UNIT – I – Business Ethics and CSR

I. INTRODUCTION
Business ethics –Definition, nature, Characteristics - Ethical
theories, Causes of unethical behaviour; Ethical abuses - Work
ethics- Code of conduct - Public good INTRODUCTION
Some years ago, one sociologist asked business people, "What does
an ethic mean to you?" Among their replies were the following:
"Ethics has to do with what my feelings tell me is right or wrong."
"Ethics has to do with my religious beliefs." "Being ethical is doing
what the law requires." "Ethics consists of the standards of
behaviour our society accepts." "I don't know what the word
means."

DEFINITION

The term "ethics" is derived from the Greek word "ethos" which
refers to character or customs or accepted behaviour’s. The Oxford
Dictionary states ethics as "the moral principle that governs a
person's behaviour or how an activity is conducted". The synonyms
of ethics as per Collins Thesaurus are - moral code, morality, moral
philosophy, moral values, principles, rules of conduct, standards.
Ethics is a set of principles or standards of human conduct that
govern the behaviour of individuals or organizations. Using these
ethical standards, a person or a group of persons or an organization
regulate their behaviour to distinguish between what is right and
what is wrong as perceived by others

BUSINESS ETHICS

Business ethics is a form of applied ethics or professional ethics that

examines ethical principles and moral or ethical problems that can
arise in a business environment. It is also known as Corporate
ethics. It applies to all aspects of business conduct and is relevant to
the conduct of individuals and entire organizations.

SOURCES

The various sources from which ethical values have been evolved.
The main sources are
◦ Religion
◦ Society
◦ Legal System
◦ Genetic inheritance
◦ Marketplace
◦ Nature
◦ Culture
CHARACTERISTICS OF BUSINESS ETHICS

1. Business ethics are based on social values, as the generally

accepted norms of good or bad and ‘right’ and ‘wrong’ practices.
2. It is based on the social customs, traditions, standards, and
attributes.
3. Business ethics may determine the ways and means for better and
optimum business performance.
4.Business ethics provide basic guidelines and parameters towards
most appropriate perfections in business scenario.
5. Business ethics is concerned basically the study of human
behaviour and conducts.
6. Business ethics is a philosophy to determine the standards and
norms to make mutual interactions and behaviour between
individual and group in organisation.
7. Business ethics offers to establish the norms and directional
approaches for making an appropriate code of conducts in business.
8. Business ethics are based on the concepts, thoughts and standards
as contributed as well as generated by Indian ethos.
9. Business ethics may be an ‘Art’ as well as ‘Science’ also.
10. Business ethics basically inspire the values, standards and norms
of professionalism in business for the well-being of customers.
11. Business ethics is to motivate and is consistently related with the
concept of service motives for the customers’ view point.
12. Business ethics shows the better and perspective ways and
means for most excellences in customization.
13. Business ethics aims to emphasize more on social responsibility
of business towards society.

ELEMENTS OF BUSINESS ETHICS

(i) A Formal Code of Conduct:

Code of conduct is statements of organizational values. The

Sarbanes-Oxley Act, 2002 made it important for businesses to have
an ethics code, something in writing which will help the employees
know – with both ease and clarity – what is expected of them on the
job. The code should reflect the managements desire to incorporate
the values and policies of the organization.

Code of Ethics:
For every new business incorporated, it is important for the
management to have a code of ethics for his business. It is usually
unwritten for small businesses. It is basically a buzzword for the
employees to observe ethical norms and form the basic rules of
conduct. It usually specifies methods for reporting violations,
disciplinary action for violation and a structure of the due process to
be followed.
A code of ethics must summarize the beliefs and values of the
organization. For a large business empire, it is important to hire
talent to assist existing personnel with regards to integrity,
understanding, responsibility, and cultural norms of the country.
(ii) Ethics Committee:

Ethics committees can rise concerns of ethical nature; prepare or

update code of conduct, and resolve ethical dilemma in
organization. They formulate ethical policies and develop ethical
standards.
They evaluate the compliances of the organisation with these ethical
standards. The committee members should be conscious about the
corporate culture and ethical concise of the organisation.
The following committees are to be formed:
a. Ethics committee at the board level- The committee would be
charged to oversee development and operation of the ethics
management programme.
b. Ethics management committee – It will be charged with
implementing and administrating an ethics management programme,
including administrating and training about policies and procedures,
and resolving ethical dilemmas.

(iii) Ethical Communication System:

Ethical communication system helps the employees in making

enquiries, getting advice if needed and reporting all the wrong done
in the organisation.
Objectives of ethical communication system are:
a. To communicate the organizations values and standards of ethical
conduct or business to employees.
b. To provide information to employees on the company’s policies
and procedures regarding ethical code of conduct.
c. To help employees get guidance and resolve queries.
d. To set up means of enquiries such as hotlines, suggestion boxes
and e-mail facilities.
Top management can communicate the ethical standards to the
lower management which can be further transferred to the
operational level.

(iv) An Ethics Office with Ethical Officers:

The job of an ethics officer is to communicate and implement

ethical policies amongst employees of the organisation. Ethics
officer should develop a reputation for credibility, integrity, honesty
and responsibility.
Functions of ethics officer are:
a. Assessing the needs and risks that an ethical programme must
address.
b. Develop and distribute code of conduct.
c. Conduct ethical training programme.
d. Maintain confidential service to answer employee’s questions
about ethical issues.
e. To ensure that organisation is in compliance with governmental
regulations. f. To monitor and audit ethical conduct.
g. To take action on possible violation of company’s code.
h. To review and update code in time.

(v) Ethics Training Programme:

Any written ethical code will not work unless supported and
followed by a proper training programme. Some companies have an
in-house training department while others may opt for an out-source
expert. To ensure ethical behaviour, a corporate training programme
is established which deals in assisting employees to understand the
ethical issues that are likely to arise in their workplace.
When new employees are to be recruited, the induction training
should be arranged for them. Training will help them to familiarize
with company’s ethical code of behaviour.

(vi) A Disciplinary System:

A disciplinary system should be established in the organisation to

deal with ethical violations promptly and severely. If unethical
behavior is not properly dealt with, it will result in threatening the
entire social system. A company should adopt fair attitude towards
everyone without any discrimination.
(vii) Establishing an Ombudsperson:

An ombudsperson is responsible to help coordinate development of

policies and procedures to institutionalize moral values in the
workplace.

(viii) Monitoring:

To make an ethical programme, a successful monitoring programme

needs to be developed. A monitoring committee is formed.
Monitoring can be done by keen observation by ethics officer,
surveys and supporting systems.

SCOPE OF BUSINESS ETHICS

Ethical problems and phenomena arise across all the functional

areas of companies and at all levels within the company.

1. Ethics in Compliance

Compliance is about obeying and adhering to rules and authority.

The motivation for being compliant could be to do the right thing
out of the fear of being caught rather than a desire to be abiding by
the law. An ethical climate in an organization ensures that
compliance with law is fuelled by a desire to abide by the laws.
Organizations that value high ethics comply with the laws not only
in letter but go beyond what is stipulated or expected of them.
2. Ethics in Finance

The ethical issues in finance that companies and employees are

confronted with include:
• In accounting – window dressing, misleading financial analysis.
• Related party transactions not at arm’s length
• Insider trading, securities fraud leading to manipulation of the
financial markets.
• Executive compensation.

• Bribery, kickbacks, over billing of expenses, facilitation payments.

• Fake reimbursements

3. Ethics in Human Resources

Human resource management (HRM) plays a decisive role in

introducing and implementing ethics. Ethics should be a pivotal
issue for HR specialists. The ethics of human resource management
(HRM) covers those ethical issues arising around the
employer-employee relationship, such as the rights and duties owed
between employer and employee.
The issues of ethics faced by HRM include:
• Discrimination issues i.e. discrimination on the bases of age,
gender, race, religion, disabilities, weight etc.
• Sexual harassment.
• Affirmative Action.
• Issues surrounding the representation of employees and the
democratization of the
workplace, trade etc.,
• Issues affecting the privacy of the employee: workplace
surveillance, drug testing.
• Issues affecting the privacy of the employer: whistle-blowing.
• Issues relating to the fairness of the employment contract and the
balance of power
between employer and employee.
• Occupational safety and health.
Companies tend to shift economic risks onto the shoulders of their
employees. The boom of performance-related pay systems and
flexible employment contracts are indicators of these newly
established forms of shifting risk.
4. Ethics in Marketing
Marketing ethics is the area of applied ethics which deals with the
moral principles behind the operation and regulation of marketing.
The ethical issues confronted in this area include:
• Pricing: price fixing, price discrimination, price skimming.
• Anti-competitive practices like manipulation of supply, exclusive
dealing arrangements, tying arrangements etc.
• Misleading advertisements
• Content of advertisements.
• Children and marketing.
• Black markets, grey markets.

5. Ethics of Production
This area of business ethics deals with the duties of a company to
ensure that products and production processes do not cause harm.
Some of the more acute dilemmas in this area arise out of the fact
that there is usually a degree of danger in any product or production
process and it is difficult to define a degree of permissibility, or the
degree of permissibility may depend on the changing state of
preventative technologies or changing social perceptions of
ac+-0ceptable risk.
• Defective, addictive and inherently dangerous products and
• Ethical relations between the company and the environment
include pollution,
environmental ethics, and carbon emissions trading.
• Ethical problems arising out of new technologies for eg.
Genetically modified food
• Product testing ethics.
The most systematic approach to fostering ethical behaviour is to
build corporate cultures that link ethical standards and business
practices.

COMPANIES WITH BEST ETHICAL CORPORATE

POLICIES
• Google
• Microsoft
• Intel
• TATA Steel
• Wipro Limited
UNETHICAL BEHAVIOUR
The Civil Service Commission of Philippines defined an unethical
behaviour as any behaviour prohibited by law. An unethical
behaviour would therefore be defined as one that is not morally
honourable or one that is prohibited by the law. Many behaviours
will fall in the classification including corruption, mail and wire
fraud, discrimination and harassment, insider trading, conflicts of
interest, improper use of company assets, bribery
CAUSES OF UNETHICAL BEHAVIOUR IN WORKPLACE
1. Misusing Company Time
One of the most regularly revealed “bad behaviours” in the
workplace is the misuse of company time. This category includes
knowing that one of your colleagues is directing personal business
on company time, staff appearing late, extra breaks or fake
timesheets. These negative behaviour patterns can rapidly spread to
different workers. It can also cultivate hatred amongst colleagues,
severely influencing morale and efficiency.
2. Unethical Leadership
Having a personal issue with your boss or manager is a certain
thing, yet reporting to a person who is acting dishonestly is another.
This may come in a clear form, such as manipulating numbers in a
report or sending company money on improper activities;
nonetheless, it can also happen more subtly, through bullying,
accepting inadequate gifts from suppliers, or requesting that you
avoid a standard system just once. With studies demonstrating that
managers are responsible for 60 percent of workplace wrongdoing,
the abuse of leadership authority is a disastrous reality.
3. Lying to Employees
The quickest way to lose the trust of your employees is to lie to
them, but managers do it constantly. One out of every five workers
report that their supervisor or manager has lied to them within the
previous year.
4. Harassment and Discrimination
Laws require associations to be equivalent to business opportunity
employers. Organizations must select a various workplace, authorize
policies and training that help an equivalent open- door program,
and encourage a situation that is respectful of a wide range of
people. Unfortunately, there are still numerous people whose
practices break with EEOC rules and regulations. When harassment
and discrimination of employees based on ethnicity, race, gender,
handicap or age occur, has a moral line been crossed as well as a
legitimate one also. Most companies are attentive to maintain a
strategic distance from the costly legal and public implications of
harassment and discrimination, so you may experience this ethical
problem in more delicate ways, from apparently “harmless”
offensive jokes by a manager to a more unavoidable “group think”
mindset that can be a symptom of a toxic culture. This could be a
group mindset toward an “other” group. Your best reaction is to
keep up your qualities and repel such intolerant, illegal or unethical
group standards by offering an option, inclusive aspect as the best
decision for the group and the company.
5. Violating Company Internet Policy
Cyberloafers and Cybershackers are terms used to recognize people
who surf the web when they ought to work. It’s a huge,
multi-billion-dollar issue for organizations. Every day at least 64
percent of employers visit sites that have nothing to do with their
work.
6. Pressure to Succeed
Employees may choose to act unethically based on unrealistic
expectations to succeed. For example, a salesperson may make false
claims to secure a deal to meet their quota.
ETHICAL ABUSES IN BUSINESS
Corporate ethical/legal abuses include:
• Creative accounting
• Earnings management
• Misleading financial analysis
• Insider trading
• Securities fraud
• Bribery/kickbacks
• Facilitation payments
WORK ETHICS
Work ethic is a value based on hard work and diligence. It is also a
belief in the moral benefit of work and its ability to enhance
character.
Workers exhibiting a good work ethic in theory would be selected
for better positions, more responsibility and ultimately promotion.
Workers who fail to exhibit a good work ethic may be regarded as
failing to provide fair value for the wage the employer is paying
them and should not be promoted or placed in positions of greater
responsibility.
CHARACTERISTICS OF A GOOD WORK ETHICS
Reliability
Reliability goes hand in hand with a good work ethic. If individuals
with a good work ethic say they are going to attend a work function
or arrive at a certain time, they do, as they value punctuality.
Individuals with a strong work ethic often want to appear
dependable, showing their employers that they are workers to whom
they can turn. Because of this, they put effort into portraying -- and
proving -- this dependability by being reliable and performing
consistently.
Dedication
Those with a good work ethic are dedicated to their jobs and will do
anything they can to ensure that they perform well. Often this
dedication leads them to change jobs less frequently, as they become
committed to the positions in which they work and are not eager to
abandon these posts. They also often put in extra hours beyond what
is expected, making it easy for their employers to see that they are
workers who go beyond the rest of the workforce and truly dedicate
themselves to their positions.
Productivity
Because they work at a consistently fast pace, individuals with a
good work ethic are often highly productive. They commonly get
large amounts of work done more quickly than others who lack their
work ethic, as they don't quit until they've completed the tasks with
which they were presented. This high level of productivity is also
due, at least in part, to the fact that these individuals want to appear
to be strong workers. The more productive they are, the more
beneficial to the company they appear to those managing them.

Cooperation
Cooperative work can be highly beneficial in the business
environment, something that individuals with a strong work ethic
know well. Because they recognize the usefulness of cooperative
practices - such as teamwork -- they often put an extensive amount
of effort into working well with others. These individuals commonly
respect their bosses enough to work with any individuals with whom
they are paired in a productive and polite manner, even if they do
not enjoy working with the individuals in question.
Character
Those with a good work ethic often also possess generally strong
character. This means they are self-disciplined, pushing themselves
to complete work tasks instead of requiring others to intervene.
They are also often very honest and trustworthy, as they view these
traits as befitting the high-quality employees they seek to become.
To demonstrate their strong character, these workers embody these
positive traits daily, likely distinguishing themselves from the rest.
CODE OF CONDUCT
Code of conduct or what is popularly known as Code of Business
Conduct contains standards of business conduct that must guide
actions of the Board and senior management of the Company.
The Code may include the following:
• Company Values.
• Avoidance of conflict of interest.
• Accurate and timely disclosure in reports and documents that the
company files before
Government agencies, as well as in Company's other
communications.
• Compliance of applicable laws, rules and regulations including
Insider Trading
Regulations.
• Maintaining confidentiality of Company affairs.
• Non-competition with Company and maintaining fair dealings
with the Company.
• Standards of business conduct for Company's customers,
communities, suppliers,
shareholders, competitors, employees.
• Prohibition of Directors and senior management from taking
corporate opportunities
for themselves or their families.
• Review of the adequacy of the Code annually by the Board.
• No authority of waiver of the Code for anyone should be given.
The Code of Conduct for each Company summarises its philosophy
of doing business.
Although the exact details of this code are a matter of discretion,
the following principles have been found to occur in most of the
companies:
• Use of company's assets;
• Avoidance of actions involving conflict of interest;
• Avoidance of compromising on commercial relationship;
• Avoidance of unlawful agreements;
• Avoidance of offering or receiving monetary or other inducements;
• Maintenance of confidentiality;
• Collection of information from legitimate sources only.
• Safety at workplace
• Maintaining and Managing Records
•Free and Fair competition
• Disciplinary actions
To create a code of ethics, an organization must define its most
important guiding values, formulate behavioral standards to
illustrate the application of those values to the roles and
responsibilities of the persons affected, review the existing
procedures for guidance and direction as to how those values and
standards are typically applied, and establish the systems and
processes to ensure that the code is implemented and effective.
Codes of ethics are not easily created from boilerplate. Ideally, the
development of a code will be a process in which Boards and senior
management actively debate and decide core values, roles,
responsibilities, expectations, and behavioral standards.
Applicability
This code is applicable to the Board Members and all employees in
and above Officers level (hereinafter collectively referred to as
"Employee(s)").