A Project onA Project on ‘ ‘ CHARACTER CHARACTER ETHICS’ETHICS’

Submitted BySubmitted By- -

Swati AgrawalSwati Agrawal BBA gen. 3BBA gen. 3rdrd SEM SEM

0351341708 0351341708

Under the guidance ofUnder the guidance of

Dr. Nigar FatimaDr. Nigar Fatima

Ideal Institute of Management andIdeal Institute of Management and TechnologyTechnology

Affiliated toAffiliated toGuru Gobind Singh Indraprastha Guru Gobind Singh Indraprastha University (GGSIPU)University (GGSIPU)

PREFACE

Initial in the one module of the

project, which is allotted to me,

“CHARACTER ETHICS” is covered

in this project report.

The report contains very nice

and well arranged topics related

to the subject “CHARACTER

ETHICS”. The main contents of

this project describes that ‘That

what are ethics’, Code of Ethics’,

‘Business Ethics’ and many other

topics which is countable in the

“CHARACTER ETHICS”.

The project report also

contains a description of

“Business Ethics “which is very

important for an organization to

work fairly in an environment.

Overall this reports my work like a

guide for the subject “CHARACTER

ETHICS”.

ACKNOWLEDGEMENT

Perseverance, inspiration and

motivation have always played a

key role in the success of any

venture. Working on this project

was a challenge and made us a bit

filters in the beginning.

At this level of understanding,

it is often difficult to understand a

wide spectrum of knowledge

without proper guidance and

advice .Hence, we take this

opportunity to express our heart

felt gratitude to Dr. NIGAR

FATIMA, for her round o’clock

enthusiastic support and

commentaries which made this

project successful, we are

thankful to her for making

impossible look easy for us.

We also extend our sincere

gratitude to MR. ANIL SHARMA

our principal sir for his

inspiration, encouragement and

for the impetus obtained

throughout the course of our

project.

1. Introduction on Ethics

2. Introduction on Business Ethics

3. Comparing Business with environment

4. Code of conduct

5. Company’s profile

Introduction on Ethics

The term ethics refers to value oriented decisions and behavior. It comes from the Greek word ‘Ethos’ which means character, guiding beliefs, standards or ideals that pervade a group, community or people. Today, ethics is considered as the study of morals behavior. Terms such as business ethics, corporate ethics, medical ethics or legal ethics are used to indicate the particular area of application. Ethics involved in such area must still refer to value – oriented decisions

and behavior of individuals. A famous saying is there –“If a man violates some rules he is wrong according to law, but in ethics he is wrong only if he thinks of doing so.”According to Dale S. Beach – “Ethics refers to asset of moral principles which should play a very significant role in guiding the conduct of managers and employees in the operation of any enterprise.”Ethics is concerned with what is right and what is wrong in human behavior. It is normative and prescriptive, not neutral. Ethics refers to the body of moral principles governing a particular society or group and to the personnel moral percepts of an individual. Some people subscribe to a utilitarian reference in determining what is right and what is wrong. From this point of

view, there are few absolute standards and each issue must be judged by studying its impact upon all affected parties.The tem ‘ethics’ and ‘morals’ are often used interchangeably. But ethics is broader than morals. Moral refers to any generally accepted customs of conduct and right living in a society. They are customs having a high degree of social acceptance. They indicate what people do, while ethics represent what people should do.

Some Definitions of Ethics

1. Ethics are kind of like morals and common sense. it is what you think is right or wrong. Being "ethical" means trying to be reasonable and doing what you think is right

2.Ethics can be considered as moral philosophy. It deals with critical analysis of morality. Ethics searches a reasonable ground to our moral standards. It deals with answering questions such as `what ought to be`, not `what is`.

3. The science of moral obligation; a system of moral principles, quality, or practice. The moral obligation to render to the patient the best possible quality of dental service and to maintain an honest relationship with other members of the profession and mankind in general. By dental dictionary

4. Ethics is the science of morality or the systematic study of moral rules and principles. The term "morality" refers to rules which prescribe the way people ought to behave and principles which reflect what is ultimately good or desirable for human beings. By encyclopedia of Judaism

5. The study of the concepts involved in practical reasoning: good, right, duty, obligation, virtue, freedom, rationality, choice. Also the second-order study of the objectivity, subjectivity, relativism, or skepticisms that may attend claims made in these terms. For the kinds of problems encountered, see under the special terms. For a possible distinction between ethics and morality, see morality. By philosophy dictionary

6. There is no Buddhist term which exactly corresponds to ‘ethics’ as a branch of philosophy concerned with the analysis and evaluation of conduct in the way the subject is classified in the West. Instead, the various rules of

moral conduct are subsumed under the rubric of śīla, which denotes internalized moral virtue and its expression in practice as abstention from immoral conduct. By Buddhism dictionary

7. .The study and evaluation of human conduct in the light of moral principles. Moral principles may be viewed either as the standard of conduct that individuals have constructed for themselves or as the body of obligations and duties that a particular society requires of its members. By Columbia encyclopedia

Features of Ethics

It contains principles of personnel and professional conduct.

Existing norms and judgments may contain valuable insights but ethics sets out to criticize and test them in terms of ultimate norms.

It does not rest on feelings of approval or disapproval but in the careful examination of the reality around us.

It is not a law. Even though law enshrines many ethical judgments. It criticizes law and customs to obtain more perfect rules for the conduct of life. Law may permit things which are unethical.

What constitutes ethical behaviors in one society may be unethical in others.

Ethics is involved in all human activities including business. There is need for a science of ethics in every human Endeavour.

ValuesValues are convictions and a framework of philosophy of an

individual on the basis of which he judges what is good or bad, desirable or undesirable, ethical or unethical.Rokeach defines values as – “Values represent basic convictions that a specific mode of conduct is personally or socially preferable to an opposite mode of conduct”It has some characteristics like –

1. Part of culture2. Learned Responses3. Inculcated4. Social Phenomenon5. Gratifying Responses6. Adaptive Process

Values are even classified into various categories that are –

1. Allport’s Values Classification2. Grave’s Classification3. England’s Classification4. Rokech’s Classification

Values System is even adopted by Indian Managers in their own way. Various researchers have attempted to identify the value systems of Indian managers. These researchers have used Allport –Vernom –Lindzey model, Graves’s model and England’s model. The major findings are given below – 1. Managers tend to have value

orientation towards economic, theoretic, political, social, aesthetic and religious in that order.

2. Managerial Values tend to be existential, conformistic, manipulative, sociocentric, tribalistic and egocentric.

3. Indian managers are more pragmatist than moralist. There are generally some acceptable unethical practices in business.

4. In term of work values, Indian managers tend to money orientation during early days of their career and later shifts to matters like job satisfaction.

5. Indian mangers give importance to various occupational values in the order to be free from supervision.

Ethics, Values and Morals

Values are our fundamental beliefs. They are the principles we use to define what is right, good and just. Values provide guidance in determining the right versus the wrong, the good versus bad. They are our standards. Another

way to characterize values is that they are what an individual believes to be having worth and importance to their life. Values do not encompass all beliefs, but only those beliefs that define importance.Morals are values that we attribute to a system of beliefs that help the individual define right versus wrong, good versus bad. These values typically get their authority from something outside the individual – a higher authority.In business world we often find ourselves avoiding framing our ethical choices in moral terms for fear that doing so might prove offensive to someone whose moral frame of reference might be different. The moral concept of justice has one meaning concerned with developing

rational normative claims and theories.Ethics is the study of what we understand to be good and right behavior and how people make those judgments. When one’s action are not congruent with our moral values – our sense of right, good and just – we will view that are acting unethically. Defining what is ethical is not an individual exercise. However, if it were then one could have argued that what Hitler did was ethical since his action conformed to his definition of right, wrong or just.Ethics is the discipline that examines one’s moral standards or the moral standards of the society. It asks how these moral standards apply to our lives and whether these standards are reasonable or unreasonable. Ethics is not the only way to study morality. The social sciences –

such as anthropology, sociology and psychology – also study morality, but do so in a quite different way from the approach to morality that is characteristics of ethics. A descriptive study is one that does try to attain any conclusions about what things are truly good or bad.

Business EthicsIn business, ethics can be defined as the capacity to reflect on values in the corporate decision

making process, to determine how these values and decision affect various stakeholders groups, and to establish how managers can use these observations in day to day company management. Ethical managers strive for success within the confines of sound management practices that are characterized by fairness and justice.Business Ethics refers to the moral principles which should govern business activities. It provides a code of conduct for the managers. The purpose of business ethics is to guide managers and employees in performing their jobs. Ethics are concerned with what is right and what is wrong in human behavior. They lay down norms of human behavior by the business. A few examples of ethics are:

1. To charge fair prices.

2. To use fair weights for measurement of commodities.

3. To pay taxes to government.4. To earn reasonable profits.5. To give fair treatment to

workers.

The purpose of business ethics is to regulate both objectives of business and the means adopted to achieve these objectives. Ethics covers all possible areas of business ends and means must be justifiable as per norms of the society.A business is an integral part of the society. It is in fact, a trustee of the resources of the society. So the business must observe the ethical standards of the society while using the resources. If a business fails to observe the social norms it will loose its public image.

In the increasingly conscience-focused marketplaces of the 21st century, the demand for more ethical business processes and actions (known as ethics) is increasing Simultaneously, pressure is applied on industry to improve business ethics through new public initiatives and laws (e.g. higher UK road tax for higher-emission vehicles).

Business ethics can be both a normative and a descriptive discipline. As a corporate practice and a career specialization, the field is primarily normative. In academia descriptive approaches are also taken. The range and quantity of business ethical issues reflects the degree to which business is perceived to be at odds with non-economic social values. Historically, interest in business ethics accelerated

dramatically during the 1980s and 1990s, both within major corporations and within academia. For example, today most major corporate websites lay emphasis on commitment to promoting non-economic social values under a variety of headings (e.g. ethics codes, social responsibility charters). In some cases, corporations have redefined their core values in the light of business ethical considerations (e.g. BP's "beyond petroleum" environmental tilt).

Definition on business Ethics

Business ethics is a form of applied ethics that examines ethical principles and moral or ethical problems that arise in a business environment.

Features of Business Ethics -

It is an umbrella term which covers all business practices which are desirable from the point of view of the society.

Ethics co–exists with law, but has a much broader coverage. Ethics aims at perfection in the

conduct of life. Thus it guides law markets to have perfect rules for human behaviors.

The concept of equity is implied in ethics. It aims at fair and reasonable treatment to all.

Business ethics emphasize making a businessman honest, just and responsible citizen.

It creates self imposed discipline on the part of managers.

General business ethics

This part of business ethics overlaps with the philosophy of business, one of the aims of which is to determine the

fundamental purposes of a company. If a company's main purpose is to maximize the returns to its shareholders, then it could be seen as unethical for a company to consider the interests and rights of anyone else.[3]

Corporate social responsibility or CSR: an umbrella term under which the ethical rights and duties existing between companies and society is debated.

Issues regarding the moral rights and duties between a company and its shareholders: fiduciary responsibility, stakeholder concept v. shareholder concept.

Ethical issues concerning relations between different companies: e.g. hostile take-overs, industrial espionage.

Leadership issues: corporate governance.

Political contributions made by corporations.

Law reform, such as the ethical debate over introducing a crime of corporate manslaughter.

The misuse of corporate ethics policies as marketing instruments.

Professional ethicsProfessional ethics covers the myriad practical ethical problems and phenomena which arise out of specific functional areas of companies or in relation to recognized business professions.

Ethics of accounting information

Creative accounting, earnings management, misleading financial analysis.

Insider trading, securities fraud, bucket shops, forex scams: concerns (criminal) manipulation of the financial markets.

Executive compensation: concerns excessive payments made to corporate CEO's and top management.

Bribery, kickbacks, and facilitation payments: while these may be in the (short-term) interests of the company and its shareholders, these practices may be anti-competitive or offend against the values of society.

Ethics of human resource management

The ethics of human resource management (HRM) covers those ethical issues arising around the employer-employee relationship, such as the rights and duties owed between employer and employee.

Discrimination issues include discrimination on the bases of age (ageism), gender, race, religion, disabilities, weight and attractiveness. See also: affirmative action, sexual harassment.

Issues surrounding the representation of employees and the democratization of the workplace: union busting, strike breaking.

Issues affecting the privacy of the employee: workplace

surveillance, drug testing. See also: privacy.

Issues affecting the privacy of the employer: whistle-blowing.

Issues relating to the fairness of the employment contract and the balance of power between employer and employee: slavery,[4]

indentured servitude, employment law.

Occupational safety and health.

Ethics of sales and marketing

Marketing which goes beyond the mere provision of information about (and access to) a product may seek to manipulate our values and behavior. To some extent society regards this as acceptable, but where is the ethical line to be drawn?

Marketing ethics overlaps strongly with media ethics, because marketing makes heavy use of media. However, media ethics is a much larger topic and extends outside business ethics.

Pricing: price fixing, price discrimination, price skimming.

Anti-competitive practices: these include but go beyond pricing tactics to cover issues such as manipulation of loyalty and supply chains. See: anti-competitive practices, antitrust law.

Specific marketing strategies: green wash, bait and switch, shill, viral marketing, spam (electronic), pyramid scheme, planned obsolescence.

Content of advertisements: attack ads, subliminal messages, sex in advertising,

products regarded as immoral or harmful

Children and marketing: marketing in schools.

Black markets, grey markets.

Ethics of production

This area of business ethics deals with the duties of a company to ensure that products and production processes do not cause harm. Some of the more acute dilemmas in this area arise out of the fact that there is usually a degree of danger in any product or production process and it is difficult to define a degree of permissibility, or the degree of permissibility may depend on the changing state of preventative technologies or changing social perceptions of acceptable risk.

Defective, addictive and inherently dangerous products

and services (e.g. tobacco, alcohol, weapons, motor vehicles, chemical manufacturing, bungee jumping).

Ethical relations between the company and the environment: pollution, environmental ethics, carbon emissions trading

Ethical problems arising out of new technologies: genetically modified food, mobile phone radiation and health.

Product testing ethics: animal rights and animal testing, use of economically disadvantaged groups (such as students) as test objects.

Ethics of intellectual property, knowledge and skills

Knowledge and skills are valuable but not easily "own able" as objects. Nor is it obvious that has the greater rights to an idea: the company who trained the employee or the employee themselves? The country in which the plant grew or the company which discovered and developed the plant's medicinal potential? As a result, attempts to assert ownership and ethical disputes over ownership arise.

Patent infringement, copyright infringement, trademark infringement.

Misuse of the intellectual property systems to stifle competition: patent misuse,

copyright misuse, patent troll, submarine patent.

Even the notion of intellectual property itself has been criticized on ethical grounds: see intellectual property.

Employee raiding: the practice of attracting key employees away from a competitor to take unfair advantage of the knowledge or skills they may possess.

The practice of employing all the most talented people in a specific field, regardless of need, in order to prevent any competitors employing them.

Bioprospecting (ethical) and biopiracy (unethical).

Business intelligence and industrial espionage.

International business ethics

While business ethics emerged as a field in the 1970s, international

business ethics did not emerge until the late 1990s, looking back on the international developments of that decade.[5] Many new practical issues arose out of the international context of business. Theoretical issues such as cultural relativity of ethical values receive more emphasis in this field. Other, older issues can be grouped here as well. Issues and subfields include:

The search for universal values as a basis for international commercial behavior.

Comparison of business ethical traditions in different countries.

Comparison of business ethical traditions from various religious perspectives.

Ethical issues arising out of international business transactions; e.g.

bioprospecting and biopiracy in the pharmaceutical industry; the fair trade movement; transfer pricing.

Issues such as globalization and cultural imperialism.

Varying global standards - e.g. the use of child labor.

The way in which multinationals take advantage of international differences, such as outsourcing production (e.g. clothes) and services (e.g. call centers) to low-wage countries.

The permissibility of international commerce with pariah states.

Ethics of economic systems

This vaguely defined area, perhaps not part of but only related to business ethics, is

where business ethicists venture into the fields of political economy and political philosophy, focusing on the rights and wrongs of various systems for the distribution of economic benefits. The work of John Rawls and Robert Nozick are both notable contributors.

Conflicting interests

Business ethics can be examined from various perspectives, including the perspective of the employee, the commercial enterprise, and society as a whole. Very often, situations arise in which there is conflict between one and more of the parties, such that serving the interest of one party is a detriment to the other(s). For example, a particular outcome might be good for the

employee, whereas, it would be bad for the company, society, or vice versa. Some ethicists (e.g., Henry Sedgwick) see the principal role of ethics as the harmonization and reconciliation of conflicting interests.

Ethical issues and approaches

Philosophers and others disagree about the purpose of a business ethic in society. For example, some suggest that the principal purpose of a business is to maximize returns to its owners, or in the case of a publicly-traded concern, its shareholders. Thus, under this view, only those activities that increase profitability and shareholder value should be encouraged, because any others function as a

tax on profits. Some believe that the only companies that are likely to survive in a competitive marketplace are those that place profit maximization above everything else. However, some point out that self-interest would still require a business to obey the law and adhere to basic moral rules, because the consequences of failing to do so could be very costly in fines, loss of licensure, or company reputation. The noted economist Milton Friedman was a leading proponent of this view.

Other theorists contend that a business has moral duties that extend well beyond serving the interests of its owners or stockholders, and that these duties consist of more than simply obeying the law. They believe a business has moral responsibilities to so-called

stakeholders, people who have an interest in the conduct of the business, which might include employees, customers, vendors, the local community, or even society as a whole. They would say that stakeholders have certain rights with regard to how the business operates, and some would suggest that this includes even rights of governance.

Some theorists have adapted social contract theory to business, whereby companies become quasi-democratic associations, and employees and other stakeholders are given voice over a company's operations. This approach has become especially popular subsequent to the revival of contract theory in political philosophy, which is largely due to John Rawls' A Theory of Justice, and the advent of the consensus-

oriented approach to solving business problems, an aspect of the "quality movement" that emerged in the 1980s. Professors Thomas Donaldson and Thomas Dunfee proposed a version of contract theory for business, which they call Integrative Social Contracts Theory. They posit that conflicting interests are best resolved by formulating a "fair agreement" between the parties, using a combination of

i) macro-principles that all rational people would agree upon as universal principles, and,

ii) micro-principles formulated by actual agreements among the interested parties. Critics say the proponents of contract theories miss a central point, namely, that a business is someone's property and not a mini-state or a means of distributing social justice.

Ethical issues can arise when companies must comply with multiple and sometimes conflicting legal or cultural standards, as in the case of multinational companies that operate in countries with varying practices. The question arises, for example, ought a company to obey the laws of its home country, or should it follow the less stringent laws of the developing country in which it does business? To illustrate, United States law forbids companies from paying bribes either domestically or overseas; however, in other parts of the world, bribery is a customary, accepted way of doing business. Similar problems can occur with regard to child labor, employee safety, work hours, wages, discrimination, and environmental protection laws.

It is sometimes claimed that a Gresham's law of ethics applies in which bad ethical practices drive out good ethical practices. It is claimed that in a competitive business environment, those companies that survive are the ones that recognize that their only role is to maximize profits.

Corporate ethics policies

As part of more comprehensive compliance and ethics programs, many companies have formulated internal policies pertaining to the ethical conduct of employees. These policies can be simple exhortations in broad, highly-generalized language (typically called a corporate ethics statement), or they can be more detailed policies, containing specific behavioral requirements

(typically called corporate ethics codes). They are generally meant to identify the company's expectations of workers and to offer guidance on handling some of the more common ethical problems that might arise in the course of doing business. It is hoped that having such a policy will lead to greater ethical awareness, consistency in application, and the avoidance of ethical disasters.

An increasing number of companies also requires employees to attend seminars regarding business conduct, which often include discussion of the company's policies, specific case studies, and legal requirements. Some companies even require their employees to sign agreements stating that they

will abide by the company's rules of conduct.

Many companies are assessing the environmental factors that can lead employees to engage in unethical conduct.

Not everyone supports corporate policies that govern ethical conduct. Some claim that ethical problems are better dealt with by depending upon employees to use their own judgment.

Others believe that corporate ethics policies are primarily rooted in utilitarian concerns, and that they are mainly to limit the company's legal liability, or to curry public favor by giving the appearance of being a good corporate citizen. Ideally, the company will avoid a lawsuit because its employees will follow the rules. Should a lawsuit occur,

the company can claim that the problem would not have arisen if the employee had only followed the code properly?

Sometimes there is disconnection between the company's code of ethics and the company's actual practices. Thus, whether or not such conduct is explicitly sanctioned by management, at worst, this makes the policy duplicitous, and, at best, it is merely a marketing tool.

To be successful, most ethicists would suggest that an ethics policy should be:

Given the unequivocal support of top management, by both word and example.

Explained in writing and orally, with periodic reinforcement.

Doable....something employees can both understand and perform.

Monitored by top management, with routine inspections for compliance and improvement.

Backed up by clearly stated consequences in the case of disobedience.

Remain neutral and nonsexist.

Ethics officers

Ethics officers (sometimes called "compliance" or "business conduct officers") have been appointed formally by organizations since the mid-1980s. One of the catalysts for the creation of this new role was a series of fraud, corruption and abuse scandals that afflicted the U.S. defense industry at that time. This led to the creation of the Defense

Industry Initiative (DII), a pan-industry initiative to promote and ensure ethical business practices. The DII set an early benchmark for ethics management in corporations. In 1991, the Ethics & Compliance Officer Association (ECOA) -- originally the Ethics Officer Association (EOA)-- was founded at the Center for Business Ethics(at Bentley College, Waltham, MA) as a professional association for those responsible for managing organizations' efforts to achieve ethical best practices. The membership grew rapidly (the ECOA now has over 1,100 members) and was soon established as an independent organization.

Another critical factor in the decisions of companies to appoint ethics/compliance officers was the

passing of the Federal Sentencing Guidelines for Organizations in 1991, which set standards that organizations (large or small, commercial and non-commercial) had to follow to obtain a reduction in sentence if they should be convicted of a federal offense. Although intended to assist judges with sentencing, the influence in helping to establish best practices has been far-reaching.

In the wake of numerous corporate scandals between 2001-04 (affecting large corporations like Enron, WorldCom and Tyco), even small and medium-sized companies have begun to appoint ethics officers. They often report to the Chief Executive Officer and are responsible for assessing the ethical implications of the company's activities, making

recommendations regarding the company's ethical policies, and disseminating information to employees. They are particularly interested in uncovering or preventing unethical and illegal actions. This trend is partly due to the Sarbanes-Oxley Act in the United States, which was enacted in reaction to the above scandals. A related trend is the introduction of risk assessment officers that monitor how shareholders' investments might be affected by the company's decisions.

The effectiveness of ethics officers in the marketplace is not clear. If the appointment is made primarily as a reaction to legislative requirements, one might expect the efficacy to be minimal, at least, over the short term. In part, this is because ethical business practices result

from a corporate culture that consistently places value on ethical behavior, a culture and climate that usually emanates from the top of the organization. The mere establishment of a position to oversee ethics will most likely be insufficient to inculcate ethical behavior: a more systemic programmed with consistent support from general management will be necessary.

The foundation for ethical behavior goes well beyond corporate culture and the policies of any given company, for it also depends greatly upon an individual's early moral training, the other institutions that affect an individual, the competitive business environment the company is in and, indeed, society as a whole.

Religious views on business ethics

The historical and global importance of religious views on business ethics is sometimes underestimated in standard introductions to business ethics. Particularly in Asia and the Middle East, religious and cultural perspectives have a strong influence on the conduct of business and the creation of business values.

Examples include:

Islamic banking, associated with the avoidance of charging interest on loans.

Traditional Confucian disapproval of the profit-seeking motive.[7]

Quaker testimony on fair dealing

Related disciplines

Business ethics should be distinguished from the philosophy of business, the branch of philosophy that deals with the philosophical, political, and ethical underpinnings of business and economics. Business ethics operates on the premise, for example, that the ethical operation of a private business is possible -- those who dispute that premise, such as libertarian socialists, (who contend that "business ethics" is an oxymoron) do so by definition outside of the domain of business ethics proper.

The philosophy of business also deals with questions such as what, if any, are the social

responsibilities of a business; business management theory; theories of individualism vs. collectivism; free will among participants in the marketplace; the role of self interest; invisible hand theories; the requirements of social justice; and natural rights, especially property rights, in relation to the business enterprise.

Business ethics is also related to political economy, which is economic analysis from political and historical perspectives. Political economy deals with the distributive consequences of economic actions. It asks who gains and who loses from economic activity, and is the resultant distribution fair or just, which are central ethical issues

Relationship between business

ethics and managerial values

Ethics refers to the entire body of moral values that society attaches to the actions of human being. Ethics are interrelated with values. In fact values are considered the language of ethics. Ethics in business emanate from the values of top management which are in turn shaped by social, cultural and national values.Values can be moral, immoral or amoral, depending upon whether they conform to, go against or are different towards certain norms of morality. But ethics represent only moral values. The value judgments do have ethical content when they are linked with the element of morality. Values help to establish proper relationship between ends and means. If the management of a business is pursuing sound

values, and it will follow those business practices that are ethical and socially justifiable. And in absence of sound value system, the management of a business may be tempted to pursue unethical business practices.

Unethical behaviors constitutes of

1. Bribing public officials to obtain undue favors.

2. Using false claims in advertisements.

3. Keeping two sets of books to evade taxes.

4. Using co. property for personal use.

5. Overlooking safety violations to get the job done.

6. Revealing confidential information or trade secrets to competitors.

7. Artificially inflating profits to get re- elected as directors.

Unethical Business Practices

Against Employees 1. Paying salaries lower than

those fixed by the government to the employees.

2. Poor working conditions like dirty water, poor lightning.

3. Lack of safety measures for workers.

Against Government 1. Evasion of excise duty, sales

tax, income tax etc.2. Smuggling of goods.3. Offering bribes to

government officials and politicians for getting favors.

Against consumers and society 1. Adulteration of goods like

mixing of papaya seed with black pepper.

2. Sale of spurious goods3. Sale of duplicate products

under popular brand names.4. Sale of products injurious to

public health like charas, heroine.

5. Pollution of environment.6. Deceptive advertisements

and false claims in advertisements.

Conceptual model of Business ethics

Business Ethics

Managerial Moral problems thatBeliefs manager face in decision making

Managerial beliefs concerning:1. Illegal acts2. Unethical or questionable

practices

Examples:1. Fraud, Bribery2. Dumping of pesticides

Micro level problems:1. Fairness in performance

appraisal2. Accepting Gifts3. Confidentiality of company4. Treatment of problem

employees5. Confronting expense account

Levels of Ethical Decisions in

business

Level 4Individual

Level 3Internal policy

Level 2Stakeholders

1. Societal level2. Stakeholders level3. Internal policy4. Individual Level

1. Societal Level :At this level, ethical questions about the basic institutions in society are asked. These represent an ongoing debate among major competing institutions including business.

2. Stakeholders Level :

Level 1Society

In a business enterprise include employees, suppliers etc. Here they ask about how they deal with external groups. For example, should a company inform its customers about the potential dangers of its product?

3. Internal Policy Level :At this level we ask questions about the nature of enterprise relations with employee both managers and workers. So also questions of motivation techniques, leadership roles, work rules etc. are involved at this level.

4. Individual Level :At this level, we ask questions concerning how individual person should treat one another within the firm. These questions deal with day

to day issues of life in any enterprise but in the ultimate analysis, they set the tone of ethical behavior of business at higher levels.

Need and Importance of

Business Ethics

More important is the fact that today a businessman is pressurized by various environmental factors to follow a business practice which is ethical from society’s point of view irrespective of its impact on business profits. Such a significance of business ethics is attributable to following reasons:

1. Environmental Pressures :As apart of overall economic system, a business organization is pressurized by various environmental factors to act credibly and behave ethically. Thus a business

enterprise may have no option but to desist from undesirable trade practices like hoarding and profiteering due to pressure from consumer forums.

2. Enlightened self interest:Today’s businessman firmly believes that business ethics are in their own self interest. That is if business enterprise follows business practices, it will lead to higher profits and prosperity in the long run.

3. Moral consciousness :It would not be an exaggeration to say that most business people behave ethically because of their moral consciousness. Like any other member of the society business people also believe that ethical business conduct

is good business as well as good citizenship.

4. Legal Requirements :In almost every sphere of business activity laws have been enacted which declare certain business practices. In short, obedience to such laws is ethical.

Elements of business ethics

Business Managers must come to appreciate the key elements that comprise making ethical judgments. There are six major elements that are essential ethical judgments:

1. Ethical Imagination:Developing ethical imagination means being sensitive to ethical issues in business decision making and the ability to identify those situations where people are likely to be detrimentally effected by decision making.

2. Ethical Identification and Ordering:

It refers to the ability to judge the relevance or non relevance of ethical factors in decision making situations. In addition to their identification, ethical issues must be ranked.

3. Ethical Evaluation:To evaluate ethical factors business persons have to develop clear principles, basis of weighing those factors and the ability to make out the likely ethical as well as economic outcomes of a decision.

4. Sense of Ethical Obligation:This refers to the intuitive or learned understanding that ethical fibers – a concern for fairness, justice and due process to people, groups and communities should be woven into the fabric of managerial decision making.

Determinants of Business Ethics

1. Social Factors – Ethics are basically concerned with social morality. In other words, ethical business conduct is that which is socially moral. Accordingly, it is the social

values, norms, traditions and customs.

2. Economic Factors – The level of economic development also influences the nature and spread of business ethics. In general Business ethics assume liberal character with the development in economic spheres, particularly business activities.

3. Cultural Factors – The code of conduct for individuals as well as organizations develops under constant influence of cultural values. And the sources of these cultural values are historical heritages, family system, religion etc.

4. Political Factors – Business Ethics are also influenced by the ideology and philosophy of

the political party in power. Through appropriate legislative measures government enforces business ethics and regulates the behavior of business firms.

5. Organizational Factors –

like philosophy and policy of the firms, attitudes of managers and superior subordinate relations have great impact on ethical perception.

Implications for Business Ethics

When the mechanism of moral disengagement are at work in corporations, business ethics is difficult to manage, especially when the sanctioning practices are surreptitious and the responsibility for policies is diffused. Numerous exonerative strategies can be enlisted to disengage social and moral sanctions from detrimental practices with a low sense of personal accountability.

APPROACHES TO BUSINESS ETHICS

When business people speak about “business ethics” they usually mean one of three things:

(1) avoid breaking the criminal law in one’s work-related activity;

(2) avoid action that may result in civil law suits against the company; and

(3) avoid actions that are bad for the company image.

Businesses are especially concerned with these three things since they involve loss of money and company reputation. In theory, a business could address these three concerns by assigning corporate attorneys and public relations experts to escort employees on their daily activities. Anytime an employee might stray from the straight and narrow path of acceptable conduct, the experts would guide him back. Obviously this solution would be a financial disaster if carried out in practice since it would cost a business more in attorney and public relations fees than they would save from proper employee conduct. Perhaps

reluctantly, businesses turn to philosophers to instruct employees on becoming “moral.” For over 2,000 years philosophers have systematically addressed the issue of right and wrong conduct. Presumably, then, philosophers can teach employees a basic understanding of morality will keep them out of trouble.

However, it is not likely that philosophers can teach anyone to be ethical. The job of teaching morality rests squarely on the shoulders of parents and one’s early social environment. By the time philosophers enter the picture, it is too late to change the moral predispositions of an adult. Also, even if philosophers could teach morality, their recommendations are not always the most financially efficient. Although being moral may save a

company from some legal and public relations nightmares, morality in business is also costly. A morally responsible company must pay special attention to product safety, environmental impact, truthful advertising, scrupulous marketing, and humane working conditions. This may be more than a tight-budgeted business bargained for.

We cannot easily resolve this tension between the ethical interests of the money-minded businessperson and the ideal-minded philosopher. In most issues of business ethics, ideal moral principles will be checked by economic viability. To understand what is at stake, we will look at three different ways of deriving standards of business ethics.            

Deriving Business Ethics from the Profit Motive

Some businesspeople argue that there is a symbiotic relation between ethics and business in which ethics naturally emerges from a profit-oriented business. There are both weak and strong versions of this approach. The weak version is often expressed in the dictum that good ethics results in good business, which simply means that moral businesses practices are profitable. For example, it is profitable to make safe products since this will reduce product liability lawsuits. Similarly, it may

be in the best financial interests of businesses to respect employee privacy, since this will improve morale and thus improve work efficiency. Robert F. Hartley's book, Business Ethics, takes this approach. Using 20 case studies as illustrations, Hartley argues that the long-term best interests of businesses are served by seeking a trusting relation with the public (Hartley, 1993). This weak version, however, has problems. First, many moral business practices will have an economic advantage only in the long run. This provides little incentive for businesses that are designed to exclusively to seek short-term profits.

As more and more businesses compete for the same market, short-term profits will dictate the decisions of many companies simply as a matter of survival.

Second, some moral business practices may not be economically viable even in the long run. For example, this might be the case with retaining older workers who are inefficient, as opposed to replacing them with younger and more efficient workers. Third, and most importantly, those moral business practices that are good for business depend upon what at that time will produce a profit. In a different market, the same practices might not be economically viable. Thus, any overlap that exists between morality and profit is both limited and incidental.

The strong version of this profit approach takes a reverse strategy and maintains that, in a competitive and free market, the profit motive will in fact bring about a morally proper

environment. That is, if customers demand safe products, or workers demand privacy, then they will buy from or work for only those businesses that meet their demands. Businesses that do not heed these demands will not survive. Since this view maintains that the drive for profit will create morality, the strong version can be expressed in the dictum that good business results in good ethics, which is the converse of the above dictum. Proponents of this view, such as Milton Friedman, argue that this would happen in the United States if the government would allow a truly competitive and free market. But this strong view also has problems, since it assumes that consumers or workers will demand the morally proper thing. In fact, consumers may opt for less safe products if they know

they will be saving money. For example, consumers might prefer a cheaper car without air bags, even though doing so places their own lives and the lives of their passengers at greater risk, which is morally irresponsible. Similarly, workers may forego demands of privacy at work if they are compensated with high enough wages. In short, not every moral business practice will simply emerge from the profit principle as suggested by either the weak or strong views.  

Business Ethics Restricted to

Following the Law A second approach to business

ethics is that moral obligations in

business are restricted to what the law requires. The most universal aspects of Western morality have already been put into our legal system, such as with laws against killing, stealing, fraud, harassment, or reckless endangerment. Moral principles beyond what the law requires – or supra-legal principles --  appear to be optional since philosophers dispute about their validity and society wavers about its acceptance. For any specific issue under consideration, such as determining what counts as responsible marketing or adequate privacy in the workplace, we will find opposing positions on our supra-legal moral obligations. It is, therefore, unreasonable to expect businesses to perform duties about which there is so much

disagreement and which appear to be optional.

The unreasonableness of such a moral requirement in our society becomes all the more evident when we consider societies that do have a strong external source of morality. Islam, for example, contains a broad range of moral requirements such as an alms mandate, prohibitions against sleeping partners that collect unearned money, and restrictions on charging interest for certain types of loans, particularly for relief aid. Thus, in Muslim countries that are not necessarily ruled by Islamic law, there is a strong source of external morality that would be binding on Muslim businesses apart from what their laws would require. Similarly, Confucianism has a strong emphasis on filial

piety; thus, in Chinese and other Confucian societies, it is reasonable to expect their businesses to maintain a respect for elders even if it is not part of the legal system. In Western culture, or at least in the United States, we lack a counterpart to an external source of morality as is present in Muslim or Confucian societies. One reason is because of our cultural pluralism and the presence of a wide range of belief systems. Even within Christianity, the diversity of denominations and beliefs prevents it from being a homogeneous source of Christian values. In short, without a widely recognized system of ethics that is external to the law, supra-legal moral obligations in our society appear to be optional; and, it is unreasonable to expect business people to be obligated to

principles which appear to be optional.

In our culturally pluralistic society, the only business-related moral obligations that are majority-endorsed by our national social group are those obligations that are already contained in the law. These include a range of guidelines for honesty in advertising, product safety, safe working conditions, and fair hiring and firing practices. In fact, the unifying moral force of businesses within our diverse society is the law itself. Beyond the law we find that the moral obligations of businesses are contextually bound by subgroups, such as with a business that is operated by traditional Muslims or environmental activists. In these cases, the individual businesses may be bound by the obligations of their subgroups, but such

obligations are contingent upon one's association with these social subgroups. And, clearly, the obligations within those subgroups are not binding on those outside the subgroups. If a business does not belong to any subgroup, then its only moral obligations will be those within the context of society at large, and these obligations are in the law. Corporations that assume an obligation beyond the law, either in their corporate codes or in practice, take on responsibilities that most outsiders would designate as optional. A good example is found in the mission statement of Ben & Jerry's Ice Cream, which includes the following:

Social Mission -- To operate the company in a way that actively recognizes the central role that

business plays in the structure of society by initiating innovative ways to improve the quality of life of a broad community -- local, national, and international.

 Consistent with this mission, the

highest paid employees of Ben & Jerry's would not earn more than seven times more than the lowest paid full-time employees. "We do this," they explain, "because we believe that most American corporations overpay top management, and underpay entry-level employees -- and because everyone who works at Ben & Jerry's is a major contributor to our success." In spite of the merits of this pay scale policy, it clearly lacks majority endorsement in our national social group, and would not be a binding obligation. In

fact, it is not even binding on Ben & Jerry’s itself since, in recent years, Ben & Jerry’s had to abandon its own ideal pay scale in an effort to attract a CEO with the right skills to expand their company. Strictly following this legal approach to business ethics may indeed prompt businesses to do the right thing, as prescribed by law. Nevertheless, there are two key problems with restricting morality solely to what the law requires. First, even in the best legal context, the law will lag behind our moral condemnation of certain unscrupulous, yet legal business practices. For example , in the past, drug companies could make exaggerated claims about the miraculous curative properties of their products. Now government regulations prohibit any

exaggerated claims. Thus, prior to the enactment of a law, there will be a period of time when a business practice will be deemed immoral, yet the practice will be legal. This would be a continuing problem since changes in products, technology, and marketing strategies would soon present new questionable practices that would not be addressed by existing legislation. A second problem with the law-based approach is that, at best, it applies only to countries such as our own whose business-related laws are morally conscientious. The situation may be different for some developing countries with less sophisticated laws and regulatory agencies.  

Deriving Business Ethics from General Moral Obligations

The third approach to business ethics is that morality must be introduced as a factor that is external from both the profit motive and the law. This is the approach taken by most philosophers who write on business ethics, and is expressed most clearly in the following from a well known business ethics essay: 

Proper ethical behavior exists on a plane above the law. The law

merely specifies the lowest common denominator of acceptable behavior. (Gene Laczniak, "Business Ethics: A Manager's Primer," 1983)

The most convenient way to explore this approach is to consider the supra-legal moral principles that philosophers commonly offer. Five fairly broad moral principles suggested by philosophers are as follows: 

Harm principle : businesses should avoid causing unwarranted harm.

Fairness principle : business should be fair in all of their practices.

Human rights principle : businesses should respect human rights.

Autonomy principle : businesses should not infringe on the

rationally reflective choices of people.

Veracity principle : businesses should not be deceptive in their practices.

The attraction of these principles is that they appeal to universal moral notions that no one would reasonably reject. But, the problem with these principles is that they are too general. These principles do not tell us specifically what counts as harm, unfairness, or a violation of human rights. Does all damage to the environment constitute harm? Does it violate an employee's right to privacy if an employer places hidden surveillance cameras in an employee lounge area? Does child-oriented advertising mislead children and thus violate the principle of veracity?

The above principles are abstract in nature. That is, they broadly mandate against harm, and broadly endorse autonomy. Because they are abstract, they will be difficult to apply to concrete situations and consequently not give clear guidance in complex situations. An alternative approach is to forget the abstract, and focus instead on concrete situations that affect the particular interests of consumers, workers, stockholders, or the community. The recent stakeholder approach to business ethics attempts to do this systematically. It may be expressed in the following: 

Stakeholder principle : businesses should consider all stakeholders' interests that are affected by a business practice.

 

A stakeholder is any party affected by a business practice, including employees, suppliers, customers, creditors, competitors, governments, and communities. Accordingly, the stakeholder approach to business ethics emphasizes that we should map out of the various parties affected by a business practice. But this approach is limited since proponents of this view give us no clear formula for how to prioritize the various interests once we map them out. Should all stakeholders' interests be treated equally – from the largest stockholder down to the garbage man who empties the factory dumpster? Probably no defenders of the stakeholder approach would advocate treating all interests equally. Alternatively, should the stockholders' interests have special priority? If we take this route, then the stakeholder

principle is merely a revision of the profit principle. Another way of looking at concrete moral obligations in business is to list them issue by issue. This is the strategy behind corporate codes of ethics that address specific topics such as confidentiality of corporate information, conflicts of interest, bribes, and political contributions. Consider the following issues from Johnson and Johnson's Credo: 

We are responsible to our employees, the men and women who work with us throughout the world. Everyone must be considered as an individual. We must respect their dignity and recognize their merit. They must have a sense of security in their jobs. Compensation must be fair and adequate, and working conditions clean, orderly and safe.

We must be mindful of ways to help our employees fulfill their family responsibilities. 

Although corporate codes of ethics are often viewed cynically as attempts to foster good public relations or to reduce legal liability, a corporate code of ethics is a reasonable model for understanding how we should articulate moral principles and introduce them into business practice. The practical advantage of this approach is that it directly stipulates the morality of certain action types, without becoming ensnared in the problem of deriving particular actions from more abstract principles, such as the harm principle. But, the limitation of the corporate code model is that the principles offered will appear to be merely rules of prudence or good

manners unless we can establish their distinctly moral character. And this requires relying on more general principles of ethic described above, which, we’ve seen, comes with its own set of problems.  

Conclusion

We’ve looked at three approaches to business ethics, and we’ve seen that all three have limitations. If we hope to find an approach to business ethics that is free from conceptual problems, we will not likely find any. Ethics is a complex subject and its history is filled with diverse theories that are systematically refuted by rival theories. So, we should expect to find controversies when applying ethics to the specific practices of business. However, following any of the above three approaches to business ethics will bring us closer to acceptable moral behavior than we might otherwise be. Close attention to one’s profit motive and the moral interests of consumers might in fact generate

some morally responsible business decisions. We can indeed find additional moral guidance by looking at the laws that apply specifically to businesses. In gray areas of moral controversy that are not adequately addressed profit motives and the law, we can turn for guidance to a variety of general and specific moral principles.

In addition to the above three approaches to business ethics, it also helps to examine stories of businesses that have been morally irresponsible. By citing specific cases deceptive advertising, environmental irresponsibility, or unsafe products, we can learn by example what we should not do. Such cases often reveal blatantly crude, insensitive, or reckless attitudes of businesses, which we

can view as warning signs of unethical conduct. Study Questions for “Approaches to Business Ethics”   Introduction

(1) What three things do business people usually mean by “business ethics”?(2) Why can’t philosophers “teach” people to be ethical?

  Deriving Business Ethics from the Profit Motive

(3) What is the weak version of theory that connects business ethics to the profit motive?(4) What are problems with the weak version?(5) What is the strong version of theory that connects business ethics to the profit motive?(6) What are problems with this?

  Business Ethics Restricted to Following the Law

(7) Define “supra-legal” principle.(8) Why is it unreasonable to expect businesses to follow supra-legal moral principles?(9) What are some supra-legal moral principles that are binding in Muslim countries?(10) What are the problems with restricting business ethics to what the law requires?

  Deriving Business Ethics from General Moral Obligations

(11) Give an example of a broad moral principle suggested by philosophers.(12) What is the problem with deriving business ethics from broad moral principles?(13) What is a stakeholder?(14) What is the problem with articulating good business

behavior in corporate codes of ethics?

   Conclusion(15) What are some benefits of all three approaches to business ethics?

(16) What can we learn by looking at case studies in business ethics?

DOING BUSINESS IN FOREIGN COUNTRIES

The moral challenge for businesses here in the United

States it difficult enough when balancing one’s profit interests against the needs of employees, consumers, governments and special interest groups. The moral challenge is even more intense for multinational companies who need to live up to moral expectations both in the US and in host foreign countries. In developed countries, the moral expectations of the host country are as stringent as our own. With third world host countries, though, the moral expectations often more lax, and multinationals are tempted to lower their standards when situations permit. In this chapter we will look at three areas of moral concern for multinationals: bribery, influencing foreign governments, and exploiting third world countries. 

Bribery in Third World Countries - When we think of moral dilemmas that multinationals face we usually think of the pressure on companies to bribe government officials in third world countries. Although bribery of government officials also takes place in the United States, it is rare and severely punished. By contrast, bribery happens with greater frequency in third world countries, and there is a feeling that it is normal practice to bribe government officials. We may succinctly define a bribery as condition in which a person, such as a government offical, agrees to be paid to act as dictated by an interested party, rather than doing what is required of him in his official employment. What is central to the notion of a bribe is

that an agreement is made, even if the act itself is never performed and the payment is never made. It is also central that the person being bribed implicitly agreed to abide by the rules of his government, organization, or legal system. We need to distinguish bribery from extortion, which is where an official requires payment to perform his otherwise normal duties. For example an agent of the FDA may extort a company by approving of a product that passes approval standards anyway. Extortion has a victim, whereas bribery has no victim. We also need to distinguish bribery from gift giving, which includes neither implicit nor explicit agreements, even if the giver intends the gift as an inducement. An official may accept a gift innocently, and sometimes

genuine friendships are formed that involves exchanging gifts. Further, gift giving in foreign countries is often part of a needed business ceremony. To avoid doing wrong, the receiver of a gift needs to be confident that he remains impartial in conducting his official duties. In some occupations, such as law enforcement, established codes often forbid gifts since it is too important to risk losing impartiality through gift giving.

Although few business people publicly defend bribing officials in third world countries, there is a common attitude within multination organizations that condones bribery on several grounds. First, there are strictly financial considerations. Payoffs can prevent delays that might otherwise throw a company into

financial ruin. In a truly capitalistic environment, we need an even playing field, and if foreign businesses engage in bribery and US firms do not, then US firms will be at a competitive disadvantage and will ultimately lose to foreign business. Second, there are practical considerations owing to what appears to be the universal nature of bribery in third world countries. Often foreign government officials are so corrupt that it is virtually impossible to do business without playing by the unspoken rules. Thus, there’s nothing morally wrong with participating in bribery, especially if the institution itself is in question, such as a government like Nazi Germany.

Both the financial and practical arguments above reflect a naïve

view of doing business in third world countries. Bribery is in fact outlawed in every country around the world and, although bribery is more common in some foreign countries than in the United States, law enforcement officials in those countries do take bribery violations seriously and punish offenders. Americans in particular are naïve about his, as seen from the fact that, in middle east countries, American companies are involved in bribery scandals twice as often companies from other countries. The US government also takes oversees bribery seriously. Under US law, the Foreign Corrupt Practices Act of 1977 establishes that,  if caught bribing, a company may be subject to a 1 million dollar fine, and executives may be subject to $10,000 in fines and five years in prison. These penalties are so

severe that critics contend that it restricts ordinary well-intentioned business activity because of the fear business people might have of entering a gray area of activity that is actually legal. In any event, it is reasonably clear that the legal penalties of international bribery outweigh the possible business benefits.

A dramatic example of bribery naivete involves the Lockheed Corporation, which in the 1970s was caught offering a quarter of a billion dollars in bribes overseas. A major US defense contractor, Lockheed fell on hard times for both economic and technological reasons. The US government commissioned the company to design a hybrid aircraft, but, after one crashed, the government canceled orders. Lockheed received other contracts based on bids that they made that were far

lower than the cost of producing the project. As a consequence, they lost money on the projects. They tried to move into the commercial jet aircraft market by making planes with engines built by Rolls Royce. Rolls Royce went bankrupt, and Lockheed lost 300 million in canceled orders. They believed that the solution to their financial woes was to expand their oversees sales. To get the contracts, they made a series of payoffs to middlemen from various countries, including the Netherlands, Japan, Saudi Arabia, Iran, Italy, and Spain. Still on the verge of bankruptcy, they requested a loan of 200 million dollars from the US government, which meant opening their records for scrutiny. Government investigators discovered the extent of Lockheed’s bribery. They also discovered that

Lockheed offered bribes that totaled 10 times more than the bribes made by other US companies. Lockheed’s chairman and president were forced to resign. However, to avoid compromising national defense the US government chose not to cancel its contracts with Lockheed.  

Endorsing, Influencing, and Opposing Foreign Governments. Whether in the US or in foreign countries, big businesses have an intimate relation with governments. Businesses lobby for fewer regulations, lighter taxes, governmental subsidies, and access to natural resources. Businesses also depend on government offices, such as law enforcement agencies, court systems, permit offices, and transportation networks. So,

when a US company sets up base in a foreign country, its interaction with government creates the possibility for unpleasant situations. Multinationals often locate in countries with repressive right wing governments since these tend to be more politically stable. By doing so, they implicitly support these governments, which would otherwise not be supported by socially conscious people. At the other end of the spectrum, sometimes multinationals find themselves in left wing countries that are hostile to the business’s capitalistic interests. In these cases, the business might be tempted to oppose or even undermine that government, irrespective of the benefit that local people derive from that government’s left-wing policies.

Between these two extremes, there is the normal course of doing business in developing countries, which involves the normal lobbying efforts that we have here in the US. This involves at least attempting to influence governments of third world countries.

An example of the first extreme – businesses endorsing right wing governments – is the presence of American multinationals in South Africa, especially during the 1970s and 1980s. The white Apartheid government at the time endorsed a policy of what amounted to institutionalized slavery of its black citizens. Although constituting less than 10% of the country’s population, the white Afrikaners controlled the vast majority of the country’s

economic wealth. Blacks were segregated, restricted in their speech, jobs, and movements, and constantly under threat from white policing forces. The white Afrikaners justified their Apartheid policy by arguing that it was God's plan that Afrikaners are in Africa, and it is God’s plan to divide people into groups. US multinationals all recognized the inherently immoral nature of the Apartheid government and that, at minimum US businesses in South Africa needed to be sensitive to the oppressed condition of the blacks. The harshest critics, though, called for complete divestment of American business interests from South Africa. Politically, U.S. business in South Africa offered legitimacy to the Apartheid government. Economically, whatever helped South Africa's economy helped

Apartheid, and divestment would cripple the South African economy. Also, American companies in South Africa had a history of civil rights abuses towards blacks.

More moderate critics maintained that companies whose products directly benefit the government should divest, such as those the make police weapons. However, companies whose products directly benefit Blacks should not divest. Companies whose products directly benefit both can go either way. For example, the Polaroid Company chose to leave South Africa since they could not control the flow of their product into government hands, such as use in passbook pictures that regulated the movement of the black South Africans.

However, other businesses argued that continued American involvement in South Africa was actually a good thing. The Apartheid government was making some progress toward racial integration, and American companies would be vital sources of peaceful change. Further, US presence in South African would bolster its economy, which would be good for blacks since it would reduce overall unemployment and inflation, and improve education. Severing ties with South Africa would at best be a symbolic act, with little or no economic clout since all products made by U.S. firms could be bought elsewhere. In this vein, Leon Sullivan, an Afro-American on General Motors board of directors, recommended several principles for operating in South Africa. They are, (1) non-

segregation in eating, restroom, and work facilities; (2) equal employment practices; (3) equal pay; (4) training programs for blacks; (5) more blacks in management; and (6) improving employees lives outside work, including housing, transportation, schooling, recreation, and health.

The situation of South Africa illustrates what can happen when American businesses set up camp in countries with oppressive right-wing governments. At the other extreme, we noted that problems also emerge when American businesses locate in countries with left-wing countries of communist leanings that are hostile to capitalist ventures. A vivid illustration of this is International Telephone and Telegraph’s interference in the Chilean government during the

1970s. At the time, ITT was the 8th largest fortune 500 company, with 350,000 employees in 80 countries, including Chile. The South American country of Chile was poor, but politically stable politically. A presidential candidate named Salvador Allende campaigned on a communist platform, emphasizing the issue of land reform, and indicating a desire to take control of privately owned Chilean telephone companies because of their inefficiency. Government acquisition policies work two ways. First, a government might buy controlling shares of private companies, paying them at a fair market price. Alternatively, a government might nationalize or simply take ownership of the company with no compensation, as happened with private

businesses in Cuba and Peru during their communist takeovers.

ITT feared the worst and tried to stop Allende from being elected, part of which involved an offer of 1 million dollars to the CIA for support. The scandal surfaced, and critics world wide attacked ITT for interfering in the activity of a foreign government. Some of ITT’s property was even bombed in protest. Allende was elected anyway, and in retaliation, he nationalized ITT’s Chilean property. Allende did not nationalize other firms, however, even though some had to sell the government shares of its stock. Allende was assassinated shortly after, and ITT later sued for losses.

The actions of American multinationals in foreign markets have a direct effect on the image

on the U.S. itself. People around the world see the United States as an economic imperialist, ready to gobble up the resources of small foreign countries. The situation is made worse when multinationals coerce foreign governments especially in Third World countries. Exploiting Third World Countries - Critics frequently accuse multinational corporations of exploiting the resources and workers of third world countries. Agricultural businesses often take the best land and use it for export crops, which diminishes the amount of good land that the locals can use for their own food needs. Drug companies and hazardous chemical industries take advantage of more lax safety regulations, which often results in

disaster. Mining industries exploit the wealth of the country for only a few rich landowners.

Since many of these natural resources are in finite supply, developing countries have little hope of relying on them for future security once they are used up. Banks and financial institutions do not hire the local people, yet these businesses benefit by bringing in local money. Manufacturing and service industries introduce poverty to many areas by attracting more people to a factory than they can employ. They typically pay much less to third world employees than to Americans, which suggest a double standard of labor value. If they pay wages to third world employees that are higher than what indigenous businesses can pay, then they attract the best workers, which hurts employers in

surrounding businesses. Also, all of the above types of businesses destroy the local culture by introducing an American climate.

Two cases illustrate the disastrous effects of exploiting third world countries. In 1984, a pesticide factory owned by Union Carbide in Bhopal India exploded killing 2,500 people and injuring and additional 300,000 people. With a population of 700,000 people, Bhopal is the capital of Madhya Pradesh, one of India’s poorest and least developed states. The city is geographically divided between rich and poor sections, with the factory located in the poor section. Although it was a multinational, Indian investors owned almost half of the shares of the Indian plant, and Indians operated the plant. The active ingredient for the pesticide was stored in 600 gallon tanks.

The size of the tanks themselves was a problem. Larger tanks are economically efficient since they hold more gas, but they pose greater risks in case of a tank leak. For his reason, regulations in Germany required a similar Union Carbide plant in that company to restrict its tank size to 100 gallons. The tank that exploded in the Indian plant was supposed to be refrigerated to zero degrees centigrade; instead the refrigeration unit was not working and it was at room temperature. Although the Indian factory had safety features to prevent disasters, several of the safety systems were not functioning. The temperature alarm was shut down; the gas scrubber was shut off, which was supposed to neutralize escaped gas; and a flare tower was out of

service, which was supposed to burn escaped gas.

The explosion started when someone added water to a 600 gallon tank of the chemical, perhaps done as an act of sabotage by a disgruntled employee. The temperature in the tank rose in a chain reaction, and the tank blew up. A fog of the gas drifted through the streets of Bhopol, killing people on the spots that they stood. Long term medical problems for the survivors included respiratory ailments and neurological damage. The Indian government quickly arrested plant managers and eventually spent 40 million on various disaster relief projects. Union Carbide Stock plummeted with losses totaling almost a billion-dollars; Union Carbide sales were also impacted for several years. The company

eventually paid half a billion dollars to victims. Although the US parent company acted quickly and compassionately to the disaster, the tragedy raised serious questions about the parent company’s views on safety in third world countries. Even though Indians ran the Bhopal plant, Union Carbide’s laissez-faire policy of decentralizing subsidiaries was not appropriate in matters of safety. The tragic lesson is that multinational should follow U.S. safety standards worldwide, and should not give cost cutting the highest priority.

A second case illustrating exploitation in third world countries concerns the tobacco industry. Information about the atrocious activities of US tobacco companies over the years is continually being made public. As deceptive and uncaring as they

have been in the US, they are even worse in third world countries. In developed countries, tobacco tar levels have decreased, but in third world countries they have increased. Almost all developed countries have tobacco legislation, and less than half the third world countries do, which is partly the result of cigarette companies’ heavy lobbying efforts. Without restrictions to cigarette production, advertising and sales, cigarette companies expand the bounds of third world markets with no thought of the health hazards they create for consumers. In Argentine, for example, tobacco companies buy 20% of all advertising time. Thus, although cigarette smoking is on a decline in developed countries, it is on a rise in third world countries and, globally, cigarette

consumption is growing faster than population. US tobacco companies create strong incentives for local growers to shift to tobacco production by paying startup costs to farmers, underwriting loans, and guaranteeing purchases. By growing tobacco, less acreage is available for domestic food production, which particularly bad in countries with large numbers of people living at subsistence levels. There are also ecological effects of flue-cured tobacco production that requires fire. In third world countries, wood fires are a main method for curing tobacco, which requires one tree for every 300 cigarettes. This bad since firewood accounts for 90% of the heating and cooking fuel in developing countries. There are three basic positions to take on the problem of businesses

exploiting third world countries. The harshest critics of third world exploitation argue that we should just stay out of third world countries altogether, and let those countries manage their resources as they see fit for themselves. Although well intended, this position is unrealistic especially in view of the growing economic interdependence of countries around the world. Most large companies today have multinational interests, and, if anything, these interests will increase. This position is also undesirable from the standpoint of the interests of the third world countries themselves. Isolationist economic policies are typically ineffective. If a third world country blocks off outside capitalist ventures, outside countries are less inspired to

support the business ventures of that third world country.

On the other extreme, some business people argue that, although issues of exploitation are sociologically interesting, they are not moral issues. On this view, we should not equate US standards with universal moral standards. For example, FDA, OSHA, and minimum wage standards are good, but not morally required of all businesses around the world. Further, local governments in the host country must also accept responsibility for what happens, especially when they require some control of the company. Governments by and large set the agenda for what businesses can and cannot do. By accepting control, they also accept responsibility.

A third and middle ground position on exploitation is that

multinationals from rich countries can operate effectively in third world countries when adhering to basic moral principles. In the next section we will look at some suggested moral principles for multinationals.   Cultural Relativism and Universal Moral Principles - The above-discussed problems of interference in foreign government, bribery, and exploitation all raise a range of ethical questions, perhaps the most important is whether companies should adopt the attitude that “When in Rome, do as the Romans.” This is the issue of cultural relativism, namely, whether moral values vary from society to society. Cultural relativism implies that moral values are completely defined by

cultural contexts, and there is no universal standard of morality that applies to all people at all times. As long as we stay within our own cultural environment, this is no problem since we simply act morally as our society dictates. However, multinationals face the problem of relativism directly by placing one foot in the moral context of American culture, and another foot in the moral context of a foreign culture. Driven by the profit motive, multinationals will be tempted to adopt the least costly moral principles that a given cultural context will allow.

Is cultural relativism true? Philosophers have debated this question for over two thousand years. Many cultural practices are unquestionably shaped by cultural environments, such as rules requiring women to covering their

heads in public, and prohibitions against drinking alcohol or eating types of meat. However, there seem to be some foundational principles that appear uniformly, such as obligations to care for one’s children and elderly parents, prohibitions against assault, rape, stealing, and murder. Some philosophers argue that these principles appear universally in societies since, without them, a society simply could not continue. For example, if a society permitted murder, we would all move out of town and live in seclusion. Also, philosophers point out that many seemingly diverse standards of behavior in fact reflect common values. For example, some cultures kill their elderly, which is a practice that we find abhorrent. However, putting the elderly to death is based on the principle

that children should see to the happiness of their parents, and this is a principle that we too have.

So, if we grant that there is some commonality to moral values around the world, then, to that extent, multinationals have moral responsibilities that cross cultural boundaries. Philosopher Norman Bowie recommends three universal moral standards that are appropriate to the activities of multinationals. First, multinationals should follow the norms that constitute a moral minimum, which are advocated in all societies. Second, multinationals should follow principles of honesty and trust, which are moral norms of the market place. These are required as foundational for any business operations, and the systematic violation of moral norms of the

marketplace would be self-defeating. Third, multinationals should not violate human rights, such as basic liberty rights. Business depends on economic liberty, which is part of political and civil liberty in general. So, if we accept economic liberty, we must accept the whole liberty package. This means that businesses should not operate in countries with human rights violations unless they can be catalysts for democratic reform.            

Philosopher Richard T. De George offers a more specific set of guidelines for the following:  ·        Do no intentional direct

harm to the host country·        Produce more good than bad

for the host country·        Contribute to the host

country's development

·        Respect the human rights of its employees

·        Pay one’s fair share of taxes·        Respect the local culture

and work with it·        Cooperate when local

governments reform social institutions, such as land and tax reform.

 De George believes that third

world countries lack adequate background institutions, such as regulatory agencies, which makes it all the more necessary for businesses to adherence to moral standards.

In view of how strong the profit motive is to businesses, we may wonder how realistic many of these cross-cultural moral principles are. Until a few hundred years ago, most philosophers believed that moral principles were pretty useless unless people

believed in God and were afraid that God would punish them for evil deeds. In more recent times, social contract theorists argue that fear of punishment from governments is the only thing that will motivate us to follow moral principles. Perhaps we can generalize from these views and say that we may not follow even the best moral principles unless an external authority monitors our actions and punishes us when we go wrong. We can see the moral responsibility of multinationals in the same light. There are reasonable moral guidelines that multinationals should follow, such as those offered by Bowie and De George, which managers of multinationals can probably figure out on their own. Without an external monitoring authority, though, businesses may set them aside for

reasons of profit. Fortunately, several external mechanisms are already in place to punish irresponsible multinationals. News organizations, the United Nations, international human rights groups, and environmental groups all take special interests in seeing that multinationals live up to high standards. All of these organizations have limited clout, though, and rely mainly on the threat of bad publicity to bring about change. But even this is effective since most large businesses believe that their reputation is their biggest asset. 

Study Questions for “Doing Business in Foreign Countries”   Bribery in Third World Countries

(1) What is the definition of bribery, and how does it differ from extortion and gift giving?

(2) What are the two main arguments usually given in favor of bribery?(3) What is the main problem with both of the arguments for bribery?(4) What penalty did Lockheed pay when it was caught in a bribery scandal?

   Endorsing, Influencing, and Opposing Foreign Governments

(5) What problems might arise when a multinational sets up in right-wing country and left wing foreign countries respectively?(6) During the 1970s and 1980s, some critics argued that US companies should leave South Africa. What were some of their reasons?(7) What were the negative consequences of ITT interfering in Chile’s government in the 1970s?

   Exploiting Third World Countries -

(8) What are some ways that multinationals exploit third world countries?(9) What were the principal irresponsible actions of Union Carbide in the Bhopal explosion? (10) What actions of the Tobacco companies in third world countries are especially exploitive?(11) What reasons do some multinationals give for not abiding by US standards in third world countries?

  Cultural Relativism and Universal Moral Principles

(12) Define cultural relativism(13) What are some moral values that seem to be held by all cultures?

(14) What are Norman Bowie’s three recommended moral principles for multinationals?(15) What external monitoring organizations help assure that multinationals act responsibly?

BUSINESS AND THE ENVIRONMENT

 The greatest damage done to

the environment is inflicted by business and industry, and not from domestic activities. Businesses extract the greatest tolls in terms of energy consumption, toxic waste, air and water pollution, and deforestation. Increasing amounts of industrial toxic waste contaminates ground water, which in turn becomes harmful for human consumption. Oil spills

from petroleum industries destroy shorelines and kill millions of sea animals. The burning of fossil fuels such as oil, gas and coal produces excess carbon dioxide, which adds to global warming through a greenhouse effect. Fluorocarbon gasses used in making domestic products such as refrigerators and styrofoam depletes the earth's ozone layer, which shields the earth from the sun’s life-destroying ultraviolet rays. Some of these problems are expensive nuisances, such as oil spills and toxic waste. Others, though, threaten the survival of life on our planet, such as carbon dioxide production and the release of fluorocarbon gasses. In this chapter we will look at some of the causes of environmental irresponsibility in businesses, and some theories about why

businesses should be more responsible. 

Businesses’ Resistance to Environmental Responsibility. Although businesses don’t consciously set out to harm the environment, several factors create an unfortunate situation, which in many cases is worse than it needs to be. First, large businesses and industries are inherently imposing on nature. They take pieces of nature and reshape them into things that didn’t exist before, such as automobiles, skyscrapers, television sets and shopping malls. Not only are the end products artificial, and in that sense unnatural, but the means of producing these things are taxing on natural resources. Second, it is easy to disregard natural resources that are held in

common and seem abundant, such as air and water. It doesn’t seem wrong to pollute the air if, technically, no one owns the air and the particular damage that I do isn’t too noticeable. Environmentalists sometimes refer to this phenomenon as a tragedy of the commons, that is, a disaster that happens to things that are held in common. Given the size and complexity of businesses in industrial countries, such as the US, it is not surprising that they contribute heavily to this tragedy.

Third, businesses are driven by the motive to make a profit. Stockholders demand a return on their investment, and this mandate transfers down through the management hierarchy. Part of making a profit is to reduce costs, and environmental responsibility is highly costly,

with few immediate financial rewards. Finally, government environmental watchdog agencies, such as the Environmental Protection Agency, are limited in what they can do in imposing restrictions on businesses. To protect their financial interests, businesses lobby for support at all levels of government, and agencies such as the EPA must be politically compromising. Agencies such as the EPA say that they know that they do their jobs correctly when everyone is angry with them. That is, businesses feel that the EPA restricts them too much, and environmental advocates such as the Sierra Club will feel that the EPA does too little to protect the environment.

On a global level, many of the environmental offenders are businesses in third world

countries. Underdeveloped countries are trying to catch up to the economic level of industrialized countries, and certainly have a right to do so. However, they cannot play catch up in a way that is both economically feasible and environmentally responsible. Maintaining a balance between economic development and energy conservation is far more difficult for poorer countries than it is for wealthier ones. For example, developed countries can shift to energy sources that give off less pollution, but developing countries cannot do so easily. Environmental problems are intensified in third world countries because of growth in population, which doubles about every 70 years. Increased population places increased demand on the utilization of land,

which, in turn, leads to deforestation. It is not effective to simply encourage developing countries to do better. Recommendations from world organizations, such as the United Nations, have only limited leverage. Sometimes developed countries, such as the United States, try to assist developing countries by offering them free technology. But this is only partially effective.

Since the 1960’s, our society has become increasingly more environmentally conscious, and now we simply take it for granted that we all are responsible for maintaining the integrity of the environment. However, conservative businesses people commonly feel that their responsibility to the environment is limited. Typically, they give two

distinct arguments for their views. First, they argue that businesses do not have an obligation to protect the environment above what the law requires. Although laws are strict concerning environmental regulation, they are not perfect and they allow for many kinds of environment judgement calls. If businesses showed special concern for the environment beyond what the law requires, then this would interfere with their ability to compete. Ultimately, they argue, environmental responsibility rests with consumers. If consumers are not interested in favoring businesses that have environmentally friendly policies, then it is not up to businesses to champion environmental policies on their own. The problem with this view is that environmental

responsibility cannot be left to what consumers are willing to tolerate. Most consumers will be attracted to the least expensive consumer products, irrespective of moral considerations surrounding the manufacturing of those products. Even if I knew that a pair of tennis shoes was manufactured in a third world sweatshop, my purchase decision might still be motivated only by the price tag. This is so too with my motivation to purchase products that are manufactured by environmentally unfriendly companies. In a sense, businesses need to save consumers from succumbing to their most thrifty inclinations. 

Second, if businesses agree that they have an environmental responsibility beyond what the law requires, they often take a

“good ethics is good business” approach and emphasize areas of environmental responsibility that will generate a profit. For example, they might push recycling, which they can indicate on their packaging and thereby attract environmentally conscious consumers. They might also update older energy-hungry heating or production units if the investment has the right payoff. However, as noted above, what is best for the environment is not always financially best for business. When cases of conflict arise between the environment and profit motive, the “good ethics is good business” approach quickly appears deceptive and shallow. Examples of Environmentally unsound Business Practices -

Although most companies are guilty of varying degrees of environmental irresponsibility, some extreme cases vividly illustrate irresponsibility at its worst. A first case involves resistance to air pollution control measures. In the early 1950s, Union Carbide built a series of metal and chemical plants in the Ohio valley, between Ohio and West Virginia. Mountains on both sides of the valley trap in soot, ash, and other air pollutants, which resulted in increased incidents of respiratory disease among local residents. During the 1960s, Union Carbide refuse to participate public discussions about the problem and ignored a governmental request for an on site inspection. The company soon became a symbol of corporate resistance to pollution control. Part of their resistance owes to

the fact that the environment was not an issue in the 1950s and new pollution control measures were both expensive and untested. Also, Union Carbide was less susceptible to consumer boycotts since only 20% of its products were direct consumer goods that we might purchase in a department store, such as antifreeze. In 1970s they became the target of the investigation by the newly formed Environmental Protection Agency, which instructed Union Carbide  on several pollution control measures. Union Carbide responded by shutting down a boiler plant and laying off workers, claiming that was the only way they could comply with the required pollution reduction. Critics charged that Union Carbide’s tactics amounted to environmental blackmail,

threatening to cut jobs if they had to be environmentally responsible. Ultimately, Union Carbide restructured their company and adhered to pollution control standards.

A second case of environmental irresponsibility involves nuclear power accidents. There are currently around 400 nuclear power plants world wide, providing about 15% of the world’s electricity. For the past few decades, the nuclear power industry has been under attack by environmentalists and few new plants have been started. Ironically, the original intent of nuclear power was to provide a safe, clean, and cheap alternative to coal and oil, which are notoriously damaging to the environment. Nuclear power produces no smoke or carbon dioxide, and only harmless steam.

It also doesn’t require environmentally intrusive mining or drilling efforts. Two major disasters contributed to the now tarnished image of the nuclear power industry, both the result of safety violations and human error. First occurred at the Three Mile Island nuclear power plant in Harrisburg, Pennsylvania. In 1979, a series of mechanical and human failures contributed to a partial core meltdown to one of its reactors. Radiation was released into the local community, and, although connections with health problems were difficult to prove, a family of a Down’s Syndrome child received 1 million dollars in compensation. A much more serious nuclear power disaster occurred in 1986 in the Ukrainian city of Chernobyl, then part of the Soviet Union. Partly from negligence and partly from design

problems, a steam explosion and fires threw tons of radioactive material into the environment. 31 people were killed and 1,000 injured from direct exposure to radioactive material by means of inhaling radioactive gasses and dust, and ingesting contaminated food or water. 135,000 people were evacuated from the surrounding area, hundreds of square miles of land was contaminated, and the long term health effects of the accident are still being assessed. Financial losses reached $3 billion, and countries throughout Europe claimed losses into the hundreds of millions of dollars. Although the Soviet government owned the Chernobyl plant -- and not private industry -- the disaster had a decisive impact on the entire nuclear power industry. In addition to the risks of

catastrophic disasters such as Chernobyl, nuclear power plants create other environmental problems that involve nuclear waste disposal. Nuclear waste is deadly to animal life, and remains toxic for a very long time. After Three Mile Island and Chernobyl, critics called for a moratorium on the construction all future nuclear power plants, and a systematic closing of the ones currently in use. Defenders, though, argue that nuclear energy is necessary in view of the limitations of alternative energy sources, such as coal, oil, and solar technology. They also argue that nuclear waste sites need to confine wastes for only a few thousand years since after 1,000 years the ingestion toxicity is comparable to that of the original uranium from which the wastes were derived. Finally, defenders say that we can

reasonably expect a decrease in nuclear accidents even if we increase nuclear power use, similar to how airline travel has increased while their accident rate has decreased. Defenders recommend that clustered reactors provide better operational support, security, and handling of wastes.

A third and final case of environmental disaster involves large-scale oil spills. In 1989, an Exxon oil tanker called the Valdez struck a reef in Alaska’s Prince William Sound and created the largest crude oil spill in US waters. The captain of the ship, 42 year old Joseph Hazelwood, was with Exxon for 20 years. He had a reputation as a drinker, which some departments at Exxon knew about, and at the time of the disaster his blood alcohol

level was .06. The tanker trip was part of a routine convoy from Alaska to Long Beach California that was successfully made by other tankers over 8,000 times. Hazelwood assigned the piloting of the vessel to a less experienced officer and then retired to his quarters. Icebergs were in the path of the ship, which an ineffective radar system failed to detect earlier. The ship was so large that it took a full minute to respond to steering changes. Attempting to navigate around an iceberg, the piloting officer miscalculated and ran the ship into a reef. Oil poured from the ship and, when the weather changed, it sloshed onto the beaches for hundreds of miles. Initially viewing it as only a public relations problem, Exxon was slow to respond with cleanup efforts, which made the situation worse.

The spill had a terrible impact on plant and animal life in the area, which the news media vividly captured in pictures and on television. The cleanup was also expensive; the average cost of rehabilitating a seal was $80,000. Hazelwood was ultimately fired for not being on the bridge at the time of the disaster and was convicted of negligent discharge of oil, with a punishment of 1000 hours of community service in the cleanup. Exxon paid in excess of 2 billion dollars in the cleanup efforts and, just as significantly, suffered an almost irreplaceable loss of reputation because of the disaster. 40,000 Exxon credit card holders destroyed their cards. Three Philosophical Theories of Environmental Responsibility - As noted

earlier, some businesses argue that their environmental responsibility is confined to what the law requires and what will yield a profit.

However, ethicists typically argue that businesses need to look beyond profit motive and legal regulations to find more persuasive reasons for environmental responsibility. We will consider three of these theories, each of which yields substantially different conclusions about the environmental responsibility of businesses.

The first of these theories is anthropocentric, or human centered. Environmental anthropocentrism is the view that all environmental responsibility is derived from human interests alone. The assumption here is that only human beings are

morally significant persons and have a direct moral standing. Since the environment is crucial to human well-being and human survival, then we have an indirect duty towards the environment, that is, a duty that is derived from human interests. This involves the duty to assure that the earth remains environmentally hospitable for supporting human life, and that its beauty and resources are preserved so human life on earth continues to be pleasant. Some have argued that our indirect environmental duties derive both from the immediate benefit which living people receive from the environment, and the benefit that future generations of people will receive. But, critics have maintained that since future generations of people do not yet exist, then, strictly speaking, they cannot have rights

any more than a dead person can have rights. Nevertheless, both parties to this dispute acknowledge that environmental concern derives solely from human interests.

A second general approach to environmental responsibility is to base it on the moral consideration that we owe to animals, a position that we will call the animal rights view. On this view, higher animals qualify as morally significant creatures, such as dogs, cats, cows, horses, pigs, dolphins, and chimpanzees. Animal rights advocate Peter Singer goes a step further and argues that even lower animals, such as chickens, deserve equal moral consideration insofar as they are capable of experiencing physical pleasure and pain, just as humans are. For Singer, the mistreatment of

animals is analogous to racism and slavery since it gives unequal treatment to beings with equal interests. Singer describes this inequity toward animals as speciesism. Our responsibility toward the environment, then, hinges on the environmental interests of animals, either higher or lower, as well as the environmental interests of humans. Thus, environmental responsibility derives from the interest of all morally significant persons, which includes both humans and at least some animals. The third theory is that of ecocentrism, which is that we have direct responsibilities to environmental collections, such as animal species and rain forests, just as we have direct responsibilities to humans. Even if there is no direct human

consequence of destroying environmental collections, we still have a moral responsibility to those collections anyway. Ecocentrists use various terms to express this direct responsibility to the environment. They suggest that the environment has direct rights, that it qualifies for moral personhood, that it is deserving of a direct duty, and that it has inherent worth. Common to all of these claims, though, is the position that the environment by itself is on a moral par with humans. Aldo Leopold first articulated econcentrism in his highly influential essay "The Land Ethic" (1949). Leopold explains that morality evolved over the millennia. The earliest notions of morality regulated conduct between individuals, as reflected in the Ten Commandments. Later notions regulated conduct

between an individual and society, as reflected in the Golden Rule. Leopold argues that we are on the brink of a new advance in morality that regulates conduct between humans and the environment. He calls this final phase the land ethic. For all three of these phases in the evolution of ethics, the main premise of morality is that the individual is a member of a community of interdependent parts. For Leopold, "The land ethic simply enlarges the boundaries of the community to include soils, waters, plants, and animals, or collectively: the land." This involves a radical shift in how humans perceive themselves in relation to the environment. Originally we saw ourselves as conquerors of the land. Now we need to see ourselves as members

of a community that also includes the land.  Implications for Businesses - Each of the above theories has different implications on business’s responsibility to the environment. From the anthropocentric perspective, businesses have an obligation not to damage the environment in ways that negatively impact on human life. From the animal rights perspective, businesses have an obligation to avoid harming animals either directly or indirectly. They need to avoid harming animals directly, such as they might do through animal testing, or inhumane food production techniques. They need to avoid harming animals indirectly, such as they might do by destroying animal environments. For example, we

should not control pests through poisoning, since this causes animals to suffer; instead we should prefer a sterility chemical. This is especially pertinent given that the environment is the immediate habitat of animals, and damage to the environment harms animals more than it harms humans. Finally, from the ecocentrist perspective, businesses have a direct obligation to protect the environment since it is wrong to harm members of the moral community, and the environment is a member of the moral community. In many cases the anthropocentric, animal rights, and ecocentric interests overlap. For example, toxic waste, air and water pollution, excess carbon dioxide, and release of fluorocarbons equally affect

humans, animals, and environmental collections. In many cases, though, the interests of the three do not overlap. For example, sometimes when businesses are found legally responsible for polluting a stream, several corrective options may be open to them. First, they may restore the stream, which costs a lot of money, or they may pay off a community in compensation for living with the polluted stream, which might cost them less money. Although the anthropocentrist will be satisfied with paying off the community, this would not touch the concerns of the animal rights and ecocentrist. To use another example, suppose that a business considered building a factory on a site that, if constructed, would destroy a breeding ground for birds. Typically, from the

anthopocentrist position, the business would only need to take into account the recreational value that the bird breeding ground would have to human bird watchers. For the animal rights advocate and ecocentrist, though, this reasoning ignores the needs of animals and the integrity of the ecosystem itself.

In view of these various theories of environmental obligation, what should businesses do? First, businesses will automatically be bound by the environmental regulations that are required by law. Although this covers much ground, it doesn’t cover everything. Second, businesses should at least be sensitive to environmental concerns from both the anthropocentric and animal rights perspectives. Animal rights and environmental lobby groups today

are becoming increasingly more influential, and, as a matter of good public relations and even survival, companies need to take this into account. Many environmental problems lend themselves to graphic portrayal by the media -- such as sea animals covered in oil -- which intensifies negative public opinion towards a company. If companies don’t respond properly, they appear arrogant and uncaring, which greatly harms their reputation.  

Study Questions for “Business and the Environment”   Introduction

(1) What are some of the life threatening environmental issues connected with business and industry?

 Businesses’ Resistance to Environmental Responsibility

(2) What are the four reasons why businesses have such a negative impact on the environment?(3) Why do many businesses in third world countries pose big environmental problems?(4) What is wrong with businesses saying that their environmental responsibility is confined to what the law requires?(5) What is wrong with businesses saying that their environmental responsibility is linked with what will generate a profit?

    Examples of Environmentally unsound Business Practices

(6) What is “environmental blackmail”?

(7) What are some of the environmental problems associated with nuclear power plants?(8) What reasons do some people give in defense of nuclear power plants?(9) What were some of the negative consequences for Exxon resulting from the Valdez accident?

 Three Philosophical Theories of Environmental Responsibility

(10) What is the basis of our environmental responsibility according to anthropocentrism?(11) What is speciesism?(12) What is the basis of our environmental responsibility according to ecocentrism?

   Implications for Businesses(13) On what environmental issues do anthropocentism,

animal rights, and ecocentrism overlap?(14) Why should businesses be sensitive to environmental concerns from the anthropocentric and animal rights perspectives?

Code of Conduct

Characteristics

The codes of conduct or codes of practice adopted by a number of mainly multinational enterprises

include a variable number of principles which define the ethical standards of the enterprise. These may be general principles such as, for example, the concept of non-discrimination while, in a number of cases, there is a detailed description of the social practices which the enterprise wishes to see respected in the production and sale of the goods and services which it markets. Some enterprises make a distinction between the basic principles which regulate its internal activity and those which it wants to apply in the selection and monitoring of activities of its subcontractors. A number of codes make explicit reference to ILO Conventions, in particular those concerning the respect of human rights at work. In other cases, the reference is more indirect, even if the principles established are often

based on fundamental ILO Conventions.

The agrofood, forestry, chemicals and consumer products sectors are amongst those which have progressively introduced a number of codes of practice. However, while the concept of ethical practice has made a remarkable comeback in recent years in the strategic policy of industrial and commercial enterprises, it is above all in the textile sector, and in particular in clothing and footwear, that the trend is the most evident. United States enterprises have played a pioneering role in this respect. Since Levi Strauss adopted in 1992 a code entitled "Business partner terms of engagement and guidelines for country selection", many other enterprises producing apparel and footwear as well as

major retail groups have followed suit. In Europe, the trend has been longer in coming, although increasing attention is now being given at the headquarters of the major European enterprises in the TCF sectors to the specific application of codes of "good practice" and codes of conduct. In the developing countries, practically no initiatives of this kind have been taken; on the other hand, a growing number of production enterprises working under subcontracting arrangements for the multinational enterprises of the industrialized countries must respect the codes established by the latter, which significantly affects their activities.

Origin and rationale of the phenomenon

In the 1970s, considerable criticism was levelled against multinational enterprises concerning their activities in the developing countries. National and international trade unions as well as a number of host countries accused them of carrying out their activities without consideration of the harmonious social and economic development of the countries in which they operated. It was such criticism which led to the establishment, by a number of government international organizations, of draft codes of conduct some of which, such as that of the United Nations, have remained a dead letter. In the social sphere, the International Labour Organization adopted in 1977 a Tripartite Declaration of

Principles on Multinational Enterprises and Social Policy which is still in force and to which trade unions in the TCF sector attach considerable importance, as can be seen from a draft resolution tabled by the Workers' group at the recent ILO Tripartite Meeting on the Globalization of the Footwear, Textiles and Clothing Industries: Effects on Employment and Working Conditions, held in Geneva between 28 October and 1 November 1996.

To some extent the codes drawn up by intergovernmental international organizations, and in particular that of the ILO in this sphere of social policy, which were of a voluntary kind can be seen as the forerunners of subsequent initiatives taken

unilaterally by individual enterprises.

Other external factors have contributed to the recent publication of codes of conduct. The pressure brought to bear by the international trade union movement has without doubt played an important role in this process. In the TCF sectors the International Textile, Garment and Leather Workers' Federation has for many years been calling for a greater sense of social responsibility by enterprises in the sectors and has provided support to national federations in their campaign for the respect of human rights at work. Of the progress made in this sphere, mention may be made, for example, of the United States where in May 1995 the Clothing Manufacturers' Association of the

United States of America (employers) and the Amalgamated Clothing Textiles Workers' Union (workers) signed for the first time a national branch collective agreement which included, amongst other aspects, a code of conduct applicable to enterprises and their subcontractors which established minimum standards regarding wages, hours of work, forced labour, child labour, freedom of association, non-discrimination as well as occupational safety and health.

Consumers' associations as well as a number of non-governmental organizations have also endeavoured to draw the attention of consumers, the public authorities and the enterprises concerned to the need to respect a number of minimum rules regarding human rights.

Although in a large number of cases attention has been focused on the specific problem of child labour, associations and organizations have taken their campaign further either by trying to promote social labels for one or more categories of TCF products, or by organizing campaigns to sensitize the public to the general problems of basic workers' rights or by trying to draw up standard codes which enterprises could adopt and tailor to their particular needs. The following chapter contains a summary of some of these initiatives which clearly show the increasing awareness of the international community about the social problems raised by globalization in the TCF sectors.

Governments have also played a significant role in the promotion

of standards concerning the respect of human rights and codes of conduct. In Europe some governments, such as that of France, are calling for greater respect of human rights in the sphere of international trade and are actively participating in national studies as well as research carried out by the European Commission on the social aspect of international subcontracting in the TCF sectors. In the United States, the so-called "No Sweat" campaign introduced by the Clinton Administration in the fight against sweatshops has led to the establishment of a Trendsetter List of enterprises in the TCF sectors which respect labour legislation and human rights in general in their production and marketing activities and ensure that these rights are respected by their

subcontractors. The Department of Labor, which had identified a number of deficiencies concerning the respect of human rights and labour legislation in the TCF sectors, in particular in subcontracting of apparel production, and which has been faced with a number of cases involving the exploitation of immigrant workers in sweatshops set up on the United States territory, has taken steps to clean up the sector. At the same time as it stepped up its inspections, it adopted a positive approach by drawing up and distributing to the media a list of socially responsible enterprises in the sectors producing and marketing TCF articles.

In 1996, this list, reproduced below, included a large number of

enterprises which had adopted a code of conduct.

Enterprises participating in the "No Sweat" campaign

Abercrombie & Fitch

Galyans Trading

Mast Industries

Baby Superstore

GapKids NFL Properties

Banana Republic

Gerber Childrenswear

Nicole Miller

Bath & Body Works

Guess Inc. Nordstrom

Bergners Henri Bendel

Old Navy Clothing Store

Bryland Lands End Pantaloon’s

Boston Stores

Jessica McClintock

Patagonia

Cacique Lane Bryant

Structure

Carson Pirie Scott

Lerner New York

Superior Surgical Mfg.

Dana Buchman

Levi Strauss

The Limited

Elisabeth Limited Too

The Gap

Express Liz Claiborne

Victoria's Secret

Source: Department of Labor, 25 Mar. 1996.

It is undeniable that this campaign, with the help of the media, has given enterprises an added impetus to adopt codes of conduct.

In the specific sphere of child labour, the United States Government has been particularly

active. Between 1994 and 1996, the Bureau of International Labor Affairs of the Department of Labor organized three public hearings on international child labour issues which outlined the conditions of child exploitation in the world in all industries which export products to the United States. Its 1996 session offered the opportunity to a number of enterprises and employers' associations in the TCF sectors (Levi Strauss, Sporting Goods Manufacturers' Association, International Mass Retail Association) to show what progress had been achieved in this sphere, in particular through codes of conduct. A number of representatives of non-governmental organizations and trade unions also described their activities in this sphere, including in the promotion of codes. The

presence of members of Congress, and in particular Senator Harkin who is responsible for a number of Bills to prohibit the import of products made by children, reflected the growing concern of political circles in the United States about this delicate problem. In 1996, the Department of Labor also published, at the request of Congress, a study on the influence of codes of conduct adopted by United States apparel enterprises on child labour.1 The study, which examined a representative sample of some 48 enterprises selected from the major firms in the production and marketing of clothing in the United States, clearly confirmed that the adoption and application of codes of conduct which contained a reference to the prohibition of child labour (in 42 out of 48 enterprises) had

reduced child labour in the subcontracting enterprises established in the developing countries. The drop was particularly significant in Central America. The report believes that although it is likely that a number of other factors also contributed to this improvement (greater awareness of consumers of the problems of child labour; concern by exporters about possible legislative measures to boycott products made with child labour, etc.), there is no doubt that the most significant impact is due to the increasing number of codes of conduct established over the last five years.

By strengthening the role played by the developing countries in international trade, the globalization of the economy has also encouraged greater

awareness of the commercial importance of the respect or non-respect of basic standards relating to human rights. It is no longer possible for the developing countries which want to increase or maintain their penetration of the markets of industrialized countries to ignore the existence of various kinds of pressure which exist in this sphere. As a result, in recent years, a number of governments have endeavoured, often with assistance from the ILO, to reduce the obstacles to the ratification of these fundamental standards and their effective application. The most dramatic progress has been made in this sphere of child labour, which benefits from broad media coverage and against which pressure is greatest in the context of the liberalization of trade. Here once again the ILO has played an

important role as catalyst, in particular through its International Programme for the Elimination of Child Labour (IPEC). In the TCF sectors, it is for example within the framework of this programme and in collaboration with UNICEF that the Bangladesh Garment Manufacturers' and Exporters' Association signed, with the support of governments and local non-governmental organizations, an agreement to discontinue the employment of children of school age in apparel enterprises and to provide for their participation in special education programmes. Social progress of this kind is without doubt the first step towards the establishment of more elaborate codes of conduct which take account of the new social requirements of international trade.

In the industrial countries, the motivations of enterprises which have adopted codes of conduct are often more complex. It is true that pressure brought to bear by trade unions and consumer' associations or non-governmental organizations play an important role. Furthermore, as noted above, some government campaigns may have a significant influence on industrialists and encourage them to give greater attention to social matters. However, the decisive factor for the adoption of such codes is probably the public image which the enterprise wants to project to its clients, employees, suppliers and shareholders. The construction of a positive public image, in which the concept of the socially responsible employer has acquired a new importance, is a long-term and increasingly more

complex task in which management teams are much more involved in the past. An enterprise's public image is now an asset which must be protected and developed to the maximum. In the textile and footwear sectors, a company's public image is particularly important and often determines a decision whether the public will buy its goods. On these highly competitive markets, it is therefore important for a company to project a positive image and to retain a good reputation over the long term.

To the extent that the media highlight certain conditions of work which are particularly deplorable both in the sweatshops of the industrialized countries as well as in the developing countries, the adoption by a global enterprise of a code of

conduct is an attempt to provide a kind of guarantee for the final consumer that the products made or marketed by the company have not involved any kind of exploitation of workers concerned. It is therefore up to the enterprise to implement the principles established in the code, at the risk of using its credibility. Given the importance of subcontracting practices in the TCF sectors, it is clear that an enterprise which adopts a code of conduct takes a number of risks because any failure to respect the code which is noted by trade unions or the media will have greater impact and a correspondingly negative effect. This explains the importance of application conditions and helps explain why some enterprises prefer to keep a low profile and refrain from giving too much

publicity to their codes of conduct. The press, and in particular the Anglo-Saxon press which is more sensitive to the subject, includes many examples of enterprises which have been singled out for their non-respect of their code of conduct. The most frequent examples in the apparel and footwear sectors concern the non-respect of human rights in factories working under subcontracting arrangements for large international brands, most often in the developing countries. However, celebrities who use their fame to promote a given brand of clothing or shoes are also subject to criticism in the media if the products bearing their name have been manufactured in conditions which do not respect the fundamental rights of workers. The recent scandal in the United States

caused by the Kathie Lee Gifford case is symptomatic of the influence of the media on the social image of an enterprise. This leading television presenter had to explain why she had agreed to let the Wal-Mart enterprise use her name and her fame to promote a line of clothing some of which had apparently been produced in sweatshops in Honduras and even New York. The combination of factors concerning the person in question and the fact that the Wal-Mart enterprise had its own code of conduct considerably tarnished the image of both parties, and it is by no means sure that the numerous statements of good intentions on both sides have managed fully to re-establish consumer confidence. In the same way, the many articles which have appeared in the press on the cost of

manufacturing sport shoes in the developing countries compared with their selling price in the industrialized countries morally penalize leading enterprises in the sector which are furthermore trying to promote good social practice through their codes of conduct.

In their search for a balance between the lowest possible production costs, to protect their competitiveness, and the maintenance of a good social image likely to satisfy consumers and pressure groups, multinational enterprises in the TCF sectors have little room for manoeuvre. Hence the extreme sensitivity to the subject in the context of globalization. It should however be pointed out that although theoretically the importance of the ethical aspect

in the management of enterprises has been widely recognized (since the beginning the 1980s, chairs in business ethics have been established in a large number of universities and business schools) it is only recently that a number of financial analysts have noted that enterprises which applied codes of conduct performed better than average on the stock exchange.2 Of course, conclusions cannot be drawn about the existence of a direct link of cause and effect between these two factors since it is generally the most productive enterprises in a given sector which have the human and financial resources enabling them to develop an ethical approach. It can however be noted that the existence of a responsible social attitude is not detrimental to the image which financial markets have of a given

enterprise. Some investment consultancy firms now take account of ethical elements in their criteria for the composition of stock exchange portfolios.3

The large majority of trade unions favour the generalization of codes of conduct, provided that their application is not subject to restrictions. In their view, the main weakness of the codes lies in the fact that they are applied and monitored by the enterprise itself which is thus both judge and jury. Furthermore, they believe that even when the enterprise tries to apply, at all levels, its ethical principles, it rarely has the necessary human resources to do so. It is in fact often the employees responsible for product quality and the commercial agents of the firm who control the application of the

codes by subcontractors. This twofold responsibility restricts their effectiveness. Trade unions therefore favour a new approach in which the control of the application of codes would be entrusted to independent and trustworthy persons or associations. This would involve developing a kind of "social audit" function comparable to that of a financial audit. Of course, the generalization of such a system raises a number of problems which go beyond the purely financial aspect of the cost of an additional audit and is still a long way off. However, it is worth noting that the case of The Gap enterprise, which accepted the external monitoring of its application of its code (this case will be examined below), is a major precedent which could

become standard practice in the future.

Notes:

1US Department of Labor, Bureau of International Labor Affairs: "The apparel industry and codes of conduct: A solution to the international child labor problem?", Washington, DC, 1996, 242 pp. 2 A conclusion reached, for example, in a study published in 1996 by Peter Prowse Associatives on the annual reports of the 100 main companies quoted on the stock exchanges in Europe. 3 In Switzerland the branch of a Scandinavian bank (Edouard Constant bank) has had an ethical portfolio since 1 January 1997. It

is therefore the first Swiss private bank to propose ethical criteria.

HDFC PROFILE

HDFC Bank was incorporated in August 1994, and, currently has an nationwide network of 1229 Branches and 2526 ATM's in 444 Indian towns and cities.

The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalisation of the Indian Banking Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank

commenced operations as a Scheduled Commercial Bank in January 1995.

PromoterHDFC is India's premier housing finance company and enjoys an impeccable track record in India as well as in international markets. Since its inception in 1977, the Corporation has maintained a consistent and healthy growth in its operations to remain the market leader in mortgages. Its outstanding loan portfolio covers well over a million dwelling units. HDFC has developed significant expertise in retail mortgage loans to different market segments and also has a large corporate client base for its housing related credit facilities. With its experience in the financial markets, a strong market reputation, large shareholder

base and unique consumer franchise, HDFC was ideally positioned to promote a bank in the Indian environment.

Business FocusHDFC Bank's mission is to be a World-Class Indian Bank. The objective is to build sound customer franchises across distinct businesses so as to be the preferred provider of banking services for target retail and wholesale customer segments, and to achieve healthy growth in profitability, consistent with the bank's risk appetite. The bank is committed to maintain the highest level of ethical standards, professional integrity, corporate governance and regulatory compliance. HDFC Bank's business philosophy is based on four core values - Operational Excellence,

Customer Focus, Product Leadership and People.Capital Structure

The authorised capital of HDFC Bank is Rs550 crore (Rs5.5 billion). The paid-up capital is Rs424.6 crore (Rs.4.2 billion). The HDFC Group holds 19.4% of the bank's equity and about 17.6% of the equity is held by the ADS Depository (in respect of the bank's American Depository Shares (ADS) Issue). Roughly 28% of the equity is held by Foreign Institutional Investors (FIIs) and the bank has about 570,000 shareholders. The shares are listed on the Stock Exchange, Mumbai and the National Stock Exchange. The bank's American Depository Shares are listed on the New York Stock Exchange (NYSE) under the symbol 'HDB'.

ManagementMr. Jagdish Capoor took over as the bank's Chairman in July 2001. Prior to this, Mr. Capoor was a Deputy Governor of the Reserve Bank of India.

The Managing Director, Mr. Aditya Puri, has been a professional banker for over 25 years, and before joining HDFC Bank in 1994 was heading Citibank's operations in Malaysia.

The Bank's Board of Directors is composed of eminent individuals with a wealth of experience in public policy, administration, industry and commercial banking. Senior executives representing HDFC are also on the Board.

Senior banking professionals with substantial experience in India and abroad head various businesses and functions and

report to the Managing Director. Given the professional expertise of the management team and the overall focus on recruiting and retaining the best talent in the industry, the bank believes that its people are a significant competitive strength.

Technology

HDFC Bank operates in a highly automated environment in terms of information technology and communication systems. All the bank's branches have online connectivity, which enables the bank to offer speedy funds transfer facilities to its customers. Multi-branch access is also provided to retail customers through the branch network and Automated Teller Machines (ATMs).

The Bank has made substantial efforts and investments in acquiring the best technology available internationally, to build the infrastructure for a world class bank. The Bank's business is supported by scalable and robust systems which ensure that our clients always get the finest services we offer.

The Bank has prioritised its engagement in technology and the internet as one of its key goals and has already made significant progress in web-enabling its core businesses. In each of its businesses, the Bank has succeeded in leveraging its market position, expertise and technology to create a competitive advantage and build market share.

Business

HDFC Bank offers a wide range of commercial and transactional banking services and treasury products to wholesale and retail customers. The bank has three key business segments:

Wholesale Banking ServiceThe Bank's target market ranges from large, blue-chip manufacturing companies in the Indian corporate to small & mid-sized corporates and agri-based businesses. For these customers, the Bank provides a wide range of commercial and transactional banking services, including working capital finance, trade services, transactional services, cash management, etc. The bank is also a leading provider of structured solutions, which combine cash management services with vendor and distributor finance for facilitating superior supply chain management for its corporate customers. Based on its superior product delivery / service levels

and strong customer orientation, the Bank has made significant inroads into the banking consortia of a number of leading Indian corporates including multinationals, companies from the domestic business houses and prime public sector companies. It is recognised as a leading provider of cash management and transactional banking solutions to corporate customers, mutual funds, stock exchange members and banks.

Retail Banking Service

The objective of the Retail Bank is to provide its target market customers a full range of financial products and banking services, giving the customer a one-stop window for all his/her banking requirements. The products are backed by world-class service and delivered to customers through

the growing branch network, as well as through alternative delivery channels like ATMs, Phone Banking, NetBanking and Mobile Banking.

Corporate Governance - HDFC Bank recognizes the importance of good corporate governance, which is

generally accepted as a key factor in attaining fairness for all stakeholders and achieving organizational efficiency. This Corporate Governance Policy, therefore, is established to provide a direction and framework for managing and monitoring the bank in accordance with the principles of good corporate governance.

Code of Corporate Governance Corporate Governance Rating Composition of the Board Profiles of Directors Board Committees Ownership Rights Promoters Rights( HDFC LTD.) Key Shareholders Rights Listing Registrars and transfer agents Grievance Redressal

Dividend Policy Memorandum of Association Articles of Association Board Meetings Quarterly Updates Fair Practice Code for Lending Code of Ethics / Conduct

Fair Practices for lending

1. The bank would have loan application forms for retail advances and credit cards. These would include information about the fees/charges, if any, payable for processing, the amount of such fees refundable in the

case of non acceptance of application, pre-payment options and any other matter which affects the interest of the borrower, so that a meaningful comparison with that of other banks can be made and an informed decision can be taken by the borrower.

2. As part of the wholesale banking business, the bank has various segments to which credit facilities are provided for their business requirements. These include a wide range of customers and range from small & medium enterprises to large corporate borrowers. The bank has a process for identification of target customers to whom facilities can be provided based on customer selection

and risk assessment for that segment. Thus, the focus is on contacting prospective customers and encouraging them to avail of banking services from HDFC Bank based on the incremental value we can add to a customer's business, rather than customers making applications to the Bank for facilities / services.

Thus, for the wholesale banking segment, we do not have any standardized application forms to be submitted by prospective customers.

Code of Ethics

1. Be aware of frauds2. Security tips3. Security Meaasures of HDFC4. Code of Corporate

Governance5. Code of corporate Rating6. Composition of board7. Committee of Directors8. Profile of Directors9. Ownership Right10. Promoters Rights11. Keyshareholders Right 12. Dividend Policy13. Memorandum of Association14. Articles of Association15. Fair Practices16. Code of Lending17. Internet Browsing18. Money mules

Introduction:

The Board members / Officials shall engage in and promote honest and ethical conduct of business, including the ethical handling of actual and / or apparent conflicts of interest between personal and professional relationships.

Applicability:

This Code of Ethics/Conduct is applicable to the following persons.

1. The Board Members

2. Officials of the Bank one level below the Board

Ethical Conduct:

The Board members / Officials shall engage in and promote honest and ethical conduct of business, including the ethical handling of actual and / or apparent conflicts of interest between personal and professional relationships.

Conflict of Interest:

The Board members / Officials shall avoid conflict of interest and disclose to the Board any material transaction or relationship that reasonably could be expected to give rise to such a conflict.

Confidentiality of Information:

The Board members / Officials shall ensure and take all reasonable measures to protect the confidentiality of non-public information about the Bank, its

business, customers and other materially significant information obtained or created in connection with any activities with the Bank and to prevent the unauthorised disclosure of such information unless required by applicable laws or regulations or legal or regulatory process.

Disclosure of Information:

The Board members / Officials shall endeavor to produce full, fair, accurate, timely and understandable disclosures in reports and documents that the Bank files with or submits to the Securities and Exchange commission and other regulators and in other public communications made by the Bank.Compliance with

Governmental Laws, Rules and Regulations:

The Board members / Officials shall comply with all the applicable governmental laws and the applicable rules and regulations.

Variation of the Code and Waivers:

The Code shall be reviewed from time to time for updation thereof. Any variation in the Code or any waivers from the provisions of the Code shall be approved by the Board and shall be disclosed on the Bank's website.

Contract or Term of Employment:

Nothing in this Code or other related communications by itself

creates or implies an employment contract or terms of employment.

Violation of the Code:

The Board shall have the powers to take necessary action in case of any violation of the code.

Dividend Policy

Your Bank has had a track record of moderate but steady increases in dividend declarations for the last 10 years and dividend payout ratio in the last few years has been in the range of 20-25 %. Your Bank's dividend policy is based on the need to balance the twin objectives of appropriately rewarding shareholders with cash dividends and of retaining capital

to maintain a healthy capital adequacy ratio to support future growth. In line with this policy and recognisation of healthy performance during 2007-08, your directors pleased to recommend a dividend of 85% for the year ended on March 31,2008 as against 70% for the year ended March 31, 2007. This dividend shall be subject to distribution tax to be paid by the Bank but will be tax-free in the hands of the members.

2007-2008 85%

2006-2007 70%

2005 - 2006 55%

2004 - 2005 45%

2003 - 2004 35%

2002 - 2003 30%

2001 - 2002 25%

2000 - 2001 20%

1999 - 2000 16%

1998 - 1999 13%

1997 - 1998 10%

1996 - 1997 8%

Details of dividend declared by the Bank:

OWNERSHIP RIGHTSCertain rights that a shareholder in a company enjoys :

To transfer the shares.To receive the share certificates upon transfer within the stipulated period prescribed in the Listing Agreement.To receive notice of general meetings, annual report, the balance sheet and profit and loss account and the auditors' report.To appoint proxy to attend and vote at the general meetings. In case the member is a body corporate, to appoint a representative to attend and vote at the general meetings of the company on its behalf.To attend and speak in person, at general meetings. Proxy cannot vote on show of hands

but can vote on a poll.To vote at the general meeting on show of hands wherein every shareholder has one vote. In case of vote on poll, the number of votes of a shareholder is proportionate to the number of equity shares held by him.As per Banking Regulation Act, 1949, the voting rights on a poll of a shareholder of a banking company are capped at 10% of the total voting rights of all the shareholders of the banking company.To demand poll along with other shareholder(s) who collectively hold 5,000 shares or are not less than 1/10th of the total voting power in respect of any resolution.To requisition an extraordinary general meeting of any company by shareholders who collectively

hold not less then 1/10th of the total paid-up capital of the company.To move amendments to resolutions proposed at meetings .To receive dividend and other corporate benefits like rights, bonus shares etc. as and when declared / announced.To inspect various registers of the company.To inspect the minute books of general meetings and to receive copies thereof after complying with the procedure prescribed in the Companies Act, 1956.To appoint or remove director(s) and auditor(s) and thus participate in the management through them.To proceed against the company by way of civil or criminal

proceedings.To apply for the winding-up of the company.To receive the residual proceeds upon winding up of a company.

The rights mentioned above are prescribed in the Companies Act, 1956 and Banking Regulation Act, 1949, wherever applicable, and should be followed only after careful reading of the relevant sections. These rights are not necessarily absolute.

PROMOTERS RIGHTS

The Memorandum and Articles of Association of the Bank provides the following rights to HDFC Limited, promoter of the Bank:

The Board shall appoint non-retiring Directors from amongst the Directors nominated by HDFC Limited with the approval of shareholders, so long as HDFC Limited and its subsidiaries, singly or jointly hold not less than 20% of the paid-up share capital of the Bank.

HDFC Limited shall nominate either a part-time Chairman and the Managing Director or a full time Chairman, with the approval of the Board and the shareholders so long as HDFC Limited and its subsidiaries, singly or jointly hold not less than 20% of the paid-up share capital of the Bank.

Under the terms of Bank’s organisational documents, HDFC Limited has a right to nominate two directors who are not required to retire by rotation, so long as HDFC Limited, its susbsidiaries or any other company promoted by HDFC Limited either singly or in the aggregate holds not less than 20% of paid up equity share capital of the Bank. At present, the two directors so nominated by HDFC Limited are the Chairman

and the Managing Director of the Bank.

Bibliography

References1. ̂ "Ethics the easy way".

H.E.R.O.. Retrieved on 2008-05-21.

2. ^ "Miliband draws up green tax plan". BBC (2006-10-30). Retrieved on 2008-05-21.

3. ^ Friedman, Milton (1970-09-13). "The Social Responsibility of Business is to Increase Its Profits", The New York Times Magazine.

4. ^ Hare, R. M. (1979). "What is wrong with slavery". Philosophy and Public Affairs 8: 103–121.

5. ^ Enderle, Georges (1999). International Business Ethics. University of Notre Dame Press, 1. ISBN 0-268-01214-8.

6. ^ George, Richard de (1999). Business Ethics.

7. ^http://www.stthom.edu/academics/centers/cbes/jonachan.html

Further reading Albertson, Todd. (2007). The

Gods of Business: The Intersection of Faith and the Marketplace. Los Angeles, CA: Trinity Alumni Press.

Behrman, Jack N. (1988). Essays on Ethics in Business and the Professions. Englewood Cliffs, NJ: