1. Ethical Aspects of Business
Dr.D.K.Srivastava
Lecture---8

2. Developing an Effective Ethics Program
• Corporations are viewed not merely as profit-making entities but also
as moral agents that are accountable for their conduct to their
stakeholders, including, employees, investor, suppliers, government
and customers.
• As moral agents, companies are required to obey law and regulations
that define acceptable business conduct.
• Laws and regulations are necessary to provide formal structural
restraints and guidance on ethical issues.

3. • Employees have moral obligation to responsibly think through
complex ethical issues to contribute to the ethical conduct of
corporation as a whole.
• The key reason why people seem to engage in misconduct is because
they feel pressured to do whatever, it takes to meet business targets.
• (KPMG Survey, 2009)

4. • Corporations can be considered moral agent in society that has been
created to perform specific social functions and is therefore,
responsible to society for its actions.
• Because corporations have the characteristics of agents, responsibility
of ethical behavior is assigned to them as legal entities, as well as to
individual or work group they employ.

5. • Reasons of Misconduct:
• 1. Seeking to bend the rules or steal for their own personal gain.
• 2.Believe policies and procedures are easy to bypass or override.
• 3.Fear losing their job if they do not meet targets.
• 4.Lack familiarity with the standards that apply to their jobs.
• 5.Believe the code of conduct is not taken seriously.
• 6.Believe they will be rewarded for results not the means used to
achieve them.
• 7. Feel pressure to do whatever it takes to meet business targets.

6. • In many cases, a coherent ethical culture does not evolve through
independent individual and interpersonal relationships. Because
ethics is often viewed as an individual matter, many reason that the
best way to develop an ethical corporate culture is to provide
character education to employees or to hire individuals with good
character and sensitize them to ethical issues. This theory assumes
that ethical conduct will develop through company wide agreement
and consensus.

7. • Ethical scandals in US businesses have destroyed employee’s trust in
top management and significantly lowered the public trust of
business.
• Indra Nooyi
• Rebuilding trust will require all companies to think
again about what they do to build trust, and to think again about how
they make, give and add values. And most of all, it will require all
companies to ensure that they embrace not just the commercial idea
of value, but ethical ideals of values too.

8. • To promote legal and ethical conduct, an organization should develop
an organizational ethics program by establishing, communicating, and
monitoring the ethical values and legal requirements that
characterize its history, culture, industry, and operating environment.
• Without such programs, uniform standards, and policies of conduct, it
is difficult for employees to determine what behaviors are acceptable
within a company.

9. • Although, there are no universal standards that can be applied to
organizational ethics programs, most companies develop codes,
values or policies to provide guidance on business conduct.
• It should be noted that simply having a code of ethics will not solve
ethical issues which a company may face.

10. • Most companies that have experienced ethical and legal difficulties in
recent years had formal ethics codes and programs. The problem is
that top managers have not integrated these codes, values and
standards into their firm’s corporate culture where they can provide
effective guidance for daily decision-making.
• Top managers tend to focus on financial performance because their
job and personal identities are often connected to their firm’s
quarterly returns.

11. • A culture of short- term performance as a company’s highest priority
can diminish ethical decision-making.
• A company must have an effective ethics program to ensure that all
employees understand its values and comply with the policies and
codes of conduct that create its ethical culture.
• Because, employees come from diverse business, educational and
family background, it can not be assumed that we know how to
behave appropriately when we enter new organization.

12. Penalties for Corporate Misconduct
• Company Penalty Reason
• Worldcom 750 million USD Accounting Fraud
• Goldman Sachs 550 million USD Misleading investors
• Fannie Mae 400 million USD Accounting Fraud
• Time Warner 300 million USD Accounting Fraud
• Qwest 250 million USD Accounting Fraud

13. • USA encourages federal judges to increase fines for organization that
continually tolerate misconduct and to reduce or eliminate fines for
firms with extensive compliance program that are making attempts to
abide by legal and ethical standards.

14. Questions for Discussion
• How can any Indian company create awareness about ethical conduct
among employees?
• How can it connect day to day work with ethics? Give few examples.

15. • Code of conduct: Formal statements that describe what an
organization expects of its employees.
• Reasons for failure:
• 1. The code is not promoted, and employees do not read it
• 2. The code is not easily accessible.
• 3.The code is written too legalistically and therefore is not
understandable by average employees
• 4. Code is written too vaguely providing no accurate direction.
• 5. Top management does not refer to code in body and spirit.

16. • A comprehensive code can:
• 1. Guide employees in situations which have ethical dimensions
• 2.Help the company reinforce and acquaint new employees with –its
culture and values
• 3. Help the company communicate its expectations for its staff,
suppliers, vendors and customers
• 4.Build public trust and enhance business reputations

17. • Maintaining an ethical culture may be impossible if CEOs and other
top officers do not support an ethical culture.