Business Ethics and

Management Control

Prof. GURU PRASADFACULTY

INC GUNTUR

Ethical behavior in organizations

• Ethics deals with morality and rules regarding behavior and conduct.

• In organizational set up , ethics can be defined as the rules or standards governing the conduct of individuals and organizations.

Ethical philosophy

• There are three different ethical philosophies that individuals follow under different situations in an organizational set-up.

• These are- utilitarianism, individual rights, and justice.

• Organizations attempt to ensure that their employees behave ethically by using control systems

Ethical philosophy

• The individual rights philosophy deals with safeguarding the rights of individuals, such as the right to be informed, right to free speech, right to free consent, the right to privacy, and the right to due process.

• Utilitarianism recommends that a course of action that achieves the greatest good for the greatest number of people is ethical

Ethical philosophy

• Justice requires that the rules of the organization be enforced fairly and impartially. Individuals should be accountable only for factors which are under their control.

• Utilitarianism is the most commonly followed ethical philosophy

Ethical decision ideology

• Ethical decision ideologies can be classified based on two dimensions: one is

• Idealism – the belief that behaving ethically ensures positive results; and the other is

• Relativism – the belief that moral values depend on circumstances.

Ethical decision ideology

• Based on these two dimensions, there are four classifications of ethical decision ideologies

• Absolutist,• Exceptionist• Situationist, and • Subjectivist.

Ethical decision ideologies Matrix

Exceptionist Subjectivist

Absolutist Situationist

low high

low

high

IDEALISM

Relativism

Ethical decision ideologies Matrix

• An Absolutist believes in strictly following the universally accepted ethical principles.

• An Exceptionist refers to universally accepted ethical principles for broad guidance rather than for strict adherence.

Ethical decision ideologies Matrix

• A Situationist takes a decision on a case to case basis by studying and comprehending the situation at hand.

• A Subjectivist prepare to abide by their respective individual ethical principles rather than adhering to universally accepted ethical principles

Influencing factors of Ethics

• Individual factors• Organizational factors:-

1. Culture and structure2. Performance measurement

systems3. Reward systems4. Position related factors

Individual factors

•Individuals with higher ego strengths will not depend on others for decisions making , whereas people with low ego strength will look to others for help in arriving at decisions

Organizational culture

•The culture of an organization includes its values, belief systems, and norms. It is influenced by the behavior of the mangers or the top management of the organizations

Performance measurement systems

• The top management of sears auto centers developed incentive systems to improve revenue performance, and set targets for their employees that were practically unachievable. The employees therefore resorted to unethical actions by indulging in unnecessary and incomplete repairs of vehicles and overcharging for services.

• Finally , consumers initiated legal proceedings against the organization

Reward systems

• Reward system in many organizations tend to encourage unethical behavior like kickbacks. Also, some organizations tend to discourage and penalize whistleblowers; such punishment systems tend to further encourage unethical behavior.

• Reward systems should be integrated with the performance measurements systems.

Position related factors

• These are peer pressure, the expectations of the top management regarding achievement of objectives, the presence or absence of a code of conduct, superior-subordinate relationships, extent of resource availability, etc.,

• For example, employees of departments like marketing and purchase tend to face more ethical dilemmas

Organizational factors

• If a specific ethical behavior is rewarded, employees will tend to continue behaving in that way. On the other hand, if any employee gets punished for a specific behavior , he and the others in the organization will not resort to that kind of behavior

Influencing factors of Ethics

• External environmental factors

• political economical factors• social factors

Political and economical factors• It include factors like government

polices, tax structures, and the tariffs and duties levied on imports.

• Many organizations resort to bribing government officials to get contracts or licenses for businesses or to get into such transactions to stay in competitions.

• The case of Siemens AG officials routing organizational funds to an Italian energy company as bribes is an example of unethical behavior

Social factors

• Giving the right information to customers regarding products and services is one of the major ethical considerations that organizations must keep in mind.

• Being ethical serves as a competitive advantage for organizations, as it helps them build up a good reputation and image for themselves.

• Johnson and Johnson- faced a serious crisis, when a few capsules of its popular medicine, Tylenol were found to be laced with cyanide.

Integrated framework for ethical behavior

• When the ethical/unethical behavior of an individual is rewarded or punished , these decisions become a part of the employee’ s decision history and this further influences the decisions and behavior of the employees.

Ethical behavior

Decision history

Reinforcement/Reward systems

OrganizationalPosition related

factors

Ethical philosophy&

Decision ideology

Individual factors External Environmental factors

EthicalDecisionMaking

MCA and Ethical issues

•Budgetary slack•Managing earnings•Ethical issues in sales•Ethical issues in operations•Ethical issues in Human

Resources

Budgetary slack

• Budgetary slack is a deliberate understatement of revenues and /or overstatement of expenses in the budget.

• Budgetary slack is caused by managerial intention rather than by an unforeseen error in the estimation process. The slack created by mangers may also be used for the organization’s benefit during bad times

Managing earnings

• Corrupt managers tend to mange earnings for personal benefits . They try to show higher earnings in order to show that budgeted targets have been achieved.

• In united states , the Sarbanes Oxley act was enacted to act as an external control system to restrict such practices.

Ethical issues in sales

• The samples and gift adjustments in the pharmaceutical industry, where it is the practice to give samples of new products to doctors as a part of the sales promotion.

• These samples are given to the doctors so that they can try out the drug and also to help them in brand recall.

Ethical issues in operations

• Consuming more resources, providing for greater lead times, or accepting relatively poor quality . Focuses only on gaining maximum profit at minimum costs without taking social responsibilities into consideration.

• Neglecting the safety of employees. Having unhealthy and dangerous working conditions and passing off confidential information

Ethical issues in Human Resources

• Lack of Job security• Increased risk of unemployment• Excessive scrutiny and control• Discrimination• Absence of proper appraisal

methods• Sexual harassment• Recruiting on contract basis• Force them to work longer hours

Regulating Ethical conductControl activity Mechanism to regulate

ethical conduct

Indicating and communicating objectives

Code of ethicsEthics committeeEthics training for employeesCorporate governance focused on ethics

Feedback through performance measurement systems

Ethics committeeSystem of whistle blowing

Reward systems integrated with objectives accomplishment

Reward systems focused on ethics

Thank youTwo people can damage a society: the one who knows and doesn't talk and the one who doesn't know and talks-Mr. Peja (genci. K)

A word of encouragement during a failure is worth more than an hour of praise after success. -Anonymous

Common sense is not so common. -Jessica Truman

Appear weak when you are strong, and strong when you are weak. - Sun Tzu

Ethics only can save you

BREAK THE SILENCE