Global business ethics

Global Business Ethics

MBA Second Year
(International Business)

School of Distance Education

Bharathiar University, Coimbatore - 641 046


Author: R Hema Nalini
Copyright © 2008, Bharathiar University
All Rights Reserved
Produced and Printed
by
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for
SCHOOL OF DISTANCE EDUCATION
Bharathiar University
Coimbatore-641046


CONTENTS

Page No.
UNIT I
Lesson 1

Introduction to Business Ethics

7

Lesson 2

Nature and Purpose of Ethics

14

Lesson 3

Ethics and Conflicts of Interests

22

Lesson 4

Corporate Social Responsibility

29
UNIT II

Lesson 5

Ethics in Marketing and Consumer Protection

43

UNIT III
Lesson 6

Ethics at Work Place

55

Lesson 7

Discrimination

65
UNIT IV

Lesson 8

Environmental Issues

79

Lesson 9

Depletion of Natural Resources

89
UNIT V

Lesson 10

Ethics in Accounting and Finance

Model Question Paper

99
117


GLOBAL BUSINESS ETHICS
SYLLABUS
UNIT I
Introduction to Business Ethics: The nature, purpose of ethics and morals for
organizational interests; Ethics and Conflicts of Interests; Ethical and Social
Implications of business policies and decisions; Corporate Social Responsibility;
Ethical issues in Corporate Governance.
UNIT II
Ethics in Marketing and Consumer Protection - Healthy competition and protecting
consumer's interest, cultural impact on cultural diversification.
UNIT III
Ethics in Workplace - Individual in the organization, discrimination, harassment,
gender equality, RACE preferences in recruitment process.
UNIT IV
Environment Issues: Protecting the Natural Environment - Prevention of Pollution
and Depletion of Natural Resources; Conservation of Natural Resources.
UNIT V
Ethics in Accounting and Finance - Importance, taxation issues and common
problems.


5
Introduction to Business Ethics

UNIT 1

UNIT I


6
Global Business Ethics


7
Introduction to Business Ethics

LESSON

1
INTRODUCTION TO BUSINESS ETHICS
CONTENTS
1.0

Aims and Objectives

1.1

Introduction

1.2

Meaning of Ethics
1.2.1

Definitions of Ethics and Business Ethics

1.3

Introduction to Business Ethics

1.4

Need for Business Ethics

1.5

Importance of Business Ethics

1.6

Let us Sum up

1.7

Lesson End Activity

1.8

Keywords

1.9

Questions for Discussion

1.10

Suggested Readings

1.0 AIMS AND OBJECTIVES
After studying this lesson, you should be able to understand:
z

Meaning of Ethics

z

Need for Business Ethics

z

Importance of Business Ethics

1.1 INTRODUCTION
In any organisation, from top management to employees at all levels, ethics is
considered as everybody's business. It is not just only achieving high levels of
economic performance, but also to conduct one of business's most important social
challenges, ethically, at the same time simultaneously. What are the ethical problems
which arise in business and how to solve them or what can be done about them are
explained in this module.
The problems in a business are multifold. Many of the vendors offer kickbacks to the
buyers, for the purchase of their goods. These bribes are many a times hefty and
within a short period, the buyers make plenty of money.

1.2 MEANING OF ETHICS
Ethics in Latin language is called 'Ethicus' and in Greek, it is called 'Ethicos'. In fact,

this word has originated from 'ethos', meaning character or manners. Ethics is thus
said to be the source of morals; a treatise on this; moral principles; recognized rules of
conduct.


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Global Business Ethics

The character of a man is expressed in terms of his conduct (Figure 1.1).
Decided
by
Character
of a man

Conduct
of a
Person

Taken together
considered as

Leads
Series of
Actions

Good or
Bad,
Right or
Wrong,
Moral

Known as
Moral
Judgement

By which we can
judge again
Moral
Standard

Requires

Figure 1.1: Meaning of Ethics

Ethics thus can be considered as the source of character of a person expressed as right
or wrong conduct or action.

1.2.1 Definitions of Ethics and Business Ethics
z

We will examine different definitions given for ethics in the dictionaries as well as in books.

z

According to Concise Oxford Dictionary, 'ethics' is relating to morals; treating of
moral questions; morally correct; honourable.

z

It is the study of morals and moral choices. It focuses on standards, rules and

codes of conduct that govern the behaviour of individuals and groups.

z

The other dictionary meaning of 'ethics' is that it is the 'science of morals'; it is
that branch of philosophy, which is concerned with human character and conduct.
It is a treatise on morals (capable of knowing right and wrong).

z

'Ethics' refer to the code of conduct that guides an individual while dealing in a
situation. It relates to the social rules that influence people to be honest in dealing
with the other people.

z

Ethics are the principles of behaviour that distinguish the right from the wrong.
Business ethics is the evaluation of business activities and behaviour as right or
wrong. Ethical conduct conforms to what a group or society, as a whole considers
right behaviour.

z

According to R.Wayne Mondy, 'Ethics is the discipline dealing with what is good
and bad, or right and wrong, or with moral duty and obligation.'

z

Ethics is that branch of philosophy, which is concerned with the lightness or
wrongness, goodness or badness of human conduct. Ethics provides the basis for

deciding that a particular action is morally good or bad.

z

Ethics describes what is 'right' and what is 'wrong' in human behaviour, and what
'ought to be'. Business ethics are the desired norms of behaviour exclusively
dealing with commercial transactions. Ethics is a description of 'observed' as well
as 'desirable behaviour' and 'conduct' that attempts to articulate moral values.

z

Ethics concern the rightness or wrongness of human conduct.


z

According to John Donaldson, Business ethics, in short can be described as the
systematic study of moral (ethical) matters pertaining to business, industry or
related activities, institutions, or practices and beliefs. It can also refer to the
actual standards, values or practices or beliefs (An example of the latter use is
seen in the title of Max Weber's book, 'The Protestant Ethic and the Spirit of
Capitalism'). Business Ethics is the systematic handling of values in business and
industry.

z

In the simplest terms, business ethics are moral principles that define right and
wrong behaviour in the world of business. What constitutes right and wrong
behaviour in business is determined by the public interest groups, and business
organisations, as well as an individual's personal morals and values.

z

The word 'ethics' is derived from the Greek word 'ethos' which refers specifically
to the "character" and "sentiment of the community."

z

Shea, in 1988 defines ethics as the principles of conduct governing an individual
or a profession and "standards of behaviour."

z

Ethics are the 'rules or standards that govern behaviours.' As per Brian Harvey,
ethics stands for a practice as well as a reflection on that practice. As a practice, it
can be described as the conscious appeal to norms and values, to which, on
reasonable grounds, we hold ourselves obliged, as, reciprocally, we hold others
obliged to the same norms and values. As a reflection, ethics is the methodical and
systematic elaboration of the norms and values, we appeal to in our daily
activities.

z

Ethics are about norms and values of a certain seriousness, about standards and
ideals, i.e., ones that people cannot easily neglect without harming others, or
without being looked at disdainfully by significant others. It is about keeping your
promises, respecting sentiment of beings, and distributing benefits and burdens in
a fair and equitable way.

z

Business ethics are the application of general ethical rules to business behaviour.

z

According to Keith Davis and associates, ethics are a set of rules that define right
and wrong conduct. These rules tell us when our behaviour is acceptable and
when it is disapproved and considered to be wrong. Business ethics are the
application of general ethical rules to business behaviour.

z

Business ethics concentrate on moral standards as they apply to business policies,
institutions and behaviour. It is a specialised study of moral right or wrong. It is a
form of applied ethics. It includes not only the analysis of moral norms and moral
values, but also attempts to apply the conclusions of the analysis to that
assortment of institutions, technologies, transactions, activities and pursuits that
we call business.

z

Business ethics are nothing but the application of ethics in business. It proves that
businesses can be, and have been ethical and still make profits. Today, more and
more interest is being given to the application of ethical practices in business
dealings and the ethical implications of business.

z

Business ethics are rules of business conduct, by which the proprietary of business
activities may be judged. It also relates to the behaviour of managers.

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Introduction to Business Ethics


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Global Business Ethics

Check Your Progress 1
Define the following:
1. Ethics
……………………………………………………………………………..
……………………………………………………………………………..
2. Business Ethics
……………………………………………………………………………..
……………………………………………………………………………..

1.3 INTRODUCTION TO BUSINESS ETHICS
Ethics is commonly defined as a set of principles prescribing a behaviour code,
explains what is good and right, or bad and wrong. It may even outline moral duties
and obligations. There is a combination of two familiar words, namely business and
ethics in 'Business ethics'. Business ethics are concerned with moral issues in business
just as medical ethics are concerned with morality of medical practices and pedicles,
or political ethics are concerned with the morality of political affairs. In business
ethics, we arrive at two things:
z

Looking at the problems which raise moral issues in business.

z

Critically examining the various problems for solving them.

Includes
Business Ethics

Moral Issues in Ethics

Figure 1.2: Understanding of Business Ethics

By what method do we decide on answers to questions of moral right and wrong in
business? There is no special or unique process to do this, nothing more or less than is
involved in any disciplined enquiry into complex problems, whether in business or
anywhere else.
We can subject this to three different kinds of tests.
z

Test of agreement with the evidence: Does the evidence support or deny the
explanation we have put forward? Example, we are arguing for the benefits of
greater worker participation in the running of companies, what is the evidence that
employees actually want such involvement?

z

Test of internal coherence: Are all the parts of the explanation in agreement with
each other or is itself contradictory in some way? Does it say things which are
somehow in opposition and so cannot be or are unlikely to be, equally true at the
same time?

z

Example: We cannot accept the workers who are exclusively interested in
maximising wages and argue for the importance to them of an enhanced self
esteem that would come from participation in decision making.

z

Test of its compatibility (with our more general system in belief): Does it fit in
with what we generally take to be true in this area or does it somehow contradict
our assumptions, or at least test uncomfortably with them? How well, for


example, does the claim that the workers are exclusively interested in maximising
wages, fit in with what we generally accept about human motivation?
We attempt to solve ethical problems in much the same way as we would solve any
other complex and contentious questions. There is the same range of test available and
the same kind of critical relationship to theory.

1.4 NEED FOR BUSINESS ETHICS
Some of the experts in business ethics have stated the following:
1. Business Operates within the Society: It is a part of subsystem of society.
Business's functioning must contribute to the welfare of the society. In order to
survive, develop and excel, business must earn social sanction of the society
where it exists and functions. Without earning social sanctions, business cannot
get loyal customers, cannot operate in the market place. It will soon collapse and
die away.

Society
Business

Figure 1.3: Business is a Subset of Society

If business grows larger, the public takes more interest in it, since this will lead to
a greater impact on the community. Managers are tuned to public opinion and
they react to it. They seek to maintain a proper image of their company in the
public mind. This leads to the assumption of greater responsibilities:
™

Every business irrespective of size exists more on ethical means or in total
regard to its social concern to survive long: Otherwise, resorting to unethical
behaviour or not concerning with social welfare, it will call for its own doom.
Thus, business should be ethical and socially responsible.

™

As a statement of purpose, maximising of profit is not only unsatisfying, it is
not even accurate. Business needs to remain ethical for its own good.
Unethical actions and taking decisions will shorten the life of the business like
a flash in the pan, quickly growing and even more quickly dying and
forgotten.

2. Business needs to Junction as responsible corporate citizens in the country: It is
that organ of the society which creates wealth for the country. Hence, narrow
mentality and narrower goals and motives are to be avoided.
Check Your Progress 2
Fill in the blanks:
1.

___________ refer to the code of conduct that guides an individual while
dealing in a situation.

2.

___________ concentrate on moral standards as they apply to business
policies, institutions and behaviour.

3.

___________ and ___________ schemes have become very common and
penalise honest business firms.

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Introduction to Business Ethics


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Global Business Ethics

1.5 IMPORTANCE OF BUSINESS ETHICS
Business ethics has already been defined earlier. However, it is the application of
general ethical rules to business behaviour. It is not a special set of ethical rules
different from ethics in general and applicable only to business. For example: If a
society's ethical rule says that dishonesty is unethical and immoral, then anyone in
business, who is dishonest with employees, customers, creditors, stockholders or
competitors is acting unethically and immorally. Similarly, if protecting people from
harm is considered ethical, then business firm that recall a defective and dangerous
product is acting in an ethical way.
In most cases, the general public expects business to exhibit high levels of ethical
performance and social responsibility. Business firms and their employees are
encouraged to act ethically is to prevent harm to society. "Do no harm" is one of the

strongest ethical principles. Next is to protect business firms from abuse by unethical
competitors. Bribery and kickback schemes have become very common and penalise
honest business firms. High ethical performance protects the individual who work in
business.
Businesses that treat their employees with dignity and integrity reap many rewards in
the form of high morale and improved productivity. People feel good about working
in an ethical company since they are protected along with the general public.
In spite of the positive benefits of good ethical practices, ethical problems occur for
the following reasons:
z

Personal gain/dubious character

z

Individual values widely differ with organisational goals

z

Managers values and attitudes

z

Competitive pressures

z

Cross-cultural contradictions

1.6 LET US SUM UP

Ethics can be defined as the study of what makes up good and bad conduct inclusive
of related actions and values. Business ethics, which is a subject of the study of Ethics
and is defined as the study of what makes up good and bad conduct as related to
business activities and values (Business is defined as any individual or organisation, a
corporation, a partnership, joint ventures or a franchise whose primary goal is to
provide goods and services in order to obtain a return on investment). The value of
Ethics can be well appreciated if a member of a society realizes that no one can ever
live in isolation. All the wealth and health is of no value if a man lives in an inhabited
island. Therefore the happiness come to a man only when he lives in the company of
his near and dear ones and the society in harmony. This is possible only when a
sensible moral frame work that caters to all possible contingencies in a living world,
especially in a business world.

1.7 LESSON END ACTIVITY
Ethics concern the rightness or wrongness of human conduct. Explain with
appropriate examples.

1.8 KEYWORDS
Ethics: It is the source of morals; recognized rules of conduct.
Business Ethics: It is application of ethics in business.


1.9 QUESTIONS FOR DISCUSSION
1. Define Ethics. What is business ethics?
2. Explain the concept of business ethics.
3. Highlight the need for Business Ethics.

Check Your Progress: Model Answers
CYP 1
1. It is the study of morals and moral choices. It focuses on standards, rules

and codes of conduct that govern the behaviour of individuals and groups.
2. In the simplest terms, business ethics are moral principles that define right
and wrong behaviour in the world of business. What constitutes right and
wrong behaviour in business is determined by the public interest groups,
and business organisations, as well as an individual's personal morals and
values.
CYP 2
1. Ethics
2. Business ethics
3. Bribery and kickback

1.10 SUGGESTED READINGS
Manuel G. Velasquez, Business Ethics.
Laura P. Hart Man, Business Ethics.
John R. Boat Right, Ethics in Conduct of Business.
William A. Wines, Ethics Law and Business.

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Introduction to Business Ethics


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Global Business Ethics

LESSON

2
NATURE AND PURPOSE OF ETHICS
CONTENTS
2.0

Aims and Objectives

2.1

Introduction

2.2

Nature of Business Ethics

2.3

Objectives of Business Ethics

2.4

Ethics vs. Morals and Values

2.5

Morals for Organisational Interests
2.5.1

Ideas at Work

2.5.2

Creating a Training and Development-oriented Organisational Culture

2.5.3

Values of Work

2.5.4

Fundamental Questions

2.5.5

Need for Values

2.5.6

Education and Training

2.5.7

Nature of Work

2.6

Let us Sum up

2.7

Lesson End Activity

2.8

Keywords

2.9

Questions for Discussion

2.10

Suggested Readings

2.0 AIMS AND OBJECTIVES
After studying this lesson, you should be able to understand:
z

Nature of business ethics

z

Objectives of business ethics

z

Morals of organisational interests

2.1 INTRODUCTION
Ethics does not bind people in a society through a framework of rules regulations and
code of conduct. That is put in a literature what is vital to the understanding and
adaptation of principles of Ethics is the design development and implementation of an
organisation. That would facilitate inculcation of the principles and philosophy.

15
Nature and Purpose of Ethics

2.2 NATURE OF BUSINESS ETHICS
z

z
z

Ethical issues commonly "occur in management. It goes many a times for beyond
the commonly discussed problems of bribery, collusion and theft, reaching into
areas of corporate acquisitions, merger of firms, marketing policies and capital
investments.
For example, if two firms are merged, ethical question arises with regard to
demoting or firing the employees of those who have been serving honestly for
many years.
Ethics is unstructured (does not have standard format or framework; abstract in
concept; does not have universal concept) as shown in figure 2.1.
Ethical decisions should express some obligations to others. If a decision helps in
benefitting only to oneself, then that is not an ethical decision. The very concept
of being ethical means that results in some good for the larger society and not just
for oneself.

Just & Equal
Morally correct and due

Characteristics needed
for a decision to be
ethical

Right

Justice is not only done;
Also seen to have been done

Just

Equitable

Highest good for all concerned

Appropriate &
acceptable

Honest &
Due

Proper

Good

Right

Figure 2.1 Characteristics of an Ethical Decision

Ethics

Depends
on

Moral
Standards

Depends
on

Value system
of people

Depends on

Their Background
and childhood
Experience

Hence, Ethical practices of people are different.

Figure 2.2: Different Ethical practices of people

D
I
F
F
E
R
E
N
T

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Global Business Ethics

2.3 OBJECTIVES OF BUSINESS ETHICS
As per Peter Pratley, Business ethics has a two fold objective:
1. Evaluates human practices by calling upon moral standards
2. Gives prescriptive advice on how to act morally in a specific kind of situation.
Scope of Business
Ethics

Stake Holders
level

1. Employees Security of
job Better working
conditions Better
recommendation
Participative
Management Welfare
facilities
2. Customers Better
Quality of Goods.
Goods and services at
reasonable price Not to
corner stocks and
create securities Not to
practice discriminatory
pricing Not to make
false claims about

products in
advertisements
3. Shareholders Ensure
capital appreciation
Ensure steady and
regular dividends
Disclose all relevant
information Protect
minority stake holder’s
interest Not to window
dress balance sheets
Protect interests in
time of mergers,
amalgamations and
takeovers.
4. Bank and Other
Lending Institutions
Guarantee safety of
borrowed funds
Prompt repayment of
loans
5. Government
Complying with the
rules and regulations.
Honesty in paying
taxes and other dues.
Acting as partner in the
progress of the
country.

Personal policy
level

1. Not to use Office
car, stationary
and other
facilities of own
use.

Societal level

1.

Concern for poor
and
downtrodden

2.

No
discrimination
against any
particular section
or group

2. Not fall prey to
short ends
3. Not to misuse
others for
personal.

3.

Concern for
clean
Environment.

4. Not to indulge in
politics to gain
power

4.

Contributing to
better quality of
life.

5. Not to spoil
promotional
chances to others.

Internal policy
level

1. Fair practices
relating to
requirement,
compensation,
layoffs perks,
promotion, etc.

2. Transformational
leadership to
motivate
employee to aim
at better and
higher things in
life.
3. Better
communication at
levels.

6. Promise keeping
7. Mutual help

Figure 2.3: Scope of Business Ethics

1. The first objective implies Analysis and evaluation. It leads to an ethical diagnosis
of past actions and events.


Analysis consists of clarifying standards and lines of argument. Here ethics can be
useful as one is often unaware about most moral values and habits of thought. The
basic assumptions behind our moral actions and judgements are mainly taken for
granted. Normative ethics sets itself a second and more curative purpose. Ethics
develops rational methods for answering the present and future issues. In order to
achieve the second objective, one has to inform. Balanced judgements are based
on the careful assessment of the relevant information. One has to be quite specific
when deciding upon appropriate normative standards. If both these conditions are
met, ethical thought may lead to valid prescriptions.
2. The second objective is to provide therapeutic (curative) advice. It suggests

solutions and policies when facing the present dilemmas and future dangers, based
on well-informed opinions. This especially requires an identification of relevant
stakeholder and a clear understanding of the vital issues at stake.
Check Your Progress 1
What are the objectives of business ethics?
………………………………………………………………………………….
………………………………………………………………………………….

2.4 ETHICS VS. MORALS AND VALUES
Ethics can be distinguished from 'morals' which are rules or duties that govern our
behaviour as persons to persons (such as "do not tell lies" or "do not hurt another
person"). Ethics can be distinguished from 'values' which are ends or goals sought by
individuals (such as health or happiness)
Ethics is an area dealing with moral judgement regarding voluntary human conduct.
Moral judgement requires moral standards by which human conducts are judged.
Ethics are for the ultimate end or the highest good to be pursued. Moral standards are
also related to moral obligations. It is for the duty to do what considered to be right
and proper.

2.5 MORALS FOR ORGANISATIONAL INTERESTS
2.5.1 Ideas at Work
On the quality of our aim in life depends the quality of life. We are what our thoughts
are. Doing is very good, but that comes from thinking. Fill the brain, therefore with
high thoughts, highest ideals, and-place them day and night before you.
Motivating the man in the manager to work for his self-development
What are we all working for? What is our purpose in life? Knowingly or unknowingly
we are all working for the attainment of the highest ideal of perfection. This perfection
is already within us. It is our real nature. It is a state of limitless knowledge, happiness
and life. The question is this - how can we work so that whatever we do brings us the
realization of that perfection within us? A manager must work in such a way that

he/she will manifest more and more of his/her inner perfection through his/her work.
Managers are leaders of men. Whatever a leader does, people follow that.
If the Managers adopt for themselves a higher set of ideals; develop a visionary
purpose in life and a missionary zeal in action, then the entire organisation becomes
surcharged with effectiveness. What is the ideal of work placed before us? Each
Manager is potentially perfect. The goal is to manifest this perfection within. Do this

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Nature and Purpose of Ethics


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Global Business Ethics

by work (or by knowledge, or worship or control techniques, by one, or more, or all of
these) and be free. This then is the ideal of work; to attain the highest perfection
through work and be free. Our actions and its consequent reactions presently disturb
this perfection within; the question is this, Is our daily work at par with this
perfection? How can we work so that whatever we do, brings the realization of that
perfection? This is the subject of Karma Yoga, the philosophy and science of work,
which should be studied and practiced by every manager. This is the science, which
we have inherited from the rishis.
The responsibility for the effectiveness of organisation rests with the level of
development of the individuals who run them. The development of the individual to
achieve the development of the organisation is necessary and it really means
developing the man in the manager.
The reason of low productivity in India is jealousy three men cannot be in concert in
India for five minutes. Each one struggles for power and in the long run, the whole
organisation comes to grief.
As per Vivekananda's analysis, India's thousand years of slavery and political

imprisonment has generated this quality in the Indian people just as it has for others
who had experienced similar servitude. The solution lies in surrender to love and
discipline throughout the management and entire workforce. Indian managers need to
return to sadhana to turn to specific practices for developing themselves, since all
management is finally subjective.

2.5.2 Creating a Training and Development-oriented
Organisational Culture
The river is continuously giving. It, therefore, always remains fresh. A pond on the
Other hand, does not give and so it stinks. Knowledge is also like a river. The more
you give, the more you get. This is a universal law. Thus, the more the efforts the
senior managers make in imparting their knowledge and skills in developing their
juniors, the more will they themselves grow. This chain reaction leads to
organisational growth and, expansion.
Any intervention to change or the development of the organisations culture should
come from the top with total faith and commitment. HRD is an important intervention.
Unless the top and senior management puts its heart and soul into training and
development and is totally committed to it, these interventions will have no impact.
The senior managers should first be inspired towards undertaking self-development
programmes for themselves and then inspire and motivate their managers and help
them to grow and develop.
Training and development does not merely mean going on a training programme but it
means a continuous, deliberate effort to improve one self. This is not easy; we always
have to be on the lookout for inspiration.

2.5.3 Values of Work
Work we must, because values are no substitute for hard work. But values give
direction and add flavour to the work and give it an altogether new dimension, a
profundity that converts work into worship.
What is the essence of the Indian thought as applicable to the managers?

Very simply stated, it is as follows:
Each manager is potentially perfect and the purpose of life is to manifest this
perfection within. This perfection can be achieved through work itself if we have the
right perspectives and perform the work with the right attitudes.


Instead of just working, without a higher purpose, if we spend some time in seeking
answers to some fundamental questions, it will help us in being better managers. It
will give our work a sense of direction and the work will acquire a new meaning.

2.5.4 Fundamental Questions
The fundamental questions are:
Who am I? Who is the man behind the manager? Who is the person who sees and
perceives the objective world? What is our mind? What is our intellect? What is the
Universe? What is its purpose? What is the relationship between me, the work and the
Universe?

2.5.5 Need for Values
Management is decision making. Decision making has always been, is always and
shall always be in the ultimate analysis, subjective. The training and the purification
of the subjective, the man behind the manager is thus, imperative for effective
decision making.
Having a set of values and ideals as our guide and practising sadhana - the techniques
for self-development every day gives us that all-important subjective quality that may
be called character efficiency. Its results may not be immediately perceived but
nevertheless it is this that ultimately leads to individual and organisational
effectiveness.
If not apparent in the short run, it will most certainly show up in the long run.
It is our duty to determine our purpose and mission in life. We may have many goals
to achieve but the purpose of life is something higher. It is the road we decide to travel

on. Goals are mere milestones on this road and one should avoid treating goals as the
purpose of life. The purpose of life is an ongoing, continuous process and requires a
long-term vision and corporate leaders have to be men of vision.
It is up to the managers to improve the image of India and bring back our pride in
being Indians as is the case with the Indian goods in the world market.
It is a universal law that whatever a leader does, people follow that. Thus managers, as
the true leaders of the workforce of the nation, must lead the way and adopt for
themselves the highest philosophy, the highest values and ideals and the best
techniques available for self-development. The workforce will then follow suit and the
nation will prosper.
Check Your Progress 2
Fill in the blanks:
1. _________ guarantee safety of borrowed funds, prompt repayment of loans
2. Moral standards are also related to moral _________. It is for the duty to do
what consider to be right and proper.
3. Good actions will entail upon us ___________.

2.5.6 Education and Training
Education and training is meant not only to give us knowledge and information, which
the present systems provide, but also builds up our character for which we have not
yet made any provisions. We need a set of values and ideals as our guide, and selfdevelopment techniques, to make values a part of our character. The works and
examples of men who have lived with such ideals give us the inspiration to strive for
it. The education and training programmes must therefore cater to this need and if not

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Nature and Purpose of Ethics


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Global Business Ethics

at the school or college level then at least the professional organisations must do it for
their managers.

2.5.7 Nature of Work
By the very nature of things we must all work incessantly. And all work by its very
nature, is composed of good and bad. Every work will be a mixture of good and bad.
Yet we have to work incessantly. Good and evil will both have their results and will
produce their karma. Good actions will entail upon us good effect; bad action bad, and
both will bind us. What then is the solution? The solution reached, in regard to this is
that, if we learn to be a witness to the work we do, it will not have any binding effect
on us. These ideas of the science of work, Karma - Yoga, need to be thoroughly
discussed and understood since we all have our own misunderstandings. This
confusion is quite natural and is to be expected and accepted. Through constant study,
analysis, reflection and Sadhana, we move towards clarity of vision. But first we
should have Shraddha, faith in the values and then we should ask questions to clear
our doubts and seek to understand. This process makes understanding easier, in
Algebra, when we assume 'X', we can assume it. This is shraddha.
The philosophy of Vedanta and the science of Karma Yoga, perhaps are the
foundations of the Indian management culture, Indian management ethics, and Indian
work culture. We, as professionals have to usher in, to rediscover it, to imbibe it and
to spread it in our organisations and make it our guide in our work and day-to-day life.

2.6 LET US SUM UP
Ethics want a manager to be honest with himself and also with the society. The
manager has to perform his jobs well and his quality reflects in the success of a
business. Ethical issues may be sometimes occur as managerial dilemmas, measured
by revenues, cost and profits and the stated performance (in terms of obligation to
persons both inside and outside the organisation). The essentials of designing
developing and implementation of an organisational framework is vital if a society has

to learn to enjoy the benefit of ethical value system.

2.7 LESSON END ACTIVITY
“The responsibility for the effectiveness of organisation rests with the level of
development of the individuals who run them.” Do you agree with the statement?
Give reasons for your answer.

2.8 KEYWORDS
Moral: Standards to do what considers to be right and proper.
Values: Quality of being useful or desirable.
Moral Values: Desired level of morals.

2.9 QUESTIONS FOR DISCUSSION
1. Business ethics is a form of applied art. Comment on this statement.
2. Examine the scope of ethics in business.
3. Discuss the purpose of ethics in an organisation.
4. Does business ethic leads to the organisational morals and values?


Check Your Progress: Model Answers
CYP 1
As per Peter Pratley, Business ethics has a two fold objective:
1. Evaluates human practices by calling upon moral standards
2. Gives prescriptive advice on how to act morally in a specific kind of situation
CYP 2
1. Bank and Other Lending Institutions
2. Obligations
3. Good effect

2.10 SUGGESTED READINGS

Manuel G. Velasquez, Business Ethics.
Laura P. Hart Man, Business Ethics.
John R. Boat Right, Ethics in Conduct of Business.
William A. Wines, Ethics Law and Business.

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Nature and Purpose of Ethics


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Global Business Ethics

LESSON

3
ETHICS AND CONFLICTS OF INTERESTS
CONTENTS
3.0

Aims and Objectives

3.1

Introduction

3.2

Conflicts of Interest

3.3

3.2.1

Violation of Confidentiality

3.2.2

Biased Judgment

3.2.3

Direct Competition

3.2.4

Misuse Position

Managing Conflict of Interest
3.3.1

3.4

Ethics of Managing Conflicts of Interest

Ethical and Social Implication on Business
3.4.1

Benchmarking

3.4.2

Stake Holder’s Dialogue Approach

3.5

Let us Sum up

3.6

Lesson End Activity

3.7

Keywords

3.8

Questions for Discussion

3.9

Suggested Readings

3.0 AIMS AND OBJECTIVES
After studying this lesson, you should be able to understand:
z

Conflicts of Interest

z

Violation of Confidentiality

z

Biased Judgment

z

Direct Competition

z

Misuse Position

z

Managing conflicts of interest

z

Ethical and Social Implications of Business

z

Benchmarking

z

Stake holder’s Dialogue approach

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Ethics and Conflicts of Interests

3.1 INTRODUCTION
The ‘conflict of interest’ is not merely a conflict between conflicting interests,
although conflicting interests are involved. The conflict occurs when a personal
interest comes into conflict with an obligation to serve the interests of another. More
precisely, we can say that a conflict of interest is a conflict that occurs when a
personal interest interferes with a person’s acting so as to promote the interest of
another when the person has an obligation to act in that persons interests. This
obligation is stronger than the obligation merely to avoid hamming a person and can
arise only when the persons in a special relation, such as employer and employee.

3.2 CONFLICTS OF INTEREST
Conflicts of interest concept is a tough one to study. It covers several distinct moral
failings that run together often. In order to fully understand regarding the definition
and as well as the reasons that is morally wrong for a person to be in a conflict of
interest situation, it is important to separate them. Four kinds of conflict of interest
found are as shown in the figure 3.1 below.
Violation of
Confidentiality

Exercising Biased
Judgment
Conflict of
interests’
types
Engaging in Direct

competition

Misusing a Position

Figure 3.1: Conflicts of Interest Types

3.2.1 Violation of Confidentiality
z

Confidential business information has been recognised from a long time as
property. Such a thing acquired or compiled by a company in the course and
conduct of its business is a species of property to which the company has the
exclusive right and benefit.

z

Violation of confidentiality under certain circumstances is a conflict of interest.

3.2.2 Biased Judgment
z

A characteristic of professionals, such as lawyers, accountants, engineers
(specialised knowledge used in the service of clients); professionals paid for using
the knowledge to make judgement for the benefit of others; also value of their
services lies in the confidence that can be placed in a professionals judgement

z

Judgment is not exclusively a feature of professional work; Decisions to be used
in the best interests of the employing firm; But, outside business interests

influence the judgement of an employee. E.g. Potential conflict of interest in
accepting a gift from a supplier who expects favourable treatment in the future.

3.2.3 Direct Competition
An employee to engage indirect competition with his employer; an employee's
judgement is apt to be impaired for having another interest. E.g. A Director of a public


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Global Business Ethics

sector company in India had an interest in a private company where his son was
working as a managing director. The private sector was competing with the PSU in
some areas. Majority of the services from that PSU was offered to the private
company (free of cost sometimes or at cost price many a times).

3.2.4 Misuse Position
z

Holding a position in a company to gives a person powers and opportunities that
would not be available otherwise.

z

An employee has an obligation not to use these powers and opportunities for
personal gain.

z

It is not enough to be incorruptible and act with honest motives; It is equally

important to use good judgement and conduct one's outside activities so that no
one even raise the suspicion for having misused the position within the company.
Check Your Progress 1
1. What do you understand by conflicts of interest?
………………………………………………………………………………
………………………………………………………………………………
2. What are the different types of conflict of interest?
………………………………………………………………………………
………………………………………………………………………………

3.3 MANAGING CONFLICT OF INTEREST
Conflicts result from structural features of a profession or an organisation. These are
to be managed with carefully designed good systems. A person in a conflict of interest
(potential or actual) may be in the wrong. Conflicts usually occur to a person as a
member or a professional of an organisation. Conflict of interest is not merely a matter
of ethics. Certain professions are highly vulnerable to conflict of interest. Business
firms face conflicts more because of their need to provide many kinds of services to
different customers. In some cases, both professional and organisational factors are
involved.
Various means for managing conflict of interest exist. Many corporations in their
codes of ethics have mentioned in a separate section which addresses the problem.
However, the management of conflict of interest requires a variety of approaches to be
adopted by professional groups and business organisations.
To conclude, we can say that similar to whistle blowing, trade secrets and conflicts of
interest involve a delicate balancing of the rights and interests of:
z

Employers

z

Employees

z

Public at large

3.3.1 Ethics of Managing Conflicts of Interest
1. Objectivity:
™

All professional codes require objectivity.


™

A commitment to be objective serves to avoid being biased by an interest that
might interfere with a person's ability to serve another.

™

Identifies objectivity (the obligation to be impartial and intellectually honest)
with avoiding actual conflicts of interest and independence (avoiding relations
that would impair objectivity) with potential conflicts.

2. Avoidance:
Direct means of managing conflicts of interest is to avoid acquiring any interests
that would bias one's judgement or otherwise interfere with servicing others.
Avoidance is easier said than done. It is difficult to identify or anticipate a
conflicting interest; Acquiring conflict of interest may be unavoidable due to the

nature of business; when adverse interests cannot be avoided, they can be
countered by introducing new interests in a process known as alignment.
3. Disclosure:
™

Serves to manage conflict of interest primarily because whoever is potentially
harmed by the conflict has the opportunity to disengage or at least to be on
ground.

™

In legal ethics, there is no conflict of interest if the lawyer discloses the
conflict and is confident that the client will be unaffected and the client
accepts the lawyer’s service. Disclosure may include all types of information.
The greater the transparency (openness of information), the less opportunity is
for conflict of interest to occur.

4. Competition:
™

Stiff competition provides a powerful incentive to avoid conflicts of interest,
both actual and potential.

5. Rules and Policies:
™

Companies have policies regarding conflicts of interest. These need
employees to avoid acquiring adverse interests by not accepting gifts or
investing in potential suppliers.

™

Controls on flow of information that affect who has access to what
information are necessary; rules and policies in question also limit conflict of
interest.

™

Priority rules are useful means for managing conflicts of interest.

6. Independent Judgement:
Conflict of interest results in biased judgement; the problem can be corrected by
utilising a third party who is more independent. For example, in companies,
independent appraisers are used, similar to a judge in the courts of law.
7. Structural Changes:
™

Conflicts of interest arise from providing different services to different
customers or client; these can be reduced by compartmentalizing the services.
Sometimes there are dictated by law.

™

In multifunction institutions, conflicts can be reduced by strengthening the
independence and integrity of each unit.

3.4 ETHICAL AND SOCIAL IMPLICATION ON BUSINESS
Encourage the emergence of a professional approach with a framework of standards,
training and accreditation that will allow social and ethical accounting, auditing and

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Ethics and Conflicts of Interests