NSB BEBE Unit 2 Chapter 3

8/9/2019 NSB BEBE Unit 2 Chapter 3

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Unit 2 syllabus

Managing Ethics - Frame work oforganizational ethic theories and sources,ethics across cultures, factors influencing

business ethics, ethical decision making,ethical values and stakeholders, ethicsand profit, Corporate governanceStructure of boards, reforms in boards,

compensation issues, ethical leadershipfor improved Corporate governance andbetter business education


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Ethics in Organisations

Ethics in Business:

Ethics alone can determine companys success in the longrun

Balancing of conflicting interests. (personal and professional ethics)

All societies approve honesty, keeping promises, helping others,respecting others rights

All societies disapprove/forbid lying, stealing, deceiving and harmingothers

Questionable acts!

Kickbacks, Bribery, Corruption Theft, Collusion, Moneylaundering(diverting without regulators knowledge)drug sales,terrorism, gambling and smuggling

Individual making profits at others cost


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Sources & Development of Business Ethics

Genetic Inheritance: Evolutionary forces of natural selectioninfluence the development of traits

Religion: Belief that religion provides ethical principles andstandards (example:Ten commandments in Christianity)

Philosophical Systems: Pleasure principle Versus Indifferenceto pleasure or pain

The legal system: Law tries to educate the people

Codes of Conduct: Company code, company operating

policies, Code of Ethics

Cultural Experiences


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Arguments favouring Business Ethics

Ethics govern all voluntary human activities. Business is a voluntaryactivity.

No business exists when we think it is moral to break agreements orsteal competitors secrets or cut throats of others. Minimaladherence to ethics is therefore necessary

Companies that combined good history of profits with exemplaryethical standards survive for hundreds of years. Perpetuity beingone of the principles of business, business does not exist withoutethics (Examples of such companies: HP, Intel, Cisco, Procter &Gamble to name a few

Mutual co-operation always help

Just (ethical) organisations will have always have loyal customersinternal and external


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Business Ethics

Corporates to tackle four types of social issues to constitute totalcorporate social responsibility:--Economic issues; Legal issues,

Ethical issues and Philanthropic issues:

Economic Issues: Profit Versus acceptable profit producing required

goods and services to the society. Maximisation of profits andoptimisation of profits with social concerns.

Legal Issues: Business houses to comply with legal requirements of

the country in which they operate. Economic missions should be

within the framework of law. Legal and economic issues existtogether.


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Business Ethics

Ethical Issues: Sometimes business houses need to respectstandards set by society even though law may be silent on theissue. Examples are standards, norms, interest of stakeholders(consumers, employees, shareholders and the community).Environment protection, civil rights, consumer movements.Corporates to show higher level of performance than currentlyrequired by law. Coporates should recognise Justice,. Rights and

utilitarianism.

Philanthropic Issues: Business houses shoud be good corporatecitizens, which implies that they should involve themselves inactivities desirable to promote human welfare or goodwill. Examplesare contributions (direct or indirect) to art, education, community

work, rehabilitation of identified targetted population. Humanity is thecatchword.


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Imp Terminologies in Business Ethics

Teleology: Look at the consequences of actions/decisions (the ends); It is the

doctrine of final causes

Deontology:

Approach to determine the ethics by looking at the process of

decision (the means). It is the science of duty

Ethical Reasoning

Identifying the nature of ethical problem and then deciding thecourse of action which gives the best ethical result

Utilitarian Ethics It is a teleological approach which aims at greatest good for the

greatest number (cost benefit analysis which gives overall gain)


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Imp Terminologies in Business EthicsMoral Reasoning:

It is a science or moral development. Sometimes the local courtsdecide the moral reasoning. It is a study in psychology that overlapswith moral philosophy. It is also called moral development. Underconditions of uncertainty, accept the court to decide moral reasoning

Ethical Congruence:

A state where values, behaviours and perceptions are aligned isknown as ethical congruence

Theory of Ammorality:

Business need not always work under the full framework of societysethical ideals

Managers act selfishly because of market mechanisms which givesmaximum benefits to stakeholders

Justifying some issues unethical at workplace but at personal life thesame issues become unethical.


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Imp Terminologies in Business Ethics

Distributive Justice: It is a teleological approach which leads to equitable distribution of

goods and services

Whistle Blowing:

Disclosure by present or past employees about any illegal, orillegitimate practices in the company involving the employees. In

other words, sounding an alarm from within the very organisation inwhich people work aiming to spotlight neglect or abuses thatthreaten the public interest.

Compensatory Justice and Retributive Justice:

Both are concerned with rectification of the wrongs. Compensatingjustice is the correct way of correcting wrongs in private dealings (EgRelief to accident victims/survivors, failure to fulfil the contract.Retributive Justice is awarding punishment which acts as a deterrentEg Punishment of fine/imprisonment/death penalty for crimesrape,murder, assault, theft, robbery etc


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Imp Terminologies in Business EthicsCorporate Culture

It is the set of shared values of the people who form an organisation

serving the interests of the public in any manner. It defines the

existential purposes, functions and what is important for them. Every

employee developing a sense of belonging and exhibiting a uniform

behaviour towards internal and external customers


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The 4 Concepts of EthicsThe 4 Concepts of Ethics

Relativism Egoism

Utilitarianism Deontologism

TheThe 44ConceptsConcepts ofof

EthicsEthics


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Relativism

There is no universal standard by which morality can be judged

What is correct for one society may be wrong for another

Ethics and morality are relative

There are no absolutes - murder, slavery, torture, rape OK

What is meant by a society? Sub-societies

Leads to conclusion - each persons opinion is correct

Nothing that anyone does is morally wrong

Egoism

One ought to act in his or her own self interest

Ethical behavior is that which promotes ones own self interest

Does not mean should not obey laws - only do so if in self interest

Problem - Externalities associated with private actions - OK to dumptoxic wastes as long as dont get caught


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Utilitarianism

The morality of an action can be determined by its consequences

An action is ethical if it promotes the greatest good for the greatest

number

Ends justify the means

Deontologism

Derived from the Greek word for Duty

Actions are not justified by their consequences. Factors other thangood outcomes determine the rightness of actions

Means are important


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Organisational Ethics

Employees obligations to the firm Punctuality

Follow Dress Code

Work to the best of his/her abilities

Respect the employer, colleagues and customers

Take care of the organisations property and interests Follow reasonable and lawful orders/instructions. (Illegal Orders or

orders that threaten employees health and safety may be ignored)

Obey safety rules

Ask for help in case of need

Know employee expectations

Dont discriminate or harass others at workplace Dont put yourself or others at a risk ofINJURY in the workplace


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Employees rights

Right of right wages

Protection from unfair dismissal

Sick leave, Annual leave, public holidays, familyleaveand long service leave

Freedom to belong to or not belong to a union


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Firms duties to the Employees: Compensation (Wages and benefits)

Job Satisfaction ( skill development, training, workshops, seminars)

Working Environmentfree of hazards, congenial, avoiding injuries

Job ProfileJob description

Health and Safety

Growth Prospects (career prospects)

Job rotation ( Task identity, Task significance, Exposure, Autonomy,Feedback and also internal security reasons)


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Organisational Ethics Programme Company integrates core values(honesty, integrity, trust, fairness

and respect) into its policies, practices and decisions

Compliance with legal standards and adherence with internal rulesand regulations

Right kind of behaviour of individuals and groups in the organisation

Companies need to put ethical codes in writing

Companies need to impart training program on ethics

Ethical image of a company brings goodwill and loyalty of internaland external customers


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Organisational EthicsImportance of Ethics to an organisation

Substantial improvement of society

Maintains a moral course even in turbulent times

Cultivates strong team work and productivity as the behaviours arealigned with the organisational values

Employee growth is strong and not tilting

Employee face reality both good and bad which improves theirconfidence

Creates productive work environment which avoids downsizing


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Organisational EthicsImportance of Ethics to an organisation (contd..)

Good public image developed

Companies and employees become socially more responsible

Public can understand the companys values and its existentialpurpose

Diversity can be easily managed in this globalised era

Inappropriate turnover can be controlled. Companies incur cost onaccount of loss of valuable experienced people and also on accountof development of new personnel. Pay is not always the primaryfactor

When a company integrates its values into its culture, it reflectsthrough employees attitude and conduct.


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Code of Ethics of a successful companyHighlights

National interest supremecontribution to economicdevelopment, not undertaking any activity detrimental tothe national interest of those nations in which thecompany operates

Financial Reporting and Records: Fair and accurateconformance to the accounting standards whichrepresent the generally accepted guidelines, principles,laws and regulations of the country in which the

company operates. High standards of internal control isalso a must.

Transparency and good governance


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Code of Ethics of a successful companyHighlights

CompetitionSuccessful competition which promote theprogressive and judicious liberalisation of trade and investment of acountry.

Equal opportunity without regard to race, religion, caste, colour,ancestry, marital status, sex, age, nationality, disability and veteranstatus

Employee policies and practices in a manner that ensures equalopportunity to those eligible on merits

Conduct socially responsible and socially responsive activities


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Ethics in an organization refers to rules (standards,principles & values) governing the conduct of

organizational members and the consequences of

organizational decisions

Defining appropriate behavior Establishing organizational values

Nurturing individual responsibility

Providing leadership & oversight

Relating decisions to stakeholder interests Developing accountability

Relating consequences

Auditing & improvement


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Factors influencing standards of behabiour

Three general sets of factors influencing the standards ofbehaviour in an organization:

Individual factors: Level of education; Moral Values;Value related attitudes, Culture and Integration of

Personal goals & organizational goals

Social factors: Culture, Interpersonal relationship

Opportunity: the amount of freedom an organizationgives an employee to behave ethically if he or shemakes that choice. Deviations if monitored/punishedencourage ethical behaviour


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Principles of Employee Conduct

10% :Follow their own beliefs

40%:Try to follow company policies and rules

40%:Go along with the work group

10%:Take advantage if the risk is low


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Myths about Organisational ethics

Its easy to beethical

Unethical behavior is part of any organization

There are no rewards for being ethical

Ethical behavior will prevent me from being

Successful

Work is like a sport, push the rules & try not to get

caught


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Supporting Ethical decision making

culture, values & programs

compliance & leadership

recognition of the role of co-workers & managers

balancing stakeholder interests

management of situational pressures

rewards beyond short-term performance


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CorporateGovernance

Corporate governance is a process whereby people atthe helm of affairs direct, monitor and lead corporations,

and thereby create, modify or destroy the structures and

system under which they operate

The structure specifies the allocation of rights and

responsibilities among different participants in theorganisationBoard, Shareholders, and other

stakeholders

Corporate governance spells out the rules and

procedures for making decisions on corporate affairs Corporate governance implies that ethics is as important

as economics, fair play as important as financial

success, morals as vital as market share.


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CorporateGovernance

Concept of Corporate governance emerged to overcome

the corporate failures and widespread dissatisfaction

among the stakeholders

It reduces failures and dissatisfaction.

The three integrated principles of Corporate Governanceare: a) Integrity and Fairness; b) Transparency and

Disclosures and c) Accountability and Responsibility

Efficiency of corporate governance determines the

health of the capital market and the economy particularly

when FDIs and FIIS are flowing in a globalised economy

Corporate governance take care of investors with proper

valuation of securities. It ensures that there is no insider

trading


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CorporateGovernance

Accountability:

Means answerability. Every person in the organisation

should report to his superior how the work has been done

and how authority has been used. Every person thus

becomes answerable to the top management. The top

management is answerable to the stakeholders. However,the principle is that every employee is answerable to one

superior only.

It is necessary to protect interest of small investors,

gullible public, and to protect fleecing of rural people andto ensure maximum value to the firm in the long run

It is ensured through audit committees.


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CorporateGovernance

Accounting Standards: Institute of Chartered Accountants of India has

prescribed the accounting standards to ensure transparency and

uniformity in accounting practices. Accounting standards are written

statements issued from time to time re: financial measurements and

disclosures used in producing a set of fairly presented financial

statements.

Accounting Disclosures: Means that all financial information regardingbusiness transactions must be given in full. Financial statements

would be incomplete, unreliable and misleading unless supported by

important facts. Change in accounting policies, methods and

procedures should be recorded and presented

Whistle Blowing is allowed. It is a mechanism for employees to reportto the management about unethical behaviour, fraud and violation of

companys code of conduct etc


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CorporateGovernance

Need for corporate Governance:

Ever increasing number of operational players on account of LPG

Competition is successful when standards are met

Complex market conditions (Intl institutions like WTO etc)

Preventing corporate failures

Constituents of Corporate Governance:

Board of directors: stewarding the company and giving directions

and controlling the management

Shareholders: appointing the directors and auditors and to hold the

BOD accountable for getting proper information in a transparent

fashion.

Management: Running the company by putting in place adequate

control systems, ensuring their operations and to provide

transparent information correct and timely.


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CorporateGovernance

Requirements for good corporate governance

Board and its powers: Role, Responsibilities, Powers, and the

accountability of the Board, CEO and the Chairman

Legislation: Legislative and regulatory framework

Code of Conduct: Communication of code of conduct to allstakeholders and ensuring that they are properly understood

Board of Independence: Some members of the board should be

independent not having any commercial dealings with the company.

They shall have independent powers as well

Board Skills: Board members shall have a combination of skills andexpertise--operational, technical, financial, legal and also

government/regulatory

Management Environment: Setting up of clear objectives and ethical

framework, good planning, having right people etc


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CorporateGovernance

Requirements for good corporate governance (contd..)

Board appointments and reappointments: through extensive

research

Board Induction and Training:

Board Meetings: forum for board decision makingwell plannedagendas with papers ready for decision

Strategy setting:

Business and Community Obligations

Financial and Operational reporting

Monitoring the board performance Audit committee

Risk Management


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CorporateGovernance

Objectives of corporate governance:

Adequate disclosures and effective decision making to

achieve corporate objectives

Transparency in business transactions

Statutory and legal compliances

Protection of shareholder values

Commitment to values and ethical conduct of business


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CorporateGovernance

Functions of the Board; Strategy formulation, budgets, business plans

Monitoring the effectiveness of implementation

Selecting, Compensating, monitoring key executives and overseeing

succession planning

Executive and board remuneration Proper process of nomination and selection of board members

Monitoring and managing conflicting interests of management,

board members and shareholders and preventing abuse of inter

related party transactions

Ensuring integrity of the corporations accoutning and financialreporting (including audit)

Overseeing the process of disclosure and communications.


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CorporateGovernance

Composition of the Board of Directors:

Not less than 50% to be non-executive directors

If the chairman is executive: minimum 50% to be

independent directors

If the Chairman is non-executive: independent directors

could be one third

Types of directors: a) Full time executive director who is

normally a paid employee of the company; b) Non-

executive but non independent director who is normally a

promoter or having high stakeholder; and c) Independentdirectors known as nominee directors representing some

institutions like lenders or the government

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NSB BEBE Unit 2 Chapter 3

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