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A PROJECT REPORT ON

BUSINESS ETHICS

SUBMITTED BY

Arpana S Meshram

PRESENTED TO

Jankidevi Bajaj Institute of Management Study

FACULTY MANAGEMENT STUDIES

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GOOD BUSINESS ETHICS

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DECLARATION

I, Miss Arpana Sahadeo Meshram of Janjidevi Bajaj Institute of Management

Studies, M.M.S.(II Year) hereby declare that I have completed this project on Busniess

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Ethics the academic year 2010-2011. All the information provided in the project report

is taken from the relevant sources and is true to the best of my knowledge.

Thank You.

Miss Arpana Sahadeo Meshram

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TABLE OF CONTENTS

Sr,No. Contents Page No.

1 Acknowledgement 5

2 Executive summery 6

3 Introduction 8

4 Business ethics 9

5 Why business ethics 9

6 Why study business ethics 10

7 Ethics and business: objections 11

8 Unfair or unethical business practices 27

9 The changing business paradigm and ethical dilemmas 34

10 Business ethics & external environment 35

11 Do business ethics and professionalism contribute to good corporate governance?

38

12 Do good ethics translate to good business and hence business sustainability?

39

13 Are societal ethics and business ethics alienatable ? 39

14 The role of government and the society 41

15 Case study 1 42

16 Case study 1 45

17Conclusion

50

18 Bibliography 51

19 Online resources 52

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ACKNOWLEDGEMENT

I wish to express my sincere thanks and deep sense of gratitude towards our Director

Dr. GULNAR SHARMA and all the Professors for including this topic of BUSNIESS

ETHICS in our curriculum and for unfailing advice and considerate understanding. I

also thank them for giving me freedom to work, encouraging creative thinking and to

help me to put my ideas into practice.

I am thankful to my institute JankiDevi Bajaj Institute of Management Studies for

giving me this opprtunity to undertake this study.

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Executive Summery

Business and society have been coeval since time immemorial and also have been inter-dependant. This relationship between business and society is appreciated in Rigveda also : “Corporate should work like a honeybee, which takes the nectar of a flower without the flower being losing its shape and fragrance and provides honey for the wellbeing of the society.” It means that both have to work on a symbiosis manner for each one’s survival and success. The business history is replete with evidences to believe that business flourishes only where society thrives. On the contrary, business dies when society condemns and rejects it. No business can survive without societal approval and sanction. The inter-dependant nature of relationship between the business and the society is best illustrated by the management guru Peter Drucker (1954) by the example of a ship and sea. He states that the relationship between business and society is “like the relationship between a ship and the sea which engirds it and carries it, which threatens it with storm and shipwreck, which has to be crossed but which is yet alien and distant.” No doubt, business has been conducted primarily to earn profit and / or create wealth. However, there are reasons and evidences to believe that the mindless obsession with profit maximization at any cost carried to any extreme has led to spurt in sordid activities in business causing harm to both the business and society and ultimately leading business to flounder and fizzle out. Enrons Parmalats, Union Carbide, and World.com are to name a few representing examples of such business collapses. Business history is also replete with examples that only the businesses that are conducted through good or right practices enjoy societal sanction and survive and last for long. Johnson & Johnson, Maruti Limited, Reliance Industries Limited, and Tata Iron and Steel Company are such examples that indicate that being good in conducting business activities proves good for businesses also. Hence, there has been increasing concern for conducting business in a good or ethical manner. Though there has been a spurt in research activities on business ethics or ethics in business, not much research has so far been conducted on what actually makes business ethics and how being ethical or good is good for business also.

Every business has an ethical duty to each of its associates namely, owners or stockholders, employees, customers, suppliers and the community at large. Each of these affect 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 assortments 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.In an age of liberalization and globalization corporations can grow, survive and prosper in the long run only if they adopt policies and programmers, which can be considered ethically,

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economically, socially and environmentally good to vast sections of society with whom they are intricately linked. In the wake of revelations of serious scandals, irregularities, malpractices perpetrated by corporate entities anywhere and everywhere in the world, the need for good corporate governance and application of ethical values and principles in the conduct of business operations at every level of a corporate organization right from top level is felt more relevant now than before to serve the varied needs, aspirations and expectations of different segments of stakeholders who have a stake in the healthy functioning of a corporate entity as a socially responsible member of the civil society.

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INTRODUCTION

“ What is moral is what you feel good after and what is immoral is what you feel bad after …..” - Earnest Hemingway, Death in the Afternoon

One of the primary objectives in the areas of ISS activity is to promote democracy and civil society development. An essential part of a well-functioning democracy is: ethical and socially responsible business that particularly affects its surrounding environment. That is why we decided to include this research area into our plans and further develop it through conducting conferences, workshops, and reports as part of a Business Ethics program.

In simple words any ethical conduct brings peace and harmony to the person and to the community and unethical conduct brings pain misery. Ethics is also a normative science, it means it lays down the norms or rules of what is good & what is bad so (do’s & don’t) it specify what we what we do & what we not do. Business ethics is a branch of ethics which prescribes standards of how the business is to be carried out. It gives guidelines for the companies response & accountability to its various stake holders like shareholders, customers, employees, directors and management,suppliers, regulatory bodies, government etc. It has to maintained a fine balance & take care of the interest of shareholders on one hand & employees, directors and the board on the other hand. At times there is clash for e.g.: To maximize the shareholders wealth, more profits should be generated.: however, the customer demand it a competitive price, the supplier who supplies at a competitive rate & the employees want a better pay package. Business ethics also deals with the responsibility of the managers & employees in a competitive business environment. A manager has to resolve the conflicts of both the economy performance of the organization measured by the total revenue & profit after tax & the social obligations of the business providing goods & services at a fair price maintaining its quality. At times the manager will resort to unethical practices like giving bribes, gifts so has to get business ethics has to deal with such dilemma. According to Thomas Donaldson “there is a growing realization all over the word that business ethics is important for any business & the progress of any society. Ethics alone, neither government nor laws can protect the society. An ethically responsible company is one which has developed the culture of caring for people and the environment, a culture which flows throughout the organization from the top managers & leaders.”

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BUSINESS ETHICS

There is a strong conviction in the global economy that ethical conduct is an essential condition for running a business. Ethical behavior at companies brings long term economical effects and creates a positive image. Moreover, it molds desirable relations with other actors in the economic life, such as customers, deliverers, employees, financial institutions, local communities, and media. Those relations are based on the confidence. Abusing this confidence by applying unethical behavior in business can bring only short-term profit. In a modern economy, where company image and prestige are important, such activities can affect a company’s credibility and, as a result, can diminish corporate value in the eyes of potential customers. It is of high importance to stigmatize reprehensible corrupt activities. In particular, corruption that brings business and state representatives into contact is destructive, not only for the company’s reputation but also in that it undermines the state authority. Therefore, in executing the program, we would like to think over solutions that could assist to develop transparent rules between partners, especially when the government is both “market regulator” and important shareholder of the Polish enterprises. Economic conditions for running a business, the problems, and the challenges, have been changed. Business ethics has become as important as productivity, work organization, product quality and profit margins. System transformation and changes in the economic system have caused behavioral change among people who run theirs own firms. Business ethics is perceived to be a signpost of desirable behavior in business. Moreover, a significant part of ethics in business is proper relations between all partners in the economic venture: employer – employee, deliverer – customer, manufacturer – consumer. Nowadays, success is not the only measure of the economical activity. The activity is also evaluated from ethical point of view. Recently, business ethics has become an independent, growing discipline in the West.

With this project, we would like to support and mobilize Polish entrepreneurs to implement and use the rules of ethical business in the context of European integration and growing market demands.

Presently, everything that happens in the EU concerns Poland, as its member. The aim of our project is to popularize the idea of business responsibility, making it widespread and adopting western experiences. One of the crucial conditions for reaching stable, competitive growth and profit, is to obey ethics as a principle in business. In this case, ethics is strongly bound up with reputation. The company, possessing all necessary recourses, could respond to signals from the market, applying deliberate and well managed strategies

WHY BUSINESS ETHICS?

Everyone agrees that business managers must understand finance and marketing. But is it necessary for them to study ethics? Managers who answer in the negative generally base their thinking on one of three rationales. They may simply say that they have no reason to be ethical. They see why they should make a profit, and most agree they should do so legally. But why

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should they be concerned about ethics, as long as they are making money and staying out of jail? Other managers recognize that they should be ethical but identify their ethical duty with making a legal profit for the firm. They see no need to be ethical in any further sense, and therefore no need for any background beyond business and law. A third group of managers grant that ethical duty goes further than what is required by law. But they still insist that there is no point in studying ethics. Character is formed in childhood, not while reading a college text or sitting in class. These arguments are confused and mistaken on several levels. To see why, it is best to start with the question raised by the first one: why should business people be ethical?

Importance of studying business ethics

Most of the managerial decisions are for reaching consequences or efforts. The decisions made by the managers regarding his business organisation have impact on entire society. For e.g:

Cost cutting measures have led to pollution and health hazards. Equipment and safety regulation if not properly monitored lead to a big accident

like union carbide case. Bribes becomes a way of life. Unsafe products destroys people’s life.

Most ethical decisions have various alter natives solutions and the managers has to balance the economical goal of the organization and the social responsibility.

Most ethical decisions have personal implications . Business ethics is not like a ISO principles or quality standards that a company should maintain but it affects the life of people working for the organisation & its community. Mr. Narayan Murti has always stood by his example that integrity, sincerity are important for the business success & Infosys is the most successful company all because of its of its business ethics.

WHY STUDY BUSINESS ETHICS Business executives and budding managers study the various ethical theory, ethical

principles and ethical judgements. Students understand the nature of ethical problems & critically analyse it. Use conceptual tools and skills to resolve ethical dilemmas. A study of ethics also leads the students to respecting opposite views & reflecting upon them.

It will help build and groom a value based organisation. Ethical behaviour is important for the business leaders as they influence the ethical climate for everyone else. In a value based organisation there is a high degree of trust and integrity and it empowers all the stakeholders.

It creates awareness about their social responsibility. A Business has to share part of its prosperity with the community, by offering amenities and services not otherwise available to the needy of the community.

In making them better individuals, study of ethics practice of virtuous acts, resolving dilemmas at the work place will go long way in their spiritual development. Such managers will not be slaves of material possessions, they would not amass wealth our of selfish motive but as a trustee of the community to which they belong. Such managers, who practice business ethics

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would be led by divine thought within and through their relentless ethical conduct, lead a life of dharma and realize godliness.Thus as mentioned earlier, ethical conduct would be a self – realized conduct which give a new version “ drishti ” of “ aham bramhasmi ” – “ I am bramhman. ”

ADVANTAGES

It builds a value based organisation ethical behaviour which is important for business dealers as they imbibe high degree of trust, integrity and empower all stakeholders there by buildings a strong organisation which can complete in a globalised economy.

For e.g.: Tata group of company’s has a very good reputations of business ethics.

It creates awareness about the corporates social responsibility of business. A business is part of the society and it share its prosperity by offering various facilities and services to its immediate community. It also funds important projects which are for welfare of the community. For e.g. : building garden, hospitals, schools etc.

Business ethics is a practice and the managers has to study the theory of business ethics and practice in their professional life as they understand the nature of ethical dilemma and analyzing it they are better equipped to practice business ethics.

Practising ethics at work place makes the individual associated with the organisation aware about their divine nature and brings peace and harmony to all of 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 firm’s 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. However what experts like Manuel G Velasquez argue is that 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 in ‘loyal agent’s argument’, which suggests 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. However again 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 law and ethics as identical. It is true that some laws require behaviour that is same as the behaviour required by our moral standards. However 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. However studies do suggest that by and large ethics do not detract from profit and seems to contribute to profits.

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ETHICS  Leading World Organizations like the World Bank and IMF are concerned about the the aid provided being used in the proper manner and that whether the aid reaches the intended affected people. The incidences of such aid being frittered away by corrupt Govt. Officials are on the rise. To monitor and keep a tab on such occurrences organizations like Transparency International bring out yearly ratings for countries on an index of corruption that is intended to serve as a guideline for investors & donor agencies.In the past few years, many newspapers and magazines have reported on ethical problems in business. The term ‘ethics’ is generally used to refer to the rules or principles that define right and wrong conduct. In Webster’s Ninth New Collegiate Dictionary, ethics is defined as “the discipline dealing with what is good and bad and with moral duty and obligation.” According to Clarence D. Walton and La Rue Tone Hosmer, “business ethics is concerned with truth and justice and has a variety of aspects such as the expectations of society, fair competition, advertising, public relations, social responsibilities, consumer autonomy, and corporate behavior in the home country as well as abroad.” Practically speaking it can be said to be a system of values and is “concerned primarily with the relationship of business goals & techniques to specifically human ends”, It means viewing the needs and aspirations of individuals as a part of society, it also means realization of the personal dignity of human beings. In the present day scenario it is a major task for the leadership to inculcate personal values & impart a sense of business ethics to the organisation, Managers, especially top-level managers, are responsible for creating an organizational environment that fosters ethical decision-making. Theodore Purcell and James Weber suggested three ways for applying and integrating ethical concepts with daily actions: (1) establishing a company policy regarding ethical behavior or developing a code of ethics, (2) appointing an ethics committee to resolve ethical issues, and (3) teaching ethics in management development programs. These concepts should be applied appropriately taking into consideration the the significant Social, Cultural, Political, Technological, and Economic factors that affect the state of personal values and business ethics within in each industry, especially in a diverse environment like India.

ETHICAL BUSINESS:

One of the foremost important objective of ethical business is that none of the stakeholders should feel cheated. It should be fair, transparent and clarity of objective. Such an ethical business will maximize the economic gains on the social good.Some of the characteristics or features of ethical business are :

Clarity of Objective : The company should spell out very clearly its expectations from its employers, suppliers, dealers, etc. so as to offer quality products and services at competitiv prices.

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Quality Norms : Follow stringent quality norms like AGMARK for agricultural goods, ISI mark for industrial goods, ISO standards for various operations.

Transparency in dealing : All the stakeholders should have information about everything happening in the company. Performance appraisals, promotions of employee should be done on merit & objectively.

Speed in exploration & Imagination in Execution : the company should have the speed to explore new business opportunities arising due to global economy and should use imagination and creativity in delivering the good and services.

Strong IT Base : The company should have an expert team of IT professional to capture the global market through the web based online marketing system. Also the IT professional should take preventive measures so as to reduce frauds.

Sincerity and Truthfulness in Advertising and Promotion : The company should not make false claims, regarding their product or service. Advertisement should be informative and not misleading.

ETHICS IN BUSINESS

Konrad Becker states “Culture is not just the expression of individual interests and orientations, manifested in groups according to rules and habits but it offers identification with a system of values.”5 It is this ‘system of values’ within the relevant cultures, which will define an organizations approach to ethics. Since the 1960’s the focus on the responsibility of corporations has become an increasingly important topic.6 This has given rise to the term ‘Corporate Social Responsibility’. Michael Hopkins states Corporate Social Responsibility is concerned with treating the stakeholders of the firm ethically or in a manner deemed acceptable in civilized societies.”7 Milton Friedman argues that the only responsibility of business is to increase its profits for shareholders.8 Friedman appearantly rejects CSR, taking a utilitarian approach to the free market. However, he does add that it is a corporate executives job to make as much money as possible for the company, while adhering to the rules of society. This includes those embedded in law and those embedded in ethical custom.9 For Friedman “Business ethics begins where the law ends.”10 This actually concurs with Carroll’s Pyramid(Fig. 1), which, designed in 1991, is widely accepted as a basic framework for theorizing corporate social responsibility. We see agreement in the significance of societies ethical customs, legal customs and of course the foundation of any business model, profit. Hopkins also concurs with these theories, noting that short term profits at the expense of social responsibility are not likely to lead to long term profits.

TYPES OF MANAGERIAL ETHICS

Archie B. Carroll, an eminent researcher in the area of social responsibility, identified three types of management, depending on the extent to which their

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decisions were ethical or moral: (i) moral management, (ii) amoral management, and (iii) immoral management (see Figure below).

Moral management

Moral management strives to follow ethical principles and doctrines. Moral managers strive to succeed without violating ethical standards. They seek to succeed while remaining within the bounds of fairness and justice. Such managers undertake activities which ensure that even though they engage in legal and ethical behavior, they continue to make a profit. Realizing that moral management calls for more than what is mandatory, moral managers follow the law not only in letter but also in spirit. Moral managers always seek to determine whether their actions, decisions, or behavior are fair to themselves as well as to all the other parties involved. In the long run, the moral management approach is likely to be in the best interests of the organization.

Types of Managerial Ethics

Example 1:

Unethical Practices at Snow Brand Milk Company

An outbreak of food poisoning can bring a food products company to the brink of disaster. The year 2000 spelt doom for Snow Brand, one of Japan’s premier dairy foods companies.

The disaster:

On June 27, 2000, a large number of people, especially in Western Japan, fell ill after consuming milk or related products made by Snow Brand. It was later revealed that around 10,000 people had been affected by Snow Brand’s products. The problem was caused due to the presence of a bacteria, Staphylococcus aureus, on the production line at the Osaka factory of the Snow Brand Company. The bacteria was found in a valve which should have been cleaned regularly. Inspections revealed that production facilities at the plant did not meet the established standards of hygiene.

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The company’s response:

The Snow Brand Milk Products Company did not address the concerns of the public immediately. It gave the impression of being more worried about its reputation than about the victims. Instead of voluntarily recalling its products, the company made an attempt to limit the extent of product recall. The Osaka City Health Center issued a recall order for two products, and requested the company to voluntarily recall other products. The company recalled the two products as ordered by the city officials. The company agreed to recall the other products only after being pestered by city officials. It also asked city officials not to announce the recall order publicly so as to give an impression that the company was voluntarily recalling its products. The city officials did not accede to the request and publicized both the recall order and the company’s request to the city officials not to announce the recall order.

The company also tried to cover up the incident and did not provide full details regarding the nature of the incident. Initially, Snow claimed that the valve which was found to be contaminated was used very rarely. On further inquiry, it was learnt that the valve was used almost everyday. Company officials also claimed that the area of contamination was small, that is, about the size of a small coin; but investigations revealed that the contaminated area was larger than what the company claimed it to be. The situation deteriorated further because the company’s top management also was not completely informed about the incident.

The overall impression caused by this incident was that Snow Brand Company was bothered only about its reputation, not about its affected customers.

Consequences:

As a consequence of this incident, the company was forced to close five of its factories – including the one where the contamination was detected. This incident also resulted in erosion of the consumer’s confidence. Snow Brand reported a consolidated loss of 52.9 billion yens (about $ 430 million) for the year ending March 2001.

Prior to this incident, Snow Brand had a market share of about 45%. This unfortunate incident and the poor way in which the company handled it led to a steep fall in the company’s market share.

BUSINESS ISSUES

According to the dictionary, the term ethics has a variety of different meanings. One of its meanings is: "the principles of conduct governing an individual or a group”. We sometimes use the term personal ethics, for example, when referring to the rules by which an individual lives his or her personal life. We use the term accounting ethics when referring to the code that guides

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the professional conduct of accountants. A second—and more important—meaning of ethics, according to the dictionary, is: Ethics is "the study of morality." Ethicists use the term ethics to refer primarily to the study of morality, just as chemists use the term chemistry to refer to a study of the properties of chemical substances. Although ethics deals with morality, it is not quite the same as morality. Ethics is a kind of investigation—and includes both the activity of investigating as well as the results of that investigation—whereas morality is the subject matter that ethics investigates. This chapter discusses the case of B.F. Goodrich to clarify these definitions. Kermit Vandivier was presented with a moral quandary: he knew that Goodrich was producing brakes for the U.S. government that were likely to fail, but was required by his superiors to report that the brake passed the necessary tests. His choice was to write the false report and go against his ethical principles, or be fired and suffer the economic consequences. He chose the former, even though his moral standards were in conflict with his actions. Such standards include the norms we have about the kinds of actions we believe are right and wrong,such as "always tell the truth." As Vandivier shows, we do not always live up to our standards. There are other types of standards as well, such as standards of etiquette, law, and language. Moral standards can be distinguished from non-moral standards using five characteristics :1. Moral standards deal with matters that can seriously injure or benefit humans. For example, most people in American society hold moral standards against theft, rape,enslavement, murder, child abuse, assault, slander, fraud, lawbreaking, and so on. 2. Moral standards are not established or changed by authoritative bodies. The validity of moral standards rests on the adequacy of the reasons that are taken to support andjustify them; so long as these reasons are adequate, the standards remain valid. 3. Moral standards, we feel, should be preferred to other values, including self-interest.This does not mean, of course, that it is always wrong to act on self-interest; it onlymeans that it is wrong to choose self-interest over morality 4. Moral standards are based on impartial considerations. The fact that you will benefitfrom a lie and that I will be harmed is irrelevant to whether lying is morally wrong. 5. Moral standards are associated with special emotions and a special vocabulary (guilt, shame, remorse, etc.). The fact that you will benefit from a lie and that I will be harmedis irrelevant to whether lying is morally wrong.

Ethics is the discipline that examines one's moral standards or the moral standards of a 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. Therefore, a person starts to do ethics when he or she takes the moral standards absorbed from family, church, and friends and asks: What do these standards imply for the situations in which I find myself? Do these standards really make sense? What are the reasons for or against these standards? Why should I continue to believe in them? What can be said in their favor and what can be said against them? Are they really reasonable for me to hold? Are their implications in this or that particular situation reasonable? Taking Vandivier as an example, we might ask if writing the false report was really wrong given his responsibilities to support his family. Moreover, the company, not Vandivier, would be held responsible for any faulty brakes. Finally, even if he did not cooperate and was consequently fired, the brakes would still be manufactured and installed. The consequences of writing the report or not would be the same, except that if he chose not to

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participate he would be fired. It is in considering such points that we begin to do ethics. Ethics is the study of moral standards—the process of examining the moral standards of a person or society to determine whether these standards are reasonable or unreasonable in order to apply them to concrete situations and issues. The ultimate aim of ethics is to develop a body of moral standards that we feel are reasonable to hold—standards that we have thought about carefully and have decided are justified standards for us to accept and apply to the choices that fill our lives. Ethics is not the only way to study morality. The social sciences—such as anthropology,sociology, and psychology—also study morality, but do so in a way that is quite different fromthe approach to morality that is characteristic of ethics. Although ethics is a normative study of ethics, the social sciences engage in a descriptive study of ethics.

Conclusion:

Snow Brand’s response to this crisis was ineffective because it was too slow, because it did not communicate with the public, and because it did not seek to limit the damage by recalling its products quickly. The company gave too much importance to the impact of the incident on its financial performance instead of focusing on the suffering of the people who had consumed the company’s products. The Snow Brand Company should have recalled its products immediately and disclosed all the pertinent facts to the public. This incident showed that the company had no proper mechanism for dealing with such unprecedented crises. Also, since top management did not have complete information about the incident, it was caught unawares when it spoke to the media. To make matters worse, Snow Brand Company attempted to cover up the incident. The best way out would have been to reveal all the facts to the public, thereby allaying their fears. Since the company seemed hesitant to do so, not only did customers perceive its products as unsafe, they also lost faith in its management.

RECENT EVENTS

The Company was still on its path to recovery when it again came into the limelight for the wrong reasons. In October 2001, the Snow Brand Food Company, a subsidiary of the Snow Brand Milk Products Company, was again in the middle of a controversy. Following the outbreak of the Mad Cow Disease in Japan and the consequent decline in beef sales, the Japanese agriculture ministry had started buying back domestic beef. Therefore, in order to obtain government compensation, the Snow Brand Food Company repackaged beef procured from Australia to make it appear as if it had originated in Japan.

When the scam came into light, the company President, Mr. Shozo Yoshida admitted the involvement of the company in the scam and promised to repay the government the money it had received as compensation. Alongside this scam, the firm was also implicated in another scandal. It had falsely labeled beef produced in Japan’s northern island of Hokkaido (where the Mad Cow Disease had been discovered) as beef from the

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southern city Kumamoto. When this fact came to light, the Japanese ministry of agriculture launched criminal proceedings against the Snow Brand company. These episodes further tarnished the reputation of the Snow Brand Milk Products Company, which had been trying to recover from the setback it had received earlier due to the food poisoning case. The firm now faces the uphill task of winning back the confidence of the public in its products and its management.

Amoral management

This approach is neither immoral nor moral. It simply ignores ethical considerations. Amoral management is broadly categorized into two types – intentional and unintentional. Intentional amoral managers do not take ethical issues into consideration while taking decisions or while taking action, because in their opinion, general ethical standards are only applicable to the non-business areas of life. Unintentional amoral managers, however, do not even consider the moral implications of their business decisions and actions. In a nutshell, amoral managers pursue profitability as the only goal and pay little attention to the impact of their behavior on any of their social stakeholders. They do not interfere in their employees’ activities, unless their behavior leads to government interference. The central guiding principle of amoral management is – “Within the letter of the law, will this action, decision, or behavior help us make money?”

Immoral management

Immoral management not only ignores ethical concerns, it also actively opposes ethical

behavior. Organizations with immoral management are characterized by:

Total concern for company profits only.

Stress on profits and company success at any cost. Lacks of empathy – managers are hardly bothered about others’ desire to be treated fairly.

Laws are regarded as hurdles to be removed or eliminated.

Strong inclination to minimize expenditure.

The basic principle governing immoral management is: “Can we make money with this action, decision, or behavior?” Thus, in immoral management, ethical considerations are immaterial.

Factors that Influence Ethical Behavior

Complex interactions between the manager’s stage of moral development and the various moderating variables determine whether he will act in an ethical or unethical manner. Moderating variables include individual characteristics, structural design of the organization, the organization’s culture, and the intensity of the ethical issue. Figure 3.3

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presents a diagrammatic view of the interaction between these various factors. Individuals are less likely to indulge in unethical behavior if they are bound by rules, policies, job descriptions and cultural norms even if they have a feeble moral sense. But, if the organization structure and culture allows unethical practices, even highly moral individuals may become corrupt. The various factors that influence the ethical behavior of managers are discussed below.

Factors affecting Ethical and Unethical Behavior

Stages of moral development

Managers making ethical decisions may belong to any of the three levels of moral development shown in Table below. Each level is further subdivided into two stages. The extent to which the manager’s moral judgment depends on outside influences decreases with each successive stage. At the pre-conventional level, managers decide whether an act is right or wrong depending on personal consequences like punishment, favors or rewards. At the second level, the conventional level, managers perceive moral values as important for achieving certain benchmarks and living up to the

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expectations of others. Finally, at the third level, the principled level, managers frame ethical principles without regard to social pressures.

Implications of six stages: The following conclusions can be drawn from the study of the six stages of moral development of managers:

Individuals move up these stages in a sequential manner.

The moral development of an individual may stop at any stage.

Most managers are at Stage 4 of moral development.

Stages of Moral Development

Managers at stage 3 tend to make decisions that will be approved by peers, while managers at stage 4 try to be a good corporate citizen who abide by the organization’s rules and procedures. Managers at stages 5 and 6, however, are more likely to question organizational practices which they believe to be wrong.

Individual characteristics

No two individuals behave in the same manner. They have different values and personality variables. Values refer to the basic convictions held by an individual regarding right and wrong. Each one of us follows certain values which we learnt in our early years of development from our parents, teachers, and friends (and others who influenced us). Thus, the personal values of the different managers in an organization are often quite different. Values, to a large extent, determine a person’s ethical or unethical behavior.

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Personality variables are also known to influence a person’s ethical behavior. Two such personality variables are ego strength and locus of control. Ego strength refers to the strength of a person’s convictions. People with a higher ego strength tend to do what they think is right. Managers with a high ego strength are more consistent in their moral judgment and moral action than those with low ego strength.

The other personality variable, locus of control, indicates the degree to which people believe that they are the masters of their own fate. Based on a person’s locus of control, he can be categorized either as an external or an internal. Externals believe that whatever happens to them in life is due to luck or chance. Internals believe that they control their own destiny. Managers with an internal locus of control are more likely to take responsibility for the consequences of their behavior than managers with an external locus of control.

STRUCTURAL VARIABLES

An organization’s structural design also influences the ethical behavior of managers. Organization structures that create ambiguity and fail to provide clear guidance to managers are more likely to encourage unethical behavior. Such behavior can be checked by adopting formal guidelines like written job descriptions and codes of ethics. Some organizations focus only on results, and not on the means for achieving them. When people are evaluated only on the basis of their output, they may be compelled to do whatever is necessary to achieve good results.

The structural designs of different organizations differ in the amount of time, competition, cost and pressures faced by employees. The greater the pressure on managers, the more likely they are to compromise their ethical standards. This has an affect on the other employees of the organization. Research shows that the behavior of superiors has a very strong influence on the behavior of subordinates.

ORGANIZATION’S CULTURE

The strength of an organization’s culture also has a great impact on the ethical standards of its employees. An organization culture that is characterized by high risk tolerance, control and conflict tolerance is most likely to foster high ethical standards. Such a work culture encourages managers to be aggressive and innovative and to openly challenge expectations which they consider to be unrealistic or personally undesirable. Thus, a strong and ethical organizational culture would exert a positive influence on managers’ ethical behavior.

Issue intensity

The most important factor that affects a manager’s ethical behavior is the intensity of the ethical issue itself. A manager may consider a certain issue ethical or unethical,

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depending upon certain factors. These factors are greatness of harm, consensus of wrong, probability of harm, immediacy of consequences, proximity to victims and concentration of effect. The intensity of the ethical issue is greater when:

The number of people harmed is large.

Everyone agrees that the action is wrong.

There are greater chances of the act causing harm.

The consequences of the action may be felt immediately.

The person feels close to the victims.

The action has a serious impact on the victims.

Example 2:

Indian Direct Sellers Association – Code of Ethics Conduct Towards Consumers Prohibited Practices: Direct Sellers shall not use misleading, deceptive or unfair sales practices.

Identification:

From the beginning of the sales presentation, Direct Sellers shall, without request, truthfully identify themselves to the prospective customer, and shall also identify their company, their products and the purpose of their solicitations. In party selling, Direct Sellers shall make clear the purpose of the occasion to the hostess and the participants.

Explanation and Demonstration:

Explanation and demonstration of the product offered shall be accurate and complete, in particular with regard to price and, if applicable, credit price, terms of payment, cooling off period and/or return rights, terms of guarantee and after-sales service, and delivery.

Answers to Questions:

Direct Sellers shall give accurate and understandable answers to all questions from consumers concerning the product and the offer.

Order Form:

A written order form shall be delivered to the customer at the time of sale, which shall identify the company and the Direct Seller and contain the full name, permanent address and telephone number of the company or the Direct Seller, and all material terms of the sale. All terms shall be clearly legible.

Verbal Promises:

Direct sellers shall only make verbal promises concerning the product which are authorized by the company.

Cooling-off and return of goods:

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Companies and Direct Sellers shall make sure that any order form contains, whether it is a legal requirement or not, a cooling-off clause permitting the customer to withdraw from the order within a specified period of time and to obtain reimbursement of any payment or goods traded in. Companies and Direct Sellers offering an unconditional right of return shall provide it in writing.

Guarantee and After-Sales Service:

Terms of Guarantee or a warranty, details and limitation of after-sales service, the name and address of the guarantor, the duration of the guarantee and the remedial action open to the purchaser shall be clearly set out in the order form or other accompanying literature or provided with the product.

Literature:

Promotional literature, advertisements or mailings shall not contain any product description, claims or illustrations which are deceptive or misleading, and shall not contain the name and address or telephone number of the company or the Direct Seller.

Testimonials:

Companies and Direct Sellers shall not refer to any testimonial or endorsement which is not authorized, not true, obsolete or otherwise no longer applicable, not related to their offer or used in any way likely to mislead the consumer.

Comparison and Denigration:

Companies and Direct Sellers shall refrain from using comparisons which are likely to mislead and which are incompatible with principles of fair competition. Points of comparison shall not be unfairly selected and shall be based on facts which can be substantiated. Companies and Direct Sellers shall not unfairly denigrate any firm or product directly or by implication. Companies and Direct Sellers shall not take unfair advantage of the goodwill attached to the trade name and symbol of another firm or product.

Respect of Privacy:

Personal or telephone contact shall be made in a reasonable manner and during reasonable hours to avoid intrusiveness. A Direct Seller shall discontinue a demonstration or sales presentation upon the request of the consumer.

Fairness:

Direct Sellers shall not abuse the trust of individual consumers, shall respect the lack of commercial experience of consumers and shall not exploit a consumer’s age, illness, lack of understanding or lack of language knowledge.

Referral Selling:

Companies and Direct Sellers shall not induce a customer to purchase goods or services based upon the representation that a customer can reduce or recover the purchase price by referring prospective customers to the sellers for similar purchases, if such reductions or recovery are contingent upon some unsure future event.

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Delivery: Companies and Direct Sellers shall fulfill the customer’s order in a timely manner.

Ethical Guidelines for Managers:

A major task is to create a consistency among the business values and ethics & the proposed strategy. This is done through inculcating the right set of values, reconciling divergent views, and modifying values that are not consistent with the overall strategy of the company. To ensure that their decisions and actions are ethical, managers should strive to follow the guidelines listed below:

Appoint an Ethics Officer Involve the employees in developing a mission statement.

Evolve a code of conduct.

Obeying the law:

Managers must ensure that laws are not broken to achieve organizational objectives.

Tell the truth:

In order to build and maintain long-term relationships with relevant stakeholders, it is essential to state the facts clearly and honestly.

Uphold human dignity :

People should be treated with respect irrespective of their race, ethnic group, religion, sex or creed.

Adhere to the golden rule:

The Golden Rule, “Do unto others as you would have others do unto you,” is often applied when monitoring the ethical dimensions of business decisions. It involves treating individuals fairly and with empathy.

Premium non-nocere (above all, do no harm):

Some writers regard this principle as the most important ethical consideration. When pursuing profits, organizations should ensure that they do not harm society.

Allow room for participation:

This principle advocates the participation of stakeholders in the functioning of an organization. It emphasizes the significance of knowing the needs of stakeholders, rather than deciding what is best for them.

Always act when you have responsibility:

Managers should utilize their capacity and resources to take appropriate action when there is need for it. Also he should facilitate upward communication from employees.

Build a ethical culture by example setting:

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Last but not the least the manager should encourage the employees to follow a culture that is based on appropriate examples.

Mechanisms for Ethical Management

There is no specific method for making employees behave in an ethical manner. However, there are a number of mechanisms that help managers create an ethical climate. These include top management commitment, codes of ethics, ethics committees, ethics audits, ethics training and ethics hot lines.

Top management commitment

Through commitment and dedication to work, top-level managers can act as role models for their organization. Their behavior can influence the ethical behavior of subordinates.

Code of ethics

A code is a statement of policies, principles or rules that guide behavior. A code of ethics is a formal document that states an organization’s primary values and the ethical rules it expects its employees to follow. Most of the companies that have a code of ethics agree that it encourages employees to behave in an ethical manner.

Ethics committee

An ethics committee establishes policies regarding ethical conduct and resolves major ethical dilemmas faced by the employees of an organization in the course of their work. Establishing a code of ethics is not enough; the ethics committee also has to make ethical behavior a part of the organizational culture.

Ethics committees perform the following functions:

Organizing regular meetings to discuss ethical issues.

Communicating the code to all members of the organization.

Identifying possible violations of the code.

Enforcing the code.

Rewarding ethical behavior and punishing those who violate the organization’s

code of ethics.

Reviewing and updating the code of ethics.

Reporting the activities of the committee to the board of directors.

ETHICS AUDITS

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Ethics audits involve the systematic assessment of the adherence of employees to the ethical policies of the organization. They aid in better understanding of the policies and also identify the deviations in conduct that require corrective action.

Ethics training

The purpose of ethics training is to encourage ethical behavior. It enables managers to align ethical employee behavior with major organizational goals.

Ethics hot line:

This is a special telephone line that enables employees to bypass the proper channel for reporting their ethical dilemmas and problems. The line is usually handled by an executive who investigates the matter and helps resolve the problems of the concerned employee. Such a facility allows the problem to be handled internally and reduces the chances of employees becoming whistle-blowers. An employee who reports real or perceived misconduct to an external agency (which may be able to take remedial action) is called a whistle-blower. A manager should take the necessary steps to prevent a whistle-blower from going to an outside person or organization since such action can lead to unfavorable publicity or legal investigation.

ETHICS AT MARKET PLACE

Free markets are justified because they allocate resources and distribute commodities in ways that are just, that maximize the economic utility of society’s members and that respect the freedom of choice of both buyers and sellers. These moral aspects of a market system depend crucially on the competitive nature of the system. If firms join together and use their combined power to fix prices, drive out competitors with unfair practices or earn monopolistic profits at the expense of consumers, the market ceases to be competitive and the results are injustice, a decline in social utility and a restriction of people’s freedom of choice. Fairness is getting paid fully in return for what one contributes and it is this form of justice that is achieved in perfectly competitive free markets. Perfectly competitive markets embody capitalist justice because such markets necessarily converge on equilibrium point and the equilibrium point is the one point at which buyers and sellers on an average receive the value of what they contribute. In a monopoly market situation, however conditions change as compared to perfectly competitive market conditions particularly with respect to the number of buyers and sellers and also the entry is not so easy. Unregulated monopoly markets fall short of the values of capitalist justice and economic efficiency. The high prices the seller forces on a buyer in a monopoly situation are unjust and these unjustly high prices are the source of the sellers, excess profits. The high profits in a monopoly market indicate a shortage of goods. Other firms are blocked entering the market, their resources cannot be used to make up the shortages indicated by the high profits. Thus monopoly market results in a decline in the efficiency with which it allocates and distributes goods. Oligopoly markets which are dominated by a few large firms are said to be

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highly concentrated i.e. there are relatively small number of firms. It is relatively easy for the managers of these firms to join forces and act as a unit. By explicitly or implicitly agreeing to set their prices at the same levels and to restrict their output accordingly , the oligopolist can function like a single giant firm. This uniting of force together can create barriers to entry and result in the same high prices and low supply levels that are characteristics of a monopoly markets. As a consequence oligopoly market, like monopolies can generate a decline in social utility and can fail to respect basic economic freedom What do you do when you find yourself confronted with an opportunity to learn exactly what a competitor is doing or is about to do. What Mr. John E. Pepper, the Former Chairman and Chief Executive of The Procter & Gamble Co. (P&G) narrated in his talk on 30th January, 1997 at the Florida University about the philosophy of business ethics practiced by P&G by two live cases will be of great interest and relevance for our discussion.

Case No.1 :

An individual made a call from Europe to a Senior Manager of P&G informing him that he had in his possession very sensitive and useful documents about the future plans of its competitor – a Lever brand– which he was willing to sell to P&G. The Senior Manager of P&G immediately passed on the information to the Head of Security at Unilever, who in turn alerted the police. The police swung into action and arrested the culprit.

Case No. 2 :

A Senior Executive of one of the advertising agencies of P&G while travelling in a cab in New York found lying on the floorboard, a computer disk that included the marketing plans of the P&G’s main competitor who was giving serious headache to one of P&G’s flagship brand in the market place. The Senior Executive immediately sent back the disk to the Chairman of the competitive company and assured him that neither the agency nor anyone at P&G had looked at the contents of the disk. In his letter he said “We will always compete with commitment and intensity but will never compromise our ethics to win”.

UNFAIR OR UNETHICAL BUSINESS PRACTICES

With respect to customer :

Pricing : Differential pricing for different class of customers similarly low price identified as low quality. Special pricing factoring discounts are all forms of unfair busines practices.

Advertisement : Marking false claims, using advertisement to confuse or confuse customer with exaggerated claims & colorful copy.

Product Promotion : Using sales promotional techniques like demo pack, free trial, buy two get one free offers, etc . are used to lure the customers in purchasing the products. Similarly in industrial goods giving bribe to get the order.

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Customer Service : Appointing female executives to get new business and then sending.recovery agents for outstanding dues is unfair business practice.

Price Fixing : Collaborating with other companies and fixing prices which are on higher side so that customers does not have any choice.

Unethical business practice of employees :

Job Switching : When an employee changes job, he must protect the information of his previous employer. Similarly a huge amount of money is invested in training of employees and he leaves the organization which has trained him and takes his experience with him.

Disclose of confidential information : An employee has confidential information about financial status, future projects etc. which he should not disclose to anyone. Investors buy or sell shares of the company based on this sensitive information.

Industrial Espionage : This is spying for either personal or companies benefit.

Occupational Crimes : They are wrong actions of employees like :

Using office telephone or PC for personal use.

False claims made by sales executives.

Theft or pilferage.

Damaging the property of the company.

Manufacturing, transporting, and selling products that are prohibited by law

e.g. : liquors and drug selling.

In order to develop a strong professional organisation, one needs values which are spelt, for an

Organisation through the following :

Vision.

Mission.

Code of conduct.

Vision :

Whenever an organisation is set up there should be a a very clear vision of how it is strong to contribute to the immediate community without harming the physical environment.The first task thus is to develop a realistic vision for the business which would present a picture of the business in 3 to 5 years time in terms of its physical appearance, size and activities. Also define the company’s markets, customers, processes, location, staffing etc.

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Example : Shri JRD Tata is one of the greatest visionary, who became the chairman of Tata sons Ltd. At the age of 34 and his visionary leadership and disciplines approach led the Tata group to new heights. The Tata ventures grew from 13 to 80 diversified industries, encompassing steel, tea, powers generation, engineering, hotels and IT to name a few. The name “TATA” bears trust in the workmanship all due to the vision of Shri J R D Tata.

Mission Statement :

The nature of a business is often expressed in terms of its mission. The mission statement indicates the purpose of a business. For e.g. : The mission statement of ICICI Bank, “To be preferred provider of comprehensive & world class investment and banking solutions to the Financial institutions group (FIG) clients.” Thus the focus of ICICI Bank would be to cater to the needs of the Domestic Financial Institutions and retail customers. The best example of a well spelt one mission statement is that of Sony Corporation, which was defined by the founding Chairman Mr. Akio Morita. He has made the mission statement upto the year 2050.

Code of Conduct :

These are the Do’s & Don’t’s or the work culture in an organization.The code of conduct defines the rights and duties of all the stakeholders starting from the Ceo Or Managing Director, the Board of Directors, the managers, employees, Suppliers and th Distributors and the customers and the shareholders. The code of conduct is necessary for the following :

(a) For inspiration and Guidance : The code expresses a collective commitment of the organization for the public good and thus guides and inspires all the stakeholders to maintain it. For e.g.: Johnson & Johnson displays its “CREDO” or code of Best Business practice at its office reception in all its office world wide.

(b) It Disciplines & Discourages Unethical Business practices : The code serve as a basis for investigating any unethical action on part of the company officials.

(c) Education and Mutual Understanding : The code serves as a benchmark for developing a shared understanding by employees, professionals, regulatory bodies like IRDA aid SEBI.

(d) Creates a Good Public Image : The code presents a positive image of a committed professional and the brand image in the minds of the customer and general public.

(e) Quality standards : Quality standards are set which give us specifications regarding the quality, safety and appropriate pricing of the product. Example : ISO 9000, 2000.

CODE OF BEST BUSINESS PRACTICES OF TATA GROUP :

The 20 Billion dollar Tata Group symbolises leadership with Trust as its key asset has laid down code for its various SBU’s (Strategic Business Units) and its over 2.5 million employees.Their focus is on five core values :

(i) Integrity : What you say, you do or honesty in all its business dealings ids the hallmark of Tata code. They do not make any false claims. There is unity of thoughts, words and deeds in all its communication.

(ii) Understanding : The Tata Group understand and can sense before their competitors what the customer want. They have good customer relation and very harmonious labour relations.

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They have pioneered vendor development using Information Technology which has minimized the cost of the final product.

(iii) Excellence : Any Tata product or service has the finest quality, good workmanship and competitive pricing. Tata group never compromises on quality.

(iv) Unity : Tata group is well diversified group, which respects independence of every SBU. However, the group synergises the strengths of all and minimizes the weakness.

(v) Responsibilty : Tata group is known for their corporate social responsibility which includes the well being of employees, customers, dealers, suppliers and the local communities. Tata group has always supported social cause and helped in upliftment of local community.

Code of conduct for employees of Tata group includes :

(a) Utilize his or her knowledge and skills for the welfare of the organisation.

(b) To consider the interest of the organization in all its transactions while maintaining the dignity and responsibility of ones office.

(c) To denounce all forms of commercial bribery for getting any orders.

Code of conduct for employees of Tata group includes :

Utilize his or her knowledge and skills for the welfare of the organisation.

To consider the interest of the organization in all its transactions while maintaining the dignity and responsibility of ones office.

To denounce all forms of commercial bribery for getting any orders.

To apply knowledge and expertise with sincerity and honesty without comprising basic human values.

Maintain honesty and fairness in all their dealings.

Avoid damage to the ecosystem and strive to maintain sustainable economic development.

To apply knowledge and expertise with sincerity and honesty without comprising basic human values.

Maintain honesty and fairness in all their dealings.

Avoid damage to the ecosystem and strive to maintain sustainable economic development.

One possible solution :

Man is a social animal. Though rules of the nature control the humans as they control the other living beings, the man himself has derived certain principles to govern his own individual and group behavior.These rules, in the form of behavioral standards, may differ across cultures and

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times but their basic objectives are always mutual existence and peace within the community. Ethics is defined as that characteristic which constitutes Good and Bad human conduct and that which decides what is good or bad, right or wrong and thus we ought to do ought not to do. This is derived by a set of social values through which our action is tested. In a social group, the ethical standards are set keeping the social values as the base.

EXPLORING VALUES, SKILLS, ATTITUDE AND BEST BUSINESS PRACTICES :

“We must not, obey those who urge us, because we are human and mortal, to think human and mortal thoughts. In so far as we may, we should practice immortality and omit no effects to live in accordance woth the best that is in us.”

- Aristotle

To become – Good, Honest, Hard Workings, Creative person, we need values. Values are internal compass which guide our actions. Values are our beliefs about what is good or bad, right or wrong, desirable or worthwhile. Value system is the way one organizes and ranks or priorities makes decisions based on these values. Values are enduring and permanent. They are “true north principle” which guides our life. This is the foundation on which we made personal or professional judgements and choices.

Different types of value :

Knowledge based value : Value which enhances one’s knowledge . E.g. I value reading as it gives me great insight in to life. I value traveling and meeting people from different religions & culture as it gives me more knowledge about our and other culture and heritage.

Aesthetic based value : Some thing is valued for its beauty. For e.g. : I love pastel shades as they makes me fell vibrant and beautiful. I prefer classical music as it is more melodious than the funky music.

Instrumental value : Something is valued as having it leads to some goal. For e.g. : I value a to degree in management as that would allow me to join a good organisation. I value and would love have a two wheeler so that I can travel easily from place to place.

Moral Value : In this, there is a moral judgement and something to support it. For e.g : I believe it is wrong to lie because it shows disrespect for the other person. I believe it is right to express your negative views in front oh the persons rather than behind him as it allows him to have a healthy debate on our points of view. As you can see, there is no mare rule is a moral rule or a judgment right or wrong good or bad and something to

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justify that judgement. All our values whether moral or non-moral are judgement in nature and hence are called “normative”. Your values are your beliefs about what is important life. Some value instruct you on how one should act ( be honest, fair, self disciplined etc. ) while other values refer to one wants to accomplish or obtain in life ( a lot of money, cars, bog house, friends, peace of mind etc.) A person cannot “Have it all” or “be all things” and hence has to prioritize and make choice . To set priorities one has to create a value hierarchy.

I have given below a list of value for the students :

Sincerity

Honesty

Hard Work

Fun

Growth

Support

Creativity

Friendship

If all the students were asked to give a ranking to these values, they would have to answer like what is more important, hard work or fun? What would be the ranking preference ?

ATTITUDE :

Attitude is defined as a learned pre-disposition. An evaluative judgement about people or events, attitude express favourable or unfavourable judgement e.g., Mumbai police are corrupt. Air India always cancels flight, etc. when one buys products at a cheap rate one of the evaluation is it is of a substantial quality. Examination always increase the tension both of the students and their parents, Joining a reputed school will gives good placement. All these are instance Attitudes. If there are two values honesty & friendship especially when one’s friend is being misled and often lead to value conflicts. You want to have moral value and moral rules has a price we have to pay.We have to choose between what we want to be and what we want or desire.

SKILLS:

For “doing” something we need a set of skills. For e.g. : driving, learning langauge are some of the skills. They teach us the “HOW”. Skills are nit enduring or do not last a life time if not practiced regularly.. During the 70’s one learnt typing as it was an important skill for doing office correspondence, with the introduction of PC, apart from typing one has to know how to save and retrieve a document from WORD programme. Before the Excel sheet came or Lotus package was developed only calculations and human skills were used to answer complex table and problem.Thus, skills can be upgraded, hence change with a passage of time. The doctor is an

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expert as he has mastered the skill of diagnosis. There is an accomplished dancer and she has perfected the art form of “Kathak’ dancing. Our car driver is an expert in driving as since twenty years he has not done any accident and maintaining our car well. Skills are thus something to be acquired unlike values, not something to be explored within one self. Further values are functions of the creative “right” brain whereas acquiring a skill is the function of the left brain. Skills make a person expert and attitude are created over time and hence for “making” us what we are not, attitude is responsible. Attitude is our internal perception of what we experience and learn from people., objects and events. For example there are two students who failed in the exam. One student tried to commit a suicide as he could not live with his experience while other student concentrated on studying more to pass the exam in the next attempt. These are two different perceptions and hence different attitude , one is positive and one is negative. Attitude are learned and unlearned and hence are not permanent or enduring. For e.g.: if I have an attitude based on my past experience that Mumbai Police is corrupt and when I meet many honest and sincere Police officers, then my attitude about Mumbai Police will change. Attitude is a function of one’s perception and mind set and also a function of a right brain function.

VALUES SKILLS ATTITUDES

To ‘Be’ we need value To ‘Do’ we need skill To ‘Make’ we need attitude

Values are internal dealing

with purifying our heart and

exploring our inner world

Skills are External, they need to be learned and make a person expert.

Attitude is the ‘Internal Perception of people,objects and events.It leads to learned pre-disposition.

Values are permanent Skills are upgraded. Attitudes keep changing.

Values are function of right brain.

Skills are function of left brain. Attitudes are function of right brain.

Values bring about

excellence and universal

good.

Skills bring about excellence at

work.

Attitudes bring about a positive mindset.

ETHICS IN FINANCE

At the present time, the field of finance ethics is barely formed. Although standard business ethics courses give some attention to ethical issues in finance, few finance departments include a treatment of ethics in their courses. Interest in finance ethics is growing, however, and many people in finance believe that ethics should receive some attention in finance education. In the development of any area of applied ethics, critical questions arise about the subject matter of the field, the appropriate theoretical approach, and the suitable teaching materials.

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As the author of the first comprehensive textbook in finance ethics (Ethics in Finance, Blackwell Publishers, 1999), I propose a presentation, which is based on this textbook, that answers these questions. In particular, I will explain my conception of the field of finance ethics and offer an outline of a course or module in finance ethics. The main goal of this presentation is to promote the teaching of finance ethics in standard business ethics courses and especially in the finance curriculum by providing practical guidance and materials.

The presentation will cover:

The current state of finance ethics and the impediments to the development of the field, including the diversity of finance and the close regulation of financial activity.

A framework for organizing the main issues in finance ethics. Specifically, the field can be understood under the heads of (a) financial markets, (b) financial services, and (c) financial management.

The relevant theoretical approaches to finance ethics. Specifically, these are (a) fairness in market transactions, and (b) agency relations and fiduciary duties.

A listing of the main ethical issues that arise in finance and could comprise a course in finance. These can be organized as ethical issues in (a) financial services (which involve a professional and a client); (b) investment decisions (which are typically made by institutional investors); (c) the regulation of financial markets; and (d) corporate governance.

Suggestions for suitable case studies.

THE CHANGING BUSINESS PARADIGM AND ETHICAL DILEMMAS

Most of the big corporate houses 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 labour 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 9 that offers it cheaper labour, less stringent laws or more favourable 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

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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. Yet 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 of course 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. However, the transfer of technologies and products into a developing country can create risks when the country is not ready to assimilate them.

BUSINESS ETHICS & EXTERNAL ENVIRONMENT

The process of producing goods forces businesses to engage in exchanges and interactions with two main external environments – the natural environment and a consumer environment. Here you will understand the ethical issues raised by these exchanges and interactions. The two basic problems related to the natural environment are – pollution and resource depleting. Several consumer issues, including product quality and advertising are the probable related to consumer environment.

THE EXTERNAL ENVIRONMENT

For centuries, business institutions were able to ignore their impact on the natural environment, an indulgence created by a number of causes. First business was able to treat air and water as free goods. However in today’s context unless business recognize the interrelationships and interdependencies of the ecological systems within which they operate and unless they ensure that their activities will not seriously injure these systems we can not hope to deal with the problem of pollution.Environmental issues raise large and complicated ethical and technological questions for our business society. What is the extent of the environmental damage produced by present and projected industrial technology? How large a threat does this damage pose to our welfare? What values we must give up to halt or slow such damage? Whose rights are violated by pollution and who should be responsible of paying for the costs of polluting the environment? How long will our natural resources last ? What obligations do firms have to future generations to preserve the environment and conserve our resources? Economists often distinguish between what it costs a manufacturer to make a product and what the manufacturer of that product costs as a whole when a firm pollutes its environment in any way, the firm’s private costs are always less than the total social costs involved. This is a problem because when the private costs diverge from the social costs involved in its manufacture, markets no longer price commodities accurately. Consequently they no longer allocate resources efficiently. As a result the welfare of society declines. The remedy for the external costs is to ensure that the costs of pollution are internalized – that is they are absorbed by the producer and take into account when determining the price of goods. In this way goods will be accurately priced, market forces will provide the

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incentives that will encourage producers to minimize external costs and some consumers will no longer end up paying more than others for the same commodities.

ETHICS OF CONSUMER PRODUCTION AND MARKETING

People are exposed daily to astonishingly high levels of risk from the use of consumer products.Each year people suffer serious accidental injuries and few others are killed due to accidentsinvolving consumer products. Examples are often reported of injuries requiring hospital treatment inflicted on youngsters and adults using toys, nursery equipment and playground equipment, people using home, workshop equipment, people requiring treatment for injuries involving home construction materials. Now the dilemma which arises is where does the consumer’s duty to protect his or her own interests end and where does the manufacturer’s duty to protect consumers’ interest begin? Three different theories on the ethical duties of manufacturers have been developed, each one of which strikes a different balance between the consumer’s duty to himself or herself and the manufacturer’s duty to the consumer – the contract view, the ‘ due care’ view, and the social cost view. The contract view would place the greater responsibility on the consumer, whereas the due care and social costs views place the larger measure of responsibility on the manufacturer. Consumers are also bombarded daily by an endless series of advertisements urging them to buy certain products. Although sometimes defended as sources of information, advertisements are also criticized on the grounds that they rarely impart additional information and only give the barest indications of the basic function a product is meant to serve and sometimes misrepresent and exaggerate its virtues. Economists argue that advertising expenditure is a waste of resources while sociologists bemoan the cultural effects of advertising. The advertising business is a massive business. The question however is who pays for these advertising expenditures? In the end, the prices consumers pay for the goodsthey buy must cover advertising costs–the consumer pays. What does the consumer get for his or her advertising rupee? According to most consumers, they get very little. However, the advertising industry sees things differently. Advertising, they claim is before all else communication. Its basic function is to provide consumers with information about the products available to them – a beneficial service. The question to be discussed therefore is whether advertising is a waste or a benefit? Does it harm consumers or help them? Discussion of the ethical aspects of advertising can be organized around the various features like its social effects, its creation of consumer desires and its effects on consumer beliefs. Studies have shown that advertising frequently fails to stimulate consumption of a product and consumption in many industries has increased despite minimal advertising expenditures. Thus advertising appears to be effective for individual companies not because it expands consumption but only because it shifts consumption away from one product to another. If this is true then economists are correct when they claim that beyond the level needed to impart information , advertising becomes a waste of resources because it does nothing more than shift demand from one firm to another. The moral issues raised by advertising are complex and involve several still unresolved problems. However there are few factors like its social effects, its effect on desire, effects on belief that should be taken into consideration when determining the ethical nature of a given advertisement. Advances in computer processing power, database software and communication technologies have given us the power to collect, manipulate and disseminate personal information about consumers on ascale unprecedented in the history of the human race. This new power over the collection,

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manipulation and dissemination of personal information has enabled mass invasions in the privacy of consumers and has created the potential for significant harms arising from mistaken or false information. The purpose of rights is to enable the individual to pursue his or her significant interests and to protect these interests from the intrusion of other individuals. It is also important because it has several enabling functions. Privacy enables certain professional relationships to exist. In so far as the relationships between doctor and patient, lawyer and client, and psychiatrist and patient all require trust and confidentiality, they could not exist without privacy. It is clear then that our interest in privacy is important enough to recognize it as a right that all people have, including consumers. However this right must be balanced against the rights and legitimate needs of others. For example, consumers benefit from having life insurance available to them. However there are significant consumer benefits that businesses can provide but they can provide only if there exists agencies that can collect information about individuals and make that information available to businesses. Thus consumers’ rights to privacy have to be balanced with these legitimate needs of businesses.

BUSINESS ETHICS AND INTERNAL ENVIRONMENT

The Internal Environment

The process of producing goods forces businesses not only to engage in external exchanges, but alsoto coordinate the activities of the various internal constituencies that must be brought together and organized into the processes of production. Employees must be hired and organized, stockholders and creditors must be solicited and managerial talent must be tapped. Inevitably conflicts arise within and between these internal constituencies as they interact with each other and as they seek to distribute benefits among themselves. The ethical issues raised by these internal conflicts fall into two broad areas of job discrimination and the issue of conflicts between the individual and the organization. Although many more women and minorities are entering formerly male-dominated jobs, they still face problems that they would characterize as forms of discrimination. Experiences suggest that sexual discrimination and racial discrimination are alive and they do create flutters in the society. Regardless of the problems inherent in some of the arguments against discrimination, it is clear that there are strong reasons for holding that discrimination is wrong. It is consequently understandable that the law has gradually been changed to conform to these moral requirements and that there has been a growing recognition of the various ways in which discrimination in employment occurs. Among the practices now widely recognized as discriminatory, few of them are recruitment practices, screening practices, promotion practices and conditions of employment. Women as notedearlier are victims of a particularly troublesome kind of discrimination that is both overt and coercive. They are subject to sexual harassment. Many businesses are aware of these trends and have undertaken programmes now to respond to the, special needs of women and minorities. However it should be clear in view of the future demographic trends that enlightened self interest should also prompt business to give women and minorities a special hand. It is for these reasons that companies have instituted aggressive affirmative programmes aimed at integrating large groups of minorities into their firms where they are provided with education, job training, skills, counseling and other assistance designed to enable them to assimilate into workforce. The employee’s main moral duty is to work toward the goals of the firm and avoid any activities that might harm those goals. To be unethical, basically is to deviate from these goals to serve one’s

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own interest in ways that if illegal are counted as form of ‘white collar crime’. There are several ways in which the employee might fail to live up to the duty to pursue the goals of the firm. The employee might act on a “ conflict of interest”, the employee might steal from the firm or the employee might use his or her position as a leverage to force illicit benefits out of others through extortion or commercial bribery. The ethical issue of misusing proprietary information has become much more prominent in the last decade as new ‘information technologies’ have increasingly turned information into a valuable asset to which employees have regular access. As information technologies continue to develop, this issue will continue to grow in importance. Insider trading is also unethical – not merely because it is illegal but because it is claimed, the person who trades or insider information in effect ‘steals’ this information and thereby gains as unjust or unfair advantage over the member of the general public. In the course of performing a job an employee may discover that a corporation is doing something that he or she believes is injurious to society. Indeed individuals inside a corporation are usually the first to learn that the corporation is marketing unsafe products, polluting the environment , suppressing health information or violating the law. Employees with a sense of moral responsibility who find their company is injuring society in some way will normally feel an obligation to get the company to stop its harmful activities and consequently will often bring the matter to the attention of their superiors. Unfortunately if the internal management of the company refuses to do anything about the matter , the employee today has few other legal option available. In the absence of legal protections of the employee’s right to freedom of conscience the practice of whistle blowing is discussed and debated. Whistle blowing is an attempt by a member or former member of an organization to disclose wrongdoing in or by the organization. It can be internal or external. If the wrongdoing is reported only to those higher in the organization it is internal whistle blowing. When the wrongdoing is reported to external individuals or bodies such as government agencies, newspapers or public interest groups, the whistle blowing is said to be external. However it is for the ethical judgment to decide whether external whistle blowing is wrong because employees have a contractual duty to be loyal to their employer and to keep all aspects of the business confidential. When an employee accepts a job, the argument goes, the employee implicitly agrees to keep all aspects of the business confidential and to single mindedly pursue the best interests of the employer. The whistleblower violates this agreement and thereby violates the rights of his or her employer. The last point to be mentioned here is the ethics of political tactics in organizations. Political behaviour in an organization can easily become abusive. Political tactics can be used to advance private interests at the expense of organizational and group interests, they can be manipulative and deceptive and they can seriously injure those who have little or no political power or expertise. However political tactics can also put at the service of organizational and social goals, they may sometimes be necessary to protect the powerless and they are sometimes the only defense a person has against the manipulative and deceptive tactics of others. The dilemma for the individual in an organization is knowing where the line lies that separates morally legitimate and necessary political tactics from those that are unethical.

DO BUSINESS ETHICS AND PROFESSIONALISM CONTRIBUTE TO GOOD CORPORATE GOVERNANCE?

The answer is definitely yes.

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Business Ethics is about what is perceived as good or bad in the business world.If there is “good” Business Ethics, which is acceptable by the norms of a given society,(nowadays we have a global society) then this will definitely contribute to Good Corporate Governance, which will be good corporate leadership to satisfy the norms of the society as perceived by the very society.

Professionals apply their professionalism on corporations in order for such corporations to realize their objectives.The society, through its beliefs, norms and practices sets expectations to professional who in turn inculcate such expectations into their professional ethics.The professionals therefore are guided by their ethics as they apply their professionalism into corporations.The ethicalness upheld by such professionals, as they work for corporations, therefore promotes good Corporate Governance.Both business ethics and professionalism are founded on the sense of right and wrong, what ismfair and just, accountability and transparency.

DO GOOD ETHICS TRANSLATE TO GOOD BUSINESS AND HENCE BUSINESS SUSTAINABILITY?

A reputation for “sharp” business practices is not an asset at all to any business.Customers and employees are value sensitive and require consistency.consistency builds predictability and trust. And indeed all other stakeholders, be it the Government, the suppliers, the neighbours and society at large value consistency in doing right thing. Questions which touch on various issues are constantly asked by the stakeholders which helps them to evaluate whether actions and practices of a given corporation are good actions and therefore ethical.It is on the basis of this decision that the corporation is viewed either as good and Trustworthy one or not.Once a corporation is trusted by the stakeholders, the following benefits accrue:

If there is a competitor, the consumers will prefer goods and/or services of the trusted company.

The law enforcers will deal with the corporation positively and therefore it will not be subjected to a lot of scrutiny in attempts to catch it on the “wrong-footing”.

Credit rating of such a corporation may increase, since it is a trusted company and hence enable it to obtain favourable credit terms.There are many more advantages including “the corporation being forgiven by the society for any mis-deeds it does, even long before it argues its case”. It is therefore apparent that Ethics translate to Good Business and hence business sustainability as the customer and all other stakeholders will view the corporate body positively which translates to advantages to the business in turn.

ARE SOCIETAL ETHICS AND BUSINESS ETHICS ALIENATABLE ?

The Societal Ethics are reflected in the business Ethics, since the business is part of the larger society. In addition, the persons who help the business. The same constitute the business.The same members of the society are the customers to the business, the government is part of the same society, the suppliers of goods and materials come from the same society and therefore, if the business pursues any principles which are repugnant to that of the society, which may not be easy, then a friction will ensure and since business draw their power from the society, such a business will definitely fail.Can Legislation change codes of Ethics and Standards result to

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desired holistic change ?Legislation, Code of Ethics and Standards are guidelines by which if a person is accused on an issue touching on any of them. Such a person will be judged based on the benchmarks set.It is disturbing to note that when subjects are forced through a legislation or some sort of a set standard to observe a given behaviour, if such subjects are not willing to observe that desired behaviour, they merely end up obeying the law by exhibiting actions that manifest the minimum desired behaviour to avoid the penalties.As stated earlier in this paper there is much more in a profession than a traditionally dignified calling. If the Legislation, the code of ethics and standards are set by willing people then such person, who do not necessarily set such benchmarks to convince others of existence of the rules, then it would be expected that the players would go beyond their performance benchmarks mand excel quite well.Therefore there is a lot of benefit of ownership of the values that people are expected to exhibit and very little effort would be required to enforce such values.It is important that Business and professional do act responsibly, transparently with fairness. They should also be efficient and effective, because it is in the interest of the very society they serve, who are their Masters, to do so.It is inevitable not to have Codes of Ethics and Standards of practice so that they can be used to net the deviants.Altogether, these should be viewed as mere lines making the minimums, but professionals and businesses alike, should endevour to achieve higher and higher performances in matters of Ethics.

THE ROLE OF GOVERNMENT AND THE SOCIETY

Every Government has a major duty to play if its citizens are going to benefit from Good Corporate Governance.In the first instance, the Government must be composed of people who are themselves ethical, so that they can be listened to and emulated.The society is the population which votes in governments and therefore it is a major influencing agent of what kind of a government they end-up with, which in turn, sets the tone on governance on citizens and indirectly on corporate bodies.With Globalization, it is not possible to have major differences in levels of delivery and expectations by the Society. People all-over the world are sharing information very quickly and therefore, they are now able to tell whether the delivery of services and treatment they get be it from the government or the corporations, measures to what their furthest counterparts in other countries get.It is even more serious that under the WTO treaties, professionals will be able to move freely and deliver services anywhere in the world and hence this means that time has come for professionals trained in different countries to unify their Ethical codes to meet the global society expectations.

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CASE STUDY 1: THE BHOPAL GAS TRAGEDY

Period : 1980-2001Organization : Union Carbide India Ltd.Industry : Chemicals.Country : India.

The case gives an overview of the Bhopal gas tragedy. On December 3, 1984, poisonous gas leaked from Union Carbide India Limited (UCIL's) pesticide plant in Bhopal, which killed thousands of people. The case brings out the ethical issues involved in the disaster.

It discusses in detail the reasons behind the disaster. The case discusses the role played by Union Carbide Corporation after the disaster, which seemed to be unethical. It also talks about the role of the GOI and Madhya Pradesh government in the disaster. The case is intended for MBA/PGDBM level students as a part of the Business Ethics Curriculum.

From the case, students are expected to understand the ethical issues involved in the Bhopal gas tragedy and the role played by the governments in the disaster. With the help of the Theory of Image Restoration, students are expected to understand how Union Carbide responded to the situation. They should also analyze how Union Carbide should have responded to the Bhopal gas tragedy.

Issues:

» Bhopal Gas Tragedy.» Reaction of the UCIL.» Role of government in granting permission.» Failure of safety measures.» Delay in Justice.

Contents:

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IntroductionThe Journey from Virginia to BhopalAll's Not Well with the Bhopal PlantThe TragedyUnion Carbide Takes the OffensiveThe Settlement

“The numerous safety systems with which this type of plant is equipped enable us to control any of the MIC’s potentially dangerous reactions.”

A Union Carbide official commenting on the safety systems in the Bhopal pesticide plant.

“It’s not a deadly gas, just irritating, a sort of tear gas.”

- Dr Loya, Union Carbide’s official doctor in Bhopal, commenting on Methyl Isocyanate, after the tragedy.

Introduction

In the early morning hours of December 3, 1984, a poisonous grey cloud (forty tons of toxic gases) from Union Carbide India Limited (UCIL’s)1 pesticide plant at Bhopal spread throughout the city. Water carrying catalytic material had entered Methyl Isocyanate (MIC) storage tank No. 610. What followed was a nightmare.

The killer gas spread through the city, sending residents scurrying through the dark streets. No alarm ever sounded a warning and no evacuation plan was prepared. When victims arrived at hospitals breathless and blind, doctors did not know how to treat them, as UCIL had not provided emergency information.

It was only when the sun rose the next morning that the magnitude of the devastation was clear. Dead bodies of humans and animals blocked the streets, leaves turned black, the smell of burning chilli peppers lingered in the air.

Estimates suggested that as many as 10,000 may have died immediately and 30,000 to 50,000 were too ill to ever return to their jobs.

The catastrophe raised some serious ethical issues. The pesticide factory was built in the midst of densely populated settlements. UCIL chose to store and produce MIC, one of the most deadly chemicals (permitted exposure levels in USA and Britain are 0.02 parts per million), in an area where nearly 120,000 people lived.

The MIC plant was not designed to handle a runaway reaction. When the uncontrolled reaction started, MIC was flowing through the scrubber (meant to neutralize MIC emissions) at more than 200 times its designed capacity. MIC in the

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tank was filled to 87% of its capacity while the maximum permissible was 50%.MIC was not stored at zero degree centigrade as prescribed and the refrigeration and cooling systems had been shut down five months before the disaster, as part of UCC’s global economy drive.

Vital gauges and indicators in the MIC tank were defective. The flare tower meant to burn off MIC emissions was under repair at the time of the disaster and the scrubber contained no caustic soda.

As part of UCC’s drive to cut costs, the work force in the Bhopal factory was brought down by half from 1980 to 1984.

This had serious consequences on safety and maintenance. The size of the work crew for the MIC plant was cut in half from twelve to six workers...Excerpts

The Journey from Virginia to Bhopal

In the beginning of the 20th century, UCC was born of a merger of four US companies producing batteries and arc lamps for street lighting and headlamps for cars. By the second half of the 20th century, UCC had 130 subsidiaries in 40 countries, approximately 500 production sites and 120,000 employees...

All's Not Well with the Bhopal Plant

Since 1980, the Bhopal plant had caused death and injury to many. In December 1981, plant operator Mohammed Ashraf was killed by a phosgene gas leak. Two other workers were injured. In May 1982, three American engineers from the chemical products and household plastics division of UCC came to Bhopal...

Many Indian journalists pointed out the several defects in the design of the plant of UCC. After the Bhopal incident, the Virginia plant was closed. It was also found that the process used by UCC was banned in others parts of the world. Germany has suggested an alternative process to manufacture the same product with much greater safety.

The Tragedy

On the night of December 2, 1984, during routine maintenance operations at the MIC plant, at about 9.30 p.m., a large quantity of water entered storage tank no. 610 containing over 40 tons of MIC. This triggered off a reaction, resulting in a tremendous increase of temperature and pressure in the tank...

The Union Carbide officials in the U.S.A. denied that their firm was responsible for

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the tragedy. The chairman of UCC suggested that the Indian firm should pay final compensation for those killed & injured.

Union Carbide Takes the Offensive

Following the accident, the GoI filed a compensation lawsuit against the UCC for an estimated US$3 billion. However, UCC felt that the GoI was to blame for the disaster. In December 1986, UCC filed a countersuit against the GoI and the State of Madhya Pradesh...

The Settlement

The Indian authorities denied the charges of negligence by Warren Anderson, the chairman of Union Carbide. The case was going between the American & Indian courts, Meanwhile, the suffering of the Bhopal victims continued. The Supreme court in order to put an end to this problem awarded a damage of US $ 470 million which the company paid. The judgement was not based on justice. The problem remains an unsolved one.

Within months after the disaster, the GoI issued an ordinance appointing itself as the sole representative of the victims for any legal dealings with UCC as regards compensation. The ordinance was later replaced by the Bhopal Gas Leak (Processing of Claims) Act, 1985…

CASE STUDY 2:THE BRIBERY SCANDAL AT SIEMENS AG

Period : 2006-2007Organization : Siemens AGIndustry : Diversified.Country : Germany.

This case discusses the bribery scandals that were unearthed at Siemens AG (Siemens) in 2006 and 2007. There were a series of scandals that involved some of the company's employees bribing foreign officials to gain contracts and creating slush funds for this purpose.

In another case, the company was accused of bribing labor representatives on the suprvisory board in order to gain their support for its policies. After the German authorities conducted raids on Siemens'offices in Germany, investigations were initiated on Siemens in several other countries like the US, Greece, Italy and Switzerland for possible misconduct.

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As a fallout of this scandal, the CEO of the company, Klaus Kleinfeld, and the chairman of the supervisory board, Heinrich von Pierer, had to resign even though they were not directly implicated.

With bribery scandals surfacing in Siemens and many other German companies likeVolkswagen, questions were also raised about the effectiveness of the Co-determination law in Germany, which advocated a system in which a supervisory board governed the management board and at least half the supervisory board seats had to be filled by labor representatives. In such a system, critics contented that the management always needed the labor representatives'support to be in job and gain support for company policies, which led to a suspicious alliance between them. The case also highlights the opinions of several analysts on the issues related to bribing by the German companies and Siemens in particular and the challenges the new CEO is likely to face at Siemens.

Issues: Understand the impact of the bribery scandals unearthed at Siemens AG on the company

and the economic climate in Germany. Analyze the steps taken by Siemens AG to prevent such incidents in future. Discuss the role of the co-determination law in the bribery scandals that surfaced in

German companies

Contents:

IntroductionBackground NoteA Series of Scandals Rocks SiemensRepercussions of the ScandalsInitiatives at SiemensQuestions Relating to Ethics in Corporate GermanyOutlook

Based on our investigation so far, we have reason to suspect that Siemens ran ‘black accounts'... that allowed it to open new markets through secret payments to potential and existing business partners.- Jeanette Balmer, a spokeswoman for the office of the Swiss federal prosecutor, in 2006.

“Many people within Siemens knew about the method of payment. Getting a contract isn't easy.”

- Horst Vigener, former Siemens employee convicted in a bribery case, in 2007.

“What hopefully will come out of the Siemens affair ... is that senior business leaders, when they see what happens to Siemens in terms of fines and the lost reputation of individuals like von Pierer or Kleinfeld, is that they will say ‘OK, we need to start taking this seriously'.”- Jermyn Brooks, director of private sector programs at Transparency International, in 2007.

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Introduction

On May 14, 2007, a German court convicted two former managers of Siemens AG (Siemens) for diverting the company's money to bribe employees of Enel SpA (Enel), an Italian energy company.

Both the former managers admitted that they had bribed employees at Enel who had demanded money in return for contracts.

They also said that they had not done anything wrong as they did it for the benefit of the company and not for any personal gain. Moreover, there was no other way to win contracts in several countries abroad where bribing for contracts was a common practice, they said.Earlier,in late 2006, another scandal had surfaced in the telecommunications division of Siemens involving slush funds created to bribe foreign officials to secure contracts abroad

In still another case, Siemens was accused by IG Metall, a dominant labor union in Germany, of having tried to bribe a small union called AUB to gain support for its policies. Siemens was also being probed in several other countries like Italy, Switzerland, Greece, and the US for possible misconduct.

Analysts said that the bribery scandals at Siemens reflected the ethical costs of intense competition in global markets. Companies were resorting to underhand payments to win contracts. In several developing countries it was common practice to take money from companies in return for contracts, it was said. The companies themselves considered it as a business cost.

In the light of the number of scandals that rocked Siemens in a short span of time, questions were raised as to how the top management had failed to notice such a deep network of embezzlement involving huge amounts of money. The crisis ultimately led to the exit of the chairman of Siemens 'supervisory board, Heinrich von Pierer (von Pierer) and it's CEO, Klaus Kleinfeld (Kleinfeld). Though they were not directly implicated in the scandals, the new board chairman said that the leadership change had been made to give the company a clean break from the past. Critics felt that Kleinfeld should not have been replaced since he had been instrumental in bringing back Siemens into profitKleinfeld had often been dubbed as the Jack Welch of Germany, and his exit raised questions about the role of supervisory boards in the management of German companies.

According to the Co-determination law or Mitbestimmung in Germany (Refer to Exhibit I for a note on Germany's Co-determination law or Mitbestimmung), every company had to have a two-tier system of management, in which the supervisory board consisting of labor representatives oversaw the management board. This system often led to collusion between management and labor representatives, and some critics felt it needed a thorough overhauling.

Background Note

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Siemens was initially started as Telegraphen-Bauanstalt von Siemens & Halske (Siemens & Halske) in 1847 by Werner von Siemens (Werner) and a mechanical engineer, Johann Georg Halske (Halske). In 1853, the company won its first international contract to build a telegraph network that stretched around 10,000 kilometers and provide maintenance services for it, in Russia. In 1855, Werner set up subsidiaries in Russia and Britain to serve the growing opportunities for the company outside Germany and entrusted their responsibility to his brothers. In 1865, the British subsidiary was renamed Siemens Brothers.In 1866, Werner discovered the dynamo-electric principle and got the necessary patents in Germany and Britain to enable the company to cash in on the invention. In the late 1870s, power engineering began to develop rapidly in Germany with the advent of electric railways, electric street lighting, electric elevators, electric tramways, etc.

In order to prepare the company to meet these growing business opportunities, Siemens & Halske concentrated on retaining qualified and reliable employees. The company shared its profits with its employees through stock options. A pension fund was created for the benefit of employees and their families. The company introduced the concept of fixed working hours per day. It also started focusing on training its employees for specific jobs and career progression... ExcerptsA Series of Scandals Rocks Siemens

Slush funds to win contracts abroad

On November 15, 2006, around 30 offices and private homes related to Siemens and its employees were raided by some 200 police officers, tax inspectors and prosecutors in Munich, and other cities of Germany, to probe suspicions of bribery, embezzlement of company funds and tax evasion. Five Siemens employees were taken into custody in connection with the case...

Siemens charged for bribing employee representatives

On February 14, 2007, authorities in Nuremberg, Germany, raided several Siemens offices following allegations that the company was involved in bribing employee representatives to secure their support for its policies...

Former Siemens managers convicted of bribing foreign officials

On May 14, 2007, a German court convicted two former managers of Siemens, Andreas Kley (Kley) and Horst Vigener (Vigener), for embezzling the company funds to bribe employees of an Italian energy company, Enel. Though they were not accused of corruption intended for personal enrichment, both the former employees admitted to having paid 6 million euros of Siemens funds to managers of Enel in order to win orders for gas turbines between 1999 and 2002...

Repercussions of the Scandals

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The series of bribery allegations came in the aftermath of Siemens'sale of its loss-making mobile handset unit in 2005, to a Taiwanese company, BenQ. Here too, Siemens did not cover itself in glory as it was seen as having got rid of the unit because it could not easily lay off its employees. With BenQ eventually filing for insolvency, the ex-Siemens workers lost their jobs, and some people felt that Siemens ought to have foreseen this and been more responsible towards its long-time employees. Siemens was urged to take on the responsibility of compensating the workers, and it was forced to delay its planned hefty pay hikes for its top management and compensate the employees who lost jobs...

Initiatives at Siemens

After the bribery scandals were unearthed at Siemens, the company started many initiatives to strengthen its corporate governance and compliance controls. A law firm Debevoise & Plimpton LLP (Debevoise & Plimpton) was appointed to conduct an independent and comprehensive investigation into the company's compliance and control system with the help of the independent auditor for Siemens, KPMG Questions Relating to Ethics in Corporate Germany

Around the same time as the Siemens cases came out, unethical practices surfaced in other German companies including Volkswagen AG (Volkswagen), Deutsche Telekom AG, Deutsche Bahn AG and Deutsche Post AG.

At Volkswagen, a senior executive was fined 576,000 euros and received a suspended prison sentence in January 2007 for bribing labor representatives with money, foreign trips and prostitutes. Since several of the corruption scandals involved the bribing of labor representatives on the boards of German companies, some analysts felt that the Co-determination law or Mitbestimmung in Germany was flawed. According to the Co-determination law, the supervisory board of a company had to have 20 members, of whom 10 were to be labor representatives. This led to a suspicious alliance between the management and the labor representatives, which could never set a stage for proper discussions during the board meetings...

Outlook

Analysts opined that on account of increasing competition, companies were resorting to illegal payments to win international contracts especially in some emerging economies where the practice was common.

Siemens along with many other companies was found guilty of paying bribes to secure contracts abroad. That the company officials had resorted to bribing was not in question, but the remaining questions were even more worrying - how deep were the scandals rooted in the company and to what extent was the board aware of the fraud...

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CONCLUSION

Change is the only constant factor in everyday life. It is witnessed from the Stone Age to civilized age. When change affects life it also affects the environment and business. The business environment becomes extremely complex as change inflicts variety and diversity leading to deep and fundamental ways. Change in the values, environments of business based on the expectation of society has alerted business houses to realign its priorities. The changing economic, political, legal and social environment has also made the business and businessmen to consider the ethical approach to business. Therefore, there is paradigm shift from the goal of maximization of profit or wealth to ethical means to achieve them. The last 150 years have been marked the world over for rapidity of change ushered in by the advent of technology and industrial revolution. This period has also been marked for its attempt to generate unquestioning faith in human reason and intellect. The last century has witnessed that the intellect are becoming the cornerstones of the society. The rapid changes have improved the standard of living, also establishing a lot of sensible relationships in and around the society. There is a growing realization all over the world that ethics is virtually important for any business and for the progress of any society. Ethics makes for an efficient economy. Ethics is good in itself, ethics and profit go together in the long run and ethics alone can protect the society. An ethically responsible organization is one, which has developed a culture for caring for the people and for the betterment of society as a whole. Ethics has a considerable influence on the economy for efficient and smooth functioning. The government, the laws cannot always resolve certain key problems of the society and business. Ethical behavior enhances the quality of life. An ethically based economy can do wonders in the way of creating wealth or society. The task of business is to optimize the outcome of economic activity. It is the economic environment of business, which is the primary consideration in evaluating the business tactics. The present day economic environment of business is a complex phenomenon. The economic relations with the government, public, society and community influence the trend and structure of economy. People and society are part and parcel of an organization. People want and need to be ethical not only in their private life but also in public. The people are the ultimate sufferers if the affairs of the organization were conducted unethically which are detrimental to the society. Therefore, they

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have a concern over this. Over the last two decades, there has been a shift in the attitudes of corporate and their executives towards ethics. A silent revolution is in under way in business ethics today. The ideas, beliefs and attitudes associated with the profit ethic are being challenged as never before. The historical idea of the divine right of capital no longer applies. The changes in the values, cultures and customs lead to change, which in turn lead to re-engineering of ethics. The world of business ethics is quite broad and its tentacles spread into a number of areas in the larger sphere of business society relationship. The social responsibilities of businessmen, for instance, clearly involve ethics and morality. There is always a doubt in the mind of the businessmen about what is and what is not ethical. It is difficult to understand business or business society relationships, without knowledge of the ethics. Business ethics is what society expects from business. Mark Twain once said: “To be good is noble. To tell people how to be good is even nobler”.

In short “Corporate Houses can earn Profit with Morality”

BIBLIOGRAPHY

Baudrillard, Jean, Simulations and Simulacra, Open University of Michigan, 1994.

Carroll, Archie B., The Pyramid of Corporate Social Responsibility: Toward theMoral Management of Organizational Stakeholders, Business Horizons, July, 1991.

Hartley, Robert F., Business Ethics Mistakes and Successes, John Wiley & Sons, inc. 2005.

Hopkins, Michael, The Planetary Bargain, Earthscan Publishing, 2003

Friedman, Milton, The Social Responsibility of Business is to increase its Profits, New York Times Magazine, September 13, 1970.

Moss, Danny, Powell Melanie & De Santo, Barbera, Public Relations Cases 2nd Edition, Routledge 2010.

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