ethics unit i_introduction

Compiled by Ashish Chaulagain

ETHICS

UNIT I: INTRODUCTION

Webster’s Collegiate Dictionary defines “ethics” as the “discipline dealing with what is good and bad and

with moral duty and obligation,” “a set of moral principles or value” or “a theory or system of moral

values.” Ethics assists individuals in deciding when an act is moral or immoral, right or wrong. Ethics can

be grounded in natural law, religious tenets, parental and family influence, educational experiences, life

experiences, and cultural and societal expectations.

Ethics is often defined as an underlying principle that would produce an action to prevent a substantial

harm to others, when an individual or group has an opportunity to do so for their own benefit (Boddy,

2011).

Ethics is believed to be a set of moral beliefs and conduct that discourages acts of self-gain and

encourages honest and modest ways of generating business income (Ghosh et al.,2011).

Ethics in business, or business ethics as it is often called, is the application of the discipline, principles,

and theories of ethics to the organizational context. Business ethics have been defined as “principles

and standards that guide behavior in the world of business.” Business ethics is also a descriptive term

for the field of academic study in which many scholars conduct research and in which undergraduate

and graduate students are exposed to ethics theory and practice, usually through the case method of

analysis.

Ethical behavior in business is critical. When business firms are charged with infractions, and when

employees of those firms come under legal investigation, there is a concern raised about moral behavior

in business. Hence, the level of mutual trust, which is the foundation of our free-market economy, is

threatened.

Although ethics in business has been an issue for academics, practitioners, and governmental regulators

for decades, some believe that unethical, immoral, and/or illegal behavior is widespread in the business

world. Numerous scandals in the late 1990s and early 2000s seemed to add credence to the criticism of

business ethics. Corporate executives of WorldCom, a giant in the telecommunications field, admitted

fraud and misrepresentation in financial statements. WorldCom’s former CEO went on trial for alleged

crimes related to this accounting ethics scandal.

A similar scandal engulfed Enron in the late 1990s and its former CEO, Ken Lay, also faced trial. Other

notable ethical lapses were publicized involving ImClone, a biotechnological firm; Arthur Andersen, one

of the largest and oldest public accounting firms; and Healthsouth, a large healthcare firm located in the

southeast United States. These companies eventually suffered public humiliation, huge financial losses,

and in some cases, bankruptcy or dissolution. The ethical and legal problems resulted in some corporate

officials going to prison, many employees losing their jobs, and thousands of stockholders losing some or

all of their savings invested in the firms’ stock.


In context to Nepal, fake VAT bill scandal, banking frauds and outstanding tax dues, money laundering,

nepotism, favoritism in political appointments, sales of expired date products, adulteration in sweets

like gudpak, artificial scarcity and price hike of essential goods and petroleum products during high

demand season or during crisis are some of the problems that Nepalese customers are regularly facing.

All these issues are again related with doing business ethically.

Although the examples mentioned involved top management, huge sums of money, and thousands of

stakeholders, business ethics is also concerned with the day-to-day ethical dilemmas faced by millions of

workers at all levels of business enterprise. It is the awareness of and judgments made in ethical

dilemmas by all that determines the overall level of ethics in business. Thus, the field of business ethics

is concerned not only with financial and accounting irregularities involving millions and billions of

rupees, but all kinds of moral and ethical questions, large and small, faced by those who work in

business organizations.

Definitional Component of Ethics

Presented below are some of the definition of business ethics found in management.

“Business ethics is rules, standards, codes, or principles which provide guidelines for morally right

behavior and truthfulness in specific situations.” (Lewis)

“Business ethics is the study of business situation, activities, and decisions where issues of right and

wrong are addressed.” (Crane and Matten)

“Business ethics refers to clear standards and norms that help employees to distinguish right from

wrong behaviour at work.” ( The Ethics Resource Centre)

“Business ethics has to do with the extent to which a person’s behaviour measures up to such standards

as the law, organizational policies, professional and trade association codes, popular expectations

regarding fairness and what is right, plus one’s own internalized moral standards”. ( William Sauser)

“Business ethics is disciplined normative reflection on the nature, meaning and context of business

activity. As such it deals with comprehensive questions about the justice of the economic context in

which business operates and about the nature, function, structure and scope of business in that context,

as well as with more specific issues raised by the relationship of business to government, the consumer,

its employees, and society at large”. ( Hoffman and Moore)

“Business ethics is a study of moral standards and how these apply to the systems and organizations

through which modern societies produce and distribute goods and services, and to the people who work

within these organizations. Business ethics, in other words, is a form of applied ethics. It includes not

only the analysis of moral norms and moral values, but also attempts to apply the conclusions of this

analysis to that assortment of institutions, technologies, transactions, activities, and pursuits that we call

business.” (Manuel Velasquez)


If we closely observe then the concept of business ethics actually contains four interconnected elements

which are presented below:

Four Interconnected elements of business ethics

Framework- Set of rules, standards, codes, principles, philosophy etc. to be followed for ethical decision

making in business.

Internal development of ethical traits- Development of virtues, values, morality and inner conscience.

Situation- Business situations demanding ethical judgments.

Behavior- Ethical behavior from the legal, stakeholder and humanity point of view.

Nature of Business Ethics

Business ethics nature can be broadly categorized into four basic elements and they are as follows:

Complex because there is no common consensus of definition of ethics

Dynamic because business in itself is of dynamic in nature hence the decision concerning to the same is

obvious to be dynamic.

Interdependent because ethical decision making is dependent on many factors and one’s decision affect

others.

Subjective because the frameworks referred for ethical decision making are usually normative and are

varied in nature. These frameworks differ from people to people and organization to organization.

There may be varied arguments regarding business ethics but one commonly accepted fact is that

intensity of ethics in business will always be limited to the extent of ethical behavior shown by those

who are involved in business. So the human factor is the key.

Importance of Ethics in Business

Why are business ethics important? By Melissa Horton

http://www.investopedia.com/ask/answers/040815/why-are-business-ethics-important.asp

Several factors play a role in the success of a company that are beyond the scope of financial

statements alone. Organizational culture, management philosophy and ethics in business each have an

impact on how well a business performs in the long term. No matter the size, industry or level of

profitability of an organization, business ethics are one of the most important aspects of long-term

success.


Ethics in Leadership

The management team sets the tone for how the entire company runs on a day-to-day basis. When the

prevailing management philosophy is based on ethical practices and behavior, leaders within an

organization can direct employees by example and guide them in making decisions that are not only

beneficial to them as individuals, but also to the organization as a whole. Building on a foundation of

ethical behavior helps create long lasting positive effects for a company, including the ability to attract

and retain highly talented individuals and building and maintaining a positive reputation within the

community. Running a business in a ethical manner from the top down builds a stronger bond between

individuals on the management team, further creating stability within the company.

Employee Ethics

When management is leading an organization in an ethical manner, employees follow in those

footsteps. Employees make better decisions in less time with business ethics as a guiding principle; this

increases productivity and overall employee morale. When employees complete work in a way that is

based on honesty and integrity, the whole organization benefits. Employees who work for a corporation

that demands a high standard of business ethics in all facets of operations are more likely to perform

their job duties at a higher level and are also more inclined to stay loyal to that organization.

Business Ethics Benefits

The importance of business ethics reaches far beyond employee loyalty and morale or the strength of a

management team bond. As with all business initiatives, the ethical operation of a company is directly

related to profitability in both the short and long term. The reputation of a business from the

surrounding community, other businesses and individual investors is paramount in determining whether

a company is a worthwhile investment. If a company's reputation is less than perfect based on the

perception that it does not operate ethically, investors are less inclined to buy stock or otherwise

support its operations.

With consistent ethical behavior comes increasingly positive public image, and there are few other

considerations as important to potential investors and current shareholders. To retain a positive image,

businesses must be committed to operating on an ethical foundation as it relates to treatment of

employees, respect to the surrounding environment and fair market practices in terms of price and

consumer treatment.

Ethics concern an individuals moral judgment about right and wrong. Decisions taken within an

organization may be made by individuals or groups, but whoever makes them will be influenced by the

culture of the company. The decision to behave ethically is amoral one; employees must decide what

they think is the right course of action. This may involve rejecting the route that would lead to the

biggest short-term profit.


Ethical behavior and corporate social responsibility can bring significant benefits to a business. For

example, they may:

• Attract customers to the firms products, thereby boosting sales and profits. This makes maintenance

of employees I the business, reduce labor turnover and therefore increase productivity.

• Attract more employees wanting to work for the business, reduce recruitment costs and enable the

company to get the most talented employees.

• Attract investors and keep the company share price high, there by protecting the business from

takeover. Unethical behavior or a lack of corporate social responsibility, by comparison, may damage a

firms reputation and make it less appealing to stakeholders. Profits could fall as a result.

• Build public image of the company, as it complies with rules and regulation of the country which

provides aesthetic value and sense of satisfaction to stake holders

Ethics is important as it influence and contribute to:

• Employee commitment.

• Investor and customer loyalty and confidence.

• Legal problems and penalties.

• Customer satisfaction.

• The ability to build relationships with stakeholders.

• Cost control.

• Performance, revenue, and profits.

• Reputation and image.

Myths About Business Ethics

Business ethics in the workplace is about prioritizing moral values for the workplace and ensuring

behaviors are aligned with those values -- its values management. Yet, myths abound about business

ethics. Some of these myths arise from general confusion about the notion of ethics. Other myths arise

from narrow or simplistic views of ethical dilemmas. Here are ten myths that exists about ethics in

business.

Source: http://www.managementhelp.org/ethics/ethxgde.htm

1. Myth: Business ethics is more a matter of religion than management.


Diane Kirrane, in "Managing Values: A Systematic Approach to Business Ethics,"(Training and

Development Journal, November 1990), asserts that "altering peoples values or souls isn’t the

aim of an organizational ethics program -- managing values and conflict among them is.

2. Myth: Our employees are ethical so we don’t need attention to business ethics.

Most of the ethical dilemmas faced by managers in the workplace are highly complex. Wallace

explains that one knows when they have a significant ethical conflict when there is presence of

a)significant value conflicts among differing interests

b) real alternatives that are equality justifiable and

c) significant consequences on "stakeholders" in the situation.

Kirrane mentions that when the topic of business ethics comes up, people are quick to speak of

the Golden Rule, honesty and courtesy. But when presented with complex ethical dilemmas,

most people realize there’s a wide "gray area" when trying to apply ethical principles.

3. Myth: Business ethics is a discipline best led by philosophers, academics and theologians.

Lack of involvement of leaders and managers in business ethics literature and discussions has

led many to believe that business ethics is a fad or movement, having little to do with the day-

to-day realities of running an organization. They believe business ethics is primarily a complex

philosophical debate or a religion. However, business ethics is a management discipline with a

programmatic approach that includes several practical tools. Ethics management programs have

practical applications in other areas of management areas, as well.

4. Myth: Business ethics is superfluous -- it only asserts the obvious: "do good!"

Many people react that codes of ethics, or lists of ethical values to which the organization

aspires, are rather superfluous because they represent values to which everyone should

naturally aspire. However, the value of a codes of ethics to an organization is its priority and

focus regarding certain ethical values in that workplace. For example, it’s obvious that all people

should be honest. However, if an organization is struggling around continuing occasions of

deceit in the workplace, a priority on honesty is very timely -- and honesty should be listed in

that organization’s code of ethics. Note that a code of ethics is an organic instrument that

changes with the needs of society and the organization.

5. Myth: Business ethics is a matter of the good guys preaching to the bad guys.

Some writers do seem to claim a moral high ground while lamenting the poor condition of

business and its leaders. However, those people well versed in managing organizations realize

that good people can take bad actions, particularly when stressed or confused. (Stress or

confusion are not excuses for unethical actions -- they are reasons.) Managing ethics in the


workplace includes all of us working together to help each other remain ethical and to work

through confusing and stressful ethical dilemmas.

6. Myth: Business ethics in the new policeperson on the block.

Many believe business ethics is a recent phenomenon because of increased attention to the

topic in popular and management literature. However, business ethics was written about even

2,000 years ago -- at least since Cicero wrote about the topic in his On Duties. Business ethics

has gotten more attention recently because of the social responsibility movement that started

in the1960s.

7. Myth: Ethics can’t be managed.

Actually, ethics is always "managed" -- but, too often, indirectly. For example, the behavior of

the organizations founder or current leader is a strong moral influence, or directive if you will,

on behavior or employees in the workplace. Strategic priorities (profit maximization, expanding

market share, cutting costs, etc.) can be very strong influences on morality. Laws, regulations

and rules directly influence behaviors to be more ethical, usually in a manner that improves the

general good and/or minimizes harm to the community. Some are still skeptical about business

ethics, believing you can’t manage values in an organization. Donaldson and Davis (Management

Decision, V28, N6) note that management, after all, is a value system. Skeptics might consider

the tremendous influence of several "codes of ethics," such as the "10 Commandments" in

Christian religions or the U.S. Constitution. Codes can be very powerful in smaller

"organizations" as well.

8. Myth: Business ethics and social responsibility are the same thing.

The social responsibility movement is one aspect of the overall discipline of business ethics.

Madsen and Shafritz refine the definition of business ethics to be:

1) an application of ethics to the corporate community,

2) a way to determine responsibility in business dealings,

3) the identification of important business and social issues, and

4) a critique of business.

Items 3 and 4 are often matters of social responsibility. (There has been a great deal of public

discussion and writing about items 3 and 4. However, there needs to be more written about

items 1 and 2, about how business ethics can be managed.) Writings about social responsibility

often do not address practical matters of managing ethics in the workplace, e.g., developing

codes, updating polices and procedures, approaches to resolving ethical dilemmas, etc.

9. Myth: Our organization is not in trouble with the law, so were ethical.


One can often be unethical, yet operate within the limits of the law, e.g., withhold information

from superiors, fudge on budgets, constantly complain about others, etc. However, breaking the

law often starts with unethical behavior that has gone unnoticed. The "boil the frog"

phenomena is a useful parable here: If you put a frog in hot water, it immediately jumps out. If

you put a frog in cool water and slowly heat up the water, you can eventually boil the frog. The

frog doesn’t seem to notice the adverse change in its environment.

10. Myth: Managing ethics in the workplace has little practical relevance.

Managing ethics in the workplace involves identifying and prioritizing values to guide behaviors

in the organization, and establishing associated policies and procedures to ensure those

behaviors are conducted. One might call this "values management." Values management is also

highly important in other management practices, e.g., managing diversity, Total Quality

Management and strategic planning.

Myth # 1: Ethics is a Personal Affair and not a Public Debatable Matter. There are group of businessmen who argue that Ethics is a private issue and not a public matter. This argument could be considered true as well as one’s concept of morality is a result of the various environmental factors, like religion, culture and family values that have had a great impact on an individual. In another hand, an individual being a social being, his / her life is often found to be influenced by the way society operates. Personal belief system, of an individual is found to be influenced also by the social group a person is associated with. Hence again Ethics cannot be seen from narrow perspective and would be very subjective. This would limit ethics being very personal and relative. Hence, the danger in this case could be, if a person want to force what he / she thinks is right as universally valid, that would be done from not understanding others viewpoint and would bring turmoil in the society. It would be like an anarchy. Thing consider right for one may not be right for another and thing consider wrong for one may be right for another, hence ethics and morality should not be subjective but has to be publicity debatable matter so as to avoid possible confusion and conflict.

Myth # 2: Ethics and Business do not Mix. This viewpoint comes from some of the businessmen who believes that the

objective of the business is to generate profit for it shareholder and maximize

wealth at any cost. This argument has its base on the assumption that business

is purely different and autonomous entity and has nothing to do morality. This

viewpoint again has limited scope. With the change in society and emergence of

societal marketing concept and where the competition is huge, customer are

really emerging as king of the market. Also the press freedom has played a vital

role to empower customers with information about who is doing what. In this

context, it is difficult for company to sustain in the market being unethical as

everyone wants to be associated with good reputation but not with bad.

Moreover, company that remains unethical has no scope as the regulation has

strengthened against those business doing unethical activities. Ethics is now

such a vital force that can have effect on survival of the business hence ethics

and business mix together.


Moral Reasoning

It is the process in which an individual tries to determine the difference between what is right

and what is wrong in a personal situation by using logic. To make such an assessment, one must

first know what an action is intended to accomplish and what its possible consequences will be

on others. People use moral reasoning in an attempt to do the right thing. People are frequently

faced with moral choices, such as whether to lie to avoid hurting someone's feelings, or whether

to take an action that will benefit some while harming others. Such judgments are made by

considering the objective and the likely consequences of an action. Moral reasoning is the

consideration of the factors relevant to making these types of assessments.

Thus, to know if "this direction" is the right direction to follow to get to a coffee shop, one must

first know where one is, where the coffee shop is, and the terrain between here and there (to

avoid blocks, etc).

Or, to know if this action is the right action to take, one must know what one wants to

accomplish, where one is, and the environment between here and the accomplished state (for

example, to impress my boss, I have to know what is likely to impress him/her, what I, myself,

can do at the work-place or where he/she would observe, etc).

Thus, to know if something (an idea, an action, a behavior) is "right" one has to know both what

one intends to accomplish and the environment that exists between "here" and "there.

But that alone is not enough! To go to a bank and threaten the cashier might well accomplish

your aim because you know security is weak and the prospect of capture is low. There is a third

consideration: is it good for the people who live around me, and supply the things my stolen

cash will buy. Here we have a further dilemma: a quick injection of stolen cash may well help my

closest suppliers, but where should we draw the boundary? The neighbourhood? The city? Our

Nation? or The whole world? Only this last reason: Good for all humanity, yields "moral

reasoning"

Satisfactory solutions to problems are determined by using this principle. Problems or behaviors

are difficult to solve when either the environment or the desired accomplishment are

incompletely understood from a global perspective.

Myth # 3: Ethics in Business is Relative. Some businessmen believes that ethics is relative, which means that, what is right in one place may be different in another place. This notion is again from very limited source of knowledge. Taking and giving bribe, undue influence to make decisions, abuse of authority, corruption, fraudulence acts are not ethical anywhere in the world. Ethics, here are some the universally accepted values which are at core of every culture. These ethical standards are widely accepted and are not relative. Ethics is not to be looked from the narrow sense but has to be seen from boarder perspective.


Therefore, moral reasoning cannot be correctly performed until what is sought and the

surrounding world-wide environment is fully understood. An example: is it "right" to use fetal

stem cells? Only by first deciding "what" the use is intended to accomplish and if the way of

accomplishing this is understood could such a question be answered.

Kohlberg defined moral reasoning as judgements about right and wrong. His studies of moral

reasoning are based on the use of moral dilemmas, or hypothetical situations in which people

must make a difficult decision.

Kohlberg defined a subject's level of moral reasoning from the reasoning used to defend his or

her position when faced with a moral dilemma. He thought this more important than the actual

choice made, since the choices people make in such a dilemma aren't always clearly and

indisputably right.

He noted that development of moral reasoning seemed to be related to one's age. However, he

also determined that the highest level of moral reasoning was not reached by all of his subjects.

Kohlberg's six stages can be more generally grouped into three levels of two stages each: pre-

conventional, conventional and post-conventional.

Level 1: Pre-conventional

At this level judgement is based solely on a person's own needs and perceptions.

Stage 1: Punishment-obedience Orientation

Persons in this stage obey rules to avoid punishment. A good or bad action is determined by its

physical consequences.

Stage 2: Personal Reward Orientation

In this stage, personal needs determine right or wrong. Favors are returned along the lines of

"you scratch my back, I'll scratch yours".

Level 2: Conventional

The expectations of society and society's laws are taken into account in a decision about a moral

dilemma.

Stage 3: Goodboy-Nice girl Orientation

To a person in this stage, good means "nice". One's behavior is determined by what pleases and

is approved by others. This is a point in Kohlberg's theories that has received criticism regarding

its bias against women.

Stage 4: Law and Order Orientation


When deciding the punishment for a given wrongdoing, laws are absolute. In all cases, authority

must be respected and the social order maintained.

Level 3: Post Conventional

Judgements are based on abstract, more personal principles that aren't necessarily defined by

society's laws.

Stage 5: Social Contract Orientation

Good is determined by socially agreed upon standard of individual rights. The United States

Constitution is based on this type of morality. Persons operating in this moral stage believe that

different societies have different views of what is right and wrong.

Stage 6: Universal Ethical Principle Orientation

What is "good" and "right" are matters of individual conscience and involve abstract concepts of

justice, human dignity, and equality. In this stage, persons believe there are universal points of

view on which all societies should agree.


Heinz dilemma

A woman was near death from a special kind of cancer. There was one drug that the doctors thought might save her. It was a form of radium that a druggist in the same town had recently discovered. The drug was expensive to make, but the druggist was charging ten times what the drug cost him to produce. He paid $200 for the radium and charged $2,000 for a small dose of the drug. The sick woman's husband, Heinz, went to everyone he knew to borrow the money, but he could only get together about $1,000 which is half of what it cost. He told the druggist that his wife was dying and asked him to sell it cheaper or let him pay later. But the druggist said: “No, I discovered the drug and I'm going to make money from it.” So Heinz got desperate and broke into the man's laboratory to steal the drug for his wife. Should Heinz have broken into the laboratory to steal the drug for his wife? Why or why not?

From a theoretical point of view, it is not important what the participant thinks that Heinz should do.

Kohlberg's theory holds that the justification the participant offers is what is significant, the form of their

response. Below are some of many examples of possible arguments that belong to the six stages:

Stage one (obedience): Heinz should not steal the medicine because he will consequently be put in prison

which will mean he is a bad person.

Or: Heinz should steal the medicine because it is only worth $200 and not how much the druggist wanted for

it; Heinz had even offered to pay for it and was not stealing anything else.

Stage two (self-interest): Heinz should steal the medicine because he will be much happier if he saves his

wife, even if he will have to serve a prison sentence.

Or: Heinz should not steal the medicine because prison is an awful place, and he would more likely languish in

a jail cell than over his wife's death.

Stage three (conformity): Heinz should steal the medicine because his wife expects it; he wants to be a good

husband.

Or: Heinz should not steal the drug because stealing is bad and he is not a criminal; he has tried to do

everything he can without breaking the law, you cannot blame him.

Stage four (law-and-order): Heinz should not steal the medicine because the law prohibits stealing, making it

illegal.

Or: Heinz should steal the drug for his wife but also take the prescribed punishment for the crime as well as

paying the druggist what he is owed. Criminals cannot just run around without regard for the law; actions

have consequences.

Stage five (human rights): Heinz should steal the medicine because everyone has a right to choose life,

regardless of the law.

Or: Heinz should not steal the medicine because the scientist has a right to fair compensation. Even if his wife

is sick, it does not make his actions right.

Stage six (universal human ethics): Heinz should steal the medicine, because saving a human life is a more

fundamental value than the property rights of another person.

Or: Heinz should not steal the medicine, because others may need the medicine just as badly, and their lives

are equally significant.


Figure 1. Kohlberg’s stages of moral development

Figure 2: Framework for Moral Reasoning

Figure 1. Kohlberg’s stages of moral development

Figure 2: Framework for Moral Reasoning


The ROTARY Four-Way Test for Moral Reasoning

The Four-Way Test of the things we think, say or do is a test used by Rotarians world-wide as

a moral code for personal and business relationships. The test can be applied to almost any

aspect of life. The test was scripted by Herbert J. Taylor an American from Chicago as he set

out to save the Club Aluminum Products Distribution Company from bankruptcy. It was later

adopted by Rotary International, the global federation of Rotary service clubs.

In the early 1930s Herbert J. Taylor set out to save the Club Aluminum Products distribution

company from bankruptcy. He believed himself to be the only person in the company with

250 employees who had hope. His recovery plan started with changing the ethical climate of

the company. He explained:

“ The first job was to set policies for the company that would reflect the high ethics

and morals God would want in any business. If the people who worked for Club Aluminum

were to think right, I knew they would do right. What we needed was a simple, easily

remembered guide to right conduct - a sort of ethical yardstick- which all of us in the

company could memorize and apply to what we thought, said and did.

I searched through many books for the answer to our need, but the right phrases eluded me,

so I did what I often do when I have a problem I can't answer myself: I turn to the One who

has all the answers. I leaned over my desk, rested my head in my hands and prayed. After a

few moments, I looked up and reached for a white paper card. Then I wrote down the

twenty-four words that had come to me:

Is it the truth?

Is it fair to all concerned?

Will it build goodwill and better friendships?

Will it be beneficial to all concerned?

I called it "The Four-Way Test" of the things we think, say or do."


STANDARDS FOR JUDGING ACTION: STEADFASTNESS - HINDUISM

While we do things, questions arise if our actions are correct or not. In these situation

according to Hinduism, we are supposed to use one of the three pramanas (bench marks or

standards). These are 1. Sasthra Pramana 2. Shresta Acharana Pramana 3. Atma Pramana

(one’s own consciousness).

1. SASTRA PRAMANA: This is the scriptural standard for our actions. In similar situations

whatever is recommended in scripture is the standard to be followed. Thus scriptures act as

a guide for our actions.

2. SHRESTA ACHARANA PRAMANA: Standard followed by good people in society is the

next standard.

yadyad ācarati śhreṣṭas

tad tad evetaro janaḥ

sa yat pramāṇaṁ kurute

lokas tad anuvartate

B.Gita 3-31

"Whatever action is performed by a great man, all other people will follow”.

3. ATMA PRAMANA: Third and most important pramana (standard) is Atma pramana.

This atman is our Consciousness. When our Consciousness tells us clearly, then that

overrides all other pramana. It is following ones intuition feeling.

One problem here is how clearly this Consciousness (Atman) is reflecting. The clarity of this

reflection is directly proportional to the degree of transparency of mind (chitta suddhi or

trikarana suddhi or purity). When this transparency is 100% the Atma pramana is 100%

correct. When it is 75% transparent the Atma pramana is 75% correct and so on.


Morality of Profit Motive

Here we would look at the issue of morality of profit motive in the form of an interview with the writer

of the book , How to be Profitable and Moral: A Rational Egoist Approach to Business By Jaana

Woiceshyn

Interview

Q: The title of your book seems to be a contradiction: people commonly believe that business cannot be

profitable and moral at the same time. Can you explain?

I chose the title deliberately because it is controversial and because I make the case that profit making

and morality do not conflict. In fact, I argue that being moral is a requirement for long-term profitability.

The view that you cannot make profits and be moral at the same time is based on conventional morality,

altruism. According to altruism, you are moral only if you sacrifice your self-interest for the sake of

others. And because business pursues self-interest of its owners—profitability—it cannot be moral, by

definition, in the altruist view. This is a mistaken view for which I offer an alternative: rational egoist

morality (originated by the Greek philosophers such as Aristotle and further developed by Ayn Rand). I

show in the book that rational egoism is a requirement for long-term profit maximization.

Q: You argue that business should and could be conducted morally, or ethically. What do you mean by

“moral”?

I’m glad you asked! As I said, the conventional view of morality is altruism: putting others’ interests

ahead of your own—something that business cannot do, if it wants to survive and succeed in its task of

producing and trading goods and services. The same is true of individuals; we cannot put others’

interests ahead of our own if we want to survive and flourish. “Moral” conduct is conduct that is

consistent with the requirements of human nature. In order to survive and be happy, we have to act in a

way that our nature requires. Let me explain that.

Every species has some requirements that have to be met in order for them to survive. Grizzly bears in

the wild need a large enough territory so they can satisfy their nutritional needs by hunting and

foraging; tropical fish need water in the right temperature range, for example. We humans also need

right nutrition and temperature in order to survive, but we are different from all other species in that we

don’t automatically know what’s good for us and how to get it. A grizzly bear sees a ground squirrel,

catches is, and eats it. Tropical fish instinctively congregate in warm waters. The bear and the fish do not

contemplate: “Is this the right thing to do?” They instinctively do what is good for their survival, within

the limits of their knowledge.

But people are different; our fundamental characteristic is that we need to think to discover how we

should live—we are rational animals. We may feel hungry, but we don’t automatically know what is

good to eat and how to get it. We may feel cold, but we don’t automatically know how to make clothes

or build shelters. We have to adhere to reality and think—to be rational—in order to discover the

knowledge required for our survival and flourishing. This is what our nature requires of us—if we want

to achieve our values and survive.


The capacity for rationality is the most fundamental human quality in that it determines all the others,

such as the ability to produce food and shelter. To be moral means to think, to adhere to reality by the

means of reason, and to act on one’s thinking. To be moral in a social context also means leaving others

free to do the same.

Q: Would you describe briefly what your book is about and who should read it.

I would call my book “a thinking manager’s guide to ethics”—ethics that will lead to profits. I show

briefly why the two main alternatives to egoism, altruism and cynical egoism (which really means

predatory exploitation of others) are incompatible with success in business, and make a case for rational

egoism—pursuit of self-interest without sacrificing yourself to others or others to yourself—as the moral

code for business. The cash value of the book, in my view, lies in the “chewing” of the egoist principles:

rationality, productiveness, honesty, justice, independence, integrity, and pride—that are tools for

achieving long-term profitability in business and for long-term flourishing in other areas of life. I show

what these principles mean and how they apply in practice.

In addition to using a running example of fictitious CEO Bob Miller who is grappling with the decision to

offshore software engineering jobs to India, I include a lot of other concrete examples and opportunities

to apply the principles to real-life ethical dilemmas in business. Besides to “thinking managers,” my book

would be valuable to those who aspire to become managers: business students at all levels.

Q: What prompted you to write the book?

I have taught business ethics for more than 20 years, and my students—mostly undergraduate business

students and MBA students, but also Executive MBA students and executives in non-degree programs—

have always responded to rational egoism. Yet there is almost nothing written about rational egoism

(although that has changed in the recent years), from the perspective of business. When my students

asked for references for further reading, I could point them to the works of Ayn Rand, Leonard Peikoff,

Tara Smith, and Andrew Bernstein, but there really was not anything concise out there that would help

businesspeople apply rational egoism to dilemmas they encounter.

I was also concerned that there was no real alternative to the altruist advice most ethicists are offering

to businesspeople. Business cannot thrive under such advice; yet our well-being depends on successful

business.

The third reason why I decided to write the book was to defend businesspeople on moral grounds and

to show them how to defend themselves. Due to immoral conduct of some, business in general has

been under attack by those (in the media, movies, literature, government) who subscribe to altruism,

and most businesspeople have not been able to mount a moral defense. That has undermined they

ability to be as successful as they could have been—which harms all of us who benefit from the products

and services of their companies.

Q: Is there a problem with a lack of ethics in business in general? Are the debacles reported in the

media, from Enron to Bernie Madoff and other fraudulent schemes, merely the tip of an iceberg?


I think most businesspeople want to be ethical. The problem is more about a lack of awareness of

ethical issues and a lack of proper tools—correct principles—to make ethical decisions and to act

ethically. But because we have free will, some businesspeople choose to act unethically, for example by

exploiting others, like Bernie Madoff did and like all the other pyramid schemers in history have done,

starting with Charles Ponzi. But such fraud artists, or the Chinese manufacturers of infant formula or pet

food who mixed toxic melamine in their products to make them “go further,” or software producers

who skip quality control and ship out defective products, are not “the tip of a iceberg” representing

wide-spread unethical conduct in business. I argue that a vast majority of businesspeople act, or want to

act, ethically most of the time. If they did not, the entire business system would collapse: no one could

trust each other, the courts would be clogged with litigation cases, and no productive work would get

done because people would be either planning fraud schemes or suing each other. Most businesspeople

want to act ethically because it is in their self-interest to do so.

Q: Should profitability be the goal of business?

Absolutely. Profit motive is an important driver of human progress. Without it, we would be all starving

like the North Koreans today, or barely subsisting, like everybody from the pre-historic cave-dwellers to

serfs in the Middle Ages and even later when their ownership of land and property was curtailed by the

remnants of the feudal system. Human progress in every area, from science to medicine to technology

to food production, took a significant upward trend only when profit motive and the pursuit of profits

were made possible by relative freedom: the discovery and the gradual recognition of individual rights in

the 17th and 18th centuries in Europe and America, which led to the Industrial Revolution, and the

booming of business.

Business, being free to pursue profits and competing with others, comes up with new products and

technologies that cost less or are of higher quality and that make our lives longer, more comfortable,

less painful, more enjoyable. If human wellbeing is our goal, then we want to encourage business to

pursue profits as much as possible (within the limits of ethics, of course: by acting rationally, without

violating the rights of others).

Q: How could lapses of morality in business be prevented in the future? Is more government regulation

the solution?

Less government regulation is the solution, not more of it. There will always be people who try to

achieve profits through immoral means; because people are free to choose, you cannot eliminate

immoral behavior altogether. However, there would be less immoral conduct by businesspeople in a

system of free competition where all property is privately owned and individual rights are recognized, in

other words, laissez-faire capitalism.

Consider the example of a racist business owner, who will not employ or sell to people who are in his

view of “inferior” race. (Racism is condemned as immoral by both egoism and altruism. Egoism

condemns it as irrational judgment of others which is based on an irrelevant characteristic, their race.

Altruism condemns racism because it does not put others’ interests above one’s own). Which is more

effective in eliminating racism: government regulation that forces companies to hire racial minorities


and prevents discrimination based on race, or a system of competition and private ownership of

property where individual rights are recognized? I argue the latter. The racist business owner will simply

not survive in the competition when he limits himself to employing and dealing with only those who are

of his preferred race. His competitors will be hiring from a much larger pool of qualified candidates and

will thus get better qualified, more productive employees, leading to better profit margins. The

competitors’ market shares will also be naturally larger, allowing them to have higher volume of

production, and thus lower costs. With such significant advantages, the competitors will drive the racist

businessman out of business.

The same dynamic will weed out every other kind of immorality as well. And those businesspeople who

try to act immorally by violating the rights of others will be prosecuted by the government, whose task is

to protect the individual rights of citizens.

Q: What are your hopes for “How to Be Profitable and Moral”?

My hope is that my book will reach its intended audience, “thinking managers,” who I know are out

there (despite the skepticism of one publisher who rejected my manuscript; he did not believe there

was a market for my book …). I hope my book will help thinking managers and businesspeople in general

achieve higher long-term profitability, which would be good for us all. I also hope that the book will help

them defend themselves and business on moral grounds, thus achieving greater success.

PHILOSOPHICAL APPROACHES TO BUSINESS ETHICS

Philosophers have studied and written about ethics for thousands of years. The moral philosophies or

ethical “theories” that have been developed form the foundation for ethics in business. Table 1 shows

some of the major ethical philosophies that are applied to business ethics. Each of the ethical

philosophies is briefly considered in this section.

TELEOLOGY. Teleological theories of ethics focus on the consequences caused by an action and are

often referred to as “consequentalist” theories. By far the most common teleological theories are

egoism and utilitarianism.

EGOISM. Egoism defines right and wrong in terms of the consequences to one’s self. Egoism is defined

by self-interest. An egoist would weigh an ethical dilemma or issue in terms of how different courses of

action would affect his or her physical, mental, or emotional well being. Thus, an egoist, when faced

with a business decision, would tend to choose the course of action that he or she believes would best

serve self-interest. Although it seems likely that egoism would potentially lead to unethical and/or illegal

behavior, this philosophy of ethics is, to some degree, at the heart of a free-market economy. Since the

time of political economist Adam Smith, advocates of a free market unencumbered by governmental

regulation have argued that individuals, each pursuing their own self-interest, would actually benefit

society at large.


This point of view is notably espoused by the famous economist Milton Friedman, who suggested that

the only moral obligation of business is to make a profit and obey the law. However, it should be noted

that Smith, Friedman, and most others who advocate unregulated commerce, acknowledge that some

restraints on individuals’ selfish impulses are required.

UTILITARIANISM. In the utilitarian approach to ethical reasoning, one emphasizes the utility, or the

overall amount of good, that might be produced by an action or a decision. For example, companies

decide to move their production facilities from one country to another. How much good is expected

from the move? How much harm? If the good appears to outweigh the harm, the decision to move may

be deemed an ethical one, by the utilitarian yardstick.

This approach also encompasses what has been referred to as cost-benefit analysis. In this, the costs and

benefits of a decision, a policy, or an action are compared. Sometimes these can be measured in

economic, social, human, or even emotional terms. When all the costs are added and compared with

the results, if the benefits outweigh the costs, then the action may be considered ethical.

One fair criticism of this approach is that it is difficult to accurately measure costs and benefits. Another

criticism is that the rights of those in the minority may be overlooked.

Utilitarianism is like egoism in that it advocates judging actions by their consequences, but unlike egoism

utilitarianism focuses on determining the course of action that will produce the greatest good for the

greatest number of people. Thus, it is the ends that determine the morality of an action and not the

action itself (or the intent of the actor).

Utilitarianism is probably the dominant moral philosophy in business ethics. Utilitarianism is attractive

to many business people, since the philosophy acknowledges that many actions result in good

consequences for some, but bad consequences for others. This is certainly true of many decisions in

business.

DEONTOLOGY. Deontological theories of ethics focus on (1) the rights of all individuals and (2) the

intentions of the person(s) performing an action. Deontological theories differ substantially from

utilitarian views on ethics and would not allow, for example, the harming of some individuals in order to

help others. To the deontologist, each person must be treated with the same level of respect and no one

should be treated as a means to an end.

Deontology proposes that the principles of ethics are permanent and unchanging—and that adherence

to these principles is at the heart of ethical behavior. Many deontologists believe that the rights of

individuals are grounded in “natural law.” Deontology is most closely associated with the German

philosopher Immanuel Kant and is also similar to Hinduism and Buddhism philosophy of being ethical.

JUSTICE. Justice-based theories of ethics concern the perceived fairness of actions. A just (ethical) action

is one that treats all fairly and consistently in accord with ethical or legal standards. Justice theories of

ethics are closely associated with the philosopher John Rawls.


To determine the fairness of an action, one often appeals to distributive, procedural, and/or

interactional rules. Distributive fairness is based on the outcomes received by individuals and their

perceptions of these outcomes. Procedural fairness is based on the processes (policies, procedures,

rules) employed to reach decisions. Individuals evaluate the fairness of these processes in addition to (or

instead of ) the outcomes received.

Finally, interactional fairness relates to the personal treatment one receives in the administration of a

decision-making process. Interpersonal fairness has to do with the respect and consideration shown in

the administration of decisions. Informational fairness has to do with the explanations and accounts

provided for the decisions made.

The study of organizational justice has become a major field within organizational behavior. To date,

however, there has not been a complete integration between justice perceptions and ethical theory.

RELATIVISM. Teleological, utilitarian, and justice theories of ethics are all “universal” theories, in that

they purport to advance principles of morality that are permanent and relatively enduring. Relativism

states that there are no universal principles of ethics and that right and wrong must be determined by

each individual or group.

The relativist believes that standards of right and wrong change over time and are different across

cultures—and does not accept that some ethical standards or values are superior to others. The concept

of relativism can probably be summarized as “What’s right for one may not be right for another,” or

“When in Rome, do as the Romans do.”


Ethics and Morality

Morality is concerned with understanding of what is right and wrong behavior. In the study of business

ethics many people treat the concept of ethics and morality as same. There is no harm in it. However

treating them as different but strongly inter

business ethics. Morality could be considered as one

Ethics

Ethics is the study of framework such as standards,

principles, rules or codes and traits for ensuring

right action, behavior or conduct.

Ethics is the philosophical study of morality

Ethics encompasses morality

Ethics attempts to bring rationalization to morality



treating them as different but strongly inter-related is a better approach in enriching the field of

business ethics. Morality could be considered as one of the subject matter of study in business ethics.

Morality

Ethics is the study of framework such as standards,

principles, rules or codes and traits for ensuring

right action, behavior or conduct.

Morality is right action, conduct or behaviour

l study of morality Morality is the subject matter of ethics

Ethics encompasses morality Morality is the sub-field of ethics

Ethics attempts to bring rationalization to morality Morality gets rationalization through ethics



related is a better approach in enriching the field of

of the subject matter of study in business ethics.

Morality is right action, conduct or behaviour

Morality is the subject matter of ethics

field of ethics

through ethics


Ethics tries to systemize morality Morality becomes systematic through ethics

Ethics legitimizes morality Morality gets legitimized through ethics

Ethics is covert as well as overt Morality is overt

Ethics and Virtues

The word virtue is derived from the Greek word ‘arete’ which is translated as excellence. Virtues are the

good moral habits that are acquired over a period of time by repeatedly choosing the good.

Virtues play an important role in the decision making process of individuals and that is why virtues are

important from the ethics point of view. The foundation of morality lies in the development of virtues.

Good character traits or moral habits, when learned and practiced repeatedly, gets cultured or

internalized in the people and takes the form of virtues. Right conduct, action or behavior of an

individual which we call morality can be temporal but through the development of virtues righteousness

becomes a habit. Virtues imply that there is a set of qualities which will make people fulfill their

functions as people, properly and well. Without virtue, people are unable to do justice with their tasks.

For Aristotle, the difference between doing something and doing it well or excellently lies in virtues. In

other words, we do not display virtue when we do something that happens to be good, but we must act

with a deliberate desire to perform our function as human beings properly.

Benefits of Business Ethics

Businesses can use ethical decision making for their benefits to strengthen their businesses in three

main ways.

1. To use their ethical decision making to increase productivity.

This can be done through programs that employees feel directly enhance their benefits given by the

corporation, like better health care or a better pension program. One thing that all companies must

keep in mind is that employees are stakeholders in the business. They have a vested interest in what

the company does and how it is run. When the company is perceived to feel that their employees

are a valuable asset and the employees feel they are being treated and such, productivity increases.

2. By making decisions that affect its health as seen to those stakeholders that are outside of the

business environment.

Customers and Suppliers are two examples of such stakeholders. If we were to look at companies

like Johnson & Johnson, their strong sense of responsibility to the public is well known. In particular,

take for instance Johnson & Johnson and the Tylenol scare of 1982. When people realized that some

bottles of Tylenol contained cyanide they quit buying Tylenol, stocks dropped and Johnson &

Johnson lost a lot of money. But they chose to lose even more money and invest in new tamper


resistant seals and announce a major recall of their product. In the long run they gained the trust of

their customers.

3. By making decisions that allow for government agencies to minimize their involvement with the

corporation.

For instance if a company is proactive and follows the pollution guidelines for admissions on

dangerous pollutants and even goes an extra step to get involved in the community and address

those concerns that the public might have; they would be less likely to have the authorities

investigate them for environmental concerns.

Code of Conduct

A code of conduct is a set of rules outlining the social norms and rules and responsibilities of, or proper

practices for, an individual, party or organization. Related concepts include ethical, honor, moral codes

and religious laws.

In its 2007 International Good Practice Guidance, "Defining and Developing an Effective Code of Conduct

for Organizations", the International Federation of Accountants provided the following working

definition:

"Principles, values, standards, or rules of behavior that guide the decisions, procedures and systems of

an organization in a way that (a) contributes to the welfare of its key stakeholders, and (b) respects the

rights of all constituents affected by its operations."

A common code of conduct is written for employees of a company, which protects the business and

informs the employees of the company's expectations. It is ideal for even the smallest of companies to

form a document containing important information on expectations for employees. The document does

not need to be complex or have elaborate policies, but the file needs a simple basis of what the

company expects from each employee.

FNCCI Business Code of Conduct:

1. This Code of Conduct shall be called Business Code of Conduct of FNCCI, 2061 and shall be

referred to hereinafter as Code of Conduct.

2. This Code of Conduct shall come into force immediately.

3. Members of all associations and organizations affiliated to the FNCCI shall make special efforts

in abiding by the terms enunciated in the Business Code of Conduct as follows.

4. All members shall hereby undertake to:

a) Refrain from engaging in business activities that goes against the interest of the State.


b) Pay special attention to the protection and promotion of public welfare in the conduct of

their business. Desist from activities that jeopardize fair conduct and public norms and

values.

c) Abstain from activities considered detrimental to the general health of the people.

d) Maintain smooth supply of quality goods and services in the market at fair prices. The

merchandise shall be of specified weights and standards. There shall be no adulteration.

e) Refrain from activities likely to cause artificial shortages of goods in the market. In the event

of any shortages, shall not conduct business at unfair prices.

f) Abstain from the usage of merchandise or standards prohibited by law.

g) Maintaining faith in fair business competition, provide maximum benefit to the consumers.

h) Oppose monopolistic business practices and controlled supply systems (e.g. syndicates and

cartels) and not be involved in any such groups or systems.

i) Settle business disputes through mutual consultations in an amicable and lawful manner.

j) Give precedence to business transparency.

k) Make fair and proper utilization of credit and loans.

l) Show special sensitivity towards environmental protection.

m) Abide by prevalent statutes, laws and process.

n) Submit documents, papers, statements of accounts as well as pay taxes, tariffs and levies as

required by law in time.

o) Abstain from dealing in any goods categorized as forbidden or banned by law.

p) Refrain from providing donations or financial assistance to political parties or their leaders

with considerations of bearing in business deals or for personal benefits.

q) Fix a ceiling of the value of any gift or present to anyone as not to exceed Rs.5,000.

r) Observe the Business Code of Conduct endorsed by the FNCCI by self as well as encourage

others also to do likewise.

Code of Business Conduct of some Global Companies

1. The CocaCola Company

The REAL Thing - The RIGHT Way


Acting with Integrity, Around the Globe

Act with integrity.

Be honest.

Follow the law.

Comply with the Code.

Be accountable.

Question or concern? Log on to EthicsLine at www.KOethics.com

2. Chevron – Human Energy

The Chevron Way - Getting Results the Right Way

Ethical Decision Making

Ethical decision making is essential to the success of our Company. Some decisions are obvious and easy

to make; others are not. When faced with a difficult situation, asking ourselves the questions below can

help us to make the right ethical decisions.

Four “yes” answers are required to qualify an action as ethical and in step with Chevron’s values.

1. Is it legal?

If you think an action may be illegal, do not proceed. If you need information about which laws apply in

a given situation, talk with your supervisor, manager or Chevron’s Law department.

2. Is it consistent with Company policy, including our Human Rights Policy?

If the proposed action does not comply with Company policy, you should not do it.

3. Is it consistent with The Chevron Way?

Consider whether the action would be consistent with our Company’s core values.

4. If it were made public, would I be comfortable?

Ask yourself if you would make the same decision if you knew that it would be reported on the front

page of tomorrow’s newspaper.

3. The Nestlé Corporate


Since its founding, Nestlé’s business practices have been governed by integrity, honesty, fair dealing and

full compliance with all applicable laws. Nestlé employees worldwide have upheld and lived this

commitment in their every day responsibilities ever since, and Nestlé’s reputation remains one of the

Company’s most important assets today.

Employees should always be guided by the following basic principles:

– avoid any conduct that could damage or risk Nestlé or its reputation;

– act legally and honestly;

– put the Company’s interests ahead of personal or other interests

Guidance on Nestlé’s Commitment against Bribery and Corruption

“Nestlé condemns all forms of bribery and corruption. It promotes its products on the basis of their

value, quality, price, competitiveness and sustainability, and not on the basis of improper advantages.”

Section 1 Compliance with laws, rules and regulations

We respect the law at all times

Section 2 Conflicts of Interest

We will always act in the best interests of Nestlé

Section 3 Outside directorships and other outside activities

We take pride in Nestlé’s reputation and c onsider Nestlé’s best interests also in our outside

engagements and activities Section 4 Families and Relatives Our hiring and people development

decisions will be fair and objective

Section 5 Corporate opportunities

We are committed to advance Nestlé’s business

Section 6 Insider trading

We respect and follow the Insider Trading Rules when buying or selling Nestlé securities

Section 7 Antitrust and fair dealing

We believe in the importance of free competition

Section 8 Confidential information

We value and protect our confidential information and we respect the confidential information of

others


Section 9 Fraud, protection of company assets, accounting

We insist on honesty and we respect the Company’s assets and property

Section 10 Bribery and corruption

We condemn any form of bribery and corruption

Section 11 Gifts, meals, entertainment

We compete and do business based only on quality and competence No employee shall offer to or

accept from any third party gifts taking the form of any of the following, whatever the value involved:

– money

– loans

– kickbacks

– similar monetary advantages

Section 12 Discrimination and harassment

We embrace diversity and respect the personal dignity of our fellow employees

Section 13 Failure to comply

We will consult the Code, comply with its provisions and seek guidance where needed

Section 14 Reporting illegal or non-compliant conduct

We take responsibility for ensuring that we all act with integrity in all situations

Social Responsibility

Corporate social responsibility (CSR) can be defined as the “economic, legal, ethical, and discretionary

expectations that society has of organizations at a given point in time” (Carroll and Buchholtz 2003, p.

36).

The concept of corporate social responsibility means that organizations have moral, ethical, and

philanthropic responsibilities in addition to their responsibilities to earn a fair return for investors and

comply with the law. A traditional view of the corporation suggests that its primary, if not sole,

responsibility is to its owners, or stockholders. However, CSR requires organizations to adopt a broader

view of its responsibilities that includes not only stockholders, but many other constituencies as well,

including employees, suppliers, customers, the local community, local, state, and federal governments,

environmental groups, and other special interest groups. Collectively, the various groups affected by the

actions of an organization are called “stakeholders.”


Corporate social responsibility is related to, but not identical with, business ethics. While CSR

encompasses the economic, legal, ethical, and discretionary responsibilities of organizations, business

ethics usually focuses on the moral judgments and behavior of individuals and groups within

organizations. Thus, the study of business ethics may be regarded as a component of the larger study of

corporate social responsibility.

Carroll and Buchholtz’s four-part definition of CSR makes explicit the multi-faceted nature of social

responsibility. The economic responsibilities cited in the definition refer to society’s expectation that

organizations will produce good and services that are needed and desired by customers and sell those

goods and services at a reasonable price. Organizations are expected to be efficient, profitable, and to

keep shareholder interests in mind. The legal responsibilities relate to the expectation that organizations

will comply with the laws set down by society to govern competition in the marketplace. Organizations

have thousands of legal responsibilities governing almost every aspect of their operations, including

consumer and product laws, environmental laws, and employment laws. The ethical responsibilities

concern societal expectations that go beyond the law, such as the expectation that organizations will

conduct their affairs in a fair and just way. This means that organizations are expected to do more than

just comply with the law, but also make proactive efforts to anticipate and meet the norms of society

even if those norms are not formally enacted in law. Finally, the discretionary responsibilities of

corporations refer to society’s expectation that organizations be good citizens. This may involve such

things as philanthropic support of programs benefiting a community or the nation. It may also involve

donating employee expertise and time to worthy causes.

Evolution of Corporate Social Responsibility

The nature and scope of corporate social responsibility has changed over time. The concept of CSR is a

relatively new one—the phrase has only been in wide use since the 1960s. But, while the economic,

legal, ethical, and discretionary expectations placed on organizations may differ, it is probably accurate

to say that all societies at all points in time have had some degree of expectation that organizations

would act responsibly, by some definition.

In the eighteenth century the great economist and philosopher Adam Smith expressed the traditional or

classical economic model of business. In essence, this model suggested that the needs and desires of

society could best be met by the unfettered interaction of individuals and organizations in the

marketplace. By acting in a self-interested manner, individuals would produce and deliver the goods and

services that would earn them a profit, but also meet the needs of others. The viewpoint expressed by

Adam Smith over 200 years ago still forms the basis for free-market economies in the twenty-first

century. However, even Smith recognized that the free market did not always perform perfectly and he

stated that marketplace participants must act honestly and justly toward each other if the ideals of the

free market are to be achieved.

In the century after Adam Smith, the Industrial Revolution contributed to radical change, especially in

Europe and the United States. Many of the principles espoused by Smith were borne out as the

introduction of new technologies allowed for more efficient production of goods and services. Millions


of people obtained jobs that paid more than they had ever made before and the standard of living

greatly improved. Large organizations developed and acquired great power, and their founders and

owners became some of the richest and most powerful men in the world. In the late nineteenth century

many of these individuals believed in and practiced a philosophy that came to be called “Social

Darwinism,” which, in simple form, is the idea that the principles of natural selection and survival of the

fittest are applicable to business and social policy. This type of philosophy justified cutthroat, even

brutal, competitive strategies and did not allow for much concern about the impact of the successful

corporation on employees, the community, or the larger society. Thus, although many of the great

tycoons of the late nineteenth century were among the greatest philanthropists of all time, their giving

was done as individuals, not as representatives of their companies. Indeed, at the same time that many

of them were giving away millions of dollars of their own money, the companies that made them rich

were practicing business methods that, by today’s standards at least, were exploitative of workers.

Around the beginning of the twentieth century a backlash against the large corporations began to gain

momentum. Big business was criticized as being too powerful and for practicing antisocial and

anticompetitive practices. Laws and regulations, such as the Sherman Antitrust Act, were enacted to

rein in the large corporations and to protect employees, consumers, and society at large. An associated

movement, sometimes called the “social gospel,” advocated greater attention to the working class and

the poor. The labor movement also called for greater social responsiveness on the part of business.

Between 1900 and 1960 the business world gradually began to accept additional responsibilities other

than making a profit and obeying the law.

In the 1960s and 1970s the civil rights movement, consumerism, and environmentalism affected

society’s expectations of business. Based on the general idea that those with great power have great

responsibility, many called for the business world to be more proactive in (1) ceasing to cause societal

problems and (2) starting to participate in solving societal problems. Many legal mandates were placed

on business related to equal employment opportunity, product safety, worker safety, and the

environment. Furthermore, society began to expect business to voluntarily participate in solving societal

problems whether they had caused the problems or not. This was based on the view that corporations

should go beyond their economic and legal responsibilities and accept responsibilities related to the

betterment of society. This view of corporate social responsibility is the prevailing view in much of the

world today.

The sections that follow provide additional details related to the corporate social responsibility

construct. First, arguments for and against the CSR concept are reviewed. Then, the stakeholder

concept, which is central to the CSR construct, is discussed. Finally, several of the major social issues

with which organizations must deal are reviewed.

ARGUMENTS FOR AND AGAINST CORPORATE SOCIAL RESPONSIBILITY

The major arguments for and against corporate social responsibility are shown in figure 3. The

“economic” argument against CSR is perhaps most closely associated with the American economist

Milton Friedman, who has argued that the primary responsibility of business is to make a profit for its

owners, albeit while complying with the law. According to this view, the self-interested actions of


millions of participants in free markets will, from a utilitarian perspective, lead to positive outcomes for

society. If the operation of the free market cannot solve a social problem, it becomes the responsibility

of government, not business, to address the issue.

Arguments For and Against CSR

FOR AGAINST

The rise of the modern corporation created and continues to create many social problems. Therefore, the corporate world should assume responsibility for addressing these problems.

Taking on social and moral issues is not economically feasible. Corporations should focus on earning a profit for their shareholders and leave social issues to others.

In the long run, it is in corporations’ best interest to assume social responsibilities. It will increase the chances that they will have a future and reduce the chances of increased governmental regulation.

Assuming social responsibilities places those corporations doing so at a competitive disadvantage relative to those who do not.

Large corporations have huge reserves of human and financial capital. They should devote at least some of their resources to addressing social issues.

Those who are most capable should address social issues. Those in the corporate world are not equipped to deal with social problems.

The “competitive” argument recognizes the fact that addressing social issues comes at a cost to

business. To the extent that businesses internalize the costs of socially responsible actions, they hurt

their competitive position relative to other businesses. This argument is particularly relevant in a

globally competitive environment if businesses in one country expend assets to address social issues,

but those in another country do not. According to Carroll and Buchholtz, since CSR is increasingly

becoming a global concern, the differences in societal expectations around the world can be expected to

lessen in the coming years.

Finally, some argue that those in business are illequipped to address social problems. This “capability”

argument suggests that business executives and managers are typically well trained in the ways of

finance, marketing, and operations management, but not well versed in dealing with complex societal

problems. Thus, they do not have the knowledge or skills needed to deal with social issues. This view

suggests that corporate involvement in social issues may actually make the situation worse. Part of the

capability argument also suggests that corporations can best serve societal interests by sticking to what

they do best, which is providing quality goods and services and selling them at an affordable price to

people who desire them.

There are several arguments in favor of corporate social responsibility. One view, held by critics of the

corporate world, is that since large corporations create many social problems, they should attempt to

address and solve them. Those holding this view criticize the production, marketing, accounting, and

environmental practices of corporations. They suggest that corporations can do a better job of

producing quality, safe products, and in conducting their operations in an open and honest manner.


A very different argument in favor of corporate social responsibility is the “self-interest” argument. This

is a long-term perspective that suggests corporations should conduct themselves in such a way in the

present as to assure themselves of a favorable operating environment in the future. This view holds that

companies must look beyond the short-term, bottom-line perspective and realize that investments in

society today will reap them benefits in the future. Furthermore, it may be in the corporate world’s best

interests to engage in socially responsive activities because, by doing so, the corporate world may

forestall governmental intervention in the form of new legislation and regulation, according to Carroll

and Buchholtz.

Finally, some suggest that businesses should assume social responsibilities because they are among the

few private entities that have the resources to do so. The corporate world has some of the brightest

minds in the world, and it possesses tremendous financial resources. (Wal-Mart, for example, has

annual revenues that exceed the annual GNP of some countries.) Thus, businesses should utilize some of

their human and financial capital in order to “make the world a better place.”

Increasing relevance of CSR - UN Global Compact

The relevance of CSR in the world today has been even more. With more socio-economic difference

inside the nation and around the globe, with environmental, legal, human rights, labour, environment

and corruption increasing with proliferation of capitalism, many business organization have already

realized the relevance of CSR to slove these global issues. Assimilating the same philosophy, many

corporate orgnizatins have come forward to take voluntary initiatives to leave the world in better

condition fo the future generations. An example of such initiatives, which is an evidence of relevance of

CSR is UN Global Compact.

UN Global Compact is the world's largest corporate sustainability voluntary initiative based on CEO

commitments to implement universal sustainability principles and to take steps to support UN goals. UN

Global Compact has been playing vital role in the world to promote corporate social responsibility.

With the starting of Sustainability Development Goal (SDG), the commitment of the business sector and

role has significantly increased to achieve all the targets by 2030. Their commitment is also reflected in

their vision, which is discussed below.

Defining features of the UN Global Compact

Principle-based: applying UN values – traditionally used to forge understanding among nations – to the

private sector, calling on companies to act in a principled way wherever and whenever they operate

Public-private: combining the moral authority and convening power of the UN with the resources and

ingenuity of the private sector to help solve the challenges of our day

Multi-stakeholder: bringing business, civil society, Government and the UN to the same table, and the

voice of responsible business to major UN summits and negotiations


Global-local: engaging participants in 170 countries, with 85+ Local Networks up and running to connect

stakeholders on the ground

Voluntary yet accountable: bringing accountability and transparency to voluntary business efforts,

through annual reporting requirements and the removal from the initiative of companies that fail to

communicate progress

The Mission of UN Global Compact

At the UN Global Compact, we believe it’s possible to create a sustainable and inclusive global economy

that delivers lasting benefits to people, communities and markets. That’s our vision.

To make this happen, the UN Global Compact supports companies to:

Do business responsibly by aligning their strategies and operations with Ten Principles on

human rights, labour, environment and anti-corruption; and

Take strategic actions to advance broader societal goals, such as the UN Sustainable

Development Goals, with an emphasis on collaboration and innovation.

The Ten Principles of UN Global Compact

The Ten Principles was created by UN Global Compact with a view that sustainability begins with a

principled approach to doing business.

Corporate sustainability starts with a company’s value system and a principled approach to doing

business. This means operating in ways that, at a minimum, meet fundamental responsibilities in the

areas of human rights, labour, environment and anti-corruption. Responsible businesses enact the same

values and principles wherever they have a presence, and know that good practices in one area do not

offset harm in another. By incorporating the Global Compact principles into strategies, policies and

procedures, and establishing a culture of integrity, companies are not only upholding their basic

responsibilities to people and planet, but also setting the stage for long-term success.

The UN Global Compact’s Ten Principles are derived from: the Universal Declaration of Human Rights,

the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work, the

Rio Declaration on Environment and Development, and the United Nations Convention Against

Corruption.

The Ten Principles of UN Global Compact are as follows:

Human Rights

Principle 1: Businesses should support and respect the protection of internationally proclaimed human

rights; and

Principle 2: make sure that they are not complicit in human rights abuses.


Labour

Principle 3: Businesses should uphold the freedom of association and the effective recognition of the

right to collective bargaining;

Principle 4: the elimination of all forms of forced and compulsory labour;

Principle 5: the effective abolition of child labour; and

Principle 6: the elimination of discrimination in respect of employment and occupation.

Environment

Principle 7: Businesses should support a precautionary approach to environmental challenges;

Principle 8: undertake initiatives to promote greater environmental responsibility; and

Principle 9: encourage the development and diffusion of environmentally friendly technologies.

Anti-Corruption

Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery.

Figure 2. The Sustainability Development Goals


UN Global Compact states that it has a rigorous and holistic approach and they help companies, whether

beginners on the sustainability journey or recognized champions, to meet their commitments to operate

responsibly and support society.

The Strategy of UN Global Compact is presented below:

By encouraging companies to operate responsibly and take strategic actions that support society, the

UN Global Compact works to ensure that business activity adds value not only to the bottom-line, but

also to people, communities and the planet.

UN Global Compact ask companies to take a comprehensive approach to sustainability, and lay out 5

essential elements of corporate sustainability which they help business put into practice:

Foremost companies must;

(1) operate responsibly in alignment with universal principles and

(2) take strategic actions that support the society around them.

Then, to push sustainability deep into the corporate identity, companies must

(3) commit at the highest level,

(4) report annually on their efforts, and

(5) engage locally where they have a presence.

The UN Global Compact supports companies to address the entire range of ESG issues, believing that

responsible businesses enact the same values and principles wherever they have a presence, and that

good practices in one area do not offset harm in another.

Importantly, UN Global Compact also engage closely civil society and other critical players, including

investors, educators, consumers and policymakers to help create an enabling environment for

responsible business. And as part of the United Nations, they bring the voice of business to major UN

summits and negotiations.

CSR Domains

Among the studies that have been conducted to classify CSR initiatives or activities into categories, Mark

S. Schwartz and Archie B. Carroll’s three-domain approach seems to represent best how to cluster CSR

activities. In this approach, the three core domains—economic, legal and ethical responsibilities—are

depicted in a Venn model framework. The Venn model counts seven CSR categories resulting from the

overlap among the three core domains. 1st Figure illustrates the Venn diagram, as represented by

Schwartz and Carroll. 2nd Figure below explains each domain and category with potential activities.


Benefits of CSR

CSR activities are time-consuming. Companies’ stakeholders often have to work a lot to drive efficient

CSR initiatives, which produce an ROI that is either tangible or intangible. A tangible ROI is more related

to the economic domain of the three-domain model. By acting for the maximization of profit or

maximization of share value, as mentioned in figure 2, organizations directly benefit from their CSR

initiatives.

On the other hand, intangible benefits are quite important for corporations. Keeping in mind that the

main point of CSR is the voluntary positive impact on the society, corporations are willing to invest

money and staff on publicity to ensure that government, customers, other stakeholders, and the local or


international community knows what they are doing. The following are potential intangible benefits of

corporate responsibility:

Public relations/brand advantage—For example, governments and communities respond positively to

an organization that is involved in sustainable development. This can certainly lead to a brand advantage

for those that impress the community and, thus, build a solid customer loyalty.

Human resources—During the recruitment and retention process, candidates can be more attracted to

employers that are involved in CSR initiatives. According to the Boston College Center for Corporate

Citizenship (BCCCC), 62 percent of employees said they would rather work in organizations that allow

them to volunteer with nonprofit organizations than those that do not offer civic engagement programs.

In a 2006 survey of 1,800 13- to 25-year-olds, 79 percent said they want to work for an organization that

cares about how it affects or contributes to society. Allowing employees to work on such initiatives

improves team building, employee satisfaction and loyalty to the organization.

Right to operate—In order to gain a license to operate, corporations may convince governments and

local communities that they are handling and taking seriously issues such as health and safety,

environment, and diversity with respect to international standards.

Risk management—There is a relationship between CSR and risk management. “CSR, particularly for a

global company, is related to corporate risk management through two means: by providing intelligence

about what those risks are, and by offering an effective means to respond to them.”9 This is a significant

benefit for corporations that will gain from both management of risk and enhancement of their image.

Examples of CSR

Microsoft has created a citizenship mission with the express purpose “to globally serve the needs of

communities and fulfill Microsoft responsibilities to the public.”10 According to its 2011 citizenship

report, Microsoft has donated US $949 million across 113 countries to sustain various projects in

education, jobs and growth, nonprofits, and humanitarian projects. One of Microsoft’s main goals,

which has been achieved, was to develop and implement cloud solutions to aid disaster responses. One

concrete application came with the 2011 tsunami in Japan.11

Toyota has designed new cars that, according to its 2012 CSR report, will be 100 percent electric and will

emit neither CO2 nor nitrogen oxide.12

Mobile Telecommunications Network (MTN) has created the MTN Foundation with the express purpose

of driving CSR initiatives in countries in which MTN operates. The MTN president has directed that all

operations establish foundations that are funded by up to 1 percent of profits after tax (PAT).13 One of

the main CSR initiatives of MTN is the sponsoring of the Cameroon football championship.

Unilever Nepal has started MY FIVE programs in various schools of Nepal to encourage students to hand

washing, which has good impact on reducing the risk associate with cholera, dysentery and hygiene of

the students.


Just For Fun

References:

http://businesscasestudies.co.uk/cadbury-schweppes/ethical-business-practices/ethics-at-

work.html#axzz3xDpcwLo4


http://www.slideshare.net/SyedArslan/importance-ofbusinessethics

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https://www.questia.com/magazine/1G1-9589575/managing-values-a-systematic-approach-to-business

http://hinduismprimer.blogspot.com/2013/03/standards-for-judging-action.html

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http://www.slideshare.net/shinyslide/ethics-presentation-815511

http://www.slideshare.net/sanekha/business-ethics-and-spirituality-6637455

http://www.slideshare.net/vickybandil/social-responsibility-of-business-27461311

https://www.unglobalcompact.org/what-is-gc/strategy

https://books.google.com.np/books?id=rb5bWuPVd_EC&pg=PA43&lpg=PA43&dq=Howard+r.+Brown+s

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9&sig=ahsy0xNLX68LOOUrNVWfwhHfWuY&hl=en&sa=X&ved=0ahUKEwjz-

5P8l7HKAhVFj44KHXY6COgQ6AEIMjAF#v=onepage&q=Howard%20r.%20Brown%20social%20responsibil

ity&f=false

http://www.isaca.org/Journal/archives/2013/Volume-2/Pages/JOnline-The-Extent-of-Corporate-Social-

Responsibility.aspx

ethics unit i_introduction

Education