Business Ethics
Business Defined:
Business is the collection of private, commercially oriented (profit-oriented) organizations, ranging in
size from one-person proprietorships (such as a shopkeeper) to corporate giants (such as Microsoft,
OGDCL,).
Society Defined:
Society may be defined as a community, a nation, or a broad grouping of people having common
traditions, values, institutions, and collective activities and interests. As such, when we speak of
business/society relationships, we may in fact mean business and the local community, business and
Pakistan as a whole, or business and a specific group of people (consumers, minorities, and stockholders).
When we refer to business and the entire society, we think of society as being composed of numerous
interest groups, more or less formalized organizations, and a variety of institutions. Each of these groups,
organizations, and institutions is a purposeful aggregation of people who have banded together because
they represent a common cause or share a set of common beliefs about a particular issue.
Ethics:
Ethics basically refers to issues of right, wrong, fairness, and justice, and business ethics focuses on
ethical issues that arise in the businesses. Ethical issues run throughout our discussion because questions
of right, wrong, fairness, and justice, deals with business’s activities as it attempts to interact effectively
with major stakeholder groups: employees, customers, owners, government, and the community.
Ethics has been defined as “inquiry into the nature and ground of morality where the term morality is
taken to means moral judgement, standards and rule of conducts”. Ethics has also been called the study
and philosophy of human conduct, with an emphasis on determining right and wrong. Ethics reflects as
society’s principles about the rightness or wrongness of an act.
Principles of Personal Ethics:
Principles of personal ethics are:
1) Concern and respect for the autonomy of others.
2) Honesty and willingness to comply with the law.
3) Fairness and the ability not to take undue advantage of others.
4) Benevolence and preventing harm to any creature.
Principles of Professional Ethics:
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1) Impartiality and objectivity.
2) Openness and full disclosure.
3) Confidentiality and trust.
4) Due diligence/duty of care.
5) Loyalty to professional responsibilities.
6) Avoiding potential or apparent conflict of interest.
What is Business Ethics?
Many definitions of business ethics relate to rules, standards, and moral principles regarding what is right
or wrong in specific situations. For our purpose and in simple terms business ethics comprises the
principles and standards that guide behavior in the world of business. Investors, employees, customers,
interest groups, the legal systems & the community often determine whether a specific action is right or
wrong, ethical or unethical. Business ethics on the other hand is the application of general ethical ideas
to business behavior. Ethical business behavior is expected by the public, it facilitate and promote good
to society, improve profitability, foster business relations and employee productivity, reduces criminal
penalties from public authorities and regulators, protect business against unscrupulous employees and
competitors, protect employees from harmful actions by their employer and allow people in business to
act consistently with their personal ethical beliefs. Ethical issues such as abusive or intimidating behavior,
lying, conflict of interest, bribery, corporate intelligence, discrimination, sexual harassment, fraud,
consumer fraud, insider trading etc arises when there are no good business ethics in the business
environment. Business ethics is therefore a sum total of principles and code of conduct businessmen are
expected to follow in their dealings with their stakeholders such as shareholders, employees, customers,
creditors, and comply with to enact the laws of the land and to protect all these stakeholders. Business
ethics covers diverse areas ranging from labor practices, free and fair trade, health concerns,
environmental concerns, to genetic modifications, to human cloning, working conditions, Business ethics
are the moral principles that act as guidelines for the way a business conducts itself and its transactions.
In many ways, the same guidelines that individuals use to conduct themselves in an acceptable way – in
personal and professional settings – apply to businesses as well.
Determining Right and Wrong
Acting ethically ultimately means determining what is “right” and what is “wrong.” Basic standards exist
around the world that dictate what is wrong or unethical in terms of business practices. For example,
unsafe working conditions are generally considered unethical because they put workers in danger. It
might look like a crowded work floor with only one means of exit. In the event of an emergency – such
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as a fire – workers could become trapped or might be trampled on as everyone heads for the only means
of escape.
While some unethical business practices are obvious or true for companies around the world, they do still
occur. In other instances, determining what practices are ethical or not is more difficult to determine if
they exist in a grey area where the lines between ethical and unethical can become blurred.
For example, assume Company “A” works with a contact at Company “B”, an individual through which
they negotiate all the prices for supplies they buy from Company B. Company A naturally wants to get
the best prices on the supplies. When the individual from Company B comes to their home office to
negotiate a new contract, they put him up in a top-tier hotel, in the very best suite, and make sure that all
his wants and needs are met while he’s there.
In technical terms, the practice is not illegal; however, it might be considered a grey area – close to, but
not quite, bribery – because the individual is then likely to be more inclined to give Company A a price
break at the expense of getting the best deal for his own company.
Foundation of ethical conflict:
People make ethical decisions only after they recognize that at particular issue or situation has an ethical
component, thus the first step toward understanding business ethics is to develop the ethical issue
awareness. Ethical issues arise because of the conflicts among the individual personal moral philosophies
and the value and culture of the organization in which they live. The business environment presents many
potential ethical conflicts. e.g a company efforts to achieve its organizational objectives may conflicts
with its employee efforts to fulfill their own personal goals. Similarly consumer desires for safe & quality
products may conflict with a manufacturer’s need to earn adequate profit. The ambition of top executives
to secure sizable increase in compensation may conflict with the desires of shareholders to control costs
& increase the value of corporation. A manager wish to hire specific employees that he or she likes may
be in conflict with the organizations intents to hire the best qualified candidates as well as with the society
aim to offer equal opportunity to women & members of minority groups.
The characteristics of the job, the culture & organizations of the society in which one does business can
also create ethical issues. Gaining familiarity with the ethical issues that frequently arise in business
world will help you identify & resolve them when they occur.
Ethical Issues in Business:
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Ethical issues include the rights & duties between a company and its stakeholder’s e.g employees,
suppliers, customers, neighbors, media, communities, Govt agencies & its fiduciary/trust responsibility
to its shareholders.
Ethical Issues and Dilemmas in business:
Ethical Issue: An ethical issue is problem, situation or opportunity that requires an individual, group or
organization to choose among several actions that must be evaluated as right or wrong, ethical or unethical.
Ethical Dilemma: An ethical dilemma is a problem, situation or opportunity that requires an individual, group or
organization to choose among several wrong or unethical actions. There is not simply one right or ethical choice
in a dilemma, only the unethical or illegal choices are perceived by any and all stakeholders.
The following are different ethical issues and dilemmas in business.
1) Abusive or Intimidating behavior
2) Lying
3) Conflict of interest
4) Bribery
5) Corporate Intelligence
6) Discrimination
7) Sexual Harassment
8) Environmental Issues
9) Fraud
10) Financial Misconduct
11) Insider Trading
12) Intellectual Property Rights
13) Privacy Issues
Abusive or Intimidating Behavior: It is a common problem the employees face in business undertaking. The
abusive or intimidating behavior means physical threats, false accusations, being annoying, profanity (bad words),
insults, yelling (shout in loud), harshness (the quality of being cruel or severe), ignoring someone and
unreasonableness. However the above words differ from culture to culture e.g what one may define yelling might
be another’s definition of normal speech.
Lying: Lying in another ethical issue & dilemma. Lying conceal the truth. There are three types of lying. One is
joking without distorting the reputation of business. Commission lying is creating a perception or belief by words
that intentionally deceive the receiver of the message e.g. lying about being at work, expense reports, or carrying
out work assignments. Forms of commission lying are puffery in advertising, e.g. saying that a product is
“homemade” when it is made in factory is lying. One can lie by commission by showing a picture of the product
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that does not reflect the actual product. This happens frequently in business. Omission lying is intentionally not
informing the channel members of any differences, problems, safety warnings or negative issues relating to the
products, services or company that significantly affects awareness, intention or behavior. A classic example is the
tobacco manufacturers that did not allow negative research to appear on cigarettes or cigar. The cigarettes
manufacturers allegedly did not inform the customer of its side effects on of which is death.
Conflict of Interest: A conflict of interest arises when an individual advance his or her own interest, those of
organization interest. The individual consider his personal interest superior than the organization interest. The best
example may be to allot a contract to his family member or friend while one is on a senior position in a company
or other organization. Hiring employees of his family or friends while one is on high position in any organization.
To avoid conflict of interest, employee must be able to separate their private interest from their business dealings.
Bribery: Bribery is the practice of offering something (usually money) in order to get an illegal advantage. Bribery
has been defined in many ways. For example active corruption or active bribery meaning that the person who
promises or give the bribe is commit the offense. Passive bribery is an offense committed by the official who
receive the bribe. Small facilitation payment made to obtain or retain business advantages do not constitute bribery
payments. In some countries such payment is made to induce public officials to perform their functions such as
issuing licenses or permits. However in many developed countries, it is generally recognized that employees should
not accept bribe, personal payment, gifts, or special favor from people who hope to influence the outcome of a
decision. However bribery is an accepted way of doing business in many countries and may managers, legislators,
and government officials accept bribe. One estimate show that about 80 million dollars bribe is paid annually
worldwide.
Corporate Intelligence: Corporate intelligence is the collection and analysis of information on markets,
technologies, customers, competitors as well as on socio-economic and external political trends. There are three
types of intelligence models: a passive monitoring systems for early warning, tactical field support and support
dedicated to top management strategy. Today trade secrets theft is estimated about 100 billion dollars. Some
techniques for accessing valuable information includes physically removing the hard drive and copying the
information to another computer, hacking, social engineering, hiring away key employees.
Hacking: hacking is considered one of the top method for obtaining trade secrets. Hacking has three
categories 1) system hacking in which the attacker has already access to a user account. 2) Remote hacking means
to access the system remotely across the internet. 3) Physical hacking means when CI agent enter a facility
personally and look for a vacant or unsecured workstation with a login name and password and obtain information
from there.
Social engineering: Social engineering is the tricking of individuals into revealing their password or other
valuable corporate information. Another social engineering trick is a shoulder surfing in which someone simply
looks over an employee’s shoulder while he or she types in a password. Password guessing is another social
engineering technique.
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Discrimination: Discrimination on the basis of race, color, religion, sex, marital status, sexual orientation,
public assistance status, disability, age, national origin, or veteran status are ethical issues in business.
Additionally, discrimination on the basis of political opinions or affiliation with a union is defined as
harassment.
A company in the United States can be sued if it (1) refuses to hire an individual, (2) maintains a system
of employment that unreasonably excludes an individual from employment, (3) discharges an individual,
or (4) discriminates against an individual with respect to hiring, employment terms, promotion, or
privileges of employment as it relates to the definition of discrimination.
Race, gender, and age discrimination are a major source of ethical and legal debate in the workplace.
Between 75,000 and 80,000 charges of discrimination are filed annually with the Equal Employment
Opportunity Commission (EEOC). Discrimination remains a significant ethical issue in business despite
nearly 40 years of legislation attempting to outlaw it.
Sexual Harassment: Sexual harassment can be defined as any repeated, unwanted behavior of a sexual
nature perpetrated upon one individual by another. It may be verbal, visual, written, or physical and can
occur between people of different genders or those of the same sex. “Workplace display of sexually
explicit material—photos, magazines, or posters— may constitute a hostile work environment
harassment, even though the private possession, reading, and sharing of such materials is protected under
the Constitution.”
Sexual harassment is a form of sex discrimination that violates Title VII of the Civil Rights Act of 1964.
Title VII applies to employers with 15 or more employees, including state and local governments. To
understand the magnitude of this volatile issue, in one year the EEOC received 13,136 charges of sexual
harassment, of which over 15 percent were filed by men. In another recent year, the EEOC resolved
13,786 sexual harassment charges and recovered $37.1 million in penalties.
Environmental Issues: Environmental issues are becoming the significant concerns within the business
community. The air pollution, noise pollution & water pollution are best examples. The Kyoto Protocol,
one example of the world’s growing concern about global warming, is an international treaty on climate
change committed to reducing emissions of carbon dioxide and five other greenhouse gases and to
engaging in emissions trading if member signatories maintain or increase emissions of these gases. The
objective is to stabilize greenhouse gas concentrations in the atmosphere at a level that would prevent
dangerous climate changes.
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Fraud: When an individual engages in deceptive practices to advance his or her own interests over those
of his or her organization or some other group, charges of fraud may result. In general, fraud is any
purposeful communication that deceives, manipulates, or conceals facts in order to create a false
impression. Fraud is a crime and convictions may result in fines, imprisonment, or both. Fraud costs U.S.
organizations more than $400 billion a year; the average company loses about 6 percent of total revenues
to fraud and abuses committed by its own employees. Among the most common fraudulent activities
employees report about their coworkers are stealing office supplies or shoplifting, claiming to have
worked extra hours, and stealing money or products. In recent years, accounting fraud has become a
major ethical issue, but as we will see, fraud can also relate to marketing and consumer issues as well.
Accounting fraud usually involves a corporation’s financial reports in which companies provide
important information on which investors and others base decisions that may involve millions of dollars.
If the documents contain inaccurate information, whether intentionally or not, then lawsuits and criminal
penalties may result.
Marketing fraud—the process of creating, distributing, promoting, and pricing products is
another business area that generates potential ethical issues. False or misleading marketing
communications can destroy customers’ trust in a company. Misleading marketing can also cost
consumers hard-earned money. Puffery can be defined as exaggerated advertising, blustering, and
boasting upon which no reasonable buyer would rely. Implied falsity means that the message has a
tendency to mislead, confuse, or deceive the public. The advertising claims that use implied falsity are
those that are literally true but imply another message that is false.
Consumer fraud: is when consumers attempt to deceive businesses for their own gain. The FTC
(Federal Trade Commission) estimates that more than 25 million consumers annually engage in consumer
fraud. Shoplifting, for example, accounts for 35 percent of the losses at the largest U.S. retail chains.
Consumer fraud involves intentional deception to derive an unfair economic advantage by an individual
or group over an organization. Examples of fraudulent activities include shoplifting, collusion.
Financial Misconduct: means willful or negligent act or omission which permits an unauthorized,
irregular or wasteful expenditure, theft, or misapplication of funds. Financial Misconduct means any
misappropriation, mismanagement, waste or theft of the finances of a municipality. The failure to
understand and manage ethical risks played a significant role in the financial crisis and recession of 2008–
2009.
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The top executives or CEOs are ultimately responsible for the repercussions of their employees’
decisions. Top executives at Merrill Lynch awarded $3.6 billion in bonuses shortly before its merger with
Bank of America in 2008. A combined $121 million went to four top executives. This was done in spite
of the fact that Merrill Lynch had to be rescued by the government to save it from bankruptcy.
Insider Trading: Insider trading involves trading in a public company's stock by someone who has nonpublic, material information about that stock for any reason. Insider trading can be either illegal or legal
depending on when the insider makes the trade. It is illegal Insider Trading when the material
information is still non-public, and this sort of insider trading comes with harsh consequences. The act,
which puts insiders in breach of their fiduciary duty, can be committed by anyone who has access to
nonpublic material, such as brokers, family, friends, and employees. Legal insider trading involves legally
buying and selling stock in an insider’s own company, but not all the time. Insiders are required to report their
insider transactions within two business days of the date the transaction occurred. For example, if an insider sold
10,000 shares on Monday, June 12, he or she would have to report this change to the SEC by Wednesday, June
14. To deter insider trading, insiders are prevented from buying and selling their company stock within a six-month
period; therefore, insiders buy stock when they feel the company will perform well over the long term.
Intellectual property rights: involve the legal protection of intellectual properties such as music, books,
and movies. Laws such as the Copyright Act of 1976, the Digital Millennium Copyright Act, and the
Digital Theft Deterrence and Copyright Damages Improvement Act of 1999 were designed to protect the
creators of intellectual property. As China has grown into an economic powerhouse, the market for
pirated goods of all types ranging from DVDs to pharmaceuticals, and even cars, has grown into a
multibillion dollar industry. China’s government has thus far proven weak in protecting intellectual
property, and the underground market for such pirated goods—which are sold all over the world—has
grown at a rapid pace. While intellectual property rights infringement always poses a threat from
companies that risk losing profits and reputation, it can also threaten the health and well-being of
consumers. For example, illegally produced medications, when consumed by unknowing consumers, can
cause sickness and even death.
Privacy Issues: Consumer advocates continue to warn consumers about new threats to their privacy,
especially within the health care and Internet industries. As the number of people using the Internet
increases, the areas of concern related to its use increase as well. Some privacy issues that must be
addressed by businesses include the monitoring of employees’ use of available technology and consumer
privacy. Current research suggests that, even if businesses use price discounts or personalized services,
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consumers remain suspicious. However, certain consumers are still willing to provide personal
information, despite the potential risks.
A challenge for companies today is meeting their business needs while protecting employees’ desires for
privacy. There are few legal protections of an employee’s right to privacy, which allows businesses a
great deal of flexibility in establishing policies regarding employees’ privacy while they are on company
property and using company equipment. The increased use of electronic communications in the
workplace and technological advances that permit employee monitoring and surveillance have provided
companies with new opportunities to obtain data about employees. From computer monitoring and
telephone taping to video surveillance and GPS satellite tracking, employers are using technology to
manage their productivity and protect their resources.
To motivate employee compliance, over 25 percent of 596 companies have fired workers for misusing
the Internet, 6 percent have fired employees for misusing office telephones, 76 percent monitor their
workers’ website connections, and 65 percent use software to block connections to inappropriate
websites. In addition, 36 percent of those employers track content, keystrokes, and time spent at
keyboards and store the data in order to review it later. Employers are also notifying employees when they
are being watched; of the organizations monitoring employees, 80 percent informed their workers.
Because of the increased legal and regulatory investigations, employers have established policies
governing personal e-mail use, personal Internet use, personal instant messenger use, personal blogs, and
operation of personal websites on company time.
Ethical Issues Related to Participants & Functional Areas of Business:
Ethical Issues in Accounting & Finance
Accounting & finance department play a very important role in any organization. It is the backbone of
the company. A company or business can’t function without the accounting & finance department. The
2008 financial crisis in the United States caused critics to challenge the ethics of the executives in charge
of U.S. and European financial institutions and regulatory bodies. Previously, many overlooked finance
ethics because issues in finance are often addressed as matters of law rather than ethics. Fairness in
trading practices, trading conditions, financial contracting, sales practices, consultancy services, tax
payments, internal audits, external audits, and executive compensation also fall under the umbrella of
finance and accounting. Specific corporate ethical and legal abuses include creative accounting, earnings
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management, misleading financial analysis, insider trading, securities fraud, bribery, kickbacks, and
facilitation payments, embezzlement of cash, Window dressing, Creation of secret reserves.
Ethical Issues in Human Resource Management
Human resource (HR) management involves recruitment selection, orientation, performance appraisal,
training and development, industrial relations and health and safety issues. The HR manager must
respond to ethical issues related to discrimination concerning age, disability, gender, sexual orientation,
race, religion, and weight, Low salary and wages, Unsafe working condition, Discrimination, Child labor,
Employee raiding.
Ethical Issues in Sales and Marketing
Ethics in marketing refers to the principles, values, and ideals marketers and marketing institutions
follow. Marketing issues related to ethics include: Unfair pricing strategy, Creation of monopoly,
Dumping, Non-disclosure of substantial risk, Deceptive communication, Poor after sales service,
Substantial advertisement, Obscene advertisement, Unhealthy competition marketing redundant or
dangerous products and services; a lack of transparency regarding environmental risks, product
ingredients, possible health risks, or financial risks; disrespect for consumer privacy and autonomy;
advertising truthfulness. Some argue that 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, illegal actions, such as price fixing, and
legal actions, such as price discrimination and price skimming.
Ethical Issues in Production
Business ethics refer to the duty companies have to ensure their products and production processes do
not cause harm. Few goods and services can be produced and consumed without any risk, so determining
an ethical course can be difficult. In some cases, consumers demand and choose to purchase products
that will likely cause harm, such as tobacco products. Production may have an environmental impact,
such as pollution, environment destruction, and urban sprawl. Meanwhile, the downstream effects of
technologies, such as nuclear power, genetically-modified food, and mobile phones, can be difficult to
ascertain. Adulteration, Production of harmful products, Inferior components and raw materials, Lack of
information to customers on side effects, Unsafe and unhealthy packaging, Ignoring environmental
standards are some the ethical issues in production that should be tackled.
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While it may be advisable to prohibit some types of companies from introducing new products before
any safety issues and negative consequences have been fully explored and resolved, this sentiment would
have prohibited many new technologies from being introduced and going to market.
Research & Development ethics: Businesses continues research & development for the invention of
new product or for the improvement in the existing product. Some ethical issues in research &
development are use of animals for testing new products, Inaccurate and incomplete testing of the
products & patents & copyrights infringements.
Recognizing an Ethical Issue:
Although we have described a number of relationships and situations that may generate ethical issues, in
practice it can be difficult to recognize specific ethical issues. Failure to acknowledge such ethical issues
is a great danger in any organization, particularly if business is treated as a “game” in which ordinary
rules of fairness do not apply. Sometimes people who take this view are willing to do things that are not
only unethical but also illegal so that they can maximize their own position or boost the profits of their
organization. Business decisions, like personal decisions, involve an unsettled situation or dilemma. Just
because an activity is considered an ethical issue does not mean the behavior is necessarily unethical. An
ethical issue is simply a situation, a problem, or even an opportunity that requires thought, discussion, or
investigation to make a decision. And because the business world is dynamic, new ethical issues are
emerging all the time.
Honesty refers to truthfulness or trustworthiness. To be honest is to tell the truth to the best of your
knowledge without hiding anything. Confucius defined several levels of honesty. The shallowest is called
Li, and it relates to the insincere desires of a person. A key principle to Li is striving to convey feelings
that outwardly are or appear to be honest but that are ultimately driven by self-interest. The second level
is Yi, or righteousness, where a person does what is right based on trade. The deepest level of honesty is
called Ren, and it is based on an understanding of and empathy toward others.
Fairness is the quality of being just, equitable, and impartial. There are three fundamental elements that
seem to motivate people to be fair: equality, reciprocity, and optimization. In business, equality is about
how wealth or income is distributed between employees within a company, a country, or across the globe.
Reciprocity is an interchange of giving and receiving in social relationships. Reciprocity occurs when
an action that has an effect upon another is reciprocated with an action that has an approximately equal
effect upon the other. Reciprocity is the return of small favors that are approximately equal in value. For
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example, reciprocity implies that workers be compensated with wages that are approximately equal to
their effort. An ethical issue about reciprocity for business is the amount CEOs and other executives are
paid in relation to their employees.
Optimization is the trade-off between equity (that is, equality or fairness) and efficiency (that is,
maximum productivity). Discriminating on the basis of gender, race, or religion is generally considered
to be unfair because these qualities have little bearing upon a person’s ability to do a job. The optimal
way is to choose the employee who is the most talented, most proficient, most educated, and most able.
Integrity is one of the most important and often-cited terms regarding virtue, in an organization, it means
uncompromising adherence to ethical values. Integrity is connected to acting ethically. At a minimum,
businesses are expected to follow all applicable laws and regulations. In addition, organizations should
not knowingly harm customers, clients, employees, or even other competitors through deception,
misrepresentation, or pressure. Although businesspeople often act in their own economic self-interest,
ethical business relations should be grounded on honesty, integrity, fairness, justice, and trust. Buyers
should be able to trust sellers; lenders should be able to trust borrowers. Failure to live up to these
expectations or to abide by laws and standards destroys trust and makes it difficult, if not impossible, to
continue business exchanges. These virtues become the glue that holds business relationships together,
making everything else more effective and efficient.
Applying Moral Philosophies to Business Ethics:
Now we provide a detailed description and analysis of how individuals’ backgrounds and philosophies
influence their decisions. It is important to determine when one action is right and when another is viewed
as wrong, and individual moral philosophies are often used to justify decisions or explain actions. To
understand how people make ethical decisions, it is useful to have a grasp of the major types of moral
philosophies.
Moral Philosophy Defined:
Moral philosophy, refers in particular to the specific principles or rules that people use to decide what
is right or wrong. It is important to understand the distinction between moral philosophies and business
ethics. A moral philosophy is a person’s principles and values that define what is moral or immoral.
Moral philosophies are person-specific, whereas business ethics is based on decisions in groups or those
made when carrying out tasks to meet business objectives. In the context of business, ethics refers to
what the group, firm, or strategic business unit (SBU) defines as right or wrong actions pertaining to its
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business operations and the objective of profits, earnings per share, or some other financial measure of
success as defined by the group. For example, a production manager may be guided by a general
philosophy of management that emphasizes encouraging workers to know as much as possible about the
product that they are manufacturing. However, the manager’s moral philosophy comes into play when
he must make decisions such as whether to notify employees in advance of upcoming discharges.
Although workers would prefer advance warning, giving it might adversely affect the quality and quantity
of production. Such decisions require a person to evaluate the “rightness,” or morality, of choices in terms
of his or her own principles and values. Moral philosophies present guidelines for “determining how
conflicts in human interests are to be settled and for optimizing mutual benefit of people living together
in groups,” guiding businesspeople as they formulate business strategies and resolve specific ethical
issues. The theories of moral obligations/Philosophies are divided into two groups the one is called
Goodness theories which focuses on the end results of actions and the goodness or happiness created by
them, whereas Obligation Theories emphasize the means or motives by which actions are justified. These
obligation theories are teleology and deontology respectively.
Teleology (from the Greek word for “end” or “purpose”) refers to moral philosophies in which an act is
considered morally right or acceptable if it produces some desired result such as pleasure, knowledge,
career growth, the realization of self-interest, utility, wealth, or even fame. In other words, teleological
philosophies assess the moral worth of a behavior by looking at its consequences, and thus moral
philosophers today often refer to these theories as consequentialism. Two important teleological
philosophies that often guide decision making in individual business decisions are egoism and
utilitarianism.
Egoism defines right or acceptable behavior in terms of its consequences for the individual. Egoists
believe that they should make decisions that maximize their own self-interest, which is defined differently
by each individual. Depending on the egoist, self-interest may be interpreted as physical well-being,
power, pleasure, fame, a satisfying career, a good family life, wealth, or something else. In an ethical
decision making situation, an egoist will probably choose the alternative that contributes most to his or
her self-interest. The egoist’s belief generally can be stated as “Do the act that promotes the greatest good
for oneself.”
Utilitarianism is concerned with consequences, but the utilitarian seeks the greatest good for the greatest
number of people. Utilitarian’s believe that they should make decisions that result in the greatest total
utility, that achieve the greatest benefit for all those affected by a decision. An argument for utilitarianism
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may be President Obama’s 2009 economic stimulus package. Its costs to the American taxpayer may
have been weighted against the greater costs of allowing the market to fall into a depression without
government intervention. Utilitarian decision making relies on a systematic comparison of the costs and
benefits to all affected parties. Using such a cost–benefit analysis, a utilitarian decision maker calculates
the utility of the consequences of all possible alternatives and then selects the one that results in the
greatest benefit. These rule utilitarian’s determine behavior on the basis of principles, or rules, designed
to promote the greatest utility rather than on an examination of each particular situation. One such rule
might be “Bribery is wrong.” If people felt free to offer bribes whenever they might be useful, the world
would become chaotic; therefore, a rule prohibiting bribery would increase utility. The act utilitarian’s
examine a specific action itself, rather than the general rules governing it, to assess whether it will result
in the greatest utility. Rules such as “Bribery is wrong” serve only as general guidelines for act
utilitarian’s. They would likely agree that bribery is generally wrong, not because there is anything
inherently wrong with bribery, but because the total amount of utility decreases when one person’s
interests are placed ahead of those of society. In a particular case, however, an act utilitarian might argue
that bribery is acceptable. For example, a sales manager might believe that his or her firm will not win a
construction contract unless a local government official gets a bribe; moreover, if the firm does not obtain
the contract, it will have to lay off 100 workers. The manager might therefore argue that bribery is
justified because saving 100 jobs creates more utility than obeying a law.
Deontology (from the Greek word for “ethics”) refers to moral philosophies that focus on the rights of
individuals and on the intentions associated with a particular behavior rather than on its consequences.
Focuses on the preservation of individual rights and on the intentions associated with a particular
behavior rather than on its consequences. Fundamental to deontological theory is the idea that equal
respect must be given to all persons. Unlike utilitarian’s, deontologists argue that there are some things
that we should not do, even to maximize utility. For example, deontologists would consider it wrong to
kill an innocent person or commit a serious injustice against a person, no matter how much greater social
utility might result from doing so, because such an action would infringe on that person’s rights as an
individual. The utilitarian, however, might consider as acceptable an action that resulted in a person’s
death if that action created some greater benefit. Deontological philosophies regard certain behaviors as
inherently right, and the determination of this rightness focuses on the individual actor, not society. Thus,
these perspectives are sometimes referred to as nonconsequentialism an ethics based on respect for
persons. Deontologists may be divided into those who focus on moral rules and those who focus on the
nature of the acts themselves. Rule deontologists believe that conformity to general moral principles
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determines ethicalness. Deontological philosophies use reason and logic to formulate rules for behavior.
For Example Do unto others as you would have them do unto you. Act deontologists, in contrast, hold that
actions are the proper basis on which to judge morality or ethicalness. Act deontology requires that a
person use equity, fairness, and impartiality when making and enforcing decisions. For Examples a high
school teacher at Hoover High in Alabama purportedly lost her job because she refused to change a
football player’s grade. It would have been much easier for her to do as others had done, yet the
philosophy she used was within the act deontologist’s range.
Ethical Relativism: is a theory, which claims that there are no universally valid moral principles.
Normative ethical relativism theory says that the moral rightness and wrongness of actions varies from
society to society and that there are no absolute universal moral standards binding on all men at all times.
The theory claims that all thinking about the basic principles of morality (Ethics) is always relative. Each
culture establishes the basic values and principles that serve as the foundation for morality.
Virtue Ethics: Virtue ethics is a philosophy developed by Aristotle and other ancient Greeks. It is the
quest to understand and live a life of moral character.
This character-based approach to morality assumes that we acquire virtue through practice. By practicing
being honest, brave, just, generous, and so on, a person develops an honorable and moral character.
According to Aristotle, by enhancing virtuous habits, people will likely make the right choice when faced
with ethical challenges. Virtue ethics, rooted in the thinking of Plato and Aristotle, focuses on the
individual becoming imbued with virtues (e.g., honesty, fairness, truthfulness, benevolence, nonmalfeasance).
Rawlsian Theory of Justice: Just as the utilitarian principle does not handle well the idea of rights, it
does not deal well with justice either. One way to look at justice involves the fair treatment of each
person. But how do you decide what is fair to each person? How do you decide what each person is due?
People might be given what they are due according to their work, their effort, their merit, their need, and
so on. Each of these criteria might be appropriate in different situations. To use the principle of justice,
we must ask, “What do we mean by justice?” There are several kinds of justice. Distributive justice refers
to the distribution of benefits and bur-dens. Compensatory justice involves compensating someone for a
past injustice. Procedural justice refers to fair decision-making procedures, practices, or agreements.
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Ethical Decision Making Framework: Week 4 & 5
To improve ethical decision making in business, one must first understand how individuals make ethical
decisions in an organizational environment. Too often it is assumed that individuals in organizations
make ethical decisions in the same way that they make ethical decisions at home, in their family, or in
their personal lives. Within the context of an organizational work group, however, few individuals have
the freedom to decide ethical issues independent of organizational pressures.
The below model shows the ethical decision making process in business includes ethical issue intensity,
individual factors, and organizational factors such as corporate culture and opportunity. All of these
interrelated factors influence the evaluations of and intentions behind the decisions that produce ethical
or unethical behavior. This model does not describe how to make ethical decisions, but it does help one
to understand the factors and processes related to ethical decision making.
1. Ethical Issue Intensity:
The first step in ethical decision making is to recognize that an ethical issue requires an individual or
work group to choose among several actions that various stakeholders inside or outside the firm will
ultimately evaluate as right or wrong. The intensity of an ethical issue relates to its perceived importance
to the decision maker. Ethical issue intensity, then, can be defined as the relevance or importance of an
ethical issue in the eyes of the individual, work group, and/or organization. It is personal and temporal in
character to accommodate values, beliefs, needs, perceptions, the special characteristics of the situation,
and the personal pressures prevailing at a particular place and time. Senior employees and those with
administrative authority contribute significantly to intensity because they typically dictate an
organization’s stance on ethical issues. In fact, under current law, managers can be held liable for the
unethical and illegal actions of subordinates.
Ethical issue intensity reflects the ethical sensitivity of the individual or work group that faces the ethical
decision making process. Research suggests that individuals are subject to six “spheres of influence”
when confronted with ethical choices—the workplace, family, religion, legal system, community, and
profession—and that the level of importance of each of these influences will vary depending on how
important the decision maker perceives the issue to be.
2. Individual Factors
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When people need to resolve ethical issues in their daily lives, they often base their decisions on their
own values and principles of right or wrong. They generally learn these values and principles through the
socialization process with family members, social groups, and religion and in their formal education.
The more likely individuals are to perceive an ethical issue as important, the less likely they are to engage
in questionable or unethical behaviour.
In the workplace, personal ethical issues typically involve honesty, conflicts of interest, discrimination,
nepotism, and theft of organizational resources. For example, many individuals use the company
computer system for several hours of work time a day for personal reasons. Most employees limit the use
of their work time for personal use, and most companies probably overlook these as reasonable. Some
employees, however, use times in excess of 30 minutes for personal Internet communications, which
companies are likely to view as an excessive use of company time for personal reasons. The decision to
use company time for personal affairs is an example of an ethical decision. It illustrates the fine line
between what may be acceptable or unacceptable in a business environment. It also reflects how well an
individual will assume responsibilities in the work environment. Often this decision will depend on
company policy and the corporate environment.
a. Education, the number of years spent in pursuit of academic knowledge, is also a significant factor in
the ethical decision making process. The important thing to remember about education is that it does not
reflect experience. Work experience is defined as the number of years within a specific job, occupation,
and/or industry. Generally, the more education or work experience that one has, the better he or she is at
ethical decision making. The type of education has little or no effect on ethics. For example, it doesn’t
matter if you are a business student or a liberal arts student—you are pretty much the same in terms of
ethical decision making. Current research, however, shows that students are less ethical than
businesspeople, which is likely because businesspeople have been exposed to more ethically challenging
situations than students.
b. Nationality is the legal relationship between a person and the country in which he or she is born.
Within the twenty-first century, nationality is being redefined by regional economic integration such as
the European Union (EU). When European students are asked their nationality, they are less likely to
state where they were born than where they currently live. The same thing is happening in the United
States, as someone born in Florida who lives in New York might consider him- or herself to be a New
Yorker. Research about nationality and ethics appears to be significant in that it affects ethical decision
making; however, the true effect is somewhat hard to interpret.15 Because of cultural differences, it is
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impossible to state that ethical decision making in an organizational context will differ significantly. The
reality of today is that multinational companies look for businesspeople who can make decisions
regardless of nationality. Perhaps in twenty years, nationality will no longer be an issue in that the
multinational’s culture will replace the national status as the most significant factor in ethical decision
making.
c. Locus of control relates to individual differences in relation to a generalized belief about how one is
affected by internal versus external events or reinforcements. In other words, the concept relates to where
people view themselves in relation to power. Those who believe in external control (that is, externals)
see themselves as going with the flow because that’s all they can do. They believe that the events in their
lives are due to uncontrollable forces. They consider that what they want to achieve depends on luck,
chance, and powerful people in their company. In addition, they believe that the probability of being able
to control their lives by their own actions and efforts is low. Conversely, those who believe in internal
control (that is, internals) believe that they control the events in their lives by their own effort and skill,
viewing themselves as masters of their destinies and trusting in their capacity to influence their
environment.
Current research suggests that we still can’t be sure how significant locus of control is in terms of ethical
decision making. One study that found a relationship between locus of control and ethical decision
making concluded that internals were positively related whereas externals were negative.17 In other
words, those who believe that their fate is in the hands of others were more ethical than those who
believed that they formed their own destiny.
3. Organizational Factors:
Although people make individual ethical choices in business situations, no one operates in a vacuum.
Indeed, research has established that in the workplace the organization’s values often have greater
influence on decisions than a person’s own values. Ethical choices in business are most often made
jointly, in work groups and committees, or in conversations and discussions with coworkers. Employees
approach ethical issues on the basis of what they have learned not only from their own backgrounds but
also from others in the organization.
Corporate culture can be defined as a set of values, norms, and artifacts, including ways of solving
problems that members (employees) of an organization share. As time passes, stakeholders come to view
the company or organization as a living organism, with a mind and will of its own. The Walt Disney
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Company, for example, requires all new employees to take a course in the traditions and history of
Disneyland and Walt Disney, including the ethical dimensions of the company. An important component
of corporate, or organizational, culture is the company’s ethical culture. Whereas corporate culture
involves values and norms that prescribe a wide range of behavior for organizational members, the
ethical culture reflects whether the firm also has an ethical conscience. Ethical culture is a function of
many factors, including corporate policies on ethics, top management’s leadership on ethical issues, the
influence of coworkers, and the opportunity for unethical behavior. The more ethical employees perceive
an organization culture to be, the less likely they are to make unethical decisions.
Those who have influence in a work group, including peers, managers, coworkers, and subordinates, are
referred to as significant others. They help workers on a daily basis with unfamiliar tasks and provide
advice and information in both formal and informal ways. Coworkers, for instance, can offer help in the
comments they make in discussions over lunch or when the boss is away. Likewise, a manager may
provide directives about certain types of activities that employees perform on the job. Indeed, an
employee’s supervisor can play a central role in helping employees develop and fit in socially in the
workplace. Numerous studies conducted over the years confirm that significant others within an
organization may have more impact on a worker’s decisions on a daily basis than any other factor.
Obedience to authority is another aspect of the influence that significant others can exercise. Obedience
to authority helps to explain why many employees resolve business ethics issues by simply following the
directives of a superior. In organizations that emphasize respect for superiors, for example, employees
may feel that they are expected to carry out orders by a supervisor even if those orders are contrary to the
employees’ sense of right and wrong. Later, if the employee’s decision is judged to have been wrong, he
or she is likely to say, “I was only carrying out orders” or “My boss told me to do it this way.” In addition,
the type of industry and the size of the organization have also been researched and found to be relevant
factors; the bigger the company, the more potential for unethical activities.
4. Opportunity describes the conditions in an organization that limit or permit ethical or unethical
behavior. Opportunity results from conditions that either provide rewards, whether internal or external,
or fail to erect barriers against unethical behavior. Examples of internal rewards include feelings of
goodness and personal worth generated by performing altruistic acts. External rewards refer to what an
individual expects to receive from others in the social environment. Rewards are external to the individual
to the degree that they bring social approval, status, and esteem.
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The United States Chamber of Commerce reports that 75 percent of employees steal from their
workplaces, and most do so repeatedly. Many employees pilfer office-supply rooms for matters unrelated
to the job. It is possible that the opportunity is provided, and in some cases, there are no concerns if
employees take pens, Post-its, envelopes, notepads, and paper. Respondents to the survey by Vault.com
indicated that 25 percent felt that no one cared if they took office supplies, 34 percent said that they never
got caught, and 1 percent said that they were caught and got in trouble. If there is no policy against this
practice, one concern is that employees will not learn where to draw the line and will get into the habit
of taking even more expensive items for personal use.
5. Business Ethics Evaluations and Intentions
Ethical dilemmas involve problem-solving situations in which decision rules are often vague or in
conflict. The results of an ethical decision are often uncertain; no one can always tell us whether we have
made the right decision. There are no magic formulas, nor is there computer software that ethical
dilemmas can be plugged into for a solution. Even if they mean well, most businesspeople will make
ethical mistakes. Thus, there is no substitute for critical thinking and the ability to take responsibility for
our own decisions. An individual’s intentions and the final decision regarding what action he or she will
take the last steps in the ethical decision are making process. When the individual’s intentions and
behavior are inconsistent with his or her ethical judgment, the person may feel guilty. For example, when
an advertising account executive is asked by her client to create an advertisement that she perceives as
misleading, she has two alternatives: to comply or to refuse. If she refuses, she stands to lose business
from that client and possibly her job. Other factors—such as pressure from the client, the need to keep
her job to pay her debts and living expenses, and the possibility of a raise if she develops the
advertisement successfully—may influence her resolution of this ethical dilemma. Because of these other
factors, she may decide to act unethically and develop the advertisement even though she believes it to
be inaccurate. Because her actions are inconsistent with her ethical judgment, she will probably feel guilty
about her decision. Guilt or uneasiness is the first sign that an unethical decision has occurred. The next
step is changing one’s behavior to reduce such feelings. This change can reflect a person’s values shifting
to fit the decision or the person changing his or her decision type the next time a similar situation occurs.
Finally, one can eliminate some of the situational factors by quitting.
Using the ethical decision making framework to improve ethical decisions
The ethical decision making framework cannot tell you if a business decision is ethical or unethical.
Instead, we are attempting to prepare you to make informed ethical decisions. Although it does not tell
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you what to do in a specific situation, it does provide an overview of typical decision making processes
and factors that influence ethical decisions. The framework is not a guide for how to make decisions but
is intended to provide you with insights and knowledge about typical ethical decision making processes
in business organizations.
Furthermore, it is unlikely that an organization’s ethical problems will be solved strictly by having a
thorough knowledge about how ethical decisions are made. By its very nature, business ethics involves
value judgments and collective agreement about acceptable patterns of behavior.
We propose that gaining an understanding of typical ethical decision making in business organizations
will reveal several ways that such decision making could be improved. With more knowledge about how
the decision process works, you will be better prepared to analyze critical ethical dilemmas and to provide
ethical leadership regardless of your role in the organization. One important conclusion that should be
taken from our framework is that ethical decision making within an organization does not rely strictly on
the personal values and morals of individuals. Knowledge of moral philosophies or principles must be
balanced with business knowledge and understanding of the complexities of the dilemma requiring a
decision.
Levels of Moral Development
An American psychologist, Lawrence Kohlberg has done extensive research into the topic of moral
development. He has concluded, on the basis of 20 years of research, that there is a general sequence of
three levels (each with two stages) through which people evolve in learning to think morally. Although
his theory is not universally accepted, there is widespread practical usage of his levels of moral
development, and this suggests a broad if not unanimous consensus.
Level 1: Pre-conventional Level
At the pre-conventional level of moral development, which is typically descriptive of how people behave
as infants and children, the focus is mainly on self. As an infant starts to grow, his or her main behavioral
reactions are in response to punishments and rewards.
Stage 1 is the reaction-to-punishment stage. If you want a child to do something (such as stay out of
the street) at a very early age, wonderful or scolding is typically needed. The orientation at this stage is
toward avoidance of pain.
Stage 2 is the seeking-of-rewards stage. As the child gets a bit older, rewards start working. The child
begins to see some connection between being “good” (that is, doing what Mom or Dad wants the child
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to do) and some reward that may be forthcoming. The reward may be parental praise or something
tangible, such as candy, extra TV time, or a trip to the movies. At this pre-conventional level, children
do not really understand the moral idea of “right” and “wrong” but rather learn to behave according to
the consequences—punishment or reward—that are likely to follow. Like children, adults frequently
learn to behave in appropriate ways in response to threats of punishment or promises of reward.
Level 2: Conventional Level
As the child gets older, she or he learns that there are others whose ideas or welfare ought to be
considered. Initially, these others include family and friends. At the conventional level of moral
development, the individual learns the importance of conforming to the conventional norms of society.
The conventional level is composed of two stages.
Stage 3 has been called the “good boy/nice girl” morality stage. The child learns that there are some
rewards (such as feelings of loyalty, warmth, acceptance, or trust) for living up to what is expected by
family and peers, so the individual begins to conform to what is generally expected of a good son,
daughter, sister, brother, friend, and so on.
Stage 4 is the law-and-order morality stage. Not only does the individual learn to respond to family,
friends, the school, and the church, as in Stage 3, but the individual now recognizes that there are certain
norms in society (in school, in the theater, in the mall, in stores, in the car) that are expected or needed if
society is to function in an orderly fashion. Thus, the individual becomes socialized or acculturated into
what being a good citizen means. These rules for living include not only the actual laws (don’t run a red
light, don’t walk until the “Walk” light comes on) but also other, less official norms (don’t smoke in the
classroom, don’t break into line, be sure to tip the server). At Stage 4 the individual sees that she or he is
part of a larger social system and that to function in and be accepted by this social system requires a
considerable degree of acceptance of and conformity to the norms and standards of society.
Level 3: Post-conventional, Autonomous, or Principled Level
At this third level, which Kohlberg argues few people reach (and those who do reach it have trouble
staying there), the focus moves beyond those “others” who are of immediate importance to the individual
to humankind as a whole. At the post-conventional level of moral development, the individual develops
a notion of right and wrong that is more mature than the conventionally articulated notion. Thus, it is
sometimes called the level at which moral principles become self-accepted, not because they are held by
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society but because the individual now perceives and embraces them as “right. “Kohlberg’s third level
seems to be easier to understand as a whole than when its two individual stages are considered.
Stage 5 is the social-contract orientation. At this stage, right action is thought of in terms of general
individual rights and standards that have been critically examined and agreed upon by society as a whole.
There is a clear awareness of the relativism of personal values and a corresponding emphasis on processes
for reaching consensus.
Stage 6 is the universal-ethical-principle orientation. Here the individual uses his or her conscience in
accord with self-chosen ethical principles that are hoped to be universal, comprehensive, and consistent.
These universal principles (such as the Golden Rule) might be focused on such ideals as justice, human
rights, and social welfare.
Kohlberg suggests that at Level 3 the individual is able to rise above the conventional level where
“rightness” and “wrongness” are defined by societal institutions and that she or he is able to defend or
justify her or his actions on some higher basis. For example, in our society the law tells us we should not
discriminate against minorities. A Level 2 manager might not discriminate because to do so is to violate
the law. A Level 3 manager would not discriminate but might offer a different reason—for example, it is
wrong not to consider universal principles of human justice. Our discussion to this point may have
suggested that we are at Level 1 as infants, at Level 2 as youths, and, finally, at Level 3 as adults.
Lawrence Kohlberg’s six stage model of moral development:
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Corporate Social Responsibility:
We defined the term social responsibility as an organization obligations to maximize its positive impact
on stakeholders and to minimize its negative impact.
Raymond Bauer presented an early view as follows: “Corporate social responsibility is seriously
considering the impact of the company’s actions on society.” Another definition that may be helpful is
“The idea of social responsibility requires the individual to consider his [or her] acts in terms of a whole
social system, and holds him [or her] responsible for the effects of his [or her] acts anywhere in that
system.”
At this point, we would like to present Archie Carroll’s four-part definition that focuses on the types of
social responsibilities it might be argued that business has. This four-part definition attempts to place
economic and legal expectations of business in perspective by relating them to more socially oriented
concerns. These social concerns include ethical responsibilities and voluntary/discretionary
(philanthropic) responsibilities.
Forms and Dimensions of Corporate Social Responsibility (CSR):
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Among the organizational researchers who have tried from time to time to identify and describe the
various forms of CSR, probably the most established and accepted model of CSR which addresses the
forms of CSR is the one called ‘Four-Part Model of Corporate Social Responsibility’ as proposed by
Archie Carroll and subsequently refined later by Carroll and Buchholtz. This model is depicted in the
following
Figure.
According to Carroll, CSR is a multi-layer concept consisting of four inter-related aspects of
responsibilities, namely, economic, legal, ethical, and philanthropic. He presents these different
responsibilities as consecutive layers within a pyramid.
Hence, he offers the definition of CSR in these words: “Corporate social responsibility encompasses the
economic, legal, ethical, and philanthropic expectations placed on organizations by society at a given
point in time.” Let us discuss, in brief, each of these four responsibilities in turn.
i. Economic Responsibility:
A corporation has to meet its economic responsibilities in terms of reasonable return to investors, fair
compensation to employees, goods at fair prices to customers, etc. Thus, meeting economic responsibility
is the first-layer of responsibility and also the basis for the subsequent responsibilities. The fact remains
that meeting economic responsibility is must for all corporations to survive in the time.
ii. Legal Responsibility:
The legal responsibility of business corporations demands that businesses abide by the law of land and
play by the rule of the game. Laws are the codification of do’s and don’ts do’s in the society.
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Abiding by laws is the prerequisite for any corporation to be socially responsible. Corporate history is
replete with instances where violation of laws disallowed corporations to run any longer. Enron, Union
Carbide, Global Trust Bank, etc. are some of such illustrative corporate cases of social rejection and
boycott.
iii. Ethical Responsibility
These responsibilities refer to obligations which are right, just, and fair to be met by corporations. Just
abiding by law, procedure, and rule and regulations does not make business conduct always as ethical or
good. The conduct of corporations that go beyond law and contribute to social wellbeing is called ethical.
Hence, corporations have an ethical responsibility to do, even going beyond law and rule and regulations,
what proves good for the society. In other words, ethical responsibilities consist of what is generally
expected by society from corporations over and above economic and legal expectations.
iv. Philanthropic Responsibility:
The Greek word ‘philanthropy’ means literally ‘the love of the fellow human.’ The use of this idea in
business context incorporates activities that are, of course, within the corporation’s discretion to improve
the quality of life of employees, local communities, and ultimately society at large.
Making donations to charitable institutions, building of recreational facilities for employees and their
families, support for educational institutions, supporting art and support activities, etc. are the examples
of philanthropic responsibilities discharged by the corporations. It is important to note that the
philanthropic activities are desires of corporations, not expected by the society.
Dimensions of CSR:
The facets and dimensions of corporate social responsibility include the obligations a business has to its
interest groups also called ‘stakeholders.’ The stakeholders in a business include shareholders / owners,
consumers, employees, government, society, etc.
These are depicted in the following diagram:
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Shareholders:
It is the primary responsibility of every business to see that the owners or shareholders get a fair rate of
dividend or fair return on capital invested. This is a legitimate expectation of owners from business.
Naturally the expectations have to be reasonable and consistent with the risks associated with the
investment. Owners also expect economic and political security of the capital invested. If such security
is not ensured, the inevitable consequence is withdrawal of capital and search for alternative channels
other than business.
Employees:
As regards responsibility towards employees, the major issues governing the employer-employee
relationship pertain to wages and salaries, superior- subordinate relations and employee welfare. It is the
responsibility of management to provide for fair wages to workers based on the principal of adequacy,
equity and human dignity.
Maintaining a harmonious relationship between superiors and subordinates and providing for welfare
amenities for employees are also the responsibilities of management. There are specific laws in India
governing factory employment tinder which provision of satisfactory working conditions for safety,
health and hygiene, medical facilities, canteen, leave and retirement benefits are obligations on the part
of employer.
There are other laws as well providing for the security of workers against the contingencies of sickness,
maternity, employment injury and death, provident fund and pension for employees.
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However, employee welfare cannot be viewed within the narrow limits of legal requirement. Employee
welfare is best secured if the management accepts the obligation to secure and maintain a contented work
force, and the employees have the opportunity of developing their potential abilities through training and
education.
Consumer interests are generally expected to be taken care of in a competitive market through forces of
demand and supply. However, perfect competition does not actually prevail in all product markets.
Consumers are also victims of unfair trade practices and unethical conduct of business. Consumer
protection has, thus, been sought through legislation, and non-government organizations (NGOs) have
enlarged their activities for upholding consumer interests.
These compulsions are avoidable if management assumes the responsibility of satisfying consumer needs
and desists from hoarding, profiteering, creating artificial scarcity, as also false, misleading and
exaggerated advertisements. Besides, it would be in the long-run interest of business if goods of
appropriate standard and quality are available to consumers in adequate quantities and at reasonable
prices.
Government:
Social responsibility of business towards government requires that:
(i) The business will conduct its affairs as a law-abiding unit, and pay all taxes and other dues honestly,
(ii) Management will desist from corrupting public servants or the democratic process for selfish ends,
and no attempt will be made to secure political support by money or patronage.
Community:
Arising out of their social responsibility towards the community and public at large, businessmen are
expected to maintain a balance between the needs of business and the requirements of society. In general,
business should be so managed as to make the public good become the private good of the enterprise
rather than the old doctrine that “what is good for the business is good for the society”.
The social responsibility of business firms should be reflected in their policies with respect to
environmental protection, pollution control, conservation of natural resources, rural development, setting
up industrial units in the backward regions, employment of the socially handicapped and weaker sections
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of the community, and providing relief to victims of natural calamities. So total corporate social
responsibility represent the following equation.
Economic Responsibilities + Legal Responsibilities + Ethical Responsibilities + Philanthropic
Responsibilities= Total Corporate Social Responsibility.
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