CORPORATE

GOVERNANCE
 ◦ The word 'Ethics' has been derived from the ancient
Greek word ' Ethics' which itself is derived from the
Greek word 'ethos' — meaning of which is custom or
character. The term ethics describes a set of
principles that provide a framework for conduct.
ETHICS : Ethics is all about rules governing the way in which
we determine what is 'right' or 'wrong', 'good' or 'bad'.
MEANING In philosophy, ethical behavior is good behavior. In
other words Ethics is about our actions and decisions.
Ethics is regarded as the science of morality or
simply, ethics is moral philosophy which deals with
moral conduct, judgement, habit, character, rules or
principles.
 BUSINESS ETHICS

◦ Business Ethics is the application of ethical values to business behavior. Business ethics are moral values and
principles that determine our conduct in the business world. Ethical issues existed since ages but ethics in business
became more relevant in the present era of cut throat competition. Ethical business behavior facilitates and
promotes good to society, improves profitability, fosters business relations and employee productivity. The concept
of business ethics has come to mean various things to various people, but generally it means what is right or wrong
in the work place and doing what's right. Business ethics is concerned with the behavior of a businessman in
conducting his business. The concept of business ethics has been developed with the passage of time. Customs and
traditions differ from one business to another. If a custom is accepted and adopted by a business, that custom with
become a business ethics. A businessman should not ignore business ethics while assuming social responsibility in
the conduct of the business.
 ◦ According to Carter Mcnamara, "Business ethics is generally
coming to know what is right or wrong in the work place and
doing what is right. This is in regard to effects of products/
services and in relationships with stakeholders." According to
DEFINITIONS Valasquen, "Business ethics is a specialized study of moral
right or wrong. It concentrates on moral standards as they
OF BUSINESS apply to business policies, institutions and behavior."
ETHICS According to Fredrick & Lawrence, "Application of
general ethical ideas to business." In shorts, business ethics
should govern the decisions and actions of business persons.
Business ethics involve application of moral standards to
business relationships and transactions.
 ◦ Business ethics are principles, norms and standards that guide an
organization with respect to the conduct of its activities, internal
relations as well as interaction with external stakeholders.
◦ It is a wide term as it includes all business practices that are morally
right and socially desirable.

FEATURES ◦ It is considered both a science and an art. It is dynamic in nature as it

continuously test the rules and moral standards.

OF ◦ It create self-imposed discipline on the part of businessman.

◦ Business Ethics seek to make businessman an honest, just and
BUSINESS responsible citizen.

ETHICS ◦ Ethics have broader coverage than law. It aims at perfection, in the
conduct of life. Thus it guides law makers to have perfect rules for all.
◦ Business Ethics have universal application because business exists all
over the world. Business Ethics keep or maintain harmony among
different roles of businessman, i.e. as a citizen, customer, owner and
investor.
 The major types of ethics are :
◦ 1. Individual Ethics : These ethics include practices in private life of an individual. These involve the practices
and issues at individual level like not to lie etc. At this point, the individual ethics may vary from person to
person.
◦ 2. Institutional Ethics : These include democratic management. If responsibilities aren't shared, institution may
create unethical pressure on individuals. Economic and social development, mutual assistance, equal treatment,
volunteering, solidarity, justice and peace are also main elements of institutional ethics.
◦ 3. Social Ethics : The responsibilities of the managers are beyond the boundaries of the institutions. Managers
have relations with public offices, unions, wholesalers, customers and even competitors. They are responsible for
environmental pollution, unsafe product and unjust competition.
◦ 4. Global Ethics : A MNC must try to identify and respond effectively to ethical issues in a global context.
Ethical behavior of firms in a global context can be described in Wo different frameworks : relativism or
absolutism. The growth of international business urge the MNC's to develop universal ethical standards.
 IMPORTANCE OF BUSINESS ETHICS

◦ 1. Corresponds to Basic Human needs : The basic need of every human being is that they want to be a part of the
organization which they can respect and be proud of because they perceive it to be ethical. Everybody likes to be
associated with an organization which is respected by the society as a honest and socially responsible organization. The
HR managers have to fulfill the basic needs of employees as well as their own basic need i.e. that they want to direct an
ethical organization. The basic needs of the employees as well as the managers compel the organizations to be ethically
oriented.
◦ 2. Positive Public Image : A company which is perceived by public to be ethically and socially responsive will be
honored and respected even by those who have no knowledge of its actual working. People will like to buy the product
of a company if they believe that the company is honest and is offering value for money. The public issues of such
companies are bound to be a success.
◦ 3. Improved Employer-Employee Relations : If employees are convinced With the ethical values of an organization then they hold it in
high esteem otherwise unethical practices lead to fall in loyalty and productivity of workers. So perceived social brightness and moral
values can win the confidence of employees more than any other incentive plan.
◦ 4. Better Decision Making : Decision making will be better if the decisions are in the interest of public, employees and company, own
long term good. Ethical attitude will force management to take various economic, social and ethical aspects into consideration while
taking decisions.
◦ 5. Improves Profitability : Ethical does not mean to work without profits. Ethical companies are bound to be prosperous in the long run,
though in the short run they can face losses but ultimately this scenario Will be over in a short period.
◦ 6. Insurance to Law : Attention to ethics ensures ethical policies and procedures in the work place. It is far better to incur the cost of
mechanisms to ensure ethical practices now, than to incur costs of litigation later. Major point is to ensure ethical treatment to employees
regarding hiring, evaluating, firming etc. Ethical systems also help in avoiding criminal punishments and penalties.
◦ 7. Helps in quality management, strategic planning and diversity management : Ethical practices help in formulating strategic plans and
managing diversity in organizations. This effort includes recording the values, developing policies and procedures to align behaviors
with preferred values and then training all personnel about the policies and procedures. This effort is very useful for several other
programs in the work place that require behavior to be aligned with values, including quality management, strategic planning and
diversity management.
◦ 8. Where law fails ethics succeed : Government cannot always regulate all the events which are harmful to public without the help and
involvement of people at large.
 ◦ 1. Religion : Religion is the oldest source of ethical inspiration. Different
religions exist across the whole world, but all of them are in agreement on
the fundamental principles. Religions preach the necessity for an orderly
social system and emphasize upon social responsibility with an objective to
contribute general welfare. On this basis every religion has same code of
conduct.

Sources of ◦ 2. Culture : Culture is a set of important manifestations that members of a

community share in common. Depending upon the pattern and stage of

business ethics development culture differs from society to society. Culture facilitates the
generation of commitment to something larger than one's individual interest.
Culture encourages the members of the organization to give priority to
organization goals over and above their personal interests.
◦ 3. Law : The legal system of any country, guide the human behavior in the
society. The society expects the business to abide by the law. But law
breaking is very common in business e.g. tax evasion, adulteration, poor
quality, high price, pollution etc.
 SCOPE OF BUSINESS ETHICS

◦ The scope of Business ethics covers the principles and standards that guide behavior in the conduct of business. It not only includes the
analysis of norms and moral values but also attempts to apply the conclusions of this analysis to that assortment of institutions,
technologies, transactions, activities and pursuits that we call business.
◦ 1. Ethics in Compliance : Ethical conduct refers to knowing the difference between right and wrong and choosing to do what is right.
Compliance means obeying and adhering to rules and regulations, laws, standards and contractual obligations. The motivation to do the
right thing can be the fear of being caught rather than a desire to be abide by the law. Organizations that value high ethics not only
comply with laws but go beyond what is expected of them.
◦ 2. Ethics in Finance : Ethics in finance means establishing boundaries to prevent personal interest to conflict with organizational
interest. It is very important as well being of a country depends upon the financial strength of the country and without finance no
business can survive and prosper.
◦ Ethical issue in finance which needs concentration are :
◦ Window dressing and misleading financial statements.
◦ • Insider trading, securities frauds, manipulations in financial markets.
◦ • Bribery, kickbacks, over charging of expenses.
◦ • Fake transactions. Code of ethics in finance are :
◦ • To act honestly and with integrity.
◦ • To provide full, fair, accurate, timely and understandable information regarding financial statements.
◦ • To act according to applicable laws, rules and regulations.
◦ • To respect the confidentiality of information in the course of business.
◦ • To promote ethical behavior among the other associates.
◦ 3. Ethics in Human Resources : Human resource management deals with manpower planning and human resource
development activities. Ethics play an important role in HRM. The ethics of HRM covers those ethical issues arising around
the employer-employee relationship, such as rights as well as responsibilities of employer and employee. Issues of ethics
involved in HRM are :
◦ • Discrimination issues on basis of age, gender, race, religion etc.
◦ • Sexual harassment.
◦ • Affirmative action.
◦ • Occupational safety and health.
◦ • Issues relating to fairness of employment contract etc.
◦ Code of Ethics in Human Resource Management :
◦ HR professionals should give fair and equitable treatment to all the employees.
◦ • HR executives are accountable for faithfully carrying out their responsibilities for the benefit of all employees.
◦ • HR executives are required to keep information confidential and protect the integrity of company while dealing with employees and
outsiders.
◦ • HR professionals must provide services in an honest and diligent manner.
◦ 4. Ethics in Marketing Ethical marketing is about making marketing decisions that are morally right like sourcing of raw material, product
advertising and product pricing. This continuous practice builds trust and confidence among the customers leading to customer loyalty,
customer retention, good public relations and increase in business which will finally lead to employee retention. Issues faced in this area
are :
◦ • Price discrimination, and skimming price policy.
◦ • Anti-competitive practices like manipulation of supply etc.
◦ • Misleading advertisements.
◦ • Black marketing.
◦ Code of Ethics in marketing
◦ • Standards as well as rules and regulations must be followed and practiced by marketers while following the
principles of truth in marketing communication.
◦ • Consumer's privacy should be maintained.
◦ • Advertisement should be rational.
◦ 5. Ethics in Production Ethics in production deals with duties of a company to ensure that products and
production processes do not cause harm. To survive in this competitive sphere, organization try to reduce the
costs involved in production and this may result in poor quality of products. Issues involved in this area are :
◦ • Defective and dangerous products.
◦ • Environment pollution. Code of ethics in production :
◦ • Child labor should not be adopted
◦ . • No forced labor should be employed
 ◦ 1. Honesty : Business executives should be honest and trust worthy.
They should be honest and truthful in all their actions and
communications. Executives should not deliberately mislead or deceive
others by misrepresentations, overstatements, partial truths, selective
PRINCIPLES omissions or any other means. They are required to supply relevant

OF information and correct misapprehensions of fact.

◦ 2. Integrity : Ethical executives earn the trust of others through personal
BUSINESS integrity. They demonstrate moral courage, doing what is right even
when there is great pressure to do wrong things otherwise. Ethical
ETHICS executives should be principled, honorable, upright and scrupulous.
They should sacrifice the principle for expediency i.e. doing what is
convenient rather than what is morally right.
◦ 3. Meeting obligations : An organization must honor its obligations and
commitments irrespective of the circumstances.
◦ 4. Loyalty : Ethical executives justify themselves by being loyal to their organization and the people they work with. They
faithfully make independent professional judgement by avoiding undue influences and conflicts of interest and they do not
use or disclose information learned in confidence for personal benefit. If they decide to accept employment at some other
place, they should provide reasonable notice to the existing employer, respect the proprietary information of their former
employer and refuse to engage in any activity that take undue advantage of their previous positions.
◦ 5. Fairness : Ethical executives should be fair and just in their dealings. They should neither exercise power arbitrarily nor
use over reaching or indecent means to gain advantage of another's mistakes or problems. Fair persons ensure commitment to
justice, principle of equality and acceptance of diversity. They should be open minded, willing to admit if they are wrong and
change their positions and beliefs when required.
◦ 6. Caring : Business should demonstrate compassion and genuine concern for the well-being of others. Businessmen should
understand the concept of stakeholders (those who have a stake in a decision because they are affected by it) and should
always consider the business, financial and emotional consequences of their actions on all the stakeholders. They should seek
to accomplish business objectives in a manner that causes the least harm to the stakeholders.
◦ 7. Respect for others : Ethical executives should demonstrate respect for the human dignity, autonomy, privacy, rights and
interest of all those who have stake in their decisions. They should be courteous and treat all people with equal respect and
dignity regardless of sex, race or national origin.
◦ 8. Law abiding : Ethical executives should abide by the laws, rules and regulations relating to their business
activities. It will motivate the employees to abide by the code of ethics of the business organization.
◦ 9. Commitment to Excellence : Ethical executives should pursue excellence in performing their duties. They should
be well informed about their authority and responsibility. Moreover they should constantly try to increase their
efficiency in all areas of their responsibility.
◦ 10. Leadership : Executives should be conscious of their authority as well as responsibility. Moreover they should
realize the opportunity of their position and fry to be ethical role models. They should create an environment within
the organization where ethical reasoning and decision making are highly prioritized.
◦ 11. Reputation and Morale : Executives should build and protect company's reputation and morale of their employee.
They should realize their own importance, importance of the ornaizations' reputation as well as the importance of
pride and morale of the employees.
◦ 12. Accountability : So, Ethical executives should acknowledge and accept their personal accountability for the
quality of the decisions they make. Any person who is given a responsibility is accountable for the same.
 ◦ 1. Meet Obligations : Business should meet all
commitments and obligations in time. This helps in
building trust among the clients.
◦ 2. Ensure Accuracy : Businessman should ensure the
accuracy of quantity, packaging and quality while
supplying goods to the market.
ETHICAL ◦ 3. Avoid Profiteering n: Business should not indulge in
PRINCIPLES FOR unscrupulous activities like hoarding, black marketing,
BUSINESS production, sale and use of banned or harmful goods etc.
ORGANIZATIONS to earn extra ordinary profits.
◦ 4. Protect group interest : Business should protect
interests of the various groups concerned With the
organization i.e. give employees, fair wages and good
working conditions, give shareholders better rate of
dividend; give consumers quality goods at reasonable
prices etc.
◦ 5. Avoid injustice and discrimination : There should be no discrimination in the company particularly with
respect to employees in transfer and promotions. Moreover there should not be differences based on gender,
race, religion etc.
◦ [Link] healthy competition : Create healthy competitive atmosphere in market which offers certain
benefits to consumers. Do not spoil the image of competitors by unfair means.
◦ [Link] accounts audited : Organizations should maintain accurate business records and accounts. These should
also be made available to all authorized persons and authorities.
◦ [Link] investors informed : Companies should supply reliable information about the financial position as well
as other important fact to shareholders and investors.
◦ [Link] fair business : Make your business fair, efficient and dynamic. Give the benefits of these qualities to
consumers.
◦ [Link] social responsibilities : Business should honor responsibilities towards different social groups.
 ◦ Corporate code of ethics are the values of an organization laid
down to help managers, directors and employees to conduct
business honestly and with integrity. Corporate code of ethics
help in balancing the rights and interests of all the stakeholders
concerned like employees, customers, shareholders, suppliers,

CORPORATE business partners, government and society at large. Corporate

code of ethics assist members in understanding the difference
CODE OF between right and wrong and help in applying that
understanding to their decisions. Earlier the concept prevalent
ETHICS was referred to as code of conduct, which was applicable on
employees only i.e. how they should behave with each other as
well as with outsiders, but with the growth of the companies, the
concept came to be known as corporate code of ethics. Because,
companies are now responsible towards all the stakeholders.
 1. Obey the rules of law.
2. Present the facts of the company accurately.
3. Give due respect and regard to everyone.

CORPORATE CODE 4. Take care of company's decisions that affect

OF ETHICS others adversely. Try to make those changes
which are beneficial for others.
5. Resolve the issues before these issues
become problems Act as a responsible citizen
of the society.
 CORPORATE CODE OF ETHICS :
ENVIRONMENT, ACCOUNTABILITY,
RESPONSIBILITY, LEADERSHIP, DIVERSITY
AND DISCRIMINATION
◦ Every organization wants to conduct its business ethically that is why companies are required to lay down corporate
code of ethics which provide guidelines to the members of the organization to understand the corporate standards and to
act accordingly. The code of ethics applies to the members of the organization i.e. directors, managers, company
officers, employees etc. to conduct the business in the following manner :
1. Environment friendly way.
2. If employees take the responsibility, they will become accountable for the same.
3. Leaders should lead the organization as per the standards of conduct.
4. There should be diversity but no discrimination.
 ◦ Good values.
◦ Trust.
◦ Effective communication.
◦ Openness.
CHARACTERISTICS OF ◦ Objectivity and fairness.
AN ETHICAL
ORGANIZATION. ◦ Integrity.
◦ Transparency.
◦ Leadership.
◦ Respect.
◦ Accountability.
 ◦ Stakeholder means any person i.e. real person, artificial legal
person or a group of individuals who has an interest in a company
is referred to as stakeholder. Stakeholder interests are affected by
decisions, actions, objectives and policies of the companies.
Moreover, they can also affect the company's actions.

STAKEHOLDER ◦ According to Hill and Jones (1992), "Stakeholders are groups of

constituents who have a legitimate claim on the firm; they exist
PROTECTION through a contractual relationship, meaning they supply critical
resources to the firm in exchange for their personal needs.
◦ " According to Clarkson (1994), "Stakeholders bear some risk as a
result of having invested some form of capital, human or
financial, something of value in a firm or are placed at risk as a
result of a firm's activities."
 1. Internal stakeholders :
(a) Owners.
(b) Board.
(c) Managers.
(d) Employees
Types of 2. External stakeholders:
stakeholders a. Suppliers.
b. Customers .
c. Local community/Society .
d. Government.
e. Creditors.
f. Competitors