Ethics

 INTRODUCTION

Every business has an ethical duty to each of its associates, owners, employees, customers, suppliers and the community. Each of these affects organization and is affected by it. Each is a stakeholder in the enterprise with certain expectations as to what the enterprise should do and how it should do it.

Business ethics is applied ethics. It is the application of our understanding of what is good and right to that assortment of institutions, technologies, transactions, activities and pursuits that we call business. Ethical behavior is the best long term business strategy for company, however this does not mean that occasions may never arise when doing what is ethical will prove costly to a company nor does it mean that ethical behavior is always rewarded or that unethical behavior is always punished. On the contrary, unethical behavior sometimes pays off and the good sometimes lose. Strategy means merely that over the long run and for most of the part, ethical behavior can give a company significant competitive advantages over companies that are not ethical.

 CONCEPT OF BUSINESS ETHICS

Business ethics must begin by providing a framework of basic principles for understanding what is meant by the terms good and right, only then one can proceed to discuss the implications of ethics to the business world.

Management should hold and develop a deeper knowledge of the nature of ethical principles and concepts and an understanding of how these apply to ethical problems encountered in business. This type of knowledge and understanding should help managers more clearly see their way through the ethical uncertainties that confront them in their business lives.

Ethics is the discipline that examines one’s moral standards or the moral standards of the society. It asks how these standards apply to our lives and whether these standards are reasonable or unreasonable — that is whether they are supported by good reasons or poor ones.

Ethics is however not the only way to study morality. The social sciences — such as sociology and psychology also study morality but do so in a way that is quite different from the approach to morality that is characteristics of ethics. It is a descriptive study which tries to describe or explain the world without reaching any conclusions about whether the world is as it should be and does not try to reach any conclusions about what things are truly good or bad or right or wrong. Ethics in contrast, is a study of moral standards whose explicit purpose is to determine as far as possible whether a given moral standard is more or less correct.

In business ethics, it is a specialized study of moral right and wrong. It concentrates on moral standards as they apply to business policies, institutions and behavior and how these apply to the systems and organizations through which modern societies produce and distribute goods and services and to the people who work within these organizations. Business ethics therefore includes not only the analysis of moral norms and moral values but also attempt to apply the conclusions of this analysis to that assortment of institutions, technologies, transactions, activities and pursuits that we call business.

To cope up with their complex coordination and control problems, the management of large corporations adopts formal bureaucratic systems of rules that link together the activities of the individual members of the organization so as to achieve certain outcomes or objectives. Business enterprises are the primary economic institutions through which people in modern societies carry on the tasks of producing and distributing goods and services.

 SCOPE OF ETHICS

The issues that business ethics covers encompass a wide variety of topics. Business ethics investigates three kinds of issues — systemic, corporate and individual. Systemic issues in business ethics are ethical questions raised about the economic, political, legal and other social systems within which business operates. These include questions about the morality of the laws, regulations, industrial structures and social practices within which business operates.

Tobacco in any form is deadly—whether one is chewing or smoking. Results of World Health Organization studies are an eye opener of how it is affecting the health of the people throughout the world. Tobacco causes mouth diseases, cancer and renal and respiratory diseases is rising. It has become mandatory for cigarette manufactures in many countries to print the graphic health warning on each packet.

Corporate issues in business ethics are ethical questions raised about a particular company. These include questions about the morality of the activities, policies, practices or organizational structure of an individual company taken as a whole. Here questions about morality would be a company’s decision to invest millions of dollars on a project that the company knew would probably not generate any profits.

Finally, individuals’ issues in business ethics are ethical questions raised about a particular individual or particular individuals within a company. These include questions about the morality of the decisions, actions or character of an individual. The question whether it is moral for a leader of an organization to allow its researchers to develop a drug that would probably not generate any profits.

This categorization will be helpful for our understanding, often we come across decisions that involve a large number of extremely complicated interrelated kinds of issues that can cause confusion unless the different kinds of issues are first carefully sorted out and distinguished from each other. Corporate organizations pose major problems for anyone who tries to apply moral standards to business activities. It makes no sense to apply moral terms to organizations as a whole but only to the individuals who make up the organization. Organizations are composed of related human individuals that we conventionally agree to treat as a single unit and they act only when we conventionally agree to treat the actions of these individuals as the actions of that unit.

It makes perfectly good sense to say that a corporate organization has moral duties and that it is morally responsible for its acts. However organizations have moral duties and are morally responsible in a secondary sense. A corporation has a moral duty to do something only if some of its members have a moral duty to make sure it is done and a corporation is morally responsible for something only if some of its members are morally responsible for what happened. Individuals are the primary carriers of moral duties and moral responsibilities. Corporate policies, corporate culture, corporate norms and corporate design can and do have an enormous influence on the choices, beliefs and behaviors of corporate employees.

STAKEHOLDERS AND ETHICS

A company’s duty to employees arises out of respect for the worth and dignity of individuals who devote their energies to the business and who depend on the business for their economic well being. Principled strategy making requires that employee related decisions be made equitably and compassionately with concern for due process and for the impact that strategic change has on employee’s lives. At best the chosen strategy should promote employee interests and concerns such as compensation, career opportunities, job security and overall working conditions. At worst the chosen strategy should not disadvantage employees. Even in crisis situations, businesses have an ethical duty to minimize whatever hardships have to be imposed in the form of workforce reductions, plant closings, job transfers, relocations, retraining and loss of income.

The duty to the customer arises out of expectations that attend the purchase of a good or services. However, the questions which still abound are, should a seller voluntarily inform consumers that its products contain ingredients that though officially approved for use are suspected of having potentially harmful effect? Is it ethical for cigarette manufacturers to advertise at all? Is it ethical for manufacturers to stonewall efforts to recall products they suspect have faulty parts or defective designs?

A company’s ethical duty to suppliers arises out of the market relationship that exists between them. They are both partners and adversaries. They are partners in the sense that the quality of suppliers’ parts affects the quality of a firm’s own product and in the sense that their businesses are connected. They are adversaries in the sense that the supplier wants the highest price and profit it can get while the buyer wants a cheaper price better quality and speeder service.

A company confronts several ethical issues in its supplier relationship. The questions that arise are — is it ethical to purchase goods from foreign suppliers who employ child labor, pay substandard wages? Is it ethical to threaten to cease doing business with a supplier unless supplier agrees not to do business with key competitors? Is it ethical to reveal one suppliers’ price quote to a rival supplier?

Imperial Tobacco Limited is based in Bristol, UK and in the line of manufacture of different brands of cigarettes and tobacco. It is the 4th largest tobacco company in the world and has 30 factories around the world, employing 14,500 people. Its turnover during 2006 was Pounds 11billion

A company’s ethical duty to the community at large stems from its status as a member of the community and as an institution of society. Communities and society are reasonable in expecting businesses to be good citizens —to pay their fair share of taxes for fire and police protection, waste removal, streets and highways and so on, and to exercise care in the impact their activities have on their environment, on society, and on the communities in which they operate. Is the company reasonable in advertising tobacco products when there is pressure   from nations to reduce consumption of tobacco? Also read utilitarianism and business ethics essay

The questions that arise are — for example, whether it is ethical for Imperial  Tobacco company  to advertise its products on TV, at slots when these acts are likely to he seen by underage viewers or not? A company’s community citizenship is ultimately demonstrated by whether it refrains from acting in a manner contrary to the well being of society and by the degree to which it supports community activities, encourages employees to participate in community activities, handles the health and safety aspects of its operations, accepts responsibility for overcoming environmental pollution, relates to regulatory bodies and employee unions and exhibits high ethical standards.

 BUSINESS AND ETHICS

One way to argue that ethics should be brought into business is simply by pointing out that, ethics should govern all voluntary human activities and because business is a voluntary human activity. The other way of looking at it is that business is a cooperative activity whose very existence requires ethical behavior. Any individual business will collapse if all of its managers, employees and customers come to think that it is morally permissible to steal from, lie to, or break their agreements with the company. Because no business can exist entirely without ethics, the pursuit of business requires at least a minimal adherence to ethics on the part of those involved in business,

Second, all businesses require a stable society to carry on their business dealings and the stability of any society requires that its members adhere to some minimal standards of ethics. Another persuasive way to argue that ethics should be brought into business is by showing that ethical considerations are consistent with business pursuits in particular the pursuits of profit. Imperial Tobacco Limited is renowned for its long standing ethical culture and yet it is one of the most spectacularly profitable companies of all time.

The Changing Business Paradigm and Ethical Dilemmas

Most of the big corporate houses like Imperial Tobacco operate globally and maintain manufacturing, marketing, service or administrative operations in many different host countries. With a worldwide presence, these corporations draw capital, raw materials and human labor from wherever in the world they are cheap, skilled and available, and assemble and market their products in whatever nations offer manufacturing advantages and open markets. The fact that these corporations operate in more than one country produces ethical dilemmas for their managers than the managers of firms limited to a single country.

The reason to this is that the corporations have operations in more than one country and the ability to shift their operations out of any country that becomes inhospitable and relocate in another country that offers it cheaper labor, less stringent laws or more favorable treatment. This ability to shift the operations sometimes enables the multinationals to escape the social controls that a single nation might attempt to impose on the multinational and can allow the corporation to play one country against another.

Environmental laws for example which can ensure that domestic companies operate in responsible manner that a country deems right for its people, may not be effective constraints on a corporation that can simply move or threaten to move to a country without such laws. The managers therefore are confronted with the dilemma of choosing between the economic needs and interests of their business, on the one hand and the local needs and interests of their host country on the other hand.

Another set of dilemmas is created since corporations operate plants in several countries, it can sometimes transfer raw materials, goods and capital among its plants in different countries at terms that enable it to escape taxes and fiscal obligations that companies limited to a single nation must bear. Another group of dilemmas is faced by multinationals — because they operate in several countries they often have the opportunity to transfer a new technology or set of products from a developed country into nations that are less developed. The multinational wants to carry out the transfer because it perceives an opportunity for profit and the host country wants and allows the transfer because it perceives these technologies and products as key to its own development. The transfer of technologies and products into a developing country can create risks when the country is not ready to assimilate them.

 ETHICS AND BUSINESS: OBJECTIONS

People taking objections to bringing ethics into business argue that persons involved in business should single mindedly pursue the financial interests of their firm and not side track their energies or their firms resources into doing good works.

Some argue that in perfectly competitive free markets the pursuit of profit will by itself ensure that the members of society are served in the most socially beneficial ways. Often assumptions behind this argument like perfectly competitive market situation do not exist. Another argument is that business managers should single-mindedly pursue the interests of their firms and should ignore ethical considerations.

This argument finds its basis that a manager engaged in certain illegal or unethical conduct be excused because he did it not for himself but to protect the interests of his company. The assumptions behind this argument can be questioned on several grounds.

The third kind of objection is that to be ethical it is enough for business people merely to obey the law. Business ethics is essentially obeying law. It is wrong however to see lax and ethics as identical. It is true that some laws require behavior that is same as the behavior required by our moral standards. Law and morality do not always coincide. Some laws have nothing to do with morality because they do not involve serious matters. These include dress codes, parking laws and other laws covering similar matters.

Beyond these arguments for and against the role of ethics in business, discussions happen whether ethical companies are more profitable than unethical ones. There are many different ways of defining ethical, many different ways of measuring profits and the findings of different studies remain inconclusive. By and large ethics do not detract from profit and seems to contribute to profits.

Reference

1. Johnson, Gerry & Scholes, Kevan (2004) Exploring Corporate Strategy, Prentice Hall, New York.

2. Thompson. A. Arthur ,Strickland A.J.(2003)Strategic Management ,Concepts and Cases, St. Paul, Minnesota,
3. Steve, R.M. (1998). Strategic Management: Texts and Cases McGraw Hill Publishing
4. Velasquez, G. Manuel(1989) Business Ethics, Concepts and Cases Thomson Learning, London

Corporations have become a powerful and dominant institution. They have reached to every corner of the globe in various sizes, capabilities and influences. Their governance has influenced economies and various aspects of social landscape. Shareholders are seen to be losing trust; and their market value has been tremendously affected. Moreover, with the emergence of globalization, there is greater de-territorialization in corporate governance and less of governmental control, which results is a greater need for accountability.

Hence, corporate governance has become an important factor in managing Organizations in the current global and complex environment. There is evidently emerging condition of corporate colonialism. It is in view of the influence of the multi-national corporations (MNCs) through their strategy of corporate colonialism, using economic power, that the researchers have chosen this subject to view the current status of Corporate Governance in India while also presenting the subject as dissertation with definition, theories and practices followed.

Definition In order to understand corporate governance, it is important to highlight its definition. Even though there is no single generally accepted definition of corporate governance, it is necessary to define it: it can be defined as a set of processes and structures for controlling and directing an organization. It constitutes a set of rules, which governs the relationships among management, shareholders and stakeholders (Ching et al, 2006). The term “corporate governance” has a clear origin from a Greek word, “kyberman” meaning to steer, guide or govern.

From a Greek word, it moved over to Latin, where it was known as “gubernare” and the French version of “governor”. It could also mean the process of decision-making and the process by which decisions may be implemented. Henceforth, corporate governance has much a different meaning to different organizations (Abu-Tapanjeh, 2008). In recent years, with much corporate failures, the countenance of corporate has been scared. Corporate governance extends to all types of firms and its definitions could profitably include covering all of the economic and non-economic activities.

Literature in corporate governance provides some form of meaning on governance, but falls short in its precise meaning of governance. Such ambiguity emerges in words like control, regulate, manage, govern and governance. Owing to such ambiguity, there are many interpretations. It may be important to consider the influences a firm has or by which it is affected, to grasp a better understanding of governance. Due to the vastness of influential factors, the proposed models of corporate governance can be flawed as each social scientist is forming its scope and concern in his own way.

There is no gain-saying the fact that corporate governance is all about ethical conduct in business. Ethics is concerned with the values and principles that enable a person to choose between right and wrong, and therefore, to select from alternative courses of action, one approach, as the best possible alternative. Further, ethical dilemmas arise from conflicting interests of the parties involved. In this regard, managers take decisions based on a set of principles influenced by the values, context and culture of the organization.

Ethical leadership is good for business akin to the ‘General will’ concept as the organization is seen to conduct its business in line with the expectations of all stakeholders. What constitutes good Corporate Governance will evolve with the changing circumstances of a company and must be tailored to meet these circumstances. There can, therefore, be no one single model of Corporate Governance. So, the Corporate Governance is nothing but the moral or ethical or value framework under which corporate decisions are taken.

It is quite possible that in an effort at attaining the best possible financial results or business results, there could be zealous attempts at doing things which are verging on the illegal or outright illegal. There is also the possibility of grey areas where an act is not illegal but considered unethical that is opposed to public policy. This raises moral issues in the corporate inside as much as in its relations with outside world. What is then corporate governance? Corporate Governance is concerned with holding the balance between economic and social goals and between individual’s and community goals.

The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society – Sir Adrian Cadbury . The primary purpose of corporate leadership is to create wealth legally and ethically. This translates to bringing a high level of satisfaction to five constituencies customers, employees, investors, vendors and the society-at-large.

The raison d’etre of every corporate body is to ensure predictability, sustainability and profitability of revenues year after year.  N R Narayana Murthy History of Corporate Governance in India. Unlike South-East and East Asia, the corporate governance initiative in India was not triggered by any serious nationwide financial, banking and economic crisis or collapse. Also, unlike most OECD countries, the initiative in India was initially driven by an industry association, the Confederation of Indian Industry (CII).  In December 1995, CII set up a task force to design a voluntary code of corporate governance. The final draft of this code was widely circulated in 1997  In April 1998, the code was released. It was called Desirable Corporate Governance: A Code.  Between 1998 and 2000, over 25 leading companies voluntarily followed the code: Bajaj Auto, Hindalco, Infosys, and Dr. Reddy’s Laboratories, Nicholas Piramal, Bharat Forge, BSES, HDFC, ICICI and many others.  Following CII’s initiative, the Securities and Exchange Board of India (SEBI) set up a committee under Kumar Mangalam Birla to design a mandatory-cum-recommendatory code for listed companies.

The Birla Committee Report was approved by SEBI in December 2000 It became mandatory for listed companies through the listing agreement, and implemented according to a roll-out plan. Following CII and SEBI, the Department of Company Affairs (DCA) modified the Companies Act, 1956 to incorporate specific corporate governance provisions regarding independent directors and audit committees. In 2001-02, certain accounting standards were modified to further improve financial disclosures. These were:  Disclosure of related party transactions Disclosure of segment income: revenues, profits and capital employed. Deferred tax liabilities or assets – Consolidation of accounts. Initiatives are being taken to  account for ESOPs, further increase disclosures, and  put in place systems that can further strengthen auditors’ independence Fundamental Objective of Corporate Governance.Enhancement of Shareholder Value, keeping in view the Interests of other Stakeholders. CG a Way of Life rather than a mere Code to follow mechanically. Constituents of Corporate Governance

Fundamental Corporate Governance Theories

There are many theories on the subject. The important ones are the following:  Agency theory having its roots in economic theory was exposited by Alchian and Demsetz (1972) and further developed by Jensen and Meckling (1976). Agency theory is defined as “the relationship between the principals, such as shareholders, and agents such as the company executives and managers”.

In this theory, shareholders who are the owners or principals of the company, hire the agents to perform work. Principals delegate the running of business to the directors or managers, who are the shareholders’ agents (Clarke, 2004). Indeed, Daily et al (2003) argued that two factors can influence the prominence of agency theory. First, the theory is conceptually and simple theory that reduces the corporation to two participants of managers and shareholders. Second, agency theory suggests that employees or managers in organizations can be self-interested.

The agency theory shareholders expect the agents to act and make decisions in the principal’s interest. On the contrary, the agent may not necessarily make decisions in the best interests of the principals (Padilla, 2000). Such a problem was first highlighted by Adam Smith in the 18th century and subsequently explored by Ross (1973) and the first detailed description of agency theory was presented by Jensen and Meckling (1976). Indeed, the notion of problems arising from the separation of ownership and control in agency theory has been confirmed by Davis, Schoorman and Donaldson (1997).

In agency theory, the agent may be succumbed to self-interest, opportunistic behaviour and falling short of congruence between the aspirations of the principal and the agent’s pursuits. Even the understanding of risk differs in its approach. Although with such setbacks, agency theory was introduced basically as a separation of ownership and control (Bhimani, 2008). Holmstrom and Milgrom (1994) argued that instead of providing fluctuating incentive payments, the agents will only focus on projects that have a high return and have a fixed wage without any incentive component.

Although this will provide a fair assessment, yet it does not eradicate or even minimize corporate misconduct. Here, the positivist approach is used where the agents are controlled by principal-made rules, with the aim of maximizing shareholders value. Hence, a more individualistic view is applied in this theory (Clarke, 2004). Indeed, agency theory can be employed to explore the relationship between the ownership and management structure. However, where there is a separation, the agency model can be applied to align the goals of the management with those of the owners.

Due to the fact that in a family firm, the management comprises of family members, hence the agency cost would be minimal as againsta firm with public ownership. (Eisenhardt, 1989). The model of an employee portrayed in the agency theory is more of a self-interested, individualistic and are bounded rationality where rewards and punishments seem to take priority (Jensen ; Meckling, 1976). This theory prescribes that people or employees are held accountable in their tasks and responsibilities.

Employees must constitute a good governance structure rather than just providing the needs of shareholders, which may be challenging the governance structure. Stewardship Theory Stewardship theory has its roots in psychology and sociology and is defined by Davis, Schoorman ; Donaldson (1997) as “a steward protects and maximises shareholders’ wealth through firm performance, because by so doing, the steward’s utility functions are maximised”. Viewed in this perspective, stewards are company executives and managers working for the shareholders; they protect their interest and assets and make profits for the shareholders.

Unlike agency theory, stewardship theory stresses not upon the perspective of individualism (Donaldson ; Davis, 1991), but rather on the role of top management as stewards, integrating their functional goals as part of the organization. The stewardship perspective suggests that stewards are satisfied and motivated when organizational success is attained. Agyris (1973) argues that the agency theory looks at the employees or people as an economic being, which suppresses an individual’s own aspirations. However, stewardship theory recognizes the importance of structures that empower the

stewards and offers maximum autonomy built on trust (Donaldson and Davis, 1991). It stresses on the position of employees or executives to act more autonomously so that the shareholders’ returns are maximized. Indeed, this can minimize the costs aimed at monitoring and controlling behaviours (Davis, Schoorman ; Donaldson, 1997). On the other end, Daly et al. (2003) argued that in order to protect their reputation as decision-makers in organizations, executives and directors are inclined to operate the firm to maximize financial performance as well as shareholders’ profits (wealth). In this sense, it is believed that the firm’s performance can directly impact perceptions of the individual performance of the directors, managers and executives. Indeed, Fama (1980) contends that the executives and directors are also managing their careers in order to be seen as effective stewards of their organizations, whilst Shleifer and Vishny (1997) insist that managers return finance to the respective investors to establish a good reputation so that the organisation can re-enter the market for future finance.

Stewardship model can have linking to or resemblance with the systems followed in countries like Japan, where the Japanese workers assume the role of stewards and take ownership of their jobs and work at them diligently. Moreover, stewardship theory suggests unifying the role of the CEO and the Chairman so as to reduce agency costs and to have greater synthesized role as stewards in the organization. It was evident where this operated and experience showed that there would be better safeguarding of the interest of the shareholders in such arrangement.

It was empirically found that the returns have improved by having both these theories (agency and stewardship) combined rather than separated (Donaldson and Davis, 1991). Stakeholder Theory Stakeholder theory was embedded in the management discipline in 1970 and gradually developed by Freeman (1984) incorporating corporate accountability to a broad range of stakeholders. Wheeler, et al, (2002) argued that stakeholder theory is derived from a combination of the sociological and organizational disciplines.

Indeed, stakeholder theory is less of a formal unified theory and more of a broad research tradition, incorporating philosophy, ethics, political theory, economics, law and organizational science. Stakeholder theory can be defined as “any group or individual who can affect or is affected by the achievement of the organization’s objectives”. Unlike agency theory in which the managers are working and serving for the stakeholders, stakeholder theorists suggest that managers in organizations have a network of relationships to serve – this includes the suppliers, employees and business partners.

And it was argued that this group of network is important, more than owner-manager-employee relationships as in agency theory (Freeman, 1999). On the other hand, Sundaram and Inkpen (2004) contend that stakeholder theory attempts to address the group of stakeholders deserving and requiring Management’s attention. Donaldson and Preston (1995) claimed that all groups participate in a business to obtain benefits. Clarkson (1995) suggested that the firm is a system, where there are stakeholders and the purpose of the organization is to create wealth for its stakeholders.

Freeman (1984) contends that the network of relationships with many groups can affect decision-making processes as stakeholder theory is concerned with the nature of these relationships in terms of both processes and outcomes for the firm and its stakeholders. Donaldson and Preston (1995) argued that this theory focuses on managerial decision-making; the interests of all stakeholders have intrinsic value and no sets of interests are assumed to dominate the other’ interests.

Resource Dependency Theory The stakeholder theory focuses on relationships with many groups for individual benefits; resource dependency theory concentrates on the role of board directors in providing access to resources needed by the firm. Hillman, Canella and Paetzold (2000) contend that resource dependency theory focuses on the role that directors play in providing or securing essential resources to an organization through their linkages to the external environment.

Johnson, et al, (1996) concur with them that resource dependency theorists provide focus on the appointment of representatives of independent organizations as a means for gaining access in resources critical to firm’s success. For example, outside directors who are partners to a law firm, provide legal advice, either in board meetings or in private communication with the firm executives that may otherwise be more costly for the firm to secure. It has been argued that the provision of resources enhances organizational functioning, firm’s performance and its survival (Daily, et al, 2003).

According to Hillman, Canella and Paetzold (2000) that directors bring resources to the firm, such as information, skills, access to key constituents such as suppliers, buyers, public policy makers, social groups as well as legitimacy. In their opinion, Directors can be classified into four categories such as insiders, business experts, support specialists and community influentials. First, the insiders are current and former executives of the firm and they provide expertise in specific areas such as finance and law in the firm itself as well as general strategy and direction.

Second, the business experts are current, former senior executives and directors of other large for-profit firms and they provide expertise on business strategy, decision-making and problem-solving. Third, the support specialists are the lawyers, bankers, insurance company representatives and public relations experts and these specialists provide support in their individual specialized fields. Finally, the community influentials are the political leaders, university faculty, members of clergy, leaders of social or community organizations. Transaction Cost Theory

Transaction cost theory was first initiated by Cyert and March (1963) and later theoretically described and exposed by Williamson (1996). Transaction cost theory was an inte-disciplinary alliance of law, economics and organizations. This theory attempts to view the firm as an organization comprising people with different views and objectives. The underlying assumption of transaction theory is that firms have become so large that they in effect substitute for the market in determining the allocation of resources. In other words, the organization and structure of a firm can determine price and production.

The unit of analysis in transaction cost theory is the transaction. Therefore, the combination of people with transaction suggests that transaction cost theory managers are opportunists and arrange firms’ transactions to their interests (Williamson, 1996). Self-interest cannot all together be sacrificed; it should not, however, take the shape of self-aggrandizement. Political Theory Political theory brings the approach of developing voting support from shareholders, rather by purchasing voting power. Hence, having a political influence in corporate governance may direct corporate governance within the organization.

Public interest is much reserved as the government participates in corporate decision-making, taking into consideration cultural challenges (Pound, 1993). The political model highlights the allocation of corporate power. Profits and privileges are determined via the government’s favour. The political model of corporate governance can have an immense influence on the developments relating to corporate governance. Over the last a couple of decades, the government of a country has been seen to have a strong political influence on firms. As a result, there is an entrance of politics into the governance structure or firms’ mechanism (Hawley and Williams, 1996). This is true of PSES in India. Ethics Theories and Corporate Governance Other than the fundamental corporate governance theories – the agency theory, stewardship theory, stakeholder theory, resource dependency theory, transaction cost theory and political theory – there are other ethical theories that can be closely associated with corporate governance. These include business ethics theory, virtue ethics theory, feminist ethics theory, discourse ethics theory, post-modern ethics theory to mention more prominent ones.

Business ethics is a study of business activities, decisions and situations where the rights and wrongs are addressed. The main reason for this is that the power and influence of business in any given society is stronger than ever before. Businesses have become major providers to the society in terms of jobs, products and services. Business-collapse has a greater impact on society than ever before and the demands placed by the firm’s stakeholders are more complex and challenging.

Only a handful of business giants have had any formal education on business ethics but there seems to be more compromises on this count these days. Business ethics helps us to identify benefits and problems associated with ethical issues within the firm; business ethics is important as it gives us a new light into present and traditional view of ethics (Crane and Matten, 2007). In understanding the ‘rights and wrongs’ in business ethics, Crane ; Matten, (2007) injected morality that is concerned with the norms, values and beliefs fixed in the social process which help right and wrong for an individual or social community.

Ethics is defined as the study of morality and the application of reason which shed light on rules and principles, called ethical theories, that ascertain the right and wrong for a situation. Business ethics theory focuses on the “rights and wrongs’ in business. Feminist ethics theory Feminist ethics theory emphasizes on empathy, healthy social relationships, loving care for each other and the avoidance of harm. In an organization, to care for one another is a social concern and not merely a profit centred motive. Ethics has also to be seen in the light of the environment in which it is exercised.

This is important, as an organization is a network of actions, hence influencing trans-communal levels and interactions (Casey, 2006). Discourse ethics theory Discourse ethics theory is concerned with peaceful settlement of conflicts. Discourse ethics, also called argumentation ethics, refers to a type of argument that tries to establish ethical truths by investigating the pre-suppositions of discourse (Habermas, 1996). Meisenbach (2006) contends that such kind of settlement would be beneficial to promote cultural rationality and cultivate openness. Virtue ethics theory

Virtue ethics theory focuses on moral excellence, goodness, chastity and good character. Virtue is a state to act in a given situation. It is not a habit as a habit can be mindless (Annas, 2003). Aristotle calls it as disposition with choice of decision. For example, if a board member decides to be honest, he takes a decision which strengthens his virtue of honesty. Virtue involves two aspects, the affective and intellectual. The concept of affective in virtue theory suggests “doing the right thing and have positive feelings”, whilst the concept of intellectual suggests “to do virtuous act with the right reason”. Virtues can be instilled with education. Aristotle mentions that knowledge on ethics is just like becoming a builder (Annas, 2003). Through the process of educating and exposure to good virtues, the development of ethical values in a child’s life is evident. Hence, if a person is exposed to good or positive ethical standards, exhibiting honesty, just and fairness, then he would exercise the same and it will be embedded in his will to do the right thing at any given situation. Virtue ethics is eminent to bring about the intangibles into an organization.

Virtue ethics highlights the virtuous character towards developing a morally positive behaviour (Crane and Matten, 2007). Virtues are a set of traits that help a person to lead a good life. Virtues are exhibited in a person’s life. Aristotle believed that virtue ethics consists of happiness not on a hedonistic sense, but rather on a broader positive level. Post-modern ethics theory: Post-modern ethics theory goes beyond the facial value of morality and addresses the inner feelings and ‘gut feelings’ of a situation.

It provides a more holistic approach in which firms may make goals achievement as their priority, foregoing or having a minimal focus on values, hence having a long term detrimental effect. On the other hand, there are firms today which are so value-driven that their values become their ultimate goal (Balasubramaniam, 1999). Recommendations of the Kumar Mangalam Committee Securities and Exchange Board of India (SEBI) constituted a Committee on Corporate Governance under the Chairmanship of Mr. Kumar Mangalam Birla.

The Committee observed that there are companies, which have set high standards of governance for them while there are many more practices in them and other companies which are matters of concern. There is increasing concern about standards of financial reporting and accountability especially after losses were suffered by investors and lenders in the recent past, which could have been avoided or at least detected much before they turned into scams, with better and more transparent reporting practices.

Companies raised capital from the market and the investors who invested suffered due to unscrupulous managements that performed much worse than past reported figures. Bad governance was also exemplified by allotment of promoters’ share at preferential prices unreasonably disproportionate to market value, affecting minority holders’ interests. Many corporates did not pay heed to investors’ grievances. While there were enough rules and regulations to take care of grievances, the inadequate implementation and the absence of severe penalty left much to be desired.

The Kumar Mangalam Committee made both mandatory and non-mandatory recommendations as per such terms of reference. Based on the recommendations of this Committee, a new clause 49 was incorporated in the Stock Exchange Listing Agreements (“Listing Agreements”). The important aspects thereof, in brief, are:

1. Board of Directors is accountable to shareholders.
2. Boards lay down code of conduct and are accountable to shareholders for creating, protecting and enhancing wealth and resources of the Company, reporting promptly in transparent manner while not involving in day to day management.
3. Classification of non-executive directors into those who are independent and those who are not.
4. Independent directors not to have material or pecuniary relations with the Company/subsidiaries and if they had, to disclose such interest in the Annual Report.
5. Laying emphasis on calibre of non-executive directors especially independent directors.
6. Sufficient compensation package to attract talented non-executive directors.
7.  Optimum combination of not less than 50% of non-executive directors on the boards of companies with non-executive Chairman, to have at least one third of independent directors and, under executive Chairman, at least one half of independent directors.
8. Nominee directors to be treated on par with other directors,
9. Qualified independent Audit Committee to be set up with minimum of three, all being non-executive directors with one having financial and accounting knowledge.

Corporate Governance report to be part of Annual Report and disclosure on directors’ remuneration, etc., to be included. The compliance certificates of the Statutory Auditors were scrutinized as appearing in the published Annual Reports of Banks and companies for the year ended 31st March, 2010. The selection covered State Bank of India, Canara Bank, ICICI Bank, HDFC Bank, Priyadarshini Spinning Mills Limited, Rana Sugars Limited, Reliance Capital, Reliance Industries Limited, Unitech Limited and Sona Koyo Steering Systems Limited. It was observed that the Statutory Auditors have seen the reports as certified by the Boards of Directors concerned stating that the compliance with regard to Corporate Governance required under clause 49 of the Listing Agreement with the relative Stock Exchange has been complied with. The Annual Reports do contain information under the following heads: Company’s Philosophy on Code of Corporate Governance. Board of Directors (composition – number, Executive and non-executive directors, no. of meetings held and attended by each director, appointment of directors, business interest of directors in the company, no.of directorships).

Board Committees Audit Committee and its members; Remuneration Committee (Directors’ Remuneration) Shareholders’/Investors’ Grievance Committee; Name and address of Compliance Officer; Additional information on Directors retiring by rotation and seeking re-appointment at the Annual General Meeting; General Body Meetings (dates, places, time) CEO’s Certificate on Corporate Governance. Despite mandatory information given, there appears necessity for specific disclosures on large funds lay-out, losses or strategic plans affected the company’s performance and the analysis of grievances handled.

Canara Bank has mentioned even the compliance on Non-mandatory requirements of clause 49 of the listing agreement. As the audit or have disowned responsibility in regard to full verification; they have stated that the responsibility for compliance rests with the management. They have further stated that their certificate is neither an audt nor expression of opinion on the financial statement and similarly on the status of Corporate Governance.

The word “ethics” is basically derived from a Greek word “ethos” which means “character”. Ethics can be defined as the moral values, by which the behavior of people can be judged. This set of social standards or values guides a person to behave and also to recognize responsibilities. Ethics are not a goal but it acts as a guideline for an individual.

The ethics can vary and factors like history, gender, race, language, environment, government, politics, economics, stability and religion can affect ethical values. Ethics is not an exact or strict set of values instead it is decided by the people according to their own religion, environment and standards. (Ethics, 2001)

How to behave towards any one is obviously a matter to think; whether to be friendly or reserve; whether to say true or lie and many other such decision that allows one to act with himself or with others comes under there moral and ethical values of a person. Morality can be the second name for ethics. Ethics is code of conduct or standards that is accepted by the public and they consider them to be right. This code of conduct is simply a compilation of rules that is then necessary to be followed by the members of any organization, society or company for which it has been set for.  (Business ethics, 2008)

Business Ethics:

Business ethics can be defined as written or unwritten codes of conduct and values that are then followed by the organization or company for taking decisions. Business ethics is a behavior that is adhered by a business in its daily dealings with the world. The ethics of any particular business can be diverse and can not be applicable over all businesses. Business ethics allows determining the process of performing different acts according to the set of values that are usually predefined.

In the world of business these standards or values are helpful for analyzing that the decision is good or bad. According to Drucker, the concept of business ethics is being able to look at your face in the mirror. The codes of conduct makes it easy to decide what should be done, when should be done and how should be done. The term business ethics is applied over an individual of an organization or over the whole organization. (Mary Gormandy White, n.d.)

Ethics in business is just the application of predefined values or standards in the business environment. These values or rules are applied in their day to day operations as well as in formulating their strategies. In today’s world the trend of doing business is increasing and the value of ethics in business can not be ignored.

It is necessary for the success and image of organization that it has strong codes of conduct and ethical values. Consumers and customers also want good behavior and morality so it is just like a pressure on today’s business that they have to set ethical policies. For getting more customers the organizations not only have to make codes of conduct but they also have to strictly follow them. (Business Ethics, n.d.)

Many businesses are not having a good reputation just because they are not paying attention towards their ethical values and codes of conduct. It is not enough to just start a business; the main thing is establishing the trust over the consumers and customers. There are many company or business holders that are just concerned with setting up a business and then their only interest is to make money by any means.

They are not interested in gaining the trust of the consumers and customers which is the bottom line. Earning money is not a bad thing but the means by which it is being earned does matter a lot and here the significance and importance of ethical behavior is highlighted. Strong business ethics should be a part of every organization. (Garry Crystal, 2003)

Code of ethics should be easy and well written so that the employees are able to understand it properly. In many of the businesses it is considered that code of ethics makes it easy to ensure that the employees are responsible and are punctual with their work. A business or company that is having some laws or codes of conduct is viewed very much favorably among the public and obviously the presence of code of ethics indicates that the business has a strong and sound decision process. (S.E. Smith, 2003)

History of Business Ethics:

There are many different ways in which the term ‘business ethics’ is used. The history of business ethics vary depending on what is the object that is under consideration and it also depends on the person’s perception. In the age today, every single professional whether he is an accountant or a shop keeper has got some codes of conduct that has to be followed by every one related to the work. But it was not always the same case. Many years ago there was no concept of codes of conduct.

Until about 1800, business or professional ethics was just concerned with character, respect, honor, dishonor, luck, virtue and vice. There was no concept of written or unwritten lawn or rules. All the professionals needed no written instructions and they knew very well that how they have to deal with the consumers or customers. But now ethics is getting to be the key element of any business, company or organization. (Code of ethics: some history, n.d.)

What is Ethical Behavior?

Different people have different perceptions and thoughts that what constitutes the ethical behavior. The provided codes of conduct basically explains that what is legal and what is illegal but the difference between right and wrong is sometimes not so much obvious. In these situations the ethical dilemmas are created. In such situations it should be analyzed that what will be the outcome of the decision that is taken according to the decision making process which is already defined. One way to deal with such dilemmas is to act over the following four way test that is used to evaluate the decisions. There are four questions that comprise of this test:

1. Is it a truthful decision?
2. Is this decision fair for everybody that is linked up?
3. Is it in the benefit of organization?
4. Is it beneficial to all the other parties that have invested?

If all these questions can be answered in a ‘Yes’ then this is surely an ethical decision and such a behavior will be known as ethical behavior. Another way of knowing that whether your decision is ethical one or not is to question yourself that what would you feel if your friends and family come to know about your decision. Will you be satisfied and proud of yourself? If yes, then it is an ethical decision for sure and in case of no you must rethink about your decision. All these questions are basically the analysis of an employee’s dedication to his work and for sure this analysis would provide the company sincere and devoted employees. (Mary Gormandy White, 2008)

Factors Affecting Business Ethics:

There are many factors that do have a strong effect over the ethical decisions made by the organizational professionals. Few of these factors include:

• Culture of the organization.
• Official or unofficial policies and standards.
• Already existing written codes of conduct.
• Norms for acceptable behavior.
• Financial system
• System for recognizing achievements.
• Attitude of organization towards workers and employees.
• Procedure of hiring staff.
• Behavior of people associated with the business or company..
• Emphasis over professionalism.
• Decision making process.
• Attitude or behavior of company’s head. (Mary Gormandy White, 2008)

Elements of Business Ethics:

For the development of strong ethics and moral values there are four key elements. The first one is the formation of strong codes of conduct. It is necessary to have a set of written laws or rules that can be used to guide every single person that is attached to the company. This written codes of conduct guides that whist should be done and for what they have to work hard. It also gives a picture of company’s leader about the image and objectives of the company.

This code of conduct is therefore very much helpful for the new employees as they get to know that what they have to do and what is their task. Strong codes of conduct need to contain both the general as well as particular values and principles. It is also necessary for the development of any organization that they should rewrite the codes of conduct whenever any updates are needed or whenever there is a requirement of changing the set of values according to some particular situation.

The second key element of developing strong business ethics is to provide training to the employees. This will help in integrating the ethics into the organization. No matter how well written the code of conduct is, if it is not being understood by the employees. Obviously if they are not able to understand it then they would not be able to practice it. So it is an essential element to provide training for the codes of conduct that has to be followed. The training should include the complete explanation of the rules and laws along with the different terms and conditions.

Many of the organization today have training departments that are destined to train the employees about the ethics of that particular organization. It is also a point to be noted that the trainer should himself be very much experienced so that he is able to train the other people efficiently and effectively. If there is no inbuilt training department in any company then it is also possible that the company hires a specialized ethics training company and arranges seminar and workshops for their employees. Most of the companies that are providing the services of giving ethics training are agreement based.

In these workshops and seminars they train the employees about what they should do and what they should avoid. Everyday there are new situations that are being faced by the companies and organization so instead of working over hard and fast rules and training the employees about any particular situation, it would be better to provide them with efficient decision making processes and analytical tools. This type of training is beyond the business level. It is also useful in a person’s daily life and his relations.

The third key element that is necessary for strong ethics is ethics coach. This can also be with in the organization itself or outside the organization. This will be basically a friendly and private resource for the employees that are facing ethical dilemmas. When difficult situations arise that are not being solved by the employee then such a help should be there so that the problem can be discussed. The ethics couch provides counseling to the employees and also provide them advices for their problems.

But the person that is providing this service must have sufficient experience of ethical perspectives, he must have to ability to analyze the things and he should also have strong decision making capabilities so that he can provide an ethical solution to the problem. But in such a case confidentiality is very much required. There are many cases in which the employees want to see the ethics coach; one of the reasons may be that they do not want to get back to their supervisors and ask for help and another can be the stigmatization by the fellow employees for seeking help. The person who is providing help must be very much known to the environment of the company and he must always keep the confidentiality.

The last but the most important key element of strong ethics in business is very much related to the third key element. It is called as anonymous reporting tip line. It provides the employees with a service that if there is any one in the company who misconducts or violates the codes of conduct then any employee who knows about it can report with out the fear of revenge. The name of the employee who has reported against the defaulter will not be disclosed. This service would be a great help to discourage the unethical activities that are being taking place in the company. The most beneficial part of this service is that the name of the person who is reporting will be kept in secret.

In the current age of development in businesses the concentration over the strong ethical values is of much importance. (Matt Pike, n.d.)

Management and Business Ethics:

Setting up of the ethical values and codes of conduct for a particular company, organization or business is the major and most important task of the management. The management has to decide what has to be done and how. If managers show that the most important task is to get profit then obviously the employees will work in that direction. They will never focus the name and respect of the organization but they will just work for earning huge profits.

The management here is responsible for setting up the standards of the company that how the employees have to work and behave. The managers should develop a healthy environment into the organization and should motivate the employees to work according to the ethical values and at the same time the employees should be rewarded for their good behavior. (Alhemoud Ali, 2007).

In order to establish such strong ethical environment in the company the managers should also act on these rules and provide the examples of their own to the employees. The management must follow the laws and principals for maintaining the ethical standards. Because if managers do not follow the rules then the employees will never think that what the policies say and what they are doing. (Mary Gormandy White, n.d.)

Importance of Business Ethics:

Many businesses have seen their downfall just because of lack of codes of conduct and ethical values. Due to the absence of ethical behavior they were never able to build their trust over customers and consumers. If there are ethical misconducts or there is violation of codes of conduct then it can end up the career more quickly. Lying and cheating are the things that are disliked across the world and the presence of such factors in a company or organization indicate that there are mishaps and immortal characters in the company or organization and such ill manners can extend instead of ending up and can affect all the business activities.

In order to take precautions for such activities there must be additional check and balance systems, verification systems and honest as well as strict supervision is also required. A person who follows the codes of conduct and rules in the company would also be good in relations with his friends and family. All the ethical systems are a mixture of moral as well as economic rules so it also makes a person’s character stronger.

A person that is engaged with a company should be very much sincere with his work and he should have precedence to company’s name over his own interests. If an employee works with such dedication then it means he will always work according to the codes of conduct and hence the company will b provided with an efficient and hard working employee. (Michael Mares, 2005)

Many of the people have a concept that establishment and practicing of business ethics is not harassment over business world but it is surely the first step of prevention or the first line of defense. A business can enhance its position in public sector as well as private sector if it has developed a strong set of ethics and codes of conduct. Establishing the rules or laws is not the only point that has to be given importance but it is also necessary that the company’s management should give time and provide training to the employees so that they can understand the codes of conduct and hence can act according to them. All these steps are beneficial for the development of business world. (Michael Mares, 2005)

References

Alhemoud Ali (2007). Business Ethics – The role of Ethics and Social responsibilities in Management

http://www.123helpme.com/preview.asp?id=56767 Accessed October 24, 2008

Garry Crystal (2003). What is Business Ethics?

http://www.wisegeek.com/what-is-business-ethics.htm Accessed October 24, 2008

Mary Gormandy White (n.d.). A Definition of Business Ethics. http://business.lovetoknow.com/wiki/A_Definition_for_Business_Ethics Accessed October 24, 2008

Matt Pike (n.d.). Business Ethics Foundations

http://www.ethicsedge.com/remotearticle.htm Accessed October 24, 2008

Michael Mares (2005). WebCPA – The Importance of Business Ethics. < http://www.webcpa.com/article.cfm?articleid=11029&pg=ros> Accessed October 24, 2008

S.E. Smith (2003). What is a code of ethics?

http://www.wisegeek.com/what-is-a-code-of-ethics.htm Accessed October 24, 2008

A time to live, a time to die… Whose choice is it? Euthanasia is a topic that is rarely covered in the news. The moral ramifications of killing someone, even for the sake of mercy, seems too heavy of a topic for in depth discussion. No one wants to think about the day they will die, however when someone becomes terminally ill it can soon become their only thought. When pain and suffering enter this scenario, the option of ending a life more quickly may also enter the thought process. According to Life and Hope Network “9% of all deaths in

America are caused by Euthanasia” 1 We are given the gift of life at birth. I believe Euthanasia is a violation of the most precious gift we are given… Life As stated by the Hospice foundation of America “Hospitals (Hospice) stands for [guest house. ] Hospice is a special type of care for patients who are not able to be cured. This loving act usually comes in the patient’s finals days when they have been sent home from the hospital and are waiting for their day to come. Hospice makes their patients feel comfortable and tries to ease their pain as much as possible.

The providers also re there for their families to comfort them before and after their loved ones death. “2 With health care facilities caring for the sick and terminally ill patients, there are many options to choose from for a less painful way to pass than ending a life by Euthanasia. Someone once asked if using Euthanasia on animals was the same as using it on humans saying quote “If we use Euthanasia to put animals out of their pain and misery why is that not the same as helping Grandma by not letting her suffer anymore? 3 Animals and humans are vastly different. The main thing that sets unmans apart is the fact that they have a soul, whereas animals do not. Ending the life of a human because they no longer see a reason to live is a horrible alternative to seeking available pain management. Human life is sacred and should not be terminated simply because life becomes hard. Often questions arise in situations like these such as… ” In old age do we as humans still have a life worth living? ” Ecclesiastic 7:17 in the Bible says “… Why should you die before your time? The Lord has a plan for everyone’s life and when someone takes their life or someone else’s before their time, they have disobeyed God’s commands. The United States has learned a great deal about the dangers of Euthanasia and has created laws after hearing about cases such as Terry Shiva, Terry had a cardiac- respiratory arrest at 26, her doctors said it was caused by “lack of oxygen to the brain. ” Terry was put on a feeding tube for more than 15 years and later passed away due lack of nourishment. When the court ordered the physicians to remove her feeding tube, she died 13 days later. Another case where Euthanasia was used to end an innocent life was Baby Doe, an infant baby boy who was born with Down syndrome and a hole in his throat. His parents decided that living a life like that would be unfair to him as he grew, so they asked his physician to remove his breathing tube. 6 One more scenario would be Nancy Curran, a person who was injured from an automobile accident and was left brain dead. Nanny’s parent removed her feeding tube saying “This is what Nancy would have wanted. ” That case led to the debate about families choosing life or death for individuals in a vegetative state.

Nancy did not have a living will, so her parents made the suggestion of death fully on the basis of their own thinking. They weighed the question of whether Nancy loud have wanted to stay alive in such a state as she was or if she would have preferred to be taken off of her feeding tube. Dry. Jack Sovereign, better known as “Dry. Death,” was a man who fully supported Dry. Assisted suicide. Jack had assisted dozens of suicides and was willing to show news reporters his “death machine” on the spot. He had been on trial many times for murder.

Every time he won, with the statement “terminally ill patients should decide how and when they wish to die. ” That statement left families on edge and very upset that there was no stopping this awful act. He later passed at the age of 83 dying of kidney failure. Jack, as are each of us, was promised by God that he will be face to face with Him. 2 Corinthians 5:10 declares, “For we must all appear before the Judgment seat of Christ, so that each one may receive what is due for what he has done in the body, whether good or evil. ” The Bible states “Do not murder” In Exodus 20:13.

It also says in Matthew 12:37 “For by your words you will be Justified, and by your words you will be condemned. ” According to the Bible murder is murder. Manmade laws however do not always count all forms of assisted death as murder. That presents the questions. ” Is there difference between allowing someone to ask another to shoot them with a weapon or asking them to give them a shot of a deathly drug? If it is illegal to murder someone by suffocating them with a pillow, how is that different from someone asking another to suffocate them with a pillow? Although Euthanasia has varying opinions due to different situations, it is still Biblically, morally and logically wrong. The Lord tells us that we are not promised a tomorrow, but we will face Him on judgment day. We should therefore strive to obey His commands by not partaking in any form of murder, whether legal or not. It may be a difficult decision whether to stay in a hospital and receive care or to go home and have hospice come in to make the terminally ill person feel at ease.

OUTLINE OF THIS PAPER

This paper is discussed under the following broad areas: Preliminaries

1.  Statement of the Problem
2. Executive Summary Main Paper 1. Introduction to Business Ethics 2. Ethics as an Academic Discipline
3. Importance of Ethics in Business as an Academic Discipline
4. The Case Against Business Ethics Education
5. Conclusion

Statement of the problem

Question 1: Discuss the importance of Ethics in business as an Academic Discipline.

Xecutive summary

In today’s highly competitive, performance-driven business climate, regulations are not enough; professional ethics codes are not enough; the old model of “business ethics” is not enough. According to a 2003 survey of corporate directors and general counsel conducted by the National Association of Corporate Directors and the American Corporate Counsel Association, “…the two groups overwhelmingly agree that the single measure that would most improve corporate governance is the establishment by senior management of an ethical business culture. And, “Another clear message of the survey is that ethical leadership from the top is the key to reducing corporate malfeasance. ” Considering the ethical failures in the last several years and the resulting crisis in confidence, a sincere commitment to creating and sustaining an ethical business culture in public and private sectors has never been more important. It is important that each individual feels personally ethically responsible. How an individual treats others, is affected by the way the individual is treated within the organization or by society.

The focus on ethics provides a guide to individual and organizational actions in a consistent manner. The question ethics tries to answer is: “Is this the right thing to do? The purpose of ethical inquiry is to create a framework of general principles or right and wrong, what one might do, and what one’s duties are. The ethical application in a business situation is for managers to draw a line between morality and individual or institutional self-interest. Ethical analysis involves assessing issues and paying attention to the effects of potential decisions on the lives of those who will be affected.

The imperatives of day-to-day organizational performance are so compelling that there is little time or inclination to divert attention to the moral content of organizational decision-making. Morality appears to be so esoteric and qualitative in nature that it lacks substantive relation to objective and quantitative performance. An effective organizational culture should encourage ethical behavior and discourage unethical behavior. Admittedly, ethical behavior may cost the organization.

Even though ethical problems in organizations continue to greatly concern society, organizations and individuals, the potential impact that organizational culture can have on ethical behavior has not really been explored. What is needed in today’s complicated times is for more organizations to step forward and operate with more positive and ethical cultures. Ethical decision making is key to the very fabric of administration and governance, either in a business setting or government operations. To have an ethical organization or business enterprise, requires: ? having a critical mass of ethically responsible individuals ? romoting norms that encourage ethical behavior ? having leaders who behave ethically and serve as ethical role models for others to emulate.

INTRODUCTION

1What is Ethics? Ethics has been defined in many different ways by various people, depending on the perceptive they have and also the context of the definition. Some of the thoughts and definitions of term ‘Ethics’ are as follows:  Ethics refers to well based standards of right and wrong that prescribe what humans ought to do, usually in terms of rights, obligations, benefits to society, fairness or specific virtues. Ethics means the continuous effort of studying our own moral beliefs and our moral conduct, and striving to ensure that we, and the institutions we help to shape, live up to the standards that are reasonable and solidly-based. ? Ethics is the study and development of one’s ethical standards. It is necessary to constantly examine one’s standards to ensure that they are reasonable and well-founded. Ethics refers to those standards that impose the reasonable obligations to refrain from behaving in an unacceptable manner, such as rape, stealing, murder, assault, slander or fraud. Ethical standards include standards relating to rights such as rights to life, the right to freedom from injury and the right to privacy.  Ethics has to do with acting ethically as individuals, creating ethical organizations and governments and making our society as a whole ethical in the way it treats everyone. ? Ethics refers to standards of behavior that tell us how human beings ought to act in the many situations in which they find themselves as friends, parents, children, citizens, business people, and professionals.

Definition of Terminologies associated with Ethics What are the differences between values, morals and ethics. They all provide behavioral rules, after all. It may seem like splitting hairs, but the differences can be important when persuading others. Ethics : Ethics may be defined as: rules or standards governing the conduct of a person or the members of a profession. Ethics tend to be codified into a formal system or set of rules which are explicitly adopted by a group of people e. g. medical ethics.

Ethics are thus internally defined and adopted, whilst morals tend to be externally imposed on other people. If you accuse someone of being unethical, it is equivalent of calling them unprofessional and may well be taken as a significant insult and perceived more personally than if you called them immoral (which of course they may also not like). Values: Values are the rules by which we make decisions about right and wrong, should and shouldn’t, good and bad. They also tell us which are more or less important, which is useful when we have to trade off meeting one value over another.

Values can be defined as: beliefs of a person or social group in which they have an emotional investment (either for or against something); “he has very conservatives values” Morals: Morals have a greater social element to values and tend to have a very broad acceptance. Morals are far more about good and bad than other values. We thus judge others more strongly on morals than values. Morals can be defined as: motivation based on ideas of right and wrong. Moral conduct is a mood arousing good behavior with others by showing happy mien, nice wording, and kind manners.

Norms: Norms are the behavioral expectations and cues within a society or group. They have been defined as “the rules that a group uses for appropriate and inappropriate values, beliefs, attitudes and behaviors. These rules may be explicit or implicit. Failure to stick to the rules can result in severe punishments, the most feared of which is exclusion from the group. ” They have also been described as the “customary rules of behavior that coordinate our interactions with others. ” The social norms indicate the established and approved ways of doing things, of dress, of speech and of appearance.

Applications of Ethics

Ethics have been adapted in various areas of life such as: Legal ethics This encompasses an ethical code governing the conduct of people engaged in the practice of law. The model rules address the client-lawyer relationship, duties of a lawyer as advocate in adversary proceedings, dealings with persons other than clients, law firms and associations, public service, advertising, and maintaining the integrity of the profession. Respect of client confidences, candor toward the tribunal, truthfulness in statements to others, and professional independence are some of the defining features of legal ethics.

Professional responsibility is the area of legal practice that encompasses the duties of attorneys to act in a professional manner, obey the law, avoid conflicts of interest, and put the interests of clients ahead of their own interests. Professional ethics This concerns the moral issues that arise because of the specialist knowledge that professionals attain, and how the use of this knowledge should be governed when providing a service to the public. The professional carries additional moral responsibilities to those held by the population in general.

This is because professionals are capable of making and acting on an informed decision in situations that the general public cannot, because they have not received the relevant training. For example, a layman member of the public could not be held responsible for failing to act to save a car crash victim because they could not give an emergency tracheotomy. This is because they do not have the relevant knowledge. In contrast, a fully trained doctor (with the correct equipment) would be capable of making the correct diagnosis and carrying out the procedure and we would think it wrong if they stood by and failed to help in this situation.

You cannot be held accountable for failing to do something that you do not have the ability to do. This additional knowledge also comes with authority and power. The client places trust in the professional on the basis that the service provided will be of benefit to them. It would be quite possible for the professional to use his authority to exploit the client. An obvious example is that of the dentist who carries out unneeded dental work on his patients in order to gain more money. It is likely that the patient will not have sufficient knowledge to question what is being done, and so will undergo and pay for the treatment.

Work ethic: This is viewed as a set of values based on the moral virtues of hard work and diligence. It is also a belief in moral benefit of work and its ability to enhance character. Good work ethics may include being ? reliable ? having initiative ? maintaining social skills

Branches of Ethics Descriptive Ethics – it simply involves describing how people behave and/or what sorts of moral standards they claim to follow. Descriptive ethics will include research from the fields of anthropology, psychology, sociology and history in order to determine what people do or have believed about moral norms. . g. a description of what corporations and executives actually do value Descriptive ethics is sometimes referred to as comparative ethics because so much activity can involve comparing ethical systems: comparing the ethics of the past to the present, comparing the ethics of one society to another and comparing the ethics which people claim to follow with the actual rules of conduct which do describe their actions. All said, descriptive ethics asks two basic questions:

• What do people claim as their moral norms?
• How do people actually behave when it comes to moral problems?

Metaethics – this investigates where our ethical principles come from, and what they mean.

• Are they merely social inventions? Do they involve more than expressions of our individual emotions?

It is a philosophical study of the meaning, nature and methodology of moral judgments and terms, relations between moral concepts, the correct ways of arguing about moral issues, similarities and differences between various normative systems (e. g. , morality, religion, law, etiquette, aesthetics, the requirements of prudence, the judgments of taste), etc.

There are questions about morality that are not concerned with its content, being neither questions on what principles there should be nor how we must live. These spring instead from puzzles about the logical form of morality. For example, the question of the objectivity or subjectivity of moral judgements and the problem of the logical relation between moral beliefs and factual beliefs are not directly concerned with the content of any particular form of moral life, but with what the general logical rules of any morality or any moral argument, whatever it advocates or condemns, must be.

According to Richard Garner and Bernard Rosen, there are three kinds of meta-ethical problems, or three general questions:

• What is the meaning of moral terms or judgments?
• What is the nature of moral judgments?
• How may moral judgments be supported or defended?
• A question of the first type might be, “What do the words ‘good’, ‘bad’, ‘right’ and ‘wrong’ mean?

” For example, until you have decided whether moral beliefs reflect some objective truth or are dependent on the personal desires of their holders you cannot know what form of argument is appropriate for the support or refutation of any given belief.

Indeed you may not know if rational argument about morality is possible at all. Normative ethics Takes on the task of arriving at moral standards that regulate right and wrong conduct. This may involve articulating the good habits that we should acquire, the duties that we should follow, or the consequences of our behavior on others. Normative ethics is concerned with classifying actions as right and wrong without bias, as opposed to applied ethics. e. g. an account of what corporations and executives should value

Applied ethics involves examining specific controversial issues, such as abortion, infanticide, animal rights, environmental concerns, homosexuality, capital punishment, or nuclear war. By using the conceptual tools of metaethics and normative ethics, discussions in applied ethics try to resolve these controversial issues. The lines of distinction between metaethics, normative ethics, and applied ethics are often blurry. For example, the issue of abortion is an applied ethical topic since it involves a specific type of controversial behavior.

But it also depends on more general normative principles, such as the right of self-rule and the right to life, which are litmus tests for determining the morality of that procedure. The issue also rests on metaethical issues such as, “where do rights come from? ” and “what kind of beings have rights? “

Core ethical values

The following recommended core ethical values were developed based on research by the program founder, Dr. Ron Bucknam, for the development of an applied ethics in professional practice program to assist in evolving solutions to ethical dilemmas encountered in professional practice.

All the above ethical values are important to development and maintenance of an ethical business organization as well as an ethical society.

Development of Ethics

The study of business ethics in North America has evolved through five distinct stages:

• Before 1960 ?
• The 1960’s ?
• The 1970’s ?
• The 1980’s ?
• The 1990’s – and continues to evolve in the 21st century. Ethics in Business Before 1960’s: Ethics in Business Until 1960, ethical issues related to business were often discussed within the domain of theology or philosophy. Catholic collages and universities began to offer courses in social ethics.

Protestants also developed ethics courses in their seminars and schools of theology and addressed issues concerning morality and ethics in business. The protestant work ethics encouraged individuals to work hard and attain success in the capitalistic system. Such religious traditions provided a foundation for the future field of business ethics. The 1960’s: The rise of social issues in business The 1960’s saw the decay of inner cities and the growth of ecological problems such as pollution and disposal of toxic and nuclear waste. In 1962, President John F.

Kennedy delivered “special message on protecting the consumer interest”, in which he outlined four basic consumer rights: the right to safety, the right to be informed, the right to choose, and to be heard. This came to be known as the consumer bill of rights. The modern consumer movement began in 1960’s. At this stage, activities that could destabilize the economy or discriminate any class of citizen began to be viewed as unethical The 1970’s: Business ethics as an emerging field Business ethics began to develop as an emerging field of study in the 1970’s.

Business professors began to teach and write about corporate social responsibility. Companies became more concerned with their public image. The 1980’s: Consolidation In the 1980’s business academics and practitioners acknowledged business ethics as a field of study. Five hundred courses in business ethics were offered at collages across the country with more than forty thousand students enrolled. Corporations that were once nationally based began operating internationally and found themselves mired in value structures where accepted rules of business behavior no longer applied.

The 1990’s: Institutionalization of business ethics The administration of President Clinton continued to support self regulation and free trade. The federal sentencing guidelines for organizations set the tone for organizational ethical compliance programs in 1990’s. Companies were made to develop corporate values, enforce its code of ethics, and strive to prevent misconduct. 1. 7Why Should One Be Ethical? Ethical behavior can be defined as: “Conducting one’s life in complete accord with a firmly held set of values and principles. ” These principles may be derived from religious beliefs, philosophical understanding, etc.

Application should be in all areas of one’s life: personal, family, business, social, etc. The question asked by some is whether there is a universal ethical standard for everyone. And the answer is, yes – Ethics is taught in different cultures using various approaches as seen below. Such approaches are at times used in school for more effectiveness. In Principle, there is a universal ethical standard practiced by: Christian principle: The Golden Rule “Do unto others as you would have them do unto you. ” Luke 6:29-38 “Thou shalt love thy neighbor as thyself. ” Luke 10:27

Other religions also have their own golden rule, that they teach their believers, which guides the moral and ethical behavioral standard. For example: Islam: No one of you is a believer until he loves for his brother what he loves for himself. Hinduism: Do nothing to thy neighbor which thou wouldst not have him do to thee. Sikhism: Treat others as you would be treated yourself. Buddhism: Hurt not others with that which pains thyself. Confucius: What you do not want done to yourself, do not do to others. Aristotle: We should behave to our friends as we wish our friends to behave to us. Plato:

May I do to others as I would that they should do unto me. In studying business ethics, we want to know the facts about what people actually do value. But we also want to know what people ought to value. Business ethics asks questions about how things should be done, and thus go beyond simply asking questions about ethos. There is already something odd about this question. It is like asking, “Why are bachelors unmarried? ” They are unmarried by definition. If they were married, they would not be bachelors. It is the same with ethics. To say that one should do something is another way of saying it is ethical.

If it is not ethical, then one should not do it. Perhaps when business people ask why they should be ethical, they have a different question in mind: what is the motivation for being good? Is their something in it for them? It is perfectly all right to ask if there is a reward for being good, but this has nothing to do with whether one should be good. It makes no sense to try convincing people that they should be good by pointing to the rewards that may follow. One should be good because “good” is, by definition, that which one should be. As for motivation, good behavior often brings a reward, but not every time.

Think about it. If it were always in one’s interest to be good, there would be no need for ethics. We could simply act selfishly and forget about obligation. People invented ethics precisely because it does not always coincide with self interest. Impacts of not inculcating ethics

ETHICS AS AN ACADEMIC DISCIPLINE

Can Ethics Be Taught? Of the Institutions that have contributed to the quality of human life, business ranks with science, art, and education. Business has created the wealth that has given unprecedented numbers of individuals financial control of their lives.

It has expanded immeasurably the range of goods and services available to individuals. It has broken down countless centuries-old barriers of racial, sexual, religious, and ethnic prejudice. And it has been the vehicle for countless numbers of individuals to develop their fullest potentials in achieving their dreams. In short, business has been a prime mover in making it possible for millions to pursue their lives in a wealthy, healthy, rational and exciting world. Yet no other human institution has been so plagued by suspicions of immorality. “Business ethics,” the old joke goes, “Isn’t that a contradiction in terms? How moralists evaluate business depends upon their fundamental moral principles. Most moral philosophy has included the assumption that morality and practicality are two different things. Older moralists typically argued that the demands of morality conflicted with the requirements of business practicality, and so condemned business. More recent moralists tend to adopt a less extreme version of the dichotomy, holding that determining what is practical and what is moral involves following two distinct lines of thought, although what is moral and what is practical happen to coincide in many cases. (Stephen Hicks , PhD.

Chairman of the philosophy department at Rockford College, Stephen Hicks is the author of a forthcoming book on business ethics. ) Since Objectivism is unique in its rejection of the traditional dichotomy of the moral and the practical, it offers a unique perspective on the full range of business ethics issues. Ayn Rand’s Atlas Shrugged, The Virtue of Selfishness, and Capitalism: The Unknown Ideal remain by far the best presentation of the broader moral context within which to evaluate the various dimensions of business practice. The major issues in business ethics can be classified into four areas:

• The relationship between business and consumers ?
• The relationship between employers and employees ?
• The nature and value of special forms of business organization—most notably, that of the corporation ?

The nature and value of financial markets The issue of the proper scope of government regulation cuts across these four categories. Miscellaneous issues such as waste disposal (“the environment”) and investing in morally dubious foreign nations (such as Communist China or Iraq) are often debated in the business ethics literature, but are primarily issues of political theory and so do not fit into the above business ethics categories.

Even granting that business ethics is important, many seem to believe that there is no point in studying the subject. Ethics is something you feel, not something you think. Finance, marketing, operations, and even business law lend themselves to intellectual treatment, but ethics does not. The idea that ethics has no intellectual content is odd indeed, considering that some of the most famous intellectuals in world history have given it a central place in their thought (Confucius, Plato, Aristotle, Maimonides, Thomas Aquinas, etc. ). Ethics is in fact a highly developed field that demands close reasoning.

The Western tradition in particular has given rise to sophisticated deontological, teleological and consequentialist theories of right and wrong. No one theory explains everything satisfactorily, but the same is true, after all, in the natural sciences. Even when they grant that ethics has intellectual content, people often say that studying the field will not change behavior. Character is formed in early childhood, not during a professor’s lecture. If the suggestion here is that college-level study does not change behavior, we should shut down the entire business school, not only the ethics course.

Presumably the claim, then, is that studying finance and marketing can influence one’s conduct, but studying ethics cannot. This is again a curious view, since ethics is the one field that deals explicitly with conduct. Where is the evidence for this view? The early origins of character do not prevent finance and marketing courses from influencing behavior. Why cannot ethics courses also have an effect? Ethics courses have a number of features that seem likely to influence behavior: ? Ethical courses provide a language and conceptual framework with which one can talk and think about ethical issues.

Their emphasis on case studies helps to make one aware of the potential consequences of one’s actions.  They present ethical that theories help define what a valid ethical argument looks like.  They teach one to make distinctions and avoid fallacies that are so common when people make decisions. They give one an opportunity to think through, at one’s leisure, complex ethical issues that are likely to arise later, when there is no time to think.  They introduce one to such specialized areas as product liability, employment, intellectual property, environmental protection, and cross-cultural management. They give one practice at articulating an ethical position, which can help resist pressure to compromise. None of this convinces one to be good, but it is useful to those who want to be good. It may also improve business conduct in general. They enable an individual identify the unethical business conducts that occurs in the business world to-date, for example:  Account Fraud o Insider Trading; (of stock and Bonds) Falsifying Documents o Deceptive Advertising o Defective Products Bribery o Employee Theft . They train the society and future generations to be ethical thereby raising the ethical standards in the business world. An individual’s personal values and moral philosophy are only one factor in the ethical decision-making process. The courses enable an individual to distinguish the individuals everyday ethical issues from business ones. ? They enable one to deal with individuals’ personal moral dilemmas as these issues affect everyone’s ability to function on the job. How many of the recent business scandals would have occurred if subordinates had possessed the skills, vocabulary and conceptual equipment to raise an ethical issue with their coworkers? Ethics not only should be studied alongside management, but the two fields are closely related.

Business management is all about making the right decisions. Ethics is all about making the right decisions. So what is the difference between the two? Management is concerned with how decisions affect the company, while ethics is concerned about how decisions affect everything. Management operates in the specialized context of the firm, while ethics operates in the general context of the world. Management is therefore part of ethics. A business manager cannot make the right decisions without understanding management in particular as well as ethics in general. Business ethics is management carried out in the real world. This is why usiness majors should study ethics for future benefit in the business world.

IMPORTANCE OF ETHICS IN BUSINESS AS AN ACADEMIC DISCIPLINE

Benefits of Ethics in Business Business ethics started developing as an academic discipline in the 1970’s. At this time, theologians and philosophers had laid down the ground work suggesting that certain principles could be applied to the corporate activities. Using this foundation, business professors started to teach and write about corporate social responsibility which is an organization’s obligation to maximize its positive impact to stake holders and to minimize its negative impact.

A Marketplace Advantage: When most managers and employees study ethics in learning institutions as an academic discipline, it enables them gain intelligence of business ethics, that later attracts more customers and investors who will have more trust for the corporate practices and values as primary considerations in their decision-making to either, if customers, buy the organization’s product or, if investors, decide to invest in the organization.

Superior Employee Performance: With the company employees and management application of their academic gained business ethics practices, the companies with sound business ethics and established values report improved employee morale, reduced employee turnover and increased productivity. As a result, the organization is able to work towards achieving its objectives due to enhanced better performance of the employees. Reputation Management:

Workers in the organization can use their academically gained ethical lessons since if an organization is damaged by scandal or unethical behavior, a company’s reputation may never recover – resulting in lost revenue, low employee morale, and increased governmental and public scrutiny. Emphasizing responsible business conduct is the surest means of preserving a company’s intangible assets. Powerful legal and Financial Incentives:

Another importance for the organization to follow business ethics is that the international regulatory developments shall provide strong legal and financial incentives to corporations that establish standards of conduct and provide ethics education and training to employees promoting business ethics as an academic discipline and ethical conducts of individuals in the organization. Enhanced Consumer ad employee loyalty: Consumer and employee commitment comes from their belief that their future is attached to the organization and thus are willing to make sacrifices for the organization.

Study of ethics as an academic discipline is able to highlight to the consumer and employees the importance to be loyal to one organization; the benefits are reduced prices to the consumers and ability to the seller to understand the customer needs, it also promotes more trust to the employees who are also able to share during the company success periods. Increased Organization Profits: Another importance of business ethics as an academic discipline is that the company can improve its profit base. A company cannot nurture and develop an ethical climate unless it has achieved adequate financial profits.

Businesses with greater resources have means to practice social responsibility while serving their customers, valuing their employees, and establishing trust with the public. Many studies have found relationships between corporate social responsibility and business performance. Customer satisfaction: Customer satisfaction is another important value business receives from better ethical operations of the organization that serves its customers and customer satisfaction is one of the most important in an effective business strategy.

This can be achieved one way if the business operates ethically by considering the customer expectations and needs as well as avoiding exploitation of the customers. Investor’s loyalty: Investors today are extremely concerned with the organizations ethics, social responsibility, and reputations of the companies in which they invest in. investors also do recognize that the ethical climate provides a foundation of efficiency, productivity and profitability. Many companies such as Global crossing, Adelphia, Freddie Mac lost their investors due to unethical standards in their operations. Differentiating between personal and business ethics:

Many people believe that individual’s ethics can be applied in the business setting, that is, wrong study of business ethics as an academic discipline helps to give a difference between the personal ethics and business ethics that can be applied in solving the organization’s ethical dilemmas. Identification of ethical issues: Study of ethics as an academic discipline also helps in enlightening individuals on ways to identify and deal with business ethics issues. It also enables both organizations and individuals to learn about ethical decision making and ways to promote ethical standards in the organization.

By studying business ethics one begins to understand how to cope with conflicts. Promotion of organization responsibility: Study of ethics as an academic discipline also helps to ensure the organization undertakes its responsibility in the society and help solve the company stake holder’s problems.

Societal Costs of Unethical Behavior

1.  Law enforcement and other security personnel
2. Physical protection (locks, electronic security, fences, vaults, etc. )
3. A substantial portion of attorney and court system costs
4. Some welfare costs
5. Costs of collecting taxes
6. Wasted/misused investment funds .A substantial portion of accounting/auditing costs
7. A large fraction of costs for regulators and examiners
8. Some marketing/advertising costs
9. Costs for institutions like better business bureaus, consumer protection agencies
10. Some costs of bankruptcy
11. Lack of investment from outside investors, tourists

Business Costs of Unethical Behavior

1. Loss of physical assets
2. Increased costs of security
3. Loss of customers – especially those who value ethics
4. Loss of employees especially – the more ethica
5. Loss of reputation
6. Increased legal costs
7.  Higher costs of debt
8. Loss of investor confidence (lower stock price, difficulty in raising funds, problems with lenders)

Regulatory intrusion 10. Costs of bankruptcy

How Does Ethical Behavior Add Value? Better information

• a. Trust from investors
• b. Lower costs for audits, controls, investigations
• c. Better allocation of resources
• d. Customers will be more loyal
• e. Lower costs from suppliers
• f. Attracting and retaining better employees Fair competition
• g. Lowers cost of business in economy
• h. Leads to better decision-making (do what’s best for firm, not one individual) i. Improves competitive nature of a country’s economy.Just compensation
• j. Creates a more vibrant, entrepreneurial economy
• k. Attracts and retains better employees Rights of others
• l. Draws upon talents of wider set of individuals
• m. Develops long-term respect from the community
• n. Maintains the environment for long-term value to all

Level 2: Application to Business – Application of Ethics to Business Situations . Can be taught in management education and organizations – provided students have a personal understanding of ethics . Taught by modeling (cases and personal example are helpful) .Can be reinforced by policies, codes of ethics, training . Businesses can teach through proper modeling: “Companies also have to further strengthen ethics management and social responsibility activities to improve their public image’’ – Korean Commerce-Industry-Energy Minister Lee Hee-beom.

Level 3: Ethical Courage . It is not sufficient to simply understand ethical principles ? One must have the courage to pay a price for being ethical .Examples can be helpful—case studies showing people willing to stand up for ethical principles ? Again, it helps to have “practiced” ethical behavior over many years—especially in small things

Level 4: Ethical Leadership ? The ability and willingness to encourage others to behave ethically . Can be taught through cases, problem solving, study of successful organizations .

Developing an organizational climate that fosters ethical behavior . Structuring policies that encourages ethics ? Behaving ethically while facing the pressures of leadership

Challenges of Teaching Ethics & Ethical Dilemma

As the twenty-first century approaches, companies face a variety of changes and challenges that will have a profound impact on organizational dynamics and performance. In many ways, these changes will decide who will survive and prosper into the next century and who will not. Among these challenges are the following:

• The challenge of international competition.
• The challenge of new technologies.
• The challenge of increased quality.
• The challenge of employee motivation and commitment.
• The challenge of managing a diverse workforce.
• The challenge of ethical behavior.

Ethics and The Challenge Of Ethical Behavior The word “ethics” is often in the news these days. Ethics is a philosophical term derived from the Greek word “ethos” meaning character or custom. This definition is germane to effective leadership in organizations in that it connotes an organization code conveying moral integrity and consistent values in service to the public.

Certain organizations will commit themselves to a philosophy in a formal pronouncement of a Code of Ethics or Standards of Conduct. Having done so, the recorded idealism is distributed or shelved, and all too often that is that. Other organizations, however, will be concerned with aspects of ethics of greater specificity, usefulness, and consistency. Formally defined, ethical behavior is that which is morally accepted as “good” and “right” as opposed to “bad” or “wrong” in a particular setting.

• Is it ethical, for example, to pay a bribe to obtain a business contract in a foreign country?
• Is it ethical to allow your company to withhold information that might discourage a job candidate from joining your organization?
• Is it ethical to ask someone to take a job you know will not be good for their career progress?
• Is it ethical to do personal business on company time?

The list of examples could go on and on. Despite one’s initial inclinations in response to these questions, the major point of it all is to remind organizations that the public-at-large is demanding that government officials, managers, workers in general, and the organizations they represent all act according to high ethical and moral tandards. The future will bring a renewed concern with maintaining high standards of ethical behavior in organizational transactions and in the workplace. Many executives, administrators, and social scientists see unethical behavior as a cancer working on the fabric of society in too many of today’s organizations and beyond. Many are concerned that we face a crisis of ethics in the West that is undermining our competitive strength. This crisis involves business-people, government officials, customers, and employees. Especially worrisome is unethical behavior among employees at all levels of the organization.

For example, a recent study found that employees accounted for a higher percentage of retail thefts than did customers (Silverstein, 1989). The study estimated that one in every fifteen employees steals from his or her employer. In addition, we hear about illegal and unethical behavior on Wall Street, pension scandals in which disreputable executives gamble on risky business ventures with employees’ retirement funds, companies that expose their workers to hazardous working conditions, and blatant favoritism in hiring and promotion practices.

Although such practices occur throughout the world, their presence nonetheless serves to remind us of the challenge facing organizations. This challenge is especially difficult because standards for what constitutes ethical behavior lie in a “grey zone” where clear-cut right-versus wrong answers may not always exist. As a result, sometimes unethical behavior is forced on organizations by the environment in which it exists and laws such as the Foreign Corruption Practices Act. For example, if you were a sales representative for an American company abroad and your foreign competitors used bribes to get business, what would you do?

In the United States such behavior is illegal, yet it is perfectly acceptable in other countries. What is ethical here? Similarly, in many countries women are systematically discriminated against in the workplace; it is felt that their place is in the home. In the United States, again, this practice is illegal. If you ran an American company in one of these countries, would you hire women in important positions? If you did, your company might be isolated in the larger business community, and you might lose business.

If you did not, you might be violating what most Americans believe to be fair business practices. The effective management of ethical issues requires that organizations ensure that their managers and employees know how to deal with ethical issues in their everyday work lives. Therefore, organizational members must first understand some of the underlying reasons for the occurrence of unethical practices.

Unethical Behavior: Why Does It Occur In Organizations? The potential for individuals and organizations to behave unethically is limitless.

Unfortunately, this potential is too frequently realized. Consider, for example, how greed overtook concerns about human welfare when the Manville Corporation suppressed evidence that asbestos inhalation was killing its employees, or when Ford failed to correct a known defect that made its Pinto vulnerable to gas tank explosions following low speed rear-end collisions (Bucholz, I 989). One answer to the question of why individuals knowingly commit unethical actions is based on the idea that organizations often reward behaviors that violate ethical standards.

Consider, for example, how many business executives are expected to deal in bribes and payoffs, despite the negative publicity and ambiguity of some laws, and how good corporate citizens who blow the whistle on organizational wrongdoing may fear being punished for their actions. Jansen and Von Glinow (1985) explain that organizations tend to develop counternorms, accepted organizational practices that are contrary to prevailing ethical standards. It is not too difficult to recognize how individuals can knowingly engage in unethical practices with such mentalities.

The overemphasis on short-term monetary gain and getting votes in the next election may lead to decisions and rationalizations that not only hurt individuals in the long run, but threaten the very existence of organizations themselves. Some common rationalizations used to justify unethical behavior are easily derived from Gellerman (1986): ? Pretending the behavior is not really unethical or illegal. ? Excusing the behavior by saying it’s really in the organizations or your best interest. ? Assuming the behavior is okay because no one else would ever be expected to find out about it. Expecting your superiors to support and protect you if anything should go wrong. Rules, procedures, and other control mechanisms often lag behind growth of a firm, providing organizational members with an opportunity to behave illegally because no internal rules prescribe such behavior. Predisposition indicates a tendency or inclination to select certain activities–illegal ones–over activities because of socialization or other organizational processes. Baucus and Near (1991) avoid the assumption that a firm’s managers or agents subscribe to a different set of ethical standards than the rest of society.

Instead, they recognize that organizations, and industries, can exert a powerful influence on their members, even those who initially have fairly strong ethical standards. Certain industry cultures may predispose organizations to develop cultures that encourage their members to select unethical acts. If an organization’s major competitors in an industry are performing well, in part as a result of unethical activities, it becomes difficult for organizational members to choose only unethical actions, and they may regard unethical actions as a standard of industry practice.

Such a scenario results in an organizational culture that serves as a strong precipitant to unethical actions. The next section looks at the organizational culture-ethical behavior relationship. The ethical climate of an organization is the shared set of understandings about what correct behavior is and how ethical issues will be handled. This climate sets the tone for decision making at all levels and in all circumstances. Some of the factors that may be emphasized in different ethical climates of organizations are (Hunt, 1991; Schneider and Rentsch, 1991):

• Personal self-interest
• Company profit
• Operating efficiency
• Individual friendships
• Team interests
• Social responsibility
• Personal morality
• Rules and standard procedures

Laws and professional codes Pressure, opportunity, and predisposition can all lead to unethical activities; however, organizations must still take a proactive stance to promote an ethical climate. The final section provides some useful suggestions available to organizations for creating a more ethical climate.

Promoting an Ethical Climate: Some Suggestions and Strategies

Recent literature has suggested several strategies for promoting ethical behavior in organizations. (Adler and Bird, 1988; Burns, 1987; Harrington, 1991; Raelin, 1987; Stead etal. , 1990).

First, chief executives should encourage ethical consciousness in their organizations from the top down showing the support and care about ethical practices. 2. Second, formal processes should be used to support and reinforce ethical behavior. For example, internal regulation may involve the use of codes of corporate ethics, and the availability of appeals processes.

Finally, it is recommended that the philosophies of top managers as well as immediate supervisors focus on the institutionalization of ethical norms and practices that are incorporated into all organizational levels. The philosophies of top managers as well as immediate supervisors represent a critical organizational factor influencing the ethical behavior of employees (Stead etal. , 1990). A seven-step checklist that organizations should use to help their employees in dealing with an ethical dilemma (Schermerhorn, 1989; Otten, 1986):

1. Recognize and clarify the dilemma.
2. Get all the possible facts.  List all your options.
3. Test each option by asking: “Is it legal? Is it right? Is it beneficial? “

Make your decision. Double check your decision by asking: “How would I feel if my family found out about this? How would I feel if my decision was printed in the local newspaper? “

Take action. An effective organizational culture should encourage ethical behavior and discourage unethical behavior. Admittedly, ethical behavior may “cost” the organization. An example might be the loss of sales when a multinational firm refuses to pay a bribe to secure business in a particular country.

Certainly, individuals might be reinforced for behaving unethically (particularly if they do not get caught). In a similar fashion, an organization might seem to gain from unethical actions. For example, a purchasing agent for a large corporation might be bribed to purchase all needed office supplies from a particular supplier. However, such gains are often short-term rather than long-term in nature. In the long run, an organization cannot operate if its prevailing culture and values are not congruent with those of society.

This is just as true as the observation that, in the long run, an organization cannot survive unless it produces goods and services that society wants and needs. Thus an organizational culture that promotes ethical behavior is not only more compatible with prevailing cultural values, but, in fact, makes good sense. Although much remains to be learned about why ethical behavior occurs in organizations and creating and maintaining organizational cultures that encourage ethical behavior, organizations can benefit from the following suggestions:  Be realistic in setting values and goals regarding employment relationships.

Do not promise what the organization cannot deliver.  Encourage input throughout the organization regarding appropriate values and practices for implementing the cultures. Choose values that represent the views of employees at all levels of the organization. ? Do not automatically opt for a “strong” culture. Explore methods to provide for diversity and dissent, such as grievance or complaint mechanisms or other internal review procedures.  Insure that a whistle-blowing and/or ethical concerns procedure is established for internal problem-solving (Harrington, 1991). Provide ethics training programs for all employees. These programs should explain the underlying ethical and legal (Drake and Drake, 1988) principles and present practical aspects of carrying our procedural guidelines. Understand that not all ethical situations are clear-cut. Like many basic business situations, the organization should recognize that there are ambiguous, grey areas where ethical tradeoffs may be necessary. More importantly, some situations have no simple solution (Cooke, 1991). ? Integrate ethical decision-making into the performance appraisal process.

THE CASE AGAINST BUSINESS ETHICS EDUCATION

The Milton Friedman Argument According to Milton Friedman’s philosophy it states that the ethical duty of business people is to maximize profit. He also says in his philosophy that businesses should be concerned with stakeholders’ wealth maximization which requires competency in their business. This means that they (business people) should study marketing, finance, and operations and should not waste time studying ethics. Freidman advances two main arguments for his position.

First that corporate executives and directors are not qualified to do anything other than maximize profit. Business people are experts at making money, not making social policy, and it is by making money, that they contribute to human welfare. They lack the perspective and training to address complex social problems, which should be left to government and social service agencies The second argument which is rooted in Friedman’s libertarian philosophy maintains that corporate officers have no right to do anything other than maximize profit. Corporate officers have no right to spend investors’ money on social welfare.

Sole proprietors can spend the company’s money the way they want, since it is their money, but fiduciaries and hired managers have no such privileges. If they want to contribute to social causes, they are free to donate as much of their own money as they please. In the first argument, determining just how far they should go in order to meet this goal is what business ethics is all about. Business ethics rather than social ethics in general is the required competency. Students concede to this in that once business ethics is distinguished from ethics in general simply collapses into the duty of maximizing profit under the law.

There are no specifically business related obligations than this and no training beyond business law and the traditional managerial skills is required.

The Argument from Incentives

This argument begins with the familiar hypothesis that economic phenomena are best explained as resulting from the choices of utility maximizing, self interested individuals. Moral sentiments therefore play no significant role in economic life. Even if there are duties beyond profit maximization, the only way to encourage ethical behavior is to install financial and legal incentives.

Business People respond to these not ethics lectures. If business people behave ethically, it is only because financial inducements and legal sanctions are properly calibrated, not because Kant or Aristotle inspired them to do the right thing. For example in the U. S. business scandals can only be addressed by such measures as regulatory reform, improved corporate governance, and removal of conflict of interest. Ethics instructions have no place in this picture.

The Gut Feeling Argument

One cannot study ethics in a meaningful sense anyway, since it is something ou feel, not something you think about. Ethical judgment is seen as an essentially non-rational function that is tied to emotions and early childhood development.

The Moral Development Agument.

Moral character is formed in early childhood, not while sitting in ethics class. By the time students enter business school, it is too late to change. One learns ethics from mom and dad, not from college professors. Moral character is fixed early in life. This does not imply that ethics instruction serves no useful purpose, since it can change behavior even if it doesn’t change character.

The opponents of ethics education presumably concedes that finance, marketing and operations courses change behavior, but insist that ethics courses do not. Where is the evidence showing the ethics which directly deals with how one should behave, incapable of changing behavior? There are a number of reasons to suspect that ethics instructions can affect conduct without going as far as to change character. They are:  It provides a language and conceptual framework with which one can talk and think about ethical issues. Its emphasis on case studies helps to make one aware of the potential consequences of ones actions. It presents ethical theories that help define what a valid ethical argument looks like. It teaches one to make distinctions and avoid fallacies that are so common when people make decisions.  It gives one an opportunity to think through, at ones leisure, complex ethical issues that are likely to arise later, when there is no time to think.

The motivational argument

This final argument takes us into ethics the first class on the first day of the semester. Even if there is reason to study ethics, business students see no motivation to study it and do not take the subject seriously.

Many students object to ethics class with such animus as it is different from others as they say. The finance or marketing instructor enlightens them, but the ethics instructor preaches to them and some students do not want to be preached to, and so react negatively. Accordingly, it is seen that students say that their finance instructors do not try to convince them to make money as the lecturers know the students want to make money and so they tell them how to make the money as opposed to the ethics lecturers who assume that students want to be ethical and so tell them how to.

Some instructors have devised a number of strategies to overcome this issue. They convince students that ethical conduct is smart business, because they can “do well by doing good”. They integrate discussion of ethical issues into courses students’ regard as legitimate, such as finance and marketing. They bring in seasoned executives to talk about how ethics is a constant factor in their decision making.

CONCLUSION

In conclusion, study of business ethics as an academic discipline is important to ensure that the managers are equipped with the tools and knowledge to undertake the ethical judgment about the organization business operations.

This study also enables the organization to work towards achieving its objectives it sets to achieve since the stakeholders who contribute to the organization’s success will have more trust in the company to manage their interests in that organization. Even though ethical problems in organizations continue to greatly concern society, organizations, and individuals, the potential impact that organizational culture can have on ethical behavior has not really been explored (Hellreigel et al. , 1989). The challenge of ethical behavior must be met by organizations if they are truly concerned about survival and competitiveness.

What is needed in today’s complicated times is for more organizations to step forward and operate with strong, positive, and ethical cultures. Organizations have to ensure that their employees know how to deal with ethical issues in their everyday work lives. As a result, when the ethical climate is clear and positive, everyone will know what is expected of them when inevitable ethical dilemmas occur. This can give employees the confidence to be on the lookout for unethical behavior and act with the understanding that what they are doing is considered correct and will be supported by top management and the entire organization.

REFERENCES

FERRELL, O. C. , FRAEDIRICH, J. & FERRELL, L. (2005). Business Ethics: Ethical Decision Making and Cases. Houghton Mifflin Company, U. S. A. 2. Hooker, J. (April 2003). Why Business Ethics? Carnegie Mellon University. 3. http://wpweb2. tepper. cmu. edu/ethics/whybizethics. pdf 4. http://construct. haifa. ac. il/~danielp/soc/sims. htm 5. http://changingminds. org/explanations/values/values_morals_ethics. htm 6. Friedman, M (1970), “The Social Responsibility of Business Is To Increase Its Profits,” New York Times Magazine (September 13). 7. http://en. wikipedia. org/wiki/Meta-ethics

Discuss whether it is ethical to record the revenue transaction in December. Identify the accounting principle relevant to this situation, and give the reasons underlying your conclusion.

It is ethical to record the revenue transaction in December provided it meets the requirements in recognizing a business transaction as a revenue transaction.  There are two criteria for recognizing revenue. The first is the occurrence of a significant event. That is when a seller has delivered to the buyer his goods or services and the latter had received it and either pays it upon delivery or at a later date.

Second requirement is that the seller and the buyer had agreed on the price of the goods or services delivered which the buyer will pay the seller. The goods delivered are acknowledged by the buyer to be complete and in good condition. With that the seller can record the transaction in December as part of his revenue for the year.

As per the accounting principle of revenue recognition, revenue should be recognized when earned. Consequently, expense is also recognized when incurred. This is called the expense recognition principle. Both revenues earned and expenses incurred for a given accounting period are matched. This is the matching principle of Accounting. All these principles are Generally Accepted Accounting Principles (GAAP).

If the revenue in December is not recorded, there would be no proper matching of revenue and expenses. This would be a violation to the Generally Accepted Accounting Principles (GAAP) which is the matching principle.

Total sales or revenue reported for the year would be understated. The net income would also be understated as well as the owner’s equity and assets. Hence a Generally Accepted Accounting Principle was not followed, and this is the adequate disclosure principle.

References

CliffsNotes.com. Generally Accepted Accounting Principles. 7 Nov 2008       <http://www.cliffsnotes.com/WileyCDA/CliffsReviewTopic/topicArticleId-21081,articleId-21005.html>.

investopedia.com/terms/g/gaap.asp

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