1. Principles of Business Ethics.pptx

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1. 1 PRINCIPLES OF BUSINESS ETHICS CHAPTER 1 I P C C PRINCIPLES OF BUSINESS ETHICS

2. 1.ETHICS - Greek word “Ethos” Ethos are value concepts Which guide us to say What is Right and Wrong What is good and bad What is proper and improper Ethics are applicable to all sections of the society. Business too has ethics I P C C 2 PRINCIPLES OF BUSINESS ETHICS

3. What do you mean by the term 'Ethics' ? The term 'ethics' is derived from the Greek word 'ethos' which means character. Ethics are the principles of conduct governing an individual or a group. It is concerned with norms for conduct of people as members of society as it relates to what is good or bad, and having to do with moral duties and obligations. Definition : defined ethics as “the application of moral values or codes to complex problems using a rational decision making process”. The outcome of this process is usually a behaviour or set of behaviors. IPCC PRINCIPLES OF BUSINESS ETHICS 3

4. What is 'Business Ethics' ? Definition : “ B u sine s s E th i c s i s t h e s t ud y of wh a t c o n s titu t es r i g h t a n d wrong or good and bad human conduct in business context”. Th u s , b u sine s s e th i c s deal s with mo r al i ty i n busin e ss environment. It i n v ol v es mo r al j ud g eme n t base d o n u n de r st a n din g of t he society. It extends beyond the legal questions and involves goodness and badness of an act. IPCC PRINCIPLES OF BUSINESS ETHICS 4

5. 1. Business ethics refers to the application of everyday moral or ethical norms to business. It requires an awareness of how the products and services of an organisation and the actions of its employees, can affect its stakeholders and society as a whole, either positively or negatively. Ethics in business organisation relates to a corporate culture , values, leadership, programs and enforcement. It is that set of principles or reasons which governs the conduct of business - at the individual or collective level by the application of ethical reasoning to specific business situations and activities. Business Ethics deal with the morality for conducting business activities. 5. 5 It is the behaviour of businessmen in business situations . IPCC PRINCIPLES OF BUSINESS ETHICS

6. What is the difference between ethics and morals ? Basis of d i f f e r ence Ethics Morals Meaning Ethics relates to what is good or bad, moral duties and obligation. Moral relates to principles of right and wrong. Origin G r eek w o r d “ E thos” m eans character. Latin word “MO” means customs. Group/ P e r so n al Ch a r ac t er attribute. is a personal Custom is an attribute of a group or society. IPCC PRINCIPLES OF BUSINESS ETHICS 6

7. Scope Ethics is much wider in scope. It examines the moral standards of a g r o u p o r s o ci e ty t o d e t ermine wh e ther these s t an d a r d s a r e reasonable or unreasonable in situations. Morals have smaller scope than ethics. It addresses, human needs for belonging and emulation. Expression Ethical norms are comparatively abstract. It cannot be described in general rules and statements. Moral norms are usually expressed as general rules and statements, e.g. " always tell the truth" Absorption Ethics are adopted or absorbed by an individual gradually by taking reasonable decisions in appropriate situations. Morals are typically adopted or Absorbed since childhood from family, friends, school, religious, leaders and so on. I P C C 7 PRINCIPLES OF BUSINESS ETHICS

8. Functional Area of Business Ethical Practice. 1.Plant location No adverse impact on local community 2.Production Control of Pollution 3.Purchase No hoarding of raw material 4.storage No hoarding of finished goods 5.Marketing Fair treatment to customers 6.Advertising Truthful and realistic claims 7.Administration Concern for social values 8.Finance Protection and appreciation of Capital 10.Personnel Just and equitable treatment to employees. In what way Ethical Practices relate to functional area of Business ? IPCC PRINCIPLES OF BUSINESS ETHICS 8

9. Explain the social sins listed by Mahatma Gandhi. (Nov. 10) Politics without Principles Wealth without work Commerce without morality Knowledge without character Pleasure without Conscience Science without humanity Worship without sacrifice Non-Violence, Justice & Harmony among people of all faiths IPCC PRINCIPLES OF BUSINESS ETHICS 9

10. What are the benefits of Business ethics ? The advantages or benefits of Business Ethics are as follows :- Improvement of society : Focus on Business Ethics has substantially improved society. Ethical Practices: Exploitation of workers and children, monopolistic price fixing and profiteering, harassment of employees at workplace etc. cannot be practiced by business enterprises now. Maintaining moral course in turbulent times: Business Ethics is helpful during times of fundamental change, when there is often no clear moral compass to guide leaders through complex conflicts about what is right or wrong. IPCC PRINCIPLES OF BUSINESS ETHICS 10

11. 4. Strong teamwork and productivity : Employees feel strong alignment between their values and those of the organization, as w ell as m ot i v a ti o n and per f ormanc e o f empl oy e e s a r e also improved. Employee growth : Focus on ethics in the workplace helps employees face reality, both good and bad, in the organization. Ensure that policies are legal : Attention to ethics ensures highly ethical policies and procedures in the workplace. For example, in matters of hiring, evaluating, disciplining, firing, etc. I P C C 11 PRINCIPLES OF BUSINESS ETHICS

12. 7. Compliance with law : Ethical programs helps to avoid criminal acts" of omission" and reduce fines, 8. Total Quality Mana g e m e n t ( T Q M ) : E thi c al p r o g r am s help s in ide n ti f ying p r e f er r ed v alues and ensuring th a t o r g an i z a tional behaviours are aligned with those values for TQM purposes. Diversity Management : Ethics management programs are useful in managing diversity. Strengthens the organization : Managing ethical values legitimizes managerial actions Strengthens balance of the organization's culture Improves trust in relationship between individuals and groups Supports greater consistency in standards. IPCC PRINCIPLES OF BUSINESS ETHICS 12

13. 13 State the ancestry of ethical standards. (RTP - May 12) 1. The Utilitarian Approach - (Increase Good done & Reduce Harm done) 2. The Rights Approach - (Choose freely your life and decide what you want to do with your life) 3 . Th e F airness/ J u s tice A p p r o a c h - ( E q u als t o b e t r e a t e d equal l y . ) 4. Common Good Approach - (Respect & Compassion for common good.) 5. Virtue Approach - (Our habits t ha t en a ble u s to take ethical actions. Truth/ Compassion/ Love/ Self Control/ Integrity/ Honesty etc.) IPCC PRINCIPLES OF BUSINESS ETHICS

14. What is meant by the term 'Stakeholders'? Management is not accountable solely to Investors (shareholders) but also to other interest groups or constituents who are affected by corporate activity. The term "Stakeholders" describes such constituents of an organisation - the individuals, groups or other organization which are affected by, or can affect the organization in pursuit of its goals. Stakeholders of a company constitutes:- Employees Trade Unions Suppliers Government Competitors Customers Shareholders and investors Local Communities. 14 IPCC PRINCIPLES OF BUSINESS ETHICS

15. 15 Write a note on Stakeholders. Internal Stakeholders External Stakeholders Shareholders E m pl o y e e s Management Trade Union C ons u m e r s Sup p lie r s C r edi t o r s C o mp e ti t o r s Local Community G o v ernm e n t (Constituents of an organisations - The individuals, groups or other organisations which are affected by, or can affect the organisation in achieving its goals. ) Stakeholders IPCC PRINCIPLES OF BUSINESS ETHICS

16. Business issues are straight forward and hence easy to resolve. But ethical issues bring a number of alternatives to choose from. So, one is confused – This is called ethical dilemma. We are not caught in a conflict between right and wrong, but 16 between right and right. ETHICAL DILEMMA PRINCIPLES OF BUSINESS ETHICS I P C C PRINCIPLES OF BUSINESS ETHICS

17. Analyse all the alternatives Make choice between personal values and goals organizational values and success Define the problem clearly Stand on the other side and see the problem How did the situation arise ? How to handle ethical dilemmas ? I P C C 17 PRINCIPLES OF BUSINESS ETHICS

18. What is the intention of the solutions ? Can your decision injure anyone ? Can you discuss the problem with the affected persons ? Can you be confident that your position will be valid for a long period, as it seems now ? Can you disclose your decision to your boss, CEO, Family members, Board Of Directors and Society ? I P C C 18 PRINCIPLES OF BUSINESS ETHICS

19. Introduction Managers / Owners have realized that profits should be 19 made by conducting business honestly, legally and morally. I P C C Corporate Governance and Corporate Social responsibilities (CG & CSR)

20. 20 CORPORATE G O V ERNANCE Definition “Corporate Governance is about promoting corporate fairness, transparency and accountability.” Scope 1.Accountability to stakeholders / employees / unions / govt. /sh.holder / suppliers / competitor /community 2.Power to the management 3.Control over the above powers. Definition Formal system of Accountability and control for Ethical and socially responsible organizational decisions and use of resources. I P C C Corporate Governance and Corporate Social responsibilities (CG & CSR)

21. What is the characteristics of good Corporate Governance? G o o d Corpo r at e G o v er n ance is a s y s t em of formal accountability, decision-making and control of ethical and socially responsible organisational decisions and use of resources. Good corporate governance has some major characteristics. They are as follows : Participatory Consensus oriented Accountable Transparent Responsive Equitable & inclusive Efficient and effective, and Follows the rule of law. IPCC Corporate Governance and Corporate Social responsibilities (CG & CSR) 21

22. Role played by different committees in regulating Corporate Governance. Board of Directors Audit Committee Compensation Committee Nomination Committee Investor Services Committee Corporate Management Committee Divisional Management Committee IPCC Corporate Governance and Corporate Social responsibilities (CG & CSR) 22

23. CSR CORPORATE – SOCIAL RESPONSIBILITY I P C C Corporate Governance and Corporate Social responsibilities (CG & CSR) 23

24. Introduction Business is a part of the society. Business needs support of society. Healthy business cannot exist in a sick society. Definition of H.R. Bowen Business must take care of the quality of life of society. Protect environment and human rights. I P C C 24 Corporate Governance and Corporate Social responsibilities (CG & CSR)

25. 2. “CSR is achieving commercial successes in ways that honor ethical values and respect people, communities, and the natural environment” IPCC Corporate Governance and Corporate Social responsibilities (CG & CSR) What is corporate social responsibility? (RTP May 11) Definition of H.R. Bowen 1. “The obligation of business to pursue those policies, to make those decisions or to follow those lines of actions which are desirable in terms of the objectives and values of our society” 25

26. Need for CSR Iron Law of Responsibility Society gives charter to business This charter can be revoked or amended if business fails to respond. Business can use its skills to develop society. Wealth creation for society. Effective use of resources and power Long term benefits. Better public image. Avoid government intervention Minimize environmental damage 26 9. Avoid misuse of power. IPCC Corporate Governance and Corporate Social responsibilities (CG & CSR)

27. 27 Benefits for CSR Improve financial performance Reduce operating cost Recycling, waste water use, flexi time Increased sales (use of environment friendly, equipments, No child labour etc. Brand image Productivity and quality(better working conditions reduced defective role. Attract and retain employees Reduce govt. intervention Access to capital market 9. Preference for awarding govt. contracts (UID – Infosys) I P C C Corporate Governance and Corporate Social responsibilities (CG & CSR)

28. 28 STRATEGIES USED BY COMPANIES FOR IMPLEMENTS CSR SEVERAL COMPANIES ADOPT DIFFERENT MECHANISM FOR HANDLING CSR ISSUES I P C C Corporate Governance and Corporate Social responsibilities (CG & CSR)

29. Some of the strategies that companies use for implementing CSR policies are 1. Mission / Vision statements E.g. Tata steel, ITC, etc. Cultural values Management structure (A shown above) CSR Planning to identify area Employee recognition Communication Education & training CSR Reporting (in Annual Report) Use of influence (Some model companies can influence 29 others in the locally) IPCC Corporate Governance and Corporate Social responsibilities (CG & CSR)

30. 30 I P C C WORK PLACE ETHICS

31. I P C C WORK PLACE ETHICS Work Place Ethics “How one applies values to work that is a set of Right and wrong actions at the work place” It covers issues relating to : Or List the commonly recognized Employment Discrimination practices. (May 11) Recruitment and selection Promotion Conditions of Employment Wage payment Transfer etc. of the Human Resources of an organisation. 31 6. Dismissals

32. What points/ factors are to be considered for creative a sound ethical environment in a company? (RTP - Nov. 10) Ensuring that employees are aware of their legal and ethical responsibilities. (Trade and motivate employees in ethics programme. Eg. Wipro ltd.) Providing a communication system between the management and the employees. (Report about fraud without any fear of being reprimanded) Ensuring fair treatment to those who act as whistle blowers. (RTP - May 11) (Appreciate whistle blowers. Enron Ltd.) IPCC WORK PLACE ETHICS 32

33. Importance of Work Place Ethics : No man or woman should be exploited in his / her work, or alienated through his / her work. Therefore, employer / organization must take steps to create a work. Environment where employers have a clear understanding of what is right and wrong. Employers should feel free to discuss ethical issues. Employees should feel to report violation of ethical standards. IPCC WORK PLACE ETHICS 33

34. Else, What Happens? Employees perform unethical activities. Report violations to outsiders. Lack of trust in infernal forum. Inability to retain good people. Loss of competitive advantage in the market. Loss of Reputation. More legal battles in the court of law I P C C 34 WORK PLACE ETHICS

35. 35 Bring out some examples of ethical issues faced by the individual in the workplace. (RTP Nov. 10, ICAI Nov. 10) Vis-à-vis Suppliers and Business Partners Vis-à-vis Cu st om e r s Vis-à-vis Empl o y ees Vis-à-vis resource Mana g e m e n t Bribery and immoral entertainment Unfair pricing Discrimination in hiring and treatment of employees Misuse of company funds Discrimination between suppliers Cheating Customers Harassment in workplace Tax evasion Dishonesty in making and keeping contracts Deceitful Advertising vis-à-vis resource Management Research Confidentially IPCC WORK PLACE ETHICS

36. Factors Influencing Ethical Behaviour Individual Colleagues Corporate Culture The Individual employees beliefs & values will decide his behaviour. Every employee is everyday has choices before his role. Sometimes values are compromised in the process 1. Boss Press Subordinates set examples for ethical conduct 1. Company’s Policies and codes. Companies culture Provides directors E.g. The best employee finds his boss using Company telephone for personal calls. of making quick decisions to achieve targets 4. E.g. gift from supplier report or fudging of A/c? 5 3 . 6 Need for self Actualisation I P C C WORK PLACE ETHICS

37. FORMS OF DISCRIMINATION 1. Sexual Discrimination 2. Sexual Harassment 3. Religions Discrimination I P C C WORK PLACE ETHICS 37

38. FORMS OF DISCRIMINATION 4. Age Discrimination 5. Nationality Discrimination 6. Handicapped Discrimination I P C C WORK PLACE ETHICS 38

39. 39 HARASSMENT “Intimidating & Tormenting an Individual through constant interference” SEXUAL HARASSMENT 1. Improper sexual conduct at work place 2. Includes : Lewd Comments Touching Comments Persistent Attention Requests for sexual favors I P C C WORK PLACE ETHICS

40. Man – Woman / Boss – Subordinate Deprives Women of opportunities Hurts sensitively and honor of women Degradation of moral values Legal costs to the firm Productivity declines 40 I P C C WORK PLACE ETHICS

41. HOW TO PREVENT SEXUAL HARASSMENT OF WOMEN? Prepare Sexual Harassment policy Declare strict actions Educate and warn all employees Adopt procedure to handle Assurance of Confidentiality - of the victim Assurance of non – retaliation Take disciplinary action Pay compensation to victim 41 IPCC WORK PLACE ETHICS

42. GUIDELINES FOR MANAGING ETHICS AT WORK PLACE Prepare code of conduct Ombudsman Leadership Example Open Communication Ethical Culture Group Decision Making Cross Functional Teams Anonymous Suggestion Grievance Procedure 42 10. Review & Revision I P C C WORK PLACE ETHICS

43. I P C C ENVIRONMENT & ETHICS 43

44. 1 . E n vi r onme n t al E thics deal wit h t he “Rig h ts & wrongs” with regard to the conduct of business vis-à-vis its impact of environment. 2 . Indu s tr i al & T e c hno l o g i c al d e v elopme n ts h a v e brought material prosperity. also equall y b r ou g h t th r e a ts the 3. They have e n vi r onme n t. I P C C 44 ENVIRONMENT & ETHICS

45. (RTP - Nov. 10) Explain the concept of Sustainable Development. OR There is no economic growth without ecological costs. Explain. (RTP - May 11, May 12) High e c on o mi c g r o w th m e ans hig h e r r a t e o f e xt r a c t ion and utilisation of resources. Sustainable development is to meet the needs of future generations. The r e f o r e , s a ti s f y p r e s e n t r e q ui r e m e n ts w i th o ut a f f e c ting futu r e generations Economic growth should be environmentally sustainable Efforts are to be made for resource regeneration. IPCC ENVIRONMENT & ETHICS 45

46. Sustainable Development (SD) Simple meaning of SD – maintaining development for a period over time But a widely cited definition is Development that meets the needs of the present without compromising the needs of the future generations. Economic growth has to be environmentally sustainable. Hence need for resource regeneration. Adopt positive approach to environment I P C C ENVIRONMENT & ETHICS 46

47. Pollution & Resource depletion Air pollution Global Warming Ozone depletion Acid rain Water pollution Land pollution Nuclear pollution Soil pollution I P C C 47 ENVIRONMENT & ETHICS

48. GREETING AND GREEN INITIATIVE When any company adopts anti pollution environment policy, it is said to be “going green” Why go green ? Reduced wastage So reduced handling expenses Avoid fines Comp e t i t i ve Advantage Public im a ge Economic B e n e fi t s 1.Efficient products 2.Better / cleaner technology 3.Waste reduction Better image Employees feel proud Investors are happy Consumers are delighted Examples [Recycling – Carbon reduction – CFC free – CFC Bulbs – Save Power – BEE star works for electrical units – paper glass – p 48 aper less offices – ITC Hotels recycling of used water – 5/7 Star hotel change of bed cover etc.] IPCC ENVIRONMENT & ETHICS

49. GREEN ACCOUNTING 1. 2. 3. process for Co nv e n tional ac c ou n ting le a ds t o policy decision whic h a r e now sustainable for the country. Green Accounting focuses on such deficiencies. The environmental costs must be properly reflected in the goods and services. 4. 5. 6. 7. 8. 49 9. Costs will increase, but consumer is willing to adjust according to the market environment. This helps to reduce damage to environment. The prices charged will influence consumer behaviour to avoid exploitation of resources. Over utilization of resources will come down. Adopt rule “Polluter Pay Principle” – “PPP” Remove subsidies adopt rule “PPP” I P C C ENVIRONMENT & ETHICS

50. “Polluter Pay Principle” I P C C ENVIRONMENT & ETHICS 5

51. I P C C ETHICS IN MARKETING & CONSUMER PROTECTION 51

52. 52 Q. Explain the relationship between ethics and marketing OR Short Note on Ethical dilemma in marketing 1. Marketing objectives P P P P 4 PS 2 . E t h ics Right or wrong Good or bad Dilemma Class of objectives One cannot be at the cost of another Need to balance I P C C ETHICS IN MARKETING & CONSUMER PROTECTION

53. NEED FOR ETHICAL BEHAVIOUR IN MARKETING OR WHY ETHICS ARE NEEDED IN MARKETING ? 1. 2. 3. 4. 5. 53 T o r e s t o r e / r e v e r se decli n i n g p u b lic c o n fi d enc e in mar k e t i ng To reduce govt. control on marketing To regain the power granted by the society (Ratan Tata / Anand Mahindra / A.M. Naik / Mukesh Ambani / Kumar Birla / R.K. Bajaj / etc. have great deal of social power and speak out on economic issues) To protect image of the organization. To uphold the well-being of the consumer and society. I P C C ETHICS IN MARKETING & CONSUMER PROTECTION

54. COMPETITION ACT, 2002 Earlier MRTP Act, 1969 Competition Act, 2002 Similar laws in all countries. Whole of India except Jammu and Kashmir. Objectives a.To establish C.C.I. (Completion Commission of India) To prevent adverse impact of competition To promote healthy competition To protect consumer To ensure freedom of trade 6. Prohibit anticompetitive agreements like Tie-up sales, cartels, Resale price, manmade 54 7. Regulate – mergers, takeovers, etc. IPCC ETHICS IN MARKETING & CONSUMER PROTECTION

55. 55 W h a t a r e the P a r ame t e r s/ P r ovisio n s of C o mpet i tion l a w / Competition Act 2002? (RTP - May 11, ICAI - Nov. 11) Prohibition of certain agreements. Abuse of dominant position. Regulation of combinations. I P C C ETHICS IN MARKETING & CONSUMER PROTECTION

56. IPCC ETHICS IN MARKETING & CONSUMER PROTECTION Explain the eight consumer Rights and Themes. (RTP - May. 12) OR State the objectives of the Consumer Protection Council in India. (Nov. 10) Right to basic needs Right to safety Right to choose Right to redress Right to information Right to consumer education Right to representation 8 5 . 6 Right to healthy environment

57. 57 Explain the consumer protection councils in India. (RTP - Nov. 11) The Central Consumer Protection Councils. The State Consumer Protection Councils. The District Consumer Protection Councils. I P C C ETHICS IN MARKETING & CONSUMER PROTECTION

58. 58 Particulars Consumer Interest Public Interest 1. Meaning Area which benefit the “Consumer” as a whole, constitute Consumer Interest. Area in which the society as a whole has some interest is called Public Interest. 2. Interested Class Consumer is a member of a broad class of people who purchase, use, maintain and dispose of products and services. Society refers to the collection of sub-systems, e.g. consumers, manufacturers, distributors, input suppliers, service providers, etc. 3. Scope Consumer is only a sub-system of a larger system i.e. general public / so c i e t y . He n ce , c o n s u m er interest is restricted in scope. Public Interest is wider in scope than consumer interest. Contd… I P C C ETHICS IN MARKETING & CONSUMER PROTECTION

59. Particulars Consumer Interest Public Interest 4. Factors Consumers are affected by pricing policies, financing, practices, quality of goods and services and various trade practices. Public interest reflects the morals during period and the established interest of the society. 5. focus If Consumer welfare is at the centre of any Governmental policy, such measures / decisions are said to be taken in “Consumer Interest”. Government policy decisions which are intended to benefit the society as a whole, constitute Public interest. 6. Examples Formulation of Competition Act, Regulation of Consumer Protection Councils, Consumer Courts / Adalats, etc. Maintaining law and order, providing for the defence of the country, maintenance of monuments of national importance, etc. I P C C 59 ETHICS IN MARKETING & CONSUMER PROTECTION

60. I P C C ETHICS IN ACCOUNTING & FINANCE 60

61. Wh a t a r e the g en e r al r easons f or u n e thic a l b eh a vi o ur in context of Accounts & Finance? Money-Mindedness. Accounting Complexities. Short-Term Profitability. Ignoring small unethical issues. Economic Cycles. IPCC ETHICS IN ACCOUNTING & FINANCE 61

62. Explain “ E thic a l Dil e m m a” i n the c o nt e x t o f a F i nance a n d Accounting Professional. (RTP - Nov. 11) Ethical Dilemma Value-conflicts Multiple alternatives Consequences to stakeholders Examples: Profit Forecast for a new project a. Unrealistic projection of revenue b. Projecting realistic but insufficient revenue. (Both have their own risks) IPCC ETHICS IN ACCOUNTING & FINANCE C .A . 62

63. What are the Fundamental Principles related to ethics. (Nov. 10, May 11, RTP - Nov. 11) Principles of Integrity: (Honesty and straightforwardness) Principles of objectivity: (No Bias) Principles of Confidentiality: Principles of Professional Competence Principles of Professional Behaviour: (Code of Conduct of ICAI) IPCC ETHICS IN ACCOUNTING & FINANCE 63

64. What are the various threats which can be faced by the Finance and Accounting Professional while working as an Auditor, Consultant or an Employee in an organization. (RTP - May 12.) Self-Interest Threats Self Review Threats Advocacy Threats Familiarity Threats Intimidation Threats IPCC ETHICS IN ACCOUNTING & FINANCE 64

65. The End 65