Business Ethics & Corporate Social Responsibility TY-BMS (Sem – 5)

UNIT I - Introduction to Business Ethics

Ethics is that branch of philosophy, which is concerned with the
principles of behavior that distinguishes between the right from the
wrong. It is the study of morals and moral choices.

Business Ethics (also known as corporate ethics) is a form of applied

ethics or professional ethics that examines ethical principles and moral
or ethical problems that arise in a business environment.
In the simplest terms, business ethics are moral principles that define
right and wrong behavior in the world of business. What constitutes
right and wrong behavior in business is determined by the public
interest groups, and business organizations, as well as individual’s
moral values and principles.

# Normative Ethics, Descriptive Ethics and Applied Ethics

Normative (prescriptive) ethics: How should people act?

Descriptive ethics: What do people think is right?
Applied ethics: How do we take moral knowledge and put it into practice?

Normative Ethics:
Norms are sentences or concepts with practical, i.e. action-oriented
(rather than descriptive, explanatory, or expressive) import.

Normative ethics is the branch of philosophical ethics that

investigates the set of questions that arise when we think about the
question “how ought one act, morally speaking?” Normative ethics
examines standards for the rightness and wrongness of actions.
Normative ethics is also distinct from descriptive ethics, as the latter is
an empirical investigation of people’s moral beliefs.

Normative ethics is the attempt to provide a general theory that tells

us how we ought to live.

For any act, there are three things that might be thought to be morally
interesting: first, there is the agent, the person performing the act;
second, there is the act itself; third, there are the consequences of the
act. There are three types of normative ethical theory--virtue,

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deontological, and consequentialist-each emphasizing one of these

elements.

Virtue Ethics
This first normative ethical theory, virtue theory, concentrates on the
moral character of the agent. According to virtue theory, we ought to
possess certain character traits--courage, generosity, compassion,
etc.--and these ought to be manifest in our actions. We therefore ought
to act in ways that exhibit the virtues, even if that means doing what
might generally be seen as bad or bringing about undesirable
consequences.
Deontology
Normative theories of the second type, deontological theories,
concentrate on the act being performed. According to deontological
theories, certain types of act are intrinsically good or bad, i.e. good or
bad in themselves. These acts ought or ought not to be performed,
irrespective of the consequences.

Consequentialism
The third approach to normative ethics is consequentialism.
Consequentialist theories hold that we ought always to act in the way
that brings about the best consequences. It doesn’t matter what those
acts are; the end justifies the means. All that matters for ethics is
making the world a better place.

Application

To give an example, then, suppose that a man bravely intervenes to

prevent a youth from being assaulted.

The virtue theorist will be most interested in the bravery that the man
exhibits; this suggests that he has a good character.

The deontologist will be more interested in what the man did; he stood
up for someone in need of protection, and that kind of behaviour is
intrinsically good.

The consequentialist will care only about the consequences of the

man’s actions; what he did was good, according to the
consequentialist, because he prevented the youth from suffering
injury.

Descriptive Ethics

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Descriptive ethics is a form of empirical research into the attitudes of

individuals or groups of people. Those working on descriptive ethics
aim to uncover people's beliefs about such things as values, which
actions are right and wrong, and which characteristics of moral agents
are virtuous.

Research into descriptive ethics may also investigate people's ethical

ideals or what actions societies condemn or punish in law or politics.

Because descriptive ethics involves empirical investigation, it is a field

that is usually investigated by those working in the fields of
evolutionary biology, psychology, sociology or anthropology.
Information that comes from descriptive ethics is, however, also used
in philosophical arguments.

Value theory can be either normative or descriptive but is usually

descriptive.

Applied Ethics

It is a term used to describe attempts to use philosophical methods to

identify the morally correct course of action in various fields of human
life. Bioethics, for example, is concerned with identifying the correct
approach to matters such as euthanasia, or the allocation of scarce
health resources, or the use of human embryos in research.
Environmental ethics is concerned with questions such as the duties of
humans towards landscapes or species. Business ethics concerns
questions such as the limits on managers in the pursuit of profit, or the
duty of 'whistleblowers' to the general public as opposed to their
employers. As such, it is a study which is supposed to involve
practitioners as much as professional philosophers.

Applied ethics is distinguished from normative ethics, which concerns

what people should believe to be right and wrong, and from meta-
ethics, which concerns the nature of moral statements.

An emerging typology for applied ethics (Porter, 2006) uses six

domains to help improve organizations and social issues at the
national and global level:

• Decision ethics, or ethical theories and ethical decision processes

• Professional ethics, or ethics to improve professionalism
• Clinical ethics, or ethics to improve our basic health needs
• Business ethics, or individual based morals to improve ethics in
an organization
• Organizational ethics, or ethics among organizations

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• Social ethics, or ethics among nations and as one global unit

Much of applied ethics is concerned with just three theories:

1. utilitarianism, where the practical consequences of various
policies are evaluated on the assumption that the right policy will
be the one which results in the greatest happiness,
2. deontological ethics, notions based on 'rules' i.e. that there is an
obligation to perform the 'right' action, regardless of actual
consequences (epitomized by Kant's notion of the Categorical
Imperative), and
3. virtue ethics, derived from Aristotle's and Confucius's notions,
which asserts that the right action will be chosen by a suitably
'virtuous' agent..

List of subfields of applied ethics

• Animal rights • Environmental • International

issues ethics (e.g. global ethics (e.g.
• Bioethics warming) world
• Business ethics • Government hunger)
• Computer ethics ethics • Legal ethics
• Education ethics • Hospitality ethics • Marketing
• Medical ethics • Human rights ethics
• Military ethics issues (e.g. • Neuroethics
(e.g. just war gender ethics)
theory) • Research ethics • Public
• Media ethics / • Sexual ethics administratio
journalism • Social work ethics n ethics
ethics or Ethics in social
work
• Sports ethics

==============================================================

Ethics, Morality and Legality:

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Ethics can be defined as “a branch of philosophy dealing with values

relating to human conduct, with respect to the rightness and
wrongness of certain actions” and
Morality as “moral judgments, standards and rules of conduct”.
Law are rules and principles developed through ethics and apply in
situations involving morality. Ethics and morality cover a wider scope
when compared to law because law only regulates particular aspects of
ethics and morality. The limited scope of law in considering the issue of
good or bad or right and wrong is exemplified by the existence of the
concepts of law and equity in the resolution of cases. The consideration
of equity usually occurs in instances when law insufficiently
distinguishes the acceptability of an action subject to litigation or
provides a resolution to the case deemed consistent with the code of
ethics and morality judgments commonly accepted in a particular
society. However, law is based on ethics and morality determined
through societal context and translated into enforceable rules with
corresponding penalties.

Ethics and morality then translate into law with the intention of
creating a basis for encouraging people to opt for what is good or right
instead of merely relying upon every individual’s value judgments or
conscience. Ethics and morality also differ since ethics involves the
consideration of reasons underlying existing principles or values while
morality constitutes cognitive judgments of the individual regarding
right or wrong. This means that ethics consider principles in the
decision on right and wrong while morality is the result of the cognitive
processing of ethical principles. This further implies that the resulting
judgment may not necessarily be aligned to ethical values.

Ethical Organism and Corporate code of conduct:

Corporate codes of conduct do not have any authorized definition. The

concept "corporate code of conduct" refers to companies' policy

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statements that define ethical standards for their conduct.

There is a great variance in the ways these statements are
drafted.

Corporate codes of conduct are completely voluntary. They can take

a number of formats and address any issue - workplace issues and
workers' rights being just one possible category. Also, their
implementation depends totally on the company concerned.

Potential authors of a code are the founder, board of directors, CEO,

top management, legal departments, consultants. The process can
involve employee representatives and/or randomly or otherwise
selected employees.

Case Example: Nokia’s Code of Conduct-

Our aspiration to be the world’s most loved and admired brand can
only be achieved by considering not just what we do but how we do it.
It requires us to strictly adhere to laws and regulations and to go
beyond this, by setting our goals much higher. We want to be the
leader in ethical business conduct.

The Nokia Code of Conduct sets our approach to ethical business

practice. It outlines our commitment to respect and promote human
rights and fair workplace practices, equal opportunities,
environmentally sustainable business, and our zero-tolerance policy on
bribery and corruption. The Nokia Code of Conduct, which was first
introduced in 1997, has had its latest renewal in 2009.

We apply the Code of Conduct globally in our own operations and

require the same standards from our suppliers. All Nokia employees
must understand and comply with the Code of Conduct.

Business Ethics – Conceptual Background:

# Conceptual Approaches to Business Ethics

Bartels defines ethics as the pile of moral principles and values

determined by society. He points out ethics guides people what good
or bad is, and what correct or wrong is and what duties and
responsibilities are:

(1). Ethics is universal, it is thinking on moral and also moral attitude.

This attitude is to see every living being as equal (2). It means to

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behave by angle of human rights and respect to man, and survival

right is the first.

According to the philosophies, environment means humanity. Today's

ethics approaches note depending on keeping human wants under
pressure for the benefits of all human beings. By these words
environment includes not only men, but also animals, plants, i.e., the
nature.

Ethics occurs by relations of humans with themselves, and their

physical and social environment. Therefore, the origin of the problems
and solution is human. The philosophies note many approaches in
these relations. These approaches can be grouped into three groups:

- The human-oriented approach

- The living oriented approach
- The environment oriented approach

Every approach describes one of parts of the whole environmental

ethics. But the common point of these approaches is that all human
beings and their equal rights take place in the ecosystem. By the new
approach in the concept of deep ecology it is accepted that the
diversity of the ecosystem has an internal value and no one has any
right to decrease this diversity and difference.

For centuries, people have established a lot of establishments to

achieve these goals. Human beings have seen that producing
something by cooperation is more productive and effective than doing
it alone, so they have established enterprises. They have seen
unlimited needs, increasing wants and scarcity of objects and they
have also seen establishing enterprises as a way of producing more.
But in this century humans saw a lot of impacts from our living. Air,
water and soil pollution, the danger of consuming natural resources,
acid rain, gas, dust and liquids industries caused, soiling of natural
foods, industrial pollution and dangerous wastes, just to mention a few
problems we face.

These environmental problems make us reconsider the goals of

organizations and their responsibilities to the society and nature. The
organizational goals are often not environmentally friendly. In some
events the goal of the establishment is opposite to the environment
and sometimes organizational activities damage the environment in
achieving the goals. In this process, we should emphasize the reasons
why they should have responsibility. First, they use environmental

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resources and resources are limited. Second, they damage the

environment by their activities. Third, they use common assets of
mankind.

Finally, the enterprises have various forces to influence the

environment: Economic force, social and cultural force, technological
force, politic force, forces on individuals and physical environment (3).

In spite of these impacts and forces of establishments, there is no

social control system on the activities of enterprises. This point
emphasizes business ethics terms as an institutional framework, i.e.,
social ethics. As an institutional term, social ethics means searching
ethical norms to protect the social benefits, and determining the
possibilities for achieving a kind society. Then, business ethics means,
the norms, duties, responsibilities, courses of actions of enterprises to
protect the benefits of whole society.

In a broader view, because of the impacts on the natural and social

environment, business ethics concepts determine the responsibilities
towards ecosystem. It is the common denominator of business ethics
and environmental ethics is the interrogation of relations and
dilemmas between economy and nature, man and society.

According to the common classification of conceptual approaches on

business ethics, there are three approaches (4). The first approach
reconciles ethical values with economic goals. The second approach
gives priority to the ethical values. According to Ulrich, a new
multidimensional goal system should replace to the profit
maximization. And the third approach is pragmatic approach. In this
approach, the attitudes model of business managers is the focus of
interests.

The last two approaches are very important for us to develop a new
concept and term on business ethics. The approach which gives
priority to the ethical values is important, because the enterprises are
not a purpose; they are only a tool which we use to get benefits. If this
tool causes various damages on the ecosystem to get profit, then we
should revise our organizational goals, targets and activities. A
pragmatic approach is characterized with the importance of individual
conscience and discussion of alternative individual courses of actions.

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Therefore, these two approaches define the new term business ethics
as an institutional concept. This concept includes both organizational
responsibility and individual duties as business managers, also covered
the ecosystem. We can name this concept as "environment oriented
business ethics" or "enterprise ethics".

As determined above, if people are the focus of the problems and

solution, educating people becomes our great responsibility. People
should be educated as a member of business organizations. This
education process should begin in childhood and continue during our
life.

Egoism vs Altruism
Egoism:
 One ought to act in his or her own self interest
 Ethical behavior is that which promotes one’s own self
interest
 Does not mean should not obey laws - only do so if in self
interest

Ethical egoism (also called simply egoism) is the normative ethical

position that moral agents ought to do what is in their own self-
interest. It differs from psychological egoism, which claims that people
do only act in their self-interest. Ethical egoism also differs from
rational egoism, which holds merely that it is rational to act in one's
self-interest. These doctrines may, though, be combined with ethical
egoism.

Ethical egoism contrasts with ethical altruism, which holds that moral
agents have an obligation to help and serve others.

Altruism:
Altruism means unselfish concern for the welfare of others;
selflessness.
Altruism (also called the ethic of altruism, moralistic altruism,
and ethical altruism) is an ethical doctrine that holds that individuals
have a moral obligation to help, serve, or benefit others, if necessary
at the sacrifice of self interest. Auguste Comte's version of altruism
calls for living for the sake of others. One who holds to either of these
ethics is known as an "altruist."

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Altruism is often seen as a form of consequentialism, as it indicates

that an action is ethically right if it brings good consequences to
others.

Entrepreneur and Manager – Role and Responsibilities:

Entrepreneur:
An entrepreneur is an individual who accepts financial
risks and undertakes new financial ventures. The word
derives from the French "entre" (to enter) and "prendre"
(to take), and in a general sense applies to any person
starting a new project or trying a new opportunity.

Many societies place great value on the entrepreneur. To encourage

their activity, they may be offered access to inexpensive capital, tax
exemptions and management advice. An entrepreneur has the
greatest chance of success by focusing on a market niche either too
small or too new to have been noticed by established businesses. To
help new technologies come to market, many universities establish
business incubators for entrepreneurs hoping to turn leading edge
research into marketable products.

Characteristics of an entrepreneur include spontaneous creativity, the

ability and willingness to make decisions in the absence of solid data,
and a generally risk-taking personality. An entrepreneur may be driven
by a need to create something new or build something tangible. In the
Austrian school of Economics, entrepreneurs are described as being
engaged in the creative destruction of existing products and services.
As new enterprises have low success rates, an entrepreneur must also
have considerable persistence.

Entrepreneurs are generally highly independent, which can cause

problems when their ventures succeed. In a small company the
entrepreneur is able to personally manage most aspects of the
business, but this is not possible once the company has grown beyond
a certain size. Management conflicts often arise when the entrepreneur
does not recognize that running a large stable company is different
from running a small growing company. The problem is often resolved
by the entrepreneur either leaving to start a new venture, or being
forced out by shareholders. At Apple Computer, for example, one

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founder, Steve Wozniak, left to pursue other interests, while the other,
Steve Jobs was ultimately fired and replaced with a CEO from a much
larger company. Note that many years later, Jobs returned to the helm.

An intrapreneur is an individual who acts like an entrepreneur but from

inside the confines of a large organization or corportation.

Social Entrepreneurship:

A social entrepreneur is someone who recognizes a social problem and

uses entrepreneurial principles to organize, create, and manage a
venture to make social change (a social venture). Thus, the main aim
of social entrepreneurship is to further social and environmental goals.

Historical Examples of Social Entrepreneurs:

• Susan B. Anthony (U.S.): Fought for Women's Rights in the
United States, including the right to control property and helped
spearhead adoption of the 19th amendment.
• Vinoba Bhave (India): Founder and leader of the Land Gift
Movement, he caused the redistribution of more than 7,000,000
acres of land to aid India's untouchables and landless.
• Dr. Maria Montessori (Italy): Developed the Montessori
approach to early childhood education.
• Florence Nightingale (U.K.): Founder of modern nursing, she
established the first school for nurses and fought to improve
hospital conditions.
• Margaret Sanger (U.S.): Founder of the Planned Parenthood
Federation of America, she led the movement for family planning
efforts around the world.

Recent Examples of leading social entrepreneurs:

One well-known contemporary social entrepreneur is Muhammad
Yunus, founder and manager of Grameen Bank and its growing family
of social venture businesses, who was awarded a Nobel Peace Prize in
2006. The work of Yunus and Grameen echoes a theme among
modern day social entrepreneurs that emphasizes the enormous

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synergies and benefits when business principles are unified with social
ventures.

In India, a social entrepreneur can be a person, who is the founder, co-

founder or a chief functionary (may be president, secretary, treasurer,
chief executive officer (CEO), or chairman) of a social enterprise, which
primarily is a NGO, which raises funds through some services (often
fund raising events and community activities) and occasionally
products. Rippan Kapur of Child Rights and You and Jyotindra Nath of
Youth United, are such examples of social entrepreneurs, who are the
founders of the respective organizations. Jay Vikas Sutaria of
Bhookh.com is a social entrepreneur who is leveraging the power of
the Internet to fight hunger in India.

Manager:
A person who manages, conducts, trains, directs, deals,
supervises, organizes and controls resources,
expenditures, an organization, an institution, a team, a
household, etc.
What are the roles and responsibilities of a managerial position?
1. Supervise and manage the overall performance of staff in
his department.
2. Analyzing, reporting, giving recommendations and
developing strategies on how to improve quality and
quantity .
3. Achieve business and organization goals, visions and
objectives .
4. Involved in employee selection, career development,
succession planning and periodic training
.
5. Working out compensations and rewards
.
6. Responsible for the growth and increase in the
organizations' finances and earnings.

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7. Identifying problems, creating choices and providing

alternatives courses of actions.

Responsibilities towards Stakeholders: An

Overview
A corporate stakeholder is a party that can affect or be affected by
the actions of the business as a whole. The stakeholder concept was
first used in a 1963 internal memorandum at the Stanford Research
institute. It defined stakeholders as "those groups without whose
support the organization would cease to exist."

Internal and External Stakeholders

A stakeholder approach applies as much to an

entrepreneurial start-up and to a mid-sized closely-held
firm as it does to a corporation with diffuse ownership.

Four Levels of Commitment to the Stakeholder Approach

Company stakeholder responsibility requires that companies be
committed to a stakeholder approach to management on the following four
levels.

Level 1 - Basic Value Proposition

At this most basic level, the entrepreneur or manager needs to
understand how the firm can make the customer better off, and
simultaneously offer an attractive value proposition to employees,
suppliers, communities, and financiers.
• How do we make our stakeholders better off?
• What do we stand for?

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Level 2 - Sustained stakeholder cooperation

The competitive, macro-economic, regulatory, and political
environments are so dynamic they necessitate constant revision of the
initial stakeholder arrangements. Each revision upsets the delicate
balance struck in the basic value propositions to various stakeholders.
Managers must have a deep understanding of how these trade-offs
affect each stakeholder, the amount of sacrifice a given stakeholder
will accept, and how these current sacrifices can be compensated.

What are the principles or values on which we base our everyday

engagement with stakeholders?

Level 3 - An understanding of broader societal issues

Today’s managers must recognize and respond to a rising number of
international issues, without the moral compass of the nation, state or
religion as a guide. Managers may need to take positions on issues
that apparently are not purely business related. A pro-active attitude is
necessary towards all stakeholder groups, both primary, i.e., those that
have direct business dealings with the company, and secondary, such
as NGOs and political activists, who can affect the operations of the
company.
• Do we understand how our basic value proposition and principles fit
or contradict key trends and opinions in society?

Level 4 – Ethical leadership

Recent research points to a strong connection between ethical values
and positive firm outcomes such as sustained profitability and high
innovation.7 Proactive ethical leadership is possible only if there exists
a deep understanding of the interests, priorities, and concerns of the
stakeholders.
• What are the values and principles that inform my leadership?
• What is my sense of purpose? What do I stand for as a leader?
There are 10 general principles that collectively develop a “mindset”
necessary for entrepreneurs and managers to understand and practice
all four levels of Company Stakeholder Responsibility.

Profit – making; An Objective with an ethical dimension:

We shall analyze the relationship between Ethics and Business:

• Ethics conflicts with profits, whereas
• Business always chooses profits over ethics.

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There are companies which suggest a somewhat different perspective

– a perspective that many companies are increasingly taking.
The management of such companies spends millions of dollars
on developing products that they knew had little chance of
ever being profitable because they had an ethical obligation to
make its potential benefits available to people. In such cases,
companies choose ethics over profits.
Many companies don’t invest in Research and Development
projects because this will increase their costs and minimize
profits. Customer satisfaction in these cases is kept on stake.

We find companies behaving differently with regard to ethics

and profits.
• Many companies choose profits over ethics. Some often
engage in unethical behavior for profit.
• Customers buy goods and services from a business which
is honest and trustworthy.
• Company with a regulation for ethical behavior has an
advantage over one with a reputation for being unethical.

The Japanese proved that firms can produce goods that were both high
quality and low cost.

There are many businesses that we see as successful. But when

we look closer at how the businesses made their profits, lots of them
have sacrificed their morals in order to make money. So are we just
following in their footsteps, knowing that the easiest way to become
successful is to abandon our morals?

Case Example: NESTLE

One of the first companies I came across was ‘Nestle’.

Nestle is a worldwide company that has thousands of products though
it is mainly known for its breakfast cereals and coffee. Two years ago,
there was a huge boycott against nestle for their breast milk sales in
Africa. Nestle owns over 50% of the worlds breast milk substitute
market and most of its products are sold in third world countries. It
started by nestle promoting their products by giving away free
samples to struggling mothers. In promotional advertising in these
countries nestle was pushing the idea that twins and premature babies
need to have breast milk substitute as they are unable to breastfeed.
Also, a lot of their instructions or health warnings are not on the bottles
or are in a foreign language to the country they are being sold in.

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Another issue nestle was being criticized on was exploiting employees.

When workers in Brazil striked against poor working conditions, pay
and discrimination against women, forty employees were sacked, most
of which were the people who were leading the strike.

There is proof from legal aid charities that nestle has been targeting
and profiting out of third world countries for over twenty years now. So
why did it only come to light in 2003? Personally, I think it was because
of media attention. It was widely covered by the daily mail and the
guardian.
The guardian published this quote:
“Nestle, in the first six months of this year, made a profit of 3.7bn
Swiss francs (£1.63bn), up 32% from a year ago.” (Mark Tran, 2005,
the guardian)
This was published on the 1st September 2005 just after nestle had
published their annual report showing that they were then making
more profit than ever before. So all in all, the top management for
nestle were doing an outstanding job (profit wise), the business was
successful. But by now they had over 20 countries with organizations
trying to boycott them.

Nestle claimed they had not done anything wrong. In a way they were
right (legally anyway), there WAS nothing wrong with their breast milk,
it was sterile, cheap, nutritious and it only had to be mixed with water.
It was being sold all over the world to healthy children in Britain and
America also. What was going wrong in the third world countries was
that the milk powder was being mixed with contaminated water. The
state of the contaminated water in Africa couldn’t be helped.

Nestle hit back to the campaign:

“Nestle claims to have a strong Corporate Social Responsibility policy,
taking social issues very seriously, especially as they relate to health
and nutrition.” (Unnamed nestle spokesperson, 2003, answers.com)
“Nestle does comply with both the letter and the spirit of the World
Health Organization’s International Code of Marketing of Breast-Milk
Substitutes as well as with national regulations giving effect to the
WHO Code when these are stricter”
(Chemist Henri Nestlé, 1867, nestle infant policy)

Finally the world health organization stepped in and said that although
pregnant women and breastfeeding mothers should be told of the
benefits of breastfeeding, they should also be given the option to use
powdered milk. Nestle also started to give mothers more information
about the social and financial opinions of using powdered milk.
They said that nestle had broken part of the 1981 health code of
breast milk substitutes by giving away free sample to encourage

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people to buy their products.

‘’Manufacturers and distributors should not distribute to pregnant
women or
Mothers or infants and young children any gifts of articles or utensils
which may
promote the use of breast-milk substitutes or bottle-feeding.’’ (1981,
the world health organization)
So Nestle stopped campaigning with their harsh advertising so much.
They still continue to trade over in Africa and Brazil, now they are
trying to build bridges by building schools and cleaning water.

They have now a section on their website all about the breast milk
issue and the main title is:
“Nestle: Committed to the encouragement of breastfeeding all
over the world”

Some argue that it is unethical to make profits in companies.

Even our EX-Prime Minister Jawaharlal Nehru said in 1950, profit
is a dirty work, referring to public companies. Even private
companies making profits were viewed as disclaim. In today’s
dynamic business environment profit-making is a must.

Therefore it can be concluded that a business cannot survive

without profits but at the same point of time society’s interest is
also important as business is the sub-set of the society.

Companies must make profits ethically….

==========================End of Unit
One=============================

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