ETHICS NOTES
Module 1
Ethics - or moral philosophy is a branch of philosophy that "involves systematizing, defending, and recommending
concepts of right and wrong behavior”. The field of ethics, along with aesthetics, concerns matters of value; these fields
comprise the branch of philosophy called axiology.
Ethics seeks to resolve questions of human morality by defining concepts such as good and evil, right and wrong, virtue
and vice, justice and crime.
Three major areas of study within ethics recognized today are:
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Meta-ethics, concerning the theoretical meaning and reference of moral propositions, and how their truth values
(if any) can be determined;
Normative ethics, concerning the practical means of determining a moral course of action;
Applied ethics, concerning what a person is obligated (or permitted) to do in a specific situation or a particular
domain of action.
Business ethics - refers to implementing appropriate business policies and practices with regard to arguably controversial
subjects. Some issues that come up in a discussion of ethics include corporate governance, insider trading, bribery,
discrimination, social responsibility, and fiduciary responsibilities.
There are generally 12 business ethics principles:
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Leadership: The conscious effort to adopt, integrate, and emulate the other 11 principles to guide decisions and
behavior in all aspects of professional and personal life.
Accountability: Holding yourself and others responsible for their actions.
Integrity: Incorporates other principles—honesty, trustworthiness, and reliability. Someone with integrity
consistently does the right thing and strives to hold themselves to a higher standard.
Respect for others: Everyone deserves dignity, privacy, equality, opportunity, compassion, and empathy.
Honesty: Truth in all matters is key to fostering an ethical climate. Bad news should be communicated and received
in the same manner as good news so that solutions can be developed.
Respect for laws: Ethical leadership should include enforcing all local, state, and federal laws.
Responsibility: Promote ownership within an organization, allow employees to be responsible for their work, and
be accountable for yours.
Transparency: Without divulging trade secrets, companies should ensure information about their financials, price
changes, hiring and firing practices, wages and salaries, and promotions are available to those interested in the
business's success.
Compassion: Employees, the community surrounding a business, business partners, and customers should all be
treated with concern for their well-being.
Fairness: Everyone should have the same opportunities and be treated the same.
Loyalty: Leadership should demonstrate confidentially and commitment to their employees and the company.
Environmental concern: it is of utmost importance to be aware of and concerned about the environmental impacts
a business has. All employees should be encouraged to discover and report solutions for practices that can add to
damages already done.
Morals - refer to a set of rules defining what is considered to be right or wrong and accepted without questions. These
rules are typically defined by society. If someone breaks such a rule then he is typically considered to have been “bad” or
“immoral.” Morality describes what is, whereas Ethics describes what ought to be.
Values, on the other hand, provide direction in the determination of right versus wrong or good versus bad. Values are
what an individual believes to have worth and importance or to be valuable. As such, morals are values defining right from
wrong or good from bad.
Morals vs ethics
morals
ethics
Derived from Latin word moralis, meaning Derived from the Greek word, ethos, meaning moral
“traditional customs”
character
Typically associated with personal behavior
Typically refers to professional practices and
behavior
Customs or manners practiced in any given Conveys sense of stability/permanence
community or culture
Customs or manners practiced in any given May be different from culture to cultureAn absolute
community or culture
standard of behavior
May change as acceptable social behavior in the Standard is universal and immutable (not subject to
culture changes
change)
Theories of business ethics
Utilitarianism - is a theory of morality that advocates actions that foster happiness and oppose actions that cause
unhappiness.
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Utilitarianism promotes "the greatest amount of good for the greatest number of people."
When used in a sociopolitical construct, utilitarian ethics aims for the betterment of society as a whole.
Utilitarianism is a reason-based approach to determining right and wrong, but it has limitations.
Utilitarianism does not account for things like feelings and emotions, culture, or justice.
There are two types of utilitarianism, act utilitarianism and rule utilitarianism.
In act utilitarianism, a person performs the acts that benefit the most people, regardless of personal feelings or
the societal constraints such as laws.
Rule utilitarianism, however, takes into account the law and is concerned with fairness.
The 3 generally accepted principles of utilitarianism state that:
1. Pleasure, or happiness is the only thing that has intrinsic value.
2. Actions are right if they promote happiness, and wrong if they promote unhappiness.
3. Everyone’s happiness counts equally.
Universalism - The most important concepts of what is right and wrong are universal and transcend culture, society, and
religion. Results in a set of universal ethical standards that apply to members of all societies, all companies, and all business
people. Sets limits and puts boundaries on ethical behavior.
Rights theory - In the rights ethical theory the rights set forth by a society are protected and given the highest priority.
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Rights are considered to be ethically correct and valid since a large or ruling population endorses them.
Individuals may also bestow rights upon others if they have the ability and resources to do so.
A major complication of this theory on a larger scale, however, is that one must decipher what the characteristics
of a right are in a society.
The society has to determine what rights it wants to uphold and give to its citizens. In order for a society to
determine what rights it wants to enact, it must decide what the society's goals and ethical priorities are.
Casuist theory - The casuist ethical theory is one that compares a current ethical dilemma with examples of similar ethical
dilemmas and their outcomes.
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This allows one to determine the severity of the situation and to create the best possible solution according to
others' experiences.
Usually one will find paradigms that represent the extremes of the situation so that a compromise can be reached
that will hopefully include the wisdom gained from the previous examples.
One drawback to this ethical theory is that there may not be a set of similar examples for a given ethical dilemma.
Perhaps that which is controversial and ethically questionable is new and unexpected.
A casuist theory also assumes that the results of the current ethical dilemma will be similar to results in the
examples. This may not be necessarily true and would greatly hinder the effectiveness of applying this ethical
theory.
Virtue ethics theory - judges a person by his character rather than by an action that may deviate from his normal behavior.
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It takes the person's morals, reputation and motivation into account when rating an unusual and irregular
behavior that is considered unethical.
One weakness of this ethical theory is that it does not take into consideration a person's change in moral character.
Nature of ethics in management/ features of ethics in management
Code Of Conduct - Business ethics is a code of conduct that explains what a company can and must not do. It explains how
an organization must behave towards the society in which it operates. There are also regulations for how the firm treats
its employees and customers.
Moral and Ethical Values - The nature of business ethics is that it is based on moral and social values. It means that the
company must follow practices that will benefit society. It includes self-control, consumer protection, the welfare of
society, service to society, etc.
A relative Term - the company must understand what is acceptable in their society and do it accordingly. The company
must understand the morals and ethics in the location and follow them accordingly.
Protect the Interests of the Society - It is one nature of business ethics that deals with protecting the interests of society.
When the organization protects society’s interests, it indirectly takes care of all the people who support the business in
its operations. It must protect society by supplying quality products at reasonable prices.
Improves Business Social Relationship - By following strict measures for the welfare of society, companies benefit from it.
The business also benefits from society through the support they provide as customers, employees and investors.
Provides Basic Framework - Business ethics provides the basic framework for organizations to operate in. It provides the
social, economic, cultural and legal limits within which the company must function. This nature of business ethics helps
the company follow rules that are good for itself and society.
Business values
There are 3 main types of business values—principles, beliefs and standards of behavior.
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Principles are the concepts, such as the following, that you believe are fundamental for your business and its
success. Example - Act with integrity, Take responsibility and Seek excellence
Beliefs and attitudes are views that you hold to be true and influence your actions. They can relate to how people
should behave, the way managers should act, how work should be done and how staff should treat each other at
work. For example: everyone has the right to be treated with respect
Standards of behavior for business outline what is acceptable business practice. From a customer viewpoint,
these standards demonstrate the business values and outline the type of service they can expect to get when they
deal with your business. For example, the business will: minimize its effects on the environment.
Module 2
Marketing ethics - are a set of moral principles that guide a company's promotional activities. Organizations that establish
and implement marketing ethics are typically trying to respect the rights, desires and expectations of consumers.
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Marketing ethics fosters fairness and honesty in all advertisements.
Any fraudulent claims to the customers, intruding on consumers’ privacy, stereotyping, and targeting the
vulnerable audience (like children and elderly) are deemed unethical.
Even trying to damage the competitor’s image is considered immoral.
Product - Ethical concerns can arise in the development of products/services. Marketers are supposed to identify and
satisfy needs of consumers. Ethical concerns can also appear in the performance of products/services. Ethical marketing
activity should prevent poorly made and unsafe products. More questionable is the case of harmful products due to poor
design or lack of quality. The quality of a product should always have the priority on economic concerns. Packaging can
also be a source of ethical concerns.
Promotion - The most commonplace ethical concern in promotion is deception. Deception is commonplace in advertising.
For example, overstating a product’s feature or performance is contrary to the ethics. Most frequently found problems
are rigged contests or games and the use of deceptive or false promises. Another ethical concern is the invasiveness of
marketers in the everyday life of consumers and the threats to consumers’ rights to privacy.
Price - Marketers should be allowed to charge any price they want provided there is no price discrimination among
consumers and that prices are all inclusive. However, too high prices are not ethical, when they do not reflect the existing
cost structure but are a means to take advantage of consumers. Besides, advertised prices should always be realistic prices
that consumers will find in stores. The odd-pricing and partitioned prices practices can also be questionable on ethical
grounds.
Place - Consumers can be manipulated without knowing it through subtle marketing techniques in distribution outlets.
Ethical concerns are also linked with the segmenting, targeting and positioning process. Efforts to target consumer
populations can be subject to unethical attitudes. Marketing to children also raises ethical concerns.
Consumer protection safeguards the well-being and interests of consumers through education, mobilization and
representation. Consumer protection ensures that consumers make well-informed decisions about their choices and have
access to effective redress mechanisms. It also pushes for businesses to guarantee the quality of the products and services
they offer.
Business ethics in human resource management
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Deals with the affirmative moral obligations of the employer towards employees to maintain equality and equity
justice.
Areas of ethics in HRM include safety in the workplace, respect, fairness, privacy, basic human rights, justifiable
treatment of employees, and honestly based processes in the workplace.
There are ethical issues pertaining to the salaries, executive perquisites and the annual incentive plans etc.
In many organizations till recently the employees were differentiated on the basis of their race, gender, origin and
their disability.
Human resource practitioners face bigger dilemmas in employee hiring. One dilemma stems from the pressure of
hiring someone who has been recommended by a friend, someone from your family or a top executive. Yet
another dilemma arises when you have already hired someone and he/she is later found to have presented fake
documents.
Any person working with any organization is an individual and has a personal side to his existence which he
demands should be respected and not intruded.
With ethical time tracking, employee productivity can be monitored in a more ethical way, by intentionally
downgrading videos and pictures taken.
Ethical dilemma – an ethical dilemma (or ethical paradox or moral dilemma) is a problem in the decision-making process
between two possible options, neither of which is absolutely acceptable from an ethical perspective.
How to solve an ethical dilemma – the biggest challenge of an ethical dilemma it that it does not offer an obvious solution
that would comply with ethical norms.
The following approaches to solve an ethical dilemma were deduced:
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Refute the dilemma – the situation at hand must be carefully analyzed. In some cases, the existence of the
dilemma can be logically refuted.
Value theory approach – choose the alternative that gives the greater good or the lesser evil.
Find alternative solutions – in some cases, the problem can be reconsidered, and new alternative solutions may
arise.
Ethical decision making – it is a decision taken with respect to ethical dilemma or problem in business.
Stages in ethical decision making:
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Identify the dilemma
Know the facts
Look for the right people
To know the applicable existing laws
Accountability towards stakeholders
To note the core values of the company
Be objective in decision making
Module 3
Corporate governance
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Corporate governance is the structure of rules, practices, and processes used to direct and manage a company.
A company's board of directors is the primary force influencing corporate governance.
Bad corporate governance can cast doubt on a company's operations and its ultimate profitability.
Corporate governance covers the areas of environmental awareness, ethical behavior, corporate strategy,
compensation, and risk management.
The basic principles of corporate governance are accountability, transparency, fairness, responsibility, and risk
management.
Communicating a firm's corporate governance is a key component of community and investor relations.
Importance of Corporate Governance - Strong and effective corporate governance helps to cultivate a company culture
of integrity, leading to positive performance and a sustainable business overall. Essentially, it exists to increase the
accountability of all individuals and teams within your company, working to avoid mistakes before they can even occur.
When a company has solid corporate governance, it signals to the market that the organization is well managed and that
the interests of management are aligned with external stakeholders. As a result, it can provide your company with a strong
competitive advantage.
Corporate governance models
1. The Anglo- American model
This model can take various forms, such as the Shareholder Model, the Stewardship Model, and the Political Model.
However, the Shareholder Model is the principal model.
The Shareholder Model is designed so that the board of directors and shareholders are in control. Stakeholders such as
vendors and employees, though acknowledged, lack control.
The model accounts for the fact that shareholders provide the company with funds and may withdraw that support if
dissatisfied. This can keep management working efficiently and effectively.
The board should consist of both insiders and independent members. Management is tasked with running the company
in a way that maximizes shareholder interest.
The success of this corporate governance model depends on ongoing communications between the board, company
management, and the shareholders.
2. The continental Europe model
Two groups represent the controlling authority under the Continental Model. They are the supervisory board and the
management board.
In this two-tiered system, the management board is comprised of company insiders, such as its executives. The supervisory
board is made up of outsiders, such as shareholders and union representatives. Banks with stakes in a company also could
have representatives on the supervisory board.
The two boards remain completely separate. The size of the supervisory board is determined by a country's law. It can't
be changed by shareholders.
Companies can be expected to align with government objectives.
3. The Japanese model
The key players in the Japanese Model of corporate governance are banks, affiliated entities, major shareholders called
Keiretsu (who may be invested in common companies or have trading relationships), management, and the government.
Smaller, independent, individual shareholders have no role or voice.
The board of directors is usually comprised of insiders, including company executives. Keiretsu may remove directors from
the board if profits wane.
The government affects the activities of corporate management via its regulations and policies.
In this model, corporate transparency is less likely due to the concentration of power and the focus on interests of those
with that power.
Ownership pattern of corporate enterprises can be broadly of three types:
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Widely dispersed, ownership particularly amongst large number of individual shareholders;
Promotors' dominated shareholding pattern where promoters may be owning 30% to 80% or more vis-a-vis
individual shareholders who own less than 30% of the total capital and
A unique ownership pattern where even banks and financial institutions, foreign Institutional investors or
foreign individuals are the owners of the company.
Agency problem - is a conflict of interest inherent in any relationship where one party is expected to act in the best interest
of another. Agency problems arise when incentives or motivations present themselves to an agent to not act in the full
best interest of a principal. Through regulations or by incentivizing an agent to act in accordance with the principal's best
interests, agency problems can be reduced.
Module 4
Board of directors - The board of directors of a public company is elected by shareholders. The board makes key decisions
on issues such as mergers and dividends, hires senior managers, and sets their pay.
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Board of director’s candidates can be nominated by the company's nominations committee or by outsiders
seeking change. In general, the board makes decisions as a fiduciary on behalf of the company and its
shareholders.
The board of directors typically includes the chief executive officer and sometimes other senior managers,
alongside board members not otherwise affiliated with the company.
The structure and powers of a board are determined by a company's articles of incorporation and its corporate
bylaws. Bylaws can set the number of board members, how the board is elected, and how often the board meets.
Section 149 of the Companies Act states that every company’s board of directors must necessarily have a
minimum of three directors if it is a public company. Two directors if it is a private company and one director in a
one person company.
The maximum number of members a company can assign as directors is fifteen.
The maximum number of companies that an individual can become a director of, is 20 companies.
At least, one woman director must be appointed by the company.
At least one director, who has lived in India for a minimum of 182 calendar days of the previous year, shall be
appointed by every company’s board.
All listed companies must have at least one-third proportion of their board of directors as independent directors.
Various committees of the board
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Audit Committee - shall assist the Board of Directors in the oversight of the integrity of the financial statements
of the Company
Shareholders Grievance Committee - Efficient transfer of shares, Redressal of shareholder and investor
complaints.
Remuneration Committee - To decide and approve the terms and conditions for appointment of executive
directors and whole time Directors and Remuneration payable to other Directors.
Risk Committee - Review and approve for recommendation to the board a risk management policy and plan
developed by management.
Nomination Committee - to assist the board by identifying prospective directors and make recommendations on
appointments to the board and the senior most level of executive management below the board.
Corporate Governance Committee - overseeing matters of corporate governance for the board, including
formulating and recommending governance principles and policies.
Corporate Compliance Committee - The company’s policies, programs, and procedures to ensure compliance with
relevant laws, the company’s code of conduct, and other relevant standards
Ethics Committee - Communicate the organization’s ethics and compliance standards and procedures, ensuring
the effectiveness of that communication.
Code of ethics - sets out an organization's ethical guidelines and best practices to follow for honesty, integrity, and
professionalism. For members of an organization, violating the code of ethics can result in sanctions including termination.
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Compliance based code of ethics - not only set guidelines for conduct but also determine penalties for violations.
This type of code of ethics is based on clear-cut rules and well-defined consequences rather than individual
monitoring of personal behavior.
Value based code of ethics - addresses a company's core value system. It may outline standards of responsible
conduct as they relate to the larger public good and the environment. Value-based ethical codes may require a
greater degree of self-regulation than compliance-based codes.
Code of conduct - A code of conduct guides the specific actions of a company's employees. It may contain certain norms
of professional responsibility, such as punctuality and accuracy. Most companies have an employee code of conduct, both
to maintain professionalism and to prevent friction among their employees.
Whistle blowers - A whistleblower is anyone who has and reports insider knowledge of illegal, illicit, and fraudulent
activities occurring in an organization.
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Whistleblowers can be employees, suppliers, contractors, clients, or any individual who becomes aware of
dubious business activities.
Whistleblowers are protected from retaliation under various programs created by the Occupational Safety and
Health Administration (OSHA), Sarbanes-Oxley Act, and the Securities and Exchange Commission (SEC). Federal
employees are protected under the Whistleblower Protection Act of 1989.
Whistleblowers are protected from retaliation should the information provided be confirmed to be true. This
protection includes prohibiting the accused company from taking adverse or harmful actions against the reporter.
Often the whistleblower may be entitled to a reward as compensation for reporting illicit activities.
Corporate social responsibility - is a business model by which companies make a concerted effort to operate in ways that
enhance rather than degrade society and the environment. CSR helps both improve various aspects of society as well as
promote a positive brand image of companies.
CSRs are often broken into four categories:
Environmental impacts - is the pillar of corporate social responsibility rooted in preserving Mother Nature. Through
optimal operations and support of related causes, a company can ensure it leaves natural resources better than before its
operations.
Ethical responsibility - is the pillar of corporate social responsibility rooted in acting in a fair, ethical manner. Companies
often set their own standards, though external forces or demands by clients may shape ethical goals.
Philanthropic endeavors - is the pillar of corporate social responsibility that challenges how a company acts and how it
contributes to society.
Financial responsibilities - is the pillar of corporate social responsibility that ties together the three areas above. A company
make plans to be more environmentally, ethically, and philanthropically focused; however, the company must back these
plans through financial investments of programs, donations, or product research.
Role of regulators in corporate governance
The purpose of regulators for achieving corporate integrity is to help build an environment of transparency and
accountability, essential for nurturing long-term investments, financial stability, and business integrity, thereby supporting
stronger growth and more inclusive societies.
The Principles of the regulators are intended to help policymakers evaluate and improve the legal and institutional
framework for corporate governance, to support economic efficiency, financial firmness, and sustainable growth.
Gatekeeper - can be defined as a professional officer or a service provider of a company who verify the responsibility and
the trustworthiness of the businesses of a company. Company secretaries act as the gatekeepers to enhance standard of
corporate governance in a body corporate.
Kotak committee recommendations 2018
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Composition and role of the board
Institution of independent directors
Board committees
Monitoring group entities and related parties
Accounting and audit related matters
Disclosures and transparency
Investor participation