TYPICAL PROBLEMS IN BUSINESS ETHICS

Presented By:

N. Rakesh (07BS2382)

Shraddha Thakker (07BS4614)

Urmi Shukla (07BS4643)

NEW ECONOMY, NEW ETHICS

“ The future is not known, it is not what older people think about…. But what younger people do.”

Today, 4 POWERFUL FORCES are driving change:

Technology Globalization Intangible Assets The War for Talent

NEW ETHICAL DIMENSION

“Avoiding these conflicts is a Greater Management Challenge.”

TYPICAL PROBLEMS IN BUSINESS ETHICS

Problems relating to:

The Environment Human Resource Practices Marketing and Consumer Protection Finance Strategic Business Management Competition and Business Alliances

TYPICAL PROBLEMS RELATED TO THE ENVIRONMENT

ETHICS AND ENVIRONMENT

“Environmental responsibilities have to be weighed against the responsibilities to stakeholders and societal benefits, as any damage caused to environment has an impact on society as well as on stakeholders”

ENVIRONMENTAL ISSUES

Air Pollution Water Pollution Noise Pollution Energy Consumption and Carbon Emission Toxic Waste Contamination of Ground Water Oil Spills Soil Erosion Depletion of Ozone Layer

DISASTERS WE CANNOT FORGET

Bhopal Gas Disaster

Shell Oil Spill

GREENING

When a company adopts an Anti-Pollution environment policy, it is said to be ‘Going Green.’

Reasons for adoption of Green Initiatives:

Economic benefits from increased efficiency Competitive advantage through innovation Public Image

INDIA’S GREENEST COMPANY - ABB

ABB’s Vadodra Plant ranked as the Greenest co. in India

Planted 2500 trees in its 100 acre premise To dispose of dry leaves and wooden waste –

Vermiculture ( Breeding Earthworms) Production of manure because of the same Implementation of ISO14001 to gauge

‘Corporate Sustainability’ – i.e. Economic, Social and Environmental Performance

Aimed at reducing waste, identifying environmental hazards and maximizing resources

TYPICAL PROBLEMS RELATED TO HUMAN RESOURCE MANAGEMENT

NATURE OF EMPLOYMENT CONTRACT

Employment Contract: It is a Legal document that governs the relationship between a business and an employee. It spells out the tasks and responsibilities of an employee, hours of work, remuneration, location, travel requirements, etc.

Do business and its employees have any responsibilities beyond the exchange of

wages and salary?

ISSUES RELATED TO HRM

HIRING Discrimination Ageism Credentials Testing

EQUALITY OF OPPORTUNITY REMUNERATION

Need v/s Effort and Ability v/s Contribution Seniority v/s Loyalty

RETRENCHMENT ‘at will’ v/s ‘for a cause’

RETRENCHMENT AT JET AIRWAYS

TYPICAL PROBLEMS RELATED TO MARKETING MANAGEMENT

ETHICAL ISSUES IN MARKETING MANAGEMENT

Ferrell and Gresham have identified 3 factors that determine the code of ethics framed by a marketer :

Individual Factors Significant Factors Opportunity Factors (Organizational Climate)

A common ethical standard is important for these shared values. – Donaldson & Davis

ETHICAL ISSUES IN MARKETING STRATEGY

A marketing strategy should be : Customer Oriented Approach towards rivals

ETHICAL ISSUES IN MARKETING MIX

PRODUCT PRICE

PLACE PROMOTION

ISSUES AND RIGHTS INVOLVED IN ETHICAL RESEARCH

SOCIETY

RESPONDENTS IN THE SPECIFIC

STUDY THE CLIENT RESEARCHERRESEARCH

PROFFESSION

the right to be informed Right to be informed

Right to anonymity and confidentiality

Right to expect ethical subject behavior

Use of accepted research procedures

the right to expect objective research results Right to choose

Right to quality research

Protection against improper solicitation of proposals Cerification

Right to privacyAvoiding unnecessary research

Misinterpretation of findings

Ethical behavior of assistants

Right to safety

Protection against misleading presentation of data Availability of funds

Right to anonymity and confidentiality

Protection against abuse of position

TYPICAL PROBLEMS RELATED TO FINANCE

IMPORTANCE OF FINANCIAL STATEMENTS

Finance underpins what a business does Misinterpreting financial information has a

negative impact on long term owner value Ethical audit Concealed liabilities and expenses Fraudulent asset valuations Fictitious revenues Improper or fraudulent disclosures or

omissions

ETHICAL ISSUES IN MERGERS & ACQUISITIONS

Breach of trust Resource Misallocation Hostile Takeovers

Protecting their own interest Disagreement over price

Management Buyouts Insider Trading Money Laundering

TYPICAL PROBLEMS RELATED TO STRATEGIC MANAGEMENT

ETHICAL ISSUES IN STRATEGIC MANAGEMENT

Strategic management – An Overview

Ethical Decision Making Model

Principles Underlying An Ethical Approach To Strategic Management

STRATEGIC MANAGEMENT – AN OVERVIEW

Strategy – How an organization is going to its objective and mission.

Synonyms for Strategic Long term, Big Picture, Competitive Positioning

Evaluating the alternative option and identify the suitable one.

Determination and evaluation involves judging the right and wrong decisions.

This implies that ethics has a role in the strategic decision making process.

Tackles fundamental questions i.e. ends and means and guides in achieving business objectives.

ETHICAL ISSUES IN STRATEGIC MANAGEMENT

Developing the vision statement

Leadership and senior

manager’s remuneration

Implementing strategic changes

Changes in organization ownership

DEVELOPING THE VISION STATEMENT

It reflects the culture, values and priorities of the strategic decision makers.

Provides managers with a unity of direction and project the sense of worth and intent.

E.g. Infosys vision statement declares that the company seeks to be globally respected corporation that provides best-of-breed software solutions delivered by best people.

DEVELOPING THE VISION STATEMENT

Top management has a crucial role in its

development but in some organizations even employees are involved.

Ethical issue: To what extent do stakeholders

have right to be involved in developing and

articulating the strategic vision?

In many companies CEO forms vision statement the

companies fail due to one man approach the ideal solution would be involving senior

managers in development of vision statement.

LEADERSHIP AND SENIOR MANAGER'S REMUNERATION

Enables a company to attain its business objectives by taking long term decisions.

Forced to encounter risky situations due to their involvement organization tends to reward them with huge remuneration.

Apart from taking strategic decisions and carrying moral risks of the business, a leader even has to maintain healthy relationship with stakeholders through contracts.

LEADERSHIP AND SENIOR MANAGER'S REMUNERATION According to Cannon there are three types of

contracts:

Knowledge contract

Enables managers to use their competence and skills for the benefit of

the enterprise

LEADERSHIP AND SENIOR MANAGER'S REMUNERATION

Leader has to maintain healthy relationship with

stakeholders based on the contracts in order to avoid risky situations and ensure

smooth functioning of business.

Because of these leader is rewarded

with high remuneration.

Ethical issue: huge remuneration package offered to senior managers.

LEADERSHIP AND SENIOR MANAGER'S REMUNERATION

Organization facing this problem tends to set up remuneration committee to give justice to both employer and employee.

In Indian context board of directors decide compensation of CEO’s.

CEO also chair the board it implies they write their own pay cheques.

Some companies have practices of setting up compensation committee.

E.G. Kumarmangalam Birla committee on corporate governance recommends the formation of remuneration committee that will determine, on behalf of stakeholders, the companies policies on specific remuneration packages for Executive directors and CEO.

IMPLEMENTING STRATEGIC CHANGES

Strategic management is associated with changes in work,

people, workspace and lifestyles.

According to Toffler, Lynch and Kordis the nature of change has

altered in several ways during twentieth century.

The majority of the population was dependent on

agriculture for their livelihood.

Seasons changed with

change of time.

IMPLEMENTING STRATEGIC CHANGES

According to season natural calamities

took place resulting in crop failure.

The imposed nature of such unpredictable change was accepted as people believe it

was the ‘acts of god’.

In present scenario changes do take place, but they are not considered as ‘acts of god’ because the changes are imposed by

humans or acts of humans.

IMPLEMENTING STRATEGIC CHANGES

CHANGES IN ORGANIZATION OWNERSHIPRapid changes in technology, competition and customer demands have increased the rate at which companies need to alter their strategies to survive in marketplace.

This change in strategy was apparent during the 1980’s in the form of mergers and acquisitions.

For successful entry in to new markets and for expansion, firms have to opt for mergers and acquisition at some stage of their development.

The advantage is that it will increase the value and efficiency of the firm.

CHANGES IN ORGANIZATION OWNERSHIP Changes in strategy bring changes in ownership. Change in ownership results in activities such as:-

Exchange offers

• Involve exchanging debt for common stock, which increases or decreases leverage

Share repurchase

• Involves buying back some fraction of its outstanding shares of common stock

Going private

• Involves purchase of entire equity interest in former public corporation by a small group of investors

Leverage buy-outs• Involves financing from third parties through substantial borrowing by the private company.

CHANGES IN ORGANIZATION OWNERSHIP

Rationale behind such moves is to diversify or gain a more dominant position within a particular industry.

Ethical issues:- are these activities(merger, acquisitions and restructuring) good or bad for the economic health of the company? And, do they divert managerial energies from economic activity to financial manipulation? Financial manipulation can be in the form of ‘CORPORATE RAIDER’ which creates an environment of threat of take over and force the target company to buy back shares at premium i.e. ‘GREENMAIL’ techniqueThis has provoked development of defensive strategies like ‘POSION PILLS’ which ensure that potential buyers will posses a disproportionate amount of capital in order to gain a controlling interest .

Such activities have adverse effect on stakeholders as it increase the cost.

Ethical issues:- Do mergers enhance the company’s mission? Though synergy is beneficial it can only take place when culture and management styles of the two organization complement each other.

GLOBAL STRATEGIC OPERATIONSMultinational companies have theirs origin in one country and operating with their subsidiaries in other countries will experience difficulties due to different competitive arenas.

MNC’s can invest as they invested in their host and can quickly become a global leader if they can withstand the competition.

Host country deliberately lower employment standard in order to attract new firms.

While less stringent consumer regulations allow the dumping of unsafe or inappropriate products.

GLOBAL STRATEGIC OPERATIONSFirms can easily achieve the

employment rights and safety standards while operating in another country, but these standards are below that of the host country standards.

Ethical issue:- company operating in another

country adopt different set of standards from the

one it follows in the domestic country?

ETHICAL DECISION MAKING MODEL

Step 1• Evaluate the decision from

ethical stand point • Identify affected stakeholders• Are rights of stakeholders

violated?

Step 2• Evaluate the decision from

ethical standpoint in the context of moral principles in line with mission of the company form the basis of judgment

Step 3• Establish moral intent i.e.

prioritizing those activities which are aimed at resolving moral concerns

Step 4• Engage in ethical behavior

usually corporate code guides the employee to behave in ethical manner

PRINCIPLES UNDERLYING AN ETHICAL APPROACH TO MANAGEMENT

Stakeholders Theory, Strategy

and Ethics

•Business has responsibilities to much wider range of stakeholder than merely to its shareholders, directors and creditors.

Loyalty and psychological

contract•Relationship between employer and employee•Employees loyalty is the key element•Strategic change calls for some sacrifice of the employees.•Employee will remain loyal to the organization if they are sure that their psychological contract with the firm is not undermined.

Cultural relativism

•Culture norms and values vary within the countries and also between the countries•What is unlawful in one country may be normal business in other country•E.G. individual needs primary in North America while group needs in Japan•Relativism means adopting the norms of the country in in which an organization operates its business

THANK YOU