What is Ethics?
A system of moral principles, rules and conduct. The ability to distinguish between right and wrong
and act accordingly.
Introduction
In Latin language ethics is called Ethicus. In Greek it is called Ethikos and root word Ethos which
means character, custom or habits also means ―way of living‖. Ethics is a branch of
philosophy that is concerned with human conduct. It consists in a code of conduct of human
beings living in a society. It studies what is morally right or wrong, just or unjust.
Definition of Business Ethics
According to ICAI
―The principles and standards that determine acceptable conduct in business organization.
According to Raymond C. Baumhart
"The ethics of business is the ethics of responsibility. The business man must promise that he will
not harm knowingly." In short application of ethics to business is business ethics.
Scope/Purpose of Business Ethics
Ethical problems and phenomena arise across all the functional areas of companies and at all
levels within the company.
1. Ethics in Compliance
Compliance is about obeying and adhering to rules and authority.
It is an important department in the organization.
Monitors the processes that are mapped for internal & external regulations.
Failing to meet compliance would lead to penalties.
2. Ethics in Finance
The ethical issues in finance that companies and employees are confronted with include:
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In accounting – window dressing, misleading financial analysis.
Insider trading, securities fraud leading to manipulation of the financial markets.
Executive compensation.
Bribery, kickbacks, over billing of expenses, facilitation payments.
Fake reimbursements
3.Ethics in Marketing
Marketing ethics is the area of applied ethics which deals with the moral principles behind the
operation and regulation of marketing. The ethical issues confronted in this area include:
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Pricing: price fixing, price discrimination, price skimming.
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Anti-competitive practices like manipulation of supply, exclusive dealing arrangements, tying
arrangements etc.
Misleading advertisements
Content of advertisements eg. Statutory warning for cigarettes not enough
Children and marketing.
Black markets, grey markets (un-official).
4.Ethics in Human Resources
The ethics of human resource management (HRM) covers those ethical issues arising around the
employer-employee relationship, such as the rights and duties owed between employer and
employee.
The issues of ethics faced by HRM include:

Discrimination issues i.e. discrimination on the bases of age, gender, race, religion,
disabilities, weight etc.
 Sexual harassment.
 Issues surrounding the representation of employees and the democratization of the workplace.
 Issues affecting the privacy of the employee: workplace surveillance, drug testing.
 Issues affecting the privacy of the employer: whistle-blowing.
 Issues relating to the fairness of the employment contract and the balance of power between
employer and employee.
 Occupational safety and health.
Companies tend to shift economic risks onto the shoulders of their employees. The boom of
performance-related pay systems and flexible employment contracts are indicators of these
newly established forms of shifting risk.
5. Ethics of Production
This area of business ethics deals with the duties of a company to ensure that products and
production processes do not cause harm.
The issues of ethics faced by production include:

Defective, addictive and inherently dangerous products and services eg. Tobacco, alcohol,
weapons, drugs, chemical manufacturing etc.
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Ethical relations between the company and the environment include pollution, environmental
ethics, and carbon emissions trading.
Ethical problems arising out of new technologies for eg. Genetically modified food
Product testing ethics.
6. Ethics of Intellectual property, knowledge and skills
Who as the greater rights to an idea: the company who trained the employee or the
employee themselves? As a result attempts to assert ownership and ethical disputes over
ownership arise.
The issues of ethics faced by intellectual property, knowledge & skills include
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The practice of employing all the most talented people in a specific field,
regardless of need, in order to prevent any competitors employing them.
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Employee raiding: the practice of attracting key employees away from a
competitor to take unfair advantage of the knowledge or skills they may possess.
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Patent misuse, copyright misuse.
7. Ethics in Technology
The computer and world wide web are two most significant inventions of the twentieth
century. There are many ethical issues that arise from this technology. It is easy to gain
access to information. This leads to data mining (hacking), privacy invasion.
Ethics in Human Resource Management
HRM is the process of planning, organizing, directing and controlling human activities to
achieve the organizational goal and individual goals.
Ethics in HRM indicates the treatment of employees with ordinary decency and distributive
justice. The ethical business contributes to the business goals as the employees will feel
motivated and they will work with efficiency and effectiveness. Ethics in HRM basically deals
with the affirmative moral obligations of the employer towards employees to maintain equality
and equity justice. It is that branch of management where ethics really matter, since it concerns
human issues specially those of compensation, development, industrial relations and health and
safety issues.
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Areas of HRM ethics
Basic human rights
Civil and employment fight. (E.g. Job security, feedback from tests)
Safety in the workplace
Privacy
Justifiable treatment to employees. (E.g. Equity and equal opportunity)
Respect, fairness and honesty based process in the workplace
Ethical Issues in Human Resource Management
Labor Costs
HR must deal with conflicting needs to keep labor costs as low as possible and to offer fair
wages. HR can create a public relations problem if consumers object to using underpaid workers
to save money.
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Opportunity for New Skills
If your HR department chooses who gets training, it can run into ethical issues. Because training
is an opportunity for advancement and expanded opportunities, employees who are left out of
training may argue that they are not being given equal opportunities in the workplace. HR must
make certain to clarify the business reason behind its training decisions so employees understand
why specific individuals receive training when others don't.
Working Conditions
HR must work to maintain safety standards and clean working conditions for employees based
on Occupational Safety and Health Administration requirements. Employees also have the right
to expect a workplace free of sexually suggestive signs or comments, and disabled employees
must have access to the building. HR must make sure lighting and air quality are adequate.
Honoring Benefit Provisions
HR has an ethical responsibility to make sure that any benefits offered to employees actually
pay as intended. This means monitoring company-managed benefits as well as insurance
companies to make sure there are no financial problems that would shortchange employees.
Fair Hiring and Justified Termination
Hiring and termination decisions must be made without regard to ethnicity, race, gender, sexual
preference or religious beliefs. HR must take precautions to eliminate any bias from the hiring
and firing process by making sure such actions adhere to strict business criteria.
Employment Issues:
HR professionals are likely to face maximum ethical dilemmas in the areas of hiring of
employees. Challenges in Recruitment
a. Pressure to hire a friend or relative of a highly placed executive.
b. Faked credentials submitted by a job applicant.
c. Discovery that an employee who has been with the organisation for some time, is skilled and
has established a successful record, had lied about his educational credentials.
Cash and Compensation Plans
These are ethical issues pertaining to the salaries, executive perquisites and the annual & Long
Term incentive plans etc. Often employees believe that they are under-paid for their work and
that employers do not appreciate and treat them fairly. Disparity in payment of salary scales,
provident funds and other benefits exist in some organizations.While deciding upon the payout
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there is pressure on favouring the interests of the top management in comparison to that of other
employees and stakeholders.
Race, gender and Disability
Employers should not discriminate on the basis of race, gender, origin and their disability.
Discrimination on basis of casteism, religion and nationality with respect to employment,
including job advertisements, recruitment, transfer, promotions, compensation, fringe benefits,
retirement plans etc is unethical. Managers are trained for aligning behaviour and avoiding
discriminatory practices.
Privacy Issues
The four main types of employee privacy violations are Intrusion (locker and rest room
surveillance), publication of private matter, disclosure of medical records, appropriation of an
employee‘s name. Any person working with any organisation is an individual and has a personal
side to his existence which he demands should be respected and not intruded. The employee
wants the organisation to protect his/her personal life. This personal life may encompass things
like his religious, political and social beliefs etc. However certain situations may arise that
mandate snooping behaviours on the part of the employer. For example, mail scanning is one of
the activities used to track the activities of an employee who is believed to be engaged in
activities that are not in the larger benefit of the organisation.
Restructuring and layoffs:
Restructuring of the organisations often result in layoffs and retrenchments. This is not unethical,
if it is conducted in an atmosphere of fairness and equity and with the interests of the affected
employees in mind. If the restructuring company requires closing of the plant, the process by
which the plant is chosen, how the news is to be communicated and the time frame for
completing the layoffs is ethically important. During restructuring and layoffs employers have to
refer to values like empathy, patience and integrity.
Wage empowerment
The need for wage empowerment to ensure that members of the society meet their basic needs,
to enhance and protect people‘s capabilities to be adequately nourished, extension of formal
social security and to avoid preventable mortality.
Employee discipline
The purpose of discipline to encourage employees adhere to rules and regulations. A fair and just
discipline process based on clear rules and regulations, a system of progressive penalties and an
appeals process helps to ensure that supervisors take disciplinary actions fairly and equitably.
Performance appraisal
Performance appraisal means evaluating the performance of employees based on performance
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Safety and Health:
Industrial work is often hazardous to the safety and health of the employees. Legislations have
been created making it mandatory on the organisations and managers to compensate the victims
of occupational hazards. Ethical dilemmas of HR managers arise when the justice is denied to the
victims by the organisation.
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standards. It aims at performance improvement. The technical problems likely to occur are
unclear standards, halo effect, leniency and personal bias.
Whistle blowing
Whistle blowing occurs when an employee informs the public of inappropriate activities going
on inside the organizations. Whistleblowing must be done based on an appropriate moral motive,
to avoid or expose moral violations etc.Responsibility of the Whistle Blower
Understand
own
Motivation,
Check for
simpler
solution
Personal
Compliance
Collect
evidence
Danger
Prevention
What should HR do?
Monitor the current practices
against established norms
Monitor the
selection/appraisal/compensati
on system to check for any
discrimination
Way to promoting HR ethics
In recruitment and selection: ensure that all assessment measures are fair and just.
In reward management: ensure fairness in allocation of pay and benefits.
In promotion and development: ensure equal opportunities and equal access.
Ensure a safe working environment.
Ensure that procedures are not unduly stressful, and that the needs of employees‘ work–life
balance are not compromised.
When redundancies occur, to be fair and just in handling job losses.
Deal effectively with all forms of bullying and harassment.
In outsourcing and offshoring: ensure that contractors, consultants and franchisees are fair and
honest in their dealings with employees, clients and customers.
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Pursue violations and defend
organisation against unfounded
claims
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Ethics in Marketing
Ethics is Is the art and science of determining good and bad or right or wrong moral behavior.
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Avoid any kind of discrimination among the employees based on certain factors like caste,
colour, culture, religion, appearances.
Performance appraisal should be factual and there should not be any partiality or bias in the
attitude towards the employees.
.
Conduct
ethics
training
Ensure privacy to employees
Basic Human rights
Treat people with dignity, respect and compassion to foster a trusting work environment free of
harassment and unlawful discrimination.
Giving opportunities to the employees equally to develop their competency skills.
Bring in the feeling of owning the organization, within employees so that the employees would
be committed towards the organization.
Laying down such policies and procedure which will ensure equitable treatment for all.
The individual goals on an employee must be streamlined with the organizational goals.
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Marketing Is the process of communicating the value of a product or service to customers, for
the purpose of selling the product or service.
Marketing ethics Refers to the application of marketing ethics into the marketing process. It is
the area of applied ethics which deals with the moral principles behind the operation and
regulation of marketing.
In short it means a standard by which a marketing action may be judged right or wrong
Why do we need ethics in marketing?
When an organization behaves ethically, customers develop more positive attitudes about the
firm, its products and its services.
To create values or trust with the company.
To build good image about the organization in the minds of costumer, employee, companies and
society.
Marketing ethics include marketing effectiveness, market research, market dominance,
marketing management, marketing strategy and market segmentation.
Ethical issues in marketing
Each facet of marketing has ethical danger points as discussed below.
We discuss Marketing issues by using 4P’S OF MARKETING
PRODUCT • Consumer safety • Product liability and reliability • Designing for special needs
acture to
stockiest, wholesalers, retailer and then to consumers.
Ethical Issues In Distribution • Ethical questions may also arise in the distribution process. •
Because sales performance is the most common way in which marketing representatives and
sales personnel are evaluated. • performance pressures exist that may lead to ethical dilemmas.
For example: pressuring vendors to buy more than they need and pushing items that will result in
higher commissions are temptations.
ADVERTISING &BRANDING • Promotion is one of the four elements of marketing mix
(product, price, promotion, place). It is the communication link between sellers and buyers for
the purpose of influencing, informing, or persuading a potential buyer's purchasing decision. • To
present information to consumers as well as others • To increase demand • To differentiate a
product
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Environmental implication of packaging
PRICE • Bid rigging • Price fixing • Price skimming • Predatory pricing • Price war • Dumping
(pricing policy) • Variable pricing
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Major Ethical Issues in Marketing
1. Market Research
Market research is the collection and analysis of information about consumers, competitors and
the effectiveness of marketing programs. Some ethical problems in market research are Invasion
of privacy.
As companies conduct research they also come into contact with confidential and personal
information, which comes with a level of risk for both the business as well as the individual.
2. Stereotyping
Portraying an ideal body, weight or physical appearance can have potential harmful effects on
the individual such as low self-esteem issues.
3. Confidential information or Trade secrets
Confidential business information is a valuable corporate asset to the company that, if
inappropriately disclosed could harm the company, its associates, its customers and its
stockholders. Confidential information includes personnel data, technical information, research
data, marketing strategies and techniques. Employees should hold in strict confidence and should
not disclose to any person or entity any information deemed confidential by the company, except
for the benefit of the company‘s business and in strict compliance with company rules.
4. Fair Competition
The company should support competition based on quality, service and price. They should
conduct their affairs honestly, directly and fairly. They should comply with the antitrust laws and
follow policy of fair competition. The employees must never discuss with competitors any matter
directly involved in competition between their company and the competitor. E.g. sales price,
marketing strategies, market shares and sales policies. Must never engage in commercial bribery.
5. Fair dealing
Employees should deal fairly with the company‘s customers, suppliers, competitors and each
other. No associate should take unfair advantage of anyone through manipulation, concealment,
abuse of privileged information, misrepresentation of material facts or any other unfair dealing
practice. All employees are required to comply with trade laws. Violation of trade laws results in
penalties for the company and for any associate or other person who participates in the violation.
6. Accepting gifts and bestowing benefits
Employees shall not seek or accept personal gain, directly or indirectly from anyone soliciting
business from or doing business with the company. Employees are not permitted to accept gifts
or to have any travel, living or entertainment expenses paid for themselves or members of their
families.
7. Unfair or Deceptive marketing practices
Misrepresentation, Omission or misleading practice when dealing with any element of the
marketing mix. Selling Hazardous or defective products without disclosing the dangers. Not
honouring warranty obligations. False or greatly exaggerated product or service claims. Packages
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intentionally mislabelled as to contents, size, weight or use information that constitutes deceptive
packaging.
8. Offensive materials and objectionable marketing practices
When people feel that products or appeals are offensive they may pressure vendors to stop
carrying the product. Thus all promotional messages must be carefully screened and tested, and
communication media, programming and editorial content selected to match the tastes and
interests of targeted customers.
9. Product and distribution practices
Among the most frequently voiced complaints are ones about products that are unsafe, that are of
poor quality in content, that do not contain what is promoted or that go out of style or become
obsolete before they actually need replacing. Pressuring vendors to buy more than they need ad
pushing items that will result in higher commissions are temptations.
10. Special Ethical Issues in Marketing to Children
Children are an important marketing target for certain products. Because their knowledge about
products, the media, and selling strategies is usually not as well developed as that of adults,
children are likely to be more vulnerable to psychological appeals and strong images. Thus,
ethical questions sometimes arise when they are exposed to questionable marketing tactics and
messages.
11. Pricing Ethics
Predatory pricing (also undercutting & destroyer pricing) is a pricing strategy where a
product or service is set at a very low price, intending to drive competitors out of the market, or
create barriers to entry for potential new competitors. In many countries predatory pricing is
considered anti-competitive and is illegal under competition laws.
Price skimming - Discriminating through time. When the price for a product is first sold at a
very high price and then gradually lowered, a pricing strategy in which a marketer sets a
relatively high price for a product or service at first, then lowers the price over time. It allows the
firm to recover its sunk costs quickly before competition steps in and lowers the market price.
Price discrimination :Anti-favoritism
Price discrimination is the strategy of selling the same product at different prices to different
groups of consumers from the same provider, usually based on the maximum they are willing to
pay. The practice also surfaces in hiding lower priced items from customers who have a higher
willingness to pay.
Bid rigging: Favoritism- an agreement between two or more competitors. It is a form of
collusion, which is illegal in most countries. It is a form of price fixing and market allocation,
and it involves an agreement in which one party of a group of bidders will be designated to win
the bid. It is often practised where contracts are determined by a call for bids, for example in the
case of government construction contracts.
Price war - One competitor will lower its price, then others will lower their prices to match. In
the short-term, price wars are good for consumers who are able to take advantage of lower
prices. Typically they are not good for the companies involved. The lower prices reduce profit
margins and can threaten survival. Etc.
Price fixing An agreement between business competitors to sell the same product or service at
the same price. It fraudulently prevents other businesses from being able to compete in the open
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market. Price fixing violates competition law because it controls the market price or the supply
and demand of a good or service. This prohibits other businesses from being able to compete
against the businesses in the price fixing agreement, which prevents the public from being able to
expect the benefits of free competition.
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Unethical Marketing Practices
Ethical marketing entails making honest claims and satisfying the needs of potential and existing
customers. It boosts credibility and trust, develops brand loyalty, increases customer retention,
and prompts customers to spread word about the products or services you‘re marketing.
Unethical marketing, on the other hand, can send wrong signals about your products and
services, destroy your brand‘s reputation, and possibly lead to legal problems. This explains why
you should avoid them like a plague.
1. Making false, exaggerated, or unverified claims
In a desperate bid to compel potential and existing customers to buy their products or services,
some marketers use false statements, exaggerated benefits, or make unverifiable claims about
their offers. This is common in the weight loss industry, where marketers convince potential
buyers that a particular product can help them shed so-and-so pounds within two weeks without
exercise or dieting!
2. Distortion of facts to mislead or confuse potential buyers
This is another common unethical marketing practice. A typical example is when a food
processing company claims that its products are sugar-free or calorie-free when indeed they
contain sugar or calories. Such a company is only trying to mislead potential buyers, since they
are unlikely to buy the products if it is made known that they contain sugar or calories.
3. Concealing dark sides or side effects of products or services
This unethical marketing practice is rife in the natural remedies industry, where most
manufacturers deceive potential buyers that their products have no side effects because they are
―made from natural products‖. But in reality, most of these products have been found to have
side effects, especially when used over a long period. In fact, there‘s no product without side
effects—it‘s just that the side effects might be unknown. It‘s better to say, “There are no known
side effects” than to say “there are no side effects“.
4. Bad-mouthing rival products
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Emphasizing the dark sides of your rival‘s products in a bid to turn potential customers towards
your own products is another common but unethical marketing practice. Rather than resort to this
bad strategy, you should emphasize on those aspects that make your offer stand out from the rest
of the pack. That‘s professional and ethical.
5. Using women as sex symbols for advertising
The rate at which even reputable brands are resorting to this unethical marketing practice is quite
alarming. If you observe TV, billboard, and magazine adverts, there‘s something common to
most of them; a half-naked lady is used to attract attention to the product or service being
advertised. While it might be intuitive to use models in adverts for beauty products and
cosmetics, having half-naked models in adverts for generators, heavy machinery, smartphones,
and other products not strongly related to women is both nonsensical and unethical.
5. Using fear tactics
This is another common unethical marketing practice among snake oil salespersons. You will
hear them saying something like: “This price is a limited-time offer. If you don’t buy now, you
might have to pay much more to buy it later because the offer will end up in two days time, and
the price will go up.” The only motive behind those statements is to prompt the potential buyer to
make a decision on the spot. And that’s wrong. Why subject someone to undue pressure because
you want to make money off him or her?
7. Plagiarism (copycats) of marketing messages
Though uncommon, some business owners and salespersons engage in using the exact marketing
messages of their competitors to market their own products or services. Creativity is a huge part
of marketing, and using other businesses‘ marketing messages just passes you off as being
creatively bankrupt and fraudulent.
8. Exploitation
This is charging for much more than the actual value of a product or service. For marketing
efforts to remain with ethical limits; the prices of your offers must be equal to or less than the
value they give the buyer. If the value is less than the cost, it‘s unethical.
9. Demeaning references to races, age, sex, or religion
Ethical marketing must be devoid of all forms of discrimination. If your marketing messages
contain lines that place people of certain age range, sex, religion, nationality, or race at a higher
level than others, then you are crossing the bounds of ethical marketing.
10. Spamming
Spamming is when you send unsolicited emails to potential customers, encouraging them to buy
your products or services. This is the commonest unethical marketing practice done online.
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Advertising is primarily a means by which sellers communicate to prospective buyers. Ethics in
advertising means a set of well defined principles which govern the ways of communication
taking place between the seller and the buyer.
Role or Functions of Advertising in Modern Business
Economic Function
•
•
•
•
•
•
Advertising communicates the message in persuasive language
It create wide markets as the information is delivered to people far and wide
It inclines people favorably to the products and affect our attitudes
Therefore, advertising performs an economic function by being an art of persuasion
Advertising is also an economic process—it helps the product to become known and it
facilitates exchange between those who need the product and those who can satisfy the
need
Provides employment opportunities (in advertising industry)
Social Function
•
•
•
•
•
•
•
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•
•
Advertising affects the core cultural values and subsidiary cultural values
Advertising is a mirror to the society in which it operates. It reflects the cultural values of
that society
Advertising protects the consumer by educating them and by forcing the manufacturers to
maintain quality and to be fair.
Advertising brings about consumer welfare by improving standard of living &product
quality e.g. we buy TV, AC, Computers, Cars etc after getting interested in these products
through advertising
We have accepted new ideas such as microwave, electric shaving, detergents etc through
advertising
Whatever is used in society is reflected in advertising
e.g. Indian society is highly family oriented (example ads: savings for children,
daughter’s marriage)
Indian society is people-oriented, and not self-oriented
For the sake of our family and others, we Indians can postpone our own gratification
Psychological functions
• Advertising is closely linked to consumer behavior, therefore,
it affects personality of consumer, his concept of self, his attitudes, beliefs, opinions, his
life-style etc
• Advertising appeals to our physiological and psychological motives
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Ethical Issues In Advertising
Advertising is a highly visible business activity and any lapse in ethical standards can often be
risky for the company.
Some of the common examples of ethical issues in advertising are give below:
• Vulgarity/Obscenity used to gain consumers‘ attention
• Misleading information and deception
• Puffery
• Stereotypes
• Racial issues
• Controversial products (e.g. alcohol, gambling, tobacco etc)
• Promote Unhealthy Products
Ways of unethical advertisement
• Surrogate advertisement
Is prominently seen in cases where advertising a particular product is banned by law.
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Ethics In AdvertisingShould not mislead the consumer.
What it promises must be there in the performance of products.
Ads should not be indecent and obscene.
As advertising is also a social process, it must honor the norms of social behavior, and should not
offend our moral sense.
ASCI (Advertising Standards Council of India) regu
set guidelines
• To ensure the truthfulness and honesty of representations and claims made by
advertisements and to safeguard against misleading advertising.
• To ensure that advertisements are not offensive to generally accepted standards of public
decency.
• To safeguard against indiscriminate use of advertising for promotion of products which
are regarded as hazardous to society or to individuals.
• To ensure that advertisements observe fairness in competition so that consumers need to
be informed on choices in the market place and the canons of generally accepted
competitive behavior in business are both served.
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•
•
•
•
•
•
•
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•
Advertisement for products like cigarettes or alcohol which are injurious to heath are
prohibited by law in several countries and hence these companies have to come up with
several other products that might have the same brand name and indirectly remind
people of the cigarettes or beer bottles of the same brand Common examples
include:Fosters and Kingfisher beer brands, which are often seen to promote their brand
with the help of surrogate advertising.
Puffery
Advertisers try to persuade people to buy a product or service through various methods.
A company may deliver an entertaining message about its product, compare the product
to a similar item, list facts about the product, or make vague claims about the product
which cannot be proved or disproved. This last method is known as "puffery" — the
advertiser "puffs up" the product to seem like more than it is. • A two-year old might
believe that polar bears enjoy sipping Coca-Cola, but we know better.
Exaggeration
Using false claims in the advertisements about the product. For example:- Tide detergent
– ―White ho to Tide ho.‖, Vodafone Essar – ―Wherever you go our network follows,
Vim-One Drop Challenge‖
Unverified claimsIt includes advertisements of ―energy drinks‖ which tells us about the
number of vitamins and how they help children to grow strong and tall. There is no way
of verifying these false claims. For example:-Horlicks, Maltova, Tiger biscuits.
Women stereotyping
Women are generally associated with household works and is not supposed to be a good
decision maker which contributes to women stereotyping. Women are shown as doing
domestic work which reflects stereotype image of women.
Women used as sex symbols for promoting products-Women in advertising used as
sex symbols. Amul macho Axe dark temptation
Comparative advertisements
Nowadays advertisers are engaged in unhealthy brand comparison with the help of
advertising. Such comparisons create problems and confusions for the right choice of the
product as far as audience are concerned. Example can be cited of colgate and pepsodent
toothpaste.
Use of children in advertising
Children are easily persuaded and have a large pull on today's markets, as is known by all
advertisers, even ones who do not intend for their products to be consumed by children.
Negative Advertising Techniques
Such as attack ads. In negative advertising, the advertiser highlights the disadvantages of
competitor products rather than the advantages of their own
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BASIC PRINCIPALS OF ADVERTISING • Decency • Honesty • Social Responsibility •
Truthful presentation • No Comparisons • No Imitations • Safety and health • Avoidance of
Harm • Environmental behavior & Fair with competitors
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Ethical aspects in Financial Management
WHAT DOES FINANCE MEANS?
Finance means fund or other financial resources; it deals with matter related to money and the
market. The field of finance refers to the concept of time, money and risk and how they are
interrelated. Banks are the main facilitators of funding. Funding means asset in the form of
money. Finance is the set of activities that deals with the management of funds. It helps in
making the decision like how to use the collected fund. It is also art and science of determining if
the funds of an organization are being used in a right manner or not. Through financial analysis,
any company or business can take decision in making financial investments, acquisition of
company, selling of company, to know the financial standing of their business in present, past
and future. It helps to stay competitive with others in making strategic financial decisions.
Finance is the backbone of business; no business can run without finance.
WHAT IS ETHICS AND WHAT IS ETHICS IN FINANCE?
Ethics is the study of human behavior which is right or wrong. In general, ethics means doing
right things to others, being honest to others, being fair and justice to others. Ethics in finance is
one of the main things which everyone has to follow from the small, medium and big level
company. The assumption of modern financial-economic theory runs counter to the ideas of
honesty, devotion, dependability and loyalty. Ethics in finance may vary from different
industries to different industries but everyone is liable to-do their work at utmost good faith.
Peoples who involved in finance activity have to serve both their company and their customers at
utmost good faith.
Areas where ethics is finance has to be covered
Raising of
finance
Financial
Accounting
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Book keeping
Payroll
Management
Accounting
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NEED OF ETHICS IN FINANCIAL MARKET, SERVICE INDUSTRY AND PEOPLE IN
ORGANIZATON:
Despite the diversity of financial roles and activities, there are three major areas where there is
need of ethics are as follows: Need of ethics in finance market– In financial market there are
some barrier which includes unequal information, bargaining power, and resources. Finally,
market transactions between two parties often have third-party effects. These are the few things
which affect ethics in financial market. Need of ethics in financial service industry– This
financial service industry will affect most people directly.
This industry has a duty to develop the product according to people‘s need and market them in
correct manner. But this kind of financial service industry normally deals with client and try to
gain clients confidence on them and finally do the duties which will satisfy their clients and not
to people‘s. Their main aim is to stay competitive with others. Need of ethics for financial people
in organization– Huge number of people in finance are employee of an organization.
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ETHICS IN FINANCE IN DIFFERENT FIELDS:
People trained in finance may enter in to different fields and in different line of work in which
they will identify different ethical values followed in different line of work. People in finance
involved in lot of activities which depend not only in handling of financial asset but also
involved in using of those asset and taking care of it. Everyday billions of financial transaction
takes place with a high level of integrity.
However, there are several opportunities in finance for some people to gain at others‘ expenses.
Finance simply concern with other people‘s money and other people‘s money invites
misconduct. Some of the professionals in the financial service whom are bound to serve their
clients are as follows they are stock brokers, bankers, financial advisers, mutual fund, pension
manager and insurance agents.
Financial manager in corporations, government, and other organizations have to take care of
their employers and manage their asset as well. In finance everyone is trusted to carry certain
duties from financial analyst to market regulators. Ethics in finance is not only a concerned for
an individual in a particular occupation or profession but also for financial market and financial
institution.
Finance is a main function of every business enterprises and many non-profit organizations and
governmental units. Corporate financial manager are responsible for making a decision like
invest capital to the planning of merger and acquisitions. While in other hand public finance is
concerned mostly with raising and disbursing fund for governmental purposes.
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This include person who approve some project which should not be approved, they approve in
order to gain money in the term of bribe. Most of the unethical activities like giving wrong report
and wrong data to the company in order to get more money start from here which pushes whole
financial market and financial service industry down because all most in all organization there
are lot a number of people who are held in finance roles and activities.
No business and company can run without finance. It is LIFEBLOOD for all the organization. So
if almost all the fields in finance follows ethics in their duty almost all other process will
function very well without any discrepancies.
Ethical violations in Finance-Accounts which
leads to ethical issues
Insider Trading
Stakeholder Interest vs. Stockholder interest
Investment Management
Fraudulent Financial Dealings
Cheating Customers of profits
Unauthorised accounting Transaction
Frauds and Manipulations
Unequal Bargaining power
Unethical takeover and mergers
Insider Trading
It is perhaps one of the most publicized unethical behaviours by traders. Insider trading refers to
trading in the securities of a company to take advantage 0f material ―inside‖ information about
the company that is not available to the public. Such a trade is motivated by the possibility of
generating extraordinary gain with the help of non-public information. It gives the trader an
unfair advantage over other traders in the same security.
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Stakeholders vs Shareholders interest
The only aim of business is to maximize profits. The modern business is characterized by limited
liability with a divorce between management and ownership. The objectives of the shareholders
and stakeholders may differ and conflict with each other. The financial manager has a difficult
task of reconciling and balancing these conflicting objectives. They may take to unethical
practices to impress upon one or other party.
Investment management
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In order to attract public investment sometimes the companies hike their share prices to make
fresh issue more attractive. Some highlight their social responsibility measures which in fact are
only bogus claims. Some companies print names of famous executives on board and unauthentic
foreign collaborations. Attractive future plans and high returns are shown to impress the
investors.
Fraudulent financial dealings
Deception is one of the ways of deceiving the clients in financial dealings. Sometimes the
brokers and agents use confusing language which hides the risk element in financial dealing.
They do not disclose their commission and other benefits. They deceive the public by using the
misleading statements like tax free or 0% interest etc.
Cheating customers of their trading profits
Sometimes the brokers resort to excessive trading on account of customers with the intention of
earning more commission rather than giving benefit to the client. They cheat innocent investors
by suggesting unsuitable type of security while trading under margins and options. Brokers
sometimes don‘t even maintain proper account of their clients.
Unauthorized accounting transactions
Some of the ethical issues surrounding accounting practices are under reporting incomes,
falsifying documents, allowing or taking questionable deductions, illegally evading income tax
or otherwise engaging in a fraud. Other unethical transactions can be delay in payment of wages,
interest cheating employees of their dues, bogus purchase bills, taking personal benefits out of
company‘s dealings.
Unequal bargaining power
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Frauds and manipulation in markets
Investors are exposed to frauds because the value of the financial information depends on the
information available in the market. Since it is very difficult for the investors to verify this
information and when a company fails to report proper information it leads to fraud. Moreover
manipulation in buying and selling of securities in order to create a misleading impression about
the prices and to induce them to buy or sell the securities.
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It is an unethical practice to have competition in the market between parties with equal
information. All parties should have equal bargaining power. Therefore, anyone possessing
unequal information will be unfair if that information has been acquired illegally and violates
some obligation to others. But if someone has invested time and money to get that information
and everyone else could have also got the information by making the same investment then they
are entitled to use the information for their own benefit.
Unethical practices during takeovers and mergers
In order to finance takeovers many firms take on huge internal debts, paid off only as long the
company is doing well but left as a market loss when the company is threatened with higher
costs. The firm being to be taken over may also respond by issuing high risk bonds in order to
repurchase stock. The decision makers have the duty to increase the stock prices but they keep
the stock prices low for repurchase. More over if there has never been any real intent to complete
the takeover but instead merely to increase the price and sell back then the practice would be
considered unethical.
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ETHICS IN FINANCE:
1. Act with honesty and integrity, avoiding real or clear conflicts of interest in personal and
professional relationships.
2. To provide information which is full, fair, accurate, complete, objective, relevant, timely and
understandable, including in and for reports and documents that the Company files with, or
submits to, the other public communications made by the Company.
3. Act in accordance with all applicable laws, rules and regulations of governments and other
appropriate private and public regulatory agencies.
4. Act in good faith, responsibly, with due care, competence and carefulness, without
misrepresenting material facts.
5. Respect the confidentiality of information acquired in the course of business except when
authorized or otherwise legally obligated to disclose the information.
6. To promote ethical behavior among associates.
7. Assist in the production of full, fair, accurate, timely and understandable disclosure in reports
and documents that the firm and its subsidiaries file with, or submit to, the Securities and
Exchange Commission and other regulators and in other public communications made by the
firm.
8. Take all reasonable measures to protect the confidentiality of non-public information relating
to firm and its clients.
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9. Carry out their responsibilities honestly, in good faith and with
integrity, due care and diligence, exercising at all times their best
independent judgment.
10. Never take, directly or indirectly, any action to coerce, manipulate, mislead
or fraudulently influence the firm's independent auditors in the performance of
their audit or review of the firm's financial statements.
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