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ETHICS IN SFM
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Definition
A transparent approach to bu siness s uccess based on nations priorities and
societys moral gu idelines
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W orlds so me of the most
ethical co mpaniesHoneywell InternationalThe Aerospace Corporation
Nike BMW
Toyota Motor
HS BC RabobankS tan Chart
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Dun & Bradstreet Dell
HP Accent ure
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S ome qu estions
Corporate citizenship and responsi bility: How does the co mpany respond to the
co mmu nity and workplace
Legal, re gu latory and rep utation track record: W hat is the legal history of the co mpany?
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S ome qu estions contd
Innovation that contri bu tes to pub lic well bein g:
Does the co mpany provide prod ucts, services and / or process innovation that positively contri bu tes to the pub lic well bein g?
Exec utive leadership and tone from the top: Does the co mpany have stron g and visible
e xec utive leadership on ethics, corporate governance and citizenship?
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S ome qu estions contd
Internal syste ms and ethics / co mpliance pro gra m:
Does the co mpany have satisfactory internal control syste ms, includin g a leadin g code of cond uct, whistle- blower policies, prevention and detection controls, etc?
Corporate Governance Is the co mpany properly aware of potential
val ue conflicts at and aro und the co mpany and address those conflicts in an effective way?
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S ome qu estions contd
Ind ustry leadership: How does the co mpany set ind ustry
standards for bu siness ethics and co mpliance, corporate governance, responsi bility, s ustaina ble develop ment and environ ment protection?
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S ome e xa mples for unethical
actions Bribing in cash and kindP rod ucin g s ub -standard / u nhealthy prod uctsExploitin g the laborers
Unhygienic workin g conditionsNot makin g pay ments due on time
Dealing with the ene mies of the co untry Obtainin g b onds for retainin g e mployeesTa x evasion
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S ome e xa mples for unethical actions..contd
P oachin gInsider tradin g
Underc utting in bids / pricesCheatin g / m isrepresentin gHavin g one sided unreasona ble cla uses in a gree ments
Usurpin gNot bein g transparentP reventin g others to have e qu al opport unities
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Reasons for unethical Financial
Mana ge ment Amb ition to achieve faster growth witho ut ade qu ate reso urces and timeS tr uctural and proced ural deficiencies in the or ganizationCorr upt practices followed by a uthorities in power inside and outside the or ganization
Or ganizations cultureInefficient internal control syste m, rigid and e xcessive controls
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Reasons for unethical Financial Mana ge ment..contd
Unhealthy rivalry pro moted by the ownersIntellect ual arro gance leadin g to econo mic s uppression of others
Ex traordinary fears a bout the f utureGrowth at any cost and at any bodys costIncreasin g and high cost of living
An individ uals family back ground
Unlimited a mb ition to r ule othersConf used definition of professional mana ge ment
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S olutions for ethical dile mm asCombination of solutions
Fu lly ethical and f ully
legalFu lly ethical bu t not so legalFu lly legal bu t not so
ethical
Unethical and illegal
Quality of s uch co mb ination
Best
Ethically accepta ble
Master minded and hence not accepta ble
Disastro us
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Ethical Econo mical Comb inations
Comb inationFu lly ethical and most econo micalFu lly ethical and not so econo micalMost econo mical and
not ethicalNon-ethical and non-econo mical
Quality Best
Accepta ble
Dangero us
Disastro us
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Legally correct bu t ethically not
legitimateGiant mu ltinational corporations with cr ushin gpower of capital, technolo gy and political patrona ge of local govern ments
Enterprises en joyin g perpet ually s uccessf ul brands and a wide presenceGovern ment owned enterprises with the monopolies of prod uction and distri bu tion
A highly s uccessf ul flagship co mpany in a group which is always treated as a cash-cow by the pro m oters and owners
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Legally correct bu t ethically not legitimatecontd
Abu siness group which mostly does bu siness with the govern ment as a custo mer or the govern ment as a s upplier
Abu siness ho use which is co mpelled artificially to control its prices, qu ota of prod uction and distri bu tion
An or ganization facin g a tre mendo us a mount of
inertia internally due to top e xec utives with fat pay packets and avera ge tar gets An or ganization losin g its co m petitive advanta ge and market share
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W hat it takes.
Ethical res ults start lateIt is e xpensive
You have to work hard You have to present thin gs diplo matically for ultimate ethical s uccess
The outco me: Results are big and s ustaina ble
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Ethical brand e qu ity
Ethics based brands are powerf ulThey offer perpet ual positive res ults
They red uce the cost of inp ut at each sta ge of prod ucts life cycleIt works to the advanta ge of the
or ganizationEthical brand e qu ity and great instit utional bu ilding are synony mous with each other
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Ethical brand e qu ity.contd.
Ethical bu siness practices of the or ganization get bu ndled as brand ima ge of the or ganization.Everyones contri bu tion to perfor methically will drive the process fast.Ethical s uccess re qu ires tre mendo us patience and high a mb itions with s ustained efforts
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The benefits
The spin off benefits of ethical brand e qu ity Cu sto mers confidence offers big m arkets at
low pro motional costs The stake holders are under constant pub lic
check Increasin g e xpectations co mpel to develop
new and better bench marks P erpet ual process of wealth m a ximization at
mu ch lesser social costs
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The benefitscontd
Also Investors confidence provides cheap f unds
Business e xpansion and new vent ures are easily possi ble Market s upport is of high order Competitors do not dare to create unethical
rivalry Cost of s ustainin g co m petitive advanta ge is
mu ch less
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Ethical or ganizational dia gnosis
The assess ment sho uld be done within an ethical framework qu antitative
Qualitative Bench markin g of possi ble ethical ratios in the ind ustryEthical s uccess stories of the co mpetitors and
other market leadersP erceptions of the stakeholdersEthical practices followed in other co untriesInternal e xercises of ethical appraisals of ma jor strate gies, policies and practices
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Ethical bench markscontd
Business clearances by the govern ment bu rea ucrats
Environ mental awareness, both social and nat ural environ ments
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Unethical coercions
Ca used by monopolistic size, prod ucts and technolo gy
Ca used by entry barriersCa used by financial power Ca used by intellect ual s upre macy with
endless a mb itions
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Gu idelines for an individ ual
e xec utiveClear, legitimate tar gets Very appropriate reward and penalty
syste mTransparent acco untin g at all levelsS piritual and materialistic s upport from the
family and societyS piritual corporate governanceS piritual internal relations
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Trying to be spirit ual. Let financial a mb itions have a limit, so that s mall, youngand new co mpetitors are not cr ushed. They too sho uld have opport unity to growIntellect ual stren gths sho uld be used to safe gu ard the interests of the innocent. Su rvival of every body, instead of s urvival of the fittestS pirit of law more important than letter of lawIntellect ual, financial, technolo gical arro gance sho uld be avoided
A fine e qu ilibrium b etween spirit ual and materialistic growth sho uld be achieved for the society to beco me mat ured in a bove respects.
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These slides have been prepared based on the book S trate gic Financial Mana ge ment by G P J akhotiya