BUSINESS ETHICS

Purpose of Studying Business Ethics

To introduce the students to ethical concepts that are relevant to resolving moral issues in business To impart the reasoning and analytical skills in business situations To identify the moral issues involved To provide an understanding of socio, technical and natural environments within moral issue To simulate situations through case studies and to help students in understanding and taking right decisions..

What is Ethics ?
Dictionary meaning of ethics is the principles of conduct governing an individual or a group. Also it is defined as a branch of philosophy . Its objective is to study both moral and immoral behaviour in order to make wellfounded judgements and to arrive at adequate recommendations.

What is Ethics ?

Personal Ethics Accounting Ethics Marketing Ethics, Sales Ethics, Advertisement Ethics HR Ethics Research Ethics Sports Ethics Meetings Ethics Media/Press Ethics ..

What is Morality ?

Morality are standards that individual or a group has about what is right or wrong OR good or evil . Typically a persons moral standards are first absorbed as a child from family, friends and various societal influences. Later , as person grows up, experiencing, learning and intellectual development leads to maturity where person revise those standards.

Five Characters of Moral Standards

Involves with serious injuries or benefits Not established by law Or legislature Should be preferred over other values including self interest Based on impartial considerations Associated with special emotions and vocabulary

NON MORAL standards include

Standards

of etiquettes Standards of law /legal system Standards of language Athletic standards Judgements of things which are good or bad
EXAMPLE

: Vandivier , an Employee of B F

Goodrich.

Conclusion : B F Goodrich case

Vandivier

probably believed that reports should be written with good grammar , that getting fired from a well paid job took precedence over a truthful report and it right to follow the law . The norms of good grammar, value of a well paid , challenging job, the laws of government are also standards but these standards are not moral standards .

What is Morality or Moral Standards ?

1.Moral standards deal with physical injury, abuse to a human being. 2.Moral standards are not established by law. So long as reasons to support it are adequate, the morality standards remain valid. 3.Moral standards are to be supported especially against self interest. 4.Moral standards are generally based on impartial consideration. 5. Moral standards are generally associated with special emotion and especially vocabulary.

Then what is Ethics?

Ethics is the discipline that examines ones moral standards or moral standards of the society. Do these standards really make sense ? What are the reasons for and against these standards? Why should we continue to believe in them? What will be the implications if they are not followed in some situations.

Ethics has twofold objectives :

it

evaluates human practices by calling upon moral standards Also it may give prescriptive advice on how to act morally in a specific kind of situation.

Business Ethics

Business ethics is a specialised study of moral right and wrong . Systemic, Corporate & Individualistic It concentrates on moral standards as they apply to business policies , institutions, and behaviour. Business ethics is a study of moral standards and how these apply to systems and organisations. through which modern societies produce and distribute goods and services and to the people who work within these

Ethics

Moral standards are thus that deal with

matters that we think are of serious consequence , are based on good reasons and not on authority , override self interest , are based on impartial considerations and that are associated with feelings of guilt and shame and with a special moral vocabulary . We absorb them as children and revise it as we mature.

Ethics is the discipline that examines ones

moral standards or moral standards of a society.

Do Moral Standards Apply to Corporations or Only to Individuals?

Can we say in the same sense that the actions of theirs are moral or immoral in the same sense as that of human individuals are?. Or we can say that it makes no sense to apply moral terms to organisations as a whole but only to the individuals who make up the organisations.

CASELET 1 : Citibanks Sunset in Japan ?

Citibank , the banking services unit of worlds largest financial services group , Citigroup has been operating in Japan since 1902.

On sep 17th 2004 , it was ordered by FSA ( Financial Services Agency) , Japan financial services marketing monitoring authority , to shut down its private banking operations in the country , citing violations of countrys banking laws .

Contd

FSA discovered a string of violations and improprieties at the private banking unit over the past 3 years 20012004. Accepting the charges , Citibank apologized and announced it would comply with the orders and also would improve management and controls at its other business units. Citibank has 1400 offices in more than 40 countries. It targets and serves mainly the high net worth investors. Citibank has started its operation in Japan in 1902 in Yokohama. In 2003 , it had 3.7 trillion Yen of deposits . It offered American Style (highly consumer friendly and integrated) private banking style was new to Japanese.

Contd

But Citibanks decade long drive to pioneer retail banking services in Japan was halted by FSA . One of the failure was to check clients to prevent possible money laundering. Defrauding customers in foreign currency deposits and misleading customers. In one case the employees handled transactions of a client about whom its affiliates overseas had filed suspicious activities reports with local authorities. In another case , when individuals involved in manipulations of a publicly traded stocks were prosecuted , it was found that they had secured loan to fund the activities from Citibank japan. Bank and its employees defrauded customers of > 1.8 billion yen in foreign currency deposits and lent money to beef up documents to borrow public fund from a municipality. There were cases when employees had carried customers password out of office.

Contd.

During investigation, it was found that the Bank has infringed Japans Securities and Exchange law , by misleading customers into investing in structured bonds. As per FSA order, Citibank had to suspend all its new operations of private banking for one year from Sep 29th 2004. Bank was asked to stop its operations in offices. It was asked to stop accepting new foreign currency deposits for 1 month. It was also banned from participating in govt. bond auctions. Private investors who chose to stay with Citibank , were ordered to shift their account to other branches , which were subject to strict surveillance.

What next for Citibank?

Many analysts feel that series of mishaps would tarnish the image of Citibank global operations . Japan has approx total private savings of $12 trillion , more than half is deposited in post offices , simple saving schemes in banks. Charles Prince , CEO of Citigroup felt that FSA orders signified serious failures to comply with regulatory requirements but he feels groups problems lie in public perception and it will take long time in changing the perceptions. He set aside$5.2 billion for payment of settlements and facing law suits. He started new ethics training programme for 30,000 managers across the world by end of 2004. He stated that each employee will take decisions based on ethics first and second on bottom line.

Caselet 2 : Merck & River blindness

River blindness is agonizing disease affecting 18 million poor, people living in remote villages in tropical regions of Africa and Latin America. Spraying pesticides to check the carrier of disease , black fly resulted in it becoming more resistant to pesticides. Moreover the drugs available to cure the disease was so expensive that it could not be afforded by poor affected. 1979, Dr William Campbell , research scientist working for Merck & company, discovered evidence that of the best selling animal drug IVERMECTIN , might kill the parasite that causes the disease. He requested the CEO , Dr P Roy Vagelos , to allow the project to develop a medicine fit for human beings to cure River Blindness disease.

Contd

The dilemma was that such project could cost over $100 million and it was highly unlikely that company would ever recover the cost of project. It the project fails, it would affect the best selling animal drug business of $300 million per year. Although Merck had worldwide sales of $2 billion p.a. but the profits were affected in recent times. CEO with his team deliberated the potential benefits to human race due to research. After 7 years of efforts, Merck succeeded in developing human version of Ivermectin , and named it as MECTIZAN . A single pill per annum was enough to remove all traces of the parasites and could prevent new infections. Merck requested for over one year to WHO & various govt. to buy the drug for 85 million people who could be affected . But even after several years, no one responded.

Contd

The company by 2004 was effectively distributed freely the drug to 40 million people per annum thru certain approved channels to eradicate the river blindness disease. The same drug is curing elephantiasis. CEO was questioned why such project was undertaken despite being projections to be zero for ROI . The reason was given that long term benefits for such projects out perform the costs . It was ethical on part of the company involved in developing drugs to cure severe diseases and protect human race. However , the company has certain ethical commitment to its stakeholders . Then what is the rationality of investing in such projects where there is surety of losing money in terms of nil ROI.

Discussion on case : River Blindness

1) Mercks Chairman Dr.Vagelos had concluded in late 1980s that the potential human benefits of a drug for river blindness were too significant to ignore . 2) Many managers felt that in fact, because these potential benefits to million of people, the company was morally obligated to proceed despite costs and the slim chance of economic reward .

3 Lets now reflect on the relationship between ethics & business. 4 Is Merck was right in putting in huge efforts in developing a drug with Zero ROI?

Conclusion

When ethics conflicts with profits, business always chooses profits over ethics. Yet Mercks management decided to spend millions of dollars though they knew that they had little chance of ever being profitable because they had moral obligation to make potential benefits to millions of people. More over , in the long run the ethical behaviour creates the kind of goodwill and reputation that expand opportunities for profits.

Concept of Long Term Ethical Behaviour

Ethical Behaviour is the best long term strategy. Unethical behaviour sometimes pays off and good guy loses but ethical approach can give a company significant competitive advantage over other companies.