ACHARYA INSTITUTE OF GRADUATE STUDIES

SOLADEVANHALLI, BANGALORE

NOTES

Subject: Business Ethics & Corporate Governance

Module-I
Faculty Name : Dr.S.Gopalakrishnan

Meaning of Ethics: -
Ethics is derived from the latin word ETHICUS and in greek it is called ETHICOS meaning
character or manners. In other words ethics is said to be source of morals, moral principles and
recognized rules of conduct.

Definition of Ethics: -
According to R. Wayne Mondy, ‘ethics is the discipline dealing with what is good and bad, or
right or wrong or with moral duty and obligations”.

Meaning of Business Ethics: -

Business Ethics are rules of business conduct, by which the proprietary of business activities
may be judged. It also relates to the behavior of managers.

Definition of Business Ethics: -

According to John Donaldson, “Business Ethics in short can be described as the systematic study
of moral (ethical) matters pertaining to business, industry or related activities, institutions or
practices & beliefs”.

Objectives of Ethics: -

1. To define the highest good of man and set a standard for the same. Here we have to consider
ethics to deal with several interrelated and complex problems.

2. To study of human behavior, making evaluative assessment about them as moral or immoral

3. To establish morals standards and norms of behavior.

4. To make judgment upon human behavior based on ethical standards and norms.

5. To make ethics give suggestions regarding moral behavior and how to behave in
organizations.
A Model of Ethics: -

ETHICAL Leading to Determines

GUIDANCE OUR BELIEF WHAT OUR
SOURCES IS RIGHT OR ACTION
WRONG S

TYPE I TYPE II
ERROR ERROR

1. Ethical Guidance Sources: - The sources of ethical guidance should lead to our beliefs or
conventions about what is right or wrong. People have a responsibility to avail themselves of
these sources of ethical guidance.( Sources: Genetic Inheritance, Religion, codes of conduct, the
legal system and cultural experience)

2. Type I Error: - The strength of the relationship between what an individual or an organization
believes to be moral and correct and what available sources of guidance suggest is morally
correct.

3. Our belief what is right or wrong: - Just by having strong beliefs about what is right or wrong
and basing them on the proper sources may have little relationship to what one does.

4. Type II Error: - The strength of the relationship between what one believes and how one
behaves. Everyone would agree that to do what one considers wrong is unethical.

Ethical Performance In Business:-

In any business organization you will see a strong culture of integrity underpinned by
principles, values & policies. All organizations sets out clear and practical guidance for ethical
conduct throughout their organization.

The Code of Ethics ensures that all employees understand how the organization core principles
and values relate to a range of issues. With clear language and easy-to-understand examples,
the document aims to provide employees with support in judgments related to ethical business
at the individual, team and company-wide level. In short, it is a guide to help employees
understand what is expected of them and how to make good decisions.
Ethical performance is to ensure that the following are adhered in the organization for the
successful achievement of the main objectives, mission and vision of the organization.

Culture
Integrity
Value
Rules, Policies & Principles
Code of Conduct
Ethical standard
Communication
Code of Ethics

Ethical Congruence

Ethical congruence refers to a situation where one's decision is consistent with, aligns with, the
applicable set(s) of values. Under these circumstances, a choice to take some action will
harmonize with the decision-maker's values. The organizational state where values, behaviors
and perceptions are aligned.

For Example, the success of an organization depends on the congruence of the major key
success factors of an organization. According to Michael E Porter, congruence and
concentration of the five Key factors are essential for the success and growth of an
organization.

Five Forces model by Michael E Porter

Ethical congruence is the congruence of all the below mentioned ethical aspects in an
organization.
Culture
Team work
Code of conduct
Discipline
Quality
Leadership
Superior subordinate relationship
Punctuality
Recognition
Concern for others
Co-operation
Co-ordination
Cordial relationship among and between employees and management
Top Management support for ethical standards.

Managerial Philosophy:-

It is a major factor affecting how socially responsive an enterprise will be in the long term.
Manager’s ethical standards in the enterprise determine the type of response it will make as it
reacts to the tension between the forces for change and stability.

Proactive responses are likely to be more ethical since they will go beyond minimum legal
requirements. They are more consistent with high social expectations. Reactive responses on
the contrary either conform only to the minimum legal requirements or even attempt to avoid
legal requirements through long court cases, lobbying efforts to avoid responsibility.

Managerial Values and attitude

Value – Meaning : Values are the principles by which we make decisions about right and wrong,
should and shouldn't, good and bad. They also tell us which are more or less important

Managerial Values of a Manager:

 Resources utilisation
 Team work
 Sound decision making
 Strategic planning and goal setting
 Attitude of gratitude
 Strong ambition
 Great potential
 Never give up attitude
 Anticipating about the future
 Ready to face new challenges
 Strategically sound
Managerial Values of an organisation:

 Strategic Vision and Mission

 Objectives and Goals
 Crystallizes long-term direction
 Reduces risk of baseless decision-making
 Conveys organizational purpose and identity
 Keeps direction-related actions of lower-level managers on common path
 Helps organization prepare for the future
 Certifications of Recognitions like ISO etc.
 Service Orientation

Attitude
A settled way of thinking or feeling or opinion about something.
A predisposition or a tendency to respond positively or negatively towards a certain idea,
object, person, or situation.

What is Managerial Attitude?

Do you ever wonder why some people seem to always be successful and others never quite
make it? Sure, the difference can be written off to bad luck, which may be a factor.

You may also think that it is due to people’s management skills. Granted, management skills are
important for business success. However, the way in which you approach an opportunity or a
problem has much to do with its successful resolution. So peoples’ attitudes are important for
business success. When applied to business I call this “managerial attitude.”

Types of Attitudes
Below are five types of managerial attitudes. These attitudes pervade all aspects of business.
The descriptions below can help you determine your managerial attitude.

1) Negative Attitude
We all know people with this type of attitude. Whenever a new idea is brought up, they
instantly respond that it won’t work.

2) Reactive Attitude
Many people have a reactive managerial attitude. Although they may see change occurring,
they don’t respond to it. Their approach is “If I ignore it, it will go away.”

They often “stick their head in the sand” until the situation cannot be ignored any more. When
they are forced to react to a situation, their options are often limited.

The essence of this attitude is not to change until change is forced.

3) Victim Attitude
It’s not my fault. Always takes responsibilities with conditions to blame others if there is any
problem. This attitude is popular because it allows us to abdicate(escape from) the
consequences of our decisions, especially when they turn out badly.

4) Planning Attitude
Planning is a “forward thinking” exercise. If I am planning I am thinking about the future. How
the world will look in the future, how I should respond to it and how my business should look in
the future.

The essence of this attitude is that by planning we are forcing ourselves to anticipate change
and make plans that adapt to or take advantage of these changes.

5) Entrepreneurial Attitude
Entrepreneurs are innovators. They are always trying to figure out new ways of doing things.
The status quo is not good enough. They search for opportunities and innovative ways of taking
advantage of these opportunities.

Locus of Control – Attitude

A core factor for managerial attitude is “locus of control.” This is a concept dealing with “who
has control.” Some people believe they have control over their lives while others believe they
don’t have control (outside forces have control.)

Those with a positive locus of control believe that success or failure in life is based on the
choices they make during life.

Those with a negative locus of control believe that success or failure in life depends on the
circumstances.

Types of ethics: -

There are three types of ethics namely:-

1. Transactional Ethics: - This is based on the principle of equality. The common interest needs
to be specified because of different types of common interest can be distinguished. It implies
that every agent should allow every other same amount of freedom.

2. Participatory Ethics: - It is privileged part of business ethics. It is within the category of other
including actions, guided by common interest we find other type of ethics. There are three
features of participatory ethics:

a. Good is done through participation

b. Participation should be voluntary and cannot be forced.
c. Though participation is profitable none have to participate for survival

3. Recognizational Ethics: - This recognitional ethics is mainly concerned with self development
and is guided by the principle of fidelity to one self. The rights of the party affected have great
importance or more weight that freedom to act or acting party.
Other characteristics related to ethics like Honesty, Loyalty, Fairness, Integrity, Promise,
Respect, Discipline, Quality can also be added.

Code of Ethics

Code of ethics is referred to as statements of values and principles which define the purpose of
the company. The codes seek to clarify the ethics of the corporation and to define its
responsibly to different groups of stake holders as well as defining the responsibilities of
employees.

How to develop code of ethics: -

Cynic’s always claims that codes are for impressing outsiders. They are not affecting the
behavior of the company or its employees codes. The code of ethics should be having: -
1. Explicit (towards goals)
2. Sufficiently detailed
3. Internalized by those to whom and by whom they will be applied.
4. Worthy of name to embodied in the behavior and the practices of the relevant group of
people.

Recipients of code of ethics: -

1. Customers
2. Employees
3. Shareholders
4. Society or environment.

Meaning and definitions as per Reliance Industries :

The essence of code of ethics is that each employee should conduct the Company’s business in
a way that upholds its values and commitments.
This code expects every employee to conduct business with integrity, in compliance with
applicable laws, and in a manner that excludes consideration of direct or indirect personal
advantage / gains.

Generally Code of Ethics would cater to some important aspects of an organisation. Few sample
aspects are :
Example of “Reliance Industries” Code of Ethics contains the policy on the following:
I. Conflict of Interest
II. Payments and Gifting
III. Receipt of Gifts
IV. Purchases through suppliers and other service providers
V. Regarding full-time consultants, agents, representatives and others
VI. Political Contributions
Importance of Ethics

The general public expects the business to exhibit high levels of performance & social
responsibility. This is referred to as doing business ethically right.

Some of the reasons for which the problem in business ethics occurs: -

1. Personal Gain/ Dubious character

2. Individual values widely differ with organizational goals.
3. Manager value & attitudes.
4. Competitive pressure
5. Cross Cultural contradictions

Importance of Business Ethics Includes :

 Providing facilities for basic human needs

 Credibility with the employees
 Better decision making
 Profitability and ethical concept
 Protection of society
 Corporate Social responsibility
 Employer behaviour
 Employee commitment
 Handling legal issues
 Cost control systems
 HR Policies
 Code of conduct
 Profitability
 Relationship with stake holders

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