1

ETHICS & VALUES IN MANAGEMENT

ETHICS & VALUES IN MANAGEMENT

Business ethics (also corporate ethics) is a form of applied ethics or professional ethics that examines ethical principles and moral or ethical problems that arise in a business environment. It applies to all aspects of business conduct and is relevant to the conduct of individuals and entire organizations. Business ethics has both normative and descriptive dimensions. As a corporate practice and a career specialization, the field is primarily normative. Academics attempting to understand business behavior employ

descriptive methods. The range and quantity of business ethical issues reflects the interaction of profit-maximizing behavior with non-economic concerns. Interest in business ethics accelerated dramatically during the 1980s and 1990s, both within major corporations and within academia. For example, today most major corporations promote their commitment to noneconomic values under headings such as ethics codes and social responsibility charters. Adam Smith said, "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." Governments use laws and regulations to point business behavior in what they perceive to be beneficial directions. Ethics implicitly regulates areas and details of behavior that lie beyond governmental control. The emergence of large corporations with limited relationships and sensitivity to the communities in which they operate accelerated the development of formal ethics regimes Overview Business ethics reflects the philosophy of business, one of whose aims is to determine the fundamental purposes of a company. If a company's purpose is to maximize shareholder returns, then sacrificing profits to other concerns is a violation of its fiduciary responsibility. Corporate entities are legally considered as persons in USA and in most nations. The 'corporate persons' are legally entitled to the rights and liabilities due to citizens as persons. Economist Milton Friedman writes that corporate executives' "responsibility... generally will be to make as much money as possible while conforming to their basic rules of the society, both those embodied in law and those embodied in ethical custom". Friedman also said, "the only entities who can have responsibilities are individuals ... A business cannot have responsibilities. So the question is, do corporate executives, provided they stay within the law, have responsibilities in their business activities other than to make as much money for their stockholders as possible? And my answer to that is, no, they do not. A multi-country 2011 survey found support for this view among the "informed public" ranging from 3080%. Duska views Friedman's argument as consequentialist rather than pragmatic, implying that unrestrained corporate freedom would benefit the most in long term. Similarly author business consultant Peter

Drucker observed, "There is neither a separate ethics of business nor is one needed", implying that standards of personal ethics cover all business situations. However, Peter Drucker in another instance observed that the ultimate responsibility of company directors is not to harmprimum non nocere] Another view of business is that it must exhibit corporate social responsibility (CSR): an umbrella term indicating that an ethical business must act as a responsible citizen of the communities in which it operates even at the cost of profits or other goals. In the US and most other nations corporate entities are legally treated as persons in some respects. For example, they can hold title to property, sue and be sued and are subject to taxation, although their free speech rights are limited. This can be interpreted to imply that they have independent ethical responsibilities. Duska argues that stakeholders have the right to expect a business to be ethical; if business has no ethical obligations, other institutions could make the same claim which would be counterproductive to the corporation. Ethical issues include the rights and duties between a company and its employees, suppliers, customers and neighbors, its fiduciary responsibility to its shareholders. Issues concerning relations between different companies include hostile take-overs and industrial espionage. Related issues include corporate governance;corporate social entrepreneurship; political contributions; legal issues such as the ethical debate over introducing a crime of corporate manslaughter; and the marketing of corporations' ethics policies.

Functional business areas Finance Fundamentally, finance is a social science discipline. The discipline borders behavioral economics, sociology, economics, accounting and management. It concerns technical issues such as the mix of debt and equity, dividend policy, the evaluation of alternative investment projects, options, futures, swaps, and other derivatives, portfolio diversification and many others. It is often mistaken to be a discipline free from ethical burdens. The 2008 financial crisis caused critics to challenge the ethics of the executives in charge of U.S. and European financial institutions and financial regulatory bodies. Finance ethics is overlooked for another reasonissues in finance are often addressed as matters of law rather than ethics. Finance paradigm Aristotle said, "the end and purpose of the polis is the good life". Adam Smith characterized the good life in terms of material goods and intellectual and moral excellences of character. Smith in his The Wealth of Nations commented, "All for ourselves, and nothing for other people,

seems, in every age of the world, to have been the vile maxim of the masters of mankind." However, a section of economists influenced by the ideology of neoliberalism, interpreted the objective of economics to be maximization ofeconomic growth through accelerated consumption and production of goods and services. Neoliberal ideology promoted finance from its position as a component of economics to its core. Proponents of the ideology hold that unrestricted financial flows, if redeemed from the shackles of "financial repressions", best help impoverished nations to grow. The theory holds that open financial systems accelerate economic growth by encouraging foreign capital inows, thereby enabling higher levels of savings, investment, employment, productivity and "welfare", along with containing corruption.Neoliberals recommended that governments open their financial systems to the global market with minimal regulation over capital flows. The recommendations however, met with criticisms from various schools of ethical philosophy. Some pragmatic ethicists, found these claims to unfalsifiable and a priori, although neither of these makes the recommendations false or unethical per se. Raising economic growth to the highest value necessarily means that welfare is subordinate, although advocates dispute this saying that economic growth provides more welfare than known alternatives.Since history shows that neither regulated nor unregulated firms always behave ethically, neither regime offers an ethical panacea. Neoliberal recommendations to developing countries to unconditionally open up their economies to transnational finance corporations was fiercely contested by some ethicists. The claim that deregulation and the opening up of economies would reduce corruption was also contested. Dobson observes, "a rational agent is simply one who pursues personal material advantage ad infinitum. In essence, to be rational in finance is to be individualistic, materialistic, and competitive. Business is a game played by individuals, as with all games the object is to win, and winning is measured in terms solely of material wealth. Within the discipline this rationality concept is never questioned, and has indeed become the theoryof-the-firm's sine qua non". Financial ethics is in this view a mathematical function of shareholder wealth. Such simplifying assumptions were once necessary for the construction of mathematically robust

models. However signalling theory and agency theory extended the paradigm to greater realism. Other issues Fairness in trading practices, trading conditions, financial contracting, sales practices, consultancy services, tax payments, internal audit, external audit and executive compensationalso fall under the umbrella of finance and accountin. Particular corporate ethical/legal abuses include: creative accounting, earnings management, misleading financial analysis insider trading, securities fraud, bribery/kickbacks and facilitation payments. Outside of corporations, bucket shops and forex scams are criminal manipulations of financial markets. Cases include accounting scandals, Enron, WorldCom and Satyam. Human resource management Human resource management occupies the sphere of activity of recruitment selection, orientation, performance appraisal, training and development, industrial relations and health and safety issues. Business Ethicists differ in their orientation towards labour ethics. Some assess human resource policies according to whether they support an egalitarian workplace and the dignity of labor. Issues including employment itself, privacy, compensation in accord with comparable worth, collective bargaining (and/or its opposite) can be seen either as inalienable rights or as negotiable. Discrimination by age (preferring the young or the old), gender/sexual harassment, race, religion, disability, weight and attractiveness. A common approach to remedying discrimination is affirmative action. Potential employees have ethical obligations to employers, involving intellectual property protection and whistle-blowing. Employers must consider workplace safety, which may involve modifying the workplace, or providing appropriate training or hazard disclosure. Larger economic issues such as immigration, trade policy, globalization and trade unionism affect workplaces and have an ethical dimension, but are often beyond the purview of individual companies.

Trade unions Unions for example, may push employers to establish due process for workers, but may also cost jobs by demanding unsustainable compensation and work rules. Unionized workplaces may confront union busting and strike breaking and face the ethical implications of work rules that advantage some workers over others. Management strategy Among the many people management strategies that companies employ are a "soft" approach that regards employees as a source of creative energy and participants in workplace decision making, a "hard" version explicitly focused on control and Theory Z that emphasizes philosophy, culture and consensus. None ensure ethical behavior. Some studies claim that sustainable success requires a humanely treated and satisfied workforce. Sales and marketing Marketing ethics Marketing Ethics came of age only as late as 1990s. Marketing ethics was approached from ethical perspectives of virtue or virtue ethics, deontology, consequentialism, pragmatism and relativism. Ethics in marketing deals with the principles, values and/or ideals by which marketers (and marketing institutions) ought to act. Marketing ethics is also contested terrain, beyond the previously described issue of potential conflicts between profitability and other concerns. Ethical marketing issues include marketing redundant or dangerous products/services transparency about environmental risks, transparency about product ingredients such as genetically modified organisms possible health risks, financial risks, security risks, etc., respect faor consumer privacy and autonomy, advertising truthfulness and fairness in pricing & distribution. According to Borgerson, and Schroeder (2008), marketing can influence individuals' perceptions of and interactions with other people, implying an ethical responsibility to avoid distorting those perceptions and interactions. Marketing ethics involves pricing practices, including illegal actions such as price fixing and legal actions including price discrimination and price skimming. Certain promotional activities have drawn fire, including greenwashing, bait and switch, shilling, viral marketing, spam

(electronic), pyramid schemes and multi-level marketing. Advertising has raised objections about attack ads, subliminal messages, sex in advertising and marketing in schools. Production This area of business ethics usually deals with the duties of a company to ensure that products and production processes do not needlessly cause harm. Since few goods and services can be produced and consumed with zero risk, determining the ethical course can be problematic. In some case consumers demand products that harm them, such as tobacco products. Production may have environmental impacts, including pollution, habitat destruction and urban sprawl. The downstream effects of technologies nuclear power, genetically modified food and mobile phones may not be well understood. While the precautionary principle may prohibit introducing new technology whose consequences are not fully understood, that principle would have prohibited most new technology introduced since the industrial revolution. Product testing protocols have been attacked for violating the rights of both humans and animals[

CASE STUDY

Abstract:

The case highlights the ethical issues involved in Kentucky Fried Chicken's (KFC) business operations in India. KFC entered India in 1995 and has been in midst of controversies since then. The regulatory authorities found that KFC's chickens did not adhere to the Prevention of Food Adulteration Act, 1954. Chickens contained nearly three times more monosodium glutamate (popularly known as MSG, a flavor enhancing ingredient) as allowed by the Act. Since the late 1990s, KFC faced severe protests by People for Ethical Treatment of Animals (PETA), an animal rights protection organization. PETA accused KFC of cruelty towards chickens and released a video tape showing the ill-treatment of birds in KFC's poultry farms. However, undeterred by the protests by PETA and other animal rights organizations, KFC planned a massive expansion program in India.

Issues: Understand the significance of cultural, economic, regulatory and ecological issues while establishing business in a foreign country Appreciate the need for protecting animal rights in developed and developing countries like India Understand the importance of ethics in doing business Examine the reasons for protests of PETA Identify solutions for KFC's problems in India

Each bird whom KFC puts into a box or a bucket had a miserable life and a frightening death. People would be shocked to see our footage of a KFC

10

supplier's employee who walks through a barn, carelessly lighting lamps and letting flames fall on the terrified birds. The air inside these filthy barns reeks of ammonia fumes, making it difficult for the birds to breathe. No one with a grain of compassion should set foot in KFC." 1 - Ingrid Newkirk, Director, PETA.2 "The chicken they serve is full of chemicals, and the birds are given hormones, antibiotics and arsenic chemicals to fatten them quickly." - Nanjundaswamy.4

Protest Against KFC On August 20, 2003, a five-foot tall chicken complete with an ensemble of feathers and beak hobbled on a pair of crutches outside Kentucky Fried Chicken's (KFC) Indian outlet in Bangalore. The chicken was brought by PETA (People for Ethical Treatment of Animals) activists, who carried placards reading, "Quit India" and "Stop Playing Fowl" (a pun on "Foul"). The chicken was placed at the centre and a peaceful protest was held against the alleged ill treatment of birds in KFC's poultry farms. Media persons were called to give the demonstration a wide coverage (Refer Exhibit I for a visual on the protest by PETA activists). Explaining the rationale behind the protest, Bijal Vachcharajani, special projects coordinator of PETA, said, "Ours is the land of Gandhi. Just as 61 years back our leaders gave a call for colonizers to quit India, we too are saying we will not tolerate cruel multinationals." On the 61st anniversary of the 'Quit India' movement PETA India wrote a letter to the Managing Director of Tricon Restaurant International, the parent company of KFC, asking them to close their sole KFC outlet in India.

11

They got no reply. PETA activists decided to protest against KFC by carrying crippled chicken, which represented the birds suffering in the KFC's farms. PETA claimed that after two years of intensive campaigning to increase animal welfare standards in poultry farms, other foreign fast food restaurants operating in India like McDonald's7 and Burger King had improved the treatment of animals specially raised and slaughtered for food. Only KFC had not acted. Though PETA had organized other protests earlier, the crippled chicken campaign became the precursor for more intensive protests. PETA's was one of the many shows of protest against KFC's Indian outlet.

Background Note KFC was founded by Harland Sanders (Sanders) in the early 1930s, when he started cooking and serving food for hungry travellers who stopped by his service station in Corbin, Kentucky, US. He did not own a restaurant then, but served people on his own dining table in the living quarters of his service station. His chicken delicacies became popular and people started coming just for food. Kentucky Fried Chicken was born. Soon, Sanders moved across the street to a motel-cum-restaurant, later named 'Sanders Court & Cafe,' that seated around 142 people. Over the next nine years, he perfected his secret blend of 11 herbs and spices and the basic cooking technique of chicken. Sanders' fame grew and he was given the title Kentucky Colonel by the state Governor in 1935 for his contribution to the state's cuisine. Sanders' restaurant business witnessed an unexpected halt in the early 1950s, when a new interstate highway was planned bypassing the town of

12

Corbin. His restaurant flourished mainly due to the patronage of highway travellers. The new development meant the end of this. Sanders sold his restaurant operations. After settling all his bills, he was reduced to living on a meagre $105 social security cheque. But Sanders did not lose hope. Banking on the popularity of his product and confident of his unique recipe for fried chicken, Sanders started franchising his chicken business in 1952. He called it Kentucky Fried Chicken. He travelled the length and breadth of the country by car, visiting as many restaurants as possible and cooking batches of chicken. If the restaurant owners liked his chicken, he entered into a handshake agreement that stipulated payment of a nickel9 for each plate of chicken sold by the restaurant. By 1964, Sanders franchised more than 600 chicken outlets in the US and Canada... KFC's Entry in India Foreign fast food companies were allowed to enter India during the early 1990s due to the economic liberalization policy of the Indian Government. KFC was among the first fast food multinationals to enter India. On receiving permission to open 30 new outlets across the country, KFC opened its first fast-food outlet in Bangalore in June 1995. Bangalore was chosen as the launch pad because it had a substantial upper middle class population, with a trend of families eating out. It was considered India's fastest growing metropolis in the 1990s. Apart from Bangalore, PepsiCo planned to open 60 KFC and Pizza Hut outlets in the country in the next seven years. However, KFC got embroiled in various controversies even before it started full- fledged business in India. When the issue of granting permission to multinational food giants to set up business in the country came up for discussion in the Indian parliament, some members from the opposition parties were vocal in their displeasure...

13

Problems for KFC From the very first day of opening its restaurant, KFC faced problems in the form of protests by angry farmers led by the Karnataka Rajya Ryota Sangha (KRRS).

The farmers leader, Nanjundaswamy, who led these protests, vehemently condemned KFC's entry into India, saying that it was unethical to promote highly processed 'junk food' in a poor country like India with severe malnutrition problems. Nanjundaswamy expressed concern that the growing number of foreign fast food chains would deplete India's livestock, which would adversely affect its agriculture and the environment. He argued that non-vegetarian fast-food restaurants like KFC would encourage Indian farmers to shift from production of basic crops to more lucrative varieties like animal feed and meat, leaving poorer sections of society with no affordable food. KRRS held a convention on November 01, 1995 to protest the entry of fast food multinationals and the Westernization of local agriculture... The Aftermath By late 2003, PETA further intensified its campaign against the cruel treatment meted out to chickens by KFC through protests at regular intervals. Celebrities like Anoushka Shankar, daughter of the legendary sitar maestro Ravi Shankar, directly supported the cause of PETA. Anoushka, a sitarist herself, wrote a letter to the top management of PepsiCo condemning the continued cruelty of KFC in spite of repeated requests of PETA. The organization also had the support of other celebrities like the famous cricket player Anil Kumble (based in Bangalore), popular Indian models like Aditi Govitrikar, the late Nafisa Joseph and John Abraham, who promoted vegetarianism. Film actresses like Raveena

14

Tandon and Ameesha Patel also took up the cause of animal abuse. Undeterred by the continued protests, KFC added three more outlets to its existing one at Bangalore. KFC also announced a major expansion programme for 2005. Sharanita Keswani (Keswani), KFC's Marketing Director, said that as the retail business was poised for a boom in India, they considered it the right time for expansion... Feeling positive about the flourishing malls in all big cities, Keswani revealed that this time KFC planned to have a presence in prime locations or in a mall where turnout would be assured. The company aimed at targeting cosmopolitan cities like Chandigarh, Pune, Kolkata, Chennai and Hyderabad, where mall culture was fast developing. PepsiCo also decided to concentrate on the expansion of KFC since its other brand, "Pizza Hut", had successfully established a strong foothold in India. Vegetarianism was predominant and was a way of life in India. Many people ate non-vegetarian food only occasionally and avoided it during festivals or religious occasions...

15

2.Nike: Corporate Responsibility at a Tipping Point

The old business maxim that what gets measured, matters is overused but nonetheless powerful, especially when applied to corporate responsibility: when information and metrics are combined with disclosure and transparency, corporate posturing on issues that affect society can be quickly replaced with fact-based analysis and discussion. One current example is Nike for Inc.s newly-published Corporate Responsibility (CR) Report fiscal years 2007 to 2009. Its a slicklyproduced multimedia display of data and information - in fact, Nike says, an independent panel of stakeholder advisers at one point concluded the

16

volume of information contained in the 176-page written report was so overwhelming that it required a rewrite. This report is published at a tipping point. Its time for the world to shift, Nike CEO Mark Parker writes in the reports introduction. We see sustainability, both social and environmental, as a powerful path to innovation, and crucial to our growth strategies. Thats a huge change from the 1990s, when Nike was a poster child for corporate villainy stemming from sweatshop labor practices in Southeast Asia factories. Since then, the company has charted a very different course in corporate citizenship and, in many important respects, has succeeded. Grappling with Issues This latest report places a big focus on environmental sustainability, with Nike sharing its vision of reaching a closed-loop business model where the goal is to achieve zero waste in the supply chain and have products and materials that can be continuously reused no pre- or post-consumer waste. Whats most interesting about the report, though, is that you can see Nike grappling, in public, with some tough choices. The narrative demonstrates what can happen when a company begins reporting regularly and in-depth, and with an apparent commitment to intellectual honesty, about core issues. For Nike, labor and human rights continue as a top priority and corporate worry. The companys three main product lines footwear, apparel and equipment are made in approximately 600 contract factories that employ more than 800,000 workers in 46 countries around the world. Nearly 60 percent of the work force is in North Asia, 31 percent in South Asia. One major difficulty is that contract apparel factories generally produce for multiple brands, making it a difficult to maintain standards. To listen to Nike, monitoring those contract factories for working conditions, wages and overtime and a host of other issues, including possible unionization is not easy. While we can point to many examples of improvements, challenging issues remain for our company and our industry in systemically identifying and tackling how to affect long-term system-wide change, the company says.

17

In evaluating where our targets fell short, we saw a consistent pattern: a focus on auditing against a set of criteria sometimes results in on-theground improvements for workers, but it rarely produces systemic change in the area of concern, Nike says. On further reflection, we realized that, if we want to make sustainable improvements for workers, we need to significantly change the way we engage and interact with our supply chain as a whole. One potential solution, Nike reports, is collaborating with other brands on factory audits and, maybe more importantly, working with competitors on developing remedies for labor problems as well as standardized codes. And then there are improvements that can be made by Nike alone. Example: Asking factories to manufacture too many styles is one of the highest contributors to factory overtime in apparel. We have an opportunity to reduce this pressure by reducing the number of apparel styles and partnering with the factories to improve efficiencies through lean production methods. Increased Reporting Theres more detail in the Nike report than most any layman could digest and understand, and Nike critics such as Oxfams Nike Watch, and a new activist initiative, TeamSweat are likely to find weaknesses. Thats as it should be. No one should be satisfied simply because the company has issued a report, even one chock-a-block with narrative, charts and bar graphs.Some critics of corporate responsibility reports believe they cant help but be self-serving. And, in fact, more companies are reporting. Sixty-six of the S&P 100 firms produced a formal sustainability report with performance data in 2008, a 35 percent jump from the 49 reports produced in 2007, according to a report from the Sustainable Investment Research Analyst Network (SIRAN), a working group of the Social Investment Forum (SIF). However, the SIRAN survey found that only six S&P 100 firms publish complete sustainability reports that meet the highest A level reporting standard set by the Global Reporting Initiative.In the end, its difficult to see how more reporting cant help, as long as its done well. Nikes latest effort is a good example of how the process can lead to data being gathered, metrics developed and performance benchmarks set. The process grew out of Nikes public floggings in the

18

1990s, says CEO Parker, when we learned to view transparency as an asset, not a risk.

BIBLIOGRAPHY

1. www.businessethics.com 2. www.wickpedia.org 3.www.aps.org 4.www.icmrindia.org 5.www.ethicsbusiness.net