Module – 06

Corporate Ethics
MBA 2nd SEMESTER
 Business Ethics:
The word “ethics” is derived from the Greek word “ethos”, which refers to character, guiding beliefs,
standards or ideals that pervade a group, community or people. All individuals are accountable to their
community for their behavior. The community can exist in forms like neighborhood, profession, city, state,
etc. Ethics separate good and bad, right and wrong, fair and unfair, moral and immoral and proper and
improper human action.
According to Webster, “Ethics is the discipline dealing with what is good and bad and with moral duty
and obligations”.
Business ethics is a form of applied ethics that examines ethical principles and moral or ethical problems
that arise in a business environment. Business ethics consists of a set of moral principles and values that
govern the behaviour of the organisation with respect to what is right and what is wrong. It spells out the
basic philosophy and priorities of an organisation in concrete terms.
According to Robert Kreitner, “Business ethics is the study of complex business practices and
behaviours that gives rise to ethical issues in organisations”.

Why Ethics Still Matters?/Need of Business Ethics:

1) Protection of Consumer Rights: Consumer is the centre of all business activities. Business is
essentially meant for satisfaction of consumer wants. Unfortunately, consumers are the most neglected
and exploited group. The application of business ethics will help to confer and implement consumer rights.
Business ethics can be used to check malpractices like adulteration, unfair trade practices and to make
the working of business consumer-oriented.
 Why Ethics Still Matters?/Need of Business Ethics:

2) Social Responsibility: Business ethics is a means of making business socially responsible for its
actions. Exploitation of consumers, employees, discriminate use of natural resources, etc.,: is quite
common in all types of business. Compliance to ethical standards will ensure:
i) Protection of consumer rights,
ii) Public accountability,
iii) Protection of worker’s interests, and
iv) Proper utilization of natural resources.
3) Concept of Socialism: Business states that gains of a business must be shared by all and just by the
owner of business. Profit is a thing of business skill and talent. Profit is also a result of group efforts.
Employees, shareholders, consumers, suppliers and others contribute to the success of the business.
Therefore, success should be shared by all concerned.
4) Interest of Industry: Business ethics are necessary to safeguard the interests of small-scale business
firms. The tendency of big business firms is always to dominate the market and drive away the small-scale
industries out of the market. Small-scale units can establish their position and fight for their rights if the
industry follows a code of ethics.
5) Consumer Movement: The growth in consumer movement is also another important factor that has
necessitated the need for business ethics. The spread of education and awareness among consumers
about their rights has made the business community to conduct business on ethical principles.
 Why Ethics Still Matters?/Need of Business Ethics:

6) Better Relations with the Society: Business ethics is needed to develop good relations
between business and society. The relationship of business with society has various dimensions
such as its relations with shareholders, employees, consumers, distributors, competitors and
government. Business ethics will help to promote and protect the interest to various groups.
7) Buyer’s Market: There has been a structural change in the concept of business. The concept
of profit has been gradually taken over by consumer satisfaction. The large scale production and
increased competition in the market has changed the business scene from a seller’s market to a
buyer’s market. In a changed situation, business ethics is needed to redefine the traditional
concept of profit and replace it by a balance between profit and consumer satisfaction.
8) Beneficial to Business and Society: Ethics suggests what is good and bad, right and wrong,
ethical and unethical, etc,; to businessmen. It also brings an element of honesty, sincerity,
fairness, and human touch to business activities. Society is also benefited by the introduction of
business ethics. It ensures healthy and competitive business atmosphere, consumer and labour
welfare, and improvement in social, economic and cultural values of the society. They have either
direct or indirect effect on the society.
 Arguments For and Against Business Ethics:
1) Arguments for Business Ethics: Business is emerging as a powerful force in modern times.
Corporate collapses, business frauds and white-collar crimes have made business ethics in modern
times. Studying business ethics can help to identify ethics issues to the stakeholders:
i) Holistic Approach: In the last wo centuries, importance was given to the production of goods and
services and strengthening the market forces In the modern century, a lot significance is attached to
the growth of values and ethical ideas. Customer care and satisfaction of all stakeholders are given
equal importance like productivity and profit maximization.
ii) Leadership: Business ethics in organizations requires value-based leadership from the top
management. Openness and continuous effort to improve the ethical performance of organization are
to be directed from the leadership of the organization. Ethical leadership is given a good
consideration in modern times like other forms of leadership like marketing and strategic leadership.
iii) Employee Commitment: Ethics clearly contributes to the growth of employee commitment. Since
the employees spend a considerable amount of time at work, an ethical commitment to the
organization improves the employees’ loyalty to the organization.
iv) The Performance of the employees is bound to improve under ethical conditions because of the
positive environment. A trustworthy atmosphere increases efficiency and enterprise. According to
National Business Ethics Survey (U.S.A), when employees see good values like honesty, respect and
trust in workplace, they will not compromise in work. The ethical climate is bound to increase the
efficiency of work.
 Arguments For and Against Business Ethics:
v) Investor Loyalty: Apart from good returns on investment, modern investors are concerned with ethical
considerations like social responsibilities and reputation of companies. An ethical climate provides a
foundation for efficiency, productivity and profits. Negative factors like lawsuits, fines, cases and bad
practice lower stock prices. When the value of the stock is declining, the investors divert their stocks and
bonds.
vi) The relationship with investors should be based on dependability, trust and commitment. Apart from
profit, the performance standards of the company also matter from the angel of investment. The investors
are constantly informed about the company’s performance and reputation.
vii) Customer Satisfaction: A long-term good relationship is a basic necessary condition between
business organization and customers. In developed countries, 60 per cent of the people focus on social
responsibility ahead of brand reputation. In developing countries, the social reputation related activities are
encouraged by the consumers. People do not encourage products made by child labour, exploited labour
and violation of good working conditions.
viii) Business is a Cooperative Effort: It requires ethics and good practices. In a cooperative process of
business, some ethical standards are necessary for maintaining the solidarity of business and its success.
Many stakeholders can be unified through ethical values and practices. That is why, the mission of the
company is broadly circulated to all in frequent intervals.
ix) Higher Profits: Comprehensive ethical practices provide a good scope for increasing profits, Johnson
& Johnson, Xerox, MTS (Bangalore) and TVS are a few examples to prove that good practices pave the
way for more profits. Many studies have proved that a history of good ethics can bring a history of good
 Arguments For and Against Business Ethics:
x) Changing Mindset of Stakeholders: The various stakeholders apply their values and standards such as
ideal working conditions, consumers’ rights, environmental issues, greater benefits, better ways and
customer care. Stakeholders want the growth of business organisation on ideal and effective set patterns.
They share their experiences and offer good suggestions for the growth of better business practices.
xi) Necessity of Minimum Ethics: Business in modern times has become a cooperative activity, which
naturally requires minimum standards of ethics. All the stakeholders should be united and support the cause
and growth of business. Otherwise, there is every possibility of the collapse of the business. Agreements
have to be honoured and mutual support has to be provided. Since no business can exist without ethics, a
minimum adherence of ethics is expected from any form of business. Moreover, business requires a stable
society to carry on the various business operations like production, marketing and transactions. A stable
society can be created and maintained only by following the minimal ethical practices.
xii) A society infected with lying, theft, cheating, distrust and too much of self-interest cannot do even normal
business. There will be conflicts, strife, strikes, retrenchment, lockouts and cold war. Since business cannot
survive without ethics, ethical behaviour has become one of the fundamentals of business.
xiii) Long-Term Implications: Business, like any other good institution should take care of long-term
complications like good revenues, higher profits and better customer satisfaction. If any business exploits the
stakeholders like employees, customers, suppliers and others, they, in course of time, will retaliate in a
different way. For example, employees will not be good in their work, customers may not buy and supplier
will be irregular in their supplies. Sometimes the retaliation may be more complex such as sabotage, conflicts
and strikes. This type of situation will lead to a chain of unethical events.
 Arguments For and Against Business Ethics:
2) Arguments against Business Ethics: At a time when only economic considerations are given
importance, there are arguments against business ethics. The market economy should give importance
only to the market forces of demand and supply and not to moral forces. These arguments concentrate
only on the view that business is a profit-making and not a philanthropic activity:
i) No Need for Ethics Separately: If business firms are interested in doing their main job of business,
there is any need for teaching ethics in a separate way. A business has to prepare its business plan
and execute it and satisfy all the needs of stakeholders. Then, ethics has no separate place. All good
business activities themselves will cover ethical issues.
ii) Demand and Supply Forces: Any market, which is the heart of any business is governed by the two
market forces namely demand and supply. The price, output and many other decisions are based on
these two market forces. Hence, the scope for business ethics is very much restricted in business.
iii) Compliance of Law: Any business has to be in compliance of the laws of land. For example, in
India, the competition law encourages the growth of healthy competition. Apart from this, there are
labour laws to protect the working and service conditions of labour. Similarly, there are legal
provisions to take care of the customers and customer welfare. In this context, the scope for business
ethics is limited.
iv) Conflicts of Interest: Business promotes conflicts of interest, such as conflict between employers
and employees, conflict between sellers and buyers, conflict between owners and government as
well as conflict between the different competitors. In an atmosphere ridden by conflicts, the possibility
of ethical operations is limited.
 Arguments For and Against Business Ethics:
v) Profit is the Objective of Business: The objective of any business is to make profit and indicate its
progress. While making profit through its various operations, a business has to follow different techniques
and tactics. Most of these business techniques are based on exploitation. Hence, there may not be a good
scope for business ethics in modern days.
vi) Poor Moral Standards of Society: Even though high ethical values are spoken of any written by a
small section of society, the moral standards of society have fallen. Frauds are taking place in all the areas
of business operations like accounting fraud, marketing fraud and consumer fraud.

Business Ethics in an Evolving Environment:

According to Seven Pillars Institute for Global Finance and Ethics, “as a true professional, the good
manager strives to achieve a moral excellence that includes honesty, fairness, prudence, and courage.”
These are some of the virtues ethical players in the corporate world display.
Not only does the world seem to have shrunk, but the twenty-first century pace of change seems to have
sped up time itself. As the world becomes smaller and faster and companies adapt their practices to fit
new conditions, the core of business ethics that guides corporate behaviour remains the same, directed,
as always, by shared values and morals as well as legal restraints. For example:
1) Rajat Gupta grew up in India, earned an MBA from Harvard, and prospered for years as managing
director of McKinsey & Company, a preeminent management consulting firm. A respected business leader
and cofounder of the Indian School of Business and the American Indian Foundation,
 Business Ethics in an Evolving Environment:

Gupta served on many corporate and philanthropic boards. “Gupta was commended by people who knew
him as a person who helped others. He was very active in providing medical and humanitarian relief to the
developing countries. Born to humble circumstances, he became a pillar of the consulting community and
a trusted advisor to the world’s leading companies and organisations.”
2) Respected businesses and managers adhere to a well-thought-out vision of what is ethical and fair. The
primary purpose of business ethics is to guide organisations and their employees in this effort by outlining
a mode of behaviour that proactively identifies and implements the right actions to take, ones that avoid
lapses in judgment and deed. For example, identifying the needs and rights of all stakeholders, not just of
shareholders, is a useful first step in fair and ethical decision-making for any business organisation.
General Motors (GM) has struggled with its brands and its image. Over the years, it has jettisoned some of
its once-popular brands, including Oldsmobile and Pontiac, sold many other, and climbed back from a
2009 bankruptcy and reorganization. The automaker was hiding an even bigger problem, however: The
ignition switch in many of its cars was prone to malfunction, causing injury and even death. The faulty
switches caused 124 deaths and 273 injuries, and GM was finally brought to federal court. In 2014, the
company reached a settlement for $900 million and recalled 2.6 million cars.
3) Technological innovation has changed the business environment and our lives, but it does not change
the basis on which we make ethical business decisions. It does however, cause us to expand the
application of our ethical standards to new situations. For example, ethical principles are now being
applied to online business. One reason is so that managers can navigate the privacy issues raised by the
wholesale collection and sharing (intentional and otherwise) of customer data.
 Business Ethics in an Evolving Environment:
“The big ethical dilemmas of the twenty-first century have mostly centered on cybercrimes and privacy
issues. Crimes such as identity theft, almost unheard of twenty years ago, remain a huge threat to anyone
doing business online- a majority of the population. As a result, businesses face social and legal pressure
to take every measure possible to protect customers’ sensitive information. The rises in popularity of data
mining and target marketing have forced businesses to walk a fine line between respecting customers’
privacy and using their online activities to glean valuable marketing data.”
4) Another ethical dilemma arises for managers when government policy collides with a multinational
corporation’s global ethical standards. Although this clash can occur in many industries, the information
industry offers a useful example. Google’s stated mission is to “Organise the world’s information and make
it universally accessible and useful.” From its founding, says the company’s website, “our goal has been to
develop services that significantly improve the lives of as many people as possible. Not just for some. For
everyone,” This may not hold true in all Google’s markets, however.
“In 2006, [Google] launched a Chinese-language website in China and, contrary to its global ethical
standards opposing censorship, agreed to Chinese government demands to eliminate links which the
authorities found objectionable. For example, when a Web-surfer searched ‘Tiananmen Square’ on
Google’s Chinese-language website in Los Angeles, reports of the 1989 demonstrations popped up. Not
so if the same surfer entered the same words on Google’s Chinese-language site in Beijing (at various
times either nothing or innocuous history came up).”
 Entrepreneurship and Start-up Culture:
An entrepreneur is a business leader willing to risk starting a new company and offering a product or
service he or she hopes will be sustainable and permit the firm to prosper. The entrepreneur may have to
find the money required for this venture and typically draw on business experience gained by working for
others first. Entrepreneurship often requires hard work, but the potential for economic payoff and career
satisfaction appeals to many.
Entrepreneurial Culture:
A fairly common characteristic of successful start-ups is charismatic, driven founders with take-no-prisoner
competitive mentalities, as was illustrated earlier in the above example of Kalanick and the leadership
values at Uber. After all, it takes a thick skin and powerful ego to get through the inevitable
disappointments that confront a start-up leader. Often, however, even when these self-assured
personalities evade the most egregious behaviour of a Kalanick, they still remain very difficult for others to
abide. Many companies discover that a different leadership ethos is necessary as they grow.

Ethical Issues in Start-Ups:

The purpose of a start-up is to earn profit but while earning profit ethics should not be ignored. The start-
ups should comply with the laws and regulations and at the same time, it should not forget their duty
towards the community, people, customers, and the company.
 Ethical Issues in Start-Ups:

1) Duties towards the Customers: The start-ups should not indulge in any kind of activity
which may be detrimental to the interest of the customers; the start-ups should accept the
feedback from the customers and should take care of the after-sale services and assist the
customers. A start-up can grow only with the help of satisfied and happy customers.
2) Duties towards the Employees: The employees for a start-up are as important as wheels
for a car, be it a small or big employee everyone’s contribution is necessary for the proper
growth and functioning of a start-up. The start-up should be legally as well as ethically give
regard to the rights of the employees. They should be given proper treatment, timely
payment of salary and allowances, the Start-ups should have a proper system for hearing
the grievances of its employees and it should try to keep its employees motivated in order to
maintain health growth of the start-up.
3) Duties towards the Environment: The Startups should be careful that they obtain all the
legal certificates, permissions, and permits from the government bodies and they should not
involve in any activity which may have a negative impact on the environment.
4) Duty towards the Start-up: The employees in a start-up should prioritize the interest of the
start-up rather then their personal interest. All the employees should work together for the
growth of the start-up.
 Ethical Issues in Start-Ups:
5) Duties towards the Community: The Startups should be careful that they should not in any manner cause
harm to the sentiments of the people and they must follow a proper pathway for the betterment of the society by
keeping provisions of investing in social causes like education, food, environment, etc. Start-ups should be
careful about the religious sentiments of the people, especially while advertising.
6) Issues with Respect to Labour Laws: It would be wise for a start-up or any other company to be well-
versed with the labour laws and the local laws because when we are hiring some person to work for us then we
have several legal as well as ethical responsibilities towards that person as there are several statutes which
protect the rights of the labourers with respect to the working hours, sexual harassment at the workplace,
payment of wages, payment of bonus, etc. However, the new start-up, India initiative which was launched by
Prime Minister Narendra Modi in 2015 exempts the start-ups from labour inspection.

Ethics and Laws:

Ethics is not an easy term to define. In a general sense, ethics is the code of moral principles and values that
govern the behaviour of a person or group with respect to what is right or wrong. These principles are based
cultural, religious, and philosophical beliefs held by us all. They come from our family, friends, school, religion,
work, and the media people view and read. These derived ethics values sets standards as to what is good or
bad in our conduct and decision-making. They define how people think and act toward others and how one
expects them to think and act toward us. One does not deliberately think of these values, but rather instinctively
act based on them. It is only when faced with a compromising situation that raises a moral or ethical dilemma
that one may reflect on what is right or wrong. Entrepreneurs and managers of small business particularly have
difficulty in maintaining ethical behaviour within their organisations. Invariably their operations are more informal
and lacking the resources to have sophisticated controls to assure ethical behaviour while striving to keep the
 Ethics and Laws:

The business and attempting to make all the daily decisions necessary to achieve a profitable operations,
the entrepreneur manager faces regular ethical decisions on:
1) Individual values, such as integrity and honestly,
2) Company values concerning employee's well-being,
3) Customer well-being and satisfaction, as reflected in the value provided to the customer, and
4) External responsibilities as to how the business relates to the community and the environment.
Ethics can be more clearly understood when compared with behaviours governed by laws and by free
choices. Human behaviours fall into three categories – codified law, free choice, and ethical behaviour.

Establishing Strategy for Ethical Responsibility:

5) Ethical Consciousness: The development of ethical consciousness is the responsibility of the
entrepreneur, because his or her vision created the venture. The key figure to set the tone for ethical
decision-making and behavior is the entrepreneur. An open exchange of issues and processes within
the venture, established codes of ethics for the company, and the setting of examples by the
entrepreneur are all illustrations of how this is done. For example, when the CEO of a large
corporation discovered bookkeeping discrepancies in one of the departments, he directed the 20
implicated employees to make retribution by donating $8,500 to charity. This action commanded
positive ethical action and set the tone for ethical expectations.
 Establishing Strategy for Ethical Responsibility:

2) Institutionalization: It is a deliberate step to incorporate the entrepreneur’s ethical objectives with the
economic objectives of the venture. At times, an entrepreneur may have to modify policies or operations
commitment to ethics and values is tested. Constant review of procedures and feedback in operations are
vital to institutionalizing ethical responsibility. Process of developing or transforming rules and procedures
that influence a set of human interactions.
3) Ethical Process and Structure: It refers to the procedures, position statements (codes), and
announced ethical goals designed to avoid ambiguity. Having all key personnel read the venture’s specific
ethical goals and sign affidavits affirming their willingness to follow those policies is a good practice for
ventures.

Managerial Ethics:
Managerial Ethics deals with internal values that are a part of corporate culture and shapes decisions
concerning social responsibility with respect to the external environment. An ethical issue is present in a
situation when the actions of a person or organization may harm or benefit others.
Managerial Ethics has become increasingly important with high-profile bankruptcies such as Enron,
WorldCom and the myriad companies involved in the housing crisis of 2008. Managers have an obligation
to report their financial and other documents accurately and treat all of their business partners ethically.
 Approaches to Managerial Ethics:

Bartol and Martin identify three approaches to ethical practice taken by organizations or their managements,
e.g., to the issue of strategic choice. These are:
1) Immoral Management: In this approach ethical principles are absent or their application is instead actively
opposed. Such an approach to the process of leadership and strategic management is characterized by an
exclusive focus on the personal gain, selfish interest, competitive position, and company profit. There is
likely to be an absence of concern about issues of equity and fairness; a view of the law as “not applying to
me”, or instead constituting an obstacle to be overcome; a willingness to “cut corners”; and active hostility to
the environmental or ecological considerations, and the issues of social responsibility.
2) Amoral Management: This approach ignores or is oblivious to ethical considerations. Two varieties are
identified:
i) Intentional Ethical Consideration: In this consideration managers do not include ethical variables in their
decision-making and actions because they perceive that general ethical standards are only appropriate to
non-business areas of life.
ii) Unintentional Ethical Consideration: In this consideration managers do not include ethical variables in
their business dealings because they are inattentive or insensitive to the moral implications of their
decisions and actions.
iii) Moral Management: This approach attempts to follow ethical principles and precepts. Bartol and Martin
comment that ‘while moral managers also desire to succeed, they seek to do so only within the parameters
of ethical standards and the ideals of fairness, justice, and due process’. As a result, moral managers
pursue business objectives that involve simultaneously making a profit and engaging in legal and ethical
behaviours.
 Ethics and Business Decisions:

Introduction:
At any workplace, various decisions regarding day-to-day activities and transactions are taken by the
executives and managers. Many a times, decisions are permissible both a legal and ethical codes, whereas
some decisions taken by them, due to mandatory pressure for tackling competition and due to some other
contingencies of business, are neither ethical nor legal.
But according to various ethicists, researchers and academicians there is still a scope of improvement of
ethical standards of businesspeople, apart from the demanding situations and competitive pressures.
In organisation, there exist a set of rules that supervises the concerns like approval from authorities, need of
profit maximisation, keeping up the goodwill, considering the stakeholders’ interests, etc. It is almost
impossible to understand the common bases on which managers and executives take their decision.

Framework for Ethical Decision-Making:

Awareness and understanding of the ethical concern, a proficient method to analyse the ethical facets of a
decision, and the ability to measure the effect of choice of decision are the vital requirements for making an
ethical decision in an organisation. It is very important to have certain set of rules for ethical decision-making.
As one starts using these rules on a regular basis for making ethical decisions, it becomes so accustomed
that it is not required to refer the steps every now and then.
In order to analyse the situation of ethical dilemma and ascertaining the appropriate response for it, the
framework for ethical decision-making is very beneficial method. It inspires the decision-maker to consider
and analyse various steps, so that the outcome is a successful decision. It also helps in measuring the after
 Framework for Ethical Decision-Making:

Ethical Issue Intensity:

First influencing factor of the process of decision-making is issue intensity, i.e., seriousness of the issue;
and this is decided by the one who has to take the decision. With the time, the seriousness of the issue
varies. It also varies with different individuals because different people have different beliefs, values, and
viewpoint regarding the issue. Some other factors that influence the intensity of issue are situation,
personal interests of decision-maker, etc.
For example, employees who are new to a certain industry may face difficulty in recognizing the issues.
Hence, a need of training about the process of handling the ethical issues arises. For developing the
employees’ capability of taking ethical decisions, detecting potential ethical issues is an important step.
Doing this will not only improve the employees’ skills but also improve ethics of the organization.
1) Individual Factors: The study of ethical decision-making and organisational ethics is also affected by
the factors related to an individual, i.e., values, perception, beliefs, etc. Conclusion of various
researches over a longer period of time supported the dominance of organisational factors in making
an ethical organisation. Yet major responsibility for ethical decision-making is given to individuals by
majority of people. Nevertheless, the importance of individual factors in assessing and resolving the
ethical issues cannot be denied.
Following are the factors which are of utmost importance for the ethics of an organisation:
a) Personal Moral Philosophy: When a person comes across with a situation which is not easy to govern
and solve, then an ethical conflict arises. During these types of circumstances, decisions and reactions of
human beings are generally based on their understanding of right and wrong.
 Framework for Ethical Decision-Making:
The rules and beliefs of human beings, which they use to determine the rightness and wrongness of
anything and to justify their choices and actions, are said to be their moral philosophies. Such rules and
beliefs are grasped by human beings when they interact with their family, friends, peers, teachers, etc.
b) Stages of Moral Development: According to Lawrence Kohlberg, the change in moral philosophy of
human beings is because they advance through different stages of moral development. At every stage,
moral reasoning of people develops and hence changes. This is because different people act differently in
similar situations as they might be at a different stage of moral development.
Kohlberg suggested the following stages of cognitive moral development:
i) Avoiding Punishment,
ii) Self-Interest,
iii) Good Boy Attitude,
iv) Law and Order Morality,
v) Social-Contract, and
vi) Principle.
2) Organizational Factors: Decision-making regarding legal and ethical issues should be done by
individuals, yet many a times they do it in groups, i.e., meetings, committees, group discussions, etc.
Hence, the organizational decisions get impacted by culture of the organizational and its employees.
 Framework for Ethical Decision-Making:
The organizational factors that influence the decision-making are as follow:
a) Organizational Culture: Organizations, societies, communities, etc., do have their own culture; which
includes their common rules, beliefs, values, aims, problem-solving methods, etc. It is believed that,
with the time, organization is considered as a living thing that has its own mind and vigour. Most of the
organizations give stress to ethics, yet some organizations, like Tyco, do not foster ethical culture.
Unethical companies maximize their profits from activities which are illegal and unethical and people
who join such organizations face numerous difficulties if they do not take part in those unethical and
illegal activities.
b) Impact of Co-Workers and Supervisiors: Employees, based on their priorities, try to find particular
type of employers. Similarly, employers also have choice regarding employees with whom they want
to work. In an organization, supervisors and fellow workers assist the new workers in doing a work
which they are not accustomed with.
They also guide and instruct them during working hours; where supervisors generally direct them
regarding tasks to be done in the place of work, and fellow workers offer help during lunch breaks and
when the supervisor is not present. Indeed, the fear of contacting the supervisor, regarding an issue, also
exists in freshers and new employees. It also makes the role of informal culture important in an
organization.
It is also concluded that, the behavior of an individual is influenced by the fellow workers and every other
person with whom he or she interacts frequently. Accordingly, if interaction and association of a decision-
maker is with the persons who are unethical, then his decisions and behavior will probably be unethical
 Framework for Ethical Decision-Making:
c) Opportunity: The two above mentioned factors may result into circumstances that either may restrict
the unethical activities or may allow them. If the circumstances are positive and provide rewards such as
monetary benefits, promotion, recognition, etc., then the opportunities of unethical activities will either
increase or decrease. For example, if a company has no provision of punishment against violation of
rules, then it in itself is an opportunity for unethical activities.
The researches Bellizzi and Hasty studied a general trend that salespersons with good sales record are
treated more gently than those who have poor sales record, by their supervisors. Repetitive unethical
activities by a salesperson cannot be avoided only because he is having a good sales record. This
favoritisms is not supported even by any company policy. The established provisions for disciplining the
salespersons are equal for all, irrespective of the sales record of the salesperson.
Bellizzi and Hasty arrived at a conclusion that salespersons with good sales record are having more
opportunities to do unethical activities than those who have poor sales record.
Herein the term ‘opportunity’ refers to the overall situation of an employee, i.e., workplace, co-workers,
nature of duties, etc. The technique of carrot and sticks can be used by supervisors to keep a control on
conduct and activities of employees. In order to ensure the proper compliance of company policies, it can
implement the rules, regulations, and codes of conduct more formally and strictly. It is evident in the case
of top salesperson that the rules and regulations are either implemented ineffectively or completely
overlooked.
 Becoming an Ethical Professional:
Introduction:
“Professionalism” is the conduct, aims or qualities that characterize or mark a profession or professional
person. It implies there is a quality of workmanship or service. But in reality, it’s more about ethical
behavior in the workplace. Every organization knows that a professional and ethical reputation is the
difference between success and failure, and they seek to keep those staff who are the most professional.
“Ethical professionals work for companies whose values align with their own.
Theories of Moral Development:
One of the most interesting findings regarding behavior is that what people believe isn’t necessarily what
they do. Some studies do find beliefs and actions to be correlated. Part of the problem is the difficulty of
measuring moral beliefs and the validity of the instruments used. It has been determining that so-called
“recognition tests’ that require the subject merely to recognize and identify certain moral principles and
agree with them are less helpful in predicting behavior than production measures, which require the
subject to actually reason through a dilemma.
Three explanations will be offered for how people develop personal moral systems:
1) Biological Theories
i) Biological Predispositions
ii) Human Behavior based on traits, selected in our species for survival through evolution
 Becoming an Ethical Professional:
2) Learning Theory
i) Behaviour based on past rewards
3) Developmental Theory
ii) Behaviour is influenced by intellectual and emotional stages of development
iii) Environmental factors can contribute to intellectual and emotional stages of development obtained by
an individual
iv) Kohlberg’s moral stage theory
1) Biological Factors: There are links between the brain and the predisposition to certain behaviours.
Fishbein from a criminology perspective correlated delinquency as related to human traits of
impulsiveness and aggressiveness:
a) Studied the possible linkage between biological traits and predispositions to committing crimes
i) Low serotonin=Propensity towards violence
ii) Criminality seems to be associated with low serotonin levels and impulsivity
b) The frontal lobes seem to be the part of the brain implicated in feelings of empathy, shame, and moral
reasoning.
 Becoming an Ethical Professional:
2) Learning Theory: Learning theorists believe that children learn what they are taught, including morals
and values as well as behaviour. Right and Wrong – Predicated on modelling or reinforcement, not
reasoning:
a) Modeling Theory: In modeling, values and moral beliefs are patterned after those one admires and
aspires to identify with;
i) Parents – Ethics of Value or Care
ii) Priests – Ethics of Religion
iii) Criminals – Egoistic Ethical System
b) Reinforcement Theory: In reinforcement, behaviours and beliefs that are reinforced (either through
material rewards or through more subjective rewards, such as praise) are repeated and eventually
become permanent.
c) Cognitive Dissonance: In cognitive dissonance, the discomfort that results when behaviour is not
consistent with beliefs. This leads to the development of attitudes to support one’s behaviour.
3) Development Theory (Kohlberg’s Moral Stage Theory): Development theories propose that
individuals mature physically, cognitively, and emotionally. Social maturity is marked by the ability to
empathize with others and a willingness to compromise one’s desires with other’s needs.
Kohlberg based his theory on a series of moral dilemmas presented to his study subjects. Participants
were also interviewed to determine the reasoning behind their judgments in each scenario.
 Becoming an Ethical Professional:
One example was “Heinz Steals the Drug”. In this scenario, a woman has cancer and her doctors believe
only one drug might save her. This drug had been discovered by a local pharmacist and he was able to
make it for $200 per dose and sell it for $2,000 per dose. The woman’s husband, Heinz, could only raise
$1,000 to buy the drug.
He tried to negotiate with the pharmacist for a lower price or to be extended credit to pay for it over time.
But the pharmacist refused to sell it for any less or to accept partial payments. Rebuffed, Heinz instead
broke into the pharmacy and stole the drug to save his wife. Kohlberg asked, “Should the husband have
done that?”
Stages of Moral Development:
Kohlberg’s theory is broken down into three primary levels. At each level of moral development, there are
tow stages. Similar to how Piaget believed that not all people reach the highest levels of cognitive
development, Kohlberg believed not everyone progresses to the highest stages of moral development.
1) Level 1: Pre-conventional Morality: Pre-conventional morality is the earliest period of moral
development. It lasts until around the age of 9. At this age, children’s decisions are primarily shaped by
the expectations of adults and the consequences for breaking the rules. There are two stages within
this level:
i) Stage 1 (Obedience and Punishment): The earliest stages of moral development, obedience and
punishment are especially common in young children, but adults are also capable of expressing this type
of reasoning. According to Kohlberg, people at this stage see rules as fixed and absolute. Obeying the
rules is important because it is a way to avoid punishment.
 Becoming an Ethical Professional:
ii) Stage 2 (Individualism and Exchange): At the individualism and exchange stage of moral
development, children account for individual points of view and judge actions based on how they serve
individual needs. In the Heinz dilemma, children argued that the best course of action was the choice that
best served Heinz’s needs. Reciprocity is possible at this point in moral development, but only if it serves
one’s own interests.
2) Level 2 Conventional Morality: The next period of moral development is marked by the acceptance of
social rules regarding what is good and moral. During this time, adolescents and adults internalize the
moral standards they have learned from their role models and from society. This period also focuses on
the acceptance of authority and conforming to the norms of the group. There are two stages at this level of
morality:
i) Stage 3 (Developing Good Interpersonal Relationships): Often referred to as the “good boy-good
girl” orientation, this stage of the interpersonal relationship of moral development is focused on living
up to social expectations and roles. There is an emphasis on conformity, being “nice”, and
consideration of how choices influence relationships.
ii) Stage 4 (Maintaining Social Order): This stage is focused on ensuring that social order is
maintained. At this stage of moral development, people begin to consider society as a whole when
making judgements. The focus is on maintaining law and order by following the rules, doing one’s
duty, and respecting authority.
3) Level 3 Post-conventional Morality: At this level of moral development, people develop an
understanding of abstract principles of morality. The two stages at this level are:
 Becoming an Ethical Professional:
i) Stage 5 (Social Contract and Individual Rights): The ideas of a social contract and individual
rights cause people in the next stage to begin to account for the differing values, opinions, and beliefs
of other people. Rules of law are important for maintaining a society, but members of the society
should agree upon these standards.
ii) Stage 6 (Universal Principles): Kohlberg’s final level of moral reasoning is based on universal
ethical principles and abstract reasoning. At this stage, people follow these internalized principles of
justice, even if they conflict with laws and rules.

Making a Difference in the Business World:

As attractive as high salary and comfortable lifestyle are to many, the life of a true professional is guided
less by the desire to amass material goods than by a willingness to adhere to a code of ethical behaviour
and make the sometimes selfless decisions that protect the public and the corporation from misdeeds. In
ideal form, that code of behaviour is an expression of everything we have covered in this text regarding
virtue, character, commitment, resilience, and the use of professional skills and training for the benefit of
others.
1) Identifying Values and Mission: The values one chooses to honor are the essence of him, and he
carries them with him wherever he live, work, and play. As we noted, the career one chooses should
reflect his values, whether he work at a for-profit or non-profit organization. It also is possible that one
might work for a for-profit company and volunteer extensively on his own or on behalf of his firm in the
non-profit sector.
 Making a Difference in the Business World:

Whatever path one’s career takes, it remains important not to let him well-considered values are
diminished by others who do not prize loyalty or industriousness, for instance. One’s career is not a
contest in which the person who finishes with the biggest portfolio or fastest jet skis wins anything other
than an empty prize. It is far better to treat others with integrity and respect and be surrounded by the true
emblems of a successful career—family, friends, and colleagues who will attest to the dignity with which he
has worked. In the final analysis, if he achieves a life of honor, then he has won.
2) Putting Values and Mission Statement to the Test: There may be no better place to put personal
values and mission to the test then in an entrepreneurial role. Startups cannot be run on concepts alone.
More than almost any other kind of venture, they demand practical solutions and efficient methods.
Entrepreneurs usually begin by identifying a product or service that is hard to come by in a particular
market or that might be abundantly available but is overpriced or unreliable. The overall guiding force that
inspires the startup then is the execution of the company’s mission, which dictates much of the primary
direction for the firm, including the identification of underserved customers, the geographic site for a
headquarters, and the partners, suppliers, employees, and financing that help the company get off the
ground and then expand. In a brand-new organisation, though, where does that mission come from? If we
were to diagram the relationship between founders’ values and the entrepreneurial mission, it would look
something like this:
Personal Values Personal Mission statement Entrepreneurial mission statement
 Corporate Social Responsibility (CSR):
Meaning and Definition of CSR:
Corporate social responsibility is self-imposed restriction by companies on their activities. CSR is a recent
term but it has been followed by companies from many years ago. Companies know their responsibilities
towards the society where they exist. As CSR concept is based on ethics, companies following CSR
policies always strive to develop the society and environment. CSR refers to those activities through which
companies control their actions and check whether they are following ethical and legal norms. CSR should
be followed voluntarily by each and every company whether it is small or big, or multinational or local.
According to Cannon, “Corporate social responsibility means devising corporate strategies and building
a business with the society’s needs in mind”.
According to Koontz and O’Donnel, “Social responsibility is the personal obligation of every one as he
acts for his own interests to assure that the rights and legitimate interests of all others are not impinged”.
Need for CSR:
1) It Is Organisation’s Responsibility: All existing companies owe the embodiment of their respective
charters to society. The very existence of the institution of business called ‘company’ is attributable to the
services a company provides to the society. These services can be considered to be offered to the society
in return for what the company has received from the society. This is said to be the corporate social
responsibility of the company. If it fails to deliver on this responsibility, the charter can be amended or
revoked.
 Corporate Social Responsibility (CSR):
2) It is in Its Longer-Term Interest: It is in the long-term interest of an organisation to create a healthy
community – healthy body, mind, and spirit – because after all, the organisation has to conduct its business
activity in and around the community in which it exists. A healthy community is conducive to carrying out
business operations efficiently, resulting in higher productivity and profits. For example, in a healthy
community, labour problems and crime are at the minimum. To build up such a healthy community, an
organisation needs to undertake social welfare initiatives.
3) To Enhance Reputation: Social welfare activities undertaken by an organisation enhance its reputation
in the society, i.e., among the general public. Enhanced reputation translates into more customers, which
means higher sales and profitability. It also attracts the best talent, thus raising the quality of its human
resources. Enhanced reputation also has advantages in other areas like political and policy-making in its
field of operation. For example, a reputed organisation has opportunities to play leadership roles in
associations of its business fraternity, thus providing it opportunities to influence policies.
4) To Avoid Government Regulation or Control: Those companies that do not fulfil their social
responsibilities are liable to face governmental intervention, which may be in the form of imposition of
regulations or controls; and these mean additional cost to such companies, apart from limiting their
flexibility in operations and decision-making. These can be avoided by companies by fulfilling their
corporate social responsibility.
5) To Convert Resistances into Resources: Social problems offer resistance to the progress of a
company. By out-of-the –box measures, a company can transform many of its social problems into utilisable
resources. This has a dual advantage: problems, which normally would utilise resources, create resources.
More resources at a company’s disposal mean enhanced fulfilment of corporate social responsibility.
 Corporate Social Responsibility (CSR):
6) To Use National Resources and Economic Power Responsibly: Organisations have substantial
access to the productive resources of communities in which they operate. National resources, though
provided by the government at subsidised rates or free of cost for some period, are actually meant to
benefit the community; because national resources are ultimately the property of the community or general
public, the government being the elected representation of the general public. Such economic benefits that
companies enjoy must be used for the benefit of the community – this, after all, is corporate social
responsibility.
7) To Avoid Management-Worker Conflicts: Just like the welfare of the community, welfare of the workers
of the company is also a vital responsibility of a company. Workers of a company constitute its backbone,
and hence their welfare is not only the responsibility of the company but is also in its interest. Healthy and
happy workers are more efficient and contribute to increased productivity and decreased unrest, protests,
and possibility of strikes. With the passage of time, trade unions are becoming increasingly vociferous in
demanding welfare schemes like housing and medical facilities from the company. An atmosphere of peace
in a company is cardinal to the achievement of goals and targets of the company.
8) To Minimise Environmental Damage: Effluent gases and chemicals from industrial organisations are
detrimental to the environment. Such organisations should neutralise the damaging effects of these
environmental violations and restore normalcy. It is a prime responsibility of such organisations.
Principles of CSR:
1) Respect for Human Rights: Universal Declaration of Human Rights is a document that describes
principles and standards on which human behaviour should be based so that human rights are protected.
 Corporate Social Responsibility (CSR):
2) Contributing to Sustainability: CSR should be fulfilled in a manner that sustains long-term social
development. For this to happen, companies should sustain profitability, which ensures continuous flow of
financial resources for sustained social development. Government and the civil society should ensure that
norms are in place to facilitate this.
3) Diversity: It is the responsibility of the corporate houses to respect diversity and to see to it that no
injustice is dispensed to individuals with regard to religion, caste, race, ethnicity, political affiliation,
gender, age, Marial status, and sexual or cultural orientation. Companies must also protect the rights of
the indigenous inhabitants that may be affected by the company’s operations.
4) Dialogue: It refers to the responsibility of having a meaningful dialogue with the stakeholders of the
company to ensure that the company operations are suitable to local conditions and capable of providing
financial and social benefits.
5) Integrity: Organisations are responsible for maintaining morally sound conduct, which means integrity,
honesty, and fairness in all their dealings. It also implies that there is no place for corrupt practices.

Environmental Awareness and CSR:

The environmental concern to preserve and protect the natural resources motivates businesses into a
stronger environmental awareness. Entrepreneurs need to take the lead in designing a new approach to
business in which every day acts of work and life accumulate as a matter of course into a better world.
One theorist has developed the term “ecovision” to describe a possible leadership for innovative
organisations.
 Environmental Awareness and CSR:

Ecovision encourages open and flexible structures that encompass the employees, the organisations, and
the environment, with attention to evolving social demands. The environmental movement consists of
many initiatives connected primarily by values rather than by design.
Below are a few of the ways in which environmental awareness and action contribute to business
management success:
1) Green Buildings Lower Overhead Costs: Greening a building can include a wide range of actions.
By moving to a virtual machine environment, companies can reduce computing power requirements.
Passively cooled office buildings with cinderblock walls naturally maintain ambient temperatures for
most of the year in many regions, decreasing the drain on heating and air conditioning systems. For
the energy needs that cannot be reduced, companies can install on-site windmills and energy fuel-cell
generators to create cleaner power themselves. Ideally, companies can reduce their environmental
impact and achieve Leadership in Energy and Environmental Design (LEED) certification for their
office buildings.
2) Energy Certificates can Offset the Power Businesses Use: When businesses green their buildings,
they can avoid a significant portion of their electricity, gas and water usage. For the natural resource,
they must employ, they can offset the environmental impact with renewable energy certificates. For
example, a business could offset power used by its servers with wind-power certificates. These let
entrepreneurs not only balance out their environmental impact, but also present a more compelling
case to customers, investors and others about their dedication to environmental responsibility.
 Environmental Awareness and CSR:
3) Composting and Recycling Reduce the Cost of Waste Removal: Composting and recycling can
help a business significantly divert its solid waste. Achieving noticeable results requires businesses to
work toward building an internal culture of sustainability. With employees on board for daily composting
and recycling, companies gain a sense of cohesion and purpose among their teams that positively impacts
other collaborative efforts.
4) Environmental Action Helps Business Celebrate their Customers: When a business involves its
prospects in its sustainability practices, customers become part of the greater purpose of the company and
feel more connected to it. A simple action like planting a tree in honour of every new customer presents
only a modest cost and can help an organisation increase loyalty and repeat business.
5) Paperless Processes are Faster, Easier and Cheaper: Businesses are looking for ways to reduce
paper use, and actions like switching to electronic contracting can help. The old-school process of getting
a paper contract signed can cost millions of dollars annually in lost revenue. Rounding-up physical
signatures is expensive and inefficient, and the burden it creates grows along with the size of the
business. Cloud-based contracts let companies close business deals faster. And since the passage of the
ESIGN Act in 2000, e-signatures are also a legally enforceable as their ink-on-paper predecessors. By
moving to virtual web-based contracting, companies can conserve resources and decrease the amount of
waste they create.
 Ethical Leadership by Entrepreneurs:
No perspective of entrepreneurial leadership would be complete without the acknowledgement of the
ethical side of enterprise. Even though ethics present a complex challenge for entrepreneurial leaders the
entrepreneurial leader’s value system is the key to establishing an ethical approach. A leader has the
unique opportunity to display honesty, integrity, and ethics in all key decisions. The leader’s behaviour
serves as a model for all other employees to follow. The research on entrepreneurial ethics has been
evolving. In entrepreneurial ventures, the ethical influence of the owner is more powerful than in larger
corporations because his or her leadership is not diffused through layers of management. Owners are
identified easily and are observed constantly by employees in an entrepreneurial venture. Therefore,
entrepreneurial owners posses a strong potential to establish high ethical standards for all business
decisions.
Leadership Styles Influencing Ethical Decisions:
Leadership styles that are based on emotional intelligence and which have the ability to manage the
relationship effectively are as follows:
1) Autocratic Leadership: Autocratic leadership is an extreme form of transactional leadership, where
leaders have absolute power over their workers or team. Staff and team members have little
opportunity to make suggestions, even if these would be in the team’s or the organisation's best
interest. Most people tend to resent being treated like this. Therefore, autocratic leadership usually
leads to high levels of absenteeism and staff turnover. For some routine and unskilled jobs, the style
can remain effective because the advantages of control may outweigh the disadvantages.
 Ethical Leadership by Entrepreneurs:
2) Bureaucratic Leadership: Bureaucratic leaders work “by the book”. They follow rules rigorously, and
ensure that their staff follows procedures precisely. This is a very appropriate style for work involving
serious safety risks (such as working with machinery, with toxic substances, or at dangerous heights) or
where large sums of money are involved (such as handling cash).
3) Charismatic Leadership: A charismatic leadership style can seem similar to transformational
leadership, because these leaders inspire lots of enthusiasm in their teams and are very energetic in
driving others forward. However, charismatic leaders can tend to believe more in themselves than in their
teams, and this creates a risk that a project, or even an entire organisation, might collapse if the leader
leaves. In the eyes of the followers, success is directly connected to the presence of the charismatic
leader. As such, charismatic leadership carries great responsibility, and it needs a long-term commitment
from the leader.
4) Democratic Leadership or Participative Leadership: Although democratic leaders make the final
decisions, they invite other members to work on their own. It can be effective if the leader monitors what is
being achieved and communicates this back to the team regularly. Most often, laissez faire leadership is
effective when individual team members are very experienced and skilled self-starters. Unfortunately, this
type of leadership can also occur when managers do not apply sufficient control.
5) Laissez Faire Leadership: This French phrase means “leave it be”, and it is used to describe leaders
who leave their team members to work on their own. It can be effective if the leader monitors what is being
achieved and communicates this back to the team regularly. Most often, laissez faire leadership is effective
when individual team members are very experienced and skilled self-starters. Unfortunately, this type of
leadership can also occur when managers do not apply sufficient control.
 Ethical Leadership by Entrepreneurs:
6) People-Oriented Leadership or Relations-Oriented Leadership: This is the opposite of task-oriented
leadership. With people-oriented leadership, Leaders are totally focused on organising, supporting, and
developing the people in their teams. It is a participative style, and it tends to encourage good teamwork and
creative collaboration. In practice, most leaders use both task-oriented and people-oriented styles of
leadership.
7) Servant Leadership: This term describes a leader who is often not formally recognised as such. When
someone, at any level within an organisation, leads simply by meeting the needs of the team, he or she is
described as a “servant leader”.
8) Task-Oriented Leadership: Highly task-oriented leaders focus only on getting the job done, and they can
be quite autocratic. They actively define the work and the roles required, put structures in place, plan,
organise, and monitor. However, because task-oriented leaders do not tend to think much about the well-
being of their teams, this approach can suffer many of the flaws of autocratic leadership, with difficulties in
motivating and retaining staff.
9) Transactional Leadership: This style of leadership starts with the idea that team members agree to obey
their leader totally when they accept a job. The “transaction” is usually the organisation paying the team
members in return for their effort and compliance. The leader has a right to “punish” team members if their
work does not meet the pre-determined standard.
10) Transformational Leadership: People with this leadership style are true leaders who inspire their teams
constantly with a shared vision of the future. While this leader’s enthusiasm is often passed onto the team, he
or she can need to be supported by “detail people”. That’s why, in many organisations, both transactional and
transformational leadership is needed. The transactional leaders (or managers) ensure that routine work is
 Ethical Leadership by Entrepreneurs:
Habits of Strong Ethical Leaders:
1) Ethical Leaders have Strong Personal Character: There is general agreement that ethical
leadership is highly unlikely without a strong personal character. It is believed that the focus should be
on “ethical reasoning” rather than on being a “moral person”. The ability to resolve the complex ethical
dilemmas encountered in a corporate culture requires intellectual skills. A fundamental problem in
traditional character development is that specific values and virtues are used to teach a belief or
philosophy. This approach may be inappropriate for a business environment where cultural diversity
and privacy must be respected. On the other hand, teaching individuals who want to do the right thing
regarding corporate values and ethical codes, and equipping them with the intellectual skills to
address the complexities of ethical issues, is the correct approach.
2) Ethical Leaders have a passion to do Right: The passion to do right is “the glue that holds ethical
concepts together”. Some leaders develop this trait early in life, whereas others develop it over time
through experience, reason, or spiritual growth. They often cite familiar arguments for doing right – to
keep society from disintegrating, to alleviate human suffering, to advance human prosperity, to resolve
conflicts of interest fairly and logically, to praise the good and punish the guilty, or just because
something “is the right thing to do”. Having a passion to do right indicates a personal characteristic of
not only recognising the importance of ethical behaviour but also the willingness to face challenges
and make tough choices.
 Ethical Leadership by Entrepreneurs:
3) Ethical Leaders are Proactive: Ethical leaders do not hang around waiting for ethical problems to
arise. They anticipate, plan, and act proactively to avoid potential ethical crises. One way to be proactive is
to take a leadership role in developing effective programmes that provide employees with guidance and
support for making more ethical choices even in the face of considerable pressure to do otherwise. Ethical
leaders who are proactive understand social needs and apply or even develop “the best practices’ of
ethical leadership that exist in their industry.
4) Ethical Leaders Consider Stakeholders’ Interests: Ethical leaders consider the interests of and
implications for all stakeholders, not just those that have an economic impact on the firm. This requires
acknowledging and monitoring the concerns of all legitimate stakeholders, actively communicating and
cooperating with them, employing processes that are respectful of them, recognising the potential conflicts
between leaders’ “own role as corporate stakeholders and their legal and moral responsibilities for the
interests of other stakeholders”. Ethical leaders have the responsibility to balance stakeholder interests to
ensure that the organisation maximises its role as a responsible corporate citizen.
5) Ethical Leaders are Role Models for the Organisation’s Values: If leaders do not actively serve as
role models for the organisation’s core values, then those values become nothing more than lip service. As
role models, leaders are the primary influence on individual ethical behaviour. Leaders whose decisions
and actions are contrary to the firm’s values send a signal that the firm’s values are trivial or irrelevant.
Firms such as Countrywide Financial articulated core values that were only used as window dressing. On
the other hand, when leaders model the firm’s core values at every turn, the results can be powerful.
 Ethical Leadership by Entrepreneurs:
6) Ethical Leaders are Transparent and Actively Involved in Organisational Decision-Making: Being
transparent fosters openness, freedom to express ideas, and the ability to question conduct, and it
encourages stakeholders to learn about and comment on what a firm is doing. Transparent leaders will not
be effective unless they are personally involved in the key decisions that have ethical ramifications.
Transformational leaders are collaborative, which opens the door for transparency through interpersonal
exchange. Transformational leaders instil commitment and respect for values that provide guidance on
how to deal with ethical issues.
7) Ethical Leaders are Competent Managers who take a Holistic View of the Firm’s Ethical Culture:
Ethical leaders can see a holistic view of their organisation and therefore view ethics as a strategic
component of decision-making, much like marketing, information systems, production, and so on. For
example, when Charles O. Prince took over a chairman of Citigroup Inc., he sought to not only placate
regulators and other stakeholders but also re-shape the troubled company from the inside out. He viewed
Citigroup not just as a profit-seeking business but also as a “quasi-public institution”. Prince instituted
numerous internal controls, slashed costs, and slowed the huge company’s pace of expansion, and he
spent a major portion of his time addressing issues related to the company’s culture and values. Most
senior executives believe that it is much more challenging to be a leader in today's business environment
compared to five years ago. Leadership continues to be one of the most important drivers of ethical
conduct in organisations.
 Ethical Leadership by Entrepreneurs:
Benefits of Ethical Leadership:
1) Creates Positive Impact on Corporate Culture: Most importantly, ethical leadership has a direct
impact on the corporate culture of the firm. For example, ethical leaders communicate and monitor an
organisation’s values, ensuring that employees are familiar with the company’s purpose and beliefs.
They also provide cultural motivations for ethical behaviour, such as reward systems for ethical
conduct and decision-making. This reinforcement is positively correlated with ethical employee
behaviour patterns. Thus, ethical leadership encourages employees to act in an ethical manner in their
day-to-day work environment. It is a well-known fact that a firm is only as good as its employees, so
instilling employees with a strong sense of integrity is crucial to creating an ethical organisation.
2) Leads to Higher Employee Satisfaction and Commitment: Ethical leadership can also lead to
higher employee satisfaction and employee commitment. Research shows that employees like to work
for ethical companies and are less likely to leave ethical organisations. These factors translate into
significant cost savings for the firm and serve to increase employee productivity.
For example, at The Container Store employees are given first priority. They receive 263 hours of training,
higher pay than comparable retailers, and are treated to special appreciation events such as We Love Our
Employees Day. The purpose of this employee-centred corporate culture is to increase employee
productivity and the quality of customer service. As a result, The Container Store’s turnover rate is 10 per
cent (compared to 100 per cent for other retailers in the industry) and customer loyalty is high (many
employees originated as loyal customers of the company).
 Ethical Leadership by Entrepreneurs:
3) Creates Strong Relationships with External Stakeholders: While ethical leadership can create
competitive advantages through employee satisfaction and productivity, it also creates strong relationships
with external stakeholders. For example, customers are willing to pay higher prices for products from
ethical companies. As consumer trust for businesses continues to recover after the financial crisis and
recession, consumers are more likely to do business with companies they consider to be trustworthy.
4) Helps in Long-Term Market Evaluation of the Firm: Ethical leadership is a foundational requirement
for impacting the long-term market valuation of the firm. There is a positive association between the ethical
commitment of employees and a firm’s valuation on the stock market. A firm’s reputation for corporate
social responsibility also impacts investor decisions. Corporate social responsibility is negatively related to
ethical risks in the long-term, and investors view risk as a factor when determining whether to invest in the
firm. The ethical reputation of the company can therefore assure them about the short- and long-term
sustainability of the company.
 Corporate Citizenship:
Introduction:
The term Corporate Citizenship and Corporate Social Responsibility (CSR) are sometimes used
interchangeably. The concept of Corporate Citizenship is far wider than CSR. It includes the responsibility of
the company to generate higher standard of living, better quality of life, respecting natural surrounding and
maintaining viability for the stakeholders. Corporate Citizenship of a company includes various positive and
passive acts such as building parks near its factory or avoiding pollution. The objective of CC can be either
monetary or non-monetary, e.g., charitable, philanthropic or profit making. Company having poor CC may
lose potential customers or may be boycotted.
Corporate Citizenship can act as a tool to define the role of the business in the society. The performance of
the company is measured keeping in mind its social, environmental and economic activities; therefor it
becomes crucial for the companies to understand what good corporate citizenship incorporates. Traditionally,
corporate citizenship was considered as an act of charity or philanthropy. However, the scope of corporate
citizenship includes the benefits that the core activities of the company provides to the local communities and
the involvement of company in political and non-political processes to improve the economic and civic life of
the country. Corporate Citizenship is all about obligations and rights of the company. Corporate Citizenship
explains how the company can grow and improve the environment at the same time. Failed, unstable,
undemocratic and corrupt countries are not suitable for the existence of globally competitive business.
According to CCRU (Corporate Citizen Research Unit) at Deakin University in Australia, “Corporate
citizenship is recognition that a business, corporation or business-like organization, has social, cultural and
environmental responsibilities to the community in which it seeks a licence to operate, as well as economic
and financial ones to its shareholders or immediate stakeholders.
 Corporate Citizenship:
Nature of Corporate Citizenship:
1) Corporate Citizenship is a holistic understanding of corporation’s effect as well as the awareness that
corporation bears some responsibility to a greater range of stakeholder's concerns.
2) Corporate citizenship depends on the capability of the organization to satisfy the requirements of the
environment.
3) The concept of corporate citizenship is more inclined towards the practitioner-based method in comparison
to corporate social responsibility.
4) The main emphasis of corporate citizenship is in the manner through which the core values are addressed
by the companies in such a way that it maximizes the overall advantages, minimizes negative effects and has
accountability towards stakeholders.
Importance of Corporate Citizenship:
1) Improved employee relations (e.g., improves employee recruitment, retention, morale, loyalty, motivation,
and productivity).
2) Improved customer relationships (e.g., increased customer loyalty, acts as a tiebreaker for consumer
purchasing, enhances brand image).
3) Improved business performance (e.g., positively impacts bottom-line returns, increases competitive
advantage, encourages cross-functional integration).
4) Enhanced company’s marketing efforts (e.g., helps to create a positive company image, helps a company
to manage its reputation, supports higher prestige pricing, and enhances government affairs activities).
 Corporate Citizenship:
Stages of Corporate Citizenship:
Mirvis and Googins have identified five stages of corporate citizenship elementary, engaged, innovative,
integrated and transforming representing “distinct patterns of activity at different points of development”.
The stages are measured along seven dimensions: definition, purpose, leadership support, structure,
issues management, stakeholder relationships and transparency. Corporations evolve to higher stages
based on four triggers: the credibility and capacity to support citizenship activities, the coherence of those
activities, and the commitment to incorporate citizenship in the corporate culture.
The five stages of corporate citizenship are defined as:
1) Elementary: Also known as the compliant stage, the citizenship activities in the elementary stage are
undefined because there is not enough corporate awareness and scant senior management
involvement. Small businesses, for example, usually comply with the applicable health, safety and
environmental laws, but have neither the time nor the resources to get involved in other community
and employee development activities.
2) Engaged: In the engaged stage, policies are developed for employees and managers to partitipate in
activities that go beyond rudimentary compliance. Senior management becomes more actively
involved by developing corporate-wide policies and tasking management at all levels to perform to
high standards of corporate citizenship.
 Corporate Citizenship:
3) Innovative: Corporate citizenship policies are more comprehensive in the innovative stage. Innovation
and learning are achieved through increased stakeholder consultations and participation in forums and
conferences. Corporate citizenship programs are funded and launched, usually at the functional level and
with the support of senior management. There is some measure of transparency as companies monitor
their community involvement and issue public reports.
4) Integrated: Corporations incorporate and formalize citizenship activities in the integrated stage. By
monitoring performance through scorecards and indicators, corporations “drive citizenship into their lines
of business”, according to Googins and Mirvis.
The boards of directors of public companies might be involved in monitoring performance by setting up
special board-level corporate citizenship committees. Other formal efforts to integrate citizenship activities
include stakeholder consultations and formal training.
5) Transforming: Companies in the transforming stage have realized that corporate citizenship makes
strategic sense in developing new markets and driving sales growth. Mirvis and Googins cite ice-cream
manufacturer Ben & Jerry’s integrated economic and social strategy that attracts environmentally-
conscious consumers.