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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

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Busniess 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 38

corporate governance?
12 Do good ethics translate to good business and hence business 39
sustainability?
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

17 50
Conclusion
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.

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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, 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.

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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.”

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

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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 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

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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 would be led by divine thought within and
through their relentless ethical conduct, lead a life of dharma and realize godliness.

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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

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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.
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:

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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.

 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

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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
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.

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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.

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:

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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 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
and
justify 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.

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This does not mean, of course, that it is always wrong to act on self-interest; it only
means that it is wrong to choose self-interest over morality
4. Moral standards are based on impartial considerations. The fact that you will
benefit
from 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
harmed
is 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 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

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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 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
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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 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

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 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 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.

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 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.
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

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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, 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.

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 • 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:
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

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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

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purchases, if such reductions or recovery are contingent upon some unsure future
event.
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.

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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:
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.

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 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
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

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 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 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

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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.
• 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.

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  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.

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

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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. 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 :

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(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 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.

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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 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.

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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 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

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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 Skills are External, they need Attitude is the ‘Internal
to be learned and make a Perception of people,objects
with purifying our heart and
person expert. and events.It leads to learned
exploring our inner world pre-disposition.
Values are permanent Skills are upgraded. Attitudes keep changing.
Values are function of right Skills are function of left brain. Attitudes are function of right
brain. brain.

Values bring about Skills bring about excellence at Attitudes bring about a
positive mindset.
excellence and universal work.
good.

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

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the local needs and interests of their host country on the other hand. Another set of
dilemmas is created since corporations operate plants in several countries, it can sometimes
transfer raw materials, goods and capital among its plants in different countries at terms that
enable it to escape taxes and fiscal obligations that companies limited to a single nation
must bear. 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
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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 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 accidents
involving 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
goods
they 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

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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, 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,

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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 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.

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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.

 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:

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  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 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

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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.

CASE STUDY 1: THE BHOPAL GAS TRAGEDY

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

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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:

Introduction
The Journey from Virginia to Bhopal
All's Not Well with the Bhopal Plant
The Tragedy
Union Carbide Takes the Offensive
The 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.
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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
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

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 CASE STUDY 2:THE BRIBERY SCANDAL AT SIEMENS AG

Period : 2006-2007
Organization : Siemens AG
Industry : 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.
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:

Introduction
Background Note
A Series of Scandals Rocks Siemens
Repercussions of the Scandals
Initiatives at Siemens

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Questions Relating to Ethics in Corporate Germany
Outlook

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.

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
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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 profit
Kleinfeld 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

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... Excerpts
A Series of Scandals Rocks Siemens

Slush funds to win contracts abroad

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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

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

Page 53 of 58
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...

CONCLUSION

Page 54 of 58
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 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”

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