ch4 Application of Ethical Standards.pptx

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1. Application of Ethical Standards Unit 4

2. Concept The core objective of development of business ethics is its application in conducting business The ethical standards can not be the same for every business organization or professionals; however, each has to develop the standard for themselves and act accordingly in order to be respected within the field Morality is relative to the norms of the society as well as the time and subject in which it is practiced; there are no universal ethical standards However, it is often argued that although it is not universal, the fundamental principles are the same. Local customs like dress codes may differ but practices like slavery and terrorism are universally wrong

3. Manufacturing It is characterized by a man-machine setup with division of labor in a large scale production of goods that meet consumers’ expectations Manufacturers have a responsibility of maintaining ethical standards and complying with laws. They face more challenges because of the potential of harming employees, consumers and environment at the same time Implementing ethical policies to a manufacturer most of the times is not just ethical duty but often a legal requirement It is difficult to be specific in describing the duties since manufacturers have a huge variety which ranges from medical, tobacco, automobiles, sports, education, clothing and equipment to home appliances

4. 1. Safe manufacturing environment It is basically avoiding injuries at work; however, it is essential to maintain a balance between inconvenience, productivity, and safety. Basic safety measures: Eliminate hazards Engineering control (safeguarding technology) like fire alarms Technology to protect workers Awareness among workers to follow rules Trainings on safety measures Personal protective equipment A safe working environment saves costs (losses, compensations, and insurance) hence it should be regarded as investment not expense

5. 2. Harmonious and secure workplace Here, companies tend to avoid hostility and promote equality in the workplace; “happy employees are the benchmark of success” Six out of ten principles given by UNGC address these issues relating to human rights and labor: Human rights: Principle 1: business should support and respect the protection of internationally proclaimed human rights Principle 2: make sure they are not complicit in human rights abuses Labor: Principle 3: business should uphold the freedom of association and the effective recognition to collective bargaining Principle 4: elimination of all forms of forced and compulsory labor Principle 5: effective abolition of child labor Principle 6: elimination of discrimination in employment and occupation

6. 3. Reduce environmental effects Manufacturers are confronted by a wide range of environmental challenges; they must carry out the processes avoiding the possibilities of hammering the natural environment 3 out of 10 principles of UNGC, mentioned earlier, address these conducts Principle 7: business should support a precautionary approach to environmental challenges Principle 8: undertake initiatives to promote greater environmental responsibility Principle 9: encourage the development an diffusion of environmentally friendly technology

7. Following could be the specific duties based on the principles Only manufacturing products that, on consumption, does not pose any risk to the environment Supplying information on the correct storage, use, and disposal of the products Conserving natural resources by using raw materials and energy responsibly Using environment-friendly technology in research and production Avoiding and reducing waste Reducing risks to soil air and water to the greatest extent possible Preparing for potential dangerous situations in order to protect both people and the environment

8. 4. Honor client’s rights It begins from the very beginning, creation of raw material for manufacturing process, to the end after consumption; clients represent customer, consumer or purchaser Safe product is one that provides no risk or a minimum acceptable level of it during the normal or foreseeable use of the product. As a genuine manufacturer, one should acquaint with UNGCP and prevailing regulations as well as ethical values; following are some duties: Indicate name, trade name or trademark along with the correspondence address on the product or the packaging Mention the instructions for use and safety information in a language, easily understood by end users Product should be designed and manufactured in accordance with requirements set out by law In case a product is defective, the manufacturer should act to correct the problem and redesign the product.

9. Consumer Rights It simply denotes the legal and moral duties owed to a purchaser of goods or services by the supplier; i.e. these are legal and moral entitlements in favor of a consumer Traditionally these rights were limited to the right to buy or not to buy a product that is offered for sale Since the vision of US president John F. Kennedy gave rise to the four basic rights, there has been many extensions to it; the four rights were: right to safety, to be informed, to choose and to be heard Later UNGCP and CI extended it to following eight rights: The right to satisfaction of basic needs The right to safety The right to be informed The right to choose The right to be heard The right to redress The right to consumer education The right to healthy environment

10. Informed Consumers The act of purchase is simply an investment for happiness; hence a consumer should act like an investor of the share market before making a purchase The consumer must get a fair chance of choosing from a range of products which is only possible when consumers are informed The foremost duty of a producer is to provide the customers with complete, unambiguous and explicit knowledge about the products. In order to make sensible decisions and arrive at an evidence based conclusion, consumers go through following sources of information in general: Public information issued by government Reviews and testing services by authorities or comparison sites Social networks Suppliers of the products Media

11. Consumer Politics It is a movement of consumers expressing through critical consumption in the form of a pledge for or against certain products It is a typical consumer behavior, where people engage in BOYCOTTS or BUYCOTS, with the aim of forceful expression of their concern of the market Apart from these they may also ally themselves with other activists like social, human rights, animal rights or environmental activists in their condemnation of practices of corporate houses Today, consumers have access to wider range of information that allows them with wider consumption options and facilitates new patterns for political activity However, solidarity is the ultimate way and the most effective way is through cooperative efforts through formation of consumer groups

12. Consumer Privacy Consumer privacy addresses both privacy and confidentiality simultaneously as a fundamental right of the consumer and involves handling and protecting sensitive personal information of the consumers/customers It has become a major issue since the advent and evolution of IT along with the World Wide Web and other electronic means of communication 18 November 2013 “Google to pay $17 million to settle privacy case” -The New York Times”

13. Ethical Consumption It is the tendency of choosing to purchase goods for consumption that are ethically sourced made and distributed and consuming ethically The products, purchased should be produced in a way that minimizes social and environmental damage Some of the practices are: Bringing reusable bags to the store Switching to public transports wherever possible Buying sustainably produced products Minimizing waste Disposing waste properly Boycotting products involving unethical practices “Every time you buy something (spend money) you are casting a vote for the kind of world you want.”

14. Classification of Unethical Behavior Since the application of standard ethical principles, precisely depend on the setting or the situation, the unethical practices can be broadly categorized in many ways. Following are some criteria to describe them from different perspectives: Based on universal ethical principles: “non aggression” (murder, kidnaping) Based on normative ethical theories: consequence or moral duty Based on relativism: social norms and culture; changes with time Based on constituents of society: addressing individuals, businesses, politicians, professionals and so on It may also be categorized based on intention and impact intensity

15. Legal versus Morale and Ethics Legal Ethical Morale Legal matters are subject to the law and regulations that allows or bars people from doing something Ethics are subject to values that govern what a specific group or an individual should or should not do Morale is simply a state of mind for individual or a group Law is subject to enforcement and associated with penalties or punishment Ethics in not enforced Morale is a result of legal and ethical matters Enforced by government Comes from awareness Comes from behavior It is written and published Not written Not written It is consistent It has dilemmas It differs with situation Illegal conducts may sometimes be ethical Unethical conducts may have no legal implication It is coherent with the legal and ethical conducts

16. Business Ethics in the Market Place It is one of the subsections of applied ethics that categorically deals with Marketing ethics i.e. the moral and ethical principles behind the operations and regulations of marketing It seeks to promote honesty, fairness and responsibility in marketing activities; these activities are explained below: Product positioning and competing Pricing and its consequences Packaging and labeling Brand management and imperatives Advertising and communication Exploitative nature of advertising

17. Product Positioning and Competing Positioning refers to placing a product in a particular perceptual position in the mind of the consumer through differentiation by associating some special features to the product Examples: Move vs Iodex / zandu balm; Krack vs Burnol ; Fog, R ed bull Differentiation can be achieved through attributes, service offers, personal dealings, qualities as well as ethical practices A toothpaste may be for better breath, freshness, germicide or white teeth For cars it may be; fuel efficient, luxury, sporty, speedy, economic etc (Mercedes: “engineered like no other cars in the world”) Successful differentiation depends upon the imaginative approach and creativity whereas the effectiveness relies on the communication

18. Ethical Concern with Positioning and Competing In course of the struggle to survive the rapidly changing marketplace, companies have to cope up with the issues of ethics apart from the functional attributes of the products; even well positioned companies like Nestle and Nike have already faced such problems As the consumers are inclined towards ethical consumerism, companies need to consider following issues: Environmental friendliness of the products Preference towards organic products Ethical attributes of the product (production to consumption) Social responsibility of the company’s brand Green marketing

19. Pricing and its Consequences Price is basically the value of market exchange for a good or service expressed in terms of money. It is the most direct way of communicating value to customers and can be in terms of rent, fee, fare or interest. It is the only ‘P’ in marketing mix that generates revenue; others being cost centers. It is subject to firms strategic (long term) and tactical (flexible) objectives Pricing procedure: Selecting the pricing objective Determining demand Estimating costs Analyzing competitors’ prices Selecting pricing method Selecting the final price

20. Ethical Concern with Pricing Although pricing is one of the crucial acts of marketing, its consequences are not only limited to domain of marketing; hence, management must consider all the possible impacts and rationally think about following: Effect on corporate image Effect on internal stakeholders Effect on distributors and dealers Is it sellable How will competitors react How will suppliers react Government intervention Ethical to customers or not

21. Packaging and Labeling Packaging is the process of designing, evaluating, and producing the container for a product as an attempt of enclosing or protecting products for distribution, storage, sale and ultimate use. It is considered as an element of product strategy and requires consideration of the following for its efficacy: The concept of packaging T he basic purpose of the package Decisions regarding size, shape, materials, color, text and brand mark Coherence with product’s pricing, advertising, and other marketing elements Legal requirements Ethical dimensions Engineering and visual tests Dealer and consumer tests

22. Brand Management and Imperatives Brand is a name, term, sign, symbol or design or a combination of these, intended to identify and differentiate the goods or services of a seller A product is made in the factory; a brand is bought by the customers. A product can be copied; a brand is unique. A product can get outdated, a successful brand is timeless Brand management tends to increase the perceived value of a brand over time by maintaining, improving and upholding the brand, so as the name is associated with positive results

23. Importance of Brand Management Building a corporate image Increase market share Convey brand message vividly Create customer loyalty Persuade the buyer for the product Establish emotional connectivity with customers Positive customer perception about the product Create differentiation Reduce customers ‘ perceived risk

24. Ethical Concern with Brand Management A brand is more than just a name or a symbol; it is a set of promise that a company communicates to its customers. Hence it is an ethical concern that the company is committed to delivering those values to the customers through its product Ethical consumerism has been widely spread and consumers now are concerned with the ethical dimensions of the business; therefore, a renowned brand must be conscious about the issues or shall lose its credibility and image. Advancement of social media has increased the risk of defamation. Although Nike was not the only company to use sweatshops, but it got criticized heavily as it was the one everybody knew

25. Advertising and Communication Advertising is the placement of announcements and persuasive messages in time or space in any media by someone who seeks to inform and persuade members of a particular target market about he products, services, organizations or ideas Advertising is a part of marketing communication mix, which consists of advertising, sales promotion, public relation, publicity, personal selling, and direct marketing. Advancements in IT and internet facilities have helped companies enjoy more targeted communication and one to one conversations with customers as well as other stakeholders at different stages like pre selling, selling, consuming and post selling

26. Steps in Marketing Communication Identify the target audience Determine the communication objectives Design the message Select the communication channel Establish the total communication budget Decide on the communication mix Measure the communications’ results Manage the integrated marketing communication process

27. Ethical Concerns with Advertising and Communication Marketers must always respect the consumers’ right to be provided with adequate information about the product Marketing communication must admire the fundamental ethical values like honesty, social responsibility, fairness, respect and transparency. Marketers must comply with universal consumer rights, and regulations established by the government and professional organizations. Following are some common issues: Comparative advertising (comparing with competitors) Exaggeration (false claims) Surrogate advertising (indirect ads for alcohol and tobacco) Puffery (vague claims that can’t be disproved or proved) Unverified claims (claims without evidence) Innocence of children in advertising

28. Exploitative Nature of Advertising It is one of the ethical issues with marketing communication; it’s and act of using men, women, children or a group for advertising a product or service that will exploit customers’ personal feelings Some common practices are: Using innocence of children or parent-child relationship to make parents buy products Use of violent pictures and ad contents Gender offensive ads like women/men stereotyping and using women as sex symbol without any context Racially offensive ads like promoting superiority of farer skin tone by cosmetic products

29. Finance and Values Finance can be described in terms of three interrelated areas: Money and capital market : securities markets and financial institutions Investments: decisions made in terms of spending money Financial management or business finance : decisions within firms The ethical concerns regarding finance related practices and their values can be discussed under following headings: Financial accounting and standards Responsibilities of financial institutions Capital market and regulations

30. Financial Accounting and Standards It is a process of evaluating the operating performance of a company by recording, summarizing and reporting the financial transactions over a specified period of time It is one of the sectors of accounting among management accounting, cost accounting, social accounting and tax accounting The advancement of computer based accounting software packages, accounting as well as reporting is becoming more comfortable These are considered external documents as they are given to people outside the company (stockholders, government, lenders etc ); therefore the purpose is to provide enough financial information to assess the value of the company The ethical concern is to prepare unbiased, truthful and accurate financial reports for guiding behaviors in correct manner

31. Accounting Standards These are the systematic principles that guide and standardize the accounting and reporting practices, thus making it technically unanimous and comparable among various companies These make the reports (consisting assets, liabilities, revenue, expenditure and equity) consistent for different entities and help the stakeholders to analyze the financial data comfortably The emergence of IFRS (international financial reporting standards), IASB (international accounting standards board) and IPSAS (international public sector accounting standards) is an attempt to facilitate the stakeholders through accounting standards internationally Accounting standards differ in countries like in Nepal it is governed by ASB (Accounting Standards Board) constituted by Government of Nepal on March 2003 under Nepal Chartered Accountants Act, 1997 Similarly in US, they follow GAAP (generally accepted accounting principles) issued by FASB (financial accounting standards board)

32. Ethical Concerns with Financial Accounting It’s regarding how to perform duty morally in regard to the preparation and disclosure of financial information Double entry system of accounting was developed in 15 th century to minimize fraud, error and misappropriation of assets However, in spite of all the rules and benchmarks, the financial statements are not free from errors and are intended to mislead the investors; therefore, to prevent the fraudulent activities, along with the principles of accounting, ethical behavior is necessary Bribery and tax invasion are the most common issues in financial accounting; whereas, on an individual level, misappropriation of assets is a major issue On a company level fraudulent financial reporting is a common ethical issue usually done for misleading investors and maintaining company’s share price. This short term focus on finance is called myopic management