued that it is fallacious to separate business and ethical
conduct. Freeman advanced the integration thesis, which comprises two premises,1)
every business decision has a moral component, and b) every ethical decision in
the managerial capacity has a business component. Further, Freeman recommended
that managers develop the ‘responsibility principle’ quotient and engage in an ‘open
question argument. ‘The ‘responsibility principle’ invokes managers to accept
responsibility for their actions. Finally, the ‘open question argument’ calls upon managers
to engage in self-examination while carrying out their managerial role on the following
lines 1) if a particular decision is made for whom the value is created and destroyed,
2) who is harmed and benefited with a particular decision? 3) whose rights are
upheld and whose are violated by a specific decision? And 4) what kind of person
I/We will become if I make the decision?
Lynn Paine’s four frames of reference can be briefly described as follows. The first
frame expects managers to examine the following question a) Will this action serve
a worthwhile purpose? The basic idea behind this question is to make managers
analyze the results in both short- and long-term consequences. Besides, they inspire
managers to examine whether these results are worth pursuing critically. The second
frame highlights the need to scan the executive action by subjecting it to a searching
analysis by invoking ethical concepts and principles that address issues like norms
of good governance, legal and social obligations of the firm, code of conduct, etc.
To be precise, the second frame asks: Is this action consistent with relevant principles?
The third frame deals with the consequences borne out of managerial activity. Such
an exercise necessitates cultivating a sense of sympathy and empathy for the bearings
of managerial action on other stakeholders. In short, the manager needs to ask:
does this action respect the legitimate claims of the people affected? The fourth
45
Ethics and Business and final frame in Paine’s moral compass inspires managers to dig deep and critically
examine their ability to exercise their influence as managers. Therefore, this frame
encourages managers to ask: Do I/ we have the power to act?

3.6 KIDDER’S ETHICAL CHECK POINTS

Rushworth Kidder, an ethicist, opined that ethical issues are overly complex and
can be challenging. Kidder recommended nine-step checkpoints to tide over the
complexities of ethical decision-making. The first checkpoint is to have moral
awareness/sensitivity to recognize the presence of a moral issue. The second
checkpoint is determining the protagonists and checking whether the concerned subject
is involved. More importantly, the subject is mandated to bear responsibility and
needs to take a desirable action. The third checkpoint is to ensure that the concerned
subject considers all the relevant facts before making moral judgments and engaging
in ethical decision-making. In fact, unlike common perception and understanding,
unethical managerial practices are not necessarily due to a lack of ethical intent but
are often caused by information asymmetry. Therefore, managers must address the
question of inadequate information. The next checkpoint is to determine whether
the ethical issues are right or wrong. Kidder proposed a four-fold test to determine
the right versus wrong issues. These tests are 1) legal tests which provide legal
perspectives 2) the stench test/smell test, which gives an intuitive feeling about the
appropriateness of the issue 3) front-page test, which helps us determine the ethicality
of an issue by making us ask if our private actions are made public would we be
comfortable with such a situation and 4) the mom test/aunt’s test which helps us
determine the right versus wrong of an issue by prodding us to ask whether our
mother or our favorite auntie would approve of our judgement or action.
The fifth checkpoint is regarding the test for right versus suitable paradigms. The
categories of these dilemmas are as follows a) justice versus mercy, b) short term
versus long term, and c) truth versus loyalty. The sixth checkpoint is to apply
checkpoints four and five, respectively. The seventh checkpoint encourages managers
to move beyond dilemmas to trilemmas and exercise their ‘moral imagination’ to
find out of box solutions. The eighth and ninth checkpoints concern deciding and
then following it up with revisiting and reflecting.
In his book ‘Organizational Ethics: A Practical Approach,’ C E Johnson put forward
his five ‘I’ format. The five ‘I’ format was expanded as a) identifying the problem,
b) investigating the problem, c) innovating by exploring the broad range of viable
solutions, d) isolating by zeroing in on the most appropriate solution, and then finally,
e) implementing the solution.
Activity 2
Describe briefly Kidder’s nine-step checkpoints to tide over the complexities of
ethical decision-making.
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 Ethical Dilemmas
3.7 ETHICAL DILEMMAS, STAKEHOLDER
MANAGEMENT AND SOCIAL ACCOUNTING
The ecosystems in which businesses function today are becoming increasingly complex.
As the firm’s agency, managers face ethical dilemmas from fresh debates around
the firm’s legal and social obligations. Whether it is new regulations owing to national
security considerations or growing activism from civil society organizations, managers
are increasingly subjected to ethical performance. But how does one measure the
ethical performance of managers? Various initiatives have recently been undertaken
in social auditing, environmental accounting and sustainability reporting, and even
ethical auditing. For easy understanding, let us label these initiatives under ‘social
accounting.’ According to Crane and Matten, social accounting ‘is the voluntary
process concerned with assessing and communicating organizational activities and
impacts on social, ethical, and environmental issues relevant to stakeholders.’
Despite the term’s popularity, there is a lack of consensus regarding what constitutes
the process of social accounting. The lack of formal standards and established
assessment parameters or industry-wide accepted norms for organizational
communication with stakeholders has made the challenge of social accounting more
formidable. Social accounting has confined itself to stakeholder consultation and
dialogue. Since the managers function as agents of the firm, the firm’s actions are
deciphered by how they confront ethical dilemmas. These dilemmas can be broadly
summarised as stakeholder management. Growing public scepticism of the corporate
organizations and even resurfacing of economic nationalism prompting the market-
friendly states to regulate corporates owing to perceptions related to national security
compromises have led to renewed discussions on social accounting.
Given renewed attention to social accounting, examining some factors that have
brought this theme under more significant consideration is pertinent. Appreciation
of these factors will enable managers to develop a more informed understanding
of the various repercussions of resolving ethical dilemmas at the workplace. Growing
pressures from government, civil society organizations, social media, industry
associations, and consumers, apart from internal sources like employees and
shareholders, make managers compelled to re-evaluate their actions whenever they
confront ethical dilemmas. Yet another factor that has made social auditing critical
is its relevance in helping managers identify risks. Identifying potential risks has led
to managers’ ethical decision-making revisiting how they confront ethical dilemmas.
This kind of risk identification has facilitated improved stakeholder management.
Improved stakeholder management translates to a higher degree of accountability
and transparency.
As leaders of their firms, managers are perceived as major ethical drivers in establishing
or driving change. As public leaders, managers not only consider themselves as
influencers but are widely perceived as change agents representing their organizations.
Ethical decision-making occupies a critical role in managerial decision-making because
organizational transformation, as per changes in the larger ecosystem, demands that
firms’ goals are confined to their financial performance and environmental and societal
contribution. Today’s ‘wicked problems and grand challenges facing businesses desire
new managerial abilities in dealing with delicate issues concerning multiple constituencies
and their perspectives prevailing in the larger ecosystem.
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Ethics and Business Managers can relate to their constituencies from three broad orientations: immorality,
amorality, and morality. Immorality pertains to adopting unethical approaches whenever
managers face ethical dilemmas. Immoral management means consciously adopting
those practices against ethical principles of justice and fairness. A moral management
implies that although the managers are not deliberately executing actions that will
hurt the internal and external stakeholders, they tend to be indifferent or negligent.
Stakeholders’ interests are negotiable in exchange for the firm’s economic interests.
Moral management by owners includes conscious steps managers take to incorporate
ethical practices. Such managerial actions include establishing transparent codes of
conduct, and fair treatment of shareholders, employees, customers, and other vital
stakeholders.
Complex ethical dilemmas in the corporate world involve making difficult choices
among divergent interests. The manager must play the game of tug of war with multiple
constituencies. Individual managers can clearly understand their actions and motivations
by distinguishing them from others. Having an informed understanding of the ethical
rationale behind their decision-making, managers can critically reason and develop
empathy towards other stakeholders. Invariably ethical decision-making is
compromised owing to ignorance and bias, the twin factors that hinder moral
awareness. A wide range of ethical principles and tests have been discussed in this
unit to help managers draw on when they are confronted with ethical dilemmas. As
discussed earlier, the business landscape is evolving very swiftly. Do the various
models and tests enable managers to deal with ethical dilemmas in the workplace
in the real world? Whether it is the navigation wheel or any other model dissecting
the ethical issues is always a thankless task. The various stages and processes of
varying urgency make it difficult for managers to develop objective criteria to resolve
ethical dilemmas. Moreover, the various individual factors and situational factors
further exacerbate the issues. Nevertheless, the different models and tests presented
in this unit enable managers to minimize, if not eradicate, their individual biases while
confronting ethical dilemmas.

3.8 SUMMARY
Given the rapid pace of changes in the business landscape and growing complexities
in managerial decision-making, it is very pertinent for managers to develop some
awareness and knowledge about objective ways of overcoming ethical dilemmas.
This unit has broadly discussed the individual and situational factors in decision-
making. However, beyond these factors, it is critical for management school participants
to understand the relationship between moral sensitivity/awareness, moral reasoning,
and moral judgement. Kohlberg’s theory of moral development and James Rest’s
theory have been the dominant theories concerning ethical decision-making. These
theories have focussed on individual factors in ethical decision-making. However,
many other approaches have been advocated focussing on situational factors. Some
noticeable ones are the ethical navigation wheel, Lynne Paine’s, and Kidder’s ethical
checkpoints. This unit also highlights how ethical decision-making of managers will
not only enable them to become better in stakeholder management and more effective
agencies to enhance the firm’s social accounting.

3.9 KEY WORDS

Ethical Decision- : The ethical decision making process recognizes these
48 making conditions and requires reviewing all available options,
 eliminating unethical views and choosing the best ethical Ethical Dilemmas
alternative.
Ethical Dilemmas : An ethical dilemma takes place in a decision-making context
where any of the available options requires the agent to
violate or compromise on their ethical standards.
Ethical Navigation : The Navigation Wheel offers a framework for analyzing
wheel concrete ethical dilemmas.
Moral Compass : Moral compass as the person’s ability to judge what is right
and wrong and act accordingly.
Social Accounting : Social accounting is “the measurement and reporting of
information concerning the impact of an entity and its activities
on society.

3.10 SELF-ASSESSMENT QUESTIONS

Exercise
You are a senior manager in a corporate organization in the food and beverage
industry. You are about to launch a new product, a new beverage that promises to
be a game changer and catapult you to be the number one player in the industry.
With only two weeks before the launch, you know that the new soft drink your
firm is about to launch will severely impact the consumers’ health. The reason is
that the soft drink is prepared from contaminated water. The dirty water is being
drawn from a region that has witnessed increasing instances of groundwater pollution
due to the local farmers’ overuse of pesticides and other chemicals. The firm has
water treatment facilities in its plant, but the existing facilities have failed to treat
the polluted groundwater comprising harmful chemicals. As soon as you know that
the new soft drink will be highly damaging to the consumers, you escalate the matter
and seek the CEO’s appointment. The CEO has a meeting with the topmost
executives of the firm and agrees to give some time to his team to address the issue.
After a few days, the group explored the diverse options available to the firm but
concluded that the only solution to deal with the situation was to postpone the launch
of the soft drink. Once the team led by the manager apprises the CEO of the problem,
the latter states adamantly that under no circumstances he will not allow the delay
of the launch of the soft drink. He says that postponing the launch will lead to a
significant compromise with the firm’s reputation.
Further, it will harm the firm’s IPO scheduled in a month. The CEO promises that
once the product is launched, the firm can invest in state-of-the-art water treatment
facilities and set things right shortly. As a senior manager, you are concerned about
the impact of the soft drink launch on consumers. The effect will be far more detrimental
to the health of consumers like pregnant women and children. The CEO walks out
of the meeting, stating that the only thing that matters in business is profit, and under
any circumstances, he will not allow the postponement of the product launch.
Given the above case, answer the following:
1. As a senior manager, what would you do? How do you resolve the ethical
dilemmas arising out of this situation?
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Ethics and Business 2. What are the assorted options available to you, and how do you engage
in a cost-benefit analysis of each option?
3. Use the various theories/tests/ techniques mentioned in the unit to exercise
the best feasible option/ Can you use any of the theories to convince your
CEO to delay the product launch? If yes, how?

3.11 REFERENCES/ FURTHER READINGS

Kvalnes, Ø., & Øverenget, E. (2012). Ethical navigation in leadership
training. Etikkipraksis-Nordic Journal of Applied Ethics, (1), 58-71.
Paine, L. S. (2006). A compass for decision making. In Responsible leadership (pp.
74-87). Routledge.
Johnson, Craig E. Ethics in the workplace: Tools and tactics for organizational
transformation. Sage Publications, 2009.

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 Ethical Dilemmas
UNIT 4 ETHICS IN BUSINESS
Objectives
After reading this unit, you should be able to :
 Appreciate the relevance of ethics in business
 Understand and appreciate the individual, organizational and societal factors
in business ethics
 Appreciate the triangular relationship between business, government, and
Civil society organizations
 Appreciate the changing ethical mandate of business
Structure
4.1 Introduction
4.2 Individual Factors in Business Ethics and Leadership
4.3 Organizational Wrongdoings
4.4 Ethics at Workplace and ‘Moral Muteness.’
4.5 Ethical Issues in relations between Government, Civil Society Organizations
(CSOs) and Business
4.6 Globalization and Business-Government Relations
4.7 Business and Civil Society Organizations
4.8 Changing Ethical Mandate of Business
4.9 Summary
4.10 Key Words
4.11 Self-Assessment Questions
4.12 References/Further Readings

4.1 INTRODUCTION
The onset of liberalization, privatization, and globalization forces in the 1990s have
extended corporations’ footprint beyond their domestic markets. The corporate
footprint in foreign markets was limited during the Cold War era. The fall of the
Berlin wall and the disintegration of the erstwhile Soviet Union led to a new wave
of economic globalization. Although the world witnessed economic globalization in
the past, the scale and magnitude of globalization were unprecedented. Consequently,
there has been a multifold expansion in the number of stakeholders, making it extremely
difficult for managers to engage in stakeholder management. New opportunities also
meant new challenges to adapt to foreign markets regarding their social and cultural
norms. Firms had to engage in businesses with the utmost sensitivity. The expansion
of business opportunities has also coincided with rapid technological advancement,
especially in communications. The emergence and rapid growth of mobile technology,
the internet, and in the later years, social media means that corporates can make 51
Ethics and Business or mar their brand with their actions. The activities of a corporation in one part of
the world can be spread to various parts of the globe in a matter of minutes leading
to significant repercussions for the firm’s reputation. Growing clamor for foreign
investment by the developing countries owing to an era of economic deregulation
and the accompanying stiff competition also meant that corporates had a tough time
drawing a line in terms of their ethical boundaries and maximizing profits. Sweatshops,
advertising, and marketing ethics determine the legal and social obligations of the
firm in an uncertain environment. These developments have caused renewed
discussions and debates regarding the ethical aspects of the business.
Before we discuss some of the vital aspects of ethical aspects in business, we need
to have a preliminary idea regarding what constitutes business ethics management.
For our convenience, we would consider Crane and Matten’s dissection of what
includes business ethics management. According to Crane and Matten, the following
are some of the critical components of business ethics management, namely a) mission
or value statements, b) codes of ethics, c) reporting advice channels, d) risk analysis
and management, e) ethics and vigilance officers and committees f) ethics education
and training and matters related to g) financial issues connected to auditing, accounting,
and reporting. Let us try to investigate some of these essential components briefly.
Mission statements can be very generic statements regarding the aims and values
of any corporation. Some notable examples in this regard are a) Google’s motto
of ‘Do the right thing,’ b) Swedish furniture giant Ikea’s vision to ‘create a better
everyday life for everyone,’ and c) Indian pharmacy giant CIPLA’s tagline stating,
‘For us, the final measure of our success is a simple curve-the smile of health regained.’
While it is prevalent for corporations of varying sizes to have mission statements,
one is not sure what impact these mission statements have on the organization’s
ethical climate. A Code of ethics constitutes yet another ethical aspect of business
ethics management. Professional integrity and employer expectations dominate these
codes of conduct. Still, it is alleged that these codes are typically one-sided and
tend only to safeguard a firm’s interests emphasizing duties but remaining vague
and silent about the rights of the employees. Available channels to report unethical
conduct at the workplace and the availability of platforms to register or receive
advice-regarding ethical dilemmas can be vital means of detecting and resolving
problems. Organizations are introducing novel ways to maintain anonymity and
encourage employees to speak about unethical conduct in the workplace. For instance,
setting up hotlines to address ethical grievances. Internal Complaints Committee in
the form of workplace harassment, sexual harassment is another example in this
regard. Social and financial auditing has compelled corporations to develop an ethical
lens in risk analysis and management.
Nowadays, it is common to see corporations having appointees with the title of
chief vigilance officer or chief ethical officer. Such developments indicate a growing
realization among corporations of the need to set up departments with designated
officers to address various issues concerning the organization’s ethical climate. Some
organizations have resorted to availing services of professional ethics consultants
to avoid conflict of interests and biases in facilitating an ethical environment. Initially,
ethic consultancies manifested in the form of services related to environmental ethics
and sustainability. Due to the growing complexities in managerial decision-making,
corporations realize the need to conduct ethical training workshops for their
management teams at various levels. Finally, it is common knowledge that corporations
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are nowadays adopting accounting and auditing standards that are widely prevalent Ethics in Business
across the industry. Various activities related to measuring, evaluating, and
communicating an organization’s impacts and performance on various social, cultural,
and environmental issues have a bearing on the stakeholders’ well-being.

4.2 INDIVIDUAL FACTORS IN BUSINESS ETHICS

AND LEADERSHIP
Every time there is an ethical breakdown in corporate organizations, there is a tendency
to perceive ethical fallouts as a direct consequence of individual failure. But the
reality is far more complex. Given the complexities in the context of decision-making
in the corporate world fraught with grey areas, one needs to understand that ethical
breakdowns of high proportions in corporate organizations are a consequence of
not only individual managerial conduct but factors that go beyond the protagonists
involved. Serious ethical breakdowns take place when specific managerial decision-
making is influenced by organizational factors comprising internal and external
stakeholders. Internal stakeholders include the board of directors, senior management,
employees, and corporate decision-making structure (centralization or decentralization).
Externals include the government’s regulatory agencies, civil society organizations,
and the media. In short, to have an informed understanding of ethical lapses, we
need to understand ethical breakdowns by adopting the IBS (individual, business
organization, and society) framework. To understand the IBS framework, we need
to decipher the numerous factors that influence managerial decision-making at an
individual level, examine the multiple factors concerning the organizational level
decision-making, and then scan the societal factors.
Whenever a major ethical breakdown happens, it is commonly perceived that the
CEO or senior management has engineered some compromises to cut ethical corners.
While faulty managerial decision-making is responsible in some cases, in others,
we are compelled to ask why ‘good people often let bad things happen.’ For instance,
Mr. Ramalinga Raju, Former CEO of Satyam Computer Services, was considered
a role model for leading Satyam as a socially responsible actor and won several
awards. However, he still ended up as an unethical leader. Similarly, many senior
managers and CEOs are religious-minded and lead principled lives but make the
wrong decisions. For instance, let us take the case of the late Kenneth Lay, former
CEO of the bankrupt organization Enron. He used to lead the Sunday mass prayers
but still got involved in many decisions that led to Enron’s financial and ethical
bankruptcy. Besides this, CEOs and senior management sometimes develop a certain
sense of ‘defective reasoning leading them to assume that they are invulnerable owing
to their positions of power and authority.
Moreover, CEOs function under a lot of stress. Given the pressures to produce
time-bound results in the form of profits and maximizing shareholder value, they
tend to cease reflecting on their choices to achieve desired results. Their tendency
to ignore the means to achieve gains clouds their sense of judgement. In a study
conducted by Ohio State University by Professor Paul Nutt, several organizational
decisions were studied over twenty years. The study concluded that many decisions
stemmed from short-term orientations leading to ethical breakdowns. The study further
inferred that decision-makers, in their zealousness to achieve corporate profits, a)
ignored ethical questions, b) came to pre-mature conclusions c) and had a limited
sense of information. 53
Ethics and Business Bazerman and Tenbrunsel have developed a specific set of concepts that provide
a particular perspective regarding the defective reasoning managers develop while
performing their managerial roles. Similarly, another prominent business ethics scholar
Saul W Gellerman has raised the question, ‘Why do good managers make bad
ethical choices? Responding to this simple question is far more complex than it appears.
According to Gallerman, even senior professionals lose perspective regarding the
limits of ethical transgressions. As someone remarked, ‘ morality is just like a piece
of art; it is all about drawing a line somewhere.’ But where does this line start and
end? Caught in the interplay between personal morality and professional ethics,
organizational goals to maximize profits, and prove corporate loyalty as against one’s
sense of social obligations borne out of ethical compulsions, managers make tough
calls. Sometimes senior management resorts to indirect blindness in ethical decision-
making by luring middle and junior-level managers to do things they know are against
the existing legal or ethical mandates. The common refrain among such senior
managers is clubbed together in the form of what Gellerman calls ‘four rationalizations,’
which are as follows: a) A belief that the activity is within the reasonable ethical
and legal limits, b) A belief that the activity is in the best interests of the individual
and the company c) A belief that the unethical activity is ‘safe’ and will never be
found out and d) A belief that the activity that helps the company will condone it
and come to the rescue of the individual.
Often, managers work in an organization infested with a specific ethical climate where
the organization sets impractical goals to achieve certain profit maximization levels.
In business ethics, this is termed ill-conceived goals. Due to these ill-conceived
goals, managers make ethical choices based on consequential approaches that drive
them to over-valuing outcomes. Blind pursuit of these ill-conceived goals leading
to overvaluing outcomes is caused by a certain degree of motivation which sometimes
causes managers to ignore cutting all ethical corners leading to motivated blindness.
Managers motivated to ignore ethical decision-making in pursuit of ill-conceived
goals tend to suffer from a sense of ethical fading. The fading of ethical considerations
in managerial decision-making eventually causes managers to make minor ethical
infractions in the beginning. Subsequently, every ethical infraction tends to surpass
the transgressions of the preceding one leading to a slippery slope. In short, managerial
decision-making is not necessarily a function of individual misconduct but a
manifestation of the significant tensions that managers go through during managerial
decision-making. These tensions manifest themselves in the form of five binaries,
namely a) personal morality versus professional ethics, b) individual versus the
community, c) short term versus long term, d) corporate loyalty versus corporate
greed, and e) arrogance versus error in judgement.
Moving from the discussions centering on the individual manager, one needs to have
a more informed understanding of organizational factors in ethical decision-making.
But more fundamental to discussions centering on corporate wrongdoing in the case
of ethical breakdowns is the question: Is organizational wrongdoing normal or abnormal?
For a considerable time, business ethics scholarship has considered organizational
wrongdoings as an exception rather than a rule. But the latter day, researchers like
David Palmer, working on this theme, have come to infer that organizational wrongdoing
is not as much of an out liner as it is widely believed. They have persuasively argued
that organizational wrongdoing is normal and have produced compelling arguments
to support their thesis. Another question related to organizational factors in ethical
decision-making is how does an organization’s ethical climate or lack of it impact
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managerial decision-making and/her professional integrity? Further, to what extent Ethics in Business
is it relevant for an organization to develop an organizational culture that encourages
its managers to be more open while discussing various aspects of managerial decision-
making in the context of its ethical aspects? A more open culture that encourages
healthy debates and discussions regarding ethical issues in the workplace tends to
have a better ethical climate than the one in which managers are incredibly
uncomfortable discussing the various challenges of ethical decision-making.
Senior management professionals in any organization play a critical role in setting
the ethical tone of an organization. In recent times we saw how the Volkswagen
scandal saw the involvement of the senior management, including the then CEO
Martin Winterkorn and his inner circle. They engineered unethical means while Martin
Winterkorn was CEO of the Audi division to maximize profits. After being made
the Global CEO of Volkswagen, Winterkorn got his Audi team with him to replicate
the earlier success. According to some observers, they were cutting ethical corners
to make Volkswagen the number one player in the automobile industry led to the
diesel gate scandal. Although evidence remains inconclusive regarding their direct
participation, it is difficult to rule out that they were ignorant of the unethical practices
in a centralized organization like Volkswagen. Similarly, the collapse of Enron in
2001, a significant player in the energy industry, suffered from a very toxic ethical
climate due to unethical leadership.
For many scholars, managing is different from leading. Whereas management is about
‘imposing order’ via meticulous planning and organizing, leadership is about coping
with change. In short, since leading involves contemplation on the right thing to do,
it consists of straddling a particular moral terrain. Suppose one is to accept this
dimension of leadership in today’s fast-paced world. In that case, the right thing to
do involves the task of influencing the ethical climate of the organization and inspiring
the employees of the organization with ethical decision-making.
Activity 1
Explain different organizational factors in ethical decision-making.
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4.3 ORGANIZATIONAL WRONGDOINGS

Although there has been a tendency to perceive ethical scandals in terms of the
managerial agency in one’s capacity, one needs to scrutinize them in terms of the
ethical climate of corporate organizations. For a long time, wrongdoings attributed
to organizations were considered abnormal. These abnormal wrongdoings used to
stem from the aberrant behavior of a few individuals in one or more instances. These
scholars also attributed organizational wrongdoing to a few bad apples, that is, a
few individuals who were inherently unethical and never shied away from cutting
ethical corners in pursuit of their objectives. Similarly, some organizations are believed
to be inherently toxic and are labeled as bad barrels. It is worth pointing out those
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Ethics and Business organizations that are highly centralized and bureaucratic and function more with a
top-down approach leave little space for managerial autonomy in decision-making.
In such an organizational culture, more frequently than not, managers tend to have
moral stress built over some time. Empirical studies on moral stress have concluded
that it is the most critical cause of employee dissatisfaction, lack of satisfaction with
the work, and high attrition rates. However, in the last two decades, another set of
scholars argued that organizational wrongdoing causing ethical misconduct is not
as abnormal as it is believed. Underreporting wrongdoings gives the impression that
organizational wrongdoings are rare, but that is not the case in the real world.
For instance, in his article ‘The New Perspective on Organizational Wrongdoing,’
Donald Palmer argues that scholarship on organizational wrongdoing as an abnormal
phenomenon is based on four assumptions. First, it assumes that organizational
wrongdoing is a) rare, b) aberrant, c) abhorrent (from an individual managerial
perspective), and d) caused by toxic culture in the organization. Scholars like Palmer
contend each of these assumptions is based on false assumptions. In his work ‘the
New Perspective on Organizational Wrongdoing,’ Palmer questions the assumptions
earlier scholars made. First, he argues that treating wrongdoing as a rare phenomenon
is faulty. This treatment has led to management education not paying due attention
to the root cause of organizational wrongdoing and treating the problem as if it were
a rare event. Second, it is amateurish to treat major corporate scandals like Enron
and WorldCom in 2001-02 and later the subprime crisis as aberrant behavior. It is
naïve to dismiss such major scandals as an ‘irresponsible activity.’ Third, it is wrong
to say that wrongdoings in corporate stem from ‘bad apples,’ individuals who have
flawed characters, since many of these corporate professionals are ordinary people
like us in their personal lives. Therefore, it is wrong to be dismissive of them as
‘psychopaths. ‘Last, it is too simplistic to state that organizational issues cause certain
corporate doings. Understanding the nuances of organizational functioning that lead
to wrongdoings is critical. Many facets of an organization’s wrongdoings become
so integral to its functioning that they often cause wrongdoings.
Palmer argues that it is not the rarity of organizational wrongdoings that makes them
rare but their gross under-reporting, which makes them rare. Palmer attributes
organizational wrongdoing to four factors, namely, a) power structures, b)
Administrative Systems, c) Situational Social Influence Processes, and d) Accidental
Technological Systems. According to Palmer, organizations with a very centralized
way of functioning can become very bureaucratic and top-down in their approach.
In such organizations, the middle and lower management and their subordinate
employees are expected to execute the decisions at their top without questioning
their actions’ ethical implications. In such organizations, the decision-making task
is left to the senior management, and dissent from the lower ranks is not encouraged.
In such organizations, there is no scope for internal whistle blowing mechanisms;
whenever there is a scandal, dire consequences lead to public humiliation. The most
recent example is Volkswagen’s diesel gate scandal in the German automobile giant.
Similarly, suppose the power structures are decentralized with ample scope for internal
discussions and debates in a conducive ethical climate, the possibility of unethical
actions denting the organization’s reputation tends to be low. For instance, in an
organization like Johnson and Johnson, then James Burke challenged CEO Richard
B Sellars to revisit the mission statement (called credo) of Johnson and Johnson,
which was, till then, noteworthy for the organization. Initially, Sellars lost his temper
and confronted Burke by arguing that he won’t allow anyone to challenge the existing
56
document under any circumstances. After a heated debate, the CEO hesitantly agreed Ethics in Business
to have a free and frank discussion on the organization’s mission. Burke argued
that if the ‘credo’ were no longer relevant, it is better to do away with it rather
than have it for its symbolic value but went on to approve the changes post-
discussions.
Highly centralized organizations tend to become bureaucratic. Other such organizations
are afflicted with a culture characterized by Harvard Business School academic Robert
Jackall as ‘pyramidal politics.’ In centralized organizations, power gets concentrated
in the hands of the chief executive officer. There is always pressure from the top
with rigid deadlines and targets in such organizations. In this MBO (management
by objectives) system, there is a chain of command from the CEO at the top to
the managers at the lower level of the hierarchy. In such organizations, the subordinates
are expected to be different from their bosses. They are not supposed to engage
in behavior exhibiting a certain kind of parity with the boss. In such organizations,
the credit goes to the top, but the blame for failure goes to the bottom. The CEO
wields enormous influence in such a corporation, and his wishes are treated as a
command. Due to the high degree of centralization, the organizational culture is always
characterized by fear and insecurity. Employees tend to lack the moral courage to
speak out in case of organizational wrongdoings. They fail to develop a sense of
ownership and perform their tasks robotically. Over time, they tend to develop moral
stress if uncomfortable with the organization’s ethical climate. The two options available
are to be part of the collaborative cheating or resign and move on. Employees ignore
wrong doings because they are likely to be labeled poor team players.

4.4 ETHICS AT WORKPLACE AND ‘MORAL

MUTENESS.’
Frederick Bird and Waters, two business ethics scholars in their article’ moral
muteness of managers’, share that they were keen to know why most managers
are not eager to speak about morality in their workplace. These two scholars observed
that whenever a group of managers meets, they avoid discussing ethics in the
workplace. They wanted to study why managers are morally mute in the workplace.
Further, why do managers engage in such behavior, and what impact does it have
on the organization? To narrow down their study on managers’ moral muteness,
they sought to map the congruence between managerial speech and action. The
two scholars categorized managers into four distinct types based on the harmony
or lack of it between organizational speech and action. Some managers have complete
moral congruence between what they speak and what they do in the workplace.
Then some managers have amoral congruence between their speech and action in
their professional lives. The third type o managers comprise who lack agreement
between what they speak and what they do. These managers are hypocrites who
say moral but engage in amoral activities. There is a fourth category of managers
who act morally but never speak about it. This managerial behavior where managers
avoid using a moral tone in their verbal interaction is what Bird and Waters call
‘moral muteness. ‘Why do managers engage in this sort of behavior? What impact
does this kind of managerial conduct have on the organizational culture?
Bird and Waters trace the origins of /’ moral muteness’ in the workplace to the
conflict avoidance approach. Managers are aware that moral overtones in the
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Ethics and Business workplace might lead to your morality versus my morality kind of conflicts. Besides
impacting the overall efficiency of the workplace, these conflicts also vitiate the
workplace. Further, managers tend to be constantly under pressure due to the constant
scanning and microscopic observations of managerial actions. Addressing the issue
of spillover effects of ‘moral muteness’ on the organizational culture, Birds and Waters
contend that it leads to a) Creation of Moral Amnesia, b) Inappropriate Narrowness
in Conceptions of Morality, c) Moral Stress for Individual Managers, d) Neglect
of Moral abuses and e) Decreased authority of Moral Standards.
Activity 2
Explain the concept of ‘Moral Muteness’.
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4.5 ETHICAL ISSUES IN RELATIONS BETWEEN

GOVERNMENT, CIVIL SOCIETY
ORGANIZATIONS, AND BUSINESS
Apart from the individual and organizational issues impacting business ethics, external
stakeholders like Government and Civil Society Organizations (CSOs) significantly
impact business ethics. The government is always in an unenviable space to maintain
relations with business and society. On the one hand, the government depends on
the companies to provide employment and generate economic demand. On the other
hand, it encourages businesses and promotes business groups through tax concessions,
special economic zones, and other subsidies. However, the government is also
conscious of not being perceived as one, which encourages crony capitalism. Public
scepticism of the corporation compels the state to initiate legal regulations to check
rampant profit-making at the cost of social welfare. Given that governments in
democratic societies must face the electorate, public accountability needs to be factored
into governments dealing with businesses. This tripartite relationship between business,
government, and society are characterized by issues laced with ethical overtones.
Corporate organizations influence the government’s functioning in many ways. By
forming interest groups and pressure groups in alliance with other players, corporations
try to influence the government’s policymaking in areas that are likely to impact
their functioning significantly. Corporations also lobby with governmental officials,
legislators, and politicians to influence policies favouring them. In many countries,
corporate houses fund political parties with huge donations, which help these parties
during electioneering. This kind of party financing is another way corporates influence
policymaking. In some countries, like the US, CEOs of the topmost corporations
are appointed as secretaries in the President’s cabinet. After they complete their
terms, they go back to the industry. Known as the ‘revolving door,’ such instances
lead to ethical issues like conflict of interests with the CEO turned secretaries in
the President’s team using their position to dole out favours to their industry.
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 Ethics in Business
4.6 GLOBALIZATION AND BUSINESS-
GOVERNMENT RELATIONS
Before the 1990s, the states had a monopoly in economic policy making. The
governments used to regulate the corporate sector. The corporate sector was
dependent on the government to seek favours. Over time, the government’s monopoly
diluted, and regulation intensity declined. Growing civic awareness, expansion of
media, and exposure to regulatory practices in other countries led to the industry
and other civic groups being more vocal about their demands while negotiating with
the government. However, with the onset of globalization, the dominant actors of
the previous era became dependent, whereas the dependent actor of the previous
generation became dominant in the new era. The corporations became compelling
players, with the state boundaries becoming permeable. With the emergence of the
World Trade Organization with policies like the abandonment of agriculture subsidies,
introduction, and implementation of Trade Related Intellectual Property Rights (TRIPS),
and Trade-related Investment Measures (TRIMS), the power of the international
bodies over state legislation got reduced over some time. These developments led
to the corporation’s growing influence and a new set of ethical issues. The corporate
power of transnational withdrawal and their ability to negotiate terms of trade and
investment with the developing and underdeveloped countries unfavourable to them
involving human costs (sweatshops) brought ethical issues in international business
into the limelight. Corporations seeking profits sometimes did not shy away from
collaborating with highly authoritarian regimes.

4.7 BUSINESSES AND CIVIL SOCIETY

ORGANIZATIONS (CSOs)
The growing activism of CSOs in the last three decades has also had challenges
for businesses, especially in stakeholder management. Corporations are challenged
to identify the right kind of CSOs, which are legitimate voices of the critical
stakeholders. It is challenging for firms to assess which CSOs are worthy of their
attention and worth negotiating. Further, firms find it difficult to judge whether the
tactics used by CSOs are to gain attention or to represent the genuine concerns of
the constituency it represents genuinely. In such cases, the manager’s sense of
judgement is conditioned by one’s subjective interpretations. During globalization,
MNCs must deal with an extended community of CSOs, including CSOs, in the
markets they invest. Lack of familiarity with the social and cultural ethos can bring
new ethical dimensions to decision-making. One of the contentious areas in the
relationship between business and CSOs has been the contestability of ‘globalization’
itself. There are CSOs whose agenda is to question the process of economic
globalization itself. For some CSOs, economic globalization is a capitalistic project
that aims to pursue profits at the cost of exploiting the poor. With the growth in
scope of globalization, CSOs have also got globalized, creating new points of tension
in their interaction with corporate organizations.

4.8 CHANGING ETHICAL MANDATE OF BUSINESS

‘The only business of business is to do business continues to have an overwhelming
influence on managerial decision-making. However, the business landscape has
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Ethics and Business undergone a significant transformation. Growing awareness about consumer rights,
the breath-taking pace of technology development, civil society activism in the form
of CSOs, and even the state and its regulatory agencies stepping in to restrain the
blind pursuit of profits are notable developments in recent times. Given the more
prominent ecosystem changes, managers must revisit their cost-benefit analysis criteria
while making decisions. Globalization has reinforced the need for a fundamental
shift in decision-making. Renowned management scholars like Michael Porter and
Krammer have called upon firms to think of business strategies that aspire to the
‘creation of shared value.’ The idea is to revisit the assumption that business returns
can be measured only in monetary terms. Firms must consider non-monetary returns
and address growing public and government scepticism about their operations.
Consequently, managerial decision-making has become far more complex. Respecting
the right of critical stakeholders like employees, customers, and society at large
translates to the need to include the moral and ethical dimensions of decision-making.
Managers faced with conflicting stakeholder demands are often perplexed regarding
the prioritization of diverse stakeholders.
Firms have responded to this growing complexity in decision-making in diverse ways.
Some have agreed to abide by the fresh legal mandate. While agreeing to fulfil the
legal mandate, corporations have expressed their displeasure by highlighting that
these new legal regulations are often vague and do not serve the best interests of
society in the long term. Some firms have been initiative-taking by taking pre-emptive
actions anticipating that new forms of state interventions in legislation will make
businesses less competitive. A significant section of business ethics scholarship feels
that many of the challenges businesses face today are due to an outdated image of
themselves, inhibiting an adequate response to the changes in the larger ecosystem.
The new ethical mandate to the company is not only found in such movements as
environmentalism, consumerism, and conservatism but also in the form of excessive
executive compensation, rampant pursuit of profits, sweatshops, and even outright
cheating. For instance, Volkswagen’s Diesel gate scandal was an attempt to cheat
all the stakeholders, from consumers to governmental agencies, to become the leading
player in the automobile industry.
The solution to diverse competing demands does not lie in legal and ethical codes,
although these regulations serve a fundamental purpose. The answer to most of the
issues lies in the firms’ management revisiting its whole approach to stakeholder
management. The need of the hour is to not only focus on the substantive aspects
of decision-making but also invest energies in procedural aspects. These procedural
aspects call for a significant shift in how corporations’ function. Therefore, the need
of the hour is to reinforce the centrality of ethics in managerial decision-making.
Executive decision-making must be complemented by significant changes in the
structures that will strengthen ethical decision-making. For instance, constant American
Presidents have shifted their stance on the functioning of the Environmental Protection
Agency. Regular changes in its functions have not done any good to the goal of
environmental sustainability. To highlight another instance, in 1991, the US Federal
Sentencing guidelines provided additional incentives to corporates for infusing ethics
into their corporate structures. According to this law, when an employee engages
in unethical conduct, the firm can reduce its legal culpability by demonstrating that
it took adequate measures to develop a moral and ethical framework for its employees
to enable them to engage in ethical decision-making in their professional capacity.
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Such interventions resulted in firms responding by appointing high-level personnel Ethics in Business
like the chief ethics officer and chief vigilance officer to oversee legal and ethical
compliance, establish ethical auditing and establish mechanisms to monitor decision-
making. In 2002, after the Enron and the WorldCom scandal, the US Congress
passed the Sarbanes-Oxley Act to emphasize further the need to ensure legal
compliance and encourage ethical action. But the 2008 crisis showed that the current
mechanisms are at best necessary but insufficient to address the deep-seated malaises
in how firms’ function.

4.9 SUMMARY
The ethical decision-making of the firm has been treated as antagonistic to the profit-
maximizing objective of the firm. Renowned stakeholder theorist Edward Freeman
has termed it as the ‘separation fallacy.’ Unethical business practices have been
traced to individual factors like moral awareness, moral reasoning, moral judgement,
and character. There is also a section in business ethics literature that examines
organizational wrongdoings from an organizational perspective. Some scholars have
opined that organizational transgressions are abnormal and stem from bad apples
(individuals), bad barrels (organizations), and aberrant behaviour on the part of
individuals and organizations. Of late, another set of scholars has argued that
organizational wrongdoings are normal. These scholars have attributed the wrongdoing
to hierarchical structures, administrative systems, and workplace socialization. The
onset of economic globalization in the 1990s has redefined how businesses relate
to external stakeholders like the government and civil society organizations. The
growing breadth of stakeholders has further complicated the complex world of
stakeholder management and managerial decision-making. These developments have
brought in new challenges in managerial decision-making. A significant part of these
challenges involves ethical aspects making it imperative for business school participants
to understand that it is no more possible to talk of firms as profit-maximizing entities.
Therefore, this unit attempts to sensitize participants about the need to look at ethical
aspects of the business from an individual, business, and society (IBS) framework.
To appreciate ethical decision-making, one needs to look at the various issues at
the individual, organizational, and societal levels. Understanding the contours of the
relationship between the three entities will give a holistic picture of ethics in business.

4.10 KEY WORDS

Organizational : Wrongdoing in organizations such as waste and
Wrongdoing discrimination, legal violations mismanagement and sexual
harassment etc.
Moral Muteness : Moral muteness occurs when we witness unethical
behaviour and choose not to say or do anything.
Corporate lobbying : Corporate lobbying is when the corporations and the
firms in the country try to take actions and influence
the government in some way in order to get interest.
Motivated blindness : People see what they want to see and easily miss
contradictory information when it’s in their interest to
remain ignorant. 61
Ethics and Business Revolving door : It refers to the movement of high-level employees from
public-sector jobs to private-sector jobs and vice versa.

4.11 SELF-ASSESSMENT QUESTIONS

1) What are the various individual factors that lead to unethical conduct in the
workplace? Is it possible to explain ethical breakdowns only by examining the
respective protagonists in the concerned case?
2) According to your organizational wrongdoings, normal or abnormal? Explain
your viewpoint with the help of any corporate scandal that has taken place in
the last ten years.
3) How has economic globalization redefined the relationship between government
and business? Relate your viewpoints with the changes in the Government-
Business interface in the Indian context.
4) What are the ethical issues in corporate lobbying and the ‘revolving door’
phenomena in a government-business relationship?
5) CSOs have become too relevant as stakeholders to be ignored in a firm’s
decision-making. Do you agree with this viewpoint? Substantiate your answer
with some examples from the Indian context which highlight the growing
relevance of CSOs in firms’ decision-making.

4.12 REFERENCES/FURTHER READINGS

Crane, A., Matten, D., Glozer, S., & Spence, L. (2019). Business ethics: Managing
corporate citizenship and sustainability in the age of globalization. Oxford
University Press, USA.
Machan, T. R. (2013). Business ethics in the global market. Hoover Institution
Press.
Badaracco Jr, J. L. (1992). Business ethics: Four spheres of executive
responsibility. California Management Review, 34(3), 64-79.
Bird, F. B., & Waters, J. A. (1989). The moral muteness of managers. California
management review, 32(1), 73-88.
Palmer, D., Greenwood, R., & Smith-Crowe, K. (Eds.). (2016). Organizational
wrongdoing: Key perspectives and new directions. Cambridge University Press.

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