2

Concepts and Theories of Business Ethics

Business Ethics: An Indian Perspective

Definition of Ethics
Ethics as a moral and normative science refers to principles that define human behaviour as right, good and proper. Morality, according to philosophers, refers to human conduct and values

Business Ethics: An Indian Perspective

Law and Morality

There is a clear cut difference between law and morality. In a particular situation, an act that is legal may not be morally right. For example, it will be legal for an organization running in loss to lay off a few employees so as to sustain itself. But it is not morally right to do so, because the employees will find it difficult to find a living. On the other hand, an action performed can be illegal but morally right. For example, it was illegal to help Patriotic Indians families to hide from the British Govt. but it would have been a morally admirable act.

Business Ethics: An Indian Perspective

 Morality: moral code of individual or society. Etiquette: a set of rules of social wellmannered behavior. Unwritten code or rules of social or professional behavior such as medical etiquette.

Professional Code: Special rules governing the member of profession.

Business Ethics: An Indian Perspective

Law vs Morality in Organizations

In the organization too, we will find such situations where an act will be morally right and legally wrong to perform. The strong ethical base of the individual as well as that of the organization helps an employee overcome such a situation. The law cannot cover the wide variety of possible individual and group conduct. The law prohibits actions that are against the moral standards of society.

Business Ethics: An Indian Perspective

Ethical theories in business

Ethics is a normative study, i.e., an investigation that attempts to reach normative conclusions.
Ethical theories in business include Consequentialist normative theory: Normative themesEgoism, Utilitarianism, Kantian ethics Nonconsequentialist normative theory: Nonconsequentialist normative themesduties, moral rights, and prima facie principles

Business Ethics: An Indian Perspective

Classification of Normative Theories

Normative Theories

Consequentialist

Non-consequentialist

(Deontological Duty-based)
Kantian

Egoism

Utilitarianism Theories

Business Ethics: An Indian Perspective

Normative Themes
Egoism
contends that an act is morally right if and only if it best promotes an agent's long term interests
makes use of self interest as the measuring rod for actions performed is equated with an individuals personal interest but it is equally identified with the interest of an organization or society

intends to provide positive consequences to the party's interest without considering the consequence to the other parties

Business Ethics: An Indian Perspective

Normative Themes : Egoism (Contd.)

Philosophers distinguish between two kinds of egoism: personal and impersonal. Personal egoism: one should pursue his/her long-term interest and not dictated what others should do. Impersonal egoism: everyone should follow their best long-term interest.

Business Ethics: An Indian Perspective

Psychological Egoism
This theory promotes that one should not render any help to others. However, one should act in the interest of others only if it is only way to promote our own self interest. There is nothing like unselfish action. For exam play a role of whistle-blower

Business Ethics: An Indian Perspective

Utilitarianism : Ethics of welfare.

The proponents were:

Jeremy Bentham (1748-1832) John Stuart Mill (1806-1873) Utilitarian principle: an action is ethically right only if the sum total of utilities produced by that act is greater than the sum total of utilities produced by any other act that could have been performed in its place.

Business Ethics: An Indian Perspective

Cont
The theory fits correctly with moral conduct. It provides standard for policy action like standard for impartiality. It provides an objective means to solve the problems of self interest with the action for common good It provides a flexible, result oriented approach.
Business Ethics: An Indian Perspective

Problems with theory

It concern with measurement of utility as it is a psychological concept. Lack of predictability of benefit and cost. cant measure until its predicted. Clarity of defining what is benefit and cost.

Business Ethics: An Indian Perspective

Kantian Ethics : Ethics of Duty Immanuel Kant (1724-1804)

Good will is the only unqualified good.

Will: unique human capacity to act from principle

This

theory

introduces

an

important

humanistic

dimension to business decisions, which is to behave in the same way that one would wish to be treated under the same circumstances and to always treat other people with dignity and respect.
Business Ethics: An Indian Perspective

Kants Philosophy

Stressed that action must be undertaken for duty's sake and not for some other reason

Opined that the imperatives of morality are not hypothetical but categorical. The core idea of this categorical imperative is that an action is right if and only if it will become a universal law of conduct

Business Ethics: An Indian Perspective

Normative theories of Business Ethics: Classification

Normative Theories

Stockholder Theory

Stakeholder Theory

Social Contract Theory

Business Ethics: An Indian Perspective

Normative theories of business ethics Stockholder theory: Expresses business relationship between stock owners and their managers running the day-to-day business of the company. As per the theory, managers should pursue profit only by all legal, non-deceptive means.

Business has no social responsibility

Business Ethics: An Indian Perspective

Criticisms
Impractical and outdated theory.

Its not possible for any corporate to survive without fulfilling the social responsibility.
Its based on wrong analogy of taking consent.

Business Ethics: An Indian Perspective

Normative theories of business ethics

Stakeholder theory: argues that a corporate success in the market place can best be assured by catering to the interests of all its stakeholders (shareholders, customers, employees, suppliers, management and the local community). This objective is achieved when corporations adopt policies that ensure an optimal balance among all stakeholders.

Business Ethics: An Indian Perspective

Cont
Corporate Legitimacy: corporation should be managed for benefit of its stakeholder. Stakeholders fiduciary principle: Management bears a fiduciary relationship to stockholders and the corporation has an abstract entity, safeguarding the interest of each party.

Business Ethics: An Indian Perspective

For example, Marico, the makers of Parachute oil, discovered a harmless tint in the oil from one of its production lines. The company withdrew the batch from the market, shut down the production line, but kept the workers on payroll and involved them in the investigation of the cause. In a short time, the workers located the cause, rectified it and resumed production

Business Ethics: An Indian Perspective

Normative theories of business ethics

Social Contract theory: is based on the principles of social contract, wherein it is assumed that there is an implicit agreement between the society and any created entity such as a business unit, in which the society recognises the existence of a condition that it will serve the interest of the society in certain specified ways.

Business Ethics: An Indian Perspective

Ethics and religion

The worlds great religionsChristianity, Hinduism and Islam have all left their indelible marks on morality and the conduct of people in every aspect of human endeavour, including business. Every religion has provided its followers its own set of catechisms, moral instructions, beliefs, values and virtues, traditions and commitments.

Business Ethics: An Indian Perspective

Teachings of the Church

The Church always supports and promotes the welfare of the poor. People often think how we can relate business and ethical teachings of Church. But now the trend has changed and organizations and institutions relate business with religion and ethics. This transition is due to the increased importance of ethics in business. The Church's concerns and ethical teachings are found in several papal encyclicals. i.e, letters the pope writes to his followers.

Business Ethics: An Indian Perspective

Rerum Novarum

Since the late 19th century, there has developed a strong tradition of reflective thought on economic issues within the Catholic Church. This concern on economic issues effectively started in May 1891, with the publication of Rerum Novarum, an encyclical by Pope Leo XIII. The central theme of the letter was the relationship among the State, employers and the workers.

Business Ethics: An Indian Perspective

Key feature of the encyclical

Directs the State and organizations to perform their duties to the working class to avoid corruption or unethical behaviour in the society. When man is deprived of dignity and equality he will indulge in unethical practices. Mutual support in the society and organization will help individuals to perform their best for productivity and profit.

Business Ethics: An Indian Perspective

Gautim Et Spes
Pastoral documentation of the Church released during the Second Vatican Council held between 1962 and 1965

The rapid change and technological advancement have led to aggressive demands on individuals, forcing them to indulge in unethical practices. There is an internal fight of values, and basic values of human beings have changed.

Business Ethics: An Indian Perspective

Indian Ethical Traditions

The Hindu scriptures such as the Gita and the Upanishads speak of the performance of right duty, at the right time in the right manner. The rich Indian tradition has always emphasised the dignity of human life and the right to live in a respectful manner.

Business Ethics: An Indian Perspective

Gandhian Principles of Trusteeship

Implies that an industrialist or businessman should consider himself to be a trustee of the wealth he possesses. The trusteeship concept should also be extended to the labour in industry. The origin of the trusteeship principle can be traced to the concept of non-possession detailed in the Bhagawad Gita.

Business Ethics: An Indian Perspective

Practicing Gandhian Principles

In the recent past, social involvement by business has, for the most part, taken the shape of public charity. This has included the building of temples, hospitals and educational institutions. A few examples include the Birla Temple in Calcutta, the Shree Vivekananda Research and Training Institute set up by Excel Industries in Mandvi, the L&T Welfare Centre in Bombay, the Tata Institute of Fundamental Research, and the Voltas Lifeline Express.

Business Ethics: An Indian Perspective

Righteousness as the way in Gita

The Bhagawad Gita cites numerous instances of how moral values and ethics can be incorporated in one's work life. Many of its verses are directly significant for the modern manager who may be confused about his direction and struggling to find an answer to ethical dilemmas. The Lord reiterates that work or karma is the driving force of life, and that this work has to be ethical.

Business Ethics: An Indian Perspective

Message of the Gita: Chapter II, Verse 47

You have a right to perform your prescribed duty, but you are not entitled to the fruits of action. Never consider yourself the cause of the results of your activities and never be attached to not doing your duty. This stanza implies that the performer of an action has only to perform the prescribed duty and not think about the result of the action, because the result is beyond his control. This teaching of Gita draws one's attention to Nishkama Karma.

Business Ethics: An Indian Perspective

Gitas message in an organization

When applied to an organization where one is only worried of the result, he is likely to fall into improper activities. On the other hand, if he is ready to do his duty to the utmost of his ability and set aside the result, he will be an ethical person in the organization

Business Ethics: An Indian Perspective

Message of the Gita: Chapter II, Verse 56

One who is not disturbed in mind amidst the threefold misery or elated when there is happiness and who is free from attachment, fears and anger, is called a sage of steady mind.

A steady mind gives the right attitude and right direction. Detachment is that quality which enables the individual not to accept anything for his personal gratification. Personal desires and conflicting interests end up in unethical practices.

Business Ethics: An Indian Perspective

Business and Islam

All principles covering business emanate from the Holy Quran, as they are explained and amplified in the Hadith (collection of the Prophets sayings)

The Prophet Mohammed ordained that businesses should promote ethical and moral behaviour and should follow honesty, truthfulness and fulfilment of trusts and commitments, while eliminating fraud, cheating, cut-throat competition, lending money at interest to people in need and false advertising.

Business Ethics: An Indian Perspective

Shariah and Interest on Capital

Shariah, the canonical law of the followers of Islam, forbids payment and receipt of interest on capital and money lent and condemns usurious practices.

Shariah requires that investors profit only from transactions based on the exchange of assets, not money alone, and therefore, interest is banned.

Business Ethics: An Indian Perspective

Islamic Bonds or Sukuk

Bankers sell Islamic Bonds or Sukuk, by using property and other assets to generate income equivalent to interest they would pay on conventional debt.

The money cannot be invested on stocks of companies dealing in alcohol, conventional financial services (banking and insurance), entertainment (cinemas and hotels), tobacco, pork meat, defence and weapons while computer software, drugs and pharmaceuticals and automobile ancillaries are all Shariah compliant.

Business Ethics: An Indian Perspective