MBA (Finance & Marketing) Final YearHindustan Institute of Technology

Coimbatore

Business Ethics

• Public’s interest in business ethics increased during the last four decades

• Public’s interest in business ethics spurred by the media

Ethical Issues in Business

• Employee-Employer Relations

• Employer-Employee Relations

• Company-Customer Relations

• Company-Shareholder Relations

• Company-Community/Public Interest

Introduction

• Gallup Poll finds that only 17 percent to 20 percent of the public thought the business ethics of executives to be very high or high

• To understand public sentiment towards business ethics, ask three questions– Has business ethics really deteriorated?

– Are the media reporting ethical problems more frequently and vigorously?

– Are practices that once were socially acceptable no longer socially acceptable?

Public’s Opinion of Business Ethics

Expected and Ac tua l Le vels

of Busine ss Ethi cs

Ethical Problem

Ethical

Problem

Society’s

Expectations

of Business

Ethics

Actual

Business

Ethics

1950s 2009Time

Business Ethics:Today vs. Earlier Period

Business Ethics: What Does It Really Mean?

Definitions

• Ethics involves a discipline that examines good or bad practices within the context of a moral duty

• Moral conduct is behavior that is right or wrong

• Business ethics include practices and behaviors that are good or bad

Business Ethics: What Does It Really Mean?

Two Key Branches of Ethics

• Descriptive ethics involves describing, characterizing and studying morality

– “What is”

• Normative ethics involves supplying and justifying moral systems

– “What should be”

Business Ethics: What Does It Really Mean?

• Conventional approach to business ethics involves a comparison of a decision or practice to prevailing societal norms

– Pitfall: ethical relativism

Decision or Practice Prevailing Norms

Conventional Approach to Business Ethics

Fellow

Workers

Family

Friends

The Law

Regions of

Country

Profession

Employer

Society at

Large

Religious

Beliefs

The Individual

Conscience

Sources of Ethical Norms

Ethics and the Law

• Law often represents an ethical minimum

• Ethics often represents a standard that exceeds the legal minimum

Ethics Law

Frequent Overlap

Behavior or act

that has been

committed

Prevailing norms

of acceptability

Value judgments

and perceptions of

the observer

compared with

Making Ethical Judgments

Business Ethics in a Global Economy

Written Codes of Ethics

• American companies—about 90%

• German companies—about 51%

• British companies—about 41%

• French companies—about 30%

Perceptions & International Business

• Self-reference criterion (SRC)

– idea that “we” are different from “them”

– Unconscious reference to one’s own cultural values, experiences, & knowledge

• Reactions are based on meanings, values, symbols that relate to our culture .

Least/Most Corrupt Countries

• Least

– Finland

– Denmark

– New Zealand

– Iceland

– Singapore

– Sweden

– Canada

– Luxembourg

– Netherlands

– United Kingdom

• Most

– Bangladesh

– Nigeria

– Paraguay

– Madagascar

– Angola

– Kenya

– Indonesia

– Azerbaijan

– Uganda

– Moldova

Culture as a Factor in Business

• Culture

– Everything in our surroundings that is made by people—both tangible items and intangible concepts and values

• Language, religion, law, politics, technology, education, social organization, general values, ethical standards

Culture as a Factor in Business

• Speech

– Translation errors

– Easy to offend and anger others

• Body language

– Gestures, posture, facial, personal space

• Customs

– Time, color, number of items,

Culture as a Factor in Business

• Should businesspeople impose their own values, ethical standards an even laws on members of other cultures?

• Should businesspeople adapt to the values, ethical standards, and laws of the country in which they are doing business?

• When in Rome….do as the Romans do????

Cultural relativism

– Morality varies from one culture to another and business practices are therefore differentially defined as right or wrong by particular cultures.

– Continuum• one culture defines ethical behavior for the whole globe…there is no relevant ethical standard but he one of the culture in which his/her current transaction is taking place.

Global Values

• Caux Round Table in Switzerland

– Business leaders in other European countries

– Japan

– United States

– We all have basic rights and responsibilities that must be adhered to when doing business

Multinational Corporations

• Public companies that operate on a global scale without significant ties to any one nation or region.– Shell Oil

– Nike

– Monsanta

– Cisco Systems

• Criticism – Transferring of jobs

– Increasing the gap between the rich and the poor

Multinational Corporations

• Critics believe size and power of MNCs create ethical issues involving the exploitation of both natural and human recourses.

• Accused of exploiting the labor markets of host countries.

• Borrowing so much money that little is left for local firms

Multinational Corporations

• Can negotiate lower taxes

• India believes that it is better to hire laborers to do construction work than to buy a piece of heavy equipment.

Sexual and Racial Discrimination

• United Kingdom– East Indians relegate to the lowest-paying, least desired jobs

• Germany– Government will not grant citizenship to Turkish workers (even second generation)

• Middle East– Women and they must wear special clothing

• Reducing discrimination helps to decrease employee turnover.

Steps to Address Discrimination Issues

• Establish a company policy on discrimination

• Communicate policy internally & externally

• Determine benchmarks for activities in which discrimination can arise

• Identify indicators of possible noncompliance

• Establish methods to identify noncompliance

• Develop an action plan

• Take action

Human Rights

• 1990s—corporate concern for global human rights emerged

• Working conditions

• Bathroom breaks

• Child laborers

Price Discrimination

• When firms charge different prices to different groups of customers

• Becomes an ethical– Violates either country’s laws

– Market cannot be segmented

– Cost of segmenting exceeds the benefit

– It results in extreme customer dissatisfaction.

Price Discrimination

• Gouging—when prices increase beyond the level needed to meet the costs of additional expenses.

• Charging low prices (dumping) allows a company to enter a market quickly and capture a large market share. – Is this okay?

Bribery

• Facilitating payments

• U.S. Foreign Corrupt Practices Act (FCPA) prohibits U.S> companies from offering or providing payments to officials of foreign governments for the purpose of obtaining or retain business abroad.

Bribery

• Small grease payments are allowed to foreign ministerial or clerical government employees. – Why are they exempt?

• Is the U.S. at a disadvantage when attempting to do business on the international front?

Harmful Products

• Safety of genetically engineered products

• Export of tobacco products to less-developed countries

• Products can become harmful because of illiteracy, unsanitary conditions, or cultural values.– Infant formula

Harmful Products

• Too many calories?

• Too much fat?

• Too much salt?

• Too much sugar?

Pollution/Natural Environment

• Global warming

• Endangered species

• Air quality

• Water quality

Scotchguard—40 year old product that generated $300 million in sales…GONE

Telecommunications Issues

• Ease of information access creates many problems including privacy issues.

• AOL controls 138 million registered users

• Fraud—Americans lost $18 million in 2004

• Information overload

• Internet slowdowns

• Knockoffs make it to the market quicker

Telecommunications Issues

• Day trading– Placing multiple buy/sell orders and holding for a short time.

• Money laundering– Using/transferring illegally received funds in a financial transaction so as to conceal their source or ownership or facilitate an illegal activity.

Intellectual Property

• Ideas and creative materials people develop to solve problems, carry out applications, educate and entertain others.

• Patents—right to exclude any other person form making, using, or selling the invention anywhere for 17 years (in the U.S.)

• Copyrights—covers published and unpublished literary, scientific, and artistic works, in any form of expression, provided that the works are in a tangible or material form.

Intellectual Property

• Trademarks—A word or symbol distinguishing the product of one company from another.

• Proctor & Gamble estimates losses of– $370 million annually in India

– $6.5 million a year in China

• Brand-protection committee– Visit http://www.fake-busters.com

Why should we be ethical?

Without Ethics,

The world would be a big jungle.

THANK YOU