Ethics and Business Ethics

MODULE II
• Ethics, the code of discipline concerned with
what is morally good and bad and morally
right and wrong.

• Business leaders, and entrepreneurs especially,

are under tremendous pressure and can face
very significant ethical challenges.
 few examples of how unethical decisions arise for entrepreneurs

• If I exaggerate the number of customers or orders I have, I could attract more investors
and get better funding.

• If I tell customers all the features on our product roadmap are available now, I could
close more deals.

• I can save some money if I choose a production facility that does not abide by
environmental laws.
Ethics vs Morals: Is there a difference?
Morals often describes one's particular values concerning what is right and
what is wrong:

It would go against my morals to help you cheat on the test.

He appears to view himself as a kind of culture warrior, striking out against the
crumbling morals of modern society.
While ethics can refer broadly to moral principles, one often sees it applied to
questions of correct behavior within a relatively narrow area of activity:
Example : Our class had a debate over the ethics of genetic testing.
Anybody, it seemed, could make the music -- if they couldn't play guitar, they could
push a button -- and nobody worried about the ethics of appropriating riffs.
 Business Ethics

• Business ethics is the moral principles, policies, and values that govern the way
companies and individuals engage in business activity.

• It goes beyond legal requirements to establish a code of conduct that drives

employee behavior at all levels and helps build trust between a business and its
customers.
 Nature of Ethics

• Ethics refer to guide what human ought to do, usually in terms of right, obligations,
fairness and specific virtue.
• It is related to issues of propriety –rightness and wrongness, what is right in ethical,
what is wrong in unethical.
• Sometimes the word ‘proper’ , ‘fair’ and ‘just’ are also used in the place of right and
ethical.
 Nature of Ethics

• Ethics is a normative science

• Ethics is a science of Character
• Ethics is not a practical science
• Ethics is not an art
 Scope of Ethics

• The Scope of Ethics is wide which is mainly concerned with the principles or causes
of action as : -
• What obligation is common to all ? –
• What is good in all good acts? –
• The sense of duty and responsibility. - Individual and Society.
 Scope of Ethics

• Moral : It accounted for various virtues and vices lived by men in relation to their
dealing with others. It has been held that a life of virtue can bring about the good for the
individuals as well as for the society - that virtue accounted man will also be a good
citizen.

• Social :every society there are organisations, customs and agreements. with the passage
of time, they exert undesirable influence on the minds of the people. Ethics give us a
moral insight and points out how they are to be reformed.
 Scope of Ethics

• Religious: It primarily is concerned with the problems as the existence of God,

immortality of the soul, religious consciousness etc. The Indian ethics has been treated

as a religious discipline to attain salvation (Moksha).

• Political: All political considerations ultimately are judged by the moral ideals as
aspirations of the people. The institutions like Democracy, Fascism, and Communism
etc. have to be subjected to the rule of law and ethics must have an upper hand
 Nature of business ethics

• Most ethical question: Overt (open to view) or covert (covered, concealed)

• Bribery ,theft,sabotage,collusion,personeel policies, capital investment
• Example: two firms are merged, ethical question arises with regard to firing the
employees of those who have been serving honestly for many years.
 Theories of ethics
• Ethical absolutism holds that moral • In contrast, moral relativism views moral
commands are true at all times. This means values as entirely relative to different
that they're true in all cultures and societies and contexts.
situations. • Therefore, whether an action is right can
• Under this view, actions such as murder depend on the context (such as culture) in
and stealing are seen as objectively wrong, which it takes place.
regardless of their circumstance or results. • Relativist moral theories may consider the
• Therefore, Absolutist moral theories are consequences of moral actions when
deontological, as they do not consider deciding if they are right or wrong. These
consequences. theories are therefore described as
teleological.
 Kohlberg's stages of moral development

• Developed by Lawrence Kohlberg.

• Kohlberg's theory of moral development is a theory that focuses on how children
develop morality and moral reasoning.
 Moral Development

• Moral development is the process by which people develop the distinction

between right and wrong (morality) and engage in reasoning between the two
(moral reasoning).

• Do parental or societal influences play a greater role in moral development?

• Kohlberg's theory outlines six stages of moral development within three different
levels.
 Example

• "Heinz Steals the Drug." In this scenario, a woman has cancer and her doctors believe only one drug
might save her. This drug had been discovered by a local pharmacist and he was able to make it for
$200 per dose and sell it for $2,000 per dose. The woman's husband, Heinz, could only raise $1,000
to buy the drug.

• He tried to negotiate with the pharmacist for a lower price or to be extended credit to pay for it over
time. But the pharmacist refused to sell it for any less or to accept partial payments. Rebuffed, Heinz
instead broke into the pharmacy and stole the drug to save his wife. Kohlberg asked, "Should the
husband have done that?"
 Solution

• Kohlberg was not interested so much in the answer to whether Heinz was
wrong or right but in the reasoning for each participant's decision. He
then classified their reasoning into the stages of his theory of moral
development.
 Stages of Moral Development

Levels of Moral Development Age Stages Included in This Level

Preconvention Morality 0 to 9 Stage 1: Obedience and punishment

Stage 2: Individualism and exchange

Conventional Morality Early adolescence Stage 3: Developing good interpersonal

to adulthood relationships Stage 4: Maintaining
social order

Post conventional Morality Some adults; rare Stage 5: Social contract and individual
rights stage
6: Universal principles
 Applications for Kohlberg's Theory

• A kindergarten teacher could help enhance moral development by setting clear rules for
the classroom, and the consequences for violating them. This helps kids at stage one of
moral development.

• A teacher in high school might focus more on the development that occurs in stage three
(developing good interpersonal relationships) and stage four (maintaining social order).
This could be accomplished by having the students take part in setting the rules to be
followed in the classroom, giving them a better idea of the reasoning behind these rules.
Kohlberg's stages of moral development
Ethical dilemma
 Real life examples

• 1. Medical Decisions
• End-of-Life Care: A doctor might face an ethical dilemma when deciding whether to continue
life-sustaining treatment for a terminally ill patient who is suffering and has little chance of
recovery.

• Allocation of Resources
• During a health crisis, such as a pandemic, healthcare professionals may need to decide who
receives limited resources like ventilators or ICU beds.
 Real life examples

• Business Ethics
• Whistleblowing: An employee discovers their company is engaging in illegal or
unethical practices. They must decide whether to report it, potentially risking their
job and personal well-being, or stay silent.
• Fair Labor Practices:
• A company must choose between outsourcing production to a country with cheaper
labor but poor working conditions and keeping production local but at a higher cost.
• Technology and Privacy

• Data Privacy:

• A tech company must decide whether to sell user data to advertisers to generate revenue
or protect users’ privacy at the expense of potential profits.

• AI and Automation:

• A company must choose between adopting automation, which could increase efficiency
but lead to significant job losses, or maintaining current employment levels.
 Ethical Dilemma Examples for Students

Cheating on a Test
You studied hard for a math test, but your best friend, who didn’t study, asks to copy your
answers during the test. Do you help them or not?
Finding Money
You find a wallet with $50 on the school playground. Inside the wallet, there is also a student
ID card. Do you keep the money or try to return it to the owner?
Cyberbullying
You see a popular student at your school posting mean comments about another student on
social media. Do you report it, confront the bully, or ignore it?
 Ethical dilemma in business

An ethical dilemma in business occurs when a company or individual faces a situation

where there are conflicting moral principles or ethical obligations, making it
difficult to determine the right course of action.
These dilemmas often involve decisions that can impact stakeholders such as
employees, customers, shareholders, and the community.
The challenge lies in balancing profitability and competitiveness with ethical
considerations such as fairness, transparency, and social responsibility.
 Examples of Ethical dilemma in business

1. Employee Privacy vs. Employer’s Right to Monitor

Scenario:

A company wants to monitor employees’ computer usage to ensure productivity and prevent misuse of
company resources. However, employees feel this enters their privacy.
Dilemma
Balancing the need for security and productivity with respecting employee privacy.
 Examples of Ethical dilemma in business

2. Product Safety vs. Profit

•Scenario: A company discovers that a product has a minor defect that could potentially harm a
small percentage of users. The cost of recalling and fixing the product is substantial.
•Dilemma: Choosing between prioritizing customer safety and incurring significant financial
losses.
3. Advertising Ethics

•Scenario: A company considers using exaggerated claims in advertising to boost sales.

•Dilemma: Weighing the benefits of increased sales against the potential for misleading consumers
and damaging trust.
 Ethical Dilemma Examples in the Workplace

Conflict of Interest
You are involved in hiring a new team member, and one of the applicants is a close friend. Do you
disclose this relationship and step back from the decision-making process, or do you keep it to
yourself?
Whistleblowing
You discover that your company is engaging in illegal activities, such as falsifying financial
records. Do you report this to the authorities, risking your job, or stay silent to protect your
position?
Favouritism
Your manager shows obvious favouritism towards a colleague, giving them the best projects and
promotions. Do you confront your manager, talk to HR, or accept the situation?
 Ethical Dilemma Examples in the Workplace

Employee Performance

You’re responsible for conducting performance reviews. A friend at work is underperforming. Do

you give an honest review that could harm their career or a favourable one to maintain your
friendship?
Workplace Harassment

You witness a colleague being harassed by another employee. Do you intervene directly, report it to
HR, or stay out of it?
 Managing ethical dilemma

Identify the Problem

•Clearly define the ethical issue.
•Determine who is affected by the dilemma.
Gather Information
•Collect all relevant facts.
•Understand the context and background of the dilemma.
•Identify the stakeholders involved.
Consider the Principles
•Reflect on ethical principles such as honesty, fairness, justice, and respect for others.
•Consider relevant laws and professional guidelines.
 Managing ethical dilemma

Evaluate the Options

•Generate a list of possible actions.

•Assess each option by considering the potential consequences for all stakeholders.
•Think about the long-term vs. short-term impact.

Make a Decision

•Choose the option that aligns best with ethical principles and has the most favourable balance of
outcomes.
•Ensure the decision is practical and feasible.
 Importance of Ethics in Corporate Governance

•Ethics in corporate governance refers to a set of moral principles and values that
guide the behavior of a company and its employees in conducting business.
•It involves promoting integrity, honesty, and fairness in all business operations,
ensuring compliance with legal and regulatory requirements, and fostering a
culture of ethical behavior within the organization.
 Why is Ethics needed in Corporate Governance?
Establishing a Code of Ethics: A code of ethics sets the standards of conduct and
behavior for employees and leaders in a company..

Encouraging Ethical Behavior: A company must promote a culture of ethics to

encourage ethical behavior. This can be done by rewarding ethical behavior, providing
ethics training, and creating an open and transparent environment where employees feel
safe to report any unethical behavior.

Maintaining Accountability: Corporate governance must hold its leaders and

employees accountable for their actions. This can be done by implementing policies and
procedures to prevent unethical practices, such as conflicts of interest or insider trading.
Upholding Legal and Regulatory Requirements: This means complying with laws
related to finance, labor, environment, and other areas. Failure to comply with these laws
can result in legal consequences and harm the company’s reputation.
 Corporate Scam

• Corporate fraud consists of illegal, deceptive action committed either by

company or individual who is an employee of company.
• Corporate fraud commonly occurs for the same reason as any other fraud
scheme – greed.
• Another cause of corporate fraud may be problems or defects with a
company’s products, which it tries to hide.
 Corporate Scam
• Punjab National Bank Scam: A fraudulent letter of
undertaking worth ₹11,600 crore (US$1.77 billion) was
issued at the Punjab National Bank branch in Brady
House, Mumbai, making the bank liable for the amount.
The fraudulent transactions, linked to Nirav Modi, were
first noticed by a new employee of the bank.
• Enron
• One of the most notorious cases of corporate fraud is the Enron scandal. At its
height, Enron, a major energy company, was raking in billions upon billions in
profits. However, when the company began to face declining revenues and debt
troubles, company executives hid the facts through massive accounting fraud.
• In the end, both Enron and its accounting firm, Arthur Andersen, went under.
Thousands of employees lost their jobs, and Enron’s creditors and investors lost
billions.
• The Enron accounting scandal is credited with resulting in the passage of
the sarbanes Oxley Act, which required more transparency in companies’
financial reporting and imposed significantly harsher penalties on any company
caught committing accounting fraud.
UBER SCANDAL:
Due to a data breach in 2016, hackers stole personal information from 25 million
customers and drivers in the US. Instead of reporting the hacker, Uber paid them
USD 100,000 to avoid bad publicity.

Hackers continued to download more

data and collected over 57 million
Uber users’ phone numbers! The
company decided to let its CEO go and
paid USD 148 million to settle claims.
That wouldn’t have happened if Uber had prioritized ethical governance, a set of
procedure, processes, cultures, and values that are designed to ensure the
implementation of the highest standard of behavior.

Ethical governance is an important factor in an organization’s success, as it

enhances its reputation, consumer loyalty, and employee retention. In turn, this will
lead to happier employees and higher profits, something that any organization
aspires to achieve.