This is a project done on the overall view about business ethics. Business ethics tells us that profit making alone is not the main aim of the business concern. Business must be done in such a way that it does not have any negative effect on the society and to the government. Business ethics tells what is good and bad on part of the business concerned. Business ethics in management, accounting system without any manipulation in the books of accounts,marketing and sale of products and services, advertising of then product, employees and employer relationship. Corporate governance and corporate social responsibility play an important role in the business ethics. This study tells us about the various accounting scandals in the world and the reasons thereof. In this corporate wold both the business profit and the business ethics both go hand in hand. In todays world only the company that can follow business ethics can make profit in the market otherwise it is chucked out from the market.
TABLE OF CONTENT
S.NO ABSTRACT LIST OF TABLES LIST OF CHARTS CHAPTER-1 INTRODUCTION 1.1 2.1 INTRODUCTION CHATER-2 REVIEW OF LITERATURE BOOK 4 5 CHAPTER PAGE NO 1 3 3
JOURNAL INTERNET CHAPTER -3 POWER POINT SLIDES BIBLIOGRAPHY
LIST OF TABLES
S.NO 1 2 3 CONTENT PAGE NO Table showing the ranking of top corrupted sevices 33 Table showing level of overall corruption in states 33 Table showing bribe payers index 34 LIST OF CHARTS S.NO 1 2 CONTENT Bar diagram showing the bribe amount requested by people Chart showing nature of bribe demanded in India PAGE NO 30 31
Chart showing the different people who demand bribe
Business ethics is a form of applied 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 business organizations as a whole. Applied ethics is a field of ethics that deals with ethical questions in many fields such as medical, technical, legal and business ethics. In the increasingly conscience-focused marketplaces of the 21st century, the demand for more ethical business processes and actions (known as ethicism) is increasing. Simultaneously, pressure is applied on industry to improve business ethics through new public initiatives and laws (e.g. higher UK road tax for higher-emission vehicles) Businesses can often attain short-term gains by acting in an unethical fashion; however, such behaviours tend to undermine the economy over time. Business ethics can be both a normative and a descriptive discipline. As a corporate practice and a career specialization, the field is primarily normative. In academia
descriptive approaches are also taken. The range and quantity of business ethical issues reflects the degree to which business is perceived to be at odds with non-economic social values. Historically, interest in business ethics accelerated dramatically during the 1980s and 1990s, both within major corporations and within academia. For example, today most major corporate websites lay emphasis on commitment to promoting non-economic social values under a variety of headings (e.g. ethics codes, social responsibility charters). In some cases, corporations have redefined their core values in the light of business ethical considerations (e.g. BP's "beyond petroleum" environmental tilt) Many businesses have gained a bad reputation just by being in business. To some people, businesses are interested in making money, and that is the bottom line. It could be called capitalism in its purest form. Making money is not wrong in itself. It is the manner in which some businesses conduct themselves that brings up the question of ethical behavior. Good business ethics should be a part of every business. There are many factors to consider. When a company does business with another that is considered unethical, does this make the first company unethical by association? Some people would say yes, the first business has a responsibility and it is now a link in the chain of unethical businesses. Many global businesses, including most of the major brands that the public use, can be seen not to think too highly of good business ethics. Many major brands have been fined millions for breaking ethical business laws. Money is the major deciding factor.If a company does not adhere to business ethics and breaks the laws; they usually end up being fined.
REVIEW OF LITERATURE
RULES OF BUSINESS ETHICS
SOCIAL RESPONSIBILITY Companies canhave a substantial impact on the lives and well-being of citizens from other nations and should therefore avoid doing business with suppliers or partners who participate in unfair labor practices, including slave labor or child labor, the payment of starvation wages, unsafe work environments, or ethnic, racial, gender, or sexual discrimination. Unless . . . a) the products manufactured by the supplier/partner are clearly labeled "Made in China." b) The celebrity endorsing the clothing line has a talk show. c) The company thoroughly investigates child-labor allegations against the supplier/partner and is assured that "Asians always look younger than they really are."
INVESTIGOTORY REPORTY Employees or officers of a company that is under criminal or civil investigation shall not destroy documents or data that could be construed as pertinent to that investigation. a) they'd like to keep their jobs. b) They could have sworn the shredder also made copies. c) They thought they were helping in the fight against terrorism. FINANCIAL DISCEPTION Purposely concealing or misrepresenting a company's financial information, or misappropriating corporate funds for personal gain, is unethical and punishable by law. Unless . . . a) the artwork bought through such means is really good. b) The bill for that new shower curtain is a few thousand dollars more than you thought it was going to be. EXECUTIVE RESPONSIBILITY A company's chief executive officer shall be directly and wholly responsible for that company's employees, directors, and actions, including but not limited to financial activities and statements, extracorporate agreements, and product/service claims. Unless . . . a) the chief executive missed that meeting. b) The previous chief executive really started it. c) The chief executive is later elected Vice President of the United States.
DEFECTIVE PRODUCTS Any company that knowingly produces or provides a defective product or service is in material breach of ethical and legal standards and will suffer appropriate negative consequences.. . a) They were just kidding. b) The company legally changes its name and insists it was that other company that did those things. UNFAIR TRADE PRACTICES Any company that participates in unfair trade, including but not limited to coercing partners, suppliers, or distributors into signing exclusivity agreements, forcing customers or clients to use unwanted company products or services, or underselling in the market in an attempt to starve out weaker competition, shall be guilty of anticompetitive practices. Unless . . . a) Judge Thomas Penfield Jackson presides at the company's trial.
ESSENTIALS OF BUSINESS ETHICS
Everyone agrees that business managers must understand finance and marketing. But is it necessary for them to study ethics? Managers who answer in the negative generally base their thinking on one of threeRationales. They may simply say that they have no reason to be ethical. They see why theyShould make a profit, and most agree they should do so legally. But why should they beconcerned about ethics, as long as they are making money and staying out of jail? Other managers recognize that they should be ethical but identify their ethical duty with Making a legal profit for the firm. They see no need to be ethical in any further sense, and therefore no need for any background beyond business and law.A third group of managers grant that ethical duty goes further than what is required bylaw. But they still insist that there is no point in studying ethics. Character is formed in childhood, not while reading a college text or sitting in class.These arguments are confused and mistaken on several levels.
RULES OF BUSINESS ETHICS Prepared by the Association of Direct Response Fundraising Counsel (ADRFCO) (Mal Warwick & Associates, Inc. is a founding member of ADRFCO and adheres to these Rules.) Members of the Association are companies or divisions of companies that provide consulting services to nonprofit organizations with respect to direct response fundraising. Members do not solicit funds from the public. Services provided by members include offering advice and counsel; conducting feasibility studies and tests; designing and managing campaigns; developing and producing solicitation materials; and providing mailing lists. 1. ACCOUNTABILITY OF MEMBERS The Association recognizes special obligations of public accountability due to the status enjoyed by the client group it serves. Accordingly, upon the request of a member of the public, a member will: a) Divulge the existence of a client relationship. b) Provide a copy of the contract governing its employment as fundraising counsel or inform the inquirer where the contract may be obtained.
2. ACCOUNTABILITY OF CLIENTS A member of the Association will not knowingly serve an organization that fails to meet minimum standards of public accountability. A member will take reasonable, affirmative steps to assure that a client organization meets these standards. An organization must: a) Maintain an independent, functioning board of directors (or other governing body).b b) Provide detailed information on its finances upon request. c) Provide detailed information on its programs upon request.
3. OBTAINING CLIENTS Nonprofit organizations deserve an extra degree of care when approached by a business offering fundraising services. Accordingly, a member of the Association will not: a) Exaggerate its performance record or lead a prospective client to a false conclusion that a given result is guaranteed. b) Offer any kind of compensation to an officer, director, employee, or advisor of a
prospective client for aid in obtaining the client's business. c) Enter into the business relationship without reasonable assurance that the client understands the economics and processes of direct response fundraising. 4. CONTRACTS For the protection of both members of the Association and nonprofit clients, contracts must contain minimum safeguards. Therefore, any contract entered into between a member and a nonprofit organization will contain provisions that: a) Clearly describe the services to be provided and the compensation to be paid. b) Specify the period for which the contract has effect. 5. FEES A member of the Association must base its fee on actual services to be provided at a prearranged, reasonable level of compensation. Necessarily, "reasonable" can only be determined by all the factors involved, including: the time and type of labor involved, the nature and duration of the professional relationship between provider and client, and the ability and experience of the people performing the services. Fees based on a percentage of fundraising proceeds, however stated, are not favored. A member may enter into such an arrangement only if it is based on an actual, demonstrable, and fair allocation of risk and if the resulting compensation remains within reasonable bounds.
6. FUNDRAISING METHODS Members of the Association owe obligations of truthfulness and integrity directly to the donating public. Accordingly, in conducting a campaign, members will not: a) Knowingly misrepresent a nonprofit organization's mission, accomplishments, or plans for the future. A member will take reasonable, affirmative steps to avoid such a misrepresentation. b) Knowingly impart expectations to the public that cannot be fulfilled. A member will take reasonable, affirmative steps to avoid creating such an expectation.
Business ethics is a form of applied 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 business organizations as a whole. Applied ethics is a field of ethics that deals with ethical questions in many fields such as medical, technical, legal and business ethics. In the increasingly conscience-focused marketplaces of the 21st century, the demand for more ethical business processes and actions (known as ethicism) is increasing. Simultaneously, pressure is applied on industry to improve business ethics through new public initiatives and laws (e.g. higher UK road tax for higher-emission vehicles) Businesses can often attain short-term gains by acting in an unethical fashion; however, such behaviours tend to undermine the economy over time. Business ethics can be both a normative and a descriptive discipline. As a corporate practice and a career specialization, the field is primarily normative. In academia descriptive approaches are also taken. The range and quantity of business ethical issues reflects the degree to which business is perceived to be at odds with non-economic social values. Historically, interest in business ethics accelerated dramatically during the 1980s and 1990s, both within major corporations and within academia. For example, today most major corporate websites lay emphasis on commitment to promoting non-economic social values under a variety of headings (e.g. ethics codes, social responsibility charters). In some cases, corporations have redefined their core values in the light of business ethical considerations (e.g. BP's "beyond petroleum" environmental tilt).
OVERVIEW OF ISSUES IN BUSINESS GENERAL BUSINESS ETHICS
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This part of business ethics overlaps with the philosophy of business, one of the aims of which is to determine the fundamental purposes of a company. If a company's main purpose is to maximize the returns to its shareholders, then it should be seen as unethical for a company to consider the interests and rights of anyone else Corporate social responsibility or CSR: an umbrella term under which the ethical rights and duties existing between companies and society is debated. Issues regarding the moral rights and duties between a company and its shareholders: fiduciary responsibility, stakeholder concept v. shareholder concept. Ethical issues concerning relations between different companies: e.g. hostile takeovers, industrial espionage. Leadership issues: corporate governance. Political contributions made by corporations.
Law reform, such as the ethical debate over introducing a crime of corporate manslaughter. The misuse of corporate ethics policies as marketing instruments.
SHAREHOLDER OR STOCKHOLDER A mutual shareholder or stockholder is an individual or company (including a corporation) that legally owns one or more shares of stock in a joint stock company. A company's shareholders collectively own that company. Thus, the typical goal of such companies is to enhance shareholder value. Stockholders are granted special privileges depending on the class of stock. These rights may include:
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The right to vote on matters such as elections to the board of directors. Usually, stockholders have one vote per share owned, but sometimes this is not the case. The right to propose shareholder resolutions. The right to share in distributions of the company's income. The right to purchase new shares issued by the company. The right to a company's assets during, a liquidation of the company.
However, stockholder's rights to a company's assets are subordinate to the rights of the company's creditors. This means that stockholders typically receive nothing if a company is liquidated after bankruptcy (if the company had had enough to pay its creditors, it would not have entered bankruptcy, although a stock may have value after a bankruptcy if there is the possibility that the debts of the company will be restructured). Stockholders or shareholders are considered by some to be a partial subset of stakeholders, which may include anyone who has a direct or indirect equity interest in the business entity or someone with even a non-pecuniary interest in a non-profit organization. Thus it might be common to call volunteer contributors to an association stakeholders, even though they are not shareholders. Although directors and officers of a company are bound by fiduciary duties to act in the best interest of the shareholders, the shareholders themselves normally do not have such duties towards each other. However, in a few unusual cases, some courts have been willing to imply such a duty between shareholders. For example, in California, majority shareholders of closely held corporations have a duty to not destroy the value of the shares held by minority shareholders shareholders play an important role in raising capital for organizations. So these figures pose a great opportunity for all those who are looking for a lucrative option to invest money. Companies typically provide all the necessary proofs to shareholders to show that they are investing at a right place. For example, fair and reliable audit figures
from income statement and balance sheet are used as evidence of overall performance for the benefit of shareholders.
PHILOSOPHY OF BUSINESS
The philosophy of business considers the fundamental principles that underlie the formation and operation of a business enterprise; the nature and purpose of a business, for example, is it primarily property or a social institution; its role in society; and the moral obligations that pertain to it. The subject is important to business and management, and is closely related to business ethics and political economy. It is influenced significantly by philosophy, ethics, and economic theory. One must draw an important distinction between the philosophy of business and business philosophy, which is an appellation that one often hears in the business world. More often than not, the latter designation is intended to denote a way of doing business or a business outlook, a popular use of the term philosophy, instead of its more formal, academic meaning, using the concepts and methods employed by philosophers. The latter meaning applies to the philosophy of business in this article. The phrase philosophy of business also might be used in the same way as business philosophy, for example, "Risk taking represents my philosophy of business." However, this is not the same sense that philosophy is used in this article.
CORPORATE SOCIAL RESPONSIBILITY
Corporate social responsibility (CSR), also known as corporate responsibility, corporate citizenship, responsible business, sustainable responsible business (SRB), or corporate social performance, is a form of corporate self-regulation integrated into a business model. Ideally, CSR policy would function as a built-in, self-regulating mechanism whereby business would monitor and ensure its adherence to law, ethical standards, and international norms. Business would embrace responsibility for the impact of their activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere. Furthermore, business would proactively promote the public interest by encouraging community growth and development, and voluntarily eliminating practices that harm the public sphere, regardless of legality. Essentially, CSR is the deliberate inclusion of public interest into corporate decision-making, and the honoring of a triple bottom line: People, Planet, Profit.. The practice of CSR is subject to much debate and criticism. Proponents argue that there is a strong business case for CSR, in that corporations benefit in multiple ways by operating with a perspective broader and longer than their own immediate, short-term profits. Critics argue that CSR distracts from the fundamental economic role of businesses; others argue that it is nothing more than superficial window-dressing; others yet argue that it is an attempt to pre-empt the role of governments as a watchdog over powerful multinational corporations. 12
Industrial espionage describes activities such as theft of trade secrets, bribery, blackmail, and technological surveillance. As well as spying on commercial organizations, governments can also be targets of commercial espionage—for example, to determine the terms of a tender for a government contract so that another tenderer can underbid. Industrial espionage is most commonly associated with technology-heavy industries, particularly the computer and automobile sectors. Espionage takes place in many forms. In short, the purpose of espionage is to gather knowledge about (an) organization(s). A spy may be hired, or may work for oneself.
Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders/members, management, and the board of directors. Other stakeholders include labour (employees), customers, creditors (e.g., banks, bond holders), suppliers, regulators, and the community at large. For Not-For-Profit Corporations or other membership Organizations the "shareholders" means "members" in the text below (if applicable). Corporate governance is a multi-faceted subject. An important theme of corporate governance is to ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal-agent problem. A related but separate thread of discussions focuses on the impact of a corporate governance system in economic efficiency, with a strong emphasis on shareholders' welfare. There are yet other aspects to the corporate governance subject, such as the stakeholder view and the corporate governance models around the world (see section 9 below). There has been renewed interest in the corporate governance practices of modern corporations since 2001, particularly due to the high-profile collapses of a number of large U.S. firms such as Enron Corporation and MCI Inc. (formerly WorldCom). In 2002, the U.S. federal government passed the Sarbanes-Oxley Act, intending to restore public confidence in corporate governance.
In A Board Culture of Corporate Governance, business author Gabrielle O'Donovan defines corporate governance as 'an internal system encompassing policies, processes and people, which serves the needs of shareholders and other stakeholders, by directing and controlling management activities with good business savvy, objectivity, accountability and integrity. Sound corporate governance is reliant on external marketplace commitment and legislation, plus a healthy board culture which safeguards policies and processes'. O'Donovan goes on to say that 'the perceived quality of a company's corporate governance can influence its share price as well as the cost of raising capital. Quality is determined by the financial markets, legislation and other external market forces plus how policies and processes are implemented and how people are led. External forces are, to a large extent, outside the circle of control of any board. The internal environment is quite a different matter, and offers companies the opportunity to differentiate from competitors through their board culture. To date, too much of corporate governance debate has centred on legislative policy, to deter fraudulent activities and transparency policy which misleads executives to treat the symptoms and not the cause.' It is a system of structuring, operating and controlling a company with a view to achieve long term strategic goals to satisfy shareholders, creditors, employees, customers and suppliers, and complying with the legal and regulatory requirements, apart from meeting environmental and local community needs. Report of SEBI committee (India) on Corporate Governance defines corporate governance as the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal & corporate funds in the management of a company.” The definition is drawn from the Gandhian principle of trusteeship and the Directive Principles of the Indian Constitution. Corporate Governance is viewed as ethics and a moral duty..
ROLE OF INVESTOR
Many years ago, worldwide, buyers and sellers of corporation stocks were individual investors, such as wealthy businessmen or families,who often had a vested, personal and emotional interest in the corporations whose shares they owned. Over time, markets have become largely institutionalized: buyers and sellers are largely institutions (e.g., pension funds, mutual funds, hedge funds, exchange-traded funds, other investor groups; insurance companies, banks, brokers, and other financial institutions). The rise of the institutional investor has brought with it some increase of professional diligence which has tended to improve regulation of the stock market (but not necessarily in the interest of the small investor or even of the naïve institutions, of which there are many). Note that this process occurred simultaneously with the direct growth of individuals investing indirectly in the market (for example individuals have twice as much money in mutual funds as they do in bank accounts). However this growth occurred primarily by way of individuals turning over their funds to 'professionals' to manage, such as in mutual
funds. In this way, the majority of investment now is described as "institutional investment" even though the vast majority of the funds are for the benefit of individual investors. Nowadays, if the owning institutions don't like what the President/CEO is doing and they feel that firing them will likely be costly (think "golden handshake") and/or time consuming, they will simply sell out their interest. The Board is now mostly chosen by the President/CEO, and may be made up primarily of their friends and associates, such as officers of the corporation or business colleagues. Since the (institutional) shareholders rarely object, the President/CEO generally takes the Chair of the Board position for his/herself (which makes it much more difficult for the institutional owners to "fire" him/her). Occasionally, but rarely, institutional investors support shareholder resolutions on such matters as executive pay and anti-takeover, aka, "poison pill" measures. Finally, the largest pools of invested money (such as the mutual fund 'Vanguard 500', or the largest investment management firm for corporations, State Street Corp.) are designed simply to invest in a very large number of different companies with sufficient liquidity, based on the idea that this strategy will largely eliminate individual company financial or other risk and, therefore, these investors have even less interest in a particular company's governance. .
PARTIES TO CORPORATE GOVERNENCE
Parties involved in corporate governance include the regulatory body (e.g. the Chief Executive Officer, the board of directors, management,shareholders and Auditors). Other stakeholders who take part include suppliers, employees, creditors, customers and the community at large. In corporations, the shareholder delegates decision rights to the manager to act in the principal's best interests. This separation of ownership from control implies a loss of effective control by shareholders over managerial decisions. Partly as a result of this separation between the two parties, a system of corporate governance controls is implemented to assist in aligning the incentives of managers with those of shareholders. With the significant increase in equity holdings of investors, there has been an opportunity for a reversal of the separation of ownership and control problems because ownership is not so diffuse. A board of directors often plays a key role in corporate governance. It is their responsibility to endorse the organisation's strategy, develop directional policy, appoint, supervise and remunerate senior executives and to ensure accountability of the organisation to its owners and authorities. 15
The Company Secretary, known as a Corporate Secretary in the US and often referred to as a Chartered Secretary if qualified by the Institute of Chartered Secretaries and Administrators (ICSA), is a high ranking professional who is trained to uphold the highest standards of corporate governance, effective operations, compliance and administration. All parties to corporate governance have an interest, whether direct or indirect, in the effective performance of the organisation. Directors, workers and management receive salaries, benefits and reputation, while shareholders receive capital return. Customers receive goods and services; suppliers receive compensation for their goods or services. In return these individuals provide value in the form of natural, human, social and other forms of capital. A key factor is an individual's decision to participate in an organisation e.g. through providing financial capital and trust that they will receive a fair share of the organisational returns. If some parties are receiving more than their fair return then participants may choose to not continue participating leading to organizational collapse. Principles Key elements of good corporate governance principles include honesty, trust and integrity, openness, performance orientation, responsibility and accountability, mutual respect, and commitment to the organization. Of importance is how directors and management develop a model of governance that aligns the values of the corporate participants and then evaluate this model periodically for its effectiveness. In particular, senior executives should conduct themselves honestly and ethically, especially concerning actual or apparent conflicts of interest, and disclosure in financial reports. Commonly accepted principles of corporate governance include:
Rights and equitable treatment of shareholders: Organizations should respect the rights of shareholders and help shareholders to exercise those rights. They can help shareholders exercise their rights by effectively communicating information that is understandable and accessible and encouraging shareholders to participate in general meetings. Interests of other stakeholders: Organizations should recognize that they have legal and other obligations to all legitimate stakeholders. Role and responsibilities of the board: The board needs a range of skills and understanding to be able to deal with various business issues and have the ability to review and challenge management performance. It needs to be of sufficient size and have an appropriate level of commitment to fulfill its responsibilities and duties. There are issues about the appropriate mix of executive and non-executive directors. Integrity and ethical behaviour: Ethical and responsible decision making is not only important for public relations, but it is also a necessary element in risk management and avoiding lawsuits. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible
decision making. It is important to understand, though, that reliance by a company on the integrity and ethics of individuals is bound to eventual failure. Because of this, many organizations establish Compliance and Ethics Programs to minimize the risk that the firm steps outside of ethical and legal boundaries. Disclosure and transparency: Organizations should clarify and make publicly known the roles and responsibilities of board and management to provide shareholders with a level of accountability. They should also implement procedures to independently verify and safeguard the integrity of the company's financial reporting. Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to clear, factual information.
internal controls and internal auditors the independence of the entity's external auditors and the quality of their audits oversight and management of risk oversight of the preparation of the entity's financial statements review of the compensation arrangements for the chief executive officer and other senior executives the resources made available to directors in carrying out their duties the way in which individuals are nominated for positions on the board dividend policy
Nevertheless "corporate governance," despite some feeble attempts from various quarters, remains an ambiguous and often misunderstood phrase. For quite some time it was confined only to corporate management. That is not so. It is something much broader, for it must include a fair, efficient and transparent administration and strive to meet certain well defined, written objectives. Corporate governance must go well beyond law. The quantity, quality and frequency of financial and managerial disclosure, the degree and extent to which the board of Director (BOD) exercise their trustee responsibilities (largely an ethical commitment), and the commitment to run a transparent organization- these should be constantly evolving due to interplay of many factors and the roles played by the more progressive/responsible elements within the corporate sector. John G. Smale, a former member of the General Motors board of directors, wrote: "The Board is responsible for the successful perpetuation of the corporation. That responsibility cannot be relegated to management." In India, a strident demand for evolving a code of good practices by the corporation, written by each corporation management, is emerging. Corporate governance mechanisms and controls are designed to reduce the inefficiencies that arise from moral hazard and adverse selection. For example, to monitor managers' behaviour, an independent third party (the external auditor) attests the accuracy of
information provided by management to investors. An ideal control system should regulate both motivation and ability.
INTERNAL CORPORATE GOVERNENCE CONTROL
Internal corporate governance controls monitor activities and then take corrective action to accomplish organisational goals. Examples include:
Monitoring by the board of directors: The board of directors, with its legal authority to hire, fire and compensate top management, safeguards invested capital. Regular board meetings allow potential problems to be identified, discussed and avoided. Whilst non-executive directors are thought to be more independent, they may not always result in more effective corporate governance and may not increase performance. Different board structures are optimal for different firms. Moreover, the ability of the board to monitor the firm's executives is a function of its access to information. Executive directors possess superior knowledge of the decision-making process and therefore evaluate top management on the basis of the quality of its decisions that lead to financial performance outcomes, ex ante. It could be argued, therefore, that executive directors look beyond the financial criteria. Internal control procedures and internal auditors: Internal control procedures are policies implemented by an entity's board of directors, audit committee, management, and other personnel to provide reasonable assurance of the entity achieving its objectives related to reliable financial reporting, operating efficiency, and compliance with laws and regulations. Internal auditors are personnel within an organization who test the design and implementation of the entity's internal control procedures and the reliability of its financial reporting. Balance of power: The simplest balance of power is very common; require that the President be a different person from the Treasurer. This application of separation of power is further developed in companies where separate divisions check and balance each other's actions. One group may propose company-wide administrative changes, another group review and can veto the changes, and a third group check that the interests of people (customers, shareholders, employees) outside the three groups are being met. Remuneration: Performance-based remuneration is designed to relate some proportion of salary to individual performance. It may be in the form of cash or noncash payments such as shares and share options, superannuation or other benefits. Such incentive schemes, however, are reactive in the sense that they provide no mechanism for preventing mistakes or opportunistic behaviour, and can elicit myopic behaviour.
EXTERNAL CORPORATE GOVERNENCE CONTROL
External corporate governance controls encompass the controls external stakeholders exercise over the organisation. Examples include:
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competition debt covenants demand for and assessment of performance information (especially financial statements) government regulations managerial labour market media pressure takeovers
Demand for information: A barrier to shareholders using good information is the cost of processing it, especially to a small shareholder. The traditional answer to this problem is the efficient market hypothesis (in finance, the efficient market hypothesis (EMH) asserts that financial markets are efficient), which suggests that the small shareholder will free ride on the judgements of larger professional investors. Monitoring costs: In order to influence the directors, the shareholders must combine with others to form a significant voting group which can pose a real threat of carrying resolutions or appointing directors at a general meeting. Supply of accounting information: Financial accounts form a crucial link in enabling providers of finance to monitor directors. Imperfections in the financial reporting process will cause imperfections in the effectiveness of corporate governance. This should, ideally, be corrected by the working of the external auditing process.
ROLE OF ACCOUNTANT
Financial reporting is a crucial element necessary for the corporate governance system to function effectively. Accountants and auditors are the primary providers of information to capital market participants. The directors of the company should be entitled to expect that management prepare the financial information in compliance with statutory and ethical obligations, and rely on auditors' competence. Current accounting practice allows a degree of choice of method in determining the method of measurement, criteria for recognition, and even the definition of the accounting entity. The exercise of this choice to improve apparent performance (popularly known as creative accounting) imposes extra information costs on users. In the extreme, it can involve non-disclosure of information. One area of concern is whether the accounting firm acts as both the independent auditor and management consultant to the firm they are auditing. This may result in a conflict of 19
interest which places the integrity of financial reports in doubt due to client pressure to appease management. The power of the corporate client to initiate and terminate management consulting services and, more fundamentally, to select and dismiss accounting firms contradicts the concept of an independent auditor. Changes enacted in the United States in the form of the Sarbanes-Oxley Act (in response to the Enron situation as noted below) prohibit accounting firms from providing both auditing and management consulting services. Similar provisions are in place under clause 49 of SEBI Act in India. The Enron collapse is an example of misleading financial reporting. Enron concealed huge losses by creating illusions that a third party was contractually obliged to pay the amount of any losses. However, the third party was an entity in which Enron had a substantial economic stake. In discussions of accounting practices with Arthur Andersen, the partner in charge of auditing, views inevitably led to the client prevailing. However, good financial reporting is not a sufficient condition for the effectiveness of corporate governance if users don't process it, or if the informed user is unable to exercise a monitoring role due to high costs (see Systemic problems of corporate governance above).
Enforcement can affect the overall credibility of a regulatory system. They both deter bad actors and level the competitive playing field. Nevertheless, greater enforcement is not always better, for taken too far it can dampen valuable risk-taking. In practice, however, this is largely a theoretical, as opposed to a real, risk.
CODE AND GUIDELINES
Corporate governance principles and codes have been developed in different countries and issued from stock exchanges, corporations, institutional investors, or associations (institutes) of directors and managers with the support of governments and international organizations. As a rule, compliance with these governance recommendations is not mandated by law, although the codes linked to stock exchange listing requirements may have a coercive effect. Building on the work of the OECD, other international organisations, private sector associations and more than 20 national corporate governance codes, the United Nations Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) has produced voluntary Guidance on Good Practices in Corporate Governance Disclosure. This internationally agreed benchmark consists of more than fifty distinct disclosure items across five broad categories:
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Auditing Board and management structure and process Corporate responsibility and compliance Financial transparency and information disclosure Ownership structure and exercise of control rights
The World Business Council for Sustainable Development WBCSD has done work on corporate governance, particularly on accountability and reporting, and in 2004 created an Issue Management Tool: Strategic challenges for business in the use of corporate responsibility codes, standards, and frameworks.This document aims to provide general information, a "snap-shot" of the landscape and a perspective from a thinktank/professional association on a few key codes, standards and frameworks relevant to the sustainability agenda.
Ownership structures refers to the various patterns in which shareholders seem to set up with respect to a certain group of firms. It is a tool frequently employed by policy-makers and researchers in their analyses of corporate governance within a country or business group. Generally, ownership structures are identified by using some observable measures of ownership concentration (i.e. concentration ratios) and then making a sketch showing its visual representation. The idea behind the concept of ownership structures is to be able to understand the way in which shareholders interact with firms and, whenever possible, to locate the ultimate owner of a particular group of firms. Some examples of ownership structures include pyramids, cross-share holdings, rings, and webs.
Executive compensation is how top executives of business corporations are paid. This includes a basic salary, bonuses, shares, options and other company benefits. Over the past three decades, executive compensation has risen dramatically beyond the rising levels of an average worker's wage. Executive compensation is an important part of corporate governance, and is often determined by a company's board of directors. The results of previous research on the relationship between firm performance and executive compensation have failed to find consistent and significant relationships between executives' remuneration and firm performance. Low average levels of pay-performance alignment do not necessarily imply that this form of governance control is inefficient. Not all firms experience the same levels of agency conflict, and external and internal monitoring devices may be more effective for some than for others. Some researchers have found that the largest CEO performance incentives came from ownership of the firm's shares, while other researchers found that the relationship between share ownership and firm performance was dependent on the level of ownership. The 21
results suggest that increases in ownership above 20% cause management to become more entrenched, and less interested in the welfare of their shareholders. Some argue that firm performance is positively associated with share option plans and that these plans direct managers' energies and extend their decision horizons toward the longterm, rather than the short-term, performance of the company. However, that point of view came under substantial criticism circa in the wake of various security scandals including mutual fund timing episodes and, in particular, the backdating of option grants as documented by University of Iowa academic Erik Lie and reported by James Blander and Charles Forelle of the Wall Street Journal.
There are six basic tools to compensation or remuneration.
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a base salary short-term incentives, or bonuses long-term incentive plans (LTIP) employee benefits perquisites, or perks compensation protection (Golden parachute)
In a typical modern US corporation, the CEO and other top executives are paid salary plus short-term incentives or bonuses. This combination is referred to as Total Cash Compensation (TCC). Short-term incentives usually are formula-driven and have some performance criteria attached depending on the role of the executive. For example, the Sales Director's performance related bonus may be based on incremental revenue growth turnover; a CEO's could be based on incremental profitability and revenue growth. Bonuses are after-the-fact (not formula driven) and often discretionary. Executives may also be compensated with a mixture of cash and shares of the company Wich are almost always subject to vesting restrictions (a long-term incentive). To be considered a long-term incentive the measurement period must be in excess of one year (3–5 years is common). The vesting term refers to the period of time before the recipient has the right to transfer shares and realize value. Vesting can be based on time, performance or both. For example a CEO might get 1 million in cash, and 1 million in company shares (and share buy options used). Other components of an executive compensation package may include such perks as generous retirement plans, health insurance, CASE: Satyam Computers under India’s biggest company fraud scam
Satyam computer services chairman B Ramalinga Raju’s admission he had cooked the company’s books has undoubtedly left India's fourth largest software exporter struggling to survive the fallout, but his misdeeds may cast a cloud over the squeakyclean profile of the entire sector, and by extension, the rest of the Indian corporate sector. For years, Satyam and larger rivals such as Tata Consultancy Services, Infosys and Wipro were feted as among the new ambassadors of Indian industry with their corporate governance practices winning accolades around the world and their strong growth rates luring investors. This looks set to change after Mr Raju announced on Wednesday Satyam’s famed cash pile was almost non-existent and its revenues and profits were inflated. “In the short term, companies will definitely get painted by the same brush and Indian IT companies could come under a cloud,” says L&T Infotech CEO Sudip Banerjee, who till recently worked with Satyam’s larger rival Wipro Technologies. The impact of Mr Raju’s misdeeds was visible on the Indian stock markets on Wednesday as investors exited the stock in a big way. Satyam shares plunged nearly 78%, and dragged down the broader market. Peers such as HCL technologies closed 15% lower. Some experts believe the damage will not be limited to the technology sector. “The impact is more on India Inc’s credibility, rather than brand India IT, as it is a wider problem and not sector specific,” Future Brands CEO Santosh Desai said. Raman Roy, chairman and managing director of Quatrro BPO Solutions and regarded as father of Indian outsourcing, said the onus will now be on India’s technology sector to prove it does not have anything wrong in its accounting practices. That must be frustrating for the sector’s top executives, most of whom have spent long years differentiating India’s IT sector from the rest of Indian industry as they built their firms to take on some of the mightiest in the world. It took a lot of hard work for Indian IT companies to build reputations that enabled them to stand alongside global names 23
such as IBM, Accenture, HP, Cap Gemini and Atos Origin. For an industry born in the late 1980s and gained traction around and after the Y2K crossover, Satyam’s revelations could not have come at a worse time. The global economic slowdown has slowed growth and forced them to fight harder for business in the $800-billion global IT services market. Some believe while the $50-billion Indian IT sector could find customers questioning the quality of their books, it could also perversely be seen as a coming of age of the sector. “The image of Indian IT existing as a standalone beacon unsullied by the goings on in the society around it has come unstuck. The assumption that since it’s the IT sector, so it won’t do fraud is proven wrong. IT is now as much part of the Indian business, with all its attendant ills. And with it Indian IT has kind of become real,” BBH India managing partner Partha Sinha said. While the Satyam episode could temporarily cast a cloud over Indian IT firms, IT in India is unlikely to be as affected. Large overseas companies will still need to cut costs, and India will remain a preferred destination for doing so. In the short term, overseas firms could still go to more familiar global names such as IBM or Accenture or CSC, all of which have significant operations in India. “The Indian global IT story, which was built on efficiency and costs not clean books, will not suffer any credibility issues globally as long as efficiency is not compromised,” said Mr Sinha. “There could be a shift in customer loyalties. The solution for global customers will be delivered by multinationals if not Indian players,” says Avinash Vashistha, CEO of Tholons, which advises global firms on offshoring. While the immediate impact on brand India IT could be negative, some experts believe such things are common around the world and can be easily restored by further strengthening governance practices in the sector. “Every country has such incidents. Corporate governance standards of Indian IT, particularly the non-family owned firms, are very good and I believe brand IT will not suffer in the long run,” adRaju has been arrested under the Indian Penal Code sections 120B, 409, 420, 468 and 471. These sections correspond to forging, falsifications of the records, criminal breach of trust and cheating. Reports say that if proved guilty in these sections, he might be put behind the bars for upto 10 years. Earlier on the day the Government of India superceded the Satyam board. An interim board will be nominated very soon. The planned Jan 10 th board meeting was cancelled in this regard.
Satyam Computers, one of India’s largest IT companies, has come under the fraud scam of balance sheet manipulation. Ramalinga Raju, the chairman of the company has resigned admitting committing this fraud of such huge proportion. Satyam is the India’s fourth largest IT firm and has has over 51,000 employees. Giving all the details of the financial irregularities, Raju said the company’s balance sheet as of September 30 carries “inflated (non-existent) cash and bank balances of Rs 5,040 crore (as against Rs 5,361 crore reflected in the books.” “It was like riding a tiger, not knowing how to get off without being eaten,” Ramalinga Raju said in a letter to Satyam’s board of directors, wherein he listed major financial wrongdoings over the years to inflate the profits. Noting that every attempt to eliminate gaps in balance sheet, purely on account of inflated profits over several years, failed, Raju said: “I am now prepared to subject myself to the laws of the land and face consequences thereof.” “It has attained unmanageable proportions as the size of the company operations grew significantly… The differential in the real profits and the one reflected in the books was further accentuated by the fact that the company had to carry additional resources and assets to justify higher level of operations thereby significantly increasing the costs,” he said. Raju also clarified that he or the company’s MD did not take “even one rupee/dollar from the company and have not benefited in financial terms on account of the inflated results.” Satyam Computers is listed on the New York Stock Exchange along with the Bombay Stock Exchange and the National Stock Exchange (NSE) of India. Satyam’s stock fell over 80% in the NSE after the news flow appeared. The stock fell over 50% for the second consecutive day on NSE during the trading on2009, JAN 09.
ETHICS OF ACCOUNTING INFORMATION
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Creative accounting, earnings management, misleading financial analysis. Insider trading, securities fraud, bucket shops, forex scams: concerns (criminal) manipulation of the financial markets. Executive compensation: concerns excessive payments made to corporate CEO's and top management. Bribery, kickbacks, facilitation payments: while these may be in the (short-term) interests of the company and its shareholders, these practices may be anticompetitive or offend against the values of society.
Accounting ethics is primarily a field of applied ethics, the study of moral values and judgments as they apply to accountancy. It is an example of professional ethics. Accounting ethics were first introduced by Luca Pacioli, and later expanded by government groups, professional organizations, and independent companies. Ethics are taught in 25
accounting courses at higher education institutions as well as by companies training accountants and auditors. Due to the diverse range of accounting services and recent corporate collapses, attention has been drawn to ethical standards accepted within the accounting profession. these collapses have resulted in a widespread disregard for the reputation of the accounting profession. To combat the criticism and prevent fraudulent accounting, various accounting organizations and governments have developed regulations.
Creative accounting and earnings management are euphemisms referring to accounting practices that may follow the letter of the rules of standard accounting practices, but certainly deviate from the spirit of those rules. They are characterized by excessive complication and the use of novel ways of characterizing income, assets, or liabilities and the intent to influence readers towards the interpretations desired by the authors. The terms "innovative" or "aggressive" are also sometimes used. The term as generally understood refers to systematic misrepresentation of the true income and assets of corporations or other organizations. "Creative accounting" is at the root of a number of accounting scandals, and many proposals for accounting reform usually centering on an updated analysis of capital and factors of production that would correctly reflect how value is added. Newspaper and television journalists have hypothesized that the stock market downturn of 2002 was precipitated by reports of accounting irregularities at Enron, Worldcom, and other firms in the United States.One commonly accepted incentive for the systemic overreporting of corporate income which came to light in 2002 was the granting of stock options as part of executive compensation packages. Since stock prices reflect earning reports, stock options could be most profitably exercised when income is exaggerated, and the stock can be sold at an inflated profit.
SECURITIES FRAUDSecurities fraud, also known as stock fraud and investment
fraud, is a practice in which investors make purchase or sale decisions on the basis of false information, frequently resulting in losses, in violation of the securities laws. Generally speaking, securities fraud consists of deceptive practices in the stock and commodity markets, and occurs when investors are enticed to part with their money based on untrue statements Securities fraud includes outright theft from investors and misstatements on a public company's financial reports. The term also encompasses a wide range of other actions, including insider trading and front-running and other illegal acts on the trading floor of a stock or commodity exchange.
According to the FBI, securities fraud includes false information on a company's financial statement and Securities and Exchange Commission (SEC) filings; lying to corporate auditors; insider trading; stock manipulation schemes, and embezzlement by stockbrokers A fiduciary duty is a legal or ethical relationship of confidence or trust between two or more parties, most commonly a fiduciary or trustee and a principal or beneficiary. One party, for example a corporate trust company or the trust department of a bank, holds a fiduciary relation or acts in a fiduciary capacity to another, such as one whose funds are entrusted to it for investment. In a fiduciary relation one person justifiably reposes confidence, good faith, reliance and trust in another whose aid, advice or protection is sought in some matter. In such a relation good conscience requires one to act at all times for the sole benefit and interests.
Insider trading is the trading of a corporation's stock or other securities (e.g. bonds or stock options) by individuals with potential access to non-public information about the company. In most countries, trading by corporate insiders such as officers, key employees, directors, and large shareholders may be legal, if this trading is done in a way that does not take advantage of non-public information. However, the term is frequently used to refer to a practice in which an insider or a related party trades based on material non-public information obtained during the performance of the insider's duties at the corporation, or otherwise in breach of a fiduciary or other relationship of trust and confidence or where the non-public information was misappropriated from the company. In the United States and several other jurisdictions, trading conducted by corporate officers, key employees, directors, or significant shareholders (in the U.S., defined as beneficial owners of ten percent or more of the firm's equity securities) must be reported to the regulator or publicly disclosed, usually within a few business days of the trade. Many investors follow the summaries of these insider trades in the hope that mimicking these trades will be profitable. While "legal" insider trading cannot be based on material nonpublic information, some investors believe corporate insiders nonetheless may have better insights into the health of a corporation (broadly speaking) and that their trades otherwise convey important information (e.g., about the pending retirement of an important officer selling shares, greater commitment to the corporation by officers purchasing shares, etc.) Illegal insider trading is believed to raise the cost of capital for securities issuers, thus decreasing overall economic growth.
Bribery, a form of pecuniary corruption, is an act implying money or gift given that alters the behavior of the recipient. Bribery constitutes a crime and is defined by Black's Law Dictionary as the offering, giving, receiving, or soliciting of any item of value to influence the actions of an official or other person in discharge of a public or legal duty. The bribe is the gift bestowed to influence the recipient's conduct. It may be any money, good, right in 27
action, property, preferment, privilege, emolument, object of value, advantage, or merely a promise or undertaking to induce or influence the action, vote, or influence of a person in an official or public capacity. One must be careful of differing social and cultural norms when examining bribery. Expectations of when a monetary transaction is appropriate can differ from place to place. Political campaign contributions in the form of cash, for example, are considered criminal acts of bribery in some countries, while in the United States they are legal. Tipping, for example, is considered bribery in some societies, while in others the two concepts may not be interchangeable. In some Spanish-speaking countries, bribes are referred to as "mordida" (literally, "bite"); in Arab countries they are Backshish or Bakshish. However, Bakshish is more akin to tipping and is socially permissible. French-speaking countries often use the expressions "dessous-de-table" ("under-the-table" commissions), "pot-de-vin" (litterally, "winepot"), or "commission occulte" ("secret commission" or "kickback"). While the last two expressions contain inherently a negative connotation, the expression "dessous-de-table" can be often understood as a commonly accepted business practice (for instance, on the occasion of a real estate transaction before the notary, a partial payment made between the buyer and seller; needless to say, this is a good way to launder money).
The amount of bribes requested by people in India
above numbers clearly suggest that Bribery in India is at a grass root level with close 86% demands were done for $5000 or less (2,50,000 rupees or less, out which more than half were for $26 (Rs. 1300) or less. Because, corruption takes place at such a grass root level, it is extremely difficult to contain it. Having said that, 14 people out of 100 taking bribes are for amount more than $5000 (Rs. 2, 50,000). Actually, if you look at the top officials are even more corrupt. The number of big bosses is merely 1%-2% of all officials, yet according to the report 14% of bribes is of huge amounts, showing that big bosses are involved even more compared to low level officials who are asking bribes.
Nature of Bribe Demands in India
More than half of all the bribes were paid to get the work in time! 77% of all reported bribe demands in India are related to the avoidance of harm, including securing the timely delivery of a service – which is actually a right of a person (such as clearing customs or having a telephone line installed) and receiving payment for services already rendered Only 12% of the bribe demands were for gaining a personal or business advantage (including exercising influence with or over another government official, receiving inappropriate favorable treatment or winning new business). One thing for sure, we are now used to this corrupt system and take it in our stride as part & parcel. We do not want to go extra lengths and take the easy way out. But this easy way out are actually the roots of corruption in India.
Who demand bribe in our country
Whooping 91% of reported bribe demands originate from government officials in India. The greatest sources of bribe demands were from national level Government officials (33%), the police (30%), state/provincial officials and employees (16%), and city officials (10%) respectively. Do you know which of the two Indian ministries ask for bribe more than other? – They are Customs office (13%) and Taxation and Water (9%). China fares slightly well when it comes to Government officials taking bribe (85%) – Another major difference is that India Police (30%) are far more corrupt than their Chinese counterparts (only 11%).
In what form was the bribe requested?
If in doubt, give cash, as 92% of all bribes are preferred to be “cash or cash equivalent,” The next best thing is a “gift,” (5%) including requests for company products, jewelry and similar items. Less common still, at approx. 1% each, were requests for hospitality or entertainment items; travel for other than business purposes; and other assistance, such as help with a visa, medical care, or scholarships. Surprisingly, there were no reports in India of demands for “additional business” or “sexual favors.” In China, those demands accounted for a combined total of 7% of reported bribe solicitations.
Here are the ranking of top corrupt services :
Levels of overall corruption:
. Maharashtra had very high levels of corruption, but according to the study it is one of the states that have corruption in moderation. I shudder to think about the situation in Uttar Pradesh and Bihar. Consensus says that this century belongs to India and China. We are seeing how these countries are redefining the way business is done globally. Outsourcing / Offshoring is now
norm. These two southern Asian countries are now the most lucrative markets in the world, thanks to 40% of world population residing here.However, both these South Asian countries are facing tremendous growth hurdle in form of corruption. Bribe Payers Index (BPI), the lower the average score, higher the corruption. Rank Country/ territory Average score (0-10) 7.81 7.62 7.59 7.50 7.46 7.39 7.34 7.28 7.22 7.22 7.10 6.78 6.63 6.62 6.50 6.47 6.45 6.01 6.01 5.94 5.83 5.75 5.65 5.61 5.59 5.41 5.23 5.16 Percentage of global exports 1.2 1.3 1.0 0.5 3.5 3.6 9.5 3.4 3.3 8.9 5.8 2.2 1.9 1.1 4.3 0.3 2.1 2.8 0.4 3.6 2.8 1.8 1.2 0.5 1.4 1.9 0.7 2.4
Switzerland Sweden Australia Austria Canada UK Gemany Netherlands Belgium US Japan Singapore Spain UAE France Portugal Mexico Hong Kong Israel Italy South Korea Saudi Arabia Brazil South Africa Malaysia Taiwan Turkey Russia
The results draw from the responses of more than 11,000 business people in 125 countries polled in the World Economic Forum’s Executive Opinion Survey. A score of 10 indicates a perception of no corruption, while zero means corruption is seen as rampant. Leading the ranking is Switzerland, but even its score of 7.8 is far from perfect. India has always been known as a highly corrupt country (I hate it, but that’s the fact). Two government offices, legal and Police, are the most corrupt among the lot. This is one problem that India needs to take drastic steps to resolve.Here is the Reuters video where Chandrashekhar Krishnan, Executive Director of Transparency International speaks about the latest Bribe Payers Index findings.
Accounting scandals, or corporate accounting scandals, are political and business scandals which arise with the disclosure of misdeeds by trusted executives of large public corporations. Such misdeeds typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of corporate assets or underreporting the existence of liabilities, sometimes with the cooperation of officials in other corporations or affiliates. In public companies, this type of "creative accounting" can amount to fraud and investigations are typically launched by government oversight agencies, such as the Securities and Exchange Commission (SEC) in the United States. Unfortunately, scandals are often only the 'tip of the iceberg'. They represent the visible catastrophic failures. Note that much abuse can be completely legal or quasi legal. It is fairly easy for a top executive to reduce the price of his/her company's stock - due to information asymmetry. The executive can accelerate accounting of expected expenses, delay accounting of expected revenue, engage in off balance sheet transactions to make the company's profitability appear temporarily poorer, or simply promote and report severely conservative (eg. pessimistic) estimates of future earnings. Such seemingly adverse earnings news will be likely to (at least temporarily) reduce share price. (This is again due to information asymmetries since it is more common for top executives to do everything they can to window dress their company's earnings forecasts). There are typically very few legal risks to being 'too conservative' in one's accounting and earnings estimates. A reduced share price makes a company an easier takeover target. When the company gets bought out (or taken private) - at a dramatically lower price - the takeover artist gains a windfall from the former top executive's actions to surreptitiously reduce share price. This can represent tens of billions of dollars (questionably) transferred from previous
shareholders to the takeover artist. The former top executive is then rewarded with a golden handshake for presiding over the firesale that can sometimes be in the hundreds of millions of dollars for one or two years of work. (This is nevertheless an excellent bargain for the takeover artist, who will tend to benefit from developing a reputation of being very generous to parting top executives). Similar issues occur when a publicly held asset or non-profit organization undergoes privatization. Top executives often reap tremendous monetary benefits when a government owned or non-profit entity is sold to private hands. Just as in the example above, they can facilitate this process by making the entity appear to be in financial crisis this reduces the sale price (to the profit of the purchaser), and makes non-profits and governments more likely to sell. Ironically, it can also contribute to a public perception that private entities are more efficiently run reinforcing the political will to sell off public assets. Again, due to asymmetric information, policy makers and the general public see a government owned firm that was a financial 'disaster' - miraculously turned around by the private sector (and typically resold) within a few years..
NOTABLE ACCOUNTING SCANDALS
company Microstrategy Enron AOL Bristol-Myers Squibb CMS Energy Dynegy Freddie Mac Global Crossing Halliburton Kmart Year 2000 2001 2002 2002 2002 2002 2002 2002 2002 2002 Arthur Andersen Arthur Andersen PricewaterhouseCoop er Audit Firm PricewaterhouseCoop er Arthur Andersen Ernst & Young PricewaterhouseCoop er Arthur Andersen Arthur Andersen Country United States United States United States United States United States United States United States Bermuda United States United States Notes Michael Saylor Jeffrey Skilling, Kenneth Lay, Andrew Fastow Inflated sales Inflated revenues Round trip trades Round trip trades Understated earnings Network capacity swaps to inflate revenues Improper booking of cost overruns Misleading accounting practices
ENRON CORRUPTIONEnron Corporation (former NYSE ticker symbol ENE) was an
American energy company based in Houston, Texas. Before its bankruptcy in late 2001, Enron employed approximately 22,000 and was one of the world's leading electricity, natural gas, pulp and paper, and communications companies, with claimed revenues of nearly $101 billion in 2000 Fortune named Enron "America's Most Innovative Company" for six consecutive years. At the end of 2001 it was revealed that its reported financial condition was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud, known as the "Enron scandal". Enron has since become a popular symbol of willful corporate fraud and corruption. The scandal also brought into question the accounting practices of many corporations throughout the United States, resulted in the creation of the Sarbanes-Oxley Act of 2002. Enron filed for bankruptcy protection in the Southern District of New York in late 2001 and selected Weil, Gotshal & Manges as its bankruptcy counsel. It emerged from bankruptcy in November 2004 after one of the biggest and most complex bankruptcy cases in U.S. history. On September 7, 2006, Enron sold Prisma Energy International Inc., its last remaining business, to Ashmore Energy International Ltd. Following the scandal, lawsuits against Enron's directors were notable because the directors settled the suits by paying very significant sums of money personally. The scandal also caused the dissolution of the Arthur Andersen accounting firm, affecting the wider business world. In early 2007, Enron changed its name to Enron Creditors Recovery Corporation, reflecting its status as a predominantly asset-less shell corporation. Its current goal is to liquidate all remaining assets of the company. For most of 2007, Enron continued to operate under the name Enron Corp. by filing a Doing Business As, or "dba" certificate
ETHICS OF HUMAN RESOURCES
human resource management (HRM) covers those ethical issues arising around the employer-employee relationship, such as the rights and duties owed between employer and employee.
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Discrimination issues include discrimination on the bases of age (ageism), gender, race, religion, disabilities, weight and attractiveness, sexual harassment. Issues arising from the traditional view of relationships between employers and employees, also known as At-will employment. Issues surrounding the representation of employees and the democratization of the workplace: union busting, strike breaking. Issues affecting the privacy of the employee: workplace surveillance, drug testing. See also: privacy. Issues affecting the privacy of the employer: whistle-blowing. Issues relating to the fairness of the employment contract and the balance of power between employer and employee: slavery, indentured servitude, employment law. Occupational safety and health.
All of the above are also related to the hiring and firing of employees. An employee or future employee can not be hired or fired based on race, age, gender, religion, or any other disciminatory act Human resource management (HRM) is the strategic and coherent approach to the management of an organization's most valued assets - the people working there who individually and collectively contribute to the achievement of the objectives of the business. The terms "human resource management" and "human resources" (HR) have largely replaced the term "personnel management" as a description of the processes involved in managing people in organizations.In simple sense, HRM means employing people, developing their resources, utilizing, maintaining and compensating their services in tune with the job and organizational requirement. Its features include:
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But these traditional expressions are becoming less common for the theoretical discipline. Sometimes even employee and industrial relations are confusingly listed as synonyms, although these normally refer to the relationship between management and workers and the behavior of workers in companies. The theoretical discipline is based primarily on the assumption that employees are individuals with varying goals and needs, and as such should not be thought of as basic business resources, such as trucks and filing cabinets. The field takes a positive view of workers, assuming that virtually all wish to contribute to the enterprise productively, and that the main obstacles to their endeavors are lack of knowledge, insufficient training, and failures of process. HRM is seen by practitioners in the field as a more innovative view of workplace management than the traditional approach. Its techniques force the managers of an enterprise to express their goals with specificity so that they can be understood and undertaken by the workforce, and to provide the resources needed for them to successfully accomplish their assignments. As such, HRM techniques, when properly practiced, are expressive of the goals and operating practices of the enterprise overall. HRM is also seen by many to have a key role in risk reduction within organizations.
The goal of human resource management is to help an organization to meet strategic goals by attracting, and maintaining employees and also to manage them effectively. The key word here perhaps is "fit", i.e. a HRM approach seeks to ensure a fit between the
management of an organization's employees, and the overall strategic direction of the company (Miller, 1989). The basic premise of the academic theory of HRM is that humans are not machines, therefore we need to have an interdisciplinary examination of people in the workplace. Fields such as psychology, industrial engineering, industrial, Legal/Paralegal Studies and organizational psychology, industrial relations, sociology, and critical theories: postmodernism, post-structuralism play a major role. Many colleges and universities offer bachelor and master degrees in Human Resources Management. One widely used scheme to describe the role of HRM, developed by Dave Ulrich, defines 4 fields for the HRM function:
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Strategic business partner Change management Employee champion Administration
However, many HR functions these days struggle to get beyond the roles of administration and employee champion, and are seen rather as reactive than strategically proactive partners for the top management. In addition, HR organizations also have the difficulty in proving how their activities and processes add value to the company. Only in the recent years HR scholars and HR professionals are focusing to develop models that can measure if HR adds value.
Human resources management comprises several processes. Together they are supposed to achieve the above mentioned goal. These processes can be performed in an HR department, but some tasks can also be outsourced or performed by line-managers or other departments. When effectively integrated they provide significant economic benefit to the company •
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Workforce planning Recruitment (sometimes separated into attraction and selection) Induction and Orientation Skills management Training and development Personnel administration Compensation in wage or salary Time management Travel management (sometimes assigned to accounting rather than HRM) Payroll (sometimes assigned to accounting rather than HRM) Employee benefits administration Personnel cost planning
sexual harassment intimidation, or coercion of a sexual nature, or the unwelcome or inappropriate promise of rewards in exchange for sexual favors. In Some contexts or circumstances, sexual harassment may be illegal. It includes a range of behavior from seemingly mild transgressions and annoyances to actual sexual abuse or sexual assault. Sexual harassment is a form of illegal employment discrimination in many countries, and is a form of abuse (sexual and psychological) and bullying. For many businesses, preventing sexual harassment, and defending employees from sexual harassment charges, have become key goals of legal decision-making. In contrast, many scholars complain that sexual harassment in education remains a "forgotten secret," with educators and administrators refusing to admit the problem exists in their schools, or accept their legal and ethical responsibilities to Transfer pricing refers to the pricing of contributions (assets, tangible and intangible, services, and funds) transferred within an organization. For example, goods from the production division may be sold to the marketing division, or goods from a parent company may be sold to a foreign subsidiary. Since the prices are set within an organisation (i.e. controlled), the typical market mechanisms that establish prices for such transactions between third parties may not apply. The choice of the transfer price will affect the allocation of the total profit among the parts of the company. This is a major concern for fiscal authorities who worry that multi-national entities may set transfer prices on cross-border transactions to reduce taxable profits in their jurisdiction. This has led to the rise of transfer pricing regulations and enforcement, making transfer pricing a major tax compliance issue for multi-national companies deal with it (Dziech, 1990).
DISCRIMINATION OF WORKERS
People with disabilities face discrimination in all levels of society. The attitude that disabled individuals are inferior to non-disabled individuals is called ableism or disablism. Historically, the disabled have been shunned for their problems. These views are reinforced in modern times in media, books, films, comics, art and language. Chronic pain is a debilitating condition which is often neglected in modern society. According to the American Chiropractic Association, over 50% of all working US citizens complain of back pain each year. An estimated 80% of the population will experience back pain at some point in their life. Many times pain can become chronic and debilitating. Ergonomic seating and work environments are not only be a reasonable accommodation for those who suffer, they are also a preventative measure to counteract the soaring cost of medical treatment for pain conditions. Ergonomic seating in all public institutions would be a positive step to providing access to public services for all those who need it.
CASTE DISCRIMINATIONAccording to UNICEF and Human Rights Watch, caste
discrimination affects an estimated 250 million people worldwide. The Hindu population of South Asia comprises about 2,000 castes.
Currently, there are an estimated 160 million Dalits or "untouchables" in India. The majority of Dalits live in segregation and experience violence, murder, rape and other atrocities to the scale of 110,000 registered cases a year, according to 2005 statistics. An estimated 40 million people in India, most of them Dalits, are bonded workers, many working to pay off debts that were incurred generations ago According to Indian government statistics, an estimated one million Dalits or "untouchables" are manual scavengers, cleaning latrines and sewers by hand and clearing away dead animals. The majority of human scavengers suffer from respiratory diseases, with 23% suffering trachoma, leading to blindness.
Diversity of language is protected and respected by most nations who value cultural diversity. However, people are sometimes subjected to different treatment because their preferred language is associated with a particular group, class or category. Commonly, the preferred language is just another attribute of separate ethnic groups. Discrimination exists if there is prejudicial treatment against a person or a group of people who speak a particular language or dialect. Language discrimination is suggested to be labeled Linguacism or logocism.
Some attempts at antidiscrimination have been criticized as reverse discrimination. In particular, minority quotas (e.g. affirmative action) can be said to discriminate against members of a dominant or majority group. In its opposition to race preferences, the American Civil Rights Institute's Ward Connerly stated, "There is nothing positive, affirmative, or equal about 'affirmative action' programs that give preference to some groups based on race." On the other hand, it is argued that critics of antidiscriminatory steps often rely on misconceptions, that policy should take into account the negative effects of discrimination on minorities to reduce existing inequalities.
Though gender discrimination and sexism refers to beliefs and attitudes in relation to the gender of a person, such beliefs and attitudes are of a social nature and do not, normally, carry any legal consequences. Sex discrimination, on the other hand, may have legal consequences. Though what constitutes sex discrimination varies between countries, the essence is that it is an adverse action taken by one person against another person that would not have occurred had the person been of another sex. Discrimination of that nature in certain enumerated circumstances is illegal in many countries. Currently, discrimination based on sex is defined as adverse action against another person, that would not have occurred had the person been of another sex. This is 40
considered a form of prejudice and is illegal in certain enumerated circumstances in most countries. Sexual discrimination can arise in different contexts. For instance an employee may be discriminated against by being asked discriminatory questions during a job interview, or because an employer did not hire, promote or wrongfully terminated an employee based on his or her gender, or employers pay unequally based on gender.
Age discrimination is discrimination on the grounds of age. Although theoretically the word can refer to the discrimination against any age group, age discrimination usually comes in one of three forms: discrimination against youth (also called adultism), discrimination against those 40 years old or older, and discrimination against elderly people. In the United States, the Age Discrimination in Employment Act prohibits employment discrimination nationwide based on age with respect to employees 40 years of age or older. The Age Discrimination in Employment Act also addresses the difficulty older workers face in obtaining new employment after being displaced from their jobs, arbitrary age limits. In many countries, companies more or less openly refuse to hire people above a certain age despite the increasing lifespans and average age of the population. The reasons for this range from vague feelings younger people are more "dynamic" and create a positive image for the company, to more concrete concerns about regulations granting older employees higher salaries or other benefits without these expenses being fully justified by an older employees' greater experience. Some people consider that teenagers and youth (around 15–25 years old) are victims of adultism, age discrimination framed as a paternalistic form of protection. In seeking social justice, they feel that it is necessary to remove the use of a false moral agenda in order to achieve agency and empowerment.
There are many types of surveillance that could be instituted in the workplace. The most popular form of workplace surveillance is computer surveillance, which is a rapidly growing industry. This is also known as "employee Internet management". Computer surveillance can be broken up into two types: "Internet surveillance", and "desktop surveillance".
"Internet surveillance" is the active surveillance of the user’s Internet activities. When users operate a computer on the Internet, a record of the sites that were visited and the operations that were performed by the user can be generated by Internet surveillance software. Also known as spyware, this software is able to track the user’s activities and report it to the administrator. The administrator can then report this to the employer with various techniques. 41
"Desktop surveillance" on the other hand, works by the employer’s computer intercepting a signal that is given off by the employee’s computer. That is done through specific surveillance software that could be remotely or physically installed on the employee's machine.
A similar but different technique involves an employer reading the email traffic sent to and from employees. Generally, if friction arises, the dispute revolves around inappropriate or non-job-related use of email by an employee. As with the telephone, many employers formally or informally permit some amount of personal email. However, inordinate or inappropriate use of a work-related email account.
ETHICS IN MARKETING AND SALES
Marketing ethics overlaps strongly with media ethics, because marketing makes heavy use of media. However, media ethics is a much larger topic and extends outside business ethics.
Pricing: price fixing, price discrimination, price skimming. Anti-competitive practices: these include but go beyond pricing tactics to cover issues such as manipulation of loyalty and supply chains. anti-competitive practices, antitrust law. Specific marketing strategies: greenwash, bait and switch, shill, viral marketing, spam (electronic), pyramid scheme, planned obsolescence. Content of advertisements: attack ads, subliminal messages, sex in advertising, products regarded as immoral or harmful Children and marketing: marketing in schools,Black markets, grey markets.
• Value-oriented framework, analyzing ethical problems on the basis of the values which they infringe (e.g. honesty, autonomy, privacy, transparency). An example of such an approach is the AMA Statement of Ethics. Stakeholder-oriented framework, analysing ethical problems on the basis of whom they affect (e.g. consumers, competitors, society as a whole). Process-oriented framework, analysing ethical problems in terms of the categories used by marketing specialists (e.g. research, price, promotion, placement).
None of these frameworks allows, by itself, a convenient and complete categorization of the great variety of issues in marketing ethics.
Contrary to popular impressions, not all marketing is adversarial, and not all marketing is stacked in favour of the marketer. In marketing, the relationship between Producer/consumer or buyer/seller can be adversarial or cooperative. For an example of cooperative marketing, see relationship marketing. If the marketing situation is adversarial, another dimension of difference emerges, describing the power balance between producer/consumer or buyer/seller. Power may be concentrated with the producer (caveat emptor), but factors such as over-supply or legislation can shift the power towards the consumer (caveat vendor). Identifying where the power in the relationship lies and whether the power balance is relevant at all are important to understanding the background to an ethical dilemma in marketing ethics. Is marketing inherently evil? A popularist anti-marketing stance commonly discussed on the blogosphere and popular literature[ is that any kind of marketing is inherently evil. The position is based on the argument that marketing necessarily commits at least one of three wrongs:
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Damaging personal autonomy. The victim of marketing in this case is the intended buyer whose right to self-determination is infringed. Causing harm to competitors. Excessively fierce competition and unethical marketing tactics are especially associated with saturated markets. Manipulating social values. The victim in this case is society as a whole, or the environment as well. The argument is that marketing promotes consumerism and waste, ethical consumerism, anti-consumerism.
SPECIFIC ISSUES IN MARKETING ETHICS MARKET RESEARCH
Ethical danger points in market research include:
Invasion of privacy. Stereotyping.
Stereotyping occurs because any analysis of real populations needs to make approximations and place individuals into groups. However if conducted irresponsibly, stereotyping can lead to a variety of ethical undesirable results. In the AMA Statement of Ethics, stereotyping is countered by the obligation to show respect ("acknowledge the basic human dignity of all stakeholders")
Ethical danger points include:
Targeting the vulnerable (e.g. children, the elderly).
Excluding potential customers from the market: selective marketing is used to discourage demand from undesirable market sectors or disenfranchise them altogether. Examples of unethical market exclusionor selective marketing are past industry attitudes to the gay, ethnic minority and obese ("plus-size") markets. Contrary to the popular myth that ethics and profits do not mix, the tapping of these markets has proved highly profitable. For example, 20% of US clothing sales are now plus-size. Another example is the selective marketing of health care, so that unprofitable sectors (i.e. the elderly) will not attempt to take benefits to which they are entitled. A further example of market exclusion is the pharmaceutical industry's exclusion of developing countries from AIDS drugs.
List of unethical pricing practices.
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price fixing price skimming price discrimination variable pricing predatory pricing supra competitive pricing price war bid rigging
dumping (pricing policy)
A grey market or gray market is the trade of a commodity through distribution channels which, while legal, are unofficial, unauthorized, or unintended by the original manufacturer. In contrast, a black market is the trade of goods and services that are illegal in themselves and/or distributed through illegal channels, such as the selling of stolen goods, certain drugs or unregistered handguns. The two main types of grey market are imported manufactured goods that would normally be unavailable or more expensive in a certain country and unissued securities that are not yet traded in official markets. Sometimes the term dark market is used to describe secretive, unregulated (though often technically legal) trading in commodity futures, notably.
False advertising or deceptive advertising is the use of false or misleading statements in advertising. As advertising has the potential to persuade people into commercial transactions that they might otherwise avoid, many governments around the world use regulations to control false, deceptive or misleading advertising. Truth in labeling refers to 44
essentially the same concept, that customers have the right to know what they are buying, and that all necessary information should be on the label. Advertising regulation refers to the laws and rules defining the ways in which products can be advertised in a particular region. Rules can define a wide number of different aspects, such as placement, timing, and content. In the United States, false advertising and health-related ads are regulated the most. Many communities have their own rules, particularly for outdoor advertising. Sweden and Norway prohibit domestic advertising that targets children. Some European countries don’t allow sponsorship of children’s programs, no advertisement can be aimed at children under the age of twelve, and there can be no advertisements five minutes before or after a children’s program is aired. In the United Kingdom advertising of tobacco on television, billboards or at sporting events is banned. It is also prohibited to advertise cars on the basis of how fast they can move and the relationship which the event has with the sport seen as a healthy pursuit, unlike smoking..
SEX IN ADVERTISING
Sex in advertising is the use of sexual or erotic imagery (also called "sex appeal") in advertising to draw interest to a particular product, for purpose of sale. A feature of sex in advertising is that the imagery used, such as that of a pretty woman, typically has no connection to the product being advertised. The purpose of the imagery is to attract the attention of the potential customer or user. The type of imagery that may be used is very broad, and would include nudity, cheesecake, and beefcake, even if it is often only suggestively sexual. Businesses use workplace surveillance as a way of monitoring the activities of their employees. Today's businesses often use information technology in their operations and communications. Business leaders have concerns related to employee misuse of available technologies. Technology appropriate use policies are being developed by some businesses as a way to protect business interests. These policies define employee use that is appropriate and other uses that are subject to scrutiny. Businesses are also implementing surveillance systemsrude oil in 2008. This can be considered a third type of "grey market" since it is legal, yet unregulated, and probably not intended or explicitly authorized by oil producers.
ETHICS OF PRODUCTION
This area of business ethics usually deals with the duties of a company to ensure that products and production processes do not cause harm. Some of the more acute dilemmas in this area arise out of the fact that there is usually a degree of danger in any product or production process and it is difficult to define a degree of permissibility, or the degree of permissibility may depend on the changing state of preventative technologies or changing social perceptions of acceptable risk.
Defective, addictive and inherently dangerous products and services (e.g. tobacco, alcohol, weapons, motor vehicles, chemical manufacturing, bungee jumping). Ethical relations between the company, environmental ethics, carbon emissions trading.
Ethical problems arising out of new technologies,genetically modified food, mobile phone radiation and health. Product testing ethics: animal rights and animal testing, use of economically disadvantaged groups (such as students) as test objects. product liability.
Cases: Ford Pinto scandal, Bhopal disaster, asbestos / asbestos and the law, Peanut Corporation of America.
The Bhopal disaster or Bhopal gas tragedy was an industrial disaster that took place at a Union Carbide pesticide plant in the Indian city of Bhopal, Madhya Pradesh. At midnight on 3 December 1984, the plant accidentally released methyl isocyanate (MIC) gas, exposing more than 500,000 people to MIC and other chemicals. The first official immediate death toll was 2,259. The government of Madhya Pradesh has confirmed a total of 3,787 deaths related to the gas release. Others estimate 8,000-10,000 died within 72 hours and 25,000 have since died from gas-related diseases. Some 25 years after the gas leak, 390 tonnes of toxic chemicals abandoned at the Union Carbide plant continue to pollute the ground water in the region and affects thousands residents of Bhopal who depend on it. There are currently civil and criminal cases related to the disaster ongoing in the United States District Court, Manhattan and the District Court of Bhopal, India against Union Carbide, now owned by Dow Chemical Company, with arrest warrants pending against Warren Anderson, CEO of Union.
Statement by the expert trusted most by the mobile industry
"...with medical science indicating increased risks of tumors, cancer, genetic damage and other health problems from the use of cellphones, the government and the cellphone industry have abandoned the public." This is a statement by Dr George Carlo, a leading scientist, who was trusted by the Mobile Phone Industry in the US to be most competent to correctly assess the safety of the mobile phones. Therefore he was commissioned to make a a very thorough examination. But after a few years of denying the hazards to the satisfaction of his sponsors, he changed his opinion in the face of accumulating evidence about the dangers and wrote a book about it. Since the public communication of his findings, Dr Carlo "has been threatened, physically attacked, defamed, and his house mysteriously burned down." Instead of listening to the well founded evaluation of the scientist the mobile phone industry trusted as most suitable
for assessing the issue, they did not only ignore his results, but they sought to discredit him personally among reporters and other scientists. .
RISKY MICRO WAVES
All thes devicws emit the same harmful micro waves • Mobile phones are also called as cell phones, cellular phones and cellular. • Cordless phones • Wi-Fi(wireless intrnet connection and wireless networking
Alarming facts about genetical products
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Animals have become seriously ill or died from Genetically Engineered (GE) foods Hazardous genes from GE foods that you eat can become inserted into your own genes An unexpected poison killed 37 persons eating a food supplement produced by GE bacteria. This disaster was not coincidental: Top researchers confirm that genetic engineering is inherently unsafe and unpredictable. It may therefore generate unexpected harmful substances in GE food Numerous studies have demonstrated that GE causes "non-target effects" in addition to the specific "desired effect". These effects are little understood, completely unpredictable and may be hazardous to the individual and the environment. This underscores the fundamental unsafety of genetic engineering. The present procedure for assesing the safety of GE foods is not designed to detect unexpected substances Therefore, harmful substances may appear in GE food approved as food Still, GE foods are sold in most food stores in the US and in many other countries In the US and Canada, they are not even labeled
GE FOODS SHOULD BE BANNED IMMEDIATELY Considering that GE organisms are unsafe to eat and that they expose the environment to unpredictable and irreversible risks, they should be banned. It is not justified to take any risk at all in using them as there is no need for them to feed the world and because they perpetuate unsustainable agriculture that is harmful to health and to the environment.
Animal rights advocates argue that animals ought to be viewed as persons, not property. Animal rights, also referred to as animal liberation, is the idea that the most basic interests of animals should be afforded the same consideration as the similar interests of humans. Advocates approach the issue from different philosophical positions but agree that animals should be viewed as legal persons and members of the moral community, not property, and that they should not be used as food, clothing, research subjects, or entertainment. The idea of awarding rights to animals has the support of legal scholars such as Alan Dershowitz and Laurence Tribe of Harvard Law School, while Toronto lawyer Clayton Ruby argues that the movement has reached the stage the gay rights movement was at 25 years ago. Animal law is taught in 113 out of 180 law schools in the United States, in eight law schools in Canada, and is routinely covered in universities in philosophy or applied ethics courses.In June 2008, Spain became the first country to introduce an animal rights resolution, when a parliamentary committee voted in favor of limited rights for non-human primates, inspired by Peter Singer's Great Ape Project.
“MANIMAL AND THE COSMETICS TESTING LABORATORY Personal-Care
Products — an Easy Call on Testing Animal
Perhaps there are a few people out there who buy baby shampoo for themselves just because it has a cute picture on the label, or because they have about as much hair left as a baby. But most people buy it because they think it's safer for their child. Many shampoos and other personal-care products undergo safety testing before they're made available to consumers. This can include exposing animals to the compound to see whether they develop skin irritations or get sick. Animal testing for pharmaceuticals is even more perilous—animals are often intentionally given diseases to see (a) whether a new drug will have an effect on the disease, and (b) whether the drug has any serious side effects. Test animals may develop tumors or other nasty conditions, and are often killed intentionally at some point in the test so scientists can examine the animals' innards for signs of damage. ANIMAL TESTING –FAIRNESS AND ALTERNATIVES On a purely logical level, ethics would seem to dictate that the species that wants to use a potentially harmful chemical (we humans)—whether the chemical is destined for a cosmetic, a cleaning product, or a pharmaceutical—should supply the test subjects that undergo the safety tests (i.e. human test subjects). It seems unethical that the "user species" would impose the fear, pain, and health consequences of the testing on an unwitting, unwilling species. Indeed, human trials of new drugs are done all the time, but that's AFTER the pharmaceutical has already been tested on myriad laboratory animals. The issue of animal testing is a fundamentally ethical one. Years ago, the public was outraged over exposés about the abuse of test animals, and many consumer-goods 49
companies abandoned animal testing for their products. Did they simply stop testing their goops and glops before putting them on the shelf for sale? Of course not! They instead developed non-animal testing methods that are as good or better at evaluating product safety. For instance, eye irritation for a chemical might be tested on donated human retinas, and cultured human skin can be used to evaluate skin reactions. Unfortunately, there is still plenty of animal testing going on for a variety of products. Many animal rights activists pursue an end to all animal testing. Other organizations argue for the three Rs: 1. Replace the use of animals in scientific procedures with non-animal alternatives whenever possible; 2. Reduce the number of animals used in any animal-testing procedure; Refine procedures so that animals experience less pain, suffering, or discomfort.
ELIMINATION OF ANIMAL TESTING
At this point in history, we're in no danger from the shampoos, detergents, and cosmetics we find on a supermarket shelf. If a company thinks it's necessary to develop something new in those areas, we suspect that most people would agree that animal tests are not necessary, and that if the manufacturer thinks there could be any danger from one of the ingredients in their new product, they should use scientifically sound non-animal testing. (Or, here's an outrageous idea—they should choose a known safe ingredient instead of that unknown, possibly unsafe ingredient!) What about other types of chemicals; for instance, new drugs? Are we ready to let interspecies ethics trump our desire for new pills that can fix whatever ails us? Some of us may be, others may not be. Chemical pesticides present another side of the ethics questions regarding animal testing. When setting a safety limit for human exposure to a particular compound, federal regulations require an additional "safety factor" above the level that was shown to be hazardous to lab animals. Pesticide manufacturers have proposed testing their chemicals on human subjects to determine more precise levels of (supposedly) safe human exposure, hoping that the levels will be more generous than those dictated by the animal-based tests. Critics labeled this an outrageous idea, saying that we should never intentionally expose humans to potentially unsafe levels of toxic pesticides. Sounds right on the surface, but is it any more acceptable to do the same 50
tests (or worse) on unsuspecting animals? You can at least argue that the human test subjects would have a choice and would be paid, whereas the animals would all arrive at the laboratory in the traditional "Igor, get me a lab rat" manner. The naysayers point out that the more desperate members of society's economic ladder could be exploited in a human testing regime. Perhaps, but they'd still have more of a choice than lab animals get. Other supporters of animal testing argue that human studies take too long to determine the effects of chemicals—which may take decades to cause problems in humans—and that animal models allow full-lifetime studies in much less time. True, but the real question is: Even if doing pesticide or other chemical testing on lab animals makes more sense than doing it on humans, is it right?
MAKING PROGRESS ON ANIMAL TESTING
You may not be ready to give up animal tests in our continuing search for disease cures, and the issue of animal testing for pesticides and other industrial chemicals may seem too hazy for you to reach a decision on it at this time. If that's the case, we hope you at least would support the previously mentioned "3R's of testing."What about cosmetics, household cleaners, and other similar products? Can we at least agree that animal testing for these is now unnecessary and should be eliminated? Europe is phasing out animal testing for personal-care products, but the US has thus far failed to follow suit. Regardless of government action or inaction in this area, if you agree that banning animal testing for personal-care products and household cleaners is the right thing to do, you don't have to wait until laws are passed to start following your belief. Almost all such products now have versions that have not undergone animal testing. Labels that say something like "no animal testing" or "vegan" are good; but at this point the only "cruelty free" label with independent backing is The Leaping Bunny label, which indicates that the product was made following the Corporate Standard of Compassion for Animals. You can also get lists of companies that do and don't test their products on animals at Caring Consumer. (Be sure you know which list you're looking at!) You'll get the best variety of no-animal-testing products at natural foods stores, but many mainstream stores now carry some no-animal-testing products.
ETHICS OF INTELLECTUAL PROPERY, SKILLS AND KNOWLEDGE
Knowledge and skills are valuable but not easily "ownable" as objects. Nor is it obvious who has the greater rights to an idea: the company who trained the employee, or the employee themselves? The country in which the plant grew, or the company which discovered and developed the plant's medicinal potential? As a result, attempts to assert ownership and ethical disputes over ownership arise.
Patent infringement, copyright infringement, trademark infringement. Misuse of the intellectual property systems to stifle competition: patent misuse, copyright misuse, patent troll, submarine patent.
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Even the notion of intellectual property itself has been criticised on ethical grounds: see intellectual property. Employee raiding: the practice of attracting key employees away from a competitor to take unfair advantage of the knowledge or skills they may possess. The practice of employing all the most talented people in a specific field, regardless of need, in order to prevent any competitors employing them. Bioprospecting and biopiracy,Business intelligence and industrial espionage.
Industrial espionage describes activities such as theft of trade secrets, bribery, blackmail, and technological surveillance. As well as spying on commercial organizations, governments can also be targets of commercial espionage—for example, to determine the terms of a tender for a government contract so that another tenderer can underbid. Industrial espionage is most commonly associated with technology-heavy industries, particularly the computer and automobile sectors.Espionage takes place in many forms. In short, the purpose of espionage is to gather knowledge about (an) organization(s). A spy may be hired, or may work for oneself.
Patent infringement is the commission of a prohibited act with respect to a patented invention without permission from the patent holder. Permission may typically be granted in the form of a licence. The definition of patent infringement may vary by jurisdiction, but it typically includes using or selling the patented invention. In many countries, a use is required to be commercial (or to have a commercial purpose) to constitute patent infringement. The scope of the patented invention or the extent of protection is defined in the claims of the granted patent. In other words, the terms of the claims inform the public of what is not allowed without the permission of the patent holder.Patents are territorial, and infringement is only possible in a country where a patent is in force. The scope of protection may also vary from country to country, because the patent is examined by patent office in each country or region and may have some.
Copyright infringement (or copyright violation) is the unauthorized use of material that is covered by copyright law, in a manner that violates one of the copyright owner's exclusive rights, such as the right to reproduce or perform the copyrighted work, or to make derivative works.
For electronic and audio-visual media, unauthorized reproduction and distribution is also commonly referred to as piracy (an early reference was made by Daniel Defoe in 1703 when he said of his novel True-born Englishman ."Its being Printed again and again, by Pyrates"). The practice of labeling the act of infringement as "piracy" actually predates copyright itself. Even prior to the 1709 enactment of the Statute of Anne, generally recognized as the first copyright law, the Stationers' Company of London in 1557 received a Royal Charter giving the company a monopoly on publication and tasking it with enforcing the charter. Those who violated the charter were labeled pirates as early as 1603. The legal basis for this usage dates from the same era, and has been consistently applied until the present time. Critics of the use of the term "piracy" to describe such practices contend that it is pejorative and unfairly equates copyright infringement with more sinister activity, though courts often hold that under law the two terms are interchangeable
Trademark infringement is a violation of the exclusive rights attaching to a trademark without the authorization of the trademark owner or any licensees (provided that such authorization was within the scope of the license). Infringement may occur when one party, the "infringer", uses a trademark which is identical or confusingly similar to a trademark owned by another party, in relation to products or services which are identical or similar to the products or services which the registration covers. An owner of a trademark may commence legal proceedings against a party which infringes its registration. In many countries, but not in the United States, which recognizes common law trademark rights, a trademark which is not registered cannot be "infringed" as such, and the trademark owner cannot bring infringement proceedings. Instead, the owner may be able to commence proceedings under the common law for passing off or misrepresentation, or legislation which prohibits unfair business practices. In some jurisdictions, infringement of trade dress may also be actionable. Where the respective marks or products or services are not identical, similarity will generally be assessed by reference to whether there is a likelihood of confusion that consumers will believe the products or services originated from the trademark owner.
Bioprospecting is a more positive term more commonly used by supporters of commercialization of traditional medicines. While there is still no hard definition, media and academia use this less pejorative term when speaking about endeavors to capitalize on indigenous knowledge of natural resources. However, bioprospecting may also describe the search for previously unknown compounds in organisms that have never been used in traditional medicine.
Biopiracy has emerged as a term to describe the ways that corporations from the developed world allegedly claim ownership of, free ride on, or otherwise take unfair advantage of, the genetic resources and traditional knowledge and technologies of developing countries. While these and other corporations have been complaining about “intellectual piracy” perpetrated by people in developing countries, the latter nations counter that their biological, scientific and cultural assets are being “pirated” by these same businesses. Intellectual piracy is a political term, and as such is inaccurate and deliberately so. The assumption behind it is that the copying and selling of pharmaceuticals, music CDs and films anywhere in the world is intellectual piracy irrespective of whether the works in question had patent or copyright protection under the domestic laws.
BUSINESS INTELLIGENCE Business Intelligence refers to skills, technologies,
applications and practices used to help a business acquire a better understanding of its commercial context. Business Intelligence may also refer to the collected information itself.BI technologies provide historical, current, and predictive views of business operations. Common functions of Business Intelligence technologies are reporting, OLAP, analytics, data mining, business performance management, benchmarking, text mining, and predictive analytics.Business Intelligence often aims to support better business decision-making. Thus a BI system can be called a decision support system (DSS).
ETHICS AND TECHNOLOGY
The computer and the World Wide Web are two of the most significant inventions of the twentieth century. There are many ethical issues that arise from this technology. It is easy to gain access to information. This leads to data mining, workplace monitoring, and privacy invasion. Medical technology has improved as well. Pharmaceutical companies have the technology to produce life saving drugs. These drugs are protected by patents and there are no generic drugs available. This raises many ethical questions.
INTERNATIONAL BUSINESS ETHICS
While business ethics emerged as a field in the 1970s, international business ethics did not emerge until the late 1990s, looking back on the international developments of that decade. Many new practical issues arose out of the international context of business. Theoretical issues such as cultural relativity of ethical values receive more emphasis in this field. Other, older issues can be grouped here as well. Issues and subfields include:
The search for universal values as a basis for international commercial behaviour.
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Comparison of business ethical traditions in different countries. Also on the basis of their respective GDP and [Corruption rankings]. Comparison of business ethical traditions from various religious perspectives. Ethical issues arising out of international business transactions; e.g. bioprospecting and biopiracy in the pharmaceutical industry; the fair trade movement; transfer pricing. Issues such as globalization and cultural imperialism. Varying global standards - e.g. the use of child labor. The way in which multinationals take advantage of international differences, such as outsourcing production (e.g. clothes) and services (e.g. call centres) to low-wage countries. The permissibility of international commerce with pariah states. Foreign countries often use dumping as a competitive threat, selling products at prices lower than their normal value. This can lead to problems in domestic markets. It becomes difficult for these markets to compete with the pricing set by foreign markets. In 2009, the International Trade Commission has been researching anti-dumping laws. Dumping is often seen as an ethical issue, as larger companies are taking advantage of other less economically advanced companies.
Child labour India accounts for the second highest number where child labour in the world is concerned. Africa accounts for the highest number of children employed and exploited. The fact is that across the length and breadth of the nation, children are in a pathetic condition. While experts blame the system, poverty, illiteracy, adult unemployment; yet the fact is that the entire nation is responsible for every crime against a child. Instead of nipping the problem at the bud, child labour in India was allowed to increase with each passing year. And today, young ones below the age of 14 have become an important part of various industries; at the cost of their innocence, childhood, health and for that matter their lives.
THEORITICAL ISSUES IN BUSINESS ETHICS
Business ethics can be examined from various new perspectives, including the perspective of the employee, the commercial enterprise, and society as a whole. Very often, situations arise in which there is conflict between one or more of the parties, such that serving the interest of one party is a detriment to the other(s). For example, a particular outcome might be good for the employee, whereas, it would be bad for the company, society, or vice versa. Some ethicists (e.g., Henry Sidgwick) see the principal role of ethics as the harmonization and reconciliation of conflicting interests.
ETHICAL ISSUES AND APPROACHES
Philosophers and others disagree about the purpose of a business ethic in society. For example, some suggest that the principal purpose of a business is to maximize returns to its owners, or in the case of a publicly-traded concern, its shareholders. Thus, under this view, only those activities that increase profitability and shareholder value should be encouraged, because any others function as a tax on profits. Some believe that the only companies that are likely to survive in a competitive marketplace are those that place profit maximization above everything else. However, some point out that self-interest would still require a business to obey the law and adhere to basic moral rules, because the consequences of failing to do so could be very costly in fines, loss of licensure, or company reputation. The noted economist Milton Friedman was a leading proponent of this view. Some take the position that organizations are not capable of moral agency. Under this, ethical behavior is required of individual human beings, but not of the business or corporation. Other theorists contend that a business has moral duties that extend well beyond serving the interests of its owners or stockholders, and that these duties consist of more than simply obeying the law. They believe a business has moral responsibilities to so-called stakeholders, people who have an interest in the conduct of the business, which might include employees, customers, vendors, the local community, or even society as a whole. Stakeholders can also be broken down into primary and secondary stakeholders. Primary stakeholders are people that are affected directly such as stockholders, where secondary stakeholders are people who are not affected directly such as the government. They would say that stakeholders have certain rights with regard to how the business operates, and some would suggest that this includes even rights of governance. Some theorists have adapted social contract theory to business, whereby companies become quasi-democratic associations, and employees and other stakeholders are given voice over a company's operations. This approach has become especially popular subsequent to the revival of contract theory in political philosophy, which is largely due to John Rawls' A Theory of Justice, and the advent of the consensus-oriented approach to solving business problems, an aspect of the "quality movement" that emerged in the 1980s. Professors Thomas Donaldson and Thomas Dunfee proposed a version of contract theory for business, which they call Integrative Social Contracts Theory. They posit that conflicting interests are best resolved by formulating a "fair agreement" between the parties, using a combination of i) macro-principles that all rational people would agree upon as universal principles, and, ii) micro-principles formulated by actual agreements among the interested parties. Critics say the proponents of contract theories miss a central point, namely, that a business is someone's property and not a mini-state or a means of distributing social justice. Ethical issues can arise when companies must comply with multiple and sometimes conflicting legal or cultural standards, as in the case of multinational companies that operate in countries with varying practices. The question arises, for example, ought a company to obey the laws of its home country
Ethics officers (sometimes called "compliance" or "business conduct officers") have been appointed formally by organizations since the mid-1980s. One of the catalysts for the creation of this new role was a series of fraud, corruption and abuse scandals that afflicted the U.S. defense industry at that time. This led to the creation of the Defense Industry Initiative (DII), a pan-industry initiative to promote and ensure ethical business practices. The DII set an early benchmark for ethics management in corporations. In 1991, the Ethics & Compliance Officer Association (ECOA) -- originally the Ethics Officer Association (EOA)-- was founded at the Center for Business Ethics(at Bentley College, Waltham, MA) as a professional association for those responsible for managing organizations' efforts to achieve ethical best practices. The membership grew rapidly (the ECOA now has over 1,100 members) and was soon established as an independent organization. Another critical factor in the decisions of companies to appoint ethics/compliance officers was the passing of the Federal Sentencing Guidelines for Organizations in 1991, which set standards that organizations (large or small, commercial and non-commercial) had to follow to obtain a reduction in sentence if they should be convicted of a federal offense. Although intended to assist judges with sentencing, the influence in helping to establish best practices has been far-reaching.
BUSINESS ETHICS AS ACADEMIC DISCIPLINE
As an academic discipline, business ethics emerged in the 1970s. Since no academic business ethics journals or conferences existed, researchers published their papers in general management outlets, and attended general conferences, such as the Academy of Management. Over time, several peer-reviewed journals appeared, and more researchers entered the field. Especially, higher interest in business topics among academics was observed after several corporate scandals in the earlier 2000s. As of 2009, sixteen academic journals devoted to various business ethics issues existed, with Journal of Business Ethics and Business Ethics Quarterly being considered the leading A+ outlets.
RELIGIOUS VIEWS ON BUSINESS ETHICS
The historical and global importance of religious views on business ethics is sometimes underestimated in standard introductions to business ethics. Particularly in Asia and the Middle East, religious and cultural perspectives have a strong influence on the conduct of business and the creation of business values. Examples include:
Islamic banking, associated with the avoidance of charging interest on loans. Traditional Confucian disapproval of the profit-seeking motive.
Quaker testimony on fair dealing.
Islamic banking refers to a system of banking or banking activity that is consistent with the principles of Islamic law (Sharia) and its practical application through the development of Islamic economics. Sharia prohibits the payment or acceptance of interest fees for the lending and accepting of money respectively, (Riba, usury) for specific terms, as well as investing in businesses that provide goods or services considered contrary to its principles (Haraam, forbidden). While these principles were used as the basis for a flourishing economy in earlier times, it is only in the late 20th century that a number of Islamic banks were formed to apply ese principles to private or semi-private commercial institutions within the Muslim community.
Business ethics should be distinguished from the philosophy of business, the branch of philosophy that deals with the philosophical, political, and ethical underpinnings of business and economics. Business ethics operates on the premise, for example, that the ethical operation of a private business is possible -- those who dispute that premise, such as libertarian socialists, (who contend that "business ethics" is an oxymoron) do so by definition outside of the domain of business ethics proper. The philosophy of business also deals with questions such as what, if any, are the social responsibilities of a business; business management theory; theories of individualism vs. collectivism; free will among participants in the marketplace; the role of self interest; invisible hand theories; the requirements of social justice; and natural rights, especially property rights, in relation to the business enterprise. Business ethics is also related to political economy, which is economic analysis from political and historical perspectives. Political economy deals with the distributive consequences of economic actions. It asks who gains and who loses from economic activity, and is the resultant distribution fair or just, which are central ethical issues.
Libertarian socialism (sometimes called socialist anarchism, and sometimes left libertarianism) is a group of political philosophies that aspire to create a society without political, economic, or social hierarchies, i.e. a society in which all violent or coercive institutions would be dissolved, and in their place every person would have free, equal access to the tools of information and production.
This equality and freedom would be achieved through the abolition of authoritarian institutions that own and control productive means as private property, so that direct control of these means of production and resources will be shared by society as a whole.
CONCLUSION Business ethics is applied to all types of organisation in the world. The utimate main of the business is profit making but it should not be mabe at the cost of the society and the government. The business organisation must follow all the rules and regulations of the business ethics to gain profit in the market, gain reputation for the company, to retain in the market for a longer period of time and to prevent the accounting fraudness in the company. Buiness ethics must be followed to maintain good relationship with the employees.
BIBLIOGRAPHY 1. Laura P.Hartman, prespective in business ethics, Mcgraw-Hill international 2. Economic times, Times of Indian publications, banglore. 3. Business world, weekly magazine. 4. Business today, fortnightly magazine. Websites: http://www.google.co.in/search? hl=en&source=hp&q=introduction+of+business+ethics&btnG=Google+Search&meta=&aq= f&oq= http://www.business-ethics.com/For-Educators.htm http://www.pbs.org/newshour/bb/business/ethics