Module :-2
Managerial Ethics
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Managerial ethics
• Managerial ethics are focused on workplace behavior
ethics and ethics in leadership. Ethics and ethical
reasoning are necessary characteristics for business
culture
• Ethics is difficult to define in a precise way. In a general
sense, ethics is the code of moral principles and values
that governs to behaviors of a person or group with
respect to what is right or wrong
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There are two broad areas associated
with the concept of managerial ethics
1) Managerial mischief
2) Moral mazes.
"managerial mischief" includes "illegal, unethical, or
questionable practices of individual managers or
organizations, as well as the causes of such behaviors
and remedies to eradicate them" the "moral mazes of
management" include the numerous ethical problems
that managers must deal with on a daily basis, such as
potential conflicts of interest, wrongful use of
resources, mismanagement of contracts and
agreements, and misuse of power and influence.
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Factors influencing workplace ethics
• Individual moral standards
• Influence of mangers and co-workers
• Effective control
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Managing ethics in workplace
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Integrated ethics management
Pro-active role
Open communication
Atmosphere of trust
Code of conduct & ethics
Policies /procedures
Group decision – making
Cross – functional teams
Ombudsperson
Grievance redressal
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Ethical issues in workplace
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Ethical dilemma
Business relationship
Conflicts interest
Fairness and honesty
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Ethical dilemma
• A situation that arises when all alternatives
choice or behaviors have been deemed
undesirable because of potentially negative
consequences making it difficult to distinguish
right from wrong.
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CORPORATE SOCIAL RESPONSIBILITY
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CORPORATE SOCIAL RESPONSIBILITY
• Corporate Social Responsibility is the
continuing commitment by business to
behave ethically and contribute to economic
development while improving the quality of
life of the workforce and their families as well
as of the local community and society at large
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Definitions and Relationships
• Corporate social responsibility (CSR) is the process by
which businesses negotiate their role in society
• In the business world, ethics is the study of morally
appropriate behaviors and decisions, examining what
"should be done”
• Although the two are linked in most firms, CSR
activities are no guarantee of ethical behavior
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Need for C.S.R
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The iron law responsibility
Long term business interest
Better public image
Conversion of resistance into resources
Avoid government regulation or control
Avoid misuse of natural resources and
economic power
• Minimize the environmental damage
• Wealth creation
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Key developments of C.S.R
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Increased stakeholder awareness
Transparency and reporting
Value chain
Codes ,standards, and indicators
CSR and corporate governance
Investor Pressure and Market- based
incentives
• CSR ‘’ROI”
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Arguments in Favor of CSR
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Long –run survival of the business concerns
Profitable for the business concerns
Moral and social commitment
Improvement in public image
Helps in avoiding government regulation
Resources
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Arguments Against CSR
• Business is an economic activity
• Quantification of social benefits
• Cost –benefit analysis
• Lack of skill and competence
• Transfer of social costs
(a) Increase in price
(b) Reduction in wage
(c) Reduction in profit
• Sub- optimal utilization of resources
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Is CSR the same as business ethics?
• There is clearly an overlap between CSR and
business ethics
• Both concepts concern values, objectives and
decision based on something than the pursuit of
profits
• And socially responsible firms must act ethically
• The difference is that ethics concern individual
actions which can be assessed as right or wrong
by reference to moral principles.
• CSR is about the organization's obligations to all
stakeholders – and not just shareholders.
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There are four dimensions of corporate
responsibility
• Economic - responsibility to earn profit for
owners
• Legal - responsibility to comply with the law
(society’s codification of right and wrong)
• Ethical - not acting just for profit but doing what
is right, just and fair
• Voluntary and philanthropic - promoting human
welfare and goodwill
• Being a good corporate citizen contributing to the
community and the quality of life
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Social Responsibility...
• an organization’s obligation to maximize its
positive impact on stakeholders and to
minimize its negative impact
• includes legal, ethical, economic, and
philanthropic (discretionary) dimensions
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Legal Dimension...
• refers to obeying governmental laws and
regulations
• civil law: rights & duties of individuals and
organizations
• criminal law: prohibits specific actions and
imposes fines and/or imprisonment as
punishment for breaking the law
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Ethical Dimension...
• behaviors and activities that are expected or
prohibited by organizational members, the
community, and society (not codified into law)
• standards, norms, or expectations that reflect
the concern of major stakeholders
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Models of CSR
• Philanthropic model :• European model:-
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Philanthropic model
• Focus on the nonprofit needs and its mission
• Focus on tax benefit to company
• Little relation to the business of business
Making money for shareholders
• Competing for executives, and by default,
company’s attention
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Indian models of CSR
• Trusteeship model
• Stakeholder model
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Theories of CSR
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Feminist theory
Stakeholder theory
Social contract theory
Ethics and nature
Pragmatism
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Ethics :- Individuals and The
Organisation
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ORGANISATION AND THE INDIVIDUALS
• Rational organisations are those wherein the
activities of a number of people are coordinated
for the accomplishment of some common explicit
purpose or goal, through the division of labour
and function along with a hierarchy of authority
and responsibility.
• In a rational model, ethics focus on the
contractual obligations of the employer and
employees.
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Cont…
• Political organisations, seldom look merely at the
formal lines of authority and communication within the
organisation.
• They do not behave in a purely rational way and do not
accept that rationality is sacrosanct in achieving the
business goals and objectives.
• These organisations view business as a system of
competing power and formal and informal lines of
communication for coalitions.
• In a political model, the central ethical issues are
guided by the constraints of morals or laws of the land.
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Co-existence of Political and Rational
Organisation
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Cont…
• Caring organisations are not engaged in the
pursuit of profits and personal gains, but are
involved in caring for those for whom the
organisation has been designed, with whom it
interacts, and the people in the organisation
itself..
• In a caring organisation, the employers may grow
closer to their employees and seek the ways to
serve and care for whom they exist, e.g.
employees, customers, society, stakeholders, etc.
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Moral and ethical issues of individuals in an organisation are
influenced by, and dependent on, the nature of the
organisation and its work culture.
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RIGHTS AND OBLIGATIONS OF INDIVIDUALS IN
THE ORGANISATION
• In business, ethical behaviour and the obligations of individuals are
mutual relationships based on the model of organisation, the law of
the land, contractual duties and obligations, work environment, and
codes of general ethics that are acceptable as moral and rational to
general public.
• Employees at all levels are obliged (duty-bound) to the company to
behave ethically as a part of their contracts and the relationships
outlined by what is commonly called the ‘law of agency’.
• Law of agency specifies the legal duties of employees (agent)
towards their employers (principals) and prohibits the agent
(employees) to act in conflicts of interests with those of the
principal (employer).
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Cont…
• In India, the Industrial Disputes Act, 1947 and
other labour laws have been enacted to
protect trade union rights and the rights of
individuals in employment.
• These laws are quite explicit about the duties
and obligations of employees and employers
as well.
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ORGANISATION AND THE RESPONSIBILITY
FOR ETHICS
• An organisation has the responsibility of designing ethical
policy and programmes with a holistic view such that they
serve and complement each part of the business
organisation.
• Individuals, in turn, have the responsibility to follow and
abide by the policy direction and programmes in their
respective areas of work and responsibility.
• Ethics management mechanisms provide the people of the
organisation with the moral power – more commonly
known as ‘whistle blowing’ – to prevent any kind of
wrongdoing.
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Creative Accounting
• What is creative accounting?
Creative accounting, also called aggressive accounting, is the
manipulation of financial numbers, usually within the letter
of the law and accounting standards, but very much against
their spirit and certainly not providing the “true and fair”
view of a company that accounts are supposed to.
– Can be done through:
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Accounting induced operational and financial decisions
Choice of accounting policies
Manipulation of accounting estimates
Fraudulent transactions
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Impact of Creative Accounting
• Creative accounting can be used to signal internal
information
– Helps outsiders to understand more about the firm
• Creative accounting can be used to “undo”
temporary situations, that are not expected to
persist
– US Government and manipulations
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Impact of Creative Accounting
• Creative accounting can be used unethically, to
manipulate markets and benefit the preparer
– Impact is often a failure of markets
– Price protection: Would you buy leather jackets
from the trunk of a car? At what price?
• Intent is what matter!
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Solutions to the Creative Accounting
problem
• Limit the flexibility within GAAP
– Transactions can be designed around/within GAAP
– May reduce the usefulness of financial statements
in general
• Change performance measure  Cash flow is
a hard measure
– Cash flow is easier to manipulate  This is why
we have earnings
• Give accountants an ethics course
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Solutions to the Creative Accounting
problem
• Impose legal liability on those who get caught
– Securities regulators may not have the resources
– How do you define something illegal?
– Sarbanes-Oxley Act
• Let the market forces work
– Grant firms that commit to full disclosure a lower cost
of capital
– Penalize firms that do not through a higher cost of
capital (price protect)
– Increase investors’/analysts’ training
– “Remove” “bad” managers from the job market
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Summary of cases of creative accounting in India
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Whistle-blowing
Definition of Whistle-Blowing
 One who reveals wrong-doing within an organization
to the public or to those in positions of authority.
 One who discloses information about misconduct in
their workplace that they feel violates the law or
endangers the welfare of others.
 One who speaks out, typically to expose corruption
or dangers to the public or environment.
Types of Whistle-Blowing
Internal Whistle-Blowing
 When an individual
advocates beliefs or
revelations within the
organization.
External Whistle-Blowing
 When and individual
advocates beliefs or
revelations outside the
organization.
Characteristics of a
Whistleblower
 Utilitarian
 Uninterested in Altering Their
Behavior
 Allows Own Attitudes and Beliefs
to Guide Them
 Often are Well Educated and
Holds Professional Positions
Effects of Whistle-Blowing
• Forced to leave
organization/demotion
• Credibility ruined
• Family, health, and/or
life in jeopardy
• Outrage and
divisiveness of people
directly or indirectly
involved
• Physical or
psychological isolation
• Organization
experiences loss of
money, restitution,
productivity, and
positive reputations.
• Incarceration
Protection Laws
• The Whistleblower
Protection Law ~
1989
• The Whistleblower
Act ~ 1994
2002: Year of the Whistleblower
Cynthia Cooper
WorldCom
Coleen Rowley
FBI
Sherron Watkins
Enron
Sherron Watkins
• Former Vice President of Enron Corporation
• Alerted then-CEO Ken Lay in August 2001 to
accounting irregularities within the
company
• Warned that Enron 'might implode in a
wave of accounting scandals.'
• Testified before Congressional Committees
from the House and Senate investigating
Enron's demise.
• Lauded in the press for her courageous
actions, but left her job at Enron after a few
months when she wasn't given much to do
Coleen Rowley
• FBI staff attorney
• Wrote 13-page memo to FBI Director about
pre-9/11 intelligence in May 2002
• Testified for the Senate Judiciary Committee
• Concerned the FBI was becoming more
bureaucratic and micromanaged
• Helped government focus on better
intelligence management
Fanny Pack
Cynthia Cooper
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WorldCom’s Director of Internal Audit
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Her team discovered $3 billion in questionable
expenses
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Met with 4 executives to track down and explain the
undocumented expenses
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Disclosed findings, WorldCom stock frozen,
corporate credit rating went from B+ to CCC-
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Remained as VP of Internal Audit, not promoted, no
gratitude, resented by employees
Image Source: Cartoonstock.com
The Manjunath case
 27 year old Engineer and MBA from IIM-L
 Marketing manager in IOCL at Lakhimpur Kheri
 A “nightmare” for petrol outlet owners
 “Manju was not the typical business school
wonder boy who had a way with cold statistics
and fuzzy logics” – Prof. Debashish Chatterjee,
IIM-L
People involved
• Dinesh Seth & Rajendra Singh – Owner &
Manager of L D Service station respectively
• Monu Mittal - son of the owner of Mittal
outlet
• District supplies Inspector
• Villagers in Lakhimpur village
Sequence of events
• “Most pumps in UP are political gifts given by politicians
to their goons”
• PDS scam and siphoning of Kerosene widespread
in Lakhimpur
• Mittal outlet and L D Service station closed for a
month after failing adulteration tests.
• Monu’s license is cancelled
• Manjunath gets informants among Lakhimpur
Villagers
The plot on Nov 19th
• Manjunath checks samples in Mittal outlet at
4 PM
• Leaves at 6 PM leaving the measuring
instrument in the outlet
• Monu gathers accomplices to kill Manjunath
and waits till 8 PM for him to return
• Manjunath turns up at 9:30 PM and gets
murdered
Aftermath
• Mittal sentenced to death in an extremely fast
judgment and other accused get life term
• Manjunath Shanmugam trust
• Manjunath Shanmugam integrity award
• Relook into the subsidy mechanism of
Kerosene by the Govt.
• Govt. resolution empowering Central Vigilance
Commission – Whistle blower protection act
Learnings
• Personal and External Whistle blowing done
by Manjunath
• Rule Utilitarianism was followed
• Actions coincide with Kant’s Deontology –
Universaliziblity and Reversibility
Conclusion
• Whistle blowing is beyond being morally
defensible
• “What life is this if we have nothing to die
for?” - Manjunath
• Strong faith in system, justice and reason force
the whistleblowers’ actions
Delineations of Ethical & Professional
Responsibilities
ACA
TCA
LPC
SBEC
The association is to clarify
the nature of ethical
responsibility held by
members.
The association is to clarify
the nature of ethical
responsibility held by
members.
A licensee shall not make
any false, misleading,
deceptive, fraudulent, or
exaggerated claims about
licensee’s services and
services of the mental health
organization.
The Texas educator shall
comply with standard
practices and ethical conduct
toward students, colleagues,
school officials and parents.
The association is to
establish principles that
define ethical behaviors that
all members should adhere
to.
The association is to
establish principles that
define ethical behaviors that
all members should adhere
to.
A licensee shall discourage a
client and others whom the
license does not control from
effectiveness of services,
practice, qualifications,
associations or products.
The Texas educator should
respect and obey the law,
demonstrate personal
integrity, and exemplify
honesty
The Code of Ethics will
serve as the basis for
processing ethical
complaints initiated against
members of the association.
The Texas educator should
exemplify just and equitable
treatment.
A Closer Look
ACA
TCA
SBEC
H.2 When a Counselor
possesses doubt as to whether
or not a Counselor is acting in
an ethical manner take
appropriate action.
D.1.C Counselors must alert
their employers to conditions
that may be potentially
disruptive or damaging to the
counselors professional
responsibilities or that may
limit their effectiveness.
b.1.A,B,F /b.2.B, D,F,G
The educator shall not
knowingly engage in
deceptive practices,
misappropriate, divert, use
monies for personal gain, or
falsify records or coerce others
to do so.
The educator shall not harm
others by making false
statements, interfere w/
political or professional
responsibilities, use coercive
means of special treatment, or
retaliate against any individual
who has filed a complaint.