Ethics in Marketing

• Marketing being a comprehensive term consists of performance of all those activities that direct the flow of goods and services from producer to consumer or user. Marketing history is replete evidences of marketing activities drawing extensive criticism due to their ethical considerations.

Rights to the Marketers

• Right to decide the design and style of the product to be marketed.

• Right to determine the price of the product offered.

• Right to decide on the distribution mode of the product

• Right to decide the way of promoting of the product

Rights to the consumer

• Protection against marketing of such goods that are considered injurious and hazardous to life and property of the consumer

• Information about the quality, quantity, standard and price to protect against unfair trade practices

• Assurance that consumer’s interest will receive due attention and consideration at the appropriate level

• Opportunity to have required information and being educated and about the product

Unethical practices in Marketing

• Product: Sometimes unethical practices are used at the stage of product development. Eg: Nestle’s baby food stating that it contains less sugar than apple and more nutrients than apple.

• Kellog company of Michigan produced its breakfast cereals containing inadequate nutritional value in children’s cereals.

Pricing

• Deceptive / Manipulative Pricing: Pricing which is intending to first lure the customer into the store by announcing low prices of the products and then offer them to buy high priced products.

• Eg: 1. announcing discounts or rebates which is actually not available in the store, like Audi in USA. 2. Offer discounts on inflated prices. 3. Bogus clearance sale in which inferior goods are brought in the store.

• Manipulative pricing is to take advantage of the customer’s psychology to make sale of its goods or services. Eg: buy two and get one free.

• Unfair Pricing: This is a technique of pricing products even lower than the cost with an objective to drive the competitors out of the market and then again raise the prices to a higher level. HMT manufacturing the dairy machinery.

• Price Discrimination: It refers to charging different prices for the same product to different customers depending on their ability to pay. Eg: cooking gas, petrol and diesel prices in India, prices for gas cylinders is higher for commercial purposes than that for domestic purposes, Maruti dealers charging different prices for the same car at different locations.

• Price Fixing: It is an agreement among the firms in an industry to set prices of their products at a certain level. It is like Carteling which is collective price fixation by which enterprises restrain growth of a competitive market place. Eg: Panasonic was accused of vertical price fixation, gas dealers, airline operators.

Advertising/ Promotion

• Advertisements being all pervasive have a strong influence in our life. They provide us with the required information and make us aware about the market. But advertisements can also end up misleading the public. Eg: the advertisement of Sahara Q Shop was in bad taste and unethical.

Ethics in Finance

• Finance has always been the life – blood of business, no business can survive without finance. But there are evidences available to believe that at times business managers opt for unethical practices to run business to serve their vested interest and in turn cause harm to their stakeholders.

Why ethics in finance

• Ensures proper use of limited resources• Ensures fair and transparent functioning of business.• Keeps managers away from the vested interests• Helps build goodwill and reputation• Serves interests of all stakeholders• Enables business to sustain market for long time.• Serves as competitive advantage for the business

Unethical Practices in finance

• Financial Fraud: In legal term fraud means use of dishonest or deceitful conduct in order to obtain some unjust advantage over someone else. In context of finance it means presenting false figures in the books or window dressing the financial facts.

Reasons of financial fraud

• Seeking rewards not from productivity but from presenting speculative financial position.

• Focus is not on good governance for building long term relationships but on maximising profit

• Absence of transparency in business transactions

• Developing a system that rewards only a particular group.

Financial frauds in Organisations

• Credit cards: It begins with either the theft of the physical card or compromise on the data associated with the card account number. The credit card companies pursue credit card fraud prevention to safeguard the customers interest and also limit their direct liability of securing transactions between sellers and card account holders.

• Bank cheques: This kind of fraud consists of the theft of a financial document and manipulating it to the benefit of the criminal.

• Mortgages: It is a criminal action where the intent is to materially misrepresent the information on a mortgage loan application and obtain a larger loan than would have been obtained, if the lender had known the truth.

• Tax: It is to intentionally violate the legal duty to voluntarily file income tax returns and pay the right amount of corporate or excise taxes.

• Bankruptcy: it is a legal process which allows a business to be discharged of all their debts due to an inability to pay. Bankruptcy fraud consists of concealment of assets, in order to avoid liquidation of those assets.

• Insider trading: Insider means any person who is or was connected with the company and who is reasonably connected with the company, and who is expected to have access to the unpublished price sensitive information of the company.

A price sensitive information means one which relates directly or indirectly to a company and which if published is likely to materially affect the price of the securities of a company, like the following:

• Periodical financial results of the company. • Intended declaration of dividends • Issue of securities or buy back of securities• Any major expansion plans or execution of

new projects• Amalgamation, mergers or takeovers• Significant changes in policies plans or

operations of the company

Insider trading is a situation when an insider of an organization makes an investment decision based on the information that is not available to the general public. This information allows them profit, in other cases avoid a loss.

• Money laundering: It is laundering or legitimizing of illegally obtained money to hide its true nature or source such as drug trade or terrorist activities. It is done by passing by passing it through legitimate channels of businesses by means of bank deposits, investments, transfers from one place to another. It is a process by which criminals hide the origin and ownership of the proceeds of their criminal activities.

Process of Money Laundering

• Placement: Placing criminal funds into the financial system directly or indirectly

• Layering: The process of carrying out financial transaction in order to camouflage the illegal source

• Integration: If the layering process succeeds, integration schemes place the laundered proceeds back into the legitimate economy in such a way that they appear to be normal business funds.

Obligations of banks & FI’s to prevent Money Laundering

• Maintain records detailing the nature and value of transactions, whether such transactions comprise of single transaction or a series of transactions integrally connected to each other and where such series of transactions take place within a month.

• To verify and maintain the records of the identity of all its clients

Obligations of the Tax department of India

• It should take notice of the bank accounts that records transactions of amount above 10 lac

• Bank accountant must maintain this record for more than 10 years

• Banks must also submit a cash transaction report and suspicious transactions report whose amount is more than 10 lakh, within 7 days of doubt.

Causes of unethical practices in Finance

• Greed: it is said that human wants are unlimited and resources are limited. Greed drives the evil behavior that is fraud.

• Ambition: Human beings are characterized by the desire to scale higher and higher in one’s ladder. There is a need to control the greed trap and the negativity that sets in. The evidences suggest that the misplaced ambitions and greed are often the root of unethical or fraudulent behavior.

• Urge of superiority: • Momentary lapse of reason: Leaders and managers with

proven track record in their careers sometimes fall prey to the momentary lapse of reason leading to serious consequences in the form of fraud.

• Social reward system: Society often recognizes and rewards people who have achieved ends, without getting much concerned about their means. The economic success has been valued more than other forms of success like social contribution etc, hence people getting rich by any means in quick time, have been recognized as successful and emerged as role models.

• Ineffective corrective mechanism: Although the mechanisms are in place to check and curb the fraudulent activities but it takes a long time to catch and punish the wrong doers. Therefore many people are tempted to follow fraudulent activities with the belief that they can get away by using shortcuts.

• Performance pressure for promotion: Often there is relentless pressure on the top managers to present great financial performance in the short term. Sometimes performance based incentive schemes also aggravates the problem.

• Overconfidence: In case of seniors well recognized in the industry, it may neither be ambition nor greed for them it is because of the strong belief in the absolute power and the reputation they enjoy due to which they feel that no one would raise an issue about their conduct. Hence sometimes they cross the line of acceptable behavior leading to fraudulent action.

• Fraudulent psychological bent: Greed and dishonesty are not the only factors that tempt a leader to break the rules, fraud rather a product of personality , environment and situational variables all moulded in one. Psychological research on values show that people differ in the amount of value they place on the material things and enjoyment in life. Where there is too much emphasis on the above, fraudulent actions are taken up often.

How to stop unethical practices in finance

• Monitoring the cheques: All cheques should be kept under safe custody using lock, they should be cleared in a sequential order, the numbering on them should be reviewed and monitored regularly in order to trace out the missing cheques. Never signing a blank cheque etc

• Maintaining employee manual: manual of do’s and don’t including ethical code, setting clear standards of behavior because sometimes employees conduct unethical practices due to unawareness about what is right or wrong business practice.

• Periodical review of financial statements: Like audit’s to keep an eye on the financial reporting and to motivate all the bookkeeping related staff to keep things in an honest manner.

• Review of sensitive documents: maintain confidentiality of certain documents like bank statements , customer receipts and specify who will receive and handle these sensitive documents in order to avoid any misuse.

• Checking the payroll: especially of temporary and contractual staff, due care should be taken in checking every payroll so that the employees are paid appropriately.

• Checking the employee references: while hiring new employees there should be an adequate background check that includes credit , employment and criminal history

• Independent review: to ensure correctness of records and entries accounts should be reviewed by a person outside the day to day transaction, as theft occurs when book keeping is sloppy and unsupervised. Hence people outside the direct bookkeeping function of an organization should be made in charge of it to avoid fraudulent activities.

• Stringent law: Pass stringent laws to penalize those who follow unethical practices. Eg: Britain – Anti bribery law

Ethics in HRM

• HRM is an important functional area of management. Human resource is heterogeneous in the sense that they differ in personality, perception, emotions, values, attitudes, motives and modes of thought. Their behavior to stimuli is often inconsistent and unpredictable. This is why they need to be dealt with delicately.

• Putting the right people at the right job is one of the functions of HRM. A strong employee base can become the competitive advantage or core competency of the organisation in the toughest market conditions.

Need for ethics in HRM • Work force diversity: Organisations consist of workforce that differ in

age, race, values, cultural norms etc. More number of women entering the workforce can be seen these days. Which is why organisations need to ensure that there is no exploitation of any individual or a group of people, on the basis of any of the above grounds, and every one is given an equal chance and healthy environment to work and grow.

• Economic and technological change: with the passage of time there have been some economic and technological changes. There is a shift in the occupational structure from agriculture to industry. Men are now replaced by machinery. There is a need for fewer but more number of highly skilled labourers. Hence the complexity has increased manifold.

• Globalization: Organizations are now exploring new markets abroad. World has become a global market where competition is two way. Tapping the global labour force, formulation selection, training and compensation policies has posed a huge challenge for the HRM.

• Organizational restructuring: The recent M&A in banking and telecommunications industry have been visible in the country, downsizing have also affected the employees greatly, such restructuring pose human consequences which is again a challenge for the organisation.

• Changing nature of work: Due to technological changes, introduction of machines and IT work has become manual to mental/ knowledge work. Where specialists and experts are required. The recent melt down has developed a new feeling related to job security in the minds of the employees. There is a shift from life time job to short term job that poses yet another challenge for HRM and questions ethical practices of it.

Ethics in HRM

• Recruitment and selection: Unethical practices in recruitment may relate to wide range of manipulations right from the contents of recruitments notice to last date of submission of application to serve one’s vested interest. Unjust selection procedure, constitution of inappropriate selection panel, asking humiliating questions, biased evaluation of candidates are some practices that bear impending costs or consequences on the organization.

• Promotion: This includes promotion by choice and not by competence, by person not by performance, by favor and not by merit and by discrimination and not by qualification. Such examples are denial of promotion to an employee.

• Job discrimination: It means an act by an employer that deprives employees of some benefits and other opportunities entitled as per the terms and conditions of employment agreed between the two. It arises out of the employers decision about promotion, compensation, other benefits that directly affect the economic interest of the employees. This ultimately leads to dissatisfaction in the organisation.

• Harassment: It includes any type of abuse, teasing, threatening related to the loss of job, offensive written material referring to either man or woman, is termed as harassment.

• Employee privacy: It is the fundamental right of an employee that consists of an individuals right to control information about oneself and to control situations where such information could be leaked. It saves an employee from any kind of embarrassment on any matter. It does not allow the interference of others in their personal matters.

• Compensation: It says that people have a right to punish or compensate the people who have committed a wrong act in the organization whether intentionally or unintentionally.

• Equality: It says that everyone should have an equal opportunity to grow in an organization and no one should be held back by discrimination or unjust manners.

Ethics in global business

Key characteristics of globalization1. Improved technology in transportation and

telecommunication: the increasing capacity and efficiency of transport and communication technology have made it possible for people and things to move and communicate faster and cheaper.

2. Movement of people and capital: There can be seen a migration of people between developing countries of low standard of living and low wages to places of greater and wider chance of economic success.

3. Diffusion of knowledge: Due to expansion of global business knowledge does not remain confined to the place of its origin, it diffuses speedily and widely across the globe. Eg: technology and innovation in the automobile and telecommunication sector etc.

Advantages and disadvantages of globalisation

Advantages Disadvantages

Integration of markets like EU Intense competition

Increase trade between nations Wider gap between rich and poor

Cheaper products for consumer Harder for small business to establish

Leads to outsourcing like call centres Exploitation by paying less in developing and more in developed countries

Lowering of international barriers like EU, ASEAN, NAFTA

Income earned in host country is not always spent in the same country.

Helps to prevent saturation in one market, too many competitors at one place

Corporations taking advantage of weak regulatory rules in the developing country

Unethical issues

• Business practices considered ethical in one culture but not in the other: There can arise some ethical issues in global business. What is ethical for one culture can be unethical for another. Like Chinese and South Korean business people will view attempts to renegotiate a contract perfectly acceptable even after they signed it, but Indians and Americans will find it inacceptable. Similarly American companies usually have no problem with simultaneously cooperating and competing with the same business partner, unlike Asians and Latin Americans

• Dumping : It means selling the product at below the on- going prices or the price below the cost of production. Usually when the organization in an exporting country has some products in excess then it dumps that amount of production into the importing country at a price lower than the prevailing price In the importing country. It hurts the industry of the importing country because it cannot compete with the low priced imported products. Eg: Chinese toys have hit the Indian toy industry.

Dealing with unethical practices in Global business

• Multinationals should not produce goods that harm the host country.

• Contribute to the host country’s development by their activities

• Respect the human rights of their employees• Multinationals should respect the local culture

and not work against it eg: KFC• Pay their share of taxes

Code of Ethics

• It is the set of rules or guides intended to establish moral standards and decent behaviour in an organization. It is also the rules of behaviour that guide the decisions, procedures and systems of an organization in a way that contributes to the welfare of its key stakeholders, and respects the rights of all constituents affected by its operations.

Benefits of code of ethics

• It creates unanimous agreement of behaving and operating among the organization.

• It improves team performance• It helps in improving cohesiveness• It helps in preventing misconduct• Guide how to make right decisions in the

organization• Increases managers confidence

• Improvement in relationship between customers and organization.

• Product differentiation in the marketplace• Signal to the stakeholders about the firms

quality• Take suppliers into confidence and foster a

long- term relationship with them.

How to develop code of ethics

• Decide on goals and meanings of success• Identify values needed to address current issues in your

workplace: Collect descriptions of behaviors that produce the issues. Consider which of these issues is ethical in nature, e.g.., issues in regard to respect, fairness and honesty. Identify the behaviors needed to resolve these issues. Identify which values would generate those preferred behaviors. There may be values included here that some people would not deem as moral or ethical values, e.g., team-building and promptness, but for managers, these practical values may add more relevance and utility to a code of ethics.

• Create code development task force• Data intake and analysis, interviews and focus

groups• Keep leadership informed• Draft your code of ethics• Submit code to leadership for a review• Field test the code and make any final revisions• Have code reviewed by your legal counsel

• Obtain board approval of final draft• Decide on a communication strategy• Revise and update regularly

Ten Myths about Business Ethics

• Business ethics is more of a focus on religion than on effective management.

• Companies assume that they select and train ethical employees who will always do the right thing.

• Business ethics is a theoretical and abstract philosophical concept

• Business ethics is based solely on the belief that you will always do the right things, if you follow business ethics.

• Business ethics is used by ethical people to correct what unethical people do.

• Business ethics is based on legal compliance• Business ethics cannot be managed by company

supervisors and executives.• Business ethics equals corporate social

responsibility• Because the company does not have any criminal

investigations pending, the company is ethical

• There is little practical relevance in supervisors managing subordinates on business ethics in the workplace.