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Business Ethics & Corporate Governance

UNIT - III
Ethics in Finance
Interest in finance ethics is growing, however, many people in finance believe that ethics should
receive some attention in finance education.
Financial sector in India
1. Major Financial Regulators - 7
a. RBI (Reserve Bank of India), b. SEBI (Securities Exchange Board of India), c. FMC (Forward
Markets Commission), d. IRDA (Insurance Regulatory and Development Authority), e. PFRDA
(Pension Fund Regulatory and Development Authority), f. MOF (Ministry of Finance), g. HLCC
(High Level Co-ordination Committee on financial markets).
2. Major Financial Markets - 4
a. Commodities Market, b. Equities Market, c. Debt Market, d. Foreign Exchange Market.
3. Players in Indian Financial Market 11
a. Brokers, b. Firms, c. Banks, d. Financial Institutions, e. Foreign Institutional Investors (FII),
f. Mutual Fund Managers, g. Investors, h. Exchanges, i. Depositories, j. Custodians, k.
Registrars.
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Ethical violations (Financial Related)
1. Insider Trading
Insider trading is the trading of a corporations stock or other securities by individuals
with potential access to non-public information about the company. Such a trade is
motivated by the possibility of generating extraordinary gain with the help of non-pubic
information (information not yet made public). It gives the trader an unfair advantage over
other traders in the same security.
2. Stakeholder Interest & Stockholder Interest
Shareholders hold shares in the company - that is they own part of it
Stakeholder have an interest in the company but do not own it unless they are
shareholders.
3. Campaign Financing
Campaign finance refers to all funds that are raised and spent in order to promote
candidates parties or policies in some sort of electoral contest. Now a days some of the funds
may be utilized for campaign financing by organisations.
4. Ponzi Scheme
Ponzi scheme is a fraudulent operation that pays returns to its investors from their own money
or the money paid by subsequent investors, rather than from profit earned by the individual or
organisation running the operation.
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Examples of unethical temptations
1. Make exaggerated claims to counter exaggerated claims
of a competitor.
2. Offer a customer an unauthorized gift in return for their
business.
3. Conceal information from a customer in order to get their
business and to meet your sales goals.
4. Exposing confidential information about one customer to
another in order to facilitate a sale.

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Code of Ethics to be followed in Financial Matters
Protecting the financial interests of clients
Conducting business with high transparency
Conducting needs analysis before any product or service recommendation
Respecting and maintaining confidentiality of any information entrusted to
you
Use of only sales illustrations that are completely accurate and compliant
with state and Central Government regulations
Knowing when to refer clients to another professional when a planning
situation is outside your area of practice or skill sets.
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Common Excuses for
unethical behavior in Finance
1. Everybody else is doing it.
2. It is necessary.
3. It is not a big deal.
4. It is not going to hurt anyone.
5. It is for the benefit of the company
6. I deserve it.
7. It is legal
8. Nobody will know
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Curbing Unethics in Finance

Improving standards of financing and see that the financing has been made as according to the
accepted norms and standards.

Comprehensive laws and rule in finance should be followed especially, General Financial Rules
2005 and amended Rules 2010.

Pledging of shares banks and financial institutions give loans against shares. To avail such
loans any shareholder can pledge shares to the lender and it should be made of right lines.

Weak links in Financial should be avoided.

Proper Auditing should be made.

Institutional investors should make investment after careful monitoring the necessity of
investment.

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Ethics in Marketing
Marketing Ethics means a standard by which a marketing action may be judged right or wrong. A
right marketing action is expected to contribute to overall societal gain both in the short and long
run. Marketing ethics is the area of applied ethics which deals with moral principles behind the
operation and regulation of marketing. The importance of marketing ethics arises with regard o
social issues as a result of marketing products or services. Marketing ethics relate to product
development, pricing, general code, customer service, advertisement standards, distributor
relations and corporate marketing ethics and policies.
Issues relating to Marketing Ethics
Marketing provides compelling stories to keep up with something
Marketing targets children directly bypassing parents even though children cannot separate and
make reasoned choices.
Marketing misleads and uses deception (fraud) to persuade consumers to buy products.
Marketing intrudes (encroach) into the privacy of consumers, direct marketing can be seen as a
case in point.
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Ethical Issues in Connection with
Marketing
1. Product Issues(Non-availability, lack of services after sales, showing fake samples, deception in
size and content)
2. Pricing Issues(Hoarding goods to obtain high price, offering gifts and charging high price )
3. Distribution Issues(poor handling of goods, distribution without insurance)
4. Promotion (mainly advertising) Issues (faculty advertisements, misusing medias, false claims)
5. Green washing or green sheen, is a form of spin (propaganda) in which green PR (public
relations) or green marketing is deceptively (dishonestly) used to promote the perception that
an organizations aims and policies are environmentally friendly.
6. Pyramid Scheme (Chain / Multi-level Marketing) - A business model that promises participants
payments or services primarily for enrolling other people into the scheme.
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Controversial Marketing Strategies
1. Anti Competitive Practices
Dumping - Where a company sells a product in a competitive market at a loss. Though the
company loses money foe each sale the company hopes to force other competitors out of the
market, after which the company would be free to raise prices for a greater profit.
Exclusive Dealing - Where a retailer or wholesaler is obliged by contract to only purchase from
the contracted supplier.
Price Fixing - Where companies join together to set prices effectively dismantling the free market.
Refusal to Deal - e.g., two companies agree not to use a certain vendor.
Dividing Territories - An agreement by two companies to stay out of each others way and reduce
competition in the agreed upon territories.
Limit Pricing - Where the price is set by a monopolist at a level intended to discourage entry of
others into market
Tying - Where products that are not naturally related, but must be purchased together.
Resale Price Maintenance - Where resellers are not allowed to set prices independently.
Absorption of a Competitor or Competing Technology - Where the powerful firm effectively co-
opts or swallows its competitor rather than see it either compete directly or be absorbed by
another firm.
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Subsidies - From government which allow a firm to function without being profitable, giving them
an advantage over competition or effectively barring competition.
Regulations - Which place costly restrictions on firms that less wealthy firms cannot afford to
implement.
Protectionism - (system of imposing duties on imports), Tariffs and Quotas which give firms
insulation from competitive forces.
Patent Misuse and Copyright Misuse - such as fraudulently obtaining a patent, copyright or other
form of intellectual property; or using legal devices to gain advantage in an unrelated market.
2. Bait and Switch - Bait and switch is a form of fraud used in retail sales(First customers are
baited or attracted by merchants advertising products or services at a low price, but when
customers visit the store, they discover that advertised goods are not available or customers
are pressured by sales people to consider similar, but higher priced items)
3. Planned obsolescence It is the built -in obsolescence in industrial design of a product. It
makes the consumer to purchase again.
4. Vendor lock in / Vendor lock out - Vendor lock in also known as proprietary lock-in or
customer lock-in, makes a customer dependent on a vendor for products and services, unable
to use another vendor without substantial costs.

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Ethics Influencing Ethical Marketing Behaviour



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SOCIAL CULTURES AND NORMS
BUSINESS CULTURE AND
INDUSTRY PRACTICES
CORPORATE CULTURE AND
EXPECTATIONS
PERSONAL MORAL PHILOSOPHY
AND ETHICAL BEHAVIOUR
Ethics in Marketing
1. Marketing action shall not do any harm knowingly
2. Marketing action shall not knowingly promote conflict of interest
3.Marketing action shall be honest and fair and serve customers and other
stakeholders
4. Marketing action should be discharged in good faith to all parties
concerned
5. Marketing action should deliver products and services that are safe and fit
for their intended users.
6. Marketing action can quickly and systematically redress grievances.
7. Marketing system should follow all applicable laws and regulations.
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ETHICS IN HRD
Meaning of HRD
Human Resource Development (HRD) as a profession is an interdisciplinary field. It is focused on
systematic training and development, career development and organization development to
improve processes and enhance the learning and performance of individuals.
Ethical issues are becoming crucial in recruitments. Companies with tarnished (imperfect) reputations
have to face problem in recruiting top talents.
Ethical Dimension and issues in Human Resource Management
Ethics is a code of moral principles and values that governs the behaviours of a person or a group
with respect to what is right or wrong. Human resources are the centre stage of every organization
and are the main source of wealth creation. They are the repositories(store) of knowledge - explicit
and implicit are the generators of value; they are the transmitters of value. So the organization has
to follow ethical code of moral principles while dealing with Human resource.
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Ethical Dimensions In HRD
Ethics in the context of human resource development is the amalgamation of various linkages to
employees, organizations own norms, external stakeholders and society at large.
Employees Ethics
Organizational Ethics
Social Ethics
External Stakeholder Ethics
Code of Ethics for HRD to be practiced by an HR Manager
Human resource developer should strive for excellence at all times and uphold the dignity of the
profession and pride of the nation by practicing the following code of conduct.
HRD professional should:
Provide highest quality of service in all activities relating to the development of human resources
Rely on professional knowledge while making decisions
Provide appropriate prior information before undertaking any service
Exercise honesty and integrity in the discharge of professional duties


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Maintain a reasonable level of awareness of activity and undertake efforts to maintain competence
Respect diversity of values, attitudes and opinions that differ from them
Not exploit/harass any person or engage in discriminatory practices
Act well within the framework of law and or public standards
Provide training, supervision to employees to perform jobs responsibly, competently and ethically
Hire knowledge and expertise from other personnel for the enhancement of the image of the
profession
Constantly strive to practice the principles, values and skills of professional manager
Exercise honesty and integrity in the discharge of professional duties.
Not take undue advantage of position, power and confidentiality entrusted
Resolve the conflict in a way that permits the fullest adherence to these standards
Cooperate in ethics investigations, proceedings, and the resulting activities of any professional
organization involved with performance improvement, training, instruction or learning.
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ETHICS AND BUSINESS STRATEGY
Business Strategy describes how a particular business intends to succeed in its chosen market
place against its competitors. It therefore represents the best attempt that the management can
make at defining and securing the future of that business.
Unethical Business Strategies may not be the norm in many business but it certainly can play a part
in a lot of different companies. These unfair business practices can hamper the competition by
restricting their rights to engage in fair business practices.
Unethical Business Practices
1. Corporate Spying : an unethical strategic decision
2. Unfair Pricing : an unethical strategic decision
Ethical Decision Making
Ethical Decision making is a process that considers various ethical principles, rules and virtues or
the maintenance of relationships to guide or judge individual or group decisions. It refers to the
process of evaluating and choosing among alternatives the best decision in ethical perspective.



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Components of Ethical Decision Making
Commitment
Consciousness
Competency
Identify the Ethical Problem
Collect relevant Information
Evaluate the Information
Consider Alternatives
Make a Decision
Act or Implement
Review the Action
Areas where Unethical Practices are followed while framing Strategic Decision
Formulating of strategies
Performing strategic evaluation and control



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Influence of Organizational Culture in Ethics

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Organizational Culture is the collective behavior of people that are part of an organization, it is
also formed by the organization values, visions, norms, working language, systems and symbols, it
includes beliefs and habits as away of perceiving and even thinking and feeling. Organizational
culture effects the way people and groups interact with each other with clients and with
stakeholders.
Importance of Ethics in Organizational Culture
Ethics corresponds to basic human needs
Values create credibility with public
Laws cant protect society, but ethics can
Benefits of managing ethics in work place
Improve society interactions
Cultivate strong team work and employee growth
Promotes a strong public image
Organisation Culture the Key to Improve the Work Place Ethics.
Effectiveness of program depends on the culture of the organisation
Strong ethical culture are in part themselves a product of formal programs
Ways To Create Better Ethical Culture
Bring visible role model
Communicating ethical expectations
Providing ethical training
Respect the background of employees and subordinates
Components of Ethical Culture
Ethical values and norms are a central component of organisational culture
A code of ethics guides when ethical decision arise
Managers serve as ethical role models
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ETHICS COMMITTEE
An Ethics Committee is a committee dedicated to the ethical rights and moral well-being of
employees. It deals with concepts such as good and evil, rights and wrong, virtue and vice, justice
and crime, etc. The committee is concerned with inner guiding moral principles, values and
beliefs that people use to analyze or interpret a situation and then decide what is the right or
appropriate way to behave. These committees may formulate policies, develop ethical standards,
and in context of these norms, evaluate the companys compliance with them.
Need for Ethics Committee: To protect human subject; To check for ethical values; act of doing
good things; obligation not to harm intentionally; Autonomy; Justice; Dignity(confidentiality);
Truthfulness and honest; No influence/coercion.
Seven Possible Roles for an Ethics Committee
Contribute to organisation's ethics and compliance standards and procedures.
Assume responsibilities for overall compliance with those standards and procedures.
Oversee the use of due care in delegating discretionary responsibility.
Communicate the organisations ethics and compliance standards and procedures.
Monitor and audit compliance
Oversee enforcement, including the assurance that discipline is uniformly applied.
Take the steps necessary to ensure that the organisation learns from its experiences.
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The Ethical Audit is the systematic evaluation of an organisations ethics program and
performance to determine whether it is effective.
Regular, complete, and documented measurement of compliance with policies and
procedures
Helps to identify the firms current standards, policies and risk areas.
Scope of the Ethical Audit
Scope is determined by the type of business, risks faced and the opportunities to manage ethics.
Benefits of an Ethics Audit
Identify potential risks and liabilities and improve legal compliance
Can be key in improving organisational performance
Improved relationship with stakeholders
ETHICAL AUDIT
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Ethics Auditing Process
Secure top management and board commitment
Establish an ethics audit committee
Define the scope of ethics audit
Review the organisational mission, goals and values in relation to ethics
Collect and analyze relevant information
Verify the results through an outside agent
Report the finding to - Ethics Audit Committee, managers and stakeholders
Purpose of an Ethics Audit
Identify pertinent ethical issues in their practice setting
Review and assess the adequacy of their current practices
Design a practical strategy to modify current practices as needed
Strategic importance of Ethics Auditing
Should be conducted regularly
Provide a benchmark of overall effectiveness of ethics initiatives
Can demonstrate the positive impact of ethical conduct and social responsibility initiatives