Business ethics

1. Adhering to legal, regulatory, professional and company standards, keeping promises and commitments and abiding by general principles like fairness, truth, honesty and respect.

2. obedience to the unenforceable

NEED

1. corporate misconduct2. greed3. Protection of stakeholders interest

ATTITUDE

1. preconceived notion, by experiences, value system2. right & ethical behaviour v/s wrong & unethical behaviour

BELIEFS: hold dear, foundation f value system

MORALS: impartial, of serious consequence, irrespective of authority, self interest

VALUES:

1. Constellation of likes, dislikes, view points, inner inclinations, rational and irrational judgements, prejudices and association patterns that determines a persons view of the world.

2. sustained and assimilated mode of acting, thinking or merely being 3. values--- shape--- beliefs--- attitude--- perception--- behaviour

ETHICAL VALUE SYSTEM

1. system of universalism: moral worth of an action of individual should be judged by intentions and not by outcome of action

2. System of Utilitarianism: concerned with consequence. Creating the greatest degree of benefit for the largest number of people while incurring the least amount of harm possible

3. System of Distributive justice: All rules and laws must be uniform across the organization

4. freedom of choice: within law5. Legal System & professional Codes: Professional codes are value-based norms of

desired behavior within a particular profession

PARENT: taught

ADULT: thought

CHILD: felt

LIFE POSITIONS BY HARRIS

1. “I AM NOT OK – YOU ARE OK”: get others to like & appreciate2. “I AM NOT OK – YOU ARE NOT OK”: negative, suspicious3. “I AM OK – YOU ARE NOT OK”: fault always lies with others, potentially criminal4. “I AM OK – YOU ARE ALSO OK”: peace & harmony with the world

TRUSTEESHIP MANAGEMENT: act of holding and managing resources on behalf of the stakeholders of the firm.

GANDHIAN PHILOSOPHY1. motto: greatest good of all2. on the basis of ‘Servodaya’ principles of Truth, Non-Violence and Trusteeship &

bhagvat gita’s ‘aparigraha’ (non-possession) and ‘Sambhawa’ (equalism)3. managers and proprietors of business firms are only the trustees of wealth of society

LABOUR MANAGEMENT RELATION:

1. supplement and help each other, capitalists are trustees of welfare, look after material & moral of labour

2. paternal3. trade union for development4. strike inherent for securing justice, crime when capitalist accepts principle of

arbitration5. conflict: satyagraha

TRUSTEESHIP

1. no recog for Rt to individual property2. resources for benefit of society3. mgmt. is trustee, optimise stkh value, maximise sh value4. pdt by social necessity, resources not whims5. wealth: legally of owner, morally of society & community

CSR:

1. Business has an obligation to society that extends beyond its obligation to its shareholders or owners.

2. operating a business in a manner that meets or exceeds the ethical, legal, commercial and public expectations that the society has of business”

3. the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large”.

SOCIAL RESPONSIBILITIES

1. economic2. legal3. ethical4. discretionary

Primary stakeholders Secondary stakeholders Creditors GovernmentSuppliers Local/ state govtEmployees PublicWholesalers Local communityCustomers MediaShareholders Activist gps, business support gps

Against In favourMaximise profit (friedman), business Too much powerDistorts allocation of Resources Worth of 3 richest people > cmbined GDP of

34 poorest countriesSocial policy is the jurisdiction of governments, not businessIncrease in business Power

BENEFITS

1. less lawsuits2. less harassment3. reputation4. loyal employees, customers5. goodwill6. improve

a. productivityb. environmentc. capital reserves

EVOLUTION OF CSR IN INDIA

1. MERCHANT CHARITY: disaster, water, dharamshala2. TRUSTEESHIP: tata, bajaj, mafatlal. vinoba bhave emphasized gandhiji ‘s trusteeship

of wealth3. DECLARATION OF CSR: fair trade practices association by tata, bajaj etc.4. MANAGERIAL TRUSTEESHIP: profitability depends on involvement in development of

society

5. CORPORATE CITIZENSHIP: govt alone cant handle, business cant prosper without society

drivers of CSR

TRADITIONAL MODERNValue Stakeholder mgmt.Strategy Envi mgmt.Public pressure Consumer pressure

Risk mgmt.EthicsAttracting employeesPersonal values

SOCIAL AUDIT

By Vinten: a review to ensure that an organization gives due consideration to its social responsibilities to those both directly and indirectly affected by its decisions, and that a balance is achieved in its corporate planning between these aspects and more traditional business related objectives

areas

1. respecting HR

2. socio economic development

3. employee welfare

4. consumer protection

5. respect for national sovereignty and local communities

STEPS TO IMPLEMENT CSR

1. mainstream in A of A

2. develop written policy in public domain

3. Assessment of internal environment

a. Identification of drivers and barriers to change

b. Assessment of core competencies of the company

c. Building in the strategic business case

4. Assessment of external environment

a. Legal Context & Development Context

5. Identification & prioritization of the opportunities for corporate collaboration

6. Putting CSR policy in the public domain

7. Translating CSR policy into action

8. Reporting, experience sharing and mutual learning

9. External reporting and certification

WHY NOT

1. no reward

2. no clear definition

3. denial of wrong doing

4. located on periphery

ETHICS IN IB

OBJECTIVES

1. sources of ethical challenges

2. effect

3. causes of poor ethical decision

ISSUES

due to environments

1. Political systems

2. Legal systems

3. Economic development levels

4. Culture

in context of

1. Employment practices

2. Human rights

3. Environmental policy

4. Corruption

5. Perceived moral obligations to society

PRACTICES

1. whose to be adopted

2. standardize or not

refer ppt 67

Determinants of Ethical Behavior

1. Organization culture

2. Personal ethics

3. Decision making processes

4. Leadership

5. Unrealistic / realistic performance goals

VALUE ADDITION BY CORPORATE GOVERNANCE

1. the system by which companies are directed and controlled

2. Wealth creation, mgmt, sharing

3. creation =output – input

4. mgmt. = reinvestment in

a. R & D

b. HR DEV

c. INFRA

d. RISK MGMT

5. sharing =

a. suppliers

b. HR

c. customers

d. public

PRINCIPLES OF CORPORATE EXCELLENCE

1. fairness

2. trust, transparency

3. sharing knowledge,

4. communication, feedback

5. happiness, concerns

6. helping

USE

CAPACITY, KNOWLEDGE, RESOURCES (DHARMA)

TO MAXIMISE SH RETURNS

THROUGH TRANSPARENCY, ACCOUNTABILITY, DISCLOSURE (KARMA)

Steps to develop orientation towards ethical business behavior

1. Planning, strategy

2. Establish nature of the program

3. Build a responsible business enterprise

4. Know structural components of the program

5. Plan the business mmprogram

6. Engage the enterprise’s stakeholders

7. Adopt design , review and approval process

MORALITY

principles for how individuals ought to treat one another, with respect to justice, others’ welfare, and rights.

As per Kohlberg, there is a sequence of six identifiable stages in the development of a person’s ability to deal with moral issues.

1. pre conventional: Right and wrong are interpreted in terms of the pleasant or painful consequences of actions

a. Punishment & obedience impartially benefits wveryoneorientation

b. Instrument and Relativity Orientation (reward oriented)

2. conventional: Maintaining the expectations of one’s own family, peer group, or nation

a. Interpersonal Concordance Orientation (good boy/ nice girl)

b. Law and Order Orientation: loyalty to nation, laws upheld except when they conflict with other fixed social duties

3. post conventional/ autonomous/ principled: non acceptance of group, but view that

a. Social Contract Orientation: democratic consensus

b. Universal Ethical Principles Orientation: Right action is defined in terms of universal principles chosen because of their logical comprehensiveness, their universality, and their consistency.

values for moral judgement

External Internal

Religion Respect for authority

Philosophical Loyalty

Cultural Conformity

Legal Performance

Professional Results

elements of MJ

1. Moral imagination

2. Moral identification and ordering

3. Moral evaluation

4. Tolerance of moral disagreement and ambiguity

5. Integration of managerial and moral competence

6. A sense of moral obligation

STAGES OF ETHICAL CONSIOUSNESS IN BUSINESS

1. MIGHT IS RIGHT

2. ANYTHING FOR PROFIT (as long as not caught by law)

3. GOOD BUSINESS IS GOOD ETHICS: short term profit maxi

4. SOUND ETHICS IS GOOD BUSINESS: long term profit maxi

5. STAKE HOLDERS, PHILANTHROPY, MUTUAL RELATION BETWEEN COMPANY & SOCIETY

6. CORPORATE CITIZENSHIP

ETHICAL CONDUCT

1. AWARENESS: CODE OF CONDUCT

2. EDUCATION: TRAINING IN ETHICAL REASONING

3. ACTION: HELP THROUGH PROCESS

4. LEADERSHIP: DEMONSTRATE

WORLD COM

1. Bernie ebbers

2. started in 1983, hattiesberg Mississippi

3. shares became 64 $ in 1999

4. resigned as CEO in 2000

5. company filed for bankruptcy in 2002

6. 3 major issues of worldcom

a. the corporate strategy of growth through acquisition:

i. position by successful completion of 65 acquisitions. 60 mil spent, 41 mil debt for the same.

ii. Main acquisitions include MFS COMMUNICATIONS (UUNET) & MCI COMMUNICATIONS (1 of the largest providers of business and consumer

telephone service).

iii. strong buy recommendations from analysts. this plus stock mrket perf increased prices. thus company used stock as the vehicle to continue to purchase additional companies

iv. MCI STORY: BRITISH communications bid for 19 bil. ebbers 30 l + 5 l debt settlement, 1.8 times BC’s offer

v. challenges of acq: integrate old & new business. Account for the financial aspects of the acquisition. The complete financial integration of the acquired company must be accomplished, including an accounting of assets, debts, good will and a host of other financially important factors. This must be accomplished through the application of generally accepted accounting practices (GAAP)

vi. probs:

1. MCI eg, customer service poor

2. senior mgmt. coord poor

3. inter unit struggles

4. closed 3 key service centres, opened 12 (repetitive, inefficient)

5. clercs: large no, redundancy

b. the use of loans to senior executives:

c. threats to corporate governance created by chumminess and lack of arm's-length dealing

d. Faulty financial reporting

i. write in one quarter millions of dollars in assets it acquired while, at the same time, it "included in this charge against earnings the cost of company expenses expected in the future. The result was bigger losses in the current quarter but smaller ones in future quarters, so that its profit picture would seem to be

improving.

ii. reducing the book value of some MCI assets by several billion dollars, the company increased the value of "good will," that is, intangible assets-a brand name, for example-by the same amount. This enabled WorldCom each year to charge a smaller amount against earnings by spreading these large expenses over decades rather than years.

iii. show less recievables, hence smaller reserve funds, larger earnings

iv. govt disallowed acq of sprint

7.

RAJAT GUPTA CASE

1. RAJAT GUPTA:

a. A Calcutta born Indian- American, graduated IIT Delhi, MBA from Harvard

b. First non-American Managing Director of world-wide McKinsey & Co

c. Director of Goldman Sachs Group

d. Director of Proctor & Gamble

e. Trustees of Rocketfeller Foundation and Bill & Melinda Gates Foundation,

f. founder of Indian School of Business, Hyderabad

g. Advisor to UN Secretary General.

h. PERSONALLY WORTH USD 84 MILLION

2. THE OFFENCE

a. Federal Government of USA’s 5-year crack down on insider trading has resulted in 69 convictions

b. one is of GUPTA

c. As Director of Goldman Sachs, he leaked price sensitive information to his friend Raj Rajaratnam who made huge profits around July 2008.

3. VERDICT

a. He was found guilty of professional misconduct & offence of Insider Trading, securities fraud & conspiracy by Federal Jury in Manhattan on July 15, 2012.

b. Now on October 24, 2012, US Distric Judge Jed Rackoff sentenced Rajat Gupta to two years imprisonment and also ordered him to pay USD 5 million fine.

c. US Government asked the Court to slap a maximum penalty of US $ 15 million.

d. Permanently bar Rajat from serving as Director of any publicly traded company for his terrible breach of Trust by indulging in Insider Trading.

4. REACTION

a. regretted terribly the impact of this on his family, friends and the institutions he worked for.

b. Even his defense Attorney Grary Naftalis lamented that he was a role model and icon but now he is no more.

c. The Attorney also said that while Rajat Gupta’s friend Raj Rajaratanm benefited from the illegal insider trading upto USD 75 million, his client earned no profit.

d. defense urged community service, but court wanted to send a strong message

5. REASONS

a. In 2009, Gupta’s friend Raj Rajaratnam, Hedge Fund Manager, co-founder of Galleon Group LLC was sentenced to 11 years for Insider Trading, mainly helped by friends like Gupta.

b. He poked fun at Gupta for his greed saying Gupta wanted to make millions MORE without much work.

c. There is a speculation that Gupta wanted Raj Rajaratam to help his Equity Fund: New Silk Route.

6. RESULT

a. Goldman Sachhs sought from Rajat reimbursement for US $6.9 million spent by them as legal fees in defending him

b. Immediately after sentencing in October, Rajat had filed Appeal to US Second Circuit Court of Appeal also for Interim Relief.

c. On December 5, 2012, 2-Judge Panel granted Stay out of Prison on a US $10 million Bond until the Appeal is disposed off.

d. Otherwise his prison was to commence on January 8, 2013.

e. Hearing of Appeal may commence from April, and it may take a year

7. LEARNINGS

a. don’t mix personal & professional ethics

b. understand difference between them

ETHICS:

Study of good/bad, fair/unfair & just/unjust

personal: COC FOR PERSONAL BEHAVIOR

professional: study of all that in business/profession

ETHICS SCALE