MBA/EMBA Program East West University Course Plan: MBA 513/EMBA 509: Business Ethics

Course objective: The course is designed to help students understand the meaning and importance of ethics for the corporate world with the focus on the existing approaches and practices, including management of ethics at the company level, the relationship between ethics and social responsibility of business and the issues of ethics in various areas of business. Course Content: Topic 1:Definition of ethics; understanding ethics, the shareholders and stakeholders; needs for/importance of ethics in business, adopting the practice of business ethics; ethical standards and principles; factors impacting organizational ethics. Topic 2: Sources of ethics value system, religion, culture, legal system; Myths about ethics: ethics are personal, Ethics do not mix with business, ethics are relative and good ethics mean good business, information is amoral and neutral. Topic 3:Management of ethics: ethical behavior, ethical management and management of ethics, strategies and policies, ethics officers, ethics training, role of management and leadership, standardizing ethical behavior: ethics guidelines and code of ethics, content of code of ethics, benefits and problems, activities in implementation; code of conduct of a multinational company Topic 4:Compliance: formal and informal dimensions, Corporate Social Responsibility: areas of social responsibility, arguments for and against CSR, the four stances of business organizations towards CSR, actions in implementing CSR: ethics committees, ethics training, whistle blowing, regulating ethics and CSR Topic 5:Ethics in specific issues job discrimination, wages, safety and health, performance appraisal, restructuring and lay off, privacy, sexual harassment, and bribery Topic 6:Practices of business ethics how ethical values emerge in organizations; treatment of organization by its employees, treatment of employees by their organization, treatment of other agencies by an organization and its employees Topic 7:Ethics and other areas of business general issues; ethics of accounting information, human resource management, sales and marketing, production, intellectual property, knowledge and skills, and technology; religious views on business ethics; related disciplines, etiquette, manners, cultural difference Topic 8:International business and ethics ethics of economic systems; theoretical issues and the practice, business ethics activities in global world Topic 9:Globalization and business ethics - Changes in world economic scenario associated with globalization, main drivers of globalization, the consequences of free market reforms, the public and private costs of trade liberalization Topic 10: Social Protection and the Concept of Decent Work - Protection of labor, addressing labor standard and other social issues by WTO; failure of trade liberalization in addressing poverty, labor standards, education and culture, health and environment, liberalization and gender issues]
The total number of classes will be 15 including 12 for lectures, 2 for mid-term examinations and 1 for final examination. Students will have to prepare assignments, appear in quizzes, and make presentations on assigned topics, including on case studies. The last activity will demand additional classes to attend. Reading materials will be suggested in the class. Prof. S. M. Mahfuzur Rahman Course Teacher

Topic 1: Introduction to Business Ethics [Understanding business ethics: the definition and the shareholders and stakeholders perspectives; ethics issues and the needs for/importance of ethics in business, adopting the practice of business ethics; ethical standards and principles; factors impacting organizational ethics.] Definition of Ethics and Business Ethics Ethics is a science that studies moral principles and reasoning of what is right and what is wrong, distinguishing the good from the bad and analyzing the motives and consequences of human actions. Ethics studies moral standards (of a man, an organization, and a society as a whole), examines how these standards apply in our lives and whether these standards are reasonable. Five characteristics of moral standards are: Involved with serious injuries or benefits Not established by law or legislature Should be preferred to other value, including self-interest Based on important considerations; and Associated with special emotions and vocabulary.

Business ethics is a specialized study of how moral standards apply to business i.e., it studies the good and evil, right and wrong and just and unjust actions of business persons (entities). In other words, business ethics is applied ethics that examines ethical principles and moral issues that arise in the different areas of business environment and is relevant to individuals and business organizations as a whole. In the business world, an organizations culture may set standards for determining the difference between good and bad decision making and behavior and the definition for business ethics boils down to knowing the difference between right and wrong and choosing to do what is right. The phrase 'business ethics' can be used to describe the actions of individuals within an organization, as well as the organization as a whole. Thus business ethics can be defined as written and unwritten codes of principles and values that govern decisions and actions of individuals within an organization, as well as of the organization as a whole. Business ethics can be both a normative and a descriptive discipline. As a corporate practice and a career specialization, the field is primarily normative. In academia descriptive approaches are also taken. The range and quantity of business ethical issues reflects the degree to which business is perceived to be at odds with non-economic social values. Business ethics is the behavior that a business adheres to in its daily dealings with the world. The ethics of a particular business can be diverse. They apply not only to how the business interacts with the world at large, but also to their one-on-one dealings with a single customer. There are two schools of thought regarding how companies should approach a definition for business ethics: the shareholder perspective and the stakeholder perspective. Shareholder Perspective Those who approach ethical decision making from a shareholder perspective focus on making decisions that are in the owners' best interest. Decisions are guided by a need to maximize return on investment for the organizations shareholders. Individuals who approach ethics from this perspective feel that ethical business practices are ones that make the most money. Stakeholder Perspective Organizations that approach business ethics from a stakeholder perspective believe that their decisions have impact on all the different stakeholder groups inside and outside the organization and they should consider the needs and interests of the multiple stakeholder groups, not just

those with a direct financial stake in the organizations profits and losses. The idea basically leads to the concept of corporate social responsibility. Stakeholders are individuals and groups who affect or who are affected by a companys actions and decisions. Shareholders are definitely stakeholders, but they are not the only ones who fall under the definition of stakeholder. Stakeholders may include: employees, suppliers, customers, competitors, government agencies, the news media, community residents and others. The idea behind stakeholder based ethical decision making is to make sound business decisions that work for the good of all affected parties.

Issues of Business Ethics

Business ethics covers a lot of issues, from whether to hire a friend over a better qualified stranger, relationships within an organization, to bigger issues such as whether to be an environmentally friendly organization but loose profits, or take in large profits by not paying for environmental measures but get a bad reputation and in the long run cost tax payers more. It may also cover whole industries, such as pharmaceutical companies and whether it is ethical for them to charge extreme amounts of money for a life saving drug just because they own the rights, and therefore are the only manufacturers of the drug. Respect for ethics compels decision makers to consider several dimensions economic, legal, moral and environmental while making decisions.

General Issues:
Overall philosophy of business and purposes of a company and the interests and rights of the parties involved Moral rights and duties of the company and of the shareholders fiduciary responsibility, stakeholders interest, shareholders stands Relationship with other companies hostile takeovers, industrial espionage etc Leadership issues corporate governance, corporate social entrepreneurship Political contribution made by corporations business policy, creating environment, national strategies Law reforms CSR, as well as misuse of CSR and marketing instruments

Specific issues: Business ethics covers a lot of specific issues, from whether to hire a friend over a better qualified stranger, relationships within an organization, to bigger issues such as whether to be an environmentally friendly organization but loose profits, or take in large profits by not paying for environmental measures but get a bad reputation and in the long run cost tax payers more. It may also cover whole industries, such as pharmaceutical companies and whether it is ethical for them to charge extreme amounts of money for a life saving drug just because they own the rights, and therefore are the only manufacturers of the drug. Ethics is related to all disciplines of management like accounting information, human resource management, sales and marketing, production, intellectual property knowledge and skill, international business and economic system. The specific issues will be discussed in details where the focus would be on ethics of different areas of business. Needs for/Importance of Ethics in Business Ethics is important in all aspects of business including in business because businesses operate in a society and the society prescribes certain norms that are binding on business. Societal norms

and standard practices are to be given due consideration in all business transactions. Ethical expectation of businesses and professionals demand the customers, clients and employees to deliberately seek out those who define the basic ground, rules of their operations. Recognition of business ethics means abiding by a code of conduct that guides an individual in dealing with others based on the examination of ethical principles and moral or ethical problems that can arise in business environment. It deals with issues regarding the moral and ethical rights, duties and corporate governance between a company and its shareholders, employees, customers, media, government, suppliers and dealers. Practice of business ethics improves performance in all the aspects. The benefits are not just the implications of distinguishing the right from the wrong the ethical behavior in business serves individuals and the enterprise much better in long run. For example, consumers may buy the products of a company no matter how they feel about the producer or the seller but a valued company (maintaining ethical standards) appeals to its customers more than a product and thus earns a kind of customer loyalty most corporations only dream of. "Price is what you pay. Value is what you get" - Warren Buffet Managing ethics matters to employees, stakeholders and the public and managing ethically means saving billions on law suits, settlements and thefts. Costs of being unethical include deterioration of relationships, damage to reputations, declining employee productivity, creativity and loyalty, ineffective information flow throughout the organization and high absenteeism. Organizations that have a reputation of unethical conduct towards its employees have a difficult time recruiting competent employees. Managing ethically means managing with integrity, which cascades throughout an organization and shapes and influences the values, time and culture of the organization, the communications among all its members and their commitment and imaginations. Ethical management leads to better decision making and helps manager to take decisions that are in the interest of the public, the employees and of the organization itself. Unethical behavior where people deliberately intend to harm themselves or others, develops from and is reinforced by, destructive states of mind, including fear, greed, anger and jealously. Ethical behavior enhances the well-being of everyone because it is developed from and reinforced by strong motives and emotions. If a company does not adhere to business ethics and breaks the laws, they usually end up being fined. Many companies have broken anti-trust, ethical and environmental laws and received fines worth millions. The problem is that the amount of money these companies are making outweighs the fines applied. Billion dollar profits blind the companies to their lack of business ethics, and the dollar sign wins. Business ethics is an important characteristic of effective leaders today. In fact it is a critical, essential and non-negotiable characteristic of an effective leader. Strong business ethics is a pillar of strategic planning and strategic thinking. Companies are encouraged to develop a set of core values and guiding principles and publish them for their clients and stakeholders to know that this is the way they do business. They also need to make sure that the core values are demonstrated in all that they do. Running a business ethically is good for business. A successful and profitable business in itself can be a tremendous contributor toward the common good of society. Ethical considerations are consistent with business pursuits and ethically strong companies are profitable organizations, too. However, business leaders or department managers may not spend all their time worrying about

doing good for society and thereby divert attention from their real objective, which is profitability and running an efficient and effective organization. A business that behaves ethically induces other business associates to behave ethically as well. If a company (or a manager) exercises particular care in meeting all responsibilities to employees, customers and suppliers it usually is awarded with a high degree of loyalty, honesty, quality and productivity. Employees who are treated ethically will more likely behave ethically themselves in dealing with customers and business associates. Ethics is a good base for continuity in business relationship also. A company that refuses to discriminate against older or handicapped employees often discovers that they are fiercely loyal, hard working and productive. A good man or woman who steadfastly tries to be ethical somehow always overtakes his/her immoral or amoral counterpart in the long run. The explanation is fairly simple: when individuals operate with a sense of confidence regarding the ethical soundness of their position, their mind and energies are freed for maximum productivity and creativity; on the other hand, when practicing unethical behavior, the individual finds it necessary to engage in exhausting subterfuge, resulting in diminished effectiveness and reduced success. A business or society that lacks ethical principles is bound to fail sooner or later. Businesses that violate ethics often face lawsuits leading to fines and sanctions. As against that, the companies and people who behave in a socially responsible manner are much more likely to enjoy ultimate success than those whose actions are motivated solely by profits. The reason is: doing the right thing often leads to the greatest financial, social, and personal rewards in the long run. Recent events in corporate America have demonstrated the destructive effects that occur when the leadership of a company does not behave ethically. One might wonder why highly educated, successful, and business savvy corporate professionals at Enron, Tyco, WorldCom, and Adelphia got themselves into such a big mess. Management gurus believe that the answer lies in a profound lack of ethics. Arguments in support of Business Ethics
Ethics applies to all human activities Business cannot survive without ethics (businesses do not operate in vacuum, they earn profit because the society allows them to do the business, consumers and employees care about ethics) Ethics is consistent with profit seeking (practice of business ethics improves performance in all the aspects, increases loyalty and productivity of employees, increases goodwill, acceptability of businesses and the satisfaction with their services, helps avoidance of fines and sanctions, lawsuits) Prisoners dilemma (a situation when two parties represented in prisoners dilemma as prisoners, cooperate, both gain, one cooperates and other do not, the other one gains more and if both do not cooperate, both loose)

The summary is: Ethical behaviors (a) enhance corporate reputation and brand image, (b) improve risk and crisis management, (c) create a cohesive corporate culture and (d) helps the company to avoid fines, sanctions and litigations.
Adopting the Practice of Business Ethics

Historically, businesses have gained a bad reputation just by being in business. To many people businesses are interested in making money, and that is the bottom line. It could be called capitalism in its purest form. Making money is not wrong in itself. It is the manner in which some businesses conduct themselves that brings up the question of ethical behavior. This is where the real thinking over business ethics started. But interest in business ethics accelerated dramatically during the 1980s and 1990s, both within major corporations and within academia. For example, today most major corporate websites lay emphasis on commitment to promoting non-economic social values under a variety of headings (e.g. ethics codes, social responsibility charters). In some cases, corporations have redefined their core values in the light of business ethical considerations (e.g. BP's "beyond petroleum" environmental tilt). Many global businesses, including most of the major brands that the public use, can be seen not to think too highly of good business ethics. Money is their major deciding factor, for which many major brands have been found to break anti-trust, ethical and environmental laws. Also many have been fined millions for such unethical practices. But the amount of money these companies are making outweighs the fines applied. Billion dollar profits blind the companies to their lack of business ethics, and the dollar sign wins. A business may be a multi-million seller, but does it use good business ethics and do people care? There are popular soft drinks and fast food restaurants that have been fined time and time again for unethical behavior. Business ethics should eliminate exploitation, from the sweat shop children who are making sneakers to the coffee serving staff who are being ripped off in wages. Business ethics can be applied to everything from the trees cut down to make the paper that a business sells to the ramifications of importing coffee from certain countries. In the increasingly conscience-focused marketplaces of the 21st century, the demand for more ethical business processes and actions (known as ethicism) is increasing. Simultaneously, pressure is applied on industry to improve business ethics through new public initiatives and laws (e.g. higher UK road tax for higher-emission vehicles). Businesses can often attain short-term gains by acting in an unethical fashion; however, such behaviors tend to undermine the economy over time. In the end, it may be up to the public to make sure that a company adheres to correct business ethics. If the company is making large amounts of money, they may not wish to pay too close attention to their ethical behavior. There are many companies that pride themselves in their correct business ethics, but in this competitive world, they are becoming very few and far between. Ethical Standards and Principles of Social Responsibility of Business Business Ethics and Social responsibility of business (frequently termed corporate social responsibility CSR) are often regarded as the same concepts. However, the social responsibility movement is but one aspect of the overall discipline of business ethics. The social responsibility movement arose particularly during the 1960s with increased public consciousness about the role of business in helping to cultivate and maintain highly ethical practices in society and particularly in the natural environment. CSR is a process by which businesses negotiate their role in a society (employees, community, environment and the government) and often CSR and ethics go together. Ethical Standards relate to Perceived impropriety (the condition of being improper) Responsibilities to the employer Conflict of interest Social Responsibility Principles Focus on the Community Diversity in actions Environment conservation

Issues of influence Confidential and proprietary information Supplier relationships Reciprocity Applicable laws Small, disadvantaged and minority-owned businesses Professional competence National and international supply management conduct Responsibilities to the profession

Ethics Financial responsibility Human rights Safety (at workplace and of clients)

Factors Impacting Organizational Ethics Good business ethics should be a part of every business. There are many factors to consider. When a company does business with another that is considered unethical, does this make the first company unethical by association? Some people would say yes, the first business has a responsibility and it is now a link in the chain of unethical businesses. Apart from such general approach, there are many specific factors that impact ethical decisions in business and they include:

Corporate culture Existence and application of a written code of ethics Formal and informal policies and rules Norms for acceptable behavior Financial reward system System for recognizing accomplishment Company attitude toward employees How employees are selected for promotions Hiring practices Applications of legal behavior Degree to which professionalism is emphasized The companys decision making processes

Behaviors and attitudes of the organizations leaders

Topic 2: Sources of Ethics and Myths about Ethics [Sources of ethics: value system, religion, culture, legal system; Myths about ethics: ethics are personal, ethics do not mix with business, ethics are relative and good ethics mean good business, information is amoral and neutral] Use materials of International Human Resources Management, pp. 294 298

Topic 3: Managing Ethics [Management of ethics: ethical behavior in corporate culture, ethical management and management of ethics, strategies and policies, ethics officers, ethics training, role of management and leadership, standardizing ethical behavior: ethics guidelines and code of ethics, content of code of ethics, benefits and problems, activities in implementation; code of conduct of a multinational company] Ethical behavior in corporate culture Businesses can either voluntarily develop appropriate policies (of ethical behavior) or can be forced to do so by public opinion. When external pressure is the reason for ethics programs, the adapted practices are not integrative: the company can have memos, reminders and some unintegrated policies. But if ethics planning comes from the top management, the ethics practices are more likely to be integrative: the company links rewards to managerial behavior to reinforce ethical ideals, ethical behavior is made a public relation tool. Sometimes businesses of such category go beyond regulatory or even cultural limits to become an ethically good business. Ethical Management and Management of Ethics Ethical Management means doing the right thing i.e., when we say that the management of a business organization is ethical we mean that the management is doing the right things but management of ethics means how this has been done i.e., what measures and actions are taken, what tools and systems are used and what organizational set up is in place to ensure this ethical management. The role of management in general Management of ethics is acting effectively in situations that have an ethical dimension and these situations occur in both the internal and the external environment of a business firm. Internally, firms bind members together through myriad rules, procedures, policies and values that must be carefully managed. Effective organizational functioning depends on gaining the acceptance of rules, policies and other guides and this acceptance requires a perception of fairness and commitment. The ethical issues in business have become more complicated because of the global and diversified nature of many large corporation and because of the complexity of economic, social, global, natural, political, legal and government regulations and environment, hence the company must decide whether to adhere to constant ethical principles or to adjust to domestic standards and culture. Managers have to remember that leading by example is the first step in fostering a culture of ethical behavior in the companies. However the other methods can be creating a common interest by favorable corporate culture, setting high standards, norms, framing attitudes for acceptable behavior, making written code of ethics to be abided by at all levels from top to bottom, deciding the policies for recruiting, selecting, training, induction, promotion, monetary/non-monetary motivation, remuneration and retention of employees. Thus, a manager should treat his employees, customers, shareholders, government, media and society in an honest and fair way by knowing the difference between right or wrong and choosing what is right, this is the foundation of ethical decision making. Most companies now believe that Good ethics is good business and this has a relevance to the famous quotation: "Noncorporation with the evil is as much a duty as is co-operation with good" - Mahatma Gandhi.

In business world the organization's culture sets standards for determining the difference between good or bad, right or wrong, fair or unfair. A companys managers play an important role in establishing its ethical tone. If managers behave as if the only thing that matters is profit, employees are likely to act in a like manner. A companys leaders are responsible for setting standards for what is and is not acceptable employee behavior. Its vital for managers to play an active role in creating a working environment where employees are encouraged and rewarded for acting in an ethical manner. Managers who want employees to behave ethically must exhibit ethical decision making practices themselves. Managers have to remember that leading by example is the first step in fostering a culture of ethical behavior in their companies. No matter what the formal policies say or what they are told to do, if employees see managers behaving unethically, they will believe that the company wants them to act in a like manner. Policy makers, as well as the managers and (senior) level employees of a company need to ask these questions: How ethically vulnerable is the company? What are the core values and guiding principles of the company? Is the company committed to living and exhibiting the core values in everything it does? The answers to these questions will define the state of ethics in the business. The role of leadership Leadership in business must set the standard and walk the talk when it comes time to ethical behavior. There can be no compromise of ethics. There can be no waiver of ethics. A leader must constantly keep his or her actions above reproach. If leaders are committed to that high standard, there will be no more Enron, WorldCom, Tyco, and Adelphia ethical meltdowns. Knowing what is right is very important to personal and business ethics. Doing what is right is absolutely critical to personal and business ethics. A strong unwavering commitment to core values and guiding principles of a company or organization will lead to the right ethical decisions and actions. In the absence of these actions, all one has is good intentions and that simply is not enough for effective leadership. The best way to promote ethical behavior is by setting a good personal example. Teaching an employee ethics is not always effective. One can explain and define ethics to an adult, but understanding ethics does not necessarily result in behaving ethically. Personal values and ethical behavior is taught at an early age by parents and educators. People at the top of an organization are expected to share the burden of cost reductions and belttightening during difficult times. Senior executives of companies who freeze their salaries or take a personal pay cut in a problematic year rather than lay off employees to cut costs deserve our utmost respect. However, this does not mean that a company should lose flexibility in adjusting its cost structure during bad economical times, replace old factories by new ones, or change technology in ways that would require fewer people to do the work. Decisions like that should be made with empathy and support (financially) to those who will be affected by it. Different people have different beliefs about what constitutes ethical behavior. The law defines what is and is not legal, but the distinctions between moral right and wrong are not always so clear. In many situations lines between right and wrong are blurred. Such situations can lead to ethical dilemmas. When faced with ethical dilemmas, its important to consider outcomes of the decision-making process. One way of dealing ethical dilemmas is by using the four way test to evaluate decisions. This test involves asking four questions:

1. 2. 3. 4.

Is my decision a truthful one? Is my decision fair to everyone affected? Will it build goodwill for the organization? Is the decision beneficial to all parties who have a vested interest in the outcome?

When these four questions can truthfully be answered with a yes, it is likely that the decision is an ethical one. Another way of making sure decisions are truly ethical is by using the publicity test. Ask yourself how you would feel if your actions were published in your hometown newspaper. If you would be comfortable having your parents, grade school teachers, and other people find out what you did, chances are that your decision is an ethical one. However, if you would not want these individuals to learn about your actions, you probably need to rethink your decision. Understanding whether a company is ethical in conducting business In the increasingly conscience-focused marketplaces of the 21st century, the demand for more ethical business processes and actions (known as ethicism) is increasing. Simultaneously, pressure is applied on industry to improve business ethics through new public initiatives and laws (e.g. higher UK road tax for higher-emission vehicles). Businesses can often attain short-term gains by acting in an unethical fashion; however, such behaviors tend to undermine the economy over time. In the end, it may be up to the public to make sure that a company adheres to correct business ethics. If the company is making large amounts of money, they may not wish to pay too close attention to their ethical behavior. There are many companies that pride themselves in their correct business ethics, but in this competitive world, they are becoming very few and far between. Strategies in Ethics Management Commitment from top management charity begins at home; percolate down to lower levels in the organization Having a code of ethics Constructing ethics committees Conducting ethics training programs Having a whistle-blowing in place; and Enacting legislations outlawing unethical conduct Ethics Policies As part of more comprehensive ethics programs, many companies formulate internal policies pertaining to the ethical conduct of employees. These policies can be simple exhortations in broad, highly-generalized language (typically called a corporate ethics statement), or they can be more detailed policies, containing specific behavioral requirements (typically called corporate ethics codes). They are generally meant to identify the company's expectations of workers and to offer guidance on handling some of the more common ethical problems that might arise in the course of doing business. It is hoped that having such a policy will lead to greater ethical awareness, consistency in application, and the avoidance of ethical disasters. An increasing number of companies also require employees to attend seminars regarding business conduct, which often include discussion of the company's policies, specific case studies, and legal requirements. Some companies even require their employees to sign agreements stating that they will abide by the company's rules of conduct. Many companies assess the environmental factors that can lead employees to engage in unethical conduct. A competitive business environment may call for unethical behavior. Lying has become

expected in fields such as trading. An example of this is the host of issues surrounding the unethical actions of the Saloman Brothers. Not everyone supports corporate policies that govern ethical conduct. Some claim that ethical problems are better dealt with by depending upon employees to use their own judgment. Others believe that corporate ethics policies are primarily rooted in utilitarian concerns, and that they are mainly to limit the company's legal liability, or to curry public favor by giving the appearance of being a good corporate citizen. Ideally, the company will avoid a lawsuit because its employees will follow the rules. Should a lawsuit occur, the company can claim that the problem would not have arisen if the employee had only followed the code properly. Sometimes there is disconnection between the company's code of ethics and the company's actual practices. Thus, whether or not such conduct is explicitly sanctioned by management, at worst, this makes the policy duplicitous, and, at best, it is merely a marketing tool. To be successful, most ethicists would suggest that an ethics policy should be: Given the unequivocal support of top management, by both word and example. Explained in writing and orally, with periodic reinforcement. Doable....something employees can both understand and perform. Monitored by top management, with routine inspections for compliance and improvement. Backed up by clearly stated consequences in the case of disobedience. Remain neutral and nonsexist. Ethics officers Ethics officers (sometimes called "compliance" or "business conduct officers") have been appointed formally by organizations since the mid-1980s. One of the catalysts for the creation of this new role was a series of fraud, corruption and abuse scandals that afflicted the U.S. defense industry at that time. This led to the creation of the Defense Industry Initiative (DII), a panindustry initiative to promote and ensure ethical business practices. The DII set an early benchmark for ethics management in corporations. In 1991, the Ethics & Compliance Officer Association (ECOA) -- originally the Ethics Officer Association (EOA) -- was founded at the Center for Business Ethics (at Bentley College, Waltham, MA) as a professional association for those responsible for managing organizations' efforts to achieve ethical best practices. The membership grew rapidly (the ECOA now has over 1,100 members) and was soon established as an independent organization. Another critical factor in the decisions of companies to appoint ethics/compliance officers was the passing of the Federal Sentencing Guidelines for Organizations in 1991, which set standards that organizations (large or small, commercial and non-commercial) had to follow to obtain a reduction in sentence if they should be convicted of a federal offense. Although intended to assist judges with sentencing, the influence in helping to establish best practices has been far-reaching. In the wake of numerous corporate scandals between 2001-04 (affecting large corporations like Enron, WorldCom and Tyco), even small and medium-sized companies have begun to appoint ethics officers. They often report to the Chief Executive Officer and are responsible for assessing the ethical implications of the company's activities, making recommendations regarding the company's ethical policies, and disseminating information to employees. They are particularly interested in uncovering or preventing unethical and illegal actions. This trend is partly due to the Sarbanes-Oxley Act in the United States, which was enacted in reaction to the above scandals. A related trend is the introduction of risk assessment officers that monitor how shareholders' investments might be affected by the company's decisions.

The effectiveness of ethics officers in the marketplace is not clear. If the appointment is made primarily as a reaction to legislative requirements, one might expect the efficacy to be minimal, at least, over the short term. In part, this is because ethical business practices result from a corporate culture that consistently places value on ethical behavior, a culture and climate that usually emanates from the top of the organization. The mere establishment of a position to oversee ethics will most likely be insufficient to inculcate ethical behavior: a more systemic program with consistent support from general management will be necessary. Ethics Training: Multinational companies offer employees the training on how to cope with ethical dilemmas (they are concerned about their interests abroad) Local business enterprises also need the training so that they are aware about what is ethical and what is not In western countries the priests have a great role in practice of ethics in business. Mollas in Bangladesh are far, far behind. They hardly hedayet the business people Standardizing Ethical Behavior: Guideline and Code of Ethics Guideline There are no global governance mechanisms to regulate and discipline companies that violate ethical standards. But businesses can and should create an environment of ethical practices and the motivations of businesses to have guidelines on how to create such ethics are: Guidelines created by companies are less problematic than those created by the government Such guidelines stimulate firms to operate according to the same principles (contributing to development of a level playing field for all organizations) Ethical conduct is needed in an increasingly interdependent world Norms of ethics reduce operating uncertainties, and The guidelines lead companies to beyond simply doing the right things.

Code of Ethics Almost all good companies are now in a process of developing or have already developed their own ethical code (company code of ethics), often styled as a code of professional and social responsibility, which may dispense with difficult issues of what behavior is "ethical". The Company Code of Ethics typically explains the why of a global ethic. Large multinationals introduced formal code of ethics in early 1990s. most companies develop internal ethics code of ethics by looking at codes collected by specialized centers like Ethics Resource Center in Washington or the Institute of Business Ethics in London. Some codes of ethics are often social issues. Some set out general principles about an organization's beliefs on matters such as quality, employees or the environment. Others set out the procedures to be used in specific ethical situations - such as conflicts of interest or the acceptance of gifts, and delineate the procedures to determine whether a violation of the code of ethics occurred and, if so, what remedies should be imposed. Having a code of ethics in companies or even in personal life (an individual also can have a personal code which can be as simple as a few sentences or as long as many pages). Code of ethics comprises a set of principles developed in advance and not of the choices made reflexively at the moment of an ethical lapse. The code defines the standards of right and wrong for the company who develops it, helps it resist temptation and becomes the basis for making ethically sensitive decisions.

Ethical Codes are often not part of any more general theory of ethics but accepted as pragmatic necessities. They are distinct from moral codes that may apply to the culture, education, and religion of a whole society. Even organizations and communities that may be considered criminal may have their own ethical code of conduct, be it official or unofficial. Examples could be hackers, thieves, or even street gangs. The content of the Company Code of Ethics usually covers the following areas: Contracts conflict of interest, bribery, security of proprietary information, receiving gifts Legally and generally accepted standards workplace safety, political activities, sexual harassment etc Others natural environment, child labor, human rights. The top management is adopt and follow the Code of Ethics regarding it something more than a written document and has to have the commitment towards reward and sanctions based on the codes providing statements about the following important variables 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. Fundamental honesty and adherence to law Product safety and quality, workplace health and safety procedure Conflicts of interest Employment practices Fair practices in selling and marketing and selling/providing services Financial reporting Supplier relationships Pricing, billing, and contracting Trading in securities and use of inside information Payments to obtain business Acquiring and using information about others Security and political activities Environment protection Intellectual property or use of proprietary information Internet and e-commerce activities

The effectiveness of such codes of ethics depends on the extent to which management supports them with sanctions and rewards. Violations of a private organization's code of ethics usually can subject the violator to the organization's remedies (in an employment context, this can mean termination of employment; in a membership context, this can mean expulsion). Of course, certain acts that constitute a violation of a code of ethics may also violate a law or regulation and can be punished by the appropriate governmental organ. Benefits of codes of ethics Code of ethics may ensure success and even if it is flawed, it may prevent failures If codes exist, mangers do not guide the firms into ethical morass or individuals will not rely on conflicting personal ethics when acting on behalf of the firm. Problems with the Code of Ethics General problems having relevance more to the national context: 1. Despite the fact that Code of Ethics is an useful and essential document for firms to develop and follow, it is important to be cautious that the Code of Ethics

2. Is not converted into a public relation tool rather than its being a behavioral guide 3. Does not lack specific content (a perennial problem with documents of such type) or ignore rights of key stakeholders in their dealings with other organizations 4. Integrates code compliance very well into the organizational procedure 5. Does not fail because of not providing a framework for communication with external communities about the success or failures of the company in achieving the Codes objectives 6. Can overcome difficulties, to the extent possible, in being part of an integrated process of decision making Problems/challenges having relevance more to the international context: 1. Global rules are likely to emerge from a negotiation process but they are unlikely to reflect values and habits of all cultures 2. The rules are developed by firms from westernized countries and reflect western rules and it is not easy to reconcile them with patterns in most participating nations and sustain them in environment of these nations, especially the developing ones. 3. Global ethics is in fact an end and not a beginning point but the practice of global ethics is not static: when conditions change, the organizations need to change the approach and attitudes how to sustain the rules in such a dynamic environment? 4. Global ethics may serve to depress innovation (since some will hesitate to act in absence of clear guidelines) how to overcome the problem, for example, in medical science? Important activities in implementation of Code of Ethics 1. Communicate with employees so that they understand what behaviors are expected and why; include notice of sanctions for ethical violations. 2. Monitor ethical behavior; include periodical inspections or progress reports. 3. Link ethics to rewards; integrate ethics code into everyday activities. 4. Audit results for feed-through to next step processes.

The Code of Conduct for a Multinational Company: an illustration

Respect Basic Human Rights and Freedoms Respect fundamental human rights of life, liberty, security and privacy Do not discriminate on the basis of race, gender, religion, language, ethnic origin or political affiliation Respect personal freedom (religion or opinion) Respect local cultural values and norms Minimize any negative Impact on Local Economic Policies Conform to local economic and development policies Avoid adverse effects on currencies and balance of payments Follow policies regarding local equity participation Provide truthful information for accurate taxation Pay fair taxes Source raw materials locally Reinvest profits in local economy Maintain High Standards of Local Political Involvement Avoid illegal involvement of local politics Do not pay bribes or make other improper payments Do not interfere in local government internal relations Transfer Technology Enhance the transfer of technology to developing nations Adapt technologies to local needs Conduct local R&D when possible Grant fair licenses to use technology Protect Environment Follow local environment protection laws Actively protect the environment Repair damages to the environment done by the company operations Help develop local standards Provide accurate assessments of environmental impacts of the company operations Provide complete disclosure to of the environmental effects of operations Develop standards to monitor environmental effects Protect Consumers Follow local consumer protection laws Ensure accurate and proper safety disclosures Follow Proper Employment Practices Follow relevant manpower policies and employment laws of the host nation Help create jobs in the needed areas, increase local employment opportunities and standards Provide local workers job security, promote local nationals to management positions Promote equal employment opportunities, match/improve local standards of employment Provide training opportunities at all levels for local employees Respect local collective bargaining rights, cooperate with local collective bargaining units Give notice to plant closings Do not use threat of leaving country in collective bargaining dealings Provide income protection to terminated workers Protect employees with adequate health and safety standards Provide employees the information on job related health hazards

Topic 4: Compliance and Corporate Social Responsibility [Compliance: Corporate Social Responsibility: arguments for and against and the four stances of
business organizations towards CSR, areas, of social responsibility, actions in implementing CSR: ethics committees, ethics training, whistle blowing, regulating ethics and CSR] Compliance is either a state of being in accordance with established guidelines, specifications, or legislation or the process of becoming so. For a business organization with an ethics program, compliance means whther the organization actually implements what it is committed to in terms of its ethical obligations. In the legal system, compliance usually refers to behavior in accordance with legislation and too often, it is found that there is a fairly widespread lack of understanding about what is required for a company to be in compliance with new legislation. There has been a long history of business and government excesses and subsequent legal, public and political reaction. Response to criminal misconduct has resulted in legal sanctions, governance practices, compliance standards and cultural transformation. Over the last 40 years, several major events in world business and subsequent legislation and regulation have shaped the way organizations do their business. Some such events with the most significant impact and influence in the development of compliance programs in the USA are the Foreign Corrupt Practices Act, the Committee of Sponsoring Organizations, and the Federal Sentencing Guidelines. One key issue in compliance is the approach of business organizations towards their obligations to the society. Conventionally, this is looked into in terms of the areas of social responsibility of business and the formal and informal dimensions of CSR. Corporate Social Responsibility Corporate social responsibility (CSR) is understood as the obligation of decision makers to take actions that protect and improve the welfare of the society as a whole, along with their own interests. Every decision a business person makes (say, on opening up a new branch, closure of an existing unit, automation etc or even routine matters like night shifts, sub-contracting or outsourcing) and every action he or she contemplates has social implications. CSR needs a comprehensive set of policies, programs and practices and it not mere philanthropy. Rather, it the outcome of a commitment of business to contribute to sustainable social and economic development, working with employees and their families, the local community and society at large, to improve their quality of life in ways that are good for business. Arguments in favor of CSR Social actions benefit society, but they also earn money for the companies because social actions bestow competitive advantage comprising four interdependent factors: (a) factor conditions, (b) context for strategy and rivalry, (c) demand conditions, and (d) related and support industries, all of which are influenced by CSR activities. Factor conditions: the availability of trained workers, high quality institutions of science and technology, adequate physical infrastructure, transparent and efficient administrative processes and natural resources. Context for strategy and rivalry: rules, incentives and norms governing competition in a nation or region that influences productivity; policies that encourage investment, protect intellectual property, open up local markets for trade, break-up or prevent the formation of cartels and monopolies and reduce corruption to make a location attractive for business. CSR can have a strong influence on creating a more productive and transparent environment for competition.

Demand conditions: comprise size and sophistication of the local market, and appropriateness of product standards that enhance a regions competitiveness by providing organizations with insights into emerging customer needs and the requisite pressure for innovation. Related and supporting industries: CSR can foster the development of clusters and the strengthening of supporting industries. It adds to the productivity of an organization by facilitating easy access to high quality industries and services; increases capability of local suppliers instead of promoting outsourcing. Proximity enhances responsiveness, exchange of information and innovation, and lowering costs of transportation and inventory. While the above relates to the first argument in favor of CSR, the second argument is: businesses exist only because the satisfy the valuable needs of the society i.e., the society gives charter to the businesses to exist and the charter can be amended and revoked any time if the businesses fail to live up to the societys needs reflecting its changing expectations. The third important argument is: social actions help create a better environment for businesses to operate in a society, make operations including hiring of talents or reaching media easier and absenteeism minimal. Arguments against CSR CSR relates to public expectations and makes it easy for corporations to operate in a new environment. But the idea of CSR is opposed also because CSR may: Transfer costs to consumers and shareholders Prompt mandatory requirements Invite bureaucrate overseeing and demands on businesses Cause a fall in economic efficiency of businesses Is illegitimate because social issues are concerns not of businesses but of the government Is not a function of businesses and should be left to non-business organizations

Milton Friedman opposed CSR on the basis of two principles: one, economic 9if managers spend corporate funds on projects not intended to maximize profits, the efficiency of the market mechanism will be undermined and resources will be misallocated within the economy) and the other legal (because managers are legal agents of the stockholders, their sole duty is to maximize the financial return to the stockholders and if they spend money for social purposes, they essentially steal it from the owners). Friedman suggested, if the stockholders want to spend money on social cause, they are free to do so individually, with their dividends/own money. Dhirubhai Ambani believed in building a sound and profitable company, leaving social responsibility to non-business organizations. The line is further reiterated by the argument: businesses become most responsible when they attend to their interests and leave other activities to other institutions. Also, there is another argument: social issues are the concern not of business but of the government. Some even say that businesses pay the government well and the government should do its job leaving the businesses alone to do their job, business leaders have neither social skills to manage social activities, nor do they have time to devote to them complying with the law and the social system. Peter Drucker: If any executive talks about social responsibility, fire him first. The Areas of Social Responsibility are: Organizational stakeholders customers, employees and investors The natural environment General social welfare charity, philanthropy, support to not-for-profit foundations such as museums, organizations offering public health, basic education etc.

Globally, businesses help rainforests survival in LA, Trust in capital market in USA, infant morality, literacy, life expectancy in Afghanistan, corruption in China and Korea, primary school environment and HIV/AIDS in Uganda, government policies in Botswana, Civil War in Congo, and environment and logging interests in New Zealand.

An organization can take 4 stances concerning its obligations to the society: A. Obstructionist stance; B. Defensive stance; C. Accommodative stance; and D. Proactive stance. It may however, be noted that organizations do not always fit neatly in one category. Firms adopting obstructionist stance in CSR are unlikely to survive in the long-run because they engage in illegal behavior; those adopting defensive stance intend to either avoid or do the minimum CSR functions and may find it difficult to thrive. The remaining two types of firms articulate social value objectives, lead businesses with best practices, and balance profit with social objectives. These companies earn acceptability and with that a better prospect for survival and growth. Obstructionist stance Profit motives put ahead of all objectives; no or as little activities as possible to address social/environmental problems; forgo morality and look for gaps in the requirements for CSR and excuses for non-compliance; Nestle and Danone were accused of violating international agreement (1981) on controlling the marketing of infant formula that serves as substitutes of breast milk. Instead, they provided mothers in West Africa free samples (violating another norm about labeling standards). They however denied violations, argued that their actions were all technically acceptable. Fight CSR/lobby against legal changes, but conform to law to the extent which is unavoidable, do the legally required but nothing more; this is however, one step better than the obstructionist stance but since such companies also stick to the principle of doing profit, their attitude towards CSR is hostile. For example, such a firm may install pollution control device/equipment as required by law, they would not install only a minimum capacity equipment which might not be sufficient. Meet legal requirements, comply with CSR laws rather than fight, also go beyond in selective cases; voluntarily agree to participate in social programs, but solicitors have to convince the organization that the programs are worthy of their support. Some firms match contributions made by their employees to selected charitable causes. Many will respond the requests for donations, sponsorships etc. The point is: clients are to seek actions of the firms in CSR. Integrate social objectives with business goals, take the CSR functions to heart and act proactively to contribute to the society by actively seeking the opportunity for that.

Defensive stance

Accommodative stance

Proactive stance

Compliance of Ethics and CSR Some people believe that 1. Requiring managers to promote social goals (profit making for the business) in addition to economic goals may cause managers to lose focus; and

2. The CSR movement rests on a fundamental misunderstanding of the functioning of free market. But wide majority now consider that the corporate sector should practice ethics and social responsibility functions because although the society allowed/granted them the license to operate and earn profit i.e., they have fiscal responsibility, but they also have social responsibility i.e., the responsibility of responding to the needs of the society and environment and they a. cannot have unconstrained pursuit of profit; b.are believed to have unique talents and resources to solve the societys ills; c. are under the scrutiny of the community/public who is more informed about business activity and view CSR as positive activity; d.can use CSR activities in attracting, hiring, retaining and motivating people they want to work with and keeping the employee moral high; and above all, e. should treat CSR not as a substitute of profitability but as a means of achieving profitability companies that pursue a triple bottom line of economic, social and environmental sustainability outperform the global index (of success in business) because CSR creates (i) acceptability of the company in the community, as well as the government of the country where it operates, (ii) a degree of ease in decision making and (iii) a good working environment leading to higher productivity. Compliance is a difficult issue. Multinational companies try to find a balance between the roles and behaviors expected by their home governments and those expected by all in the host countries where they operate. The state, market and the civil society develop ways to handle needs of the different groups and work on ensuring the compliance. Formal and Informal Dimensions The foundation for ethical behavior goes well beyond corporate culture and the policies of any given company, for it also depends greatly upon an individual's early moral training, the other institutions that affect an individual, the competitive business environment the company is in and, indeed, society as a whole. Organizations need to fashion their CSR the same way they develop any other business strategy. CSR should be viewed as a major challenge that requires careful planning, decision making, consideration and evaluation. But compliance is perhaps the most critical component which has both formal and informal dimensions. Formal dimensions include legal compliance, ethical compliance and philanthropic giving. Legal compliance The extent to which the organization conforms to regional, national and international laws; compliance regulations needed to be followed may cover issues relating to personnel hiring, pay, workplace safety, health etc, as well as banking or environment regulations. Ethical compliance The extent to which the organization follows basic ethical (along with the legal) standards of behavior; relate more to ethical conduct of the owners and employees and are often formalized through adopting code of ethics or formation of ethics committee. Philanthropic giving donation of funds for example, for breast cancer research, free medical supplies, education or livelihood skills training, contribution to construction of a hospital or an educational establishment etc., which demonstrate good citizenship. Philanthropic giving however, does not enhance corporate reputation if the company (awarding it) (a) fails to live up to its philanthropic image or (b) if consumers perceive philanthropy to be manipulative (Phillip Morris charity is for the companys advertisement of tobacco products; sometimes it is difficult to balance image and action: Procter and Gamble and Honda Motor donated supplies in the aftermath of 9/11 - they decided not to publicize, and they were criticized for

doing nothing). In the present context of cutbacks, many corporations limit their charitable gifts and trim their budgets. Two major informal dimensions of compliance are leadership practices and organizational culture, whistle-blowing. Leadership practices and organizational culture Also identified as initiative by top management, the leadership practices can go a long way toward defining CSR of an organization and planning their implementation in stages. The top management may insist and instigate employees by persuading that customers, employees and the communities where the firm operates and the shareholders are all important and their stakes are to be taken care of. Whistle-blowing Disclosure by an employee of illegal or unethical conduct any employee or member of the management team or even the owners of a business organization and the way the organization responds to it. People who disclose such things are the whistle blowers. The degree of compliance is a major indicator of how companies respond to their CSR responsibilities. But the actions in implementing CSR (other than philanthropic giving) are: 1. Articulating social value objectives: make CSR part of articulated belief and the objectives of the firm, articulate set of principles to guide employees throughout all subsidiaries and affiliates; statement of commitment is not enough; Starbuck Coffee Company has a short document: Starbucks Commitment to do our part on how the company intends to contribute to improvement in the lives of the people in coffee producing countries. 2. Engage with stakeholders: Responsible treatment of stakeholders (primary stakeholders owners, employees, labor unions, customers, suppliers; secondary stakeholders NGOs, social activists, community groups, government organizations) is an important element in CSR initiatives; pressure from stakeholder groups to improve or change conduct is a challenge for the company managers; stakeholder relationships have a direct impact on financial performance and positive connections with key stakeholders can improve firm profitability. Clarkson Principles of Stakeholder Management [The Clarkson Center, 1999] 1. Managers should acknowledge and actively monitor the concerns of all legitimate stakeholders and should take their interests appropriately into account in decision making and operation; 2. managers should listen to and openly communicate with stakeholders about their respective concerns and contributions and about the risks that they assume because of their involvement with the corporation; 3. Managers should adopt processes and modes of behavior that are sensitive to the concerns and capabilities of each stakeholder constituency; 4. Managers should recognize the interdependence of efforts and rewards among stakeholders, and should attempt to achieve a fair distribution of the benefits and burdens of corporate activity among them taking into account their respective risks and vulnerabilities; 5. Managers should work cooperatively with other entities, both private and public to ensure that the risks and harms arising from corporate activities are minimized and when they cannot be avoided, appropriately compensated; 6. Managers should avoid altogether activities that might jeopardize inalienable human rights (e.g., right to live) or give rise to risks, which is clearly understood, would be patently unacceptable to relevant stakeholders;

7. Managers should acknowledge the potential conflicts between (a) their own role as corporate stakeholders and (b) their legal and moral responsibilities for the interest of the stakeholders and should address such conflicts through open communication, appropriate reporting and incentive systems, and where necessary, third party view. 3. Cause-related marketing: Donate apportion of sales of selected products to charitable organizations; e.g., declare a part of sale proceeds goes to the World Wildlife Fund; such initiative enhances publics view of the organization. 4. Cause-based partnership (CBP): Alliances between businessmen and non-profit organizations that simultaneously respond to values of civil society or address organizational needs; most often these are efforts in poverty alleviation, protection/preservation of environment, prevention of social injustice, satisfaction of social needs such as Special Olympics; recent issues are health and education, child labor; CBP can involve (at a time) two or more, even many organizations of different size and scope; often initiated by organizational leaders, outside influences, grassroots efforts or even sometimes, by force (say, insisting by local government); CBP management is difficult because CBP may come about by chance or design, it connects businesses with social goods, creates managerial linkages and therefore, increases complexity in scope and pattern. 5. Lead the industry with CSR best practices: If CSR practice comes from the belief of company leaders in effectiveness of integrating morality and profit i.e., of social objectives with business motives, it can generate best practices, examples that others can follow in CSR (in areas such as environment protection, child labor, job creation, educational and digital inequalities, disaster relief, world wide safety standards, healthcare and the like) 6. Human rights initiatives: Develop a comprehensive code of conduct to ensure that workers making their product anywhere in the world work in safe condition and are treated with dignity and respect; a best known leader in this aspect is Levi Straus the first multinational to adopt guidelines covering worker treatment. Conclusion: CSR activities are integrative mechanisms for adopting people, processes, and global structures.

Evaluation of CSR activities of firms Investigate whether the CSR efforts have produced the desired benefits; Apply the concept of control to CSR; Check how familiar the current and new employees with guidelines/code of ethics; Find whether there is any follow-up system within the firm to respond to CSR needs; Conduct formal evaluation of the effectiveness of CSR, for example, by a corporate social audit.

Regulating Ethics and CSR There are many laws and regulations; a few of them are: The Foreign Corrupt Practices Act (USA, 1977) prohibits US firms, their employees and agents from paying or offering bribes to any foreign government official to influence official actions. The Alien Tort Claims Act (USA, 1789) US multinationals may be responsible for human rights abuses by foreign governments if the companies benefit from those abuses. The Anti-Bribery Convention of the OECD (2000, ratified by 34 countries till 2007) eliminate bribery in international business transactions.

Conventions of ILO, especially those relating to child labor, including ban on the worst form of child labor.

Topic 5: Ethics and a few specific issues of concern in business

[Ethics as an issue in job discrimination, wages, safety and health, performance appraisal, restructuring and lay off, privacy, sexual harassment, and bribery]

1. 2. 3. 4. 5. 6. 7. 8. Bribery

Bribery and corruption Restructuring and layoff Privacy Job discrimination Performance appraisal Wages Safety and health Sexual harassment

Bribe is remuneration for the performance of an act that is inconsistent with the work contract or the nature of work one is expected to perform; it is payment made with an intention to corrupt. Besides being morally wrong, bribery is economically undesirable, too. The reasons are: An economy based on bribery does not provide open access to all competitors on equal terms Bribery prone economies become less efficient resources are wasted, costs rise and along with costs, prices too tend to hike. Restructuring and Lay-off There are ethical implications in the process by which termination decisions are made and actions taken. Issues on consequence in closure of a plant: How the plant for closure is chosen? How the news will be communicated? What will be the time-frame for completing the layoffs? How the affected employees will be compensated? Privacy Privacy refers to protecting an employees private life (religious beliefs, political and social beliefs, personal life style) from intensive and unwarranted actions; privacy empowers and enables people. Interventions in privacy: Information technology AIDS testing Whistle-blowing (without sufficient grounds, and also keeping unattended) Drug-testing Genetic testing (for ones inherited characteristics and certain illness) Performance Appraisal The assessor is expected to be objective and fair i.e., free of biases Avoid underrating or overrating employees Use ethics as the corner-stone of performance evaluation, and Provide an honest assessment of the performance and mutually develop a plan to improve the ratees effectiveness

Job Discrimination A discriminatory decision Is based on group membership, not on individual merit Is the result of prejudice or false stereotype Somehow harms those it is aimed at Four common discriminatory practices 1. Individuals can intentionally discriminate out of prejudice 2. Organizations can discriminate having a prejudiced policy 3. Discrimination may be on the basis of sex or race 4. There can be workplace harassment, for example of women Wages An ethical issue is the parity between remuneration of employees in home country with that of employees working in a foreign location, as well as between remuneration of a local employee and a foreign one of same qualifications and working in the same organization with same responsibilities. Another ethical issue indirectly related with wages is the imposition of restrictions on free movement of labor in a world where other factors of production capital, technology and machines move with much less or almost no restrictions across the globe. Safety and Health Business ethics require A. Taking guard against accidents in work place caused by High speed and noisy machinery Production processes requiring high temperature An increasing reliance on chemical compounds The nature of such works as construction, underground and under-water tunneling, drilling and mining B. Prevention of cumulative trauma and disorders in jobs (wrist pain, weakened eye sight, job stress and other health hazards). Life is better than death, health is better than illness and body integrity is better than injury Sexual harassment Sexual harassment means unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature. Three types: 1. Sexual threats forces women to comply, lest their jobs are at stake 2. Sexual offers against incentives of jobs, pay rise or promotion 3. Hostile work environment sexual nature of conduct of the co-workers causes a women to feel highly uncomfortable and affect performance; flirting, sexy jokes and sexual references are too common in workplace where men and women work together

Topic 6: Practice of Ethics in Business

[Practices of business ethics how ethical values emerge in organizations; treatment of organization by its employees, treatment of employees by their organization, treatment of other agencies by an organization and its employees]

Towards a better understanding of business ethics In order to have a broader understanding of the concept and its various aspects, one can look for answers to a number of the following type: 1. 2. 3. 4. 5. 6. 7. What Are Workplace Ethics? What Is an Ethics Officer? What does "You Reap What You Sow" Mean? What is a Business Process? What are Banking Ethics? What is Informed Consent? What is Capitalism?

The questions may be of another type, such as: 1. Do you prefer social isolation? 2. How can the public make sure that a company adheres to correct business ethics? 3. Can anyone do my business ethics homework for me? Rather than doing the work myself and gaining an understanding of ethics that would help me better navigate the business world? 4. Can anyone examine critically the inevitability of ethics in business activities? 5. Which one of (a) metaethics (analytical ethics, attempt to understand metaphysical, epistemological, semantic, psychological presumptions and commitment), (b) normative ethics and (c) applied ethics is best for making business decisions and why? 6. What are consequences of greed in term of politics or economy of the country? 7. Which moral philosophy you feel is best suited for making business decisions and why? 8. Why is it necessary to apply business ethics? 9. Is business ethics a part of company activities, or it is merely a response to societys call? 10. How do businesses that you know treat their employees, or care for the community and environment? Businesses create value Investors earn profit; workers earn incomes; consumers get products and services. But in instances businesses companies, firms behave in a way not acceptable on different grounds. First consideration is ethical behavior (standard norms, values, beliefs, practices). Ethical standards vary in different cultural environment and need to be standardized in a cross cultural context. While talking about ethics in business, we deal with the behavior of a. Organization to its employees b. The employees towards their organization and c. The employees and organization towards other economic agents Cases: a. Minute Maid, Tropicana, Nestle bought fruit juices fro South America but these suppliers rely heavily on child labor (especially in harvesting fruit); parents may not oppose, but the harm is already done;

b. Child labor in sewing soccer balls in San Miguello (Mexico); children are earning, but earning low and are not going to school c. Nike child labor abuse, unsafe working conditions, violations of local regulations in manufacturing products in contracts with independent operators in Asia. How ethical values emerge in organizations? Organizational ethics and responsibility are shaped by national culture most businesses develop within nations by adopting dominant national cultural values, beliefs, practices, behaviors (e.g., obeying national laws and regulations, conforming to national norms); both laws and norms reflect national cultural values and together, they outline right and wrong business behavior; not everything is written, businesses do conform them in their actions. Top managers influence organizational ethics top managers values are evident at an organizations founding or with a new CEO; managers shape organizational culture, often with written statements such as the organizations vision, purpose, mission or values; top managers create ethics, positive cultures by articulating organizational purpose in terms of a combination of social and business goals; they are to design a reward system that does not patronize unethical behavior. Managers do more than sign off on an ethics plan they can not behave unethically to demoralize employees or even provoke them to leave their jobs; also, others follow the leader while managers are to create examples. What is the issue in (international) business? Define appropriate ethical standards, operate in a socially responsible way; address the issues of child labor or work safety; Compensate for the loss of job positions for employees at home (because of shifting production abroad) Treatment of employees by their organization (how an organization treats its employees): a. Hire the best people to provide ample opportunities for skills an career development b. Provide appropriate compensation and benefits c. Respect personal rights and dignity of each employee However, there might be problems with wage ranges and benefits, working conditions and the environment, career prospects and child, women and labor rights. Treatment of the organization by its employees (how employees treat their organization): a. Conflicts of interest [suppliers offering gift to a company employee influences purchases which may not be the best; employee may accept the favor because he has festivals, something to offer to the family or friends, needs like treatment, or recovery of losses in gambling etc.; the employee will do bad purchases or divulge company information to competitors] b. Secrecy and confidentiality c. Honesty and integrity [making long distance phone calls by using the office line, stealing supplies, padding expense accounts etc]

How employees and organization treat other economic agents: customers, competitors, suppliers, labor unions and all other stakeholders. a. Pricing escalating prices on every available grounds, a serious issue in CSR b. Product quality effect of the product on health, environment, psychology and social norms diseases, change in mindset- drugs, violence, sex c. Sensitive products scarcity and price pharmaceutical, fuel, kerosene, candles, salt d. Company behavior with government and local people in starting and operating business, sale of products and services; e. Distribution of dividends against shares/stocks, manipulation of share prices; f. Handling suppliers and dealers; g. Handling labor unions a special issue in ethics; labor unions may be (a) pro-self, (b) pro-industry, and (c) pro-labor Large companies like Phillips, Nissan, Daewoo, Whirlpool, Hewlett Packard have developed Code of Ethics: written statement of values and ethical standards that guide the firms actions. Toyota, Siemens, General Mills, Johnson & Johnson have written guidelines on how to treat suppliers, customers, competitors and other constituents. These companies however, need to decide on whether and how to apply the Guidelines/Code of Ethics prepared for home countries in countries where they have subsidiaries. Organizational practice and corporate culture Top leaders to play role models in ethics; If they violate, they loose the moral right to insist ethical norms for others; Unfair practices or corruption/bribery escalates cost, calls for manipulation in management and the associated strains, invites petting the trade unions and so on.

Topic 7: Ethics and other Areas of Business

[General issues; ethics of accounting information, human resource management, sales and marketing, production, intellectual property, knowledge and skills, and technology; religious views on business ethics; related disciplines, etiquette, manners, cultural difference]

General Issues

Every business has its own philosophy dominated by the fundamental purposes of a company. If a company's main purpose is to maximize the returns to its shareholders, then it is unethical for it to consider the interests and rights of anyone else. Ethical rights and duties existing between companies and society are debated in the context of interpretation of the concept of corporate social responsibility or CSR. Moral rights and duties between a company and its shareholders are to be looked at in consideration of: fiduciary responsibility, stakeholder concept v. shareholder concept. There are ethical issues concerning relations between different companies: e.g. hostile takeovers, industrial espionage, as well the leadership issues, such as corporate governance. Corporations do have political contributions. There should always be the scope of law reform, especially for resolving ethical debates such as the one over the crime of corporate manslaughter. Corporate ethics policies may be misused as marketing instruments.

Ethics of Accounting Information

Creative accounting, earnings management, misleading financial analysis. Insider trading, securities fraud, bucket shops [brokerage firm that books" retail

customer orders without actually having them executed on, an operation in which the customer is sold a security but there is no transaction made on any exchange. The transaction goes 'in the bucket' and is never executed. Without an actual underlying transaction, the customer is betting against the bucket shop operator, not participating in the market] forex scams [any trading scheme used to defraud traders by convincing them that they can expect to gain a high profit by trading in the foreign exchange market. concerns (criminal) manipulation of the financial

markets. Executive compensation: concerns excessive payments made to corporate CEO's and top management. Bribery, kickbacks, facilitation of payments: while these may be in the (short-term) interests of the company and its shareholders, these practices may be anti-competitive or offend against the values of society.

Ethics of Human Resource Management The ethics of human resource management (HRM) covers those ethical issues arising around the employer-employee relationship, such as the rights and duties owed between employer and employee. More specifically, the issues are

Discrimination issues, including discrimination on the bases of age (ageism), gender, race, religion, disabilities, weight and attractiveness. Issues arising from the traditional view of relationships between employers and employees.

Issues surrounding the representation of employees and the democratization of the workplace: union busting, strike breaking. Issues affecting the privacy of the employee: workplace surveillance, drug testing. Issues affecting the privacy of the employer: whistle-blowing. Issues relating to the fairness of the employment contract and the balance of power between employer and employee: slavery, indentured servitude, employment law. Occupational safety and health.

All of the above issues are also related to the hiring and firing of employees. Employees can not be hired or fired based on race, age, gender, religion, or any other discriminatory act. Ethics of Sales and Marketing Marketing goes beyond the mere provision of information about (and access to) a product and may seek to manipulate the values and behavior. To some extent society regards this as acceptable, but the ethical line is to be drawn somewhere. Marketing ethics overlaps strongly with media ethics, because marketing makes heavy use of media. However, media ethics is a much larger topic and extends outside business ethics. The major ethical issues of marketing are:

Pricing: price fixing, price discrimination, price skimming [pricing strategy in which a

marketer sets a relatively high price for a product or service at first, then lowers the price over time].

Anti-competitive practices: these include but go beyond pricing tactics to cover issues such as manipulation of loyalty and supply chains, anti-competitive practices, violation of antitrust law. Specific marketing strategies: greenwash (practices of companies spinning their products and policies as environment friendly such as by presenting cost cuts as reduction in use of resources), bait and switch (a form of fraud advertising a product or service for sale at a unprofitably low price but customers reveal that the advertised good is not available while a substitute is), shill (associate, usually a person assuming the air of an enthusiastic customer of a good or service of a company/business with he pretends to have no relation whatsoever), viral marketing (marketing network that uses preexisting social networks to achieve other marketing objectives such as product sales through self-replicating viral process, analogous to the spread of pathological and computer viruses), electronic spam (abuse of electronic system to send unsolicited bulk messages indiscriminately), pyramid scheme, planned obsolescence. Content of advertisements: attack ads, subliminal (hidden) messages, sex in advertising, products regarded as immoral or harmful Children and marketing: marketing in schools. Black markets, grey markets (trade of a commodity through distribution channels, while legal, are unofficial, unsolicited or unintended by original; in case black market, the trade of goods and services are illegal themselves and/or distributed through illegal channels).

Ethics of production
This area of business ethics deals with the duties of a company to ensure that products and production processes do not cause harm. Some of the more acute dilemmas in this area arise out of the fact that there is usually a degree of danger in any product or production process and it is difficult to define a degree of permissibility, or the degree of permissibility may depend on the changing state of preventative technologies or changing social perceptions of acceptable risk. Some specific issues are

Defective, addictive and inherently dangerous products and services (e.g. tobacco, alcohol, weapons, motor vehicles, chemical manufacturing).

Ethical relations between the company and the environment: pollution, environmental ethics, carbon emissions trading Ethical problems arising out of new technologies: genetically modified food, mobile phone radiation and health. Product testing ethics: animal rights and animal testing, use of economically disadvantaged groups (such as students) as test objects.

Ethics of intellectual property, knowledge and skills Knowledge and skills are valuable but not easily "ownable" as objects. Nor is it obvious who has the greater rights to an idea: the company who trained the employee, or the employee themselves? The country in which the plant grew or the company which discovered and developed the plant's medicinal potential? As a result, attempts to assert ownership and ethical disputes over ownership arise.

Patent infringement, copyright infringement, trademark infringement. Misuse of the intellectual property systems to stifle/suppress competition: patent misuse, copyright misuse, patent troll, submarine patent. Even the notion of intellectual property itself has been criticized on ethical grounds Employee raiding: the practice of attracting key employees away from a competitor to take unfair advantage of the knowledge or skills they may possess. The practice of employing all the most talented people in a specific field, regardless of need, in order to prevent any competitors employing them. Bioprospecting (ethical) and biopiracy (unethical). Business intelligence and industrial espionage.

Ethics and Technology

The computer and the World Wide Web are two of the most significant inventions of the twentieth century. There are many ethical issues that arise from this technology. It is easy to gain access to information. This leads to data mining, workplace monitoring, and privacy invasion. Medical technology has improved as well. Pharmaceutical companies have the technology to produce life saving drugs. These drugs are protected by patents and there are no generic drugs available. This raises many ethical questions.

Religious views on business ethics

The historical and global importance of religious views on business ethics is sometimes underestimated in standard introductions to business ethics. Particularly in Asia and the Middle East, religious and cultural perspectives have a strong influence on the conduct of business and the creation of business values. Examples include:

Islamic banking, associated with the avoidance of charging interest on loans. Traditional Confucian disapproval of the profit-seeking motive. Quaker testimony on fair dealing.

Related disciplines
Business ethics should be distinguished from the philosophy of business, the branch of philosophy that deals with the philosophical, political, and ethical underpinnings of business and economics. Business ethics operates on the premise, for example, that the ethical operation of a private business is possible -- those who dispute that premise, such as libertarian socialists, (who contend that "business ethics" is an oxymoron) do so by definition outside of the domain of business ethics proper. The philosophy of business also deals with questions such as what, if any, are the social responsibilities of a business; business management theory; theories of individualism vs. collectivism; free will among participants in the marketplace; the role of self interest; invisible hand theories; the requirements of social justice; and natural rights, especially property rights, in relation to the business enterprise. Business ethics is also related to political economy, which is economic analysis from political and historical perspectives. Political economy deals with the distributive consequences of economic actions. It asks who gains and who loses from economic activity, and is the resultant distribution fair or just, which are central ethical issues.

A brief list of related areas

Bribery Business culture Business law Corporate behavior Corporate crime Corporate social responsibility Corruption Ethicism Ethics Ethical code Ethical job

Ethical implications in contracts Ethical consumerism Ethical code Ethical job Fiduciary Journal of Business Ethics Management Optimism bias Political economy Strategic misrepresentation Strategic planning

Ethics
Subfields Normative ethics Meta-ethics Descriptive ethics Medical ethics Professional ethics Evolutionary ethics Ethics of care Sexual ethics Bioethics Cyberethics Neuroethics Engineering ethics Environmental ethics Legal ethics Media ethics Business ethics Marketing ethics Ethics in religion Concepts Freedom Autonomy Rights Value Morality Responsibility Care Humane Justice Principles Virtue Happiness Equality Trust Free will Consent Moral right Moral responsibility Human rights Just War Axiology more... Theories Utilitarianism Consequentialism Deontology Virtue ethics Philosophers Plato Aristotle Confucius Mencius Thomas Aquinas Baruch Spinoza David Hume Immanuel Kant Georg W. F. Hegel Arthur Schopenhauer Jeremy Bentham John Stuart Mill Sren Kierkegaard Friedrich Nietzsche John Rawls Peter Singer more... Three branches of normative theory: (a) virtue ethics emphasizes character rather than rules or consequences and suggests that if the person is good follow whatever s/he does no matter taking it granted that the consequence cannot be bad; (b) deontology holds that acts are inherently

good or bad and everybody has the duty to do those things that are inherently good (for example, truth telling) without bothering what the consequences can be, and (c) consequentialism.

Etiquette
Etiquette is a code of behavior that influences expectations for social behavior according to contemporary conventional norms within a society, social class, or group. Rules of etiquette are usually unwritten, but aspects of etiquette have been codified from time to time. Rules of etiquette encompass most aspects of social interaction in any society, though the term itself is not commonly used. A rule of etiquette may reflect an underlying ethical code, or it may reflect a person's fashion or status. Like "culture", it is a word that has gradually grown plural, especially in a multi-ethnic society with many clashing expectations. Thus, it is now possible to refer to "an etiquette" or "a culture", realizing that these may not be universal. In Britain, though, the word etiquette has its roots in the eighteenth century, becoming a universal force in the nineteenth century to the extent that it has been described as the one word that aptly describes life during the reign of Queen Victoria. Etiquette may be wielded as a social weapon. The outward adoption of the superficial mannerisms of an in-group, in the interests of social advancement rather than a concern for others, is considered by many a form of snobbery, lacking in virtue.

Western business etiquette

The etiquette of business is the set of written and unwritten rules of conduct that make social interactions run more smoothly. Office etiquette in particular applies to coworker interaction, excluding interactions with external contacts such as customers and suppliers. Both office and business etiquette overlap considerably with basic tenets of etiquette. These rules are often echoed throughout an industry or economy. For instance, 49% of employers surveyed in 2005 by the American National Association of Colleges and Employers found that non-traditional attire would be a "strong influence" on their opinion of a potential job candidate.

Manners
"Etiquette tells one which fork to use. Manners tell one what to do when your neighbor doesn't". Manners involve a wide range of social interactions within cultural norms as in the "comedy of manners", or a painter's characteristic "manner". Etiquette and manners, like mythology, have buried histories especially when they seem to have little obvious purpose, and their justifications as logical ("respect shown to others" etc.) may be equally revealing to the social historian. In America, the notion of etiquette, being of French origin and arising from practices at the court of Louis XIV, is occasionally disparaged, especially by those unfamiliar with etiquette's social foundations and functions, as old-fashioned or elite, a like-code concerned only with apparently remote directives such as "which fork to use". Some such individuals consider etiquette to be an unnecessary restriction of freedom of personal expression; others consider such a philosophy to be espoused only by the unschooled, the unmannerly and the rude. For instance, wearing pajamas to a wedding in a cathedral may indeed be an expression of the guest's freedom, but also may cause the bride and groom to suspect that the guest in pajamas is expressing amusement, disparagement, or disrespect towards them and their wedding. Etiquette may be enforced in pragmatic ways: "No shoes, no shirt, no service" is a notice commonly displayed outside stores and cafs in the warmer parts of North America. Others feel that a single, basic code shared by all makes life simpler and more pleasant by removing many chances for misunderstandings and by creating opportunities for courtesy and mutual respect.

Cultural differences
Etiquette is dependent on and evolves with culture; what is excellent etiquette in one society may shock another. Etiquette can vary widely between different cultures and nations. In China, a person who takes the last item of food from a common plate or bowl without first offering it to others at the table may be seen as a glutton and insulting the generosity of the host. In America a guest is expected to eat all of the food given to them, as a compliment to the quality of the cooking. Etiquette is a topic that has occupied writers and thinkers in all sophisticated societies for millennia, beginning with a behavior code by Ptahhotep, a vizier in ancient Egypt's Old Kingdom during the reign of the Fifth Dynasty king Djedkare Isesi (ca. 24142375 B.C.). All known literate civilizations, including ancient Greece and Rome, developed rules for proper social conduct. Confucius included rules for eating and speaking along with his more philosophical sayings. Early modern conceptions of what behavior identifies a "gentleman" were codified in the sixteenth century, in a book by Baldassare Castiglione, Il Cortegiano ("The Courtier"); its codification of expectations at the Este court remained in force in its essentials until World War I. Louis XIV established an elaborate and rigid court ceremony, but distinguished himself from the high bourgeoisie by continuing to eat, stylishly and fastidiously, with his fingers. An important book about etiquette is Galateo, overo de' costumi by Monsignor Giovanni della Casa; in fact, in Italian, etiquette is generally called galateo (or etichetta or protocollo). In the UK, Debrett's is considered by many to be the arbiter of etiquette; their guides to manners and form have long been the last word among polite society. Traditional publications such as Correct Form have recently been updated to reflect contemporary society, and new titles Etiquette for Girls and Manners for Men act as guides for those who want to combine a modern lifestyle with traditional values. In the American colonies Benjamin Franklin and George Washington wrote codes of conduct for young gentlemen. The immense popularity of advice columns and books by Letitia Baldrige and Miss Manners shows the currency of this topic. Even more recently, the rise of the Internet has necessitated the adaptation of existing rules of conduct to create Netiquette, which governs the drafting of email, rules for participating in an online forum, and so on. In Germany, there is an "unofficial" code of conduct, called the Knigge, based on a book of high rules of conduct written by Adolph Freiherr Knigge in the late 18th century entitled exactly ber den Umgang mit Menschen (On Human Relations). The code of conduct is still highly respected in Germany today and is used primarily in the higher society.

Topic 8: International Business and Ethics

[International business and ethics ethics of economic systems; theoretical issues and the practice, business ethics activities in global world] The issues here are grouped together because they involve a much wider, global view on business ethical matters. While business ethics emerged as a field in the 1970s, international business ethics did not emerge until the late 1990s, looking back on the international developments of that decade. Many new practical issues arose out of the international context of business. Theoretical issues such as cultural relativity of ethical values receive more emphasis in this field. Other, older issues can be grouped here as well. Issues and subfields include:

The search for universal values as a basis for international commercial behavior. Comparison of business ethical traditions in different countries. Comparison of business ethical traditions from various religious perspectives. Ethical issues arising out of international business transactions; e.g. bioprospecting (searching for, collecting and deriving genetic materials from samples of biodiversity that can be commercialized) and biopiracy in the pharmaceutical industry; the fair trade movement; transfer pricing. Issues such as globalization and cultural imperialism. Varying global standards - e.g. the use of child labor. The way in which multinationals take advantage of international differences, such as outsourcing production (e.g. clothes) and services (e.g. call centers) to low-wage countries. The permissibility of international commerce with pariah states.

Foreign countries often use dumping as a competitive threat, selling products at prices lower than their normal value. This can lead to problems in domestic markets. It becomes difficult for these markets to compete with the pricing set by foreign markets. In 2009, the International Trade Commission has been researching anti-dumping laws. Dumping is often seen as an ethical issue, as larger companies are taking advantage of other less economically advanced companies. Ethics of Economic Systems This vaguely defined area, perhaps not part of but only related to business ethics, is where business ethicists venture into the fields of political economy and political philosophy, focusing on the rights and wrongs of various systems for the distribution of economic benefits. Theoretical Issues in Business Ethics Conflicting interests: from whose perspective to look at employee, or the company Business ethics can be examined from various perspectives, including the perspective of the employee, the commercial enterprise, and society as a whole. Very often, situations arise in which there is conflict between one or more of the parties, such that serving the interest of one party is a detriment to the other(s). For example, a particular outcome might be good for the employee, whereas, it would be bad for the company, society, or vice versa. Some ethicists (e.g., Henry Sidgwick) see the principal role of ethics as the harmonization and reconciliation of conflicting interests.

Ethics a strong basis for CSR Ethics encourages ethical behavior worldwide Ethical behavior helps organizations adopt external expectations Ethics are grounded in a moral philosophy that helps people discern between right and wrong Ethics is the study of morally appropriate behavior and decisions examining what should be done.

Ethical issues and approaches: what to give priority profit maximization or the stakeholders interests. Philosophers and others disagree about the purpose of a business ethic in society. For example, some suggest that the principal purpose of a business is to maximize returns to its owners, or in the case of a publicly-traded concern, its shareholders. Thus, under this view, only those activities that increase profitability and shareholder value should be encouraged, because any others function as a tax on profits. Some believe that the only companies that are likely to survive in a competitive marketplace are those that place profit maximization above everything else. However, some point out that self-interest would still require a business to obey the law and adhere to basic moral rules, because the consequences of failing to do so could be very costly in fines, loss of licensure, or company reputation. Some take the position that organizations are not capable of moral agency. Under this, ethical behavior is required of individual human beings, but not of the business or corporation. Other theorists contend that a business has moral duties that extend well beyond serving the interests of its owners or stockholders, and that these duties consist of more than simply obeying the law. They believe a business has moral responsibilities to so-called stakeholders, people who have an interest in the conduct of the business, which might include employees, customers, vendors, the local community, or even society as a whole. Stakeholders can also be broken down into primary and secondary stakeholders. Primary stakeholders are people that are affected directly such as stockholders, where secondary stakeholders are people who are not affected directly such as the government. They would say that stakeholders have certain rights with regard to how the business operates, and some would suggest that this includes even rights of governance. Some theorists have adapted social contract theory to business, whereby companies become quasi-democratic associations, and employees and other stakeholders are given voice over a company's operations. This approach has become especially popular subsequent to the revival of contract theory in political philosophy, which is largely due to John Rawls' A Theory of Justice, and the advent of the consensus-oriented approach to solving business problems, an aspect of the "quality movement" that emerged in the 1980s. Professors Thomas Donaldson and Thomas Dunfee proposed a version of contract theory for business, which they call Integrative Social Contracts Theory. They posit that conflicting interests are best resolved by formulating a "fair agreement" between the parties, using a combination of i) macro-principles that all rational people would agree upon as universal principles, and, ii) micro-principles formulated by actual agreements among the interested parties. Critics say the proponents of contract theories miss a central point, namely, that a business is someone's property and not a mini-state or a means of distributing social justice. Ethical issues can arise when companies must comply with multiple and sometimes conflicting legal or cultural standards, as in the case of multinational companies that operate in countries with varying practices. The question arises, for example, ought a company to obey the laws of its home country, or should it follow the less stringent laws of the developing country in which it

does business? To illustrate, United States law forbids companies from paying bribes either domestically or overseas; however, in other parts of the world, bribery is a customary, accepted way of doing business. Similar problems can occur with regard to child labor, employee safety, work hours, wages, discrimination, and environmental protection laws. It is sometimes claimed that a Gresham's law of ethics applies in which bad ethical practices drive out good ethical practices. It is claimed that in a competitive business environment, those companies that survive are the ones that recognize that their only role is to maximize profits. Ethics in an international context how home grown values play in international market International business is in fact interaction of nations. Crossing border means that the organizational leaders need to manage more difference, incorporate more diverse values into decision making process and take care of values of wider groups of stakeholders and diverse moral philosophy. These require that an organization going international needs to have strong ethical corporate culture. It is not right to assume that with accompany going international its values also automatically cross borders. They do cross but they may not be accepted. Ethical values and norms of one country cannot be expected to be treated well in another country. Firms often need to follow adaptive ethical paths when they go international. These paths are grouped as ethical absolutism and ethical relativism. Ethical absolutism means they adapt to us an approach that puts home company interests first; employees of the host country/culture are to adapt to the cultural norms and values of the employer; such firms are called ethnocentric firms and ethical problems with ethnocentrism become noticeable when and host country cultures differ. Ethical relativism means the company adapts i.e., when you are in Rome, do as the Romans do; sometimes may go extreme, if it is a standard practice in a host country (e.g., pay bribes or speed money); ethical relativism increases costs especially (a) to prepare and disseminate formal ethical guideline, (b) to implement the ethical guideline, and (c) to monitor behavior or organize compliance efforts through assigned agencies. Ethical relativism have some challenges and problems: (a) managerial transfers requiring managers to develop culturally relative values that change depending on place; a true sense of ethics at one place may appear false in another one; (b) the burden to write new rules that often requires a dense set of compliance statements and specialized legal language of each country; and (c) one may adapt to rules and laws of a host country but adaptation may not help managers understand or learn about the culture and its underlying values; legal compliance offers too little managerial insight; cultural ignorance prevent mangers from tracking activities in a nation. The growing need for global ethics initiative International organization may sometimes like to operate in an out of sight out of mind context. But business are no more invisible now and there is a growing public concern about how businesses contribute to global problems, what the businesses can and should do to address the problems, including even those which they did not create. Public now increasingly demand that businesses be socially responsible and ethical. Business ethics activities in a global world

Global businesses respond to global shifts and demands through a mechanism of internal integration. Managers search for principles for action that transcend national borders and the cultural values and modes of operation that will achieve the broad purposes of the company on a long-term and sustainable basis. However, universal ethical principles are not thick on the ground because people share few values worldwide i.e., values vary widely.

Topic 9: Globalization and Business Ethics

[Globalization and business ethics - changes in world economic scenario associated with globalization, main drivers of globalization, the consequences of free market reforms, the public and private costs of trade liberalization] Globalization is the expansion of international trade and foreign investment (by multinational companies and corporations) and intensification of links of national economies with global economy through transactions movements of capital, labor and technology. Trade liberalization is the main vehicle of globalization. Changes in world economic scenario associated with globalization The post-war world (since 1945) has seen massive transformation and restructuring of economic activities in unprecedented scale and speed and in even more rigorous force in the last two decades (the story of decolonialization, change in equations of the three centers of imperialism, fall of USSR, change in China-US relationship, the emerging East Asia and the newly industrialized economies, reorientation of business locations throughout the world, the electronic revolution in communication, industry and business) Shifts in economic policy broadly consistent throughout the world and restoration economic equilibrium through (a) liberalization of markets (b) reduction in state control/intervention in the economy, (c) privatization of a broad range of enterprises and reduction in government expenditures, (d) changes (reductions) in social services and subsidies on consumer goods (e) bringing changes under pressure from international creditors, as well as by domestic designs of structural adjustment programs

Main drivers of globalization Transformation of a patchwork of national economies into a more integrated global economy Development of global level institutions to support and regulate it Increase in international transactions (scope and volume) and in a faster rate, especially with growth of outsourcing

The consequences of free market reforms: Globalization has innumerable impacts but in the given context, the discussion will limit itself within some aspects of globalization that has relevance with ethics and CSR. These impacts are dramatic in the sense that the free market reform for trade liberalization and globalization brought economic growth to some countries that could implement fast reforms/restructuring but growth led to increasing disparities and the gaps between the rich and the poor meaning that liberalization may lead to economic growth but not necessarily to social development. A minority of developing countries (India, China, Mexico, Chile) and majority industrially developed countries (with strong initial economic base, abundance of capital and skill and technological leadership) are well placed and reaped the benefits of globalization, while the poor, illiterate and unskilled have lost out LDCs remain excluded from the benefits of globalization Indigenous people are particularly vulnerable, globalization is a threat to local cultures, including indigenous cultures

Women working in rural farms are grossly affected No universal perception for the best approach to trade liberalization could be established Growth benefits from capital account liberalization (FDI, other capital flows) are small Short-term speculative flows have been damaging

The public and private costs of trade liberalization International business, trade and investment create disparity in income, especially in developing countries: (a) some countries become more dynamic than others in taking advantage of global trade opportunities through stronger investment links that encourage absorption of new production and managerial skills, improvement in international competitiveness; and (b) forces within countries use their growth opportunities in differentiated pattern. These are public costs of trade reforms. Adjustment is associated with change, which can be disruptive and have different impacts on different groups/communities. Liberalization does not ensure increase in employment and output since import competing industries operating behind protecting walls and government intervention may not be able to sustain capacity utilization and in such case, both workers and the entrepreneurs face hardships. These are private costs of adjustment. The heavy social costs of globalization are associated with the gap between the expectations from and the reality of the process. The expectations are: globalization should benefit all countries and should raise the welfare of all people throughout the world; raise rate of economic growth in poor countries, create new employment opportunities, increase income and reduce poverty, reduce inequality, improve socio-economic security, speed up development and ensue economic, social and environmental sustainability. But the reality did not match everywhere with the expectations: despite sustained growth in China, the country faces transitional unemployment; there was the Asian financial crisis; imbalances between international and domestic prices continue to remain, instabilities arise because of changes in the structure of the government or interest groups (business people, politicians, government and military bureaucrats etc) as well as in policies towards regulation or subsidies; redistribution of income in favor of those who can successfully manipulate their role in the globalized environment. Also, there is the problem of trickling down of the effects of crisis in big nations like the USA, Japan or even Korea, China and Thailand. The reality shows that the consequences of globalization are dramatic: Primary incomes of the poor are down Number of people living below poverty went up Social income (access to public services) has decreased Targeted interventions meant to protect the poor and the vulnerable groups from the worst aspects of adjustments never reach all the poor and seldom reach most of the poor Unemployment rates, inequality and poverty intensified

Globalization has affected peoples lives: change in economic structure, relative prices, consumption patterns (which has a chain effect in terms of affecting peoples jobs), livelihoods and incomes, and the like. In many countries some groups of workers (e.g., in jute and textiles sectors in Bangladesh) are adversely affected by trade liberalization. However, globalization increases global interconnectivity and the awareness of global and local disparities, improves democracy and forges a greater sense of global community. This leads to a

pressure on the international community to address the effects of globalization and an understanding of the facts that The continuing spread of global market economy and production system has still to be matched by a parallel development of institutions for its governance Globalization had demonstrated great productive capacity but generated very unbalanced outcomes both between and within countries (rise of India and China is now looked at as a threat for the other countries) The overriding challenge now is the growing inequality within and among countries an issue that threats distributive justice

Therefore, the social dimensions of globalization have become prominent part of the interregional and international negotiations and agreements. Little has been achieved so far. Steps for achieving short-term equilibrium hardly address social issues and are aimed at (a) bringing down the demand or (b) expanding the supply through increased capacity utilization, which requires more knowledge of the economy and more reflections of sequencing policy instruments of structural adjustment measures. The obstacles in the process are: a. b. Lack of global availability of resources Constraints to investments stemming from inefficiency in allocation of resources. Long-term sustainable solution to the problem requires addressing the following issues: Reversing desocialization of social actors and the community people who turn attention to coping with growing economic hardship in their individual capacities, allow (consciously or unconsciously) disruption of social bonds and live in a situation where social tensions lead to new forms of intra and inter-group conflicts; Impact on women such as the loss of capacity of households to provide safety nets to those who are economically displaced by restructuring and forced to join labor force Complying with policy directives of donors and financial institutions deepening social problems; and Reversing the damaging trends that widen inequality and increase poverty. Reaching consensus on how proceed for changing the face of globalization is difficult in an environment when The ideological positions are fragmented in a variety of social interests, no matter whether one calls the world unipolaror free of cold war The will for consensus is still very weak Key international negotiations are deadlocked, and International development commitments go largely unfulfilled. But reaching consensus is the most important precondition for effectively addressing the social issues of globalization. The avenues for optimism are: Experience demonstrates the value and power of dialogue as an instrument for change There is ample scope of expanding the space for dialogue aimed at building consensus for action

Common grounds may be achieved through listening patiently and respectfully to diverse views and interests, and Institutional efforts are gradually increasing to forge agreements among a broad spectrum of actors on the course of action.

There are attempts of addressing social problems in structural adjustment models trying to give restructuring a human face by (a) Giving increased attention to social issues, (b) Becoming more flexible in conditionalities associated with structural lending and (c) Searching ways for directly alleviate problems of the most vulnerable groups; social investment funds were set up to channel funding for development projects for the most vulnerable groups But these had only limited impacts, could reach a very small proportion of the vulnerable population and could contribute little in terms of enhancing sufficient growth to solve the social problems since the growth, even if has taken place in some cases, was not accompanied by More equitable distribution of the benefits of growth, Stabilization, and Increase in efficiency.

Evidences of the above are demonstrated in countries like China and Korea and in East Europe. China and Korea suffer from rapid rise in unemployment and underemployment of rural population moving to towns and cities, increase in polarization, spread of crime and prostitution, including child prostitution, increase in child labor, withdrawal of girls from schools to do unpaid family work, worsening of environmental degradation and the like. People in East European countries are increasingly becoming victims of polarization, fiscal crisis, problems of job security and lack of welfare services under constraints of public budgets. Industrially developed countries may be better off in this regard but many in these countries also suffer from the problem of relative poverty intensified by restructuring. The proposals on rethinking adjustment suggest focusing on reduction of poverty and inequality and to Promote social development Set broad international norms and specific targets Redefine goals of adjustment, and Establish what are - and what are not - the acceptable social costs of adjustment.

One special proposal is based on the concept of 20/20, which calls for earmarking 20% of the national budgets and 20% of the international aid for priority social needs. However, the developed countries forgot their commitment of giving 1% of their GDP as foreign aid to the poor countries. Following is a more comprehensive list of what the global community sees to happen for the globalization process to be helpful in addressing the social issues: 1. Break the current impasse by focusing on concerns and aspirations of people and the ways to better harness the potential of globalization itself

2. Change the current path by expanding benefits of globalization to more people and share them better between and within countries 3. Involve many more voices for ensuring share of benefits of globalization, the resources and means in hand 4. Seek a process of process of globalization with a strong social dimension based on universally shared values and respect for human rights and individual dignity and create a situation with fair, inclusive and democratically governed institutions and to this end focus on people and respect their rights, cultural identity and autonomy promote decent work, empowerment of local communities and gender equity Sustain a democratically effective state and manage integration with global economy keeping an eye on gaining the most of social and economic opportunities and strengthening security Try to attain sustainability through strengthening interdependent and mutually reinforcing pillars of economic and social development and environment protection at the local, national, regional and global levels Develop productive and equitable markets through development of sound institutions to promote opportunity and enterprise Play with fair rules to offer equitable opportunity and access (to resources) with recognition of diversity in development needs and capacities of different countries/nations Show solidarity to countries and peoples excluded from or disadvantaged by globalization and assist them Establish a greater accountability to people and make the public and private actors accountable for their actions Promote a deeper partnership among IOs, governments, parliaments, businesses, labor organizations and civil societies 5. Finally, incorporate policies and concrete actions in national plans and programs a pragmatic focus on employment, education, environment, human rights, labor standards, gender equity and other social goals and make the best use of the available local, regional and global resources.

Topic 10: Social Protection and the Concept of Decent Work

[Protection of labor, addressing labor standard and other social issues by WTO; failure of trade liberalization in addressing poverty, labor standards, education and culture, health and environment, liberalization and gender issues] Protect labor by using protectionism In the competitive international economy there is greater vulnerability to sudden change than in protected national markets. Globalization triggers the need for frequent adjustments to national production processes and hence, to jobs and the strategies of social protection. Adjustments take time and require public policy interventions to support the restructuring of production systems and the creation of new opportunities. The reality is: 80% of the worlds families have little or no social protection (because of financial strain, slow growth, national budgetary restrictions often compounded with demographic changes); Countries cannot achieve employment goals on their own Jobs, incomes, security, rights of workers all are affected by patterns of internal investments and the cross border movements of capital and workers.

Many incline to resist liberalization and adopt a policy of protectionism. But protection is not an efficient means of sustaining employment: jobs saved in protected industries are often offset by viable jobs foregone elsewhere in the economy. Structural adjustment, as already discussed have many sins but if the adjustments can be implemented with a positive set of policies, including especially the policy of equitable redistribution of income earned through increased employment and output attained by liberalization, it may play an important role in defining the political feasibility and sustainability of trade reforms provided that the policies adhere to and strengthen core labor standards reflecting: Basic human rights, Freedom of association and promotion of expression of free choice, Right to collective bargaining, Elimination of all forms of forced and compulsory labor, Effective abolition of child labor, Elimination of discrimination in respect of employment and occupation, and Healthy functioning of market processes.

ILO adopted a Declaration on Fundamental Principles and Rights at Work in 1998 but the declaration is not enough: trade sanctions to promote adherence to core labor standards remain highly controversial, child labor issue remained unresolved and the developments only confirm that trade interventions are not an optimum instrument to abolish exploitative child labor and expand human capital. Reforms are now needed to be planned and implemented as integrated programs of supporting growth, enterprise development, poverty reduction, environment protection and creation/promotion of decent work. The concept of decent work emphasizes not only the existence of a good work place environment and proper practice of providing all due benefits to employees but also the social protection, the fundamental rights at work and all aspects of social justice.

Addressing labor standard and other social issues by WTO WTO (established in 1995) was supposed to make operational the Trade and Environment Committee formed by its predecessor GATT. But the committee had limited mandates. USA and France proposed to include social issues in the agenda of WTO in its Singapore meet (1996) but apprehending that the developed countries would create provisions and use them in their own interests the developing countries opposed the proposal. The developed and the developing countries however, agreed in the Singapore meet to allow WTO and ILO to work out ways for ensuring international labor standards. Both groups also agreed that the comparative advantage of the developing countries because of low wages I them would not be an issue in considering labor standards. Social issues in international trade were supposed to be in the agenda of the Seattle Meet (of Ministers, December 1999). But demonstrators and activists organized a strong protest and the Seattle Meet ended without any resolution. These were also on the table in WTOs Doha Ministerial level meeting (November 2001) but since the least developed countries practically did not have any interest, there was almost no progress in the area. The reason why most developing countries remained reluctant and many of them were actively against the initiative of the developed countries in resolving social issues in international trade has been the fact that the term social issue was centered around labor standards and most other issues (environment surrounding the workplace, the families and the communities, health and education, poverty and unemployment, gender and empowerment and so on) were not in the purview and the developing countries were against being party to decision on anything partial or incomplete. Also, the developing countries, especially the LDCs had the problem of confidence on the developed ones who had seemingly failed to demonstrate that they were sincere in fulfilling the commitments they had been making in the international forums. The developing countries are not happy to see their developed counterparts in international trade that the later continue to use all excuses in maintaining the traditional system of international trade instead of really liberalizing in favor of the developing countries. Four African countries (Benin, Burkina Faso, Chad and Mali) raised a relevant issue in the Kankoon (Ministerial level) Meet in September 2003: USA and some other rich countries give excessive subsidy to cotton growers at home but are constantly advising the developing countries to withdraw subsidies in their agriculture and instead of discussing the issue (and the problems of cotton growers in Africa) the powerful continues their line of imposing decisions on the weak Africans, who are sometimes even humiliated by stern attitudes and comments. Failure of trade liberalization in addressing poverty International trade is still run in a way that it is against the poor; Trade liberalization has pushed the developing countries to a more marginalized position The poor in the developing countries have become poorer The benefits of trade liberalization, whatever there had been, are enjoyed by the industrialists, businessmen, rich farmers and the urban intellectual Trade liberalization increased the disparity between the rich and the poor Trade liberalization raised the question: whether growth is equivalent to development?

The reasons for the above state of affairs are: The poor remains out of reach of the benefits of liberalization Poor people (farmers, entrepreneurs) do not have adequate access to the required financing Poor farmers and entrepreneurs fail to prove their worth as effective agents of development Trade liberalization has no concern about distribution of income or the increase in assets of the disadvantaged groups The poor countries have low bargaining power and the pay high for their membership in WTO; they are forced to impose less tariffs (customs duties) on their agricultural and non-agricultural products than what the industrially developed countries can do and their products are sold in the third country markets at cheaper prices which may increase some export but that has a limit and does not lead to increase in the net gain

Labor standards So far the labor standards remained confined within the age limit for workers but many poor countries cannot afford to agree on the standard age limits for regular work and for work under conditions. But important issues beyond the age limit are: Working hours Leave of different kinds Documentation of the different types of appointment (terms of appointments, appointment letters) Rules for termination from jobs Health services at work place Rest and recreation opportunities at workplace Career prospects/prospects of pay escalations etc.

Important to note: capital moves to countries where it finds cheap labor; capital is not interested in losing the advantages developed countries may lose job positions in some industries at home but their gains from trade allow them to create new jobs in other industries. Education and culture Globalization and the changes in the pattern of international trade bring changes in education and culture, especially demonstrated in use of information technology, new communication system and forms and methods of education and training, and commercialization of education and culture in the name of making pragmatic or enabling education in the competitive world. Poor countries face tremendous difficulties in catching up. Minority and disadvantaged groups are getting more access but at the same time, local/indigenous traditions and cultures are facing the threat of extinction. Health and environment Health services have become more commercialized; TRIPS and S&DT (special and differential treatment) covers many issues of health services and import and export of pharmaceuticals but there are still many issues that need to be solved through coordination of drug policies and trade liberalization packages, particularly through ensuring that

Drugs remain within purchasing capacity of the poor people, people of the poor countries There is a balance of intellectual property rights (in the interest of the entrepreneurs) and the interests of the mass consumers, and There is a sound management of drugs that are hazardous for health, society and the environment

Trade liberalization and gender issues Liberalization restructured economic activities in many countries leading to growth in export industries, many countries now have EPZs but these new types of export industries, including those in the EPZs do not properly follow the labor laws that affect the employees most of whom are women. Women labor are less educated, less efficient and have lower opportunity cost but are good in work since it is easy to exploit them and they produce low cost products or provide low cost services (sewing garments) because they are paid low. Women workers are not attended with the care they need they are not only workers, they also feed their families, give milk to their children, take care of the members of the family Restructuring under trade liberalization may result in decline or even closure of industries causing loss of jobs for the women and therefore, women workers need orientation and also training for alternative work, which they are hardly given. Further, although the wage issue is sometimes floated under some social pressure, little attention is paid to healthcare of the women workers, environment at the workplace, especially the ventilation and sanitation system, services like day care centers for the children of working mothers, cafeteria and canteens, recreation facilities and the like.

Add: Redefining globalization and trade liberalization