Business Ethics & Corporate Governance

Dr. Mousumi Sengupta

What is Ethics??

• The word ethics is derived from Latin word ethicus and Greek word ethikos.

• Ethics are moral guidelines which govern good behaviourSo behaving ethically is doing what is morally right

• A system of moral principles • Our Ethical compass

Concepts of Ethics• Ethical subjectivism – the morally correct decision often

depends on the circumstances of a person making it.

• Ethical relativism – there is no universal set of principles by which to judge morality.

• Consequentialism – it consists of two ideas: • the concept of value • maximization of value.

• Ethics of virtue – it emphasizes the role of individual traits.

Business ethics Ethical problems in business:

– Overt problems – transparent – Covert problems - complex

An ideal ethical decision comprises of the following virtues:

• Right – morally correct • Equitable- just and equal• Good- highest good for all concerned • Proper – appropriate and acceptable • Fair – honesty• Just – action

Stages of ethical consciousness in business

1. Law of jungle 2. Anything for profit3. Profit maximizing 4. Stakeholder analysis5. Corporate citizenship

Importance of ethics in business

• The Corruption Perceptions Index "on a scale from 10 (very clean) to 0 (highly corrupt)

• New Zealand is the least corrupt

• India stands at 95th place, among 178 countries

Ethical theories

• Metaethics

• Normative ethics – Teleological ethical theory– Deontological ethical theory– Virtue ethics

• Applied ethics

Ethical theories• Metaethics –

– it deals with the gamut of ethical issues.

– It is defined as the study of the origin and meaning of ethical concepts. It questions whether the moral values exist independently of humans or they are simply human conventions

– Psychological issues that deal with psychological basis of the moral action

– Linguistic issue that deal with the meaning of key moral terms we use.

– ‘Axe’ – even angels will fall !!!

Ethical theories• Normative ethics –

• It implies something that ‘guides’ or ‘controls’

• It guides human conduct. • We should treat others the same way

we want others to treat us. – Prescriptive – Universal– Overriding– Public– Practical

• Livon Hair Gain

Three normative theories

• Teleological ethical theories –thinking rationally about ends. An action is morally correct if the consequence of the action are more favorable. It is also called as Consequentialist theories. They offer 3 theories, based on 3 meaning of ‘good’:

• Egoism – if the consequence is good for self

• Utilitarianism – if the consequence is good for everyone

• Altruism – if the consequence is good for everyone except self

• Deontological ethical theory – focuses on certain fundamental duties that we have as human being

• Virtue ethics – focuses on character development

Theory of corporate moral excellence

• Culture is based on values • Espoused values• Values in practice

• Espoused values refer to a company’s statements, credos and code of ethics.

• They describe the organizations purpose and ethical perspective.

• Espoused values may differ from values in practice, depending on situations.

• Hoffman classified corporate culture into three types:

• Basic values attitudes and beliefs of the organization

• Organizational goals, policies, structure, strategies that are shaped by the values and beliefs prevalent in the organization

• Organizational procedures and processes

Common format for Corporate Code

• Compliance code • corporate credos• Management philosophy statements• Special documents• Circulated letters• Compliance certificate• Purchase orders

• Johnson and Johnson credo says, "We believe our primary responsibility is to the doctors, nurses and patients, mothers and all others who use our products and services“

• Tata credo says 'give back to the people what you have earned from them'.

• Wal-Mart, established the “Three Basic Beliefs” as the company's credo: - Respect for the Individual - Service to our Customers - Strive for Excellence