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Managing Business
Ethics & Compliance
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Managing Business Ethics & Compliance
Dr. Amit Das
Ph.D., MBA (HRM, International Business,
Marketing), Fellowship in Talent Management,
PGDHRM, EDP- XLRI
EDUCREATION PUBLISHING (Since 2011)
www.educreation.in
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Acknowledgement First and foremost, thanks to God for giving me wisdom that
was necessary to write this book. I would like to express my
gratitude to people who saw me through this book that
includes my wife, the real source of inspiration to start and
complete this book and who provided all kind of moral
supports throughout the journey of this book.
After fulfilling all personal and professional commitment
writing this book was real challenge because it‟s a solitary
task of searching, selecting, gathering thoughts and
embedding numerous bytes of learning, information to
generate the content of the book and to make it so
contemporal for readers.
I would like to thank the entire crew of Educreation
Publication House for their unconditional supports.
Dr. Amit Das
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Introduction
Business Ethics as a concept has been quite old in the western
countries but is relatively of recent concept in the east
including South East regional countries like India. Business
has been in existence since time immemorial. However, with
the progression of time, the motive and processes of doing
business have undergone radical changes over times &
climes.
Ethics is a subject of social science that is related with moral
principles and social values. 'Business Ethics' can be termed
as a study of proper business policies and practices regarding
potentially controversial issues, such as corporate governance,
insider trading, bribery, discrimination, corporate social
responsibility, and fiduciary responsibilities. A business must
perform other duties such as distributing fair wages,
providing good working conditions, not exploiting the
workers, encouraging competition, etc. Business ethics can be
studied at three levels: systemic, corporate and individual.
Systemic issues deal with economic, political, legal and other
related systems within which production and distribution
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activities are carried out. Questions related to the morality of
capitalism, regulation of business etc. fall into this level.
Corporate level issues deal with actions of corporate concerns
or corporate citizens. This book on Business Ethics and
Compliance provides an introduction to some of the major
challenges facing anyone concerned with standards of
behaviour in organizations. It starts from a consideration of
the resources provided by philosophical ethics and moves on
to consider the challenges inherent in working in a
competitive business environment.
Many people remain unconvinced by the Business ethics
movement. Business ethics matters because plenty of
evidence that unethical behaviour can cost a company its
reputation and reduce its stock price. Moreover, companies
that are perceived as ethical are more likely to build trust
among their shareholders, employees, customers and the
wider community and surely is good for business.
Given the continuously changing and challenging business
VUCA (Volatile, Uncertainty, Complexity and Ambiguity)
landscape, earning profit has no longer been the only
objective of running a business. Instead, reciprocate in caring
society, environment have become an equally business
imperative to sustain in longer run in this competitive world.
Remember, to survive and thrive in this competitive
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environment and to become prosperous business has to have
good corporate governance to be conformed to all business
compliances.
Having considered all unethical practices like dumping
pollutants into the water supply rather than cleaning up the
pollution properly which gives deleterious effect to
environment and questioning the safety issues of
environment, releasing toxins into the air in levels above what
is not permitted, coercing an injured worker not to report a
work injury to workers' compensation by threatening him
with the loss of a job or benefits, refusing to give an
employee a final paycheck for hours worked after the
employee leaves the company. Using bait and switch or false
advertising tactics to lure customers in or convince them to
buy a product, refusing to honor a warranty claim on a
defective product, these all unethical practices water down
business impact in long run. Looking at global corruption
index India still far away to be in top 25 corruption free
countries, the use of unethical business practices has by now
become so rampant in business in India that ultimately
flounder and fizzle out leaving behind bad impression about
business opportunity in India.
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Efforts have been made to make this Business Ethics and
Compliance book more presumptuous, comprehensive and
contemporaneous for readers.
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Contents Chapter 1 Ethics in Business Environment 1-24
Chapter 2 Ethical Organization & COBC 25-46
Chapter 3 Business Ethics in Management 47-62
Chapter 4 Business Ethics & Decision Tools 63-76
Chapter 5 Building Ethical Leadership 77-92
Chapter 6 Organizational CSR 93-124
Chapter 7 Org. Ombudsman & OEC 125-158
Chapter 8 Corporate Governance 159-206
About The Author 207-208
Reading References 209-213
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Managing Business Ethics & Compliance
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Chapter
1
Ethics in Business Environment
“There are seven things that will destroy us. Wealth without
work; pleasure without conscience; knowledge without
character; religion without sacrifice; politics without
principles; science without humanity and business without
any ethics.” Mahatma Gandhi
Ethics is a branch of social science. It deals with moral
principles and social values. It helps us to classifying, what is
good and what is bad? It tells us to do good things and avoid
doing bad things.
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Dr. Amit Das
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The word “ethics” is derived from the latin word „ ethicus‟
and the greek word „ethikos‟, meaning character or manners.
Ethics is thus said to be the science of moral, moral principle
and recognized rules of conduct.
When an action is in harmony with our morals, we say that
the action is ethical. Ethics are defining codes governs „Dos‟
and „Don‟ts‟. Ethical or unethical conducts are byproducts of
cultural influence like religion, social media, organizational
influence like role models, perceived pressure, political and
economic system etc. which completely depends upon
organizational, social
and cultural climate and moral principles of an individual. In
short, business ethics means to conduct business with a
human touch in order to give welfare to the society.
“Business ethics is the study of business situations, activities,
and decisions where issues of right and wrong are
addressed.” Andrew Crane
“The ethics of business is the ethics of responsibility. The
business man must promise that he will not harm
knowingly.” Raymond.C.Baumhart
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Managing Business Ethics & Compliance
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“Business ethics (also corporate ethics) is a form of applied
ethics or professional ethics that examines ethical principles
and moral or ethical problems that arise in a business
environment. It applies to all aspects of business conduct and
is relevant to the conduct of individuals and entire
organizations.” Wikipedia
“Business ethics are the moral values, norms or moral
standards which determine and govern the business practices
and decisions. It is an applied ethics which deals with the
factors of business environment, corporate issues in the
organization and conducting business in an honest way
fulfilling the expectations of stakeholders”.
Manuel G Velasquez
Lets‟ discuss what ethics doesn‟t mean
Ethics is not the same as feelings. Often our feelings will tell
us it is uncomfortable to do the right thing if it is hard. Ethics
is not religion. Most religions do advocate high ethical
standards but sometimes do not address all the types of
problems we face. Ethics is not following the law. Law can
become ethically corrupt; Law may have a difficult time
designing or enforcing standards in some important areas, and
may be slow to address new problems. Ethics is not following
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Dr. Amit Das
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culturally accepted norms. Ethics is not science. Science may
provide an explanation for what humans are like. But ethics
provides reasons for how humans ought to act.
Lets‟ find what are those key characteristics of Business
Ethics are:
Business ethics is a code of conduct. Business ethics is based
on moral and social values. Business ethics give protection to
different social groups. Business ethics provide a basic
framework for doing business. Business ethics must be
voluntary. Businessmen must be given proper education and
guidance before introducing business ethics. Business ethics
is a relative term. It changes from one country to another.
Business ethics focuses primarily on the interests and
fulfilling the needs of their stakeholders and interact with
them constantly. Business Ethics provides quality of goods
and services timely through their every conduct. Every
individual of the organization is responsible for his/her
professional ethics and work responsibilities.
While finding connection between Values and ethics in
simple words mean principle or code of conduct that govern
transactions; in this case business transaction. These ethics
are meant to analyze problems that come up in day to day
course of business operations. Apart from this it also applies
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to individuals who work in organizations, their conduct and to
the organizations as a whole.
The origin of Business Ethics started a period where profit
maximization was seen as the only purpose of existence for a
business. There was no consideration whatsoever for non-
economic values, be it the people who worked with
organizations or the society that allowed the business to
flourish. It was only in late 1980‟s and 1990‟s that both
intelligentsia and the academics as well as the corporate
began to show interest in the same.
Nowadays almost all organizations lay due emphasis on their
responsibilities towards the society and the nature and they
call it by different names like corporate social responsibility,
corporate governance or social responsibility charter. In India
Maruti Suzuki, for example, owned the responsibility of
maintain a large number of parks and ensuring greenery.
Hindustan Unilever, similarly started the e-shakti initiative for
women in rural villages.
Many organizations, for example, IBM as part of their
corporate social responsibility have taken up the initiative of
going green, towards contributing to environmental
protection. It is not that business did not function before the
advent of business ethics; but there is a regulation of kinds
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Dr. Amit Das
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now that ensures business and organizations contribute to the
society and its well-being.
Nowadays business ethics determines the fundamental
purpose of existence of a company in many organizations.
There is an ensuing battle between various groups, for
example between those who consider profit or share- holder
wealth maximization as the main aim of the company and
those who consider value creation as main purpose of the
organization.
Today, nobody can deny the importance of business ethics
because most of us would agree that it is ethics in practice
that makes sense; just having it carefully drafted and redrafted
in books may not serve the purpose. Of course all of us want
businesses to be fair, clean and beneficial to the society. For
that to happen, organizations need to abide by ethics or rule of
law, engage themselves in fair practices and competition; all
of which will benefit the consumer, the society and
organization.
Primarily it is the individual, the consumer, the employee or
the human social unit of the society who benefits from ethics.
In addition ethics is important because of the following.
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Being fair, honest and ethical is one the basic human needs.
Every employee desires to be such himself and to work for an
organization that is fair and ethical in its practices.
Even those who may have no information about the working
and the businesses or an organization respect an organization
that is believed to be driven by moral values in the society.
Infosys, for example is perceived as an organization for good
corporate governance and social responsibility initiatives.
This perception is held far and wide even by those who do not
even know what business the organization is into.
An organization driven by values is revered by its employees
also. They are the common thread that brings the employees
and the decision makers on a common platform. This goes a
long way in aligning behaviors within the organization
towards achievement of one common goal or mission.
For example an organization that does not value competition
will be fierce in its operations aiming to wipe out its
competitors and establish a monopoly in the market.
Organizations guided by ethics and values are profitable in
the long run, though in the short run they may seem to lose
money. Tata group, one of the largest business conglomerates
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Dr. Amit Das
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in India was seen on the verge of decline at the beginning of
1990‟s, which soon turned out to be otherwise. The same
company‟s Tata NANO car was predicted as a failure, and
failed to do well but the same is picking up fast now.
Ethics tries to create a sense of right and wrong in the
organizations and often when the law fails, it is the ethics that
may stop organizations from harming the society or
environment.
Sustainability comes from an ethical long-term vision, which
takes into account all stakeholders. Companies which
recognize the importance of business ethics will need to
spend less protecting themselves from internal and external
behavioral risks, especially when supported by sound
governance systems and independent research. The financial
crisis marked another blow for the credibility of capitalism,
with resentment towards bank bailouts at the cost of
fundamental rights such as education and healthcare.
The planet has finite resources but a growing population;
without ethics, those resources are replete for purely
individual gain at huge cost both to current and future
generations.
While finding scope of business ethics that can be measured
in three areas like Systematic issues like economic, political,
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Managing Business Ethics & Compliance
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legal, social, Corporate issues like policies and procedures
and Individual issues like moral and practices. Compliance is
about obeying and adhering to rules and authority. The
motivation for being compliant could be to do the right thing
out of the fear of being caught rather than a desire to be
abiding by the law. An ethical climate in an organization
ensures that compliance with law is fuelled by a desire to
abide by the laws. Organizations that value high ethics
comply with the laws not only in letter but go beyond what is
stipulated or expected of them.
We live in an era of cut throat competition and competition
breeds enmity. This enmity reflects in business operations,
code of conduct. Business houses with deeper pockets crush
small operators and markets are monopolized. In such a
scenario certain standards are required to govern how
organizations go about their business operations, these
standards are called ethics.
Business ethics is a wider term that includes many other sub
ethics that are relevant to the respective field. For example
there is marketing ethics for marketing, ethics in HR for
Human resource department and the like. Business ethics in
itself is a part of applied ethics; the latter takes care of ethical
questions in the technical, social, legal and business ethics.
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"The business activity which generates those profits must be
ethical, and where based on taking of high risk, the
consequences of failure must fall on the shareholders and
those employees - not on the public purse."
David Rosser
In principle the business must give importance to the service
motive. That is, priority must be given to render service to
human beings over profit. Businessman must pay fair wages.
Better working conditions should be provided. Efficient
employees should be properly motivated and recognized.
Employees should be allowed to participate in management.
Monetary and non-monetary incentives must be given to
employees. Enough consideration should be given for clean
environment. Human feelings should be given importance.
Businessman shouldn‟t indulge in unscrupulous activities like
hoarding, black-marketing, sale and use of banned or harmful
goods, etc., for the sake of greed to earn exorbitant profits.
Businessman shouldn‟t cheat and exploit consumers by using
bad business practices such as artificial price rise and
adulteration. Scarce resources should not be wasted .It should
provide quality products at reasonable price. Businessman
must pay taxes and fulfill other obligations promptly. It must
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