business ethics final doc
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HOW to do business ethicallyTRANSCRIPT
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BUSINESS ETHICS QUESTION ONE: what is corporate governance? How does it affect the image of the
company??
ANSWER ONE: Corporate governance involves regulatory and market mechanisms, and the
roles and relationships between a company‘s management, its board, its shareholders and
other stakeholders, and the goals for which the corporation is governed.[1][2]
Lately, corporate
governance has been comprehensively defined as "a system of law and sound approaches by which
corporations are directed and controlled focusing on the internal and external corporate structures
with the intention of monitoring the actions of management and directors and thereby mitigating
agency risks which may stem from the misdeeds of corporate officers.
Corporate Governance refers to the way a corporation is governed. It is the technique by which
companies are directed and managed. It means carrying the business as per the stakeholders‘
desires. It is actually conducted by the board of Directors and the concerned committees for the
company‘s stakeholder‘s benefit. It is all about balancing individual and societal goals, as well as,
economic and social goals.
Corporate Governance is the interaction between various participants (shareholders, board of
directors, and company‘s management) in shaping corporation‘s performance and the way it is
proceeding towards. The relationship between the owners and the managers in an organization
must be healthy and there should be no conflict between the two. The owners must see that
individual‘s actual performance is according to the standard performance. These dimensions of
corporate governance should not be overlooked.
Corporate Governance deals with the manner the providers of finance guarantee themselves of
getting a fair return on their investment. Corporate Governance clearly distinguishes between the
owners and the managers. The managers are the deciding authority. In modern corporations, the
functions/ tasks of owners and managers should be clearly defined, rather, harmonizing.
Corporate Governance deals with determining ways to take effective strategic decisions. It gives
ultimate authority and complete responsibility to the Board of Directors. In today‘s market-
oriented economy, the need for corporate governance arises. Also, efficiency as well as
globalization are significant factors urging corporate governance. Corporate Governance is
essential to develop added value to the stakeholders.
Corporate Governance ensures transparency which ensures strong and balanced economic
development. This also ensures that the interests of all shareholders (majority as well as minority
shareholders) are safeguarded. It ensures that all shareholders fully exercise their rights and that
the organization fully recognizes their rights.
Corporate Governance has a broad scope. It includes both social and institutional aspects.
Corporate Governance encourages a trustworthy, moral, as well as ethical environment.
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Principles of corporate governance
Rights and equitable treatment of shareholders: Organizations should respect the rights
of shareholders and help shareholders to exercise those rights. They can help shareholders exercise
their rights by openly and effectively communicating information and by encouraging shareholders
to participate in general meetings.
Interests of other stakeholders: Organizations should recognize that they have legal,
contractual, social, and market driven obligations to non-shareholder stakeholders, including
employees, investors, creditors, suppliers, local communities, customers, and policy makers.
Role and responsibilities of the board: The board needs sufficient relevant skills and
understanding to review and challenge management performance. It also needs adequate size and
appropriate levels of independence and commitment
Integrity and ethical behaviour: Integrity should be a fundamental requirement in
choosing corporate officers and board members. Organizations should develop a code of conduct
for their directors and executives that promotes ethical and responsible decision making.
Disclosure and transparency: Organizations should clarify and make publicly known the
roles and responsibilities of board and management to provide stakeholders with a level of
accountability. They should also implement procedures to independently verify and safeguard the
integrity of the company's financial reporting. Disclosure of material matters concerning the
organization should be timely and balanced to ensure that all investors have access to clear, factual
information.
Benefits of Corporate Governance
1.Good corporate governance ensures corporate success and economic growth.
2.Strong corporate governance maintains investors‘ confidence, as a result of which, company can
raise capital efficiently and effectively.
3.It lowers the capital cost.
4.There is a positive impact on the share price.
5.It provides proper inducement to the owners as well as managers to achieve objectives that are in
interests of the shareholders and the organization.
6.Good corporate governance also minimizes wastages, corruption, risks and mismanagement.
7.It helps in brand formation and development.
8.It ensures organization in managed in a manner that fits the best interests of all.
Our Five Golden Rules of best corporate governance practice are:
1.Ethics: a clearly ethical basis to the business
2.Align Business Goals: appropriate goals, arrived at through the creation of a suitable stakeholder
decision making model
3.Strategic management: an effective strategy process which incorporates stakeholder value
4.Organisation: an organisation suitably structured to effect good corporate governance
5.Reporting: reporting systems structured to provide transparency and accountability
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Best corporate governance practice = best management practice
The regulatory approach to the subject would regard governance as something on its own, to do
with ensuring a balance between the various interested parties in a company‘s affairs, or more
particularly a way of making sure that the chairman or chief executive is under control, producing
transparency in reporting or curbing over-generous remuneration packages. This indeed is what the
Cadbury recommendations and the subsequent reports and code are all about. However, as we
express in the rest of this website, we regard this as much too limited a view of governance, and
hence of best corporate governance practice.
The essence of success in business is:
having a clear and achievable goal
having a feasible strategy to achieve it
creating an organisation appropriate to deliver
Having in place a reporting system to guide progress.
There are very many websites and publications advising on how to do this, and of course, this is
what is described as good management.
Best corporate governance practice is about achieving the stakeholders‘ goal, and delivering
success in an ethical way. Hence it follows that it must entail a holistic application of good
management.
To demonstrate the totality, and the need for a holistic approach, we present below an illustration
showing the pressures on a large organisation.
Clearly, in defining best corporate governance practice, this means that:
there is a common view as to the ethic by which the business is conducted
the views of all interested parties are taken into account when deciding the goal
an appropriate weighting is given to those views to arrive at a conclusion as to how to
achieve the greatest good
a strategy is formulated to attain the chosen goal which takes account of the likely
behaviour of the various interest groups
an implementation programme is drawn up which makes the necessary organisational
arrangements to fulfil the strategy and to protect the interests of the various stakeholders
the implementation programme includes reporting systems which ensure transparency and
regular feedback on matters which affect them to the various stakeholders
QUESTION 2: discuss the concept of corporate social responsibility with the help of example
of corporate entity you know?
ANSWER 2: Corporate initiative to assess and take responsibility for the company's effects on the
environment and impact on social welfare. The term generally applies to company efforts that go
beyond what may be required by regulators or environmental protection groups.
Corporate social responsibility may also be referred to as "corporate citizenship" and can involve
incurring short-term costs that do not provide an immediate financial benefit to the company, but
instead promote positive social and environmental change.
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Corporate Social Responsibility is the continuing commitment by business to behave ethically and
contribute to economic development while improving the quality of life of the workforce and their
families as well as of the local community and society at large. A company‘s sense
of responsibility towards the community and environment (both ecological and social) in which
it operates. Companies express this citizenship (1) through their waste and pollution reduction
processes, (2) by contributing educational and social programs, and (3)
by earning adequate returns on the employed resources.
Corporate Social Responsibility (CSR) is defined as the voluntary activities undertaken by a
company to operate in an economic, social and environmentally sustainable manner. Canadian
companies recognize the value of incorporating CSR practices into their operations abroad.
Operating responsibly also plays an important role in promoting Canadian values internationally
and contributes to the sustainable development of communities.
We define corporate social responsibility strategically. Corporate social responsibility
encompasses not only what companies do with their profits, but also how they make them. It goes
beyond philanthropy and compliance and addresses how companies manage their economic,
social, and environmental impacts, as well as their relationships in all key spheres of influence:
the workplace, the marketplace, the supply chain, the community, and the public policy realm.
The term "corporate social responsibility" is often used interchangeably with corporate
responsibility, corporate citizenship, social enterprise, sustainability, sustainable development,
triple-bottom line, corporate ethics, and in some cases corporate governance. Though these terms
are different, they all point in the same direction: throughout the industrialized world and in many
developing countries there has been a sharp escalation in the social roles corporations are
expected to play. Companies are facing new demands to engage in public-private partnerships
and are under growing pressure to be accountable not only to shareholders, but also to
stakeholders such as employees, consumers, suppliers, local communities, policymakers, and
society-at-large.
Laggard firms and governments can sometimes use the existence of corporate social
responsibility programs to shirk their roles. Government ultimately bears the responsibility for
leveling the playing field and ensuring public welfare. In order for corporate social responsibility
programs to work, government and the private sector must construct a new understanding of the
balance of public and private responsibility and develop new governance and business models for
creating social value.
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Initiatives Milestones
e - Choupal4 million farmers empowered,6,500 e - Choupals installed
Social & Farm Forestry114,428 hectares greened,generating 51.48 million person - days of employment
Watershed Development56,951 hectaresbrought under soil and moisture conservation
Women's Empowerment15,378 women members1183 self - help groups
Livestock Development176 Cattle Development Centres3,520 villages covered annually
Primary Education252,329 children coveredthrough 2,334 Supplementary Learning Centres
Initiatives Milestones
Health and safety : • Patients queing up at an eye camp• Children being treated at corrective surgery camp• Lady availing medical help at the medical centre
Employment : • Youths getting trained in engineering skills• At our computer centre• Training youths in construction skills
Education : • Inauguration of the school at one of our sites• Children attending training at the computer centre• free uniforms, study tours for children, teaching aids to the teachers.
The Human Touch beyond policy imperatives :
• Monetary help being provided to the flood affected• Villagers being employed in fly-ash brick making units• Drinking water facility being provided to villages
CSR activity
QUESTION 3: ETHICS AND LAW FAIL TO ACHIEVE DESIRED AIM?
ANSWER 3: SELF ANSWER
QUESTION 4: THREE RECOMMENDATIONS MADE BY CADBURY COMMITEE
ANSWER 4:PPT COMMITTEE REPORT
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QUESTION 5 AND QUESTION 6: advantages of business ethics
ANSWER 5 AND 6:SAME
Derived from Greek word ‗Ethicos‘ meaning Character or Manners
Science of character of a person expressed as right or wrong conduct or action.
Set of moral principles prescribing code, explains what is good and right, or bad and
wrong.
The study of proper business policies and practices regarding potentially controversial issues, such
as corporate governance, insider trading, bribery, discrimination, corporate social responsibility
and fiduciary responsibilities. Business ethics are often guided by law, while other times provide a
basic framework that businesses may choose to follow in order to gain public acceptance. Business
ethics are implemented in order to ensure that a certain required level of trust exists between
consumers and various forms of market participants with businesses. For example, a portfolio
manager must give the same consideration to the portfolios of family members and small
individual investors. Such practices ensure that the public is treated fairly. The examination of the
variety of problems that can arise from the business environment, and
how employees, management, and the corporation can deal with them ethically. Problems such
as fiduciary responsibility, corporate social responsibility, corporate
governance, shareholder relations, insider trading, bribery and discrimination are examined in
business ethics.
Factors That Affect Business Ethics
Ethical codes that govern businesses often address certain main areas. These areas, as compiled by
the NIEHS branch of the U.S. National Institutes of Health include:
Honesty
Objectivity
Integrity
Carefulness
Openness
Respect for intellectual property
Confidentiality
Responsible publication
Responsible mentoring
Respect for colleagues
Social responsibility
Non-discrimination
Competence
Legality
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Human subjects
protection
Features of Business
Ethics
Code of
conduct : Business
ethics is a code of
conduct. It tells what to
do and what not to do
for the welfare of the
society. All
businessmen must
follow this code of conduct.
Based on moral and social values : Business ethics is based on moral and social values. It
contains moral and social principles (rules) for doing business. This includes self-control,
consumer protection and welfare, service to society, fair treatment to social groups, not to exploit
others, etc.
Gives protection to social groups : Business ethics give protection to different social groups such
as consumers, employees, small businessmen, government, shareholders, creditors, etc.
Provides basic framework : Business ethics provide a basic framework for doing business. It
gives the social cultural, economic, legal and other limits of business. Business must be
conducted within these limits.
Voluntary : Business ethics must be voluntary. The businessmen must accept business ethics on
their own. Business ethics must be like self-discipline. It must not be enforced by law.
Requires education and guidance : Businessmen must be given proper education and guidance
before introducing business ethics. The businessmen must be motivated to use business ethics.
They must be informed about the advantages of using business ethics. Trade Associations and
Chambers of Commerce must also play an active role in this matter.
Relative Term : Business ethics is a relative term. That is, it changes from one business to
another. It also changes from one country to another. What is considered as good in one country
may be taboo in another country.
New concept : Business ethics is a newer concept. It is strictly followed only in developed
countries. It is not followed properly in poor and developing countries.
Ethics can be termed as the science of character of a person expressed as right or wrong conduct
or action.
Objective of Ethics
Studies human behavior and makes evaluative assessment about them as moral or immoral
Establishes moral standards and norms of behavior
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Makes judgment upon human behavior based on these standards and norms
Prescribes moral behavior and makes recommendations about how to or how not to behave
Expresses an opinion or attitude about human conduct in general
Nature of Ethics
Deals only with human beings
A systematic knowledge about moral behavior and conduct of human beings
A Normative science
Deals with human conduct that is voluntary and not forced by any persons or circumstances
Why ethical behavior is important???
Business is a subsystem of society
Empowers all stakeholders concerned
Reduction in cost of friction with social environment
Important for organizations leaders because they influence the ethical climate for the rest.
Why Ethical problems occur?
Personal gain
Individual values widely differ with organizational goals
Managers values and attitudes
Competitive pressures
Cross-Cultural contradictions
Advantages of business ethics:
Ethical people are those who recognize the difference between right and wrong and consistently
strive to set an example of good conduct. In a business setting, being ethical means applying
principles of honesty and fairness to relationships with co workers and customers. Ethical
individuals make an effort to treat everyone with whom they come in contact as they would want
to be treated themselves.
Build Customer Loyalty
Consumers may let a company take advantage of them once, but if they believe they have been
treated unfairly, such as by being overcharged, they will not be repeat customers. Having a loyal
customer base is one of the keys to long-range business success because serving an existing
customer doesn‘t involve marketing cost, as does acquiring a new one. A company‘s reputation for
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ethical behaviour can help it create a more positive image in the marketplace, which can bring in
new customers through word-of-mouth referrals. Conversely, a reputation for unethical dealings
hurts the company‘s chances to obtain new customers, particularly in this age of social networking
when dissatisfied customers can quickly disseminate information about the negative experience
they had.
Retain Good Employees
Talented individuals at all levels of an organization want to be compensated fairly for their work
and dedication. They want career advancement within the organization to be based on the quality
of the work they do and not on favouritism. They want to be part of a company whose
management team tells them the truth about what is going on, such as when layoffs or
reorganizations are being contemplated. Companies who are fair and open in their dealings with
employees have a better chance of retaining the most talented people. Employees who do not
believe the compensation methodology is fair are often not as dedicated to their jobs as they could
be.
Positive Work Environment
Employees have a responsibility to be ethical from the moment they have their first job interview.
They must be honest about their capabilities and experience. Ethical employees are perceived as
team players rather than as individuals just out for themselves. They develop positive relationships
with coworkers. Their supervisors trust them with confidential information and they are often
given more autonomy as a result. Employees who are caught in lies by their supervisors damage
their chances of advancement within the organization and may risk being fired. An extreme case of
poor ethics is employee theft. In some industries, this can cost the business a significant amount of
money, such as restaurants whose employees steal food from the storage locker or freezer.
Avoid Legal Problems
At times, a company‘s management may be tempted to cut corners in pursuit of profit, such as not
fully complying with environmental regulations or labor laws, ignoring worker safety hazards or
using substandard materials in their products. The penalties for being caught can be severe,
including legal fees and fines or sanctions by governmental agencies. The resulting negative
publicity can cause long-range damage to the company‘s reputation that is even more costly than
the legal fees or fines. Companies that maintain the highest ethical standards take the time to train
every member of the organization about the conduct that is expected of them.
Companies should have ethics codes to promote ethical behaviour – not to enhance productivity,
profits or public relations. Still, a sound, well-administered code can benefit a company and its
stakeholders in a variety of ways. It can:
1. Guide employees in situations where the ethical course of action is not immediately obvious.
2. Help the company reinforce – and acquaint new employees with – its culture and values. A
code can help create a climate of integrity and excellence.
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3. Help the company communicate its expectations to the staff to suppliers, vendors and
customers. Also, by soliciting feedback and questions, a company can use the code to
encourage frequent, open and honest communication among employees.
4. Minimize subjective and inconsistent management standards. A code explicitly outlines the
rights and responsibilities of staff members and helps guard against capricious and preferential
treatment of employees.
5. Help a company remain in compliance with complex government regulations. The
landmark Sarbanes-Oxley Act of 2002 requires public companies to have an ethics code for
senior financial officers.
6. Build public trust and enhance business reputations. Also, a code helps demonstrate the
company‘s values to socially responsible investors.
7. Offer protection in pre-empting or defending against lawsuits.
8. Enhance morale, employee pride, loyalty and the recruiting of outstanding employees.
9. Help promote constructive social change by raising awareness of the community‘s needs and
encouraging employees and other stakeholders to help.
10. Promote market efficiency – especially in areas where laws are weak or inefficient – by
rewarding the best and most ethical producers of goods and services.
QUESTION 7: stages of moral development
ANSWER 7: Kohlberg's Theory of Moral Development
Moral development is a major topic of interest in both psychology and education. One of the best
known theories was developed by psychologist Lawrence Kohlberg who modified and expanded
upon Jean Piaget's work to form a theory that explained the development of moral reasoning.
Piaget described a two-stage process of moral development, while Kohlberg's theory of moral
development outlined six stages within three different levels. Kohlberg extended Piaget's theory,
proposing that moral development is a continual process that occurs throughout the lifespan.
"The Heinz Dilemma"
Kohlberg based his theory upon research and interviews with groups of young children. A
series of moral dilemmas were presented to these participants and they were also interviewed
to determine the reasoning behind their judgments of each scenario.
The following is one example of the dilemmas Kohlberg presented"
Heinz Steals the Drug
"In Europe, a woman was near death from a special kind of cancer. There was one drug that the
doctors thought might save her. It was a form of radium that a druggist in the same town had
recently discovered. The drug was expensive to make, but the druggist was charging ten times
what the drug cost him to make. He paid $200 for the radium and charged $2,000 for a small dose
of the drug.
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The sick woman's husband, Heinz, went to everyone he knew to borrow the money, but he could
only get together about $ 1,000 which is half of what it cost. He told the druggist that his wife was
dying and asked him to sell it cheaper or let him pay later. But the druggist said: "No, I discovered
the drug and I'm going to make money from it." So Heinz got desperate and broke into the man's
store to steal the drug-for his wife. Should the husband have done that?" (Kohlberg, 1963).
Kohlberg was not interested so much in the answer to the question of whether Heinz was wrong or
right, but in the reasoning for each participant's decision. The responses were then classified into
various stages of reasoning in his theory of moral development.
Level 1. Pre conventional Morality
Stage 1 - Obedience and Punishment
The earliest stage of moral development is especially common in young children, but adults are
also capable of expressing this type of reasoning. At this stage, children see rules as fixed and
absolute. Obeying the rules is important because it is a means to avoid punishment.
Stage 2 - Individualism and Exchange
At this 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.
Level 2. Conventional Morality
Stage 3 - Interpersonal Relationships
Often referred to as the "good boy-good girl" orientation, this stage 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.
Stage 4 - Maintaining Social Order
At this stage of moral development, people begin to consider society as a whole when making
judgments. The focus is on maintaining law and order by following the rules, doing one‘s duty
and respecting authority.
Level 3. Post conventional Morality
Stage 5 - Social Contract and Individual Rights
At this stage, people 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.
Stage 6 - Universal Principles
Kolhberg‘s final level of moral reasoning is based upon universal ethical principles and abstract
reasoning. At this stage, people follow these internalized principles of justice, even if they
conflict with laws and rules.
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Criticisms of Kohlberg's Theory of Moral Development:
Does moral reasoning necessarily lead to moral behavior? Kohlberg's theory is concerned with
moral thinking, but there is a big difference between knowing what we ought to do versus our
actual actions
Is justice the only aspect of moral reasoning we should consider? Critics have pointed out that
Kohlberg's theory of moral development overemphasizes the concept as justice when making
moral choices. Factors such as compassion, caring and other interpersonal feelings may play an
important part in moral reasoning.
Does Kohlberg's theory overemphasize Western philosophy? Individualistic cultures emphasize
personal rights while collectivist cultures stress the importance of society and community.
Eastern cultures may have different moral outlooks that Kohlberg's theory does not account for.
QUESTION 8: parent adult child ego
state
ANSWER 8:
What are ego states?
They are sets of related behaviours,
thoughts, and feelings that occur in a
person consistently.
What‟s the Adult ego state?
If I am behaving, thinking, and feeling in
response to what is going on around me here and now, using all the resources available to me as a
grown-up person, I am said to be in my Adult ego state.
What‟s the Parent ego state?
At times, I may behave, think, and feel in ways which are a copy of one of my parents, or of others
who were parental figures for me. When I do so, I am said to be in my Parent ego state.
What‟s the Child ego state?
Sometimes I may return to ways of behaving, thinking, and feeling that I used when I was a child.
Then I am said to be in my Child ego state.
The Parent and Child ego states are echoes of the past. The Adult ego state relates to the present –
here-and-now situations.
Parent-Adult-Child Ego State
Parent
(A taught concept of life) Adult
(A thought concept of life)
Child
(A felt concept of life)
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How can I distinguish Adult from Child or Parent ego states?
Ask yourself, ‗Was this behaviour, or thought, or feeling appropriate as a grown-up way of dealing
with what was going on around me at that present moment?‘
If the answer is ‗yes‘, then that response is Adult.
We need the good in all three Ego states
For a healthy and balanced personality, we need all three of our ego states.
We need the Adult for the here-and-now problem-solving we use to tackle life in a competent,
effective way.
To fit comfortably into society, we need the sets of rules we carry in our Parent.
In our Child ego state, we have access to the spontaneity, creativity, and intuitive power we
enjoyed in our childhood.
The Parent and the Child ego states can become a problem if we react from them unconsciously to
here-and-now problems.
Most difficult customer or client interactions will mean the customer is probably in their Parent or
Child ego states. If we are in a Parent or Child ego state as well, then we won‘t be able to do much
business.
The challenge is for you to become conscious of your own Parent or Child reactions to so-called
‗problem people‘. Then you can choose to relate to them from your Adult ego state. In doing so,
you invite them to relate to you from their Adult ego state as well, which is where most business is
conducted.
You may need to make an initial response from the Nurturing Parent ego state. You recognise their
distress in some way. You show empathy. Then you move to the Adult ego state and begin
problem-solving.
Parent
This is our ingrained voice of authority, absorbed conditioning, learning and attitudes from when
we were young. We were conditioned by our real parents, teachers, older people, next door
neighbours, aunts and uncles, Father Christmas and Jack Frost. Our Parent is made up of a huge
number of hidden and overt recorded playbacks. Typically embodied by phrases and attitudes
starting with 'how to', 'under no circumstances', 'always' and 'never forget', 'don't lie, cheat, steal',
etc, etc. Our parent is formed by external events and influences upon us as we grow through early
childhood. We can change it, but this is easier said than done.
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Child
Our internal reaction and feelings to external events form the 'Child'. This is the seeing, hearing,
feeling, and emotional body of data within each of us. When anger or despair dominates reason,
the Child is in control. Like our Parent we can change it, but it is no easier.
Adult
Our 'Adult' is our ability to think and determine action for ourselves, based on received data. The
adult in us begins to form at around ten months old, and is the means by which we keep our Parent
and Child under control. If we are to change our Parent or Child we must do so through our adult.
In other words:
Parent is our 'Taught' concept of life
Adult is our 'Thought' concept of life
Child is our 'Felt' concept of life
When we communicate we are doing so from one of our own alter ego states, our Parent, Adult or
Child. Our feelings at the time determine which one we use, and at any time something can trigger
a shift from one state to another. When we respond, we are also doing this from one of the three
states, and it is in the analysis of these stimuli and responses that the essence of Transactional
Analysis lies. See the poem by Philip Larkin about how parental conditioning affects children and
their behaviour into adulthood. And for an uplifting antidote see the lovely Thich Nhat Hanh
quote. These are all excellent illustrations of the effect and implications of parental conditioning in
the context of Transactional Analysis.
At the core of Berne's theory is the rule that effective transactions (ie successful communications)
must be complementary. They must go back from the receiving ego state to the sending ego state.
For example, if the stimulus is Parent to Child, the response must be Child to Parent, or the
transaction is 'crossed', and there will be a problem between sender and receiver.
If a crossed transaction occurs, there is an ineffective communication. Worse still either or both
parties will be upset. In order for the relationship to continue smoothly the agent or the respondent
must rescue the situation with a complementary transaction.
In serious break-downs, there is no chance of immediately resuming a discussion about the original
subject matter. Attention is focused on the relationship. The discussion can only continue
constructively when and if the relationship is mended.
Here are some simple clues as to the ego state sending the signal. You will be able to see these
clearly in others, and in yourself:
Parent
Physical - angry or impatient body-language and expressions, finger-pointing, patronising gestures,
Verbal - always, never, for once and for all, judgmental words, critical words, patronising
language, posturing language.
N.B. beware of cultural differences in body-language or emphases that appear 'Parental'.
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Child
Physical - emotionally sad expressions, despair, temper tantrums, whining voice, rolling eyes,
shrugging shoulders, teasing, delight, laughter, speaking behind hand, raising hand to speak,
squirming and giggling.
Verbal - baby talk, I wish, I dunno, I want, I'm gonna, I don't care, oh no, not again, things never
go right for me, worst day of my life, bigger, biggest, best, many superlatives, words to impress.
Adult
Physical - attentive, interested, straight-forward, tilted head, non-threatening and non-threatened.
Verbal - why, what, how, who, where and when, how much, in what way, comparative
expressions, reasoned statements, true, false, probably, possibly, I think, I realise, I see, I believe,
in my opinion.
And remember, when you are trying to identify ego states: words are only part of the story.
To analyse a transaction you need to see and feel what is being said as well.
Only 7% of meaning is in the words spoken.
38% of meaning is paralinguistic (the way that the words are said).
55% is in facial expression. (source: Albert Mehrabian - more info)
There is no general rule as to the effectiveness of any ego state in any given situation (some people
get results by being dictatorial (Parent to Child), or by having temper tantrums, (Child to Parent),
but for a balanced approach to life, Adult to Adult is generally recommended.
Transactional Analysis is effectively a language within a language; a language of true meaning,
feeling and motive. It can help you in every situation, firstly through being able to understand
more clearly what is going on, and secondly, by virtue of this knowledge, we give ourselves
choices of what ego states to adopt, which signals to send, and where to send them. This enables us
to make the most of all our communications and therefore create, develop and maintain better
relationships.
modern transactional analysis theory
Transactional Analysis is a theory which operates as each of the following:
a theory of personality
a model of communication
a study of repetitive patterns of behaviour
Transactional Analysis developed significantly beyond these Berne's early theories, by Berne
himself until his death in 1970, and since then by his followers and many current writers and
experts. Transactional Analysis has been explored and enhanced in many different ways by these
people, including: Ian Stewart and Vann Joines (their book 'TA Today' is widely regarded as a
definitive modern interpretation); John Dusay, Aaron and Jacqui Schiff, Robert and Mary
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Goulding, Pat Crossman, Taibi Kahler, Abe Wagner, Ken Mellor and Eric Sigmund, Richard
Erskine and Marityn Zalcman, Muriel James, Pam Levin, Anita Mountain and Julie Hay
(specialists in organizational applications), Susannah Temple, Claude Steiner, Franklin Ernst, S
Woollams and M Brown, Fanita English, P Clarkson, M M Holloway, Stephen Karpman and
others.
Significantly, the original three Parent Adult Child components were sub-divided to form a new
seven element model, principally during the 1980's by Wagner, Joines and Mountain. This
established Controlling and Nurturing aspects of the Parent mode, each with positive and negative
aspects, and the Adapted and Free aspects of the Child mode, again each with positive an negative
aspects, which essentially gives us the model to which most TA practitioners refer today:
Parent
Parent is now commonly represented as a circle with four quadrants:
Nurturing - Nurturing (positive) and Spoiling (negative).
Controlling - Structuring (positive) and Critical (negative).
adult
Adult remains as a single entity, representing an 'accounting' function or mode, which can draw on
the resources of both Parent and Child.
child
Child is now commonly represented as circle with four quadrants:
Adapted - Co-operative (positive) and Compliant/Resistant (negative).
Free - Spontaneous (positive) and Immature (negative)
Where previously Transactional Analysis suggested that effective communications were
complementary (response echoing the path of the stimulus), and better still complementary adult to
adult, the modern interpretation suggests that effective communications and relationships are based
on complementary transactions to and from positive quadrants, and also, still, adult to adult.
Stimuli and responses can come from any (or some) of these seven ego states, to any or some of
the respondent's seven ego states.
QUESTION 9: LIFE POSITIONS: THOMAS A HARRIS
ANSWER 9: The 4 – Life Positions – Thomas A. Harris
In the process of growing up, people make basic assumptions about their own self-worth, as well
as about the worth of significant people in their environment, that may or may not be generalized
to other people later in life. Thomas Harris calls the combination of an assumption about oneself
and another person a life position. Life positions tend to be more permanent that ego states. they
are learned throughout life by way of reinforcements for, and responses to, expressed needs. These
assumptions are described in terms of "okayness." Thus, individuals assume that they are either
OK or not OK, or that as people they do not possess value or worth. Further, other individuals are
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assumed to be either OK or not OK.
Four possible relationships result from these life positions: )1) neither person has value ("I'm not
OK, you're not OK"); (2) you have value, but I do not have value ("I'm not OK, you're OK"); (3) I
have value, but you do not ("I'm OK, you're not OK"); and (4) we both have value ("I'm OK,
you're OK").
Life Position 1 – “I AM NOT OK – YOU ARE OK”
People with an "I'm not OK, you're OK" life position often come from their Compliant Child ego
state. They feel that others are more capable and generally have fewer problems than they
themselves do. They tend to think that they always get the sort end of the stick. This is the most
common life position for people who have a high deference for authority. They see their world as
"I don't have any control or much power, but those people (folks with authority or position power)
seem to have all the power and rewards and punishments."
Persons feel inferior to others in some way while the rest of the world is alright
He is focused only on getting others to like and appreciate him
Life Position 2 - “I AM NOT OK – YOU ARE NOT OK”
"I'm not OK, you're not OK" people tend to feel bad about themselves and see the whole world as
miserable. People with this life position usually give up. They don't trust other people and have no
confidence in themselves.
Person concludes that there is something wrong with both – himself and world
He views everything negatively and with suspicion
Life Position 3 - “I AM OK – YOU ARE NOT OK”
People who feel "I'm OK, you're not OK" often come from their Critical Parent ego state. They
tend to be down on other people as sources of criticism. They feel that if they're not exactly perfect
or right, people will be excessively critical of them. Second, they want to break away or reel from
some authority figure and become more independent, but they're either not sure how to go about
this or they have had unpleasant experiences in attempting it in the past.
This is a life position in which the person has had a few "zaps" along the road and feel, "I've got a
lot of self-confidence and autonomy but I sure don't want to be open, honest, and sharing with
others in my environment or I'll get punished." With this life position, listening often tends to stop
even when someone is still trying to communicate with this person. Harris found in his work that
people with an "I'm OK, you're not OK" life position, while acting self-confident and under control
really were hiding "not OK" feelings about themselves. The way they play out their "not OK"
feelings often is expressed in the need for power and control.
A person with this life position is always convinced that he is ok no matter whatever he does
and total fault in every situation lies in others
This is a potentially criminal position
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Life Position 4 - “I AM OK – YOU ARE ALSO OK”
"I'm OK, you're Ok" is suggested as the healthy life position. People with these feelings express
confidence in themselves as well as trust and confidence in other people in their environment.
Their behavior tends to come from their Nurturing Parent, Adult, and Happy Child ego states,
while seldom being evoked from their Destructive Child of Critical Parent.
Persons accepts himself and the world as alright
Person with this life position is always in harmony and peace with himself and world
QUESTION 10: ethical values in different cultures
ANSWER 10:
It is unethical to cause harm too society in pursuit o one‘s happiness
Every person has a responsibility towards the welfare of the society
A man is indebted to society
Principle of fairness
Principle of Integrity and Honesty
Principle of human Dignity
Culture describes people's 'way of life,' meaning the way they do things. It is the outlook, attitudes,
values, goals, and practices shared by a society. Different groups of people may have different
cultures.
Culture is more than just material goods, or the things the culture uses and produces. Culture is
also the beliefs and values of the people in that culture. It includes the way people think about and
understand the world and their own lives.
When people work closely together on a project, individuals tend to take on the core values of the
group. Individuals within a group often compromise their own values in favour of those held by
the group. Because of this, groups should use the three rules of management to assess whether
their organizational decisions are ethical. Since group dynamics are an increasingly vital measure
of organizational success, and standards of behaviour are viewed within the context of profit and
integrity, it is imperative that the group conceptualize the impact of their decisions.
To be truly comprehensive, advisor development programs must address ethics and the role culture
and values play in ethical decision-making. Our institutions have become more diverse. This is
true in regard to easily recognizable differences, such as race and age, but also in terms of hidden
differences, such as culture and disability. Care must be given to the re-examination of values and
perspective, and how these influence so many ethical dilemmas.
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We must understand that values are acquired in childhood and manifest themselves on our
campuses as permanent perceptions that shape and influence the nature of our behaviours. Values
involve emotion, knowledge, thought, and ultimately choice of response. Values vary between
individuals and, because values govern behaviour, they colour the way individuals view and
respond to their world. It is important to understand the impact values have on choice. While
values can, and do, change over time, they represent a significant component of personality. It is
through individual values that culture is defined, and provides broad social guidelines for desirable
standards. Generally described as normal societal standards, or norms, values influence how
people make choices.
When working with people, it is imperative that we appreciate that each person's intrinsic values
are different. Because values are so ingrained, we are not often aware that our responses in life are,
in large part, due to the values we hold andare unique to our own culture and perspective.
Furthermore, we seldom reflect on the fact that the people with whom we associate hold their own
unique set of values that may be different from our own. Advisors need to be aware that, like their
students, they bring their own set of values to the advising session. Thus advisors must be aware
of, and open to, these differences in values as they work within their institution's regulations and
standards. Sometimes these are, or seem to be, conflicting.
Students are often developing their decision-making processes and may question the values held
by their families and society. In our multi-cultural environment, ethical standards need to be
addressed in advising situations and in our classrooms so that conduct can be understood and
ethical challenges avoided. For example, plagiarism is an issue frequently addressed on North
American campuses. We assume that our students have a common understanding of the issues
involved, and have learned the requirements for appropriately citing sources. However students
from cultures where vast memorization is expected or knowledge is considered common
ownership often do not recognize that papers presented in our institutions must include proper
citation of thoughts borrowed from others.
To be ethically successful, it is paramount that we understand and respect how values impact our
social environment. How we perceive ourselves and operate within our environment is of such
importance that institutions establish rules of ethical behaviour that relate to practice. Institutions
that examine power and responsibility, and audit their ethical decisions regularly, develop
employees that function with honesty and integrity and serve their institution and community.
Without the emphasis on ethics, organizations can miss the opportunity to reinforce responsibility
for their internal and external environment. This failure can lead to an outcry of negative public
opinion, or even worse, legal issues. The measure of ethical success within institutions of higher
learning has always been important, but no more so than in today's environment of regulatory and
public scrutiny. Advisors, as a part of their institution, are accountable to it in a legal and moral
sense. It is important that advisors operate within the constraints of ethical standards. We do a
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disservice to ourselves, our students, our institutions, and our profession if we do not address these
issues regularly.
Culture's Influence on Ethics in Business
Today's global companies allow people to work with others from different parts of the world, as
employees, managers, and colleagues. This is only one way that the variety of cultures might be
increased. Employees may bring customs and traditions from home countries and home businesses
to the global office.
Cultural norms are the shared, sanctioned, and integrated systems of beliefs and practices that are
passed down through generations and characterize a cultural group. Norms cultivate reliable
guidelines for daily living and contribute to the health and well-being of a culture. They act as
prescriptions for correct and moral behaviour, lend meaning and coherence to life, and provide a
means to achieve a sense of integrity, safety, and belonging. These normative beliefs, together with
related cultural values and rituals, present a sense of order and control upon aspects of life that
might otherwise appear chaotic or unpredictable.
This is where culture intersects ethics. When one has to make an ethical decision, they do so
through the lens of their culture. What happens when one culture says a practice is ethical and
another says it isn't?
Cultural Relativism
Cultural Relativism focuses on this issue. It states there is no singular truth on which to base
ethical or moral behaviour, as our interpretations of truths are influenced by our own culture.
Along with moral relativism, it holds the position that there is no absolute or universal set of
values or principles that can be used to judge human behaviour. It differs from moral relativism in
that it situates moral behaviour as being relative to (conforming with) a learned set of cultural
norms, rather than being relative to the actions of the individual. In this sense it considers moral
behaviour to be historically and contextually situated.
Cultural relativism is a normative ethical position rather than a prescriptive one. That is, rather
than prescribing what ought to be done in a specific situation, it describes the way people behave
in that situation.
The basis for cultural relativism is the observation that different cultures have different sets of
norms and values that govern behaviour in their cultural. This is in contrast to universalism, which
holds the position that moral values are the same for everyone. Cultural relativists consider this to
be an ethnocentric view as the universal set of values proposed by universalists are based on their
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set of values. Cultural relativism is also considered to be more tolerant than universalism because,
if there is no basis for making moral judgments between cultures, then cultures have to be tolerant
of each other.
Cultural relativism has been criticized for its focus on behaviour. For example, Universalists argue
that while behaviour may differ from culture to culture, these are surface differences supported by
moral principles that are common across cultures. Companies that try to create a common code of
conduct across all of their locations are in a sense operating under the view that a universal set of
values do indeed exist.
QUESTION 11 VALUE AND ETHICS
ANSWER 11: Values and ethics are central to any organization; those operating in the national
security arena are no exception. Both are extremely broad terms, and we need to focus in on the
aspects most relevant for
strategic leaders and decision
makers.
Edward Stranger defines
the values ―as the
constellation of likes,
dislikes, view points, inner
inclinations, rational and
irrational judgments‘,
prejudices and association
patterns that determines a
persons view of the world.
They are deeply embedded in people‘s sub conscious and manifest themselves in their behavior
A Value is a sustained and assimilated mode of acting, thinking or merely being
Rom Lebow, former director of marketing at Microsoft and William L Simon offer an important
set of values for a successful organization
Treat others with uncompromising truth
Trust your associates
Mentor unselfishly
Be receptive to new ideas
Give credit where due
Take risks for the good of the organization
Be honest in all dealings
Values and Ethics
Values
Shape
Beliefs
Attitudes
Perception
Behaviour
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Put the interests of others before your own social conscience
Responsibility
Accountability
THE CHARACTER OF VALUES AND ETHICS
Values can be defined as those things that are important to or valued by someone. That someone
can be an individual or, collectively, an organization. One place where values are important is in
relation to vision. One of the imperatives for organizational vision is that it must be based on and
consistent with the organization's core values. In one example of a vision statement we'll look at
later, the organization's core values - in this case, integrity, professionalism, caring, teamwork,
and stewardship- were deemed important enough to be included with the statement of the
organization's vision. Dr. John Johns, in an article entitled "The Ethical Dimensions of National
Security," mentions honesty and loyalty as values that are the ingredients of integrity. When values
are shared by all members of an organization, they are extraordinarily important tools for making
judgments, assessing probable outcomes of contemplated actions, and choosing among
alternatives. Perhaps more important, they put all members "on the same sheet of music" with
regard to what all members as a body consider important. VALUES PROVIDE THE BASIS FOR
JUDGMENTS ABOUT WHAT IS IMPORTANT FOR THE ORGANIZATION TO SUCCEED
IN ITS CORE BUSINESS. Values are the embodiment of what an organization stands for, and
should be the basis for the behaviour of its members.
TO BEHAVE ETHICALLY IS TO BEHAVE IN A MANNER THAT IS CONSISTENT WITH
WHAT IS GENERALLY CONSIDERED TO BE RIGHT OR MORAL. ETHICAL BEHAVIOR
IS THE BEDROCK OF MUTUAL TRUST.
So how do values relate to ethics, and what do we mean by ethics? One of the keys is in the phrase
we quoted above from the DA pamphlet: "Values are what we, as a profession, judge to be right."
Individually or organizationally, values determine what is right and what is wrong, and doing
what is right or wrong is what we mean by ethics. To behave ethically is to behave in a
manner consistent with what is right or moral. What does "generally considered to be right"
mean? That is a critical question, and part of the difficulty in deciding whether or not behaviour is
ethical is in determining what is right or wrong.
Perhaps the first place to look in determining what is right or wrong is society. Virtually every
society makes some determination of morally correct behaviour. In Islamic countries, a
determination of what is right or moral is tied to religious strictures. In societies more secular, the
influence of religious beliefs may be less obvious, but still a key factor. In the United States much
of what is believed to be right or wrong is based in Judeo-Christian heritage. The Ten
Commandments, for many people, define what is morally right or wrong. Societies not only
regulate the behaviour of their members, but also define their societal core values. "Life, liberty,
and the pursuit of happiness" represent core American values.
Experience often has led societies to develop beliefs about what is of value for the common good.
(Note that societies differ from one another in the specifics, but not in the general principles.) One
example is the notion of reciprocity. ("One good deed deserves another.") Another is the notion of
good intent. ("A gentleman's word is his bond.") Yet, a third is the notion of appreciation of merit
in others regardless of personal feelings. ("Give the Devil his due.")
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These all contain implied "should" about how people interact and behave toward one another in
groups, organizations, and societies. These "should" define collective effort because they are
fundamental to trust and to team relationships that entail risk. The greater the potential risk, the
more important ethical practices become.
Organizations, to some extent, define what is right or wrong for the members of the organization.
Ethical codes, such as West Point's "A cadet will not lie, cheat, or steal, or tolerate those who do,"
make clear what the organization considers to be right or wrong.
Values and ethics in simple words mean principle or code of conduct that govern
transactions; in this case business transaction. These ethics are meant to analyse problems that
come up in day to day course of business operations. Apart from this it also applies to individuals
who work in organisations, their conduct and to the organisations as a whole.
We live in an era of cut throat competition and competition breeds enmity. This enmity reflects in
business operations, code of conduct. Business houses with deeper pockets crush small operators
and markets are monopolised. In such a scenario certain standards are required to govern how
organizations go about their business operations, these standards are called ethics.
Business ethics is a wider term that includes many other sub ethics that are relevant to the
respective field. For example there is marketing ethics for marketing, ethics in HR for Human
resource department and the like. Business ethics in itself is a part of applied ethics; the latter takes
care of ethical questions in the technical, social, legal and business ethics.
Nowadays business ethics determines the fundamental purpose of existence of a company in
many organisations. There is an ensuing battle between various groups, for example between
those who consider profit or share holder wealth maximisation as the main aim of the company
and those who consider value creation as main purpose of the organisation.
The former argue that if an organisations main objective is to increase the shareholders wealth,
then considering the rights or interests of any other group is unethical. The latter, similarly argue
that profit maximisation cannot be at the expense of the environment and other groups in the
society that contribute to the well being of the business.
Nevertheless business ethics continues to a debatable topic. Many argue that lots of organisations
use it to seek competitive advantage and creating a fair image in the eyes of consumers and other
stakeholders. There are advantages also like transparency and accountability.
QUESTION 12: attitudes and ethical behaviour
ANSWER 12: Concept of Attitude
Are pre-conceived evaluative feelings of people about objects, people or events
Express either favourable or unfavourable feeling about something
Express one‘s way of thinking
They are found from childhood learning experiences and one‘s value system
Wrong Attitudes and Unethical behavior
To achieve success in life, one has to be manipulative and calculative
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Envy, Jealousy and competition is normal and necessarily exists if an organization wants to
succeed
It is difficult to get ahead in life without cutting corners here and there
There is nothing wrong in taking credit for something I have not done in the organization if it
furthers my cause
Right Attitudes and Ethical behavior
One should take action when one is sure that it is ethically correct
I have no right to use my colleagues to further my career
Promotions are earned through hardwork, perseverance and fair play
Most people are basically good and can be trusted
To me means are important as ends since it is impossible to achieve ethical goals with
unethical means
Work Ethics, Attitude & Productivity
Employers expect personnel to behave in a manner consistent with the company‘s mission and
goals. By establishing standards for business conduct, company executives set expectations about
acceptable behaviour. A positive attitude toward maintaining high standards for work ethics
usually creates a productive environment in which people take pride in the work, and customers,
suppliers and partners want to conduct business.
Respect and Communication
By demanding that all employees value each other's opinions, treat customers with dignity and
recognize cultural diversity, companies ensure that employees show respect in the workplace. If
employees have negative attitude toward other employees because they come from a different
culture, productivity tends to decrease. By promoting activities that help teams work together
better, such as workshops with team-building exercises designed to improve communication, solve
problems and make decisions efficiently, companies help their employees improve productivity.
Cooperation and Teamwork
Effective managers foster cooperation and collaboration by involving subordinates in decision-
making meetings. By developing skills in conflict management, these managers help minimize
disruptions in productivity. Leading by example, effective managers maintain a high level of
integrity and communicate honestly and openly to their subordinates. Team members who trust
their superiors and feel valued tend to have higher job satisfaction and a positive attitude toward
their job. This typically leads to higher productivity, reduced operational costs and improved
customer satisfaction.
Appearance and Character
Employees who demonstrate a positive attitude toward their job typically respect company rules
and follow the company‘s dress code, obey safety procedures, adhere to ethical standards and
exercise self-discipline at all times. Company policies regarding work ethics typically require
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employees to consider how their behavior would look if reported in the news. If an employee
would be uncomfortable being judged poorly by the public for his actions, he should not take an
action that would condemn him. Immoral and unethical behavior causes distractions that reduce
productivity and disrupts the work environment for everyone.
Attendance and Organization
By arriving on time and leaving at the scheduled time, effective employees usually produce the
work they were hired to complete. Repeated unexplained absences or missed appointments reduce
productivity, which tends to affect the rest of the organization. By displaying a positive attitude
toward work, employees get work done in timely manner and ensure customer satisfaction.
Organizations that deal with misconduct in a consistent manner and prevent retaliation against
employees who report bad behavior ensure high ethical standards that lead to employee trust,
respect and productivity.
QUESTION 13: Sources of ethical norms and factors influencing business ethics
ANSWER 13: self explanatory
Sources of ethical norms
Sources of Ethical Norms
Fellow Workers
Family
Friends
The Law
Regions of
Country
Profession
Employer
Society at LargeReligious
Beliefs
The Individual
Conscience
Culture
Factors influencing business ethics:
Business
Ethics
Corporate
Culture
Leadership
Environment
Individual
Characteristic
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QUESTION 14: agency theory, stakeholder, stockholder and stateward theory
ANSWER 14: THE AGENCY THEORY
A supposition that explains the relationship between principals and agents in business. Agency
theory is concerned with resolving problems that can exist in agency relationships; that is, between
principals (such as shareholders) and agents of the principals (for example, company executives).
The two problems that agency theory addresses are: 1.) the problems that arise when the desires or
goals of the principal and agent are in conflict, and the principal is unable to verify (because it
difficult and/or expensive to do so) what the agent is actually doing; and 2.) the problems that arise
when the principal and agent have different attitudes
The Agency Theory
An agency, in general terms, is the relationship between two parties, where one is a principal and
the other is an agent who represents the principal in transactions with a third party. Agency
relationships occur when the principals hire the agent to perform a service on the principals' behalf.
Principals commonly delegate decision-making authority to the agents. Agency problems can arise
because of inefficiencies and incomplete information. In finance, two important agency
relationships are those between stockholders and managers, and stockholders and creditors.
A theory explaining the relationship between principals, such as a shareholders, and agents, such
as a company's executives. In this relationship the principal delegates or hires an agent
to perform work. The theory attempts to deal with two specific problems: first, that the goals of the
principal and agent are not in conflict (agency problem), and second, that the principal and
agent reconcile different tolerances for risk.
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Agency theory is directed at the ubiquitous agency relationship, in which one party (the principal)
delegates work to another (the agent), who performs that work. Agency theory is concerned with
resolving two problems that can occur in agency relationships. The first is the agency problem that
arises when (a) the desires or goals of the principal and agent conflict and (b) it is difficult or
expensive for the principle to verify what the agent is actually doing. The problem here is that the
principal cannot verify that the agent has behaved appropriately. The second is the problem of risk
sharing that arises when the principal and agent have different attitudes towards risk. The problem
here is that the principle and the agent may prefer different actions because of the different risk
preferences.
Agency Theory Overview
Key idea Principal-agent relationships should reflect efficient
organization of information and risk-bearing costs
Unit of analysis Contract between principal and agent
Human assumptions Self interest
Bounded rationality
Risk aversion
Organizational assumptions Partial goal conflict among participants
Efficiency as the effectiveness criterion
Information asymmetry between principal and agent
Information Assumption Information as a purchasable commodity
Contracting problem Agency (moral hazard and adverse selection)
Risk sharing
Problem domain Relationships in which the principal and agent have
partly differing goals and risk preferences (e.g.
compensation, regulation, leadership, impression
management, whistle blowing, vertical integration,
transfer pricing)
The Agency Problem:
• The principal–agent problem or agency dilemma treats the difficulties that arise under
conditions of incomplete and asymmetric information when a principal hires an agent, such as
the problem of potential moral hazard and conflict of interest, inasmuch as the principal is--
presumably--hiring the agent to pursue its, the principal's, interests.
• Various mechanisms may be used to try to align the interests of the agent in solidarity with
those of the principal, such as piece rates/commissions, profit sharing, efficiency wages,
performance measurement (including financial statements), the agent posting a bond, or fear of
firing.
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Agency Theory Problem
• The agency problem occurs when:
The desires or goals of the principal and agent conflict and it is difficult or expensive for the
principal to verify that the agent has behaved inappropriately
• Solution:
– principals engage in incentive-based performance contracts
– monitoring mechanisms such as the board of directors
– enforcement mechanisms such as the managerial labor market to mitigate the agency problem
Question 15: Teleological Theory
ANSWER 15, 16 and 17:all in one
Normative Ethics:
• ‗Normative‘ means something that ‗guides‘ or ‗controls‘
• Aims to discover what should be the moral standards that are supported by the best reasons
• Normative ethics is the study of ethical action. It is the branch of philosophical ethics that
investigates the set of questions that arise when considering how one ought to act, morally
speaking. Normative ethics is distinct from meta-ethics because it examines standards for the
rightness and wrongness of actions, while meta-ethics studies the meaning of moral language and
the metaphysics of moral facts. Normative ethics is also distinct from descriptive ethics, as the
latter is an empirical investigation of people‘s moral beliefs. To put it another way, descriptive
ethics would be concerned with determining what proportion of people believe that killing is
Principal Agent Definition A party who delegates others to
perform some service on his or her behalf. The principal often contracts with an agent to safeguard and enlarge a pool of assets which the principal owns and with which the agent is entrusted.
A party engaged as a steward to perform some service on the behalf of others, often involving safeguarding assets belonging to them. The principals delegate decision making authority to the agent
Asymmetric Information
Principal knows agent has access to superior information
Agent has access to superior information
Moral hazard Principal incurs monitoring costs to attempt to make sure agent acts in appropriate ways
Agent may be able to act in ways unfavorable to or not approved by the principal – shirking, fraud, etc.
Monitoring costs a. Budget constraints, auditing b. Profit sharing, stock options and similar incentive plans to align agent’s self-interest with principal’s interests
Agents also benefit from monitoring activities like an audit since such devices permit them to demonstrate effective performance and charge more for their services
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always wrong, while normative ethics is concerned with whether it is correct to hold such a belief.
Hence, normative ethics is sometimes called prescriptive, rather than descriptive. However, on
certain versions of the meta-ethical view called moral realism, moral facts are both descriptive and
prescriptive at the same time.
• Broadly speaking, normative ethics can be divided into the sub-disciplines of moral theory
and applied ethics. I
Normative Ethics
inManagement
Deontological
TheoryTeleological
Theory
EthicalEgoism
UtilitarianPrinciple Kantianism
UniversalismDistributive
JusticeAltruism
a. Teleological theory:
• Derived from Greek word ‗telos‘ means end
• Determine ethics of an act by looking to the consequences of the decision (The Ends)
• Utilitarianism and Distributive Justice are based on teleological approach
Teleological moral systems are characterized primarily by a focus on the consequences which any
action might have (for that reason, they are often referred to as consequent list moral systems, and
both terms are used here). Thus, in order to make correct moral choices, we have to have some
understanding of what will result from our choices. When we make choices which result in the
correct consequences, then we are acting morally; when we make choices which result in the
incorrect consequences, then we are acting immorally. heories of this type are
called teleological because they look at what happens (or will happen) following an action which
has a moral dimension – what the outcome (or end – which is where ‗telos‘ comes from) is or will
be. Typically, one‘s actions may then be good if the outcome is desirable. Of course, predicting
what will happen if we take a particular course of action is not all that the theories are about. They
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are ethical in that they prescribe what sorts of consequences are good – ones we ought to do; and
what sorts are bad – ones we ought not do.
We have already encountered one teleological system: individual ethical egoism. You will
remember that the right thing to do here was to do what turned out best for you as an individual.
This turned out not to be especially attractive so now let us consider consequences that look more
promising.
There are some different candidates for gauging whether an action is right or wrong in terms of the
consequences that result (or would result) from it. We might say that an action is right if it leads to
greater concordance with God‘s wishes for the world. One can read this interpretation from
Kierkegaard‘s analysis of the story of Abraham and Isaac in the Christian Bible. Here, God tells
Abraham, the father, to kill (sacrifice) his son Isaac. Despite the commandment ‗Thou shalt not
kill‘ and his duty as a parent to care for his son, Abraham prepares to obey – because he knows
that it is right and good to obey God notwithstanding any other consideration (like disobeying one
of God‘s laws or killing an innocent person whom he loves).As we have seen, even if God exists, it
is still necessary for us to discover the best ethical system available to us – and this is true a
fortiori if we are non-believers
Strengths & Weaknesses of Teleological theory
• They provide a relatively precise and objective method for moral decision making
• They are in accord with much of our ordinary moral reasoning; An action would provide
some benefit or inflict harm. This is morally relevant reason for or against performing it.
• Some moral reasoning are non-teleological in character
1, Ethical egoism: An action is good if it produces result to maximize person‘s self-interest at the
expense of others. It denies that a person should help others when the person will get nothing out
of it. Enlightened egoism is enlightened self interest – considers the long range perspective of
other or humanity on the whole. Ethical egoism is the prescriptive doctrine that all persons ought
to act from their own self-interest.
A. Personal ethical egoism is the belief that only I should act from the motive of self-interest,
nothing is stated about what motives others should act from.
1. Personal ethical egoism is not a theory because it is not generalized to others.
2. I cannot recommend personal ethical egoism to others because such a recommendation would
be against my own self-interest.
B. Individual ethical egoism is the prescriptive doctrine that all persons should serve my self-
interest (i.e.,egotism)
1. Individual ethical egoism is a belief that can't be consistent unless it applies to just one person.
In other words, this belief is not universalizable.
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2. Practically speaking, the doctrine is similar to solipsism—there's no way to justify the belief
since it applies to just one person.
C. Universal ethical egoism is the universal doctrine that all persons should pursue their own
interests exclusively.
1. One problem is without knowledge of the world, how can we truly know what's in our best
interest? (c.f. the Socratic Paradox).
2. Another problem is trying to figure out what "their own interests" means. Does this phrase
mean short-term or long-term benefit, pleasure, happiness, preference, or something else? What
gives you pleasure might not be a benefit or in your interest.
2, Utilitarian Principle
Utilitarianism is a theory in normative ethics holding that the proper course of action is the one that
maximizes utility, specifically defined as maximizing happiness and reducing suffering. According
to utilitarianism the moral worth of an action is determined only by its resulting outcome, although
there is debate over how much consideration should be given to actual consequences, foreseen
consequences and intended consequences.
Utilitarianism is a simple theory and its results are easy to apply. It also allows for degrees of right
and wrong, and for every situation the choice between actions is clear-cut: always choose that
which has the greatest utility.
There are several objections, however--
1. It is not always clear what the outcome of an action will be, nor is it always possible to
determine who will be affected by it. Judging an action by the outcome is therefore hard to do
beforehand.
2. It is very difficult to quantify pleasures for cost/benefit analysis (but since this only has to be
done on a comparative scale, this may not be as serious an objection as it at first seems).
3. The calculation required to determine the right is both complicated and time consuming. Many
occasions will not permit the time and many individuals may not even be capable of the
calculations.
4. Since the greatest good for the greatest number is described in aggregate terms, that good may
be achieved under conditions that are harmful to some, so long as that harm is balanced by a
greater good.
5. The theory fails to acknowledge any individual rights that could not be violated for the sake of
the greatest good. Indeed, even the murder of an innocent person would seem to be condoned if it
served the greater number.
In response to objections such as these, some proponents of utilitarianism have proposed a
modification of the theory. Let us call the original form:
Act Utilitarianism-- each individual action is to be evaluated directly in terms of the utility
principle.
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The proposed improvement is:
Rule Utilitarianism-- behaviour is evaluated by rules that, if universally followed would lead to the
greatest good for the greatest number
The Basic Idea of Utilitarianism
The Greatest Happiness Principle:
―Actions are right in proportion as they tend to promote happiness, wrong as they tend to produce
the reverse of happiness‖ –John Stuart Mill
Happiness = pleasure, and the absence of pain
Unhappiness = pain, and the absence of pleasure
Happiness is the only thing that has intrinsic value
―Pleasure, and freedom from pain, are the only things desirable as ends...all Desirable things are
desirable either for the pleasure inherent in themselves, or as means to the promotion of pleasure
and the prevention of pain.‖
Utilitarianism is a form of consequentialism
Consequentialism: Whether an action is morally right or wrong depends entirely on its
consequences. An action is right if it brings about the best outcome of the choices
available. Otherwise it is wrong.
The Good: Things (goals, states of affairs) that are worth pursuing and promoting.
The Right: the moral rightness (or wrongness) of actions and policies.
Consequentialists say that actions are Right when they maximize the Good.
Rhetorical argument: How could it be wrong to do what produces the most good? Wouldn‘t it be
irrational to insist that we ought to choose the lesser good in any situation?
Utilitarianism defines the Good as pleasure without pain.
So, according to Utilitarianism, our one moral duty is to Maximize pleasure and minimize pain.
3. distributive justice
Distributive justice concerns the nature of a socially just allocation of goods in a society. A
society in which incidental inequalities in outcome do not arise would be considered a society
guided by the principles of distributive justice. The concept includes the available quantities of
goods, the process by which goods are to be distributed, and the resulting allocation of the goods to
the members of the society. To determine whether distributive justice has taken place, individuals
often turn to the distributive norms of their group.
Considered as one type of justice, distributive justice is a central concept in the
Catholic tradition and is closely linked to the concepts of human dignity, the common good,
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and human rights. Considered as an ethical principle, distributive justice refers to what society or a
larger group owes its individual members in proportion to: 1) the individual‘s needs, contribution
and responsibility; 2) the resources available to the society or organization (market considerations
would be included under this, as well as other financial considerations); and 3) the society‘s or
organization‘s responsibility to the common good. In the context of health care, distributive justice
requires that everyone receive equitable access to the basic health care necessary for living a fully
human life insofar as there is a basic human right to health care.
The principle of distributive justice implies that society has a duty to the individual in serious need
and that all individuals have duties to others in serious need. In decisions regarding the allocation
of resources, such as rationing decisions, the duty of society is not diminished because of the
person‘s status or nature of illness. Everyone is entitled to equal access to basic care necessary for
living in a human way. Triage must presume an essential equality of persons. In other words,
allocation decisions should not be based upon judgments of the quality of persons. Benefits and
burdens should also be distributed in a just manner.
Types of Distributive Norms
1) Equity: Member‘s outcomes should be based upon their inputs. Therefore, an individual who
has invested a large amount of input (eg:, time, money, energy) should receive more from the
group than someone who has contributed very little. Members of large groups prefer to base
allocations of rewards and costs on equity.
2) Equality: Regardless of their inputs, all group members should be given an equal share of the
rewards/costs. Equality supports that someone who contributes 20% of the group‘s resources
should receive as much as someone who contributes 60%. Women prefer equality over equity,
even when they are the outperforming party.
3) Power: Those with more authority, status, or control over the group should receive more than
those in lower level positions.
4) Need: Those in greatest needs should be provided with resources needed to meet those needs.
These individuals should be given more resources than those who already possess them, regardless
of their input.
5) Responsibility: Group members who have the most should share their resources with those who
have less.
Distributive justice in organizations
In the context of organizational justice, distributive justice is conceptualized as fairness associated
with outcomes decisions and distribution of resources. The outcomes or resources distributed may
be tangible (e.g., pay) as well as intangible (e.g., praise). Perceptions of distributive justice can be
fostered when outcomes are perceived to be equally applied (Adams, 1965).
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4, altruism
Ethical altruism is the philosophical doctrine of living for others rather than for oneself. In its
most extreme form, altruism calls for self-destruction for the sake of others. Altruism (also called
the ethic of altruism, moralistic altruism, and ethical altruism) is an ethical doctrine that holds
that individuals have a moral obligation to help, serve, or benefit others, if necessary, at the
sacrifice of self-interest. August Comte's version of altruism calls for living for the sake of others.
One who holds to either of these ethics is known as an "altruist."
b. Deontological Theory :
Derived from greek word ‗deon‘ means duty
This approach believes we have a duty not to do bad
Bribery is wrong by its very nature regardless of the consequences
It is non-consequential theory
Determine the ethics of an act by looking at the process of the decision (The means)
Kantianism is based on deontological approach
Deontological moral systems are characterized primarily by a focus upon adherence to
independent moral rules or duties. Thus, in order to make the correct moral choices, we simply
have to understand what our moral duties are and what correct rules exist which regulate those
duties. When we follow our duty, we are behaving morally. When we fail to follow our duty, we
are behaving immorally.
• The deontological theory states that people should adhere to their obligations and duties when
analyzing an ethical dilemma. This means that a person will follow his or her obligations to
another individual or society because upholding one's duty is what is considered ethically correct
(1, 2). For instance, a deontologist will always keep his promises to a friend and will follow the
law. A person who follows this theory will produce very consistent decisions since they will be
based on the individual's set duties.
• Deontology provides a basis for special duties and obligations to specific people, such as those
within one's family. For example, an older brother may have an obligation to protect his little sister
when they cross a busy road together. This theory also praises those deontologists who exceed
their duties and obligations, which is called "supererogation" (1). For example, if a person hijacked
a train full of students and stated that one person would have to die in order for the rest to live, the
person who volunteers to die is exceeding his or her duty to the other students and performs an act
of supererogation.
Strengths of Deontological Theory
This theory makes more sense in cases where consequences seem to be irrelevant
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It is the way they account for the role of motives in evaluating actions
Weaknesses of Deontological theory
Failure to provide a plausible account of how our moral obligations and resolve problems of
moral conflict
Rules in Ross‘s theory is plausible; No reason is provided in accepting these rule
Ross‘s rules are open to ethnocentrism
There is no order of priority to guide in cases where they conflict
1, Kantianism
• For Bentham it is Happiness, for Kant it is goodwill
• An action is morally right only if the person performing it is motivated by a good will and
vice-versa.
• Goodwill means action done for reasons of principle from a sense of duty, nothing else.
Kantianism is the philosophy of Immanuel Kant, a German philosopher born
in Königsberg, Prussia (now Kaliningrad, Russia). The term Kantianism or Kantian is sometimes
also used to describe contemporary positions in philosophy of mind, epistemology, andethics.
Kantian ethics are deontological, revolving entirely around duty rather than emotions or end goals.
All actions are performed in accordance with some underlying maxim or principle, which are
deeply different from each other; it is according to this that the moral worth of any action is
judged. Kant's ethics are founded on his view of rationality as the ultimate good and his belief that
all people are fundamentally rational beings. This led to the most important part of Kant's ethics,
the formulation of the Categorical Imperative, which is the criterion for whether a maxim is good
or bad.
Kant's ethics focus then only on the maxim that underlies actions and judges these to be good or
bad solely on how they conform to reason. Kant showed that many of our common sense views of
what is good or bad conform to his system but denied that any action performed for reasons other
than rational actions can be good (saving someone who is drowning simply out of a great pity for
them is not a morally good act). Kant also denied that the consequences of an act in any way
contribute to the moral worth of that act, his reasoning being (highly simplified for brevity) that the
physical world is outside our full control and thus we cannot be held accountable for the events
that occur in it.
The Formulation Rule of Kantianism:
1. Act only according to that maxim by which you can, at the same time, will that it would
become a universal law.
2. Act so that you always treat others as an end, and never as a means to an end only.
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2, Universalism
Ethical universalism of is needed today more than ever, especially in multinational corporations.
There has to be some kind of code or universal way of conducting one‘s self that is accepted no
mater where in the world it is applied. In this report I define ethical universalism, introduce Kant
who proposed universal ethics, highlight the ten most important things, and allow the Dali Lama to
explain the need for ethical universalism. In showing this, I hope to set a universal guideline for
business actions around the world. Ethical Universalism is a set of universal ethical standards to
which all societies, companies, and individuals can be held accountable. These universal ethical
principles or norms put limits on which actions and behaviors are right and which behaviors are
wrong. They set forth the traits and behaviors that a virtuous person is supposed to adhere to and
believe in.
Immanuel Kant, an 18th century German Philosopher, is well known for introducing ethical
universalism. Kant proposed that ethics should be universal and actions can only be ethical if
adopted by everyone. In other words, all people should only act in a way that can become a
universal law. Kant argues only through experiences, can one truly know what is universally
ethical. Through experiences, multinational companies can develop a universal ethical code that
applies everywhere in the world.
The Top 10 Things You Need to Know About Ethical Universalism
1. The most important universally recognized ethical characteristic is honesty. It is as
important today as it was hundreds of years ago. A man‘s word is his bond and honesty defines a
man. Honesty defines one‘s moral character and is the exact opposite to lying, cheating, and theft.
It is the stepping-stone for ethical universalism.
2. Acting or conducting yourself in a way that is honorable or does not bring dishonor to
oneself, family, community, job, or country. One must act based on the set of rules, code of honor,
that the community has defined as honorable behavior. Companies must make sure all employees
follow the honor code at all times by having an ethical code for its employees.
3. Company employees must have integrity at all times. Integrity is the honesty and
truthfulness of one‘s actions. It is always easier to do what is right when everyone is watching, but
the true test is how one conducts oneself when no one is looking. Hypocrisy is the reciprocal of
integrity and should be avoided or frowned upon at all times.
4. A company must be seen as being trustworthy. They must be believed or trusted when
conducting business activities. If a company or its employees are seen to be un-trustworthy, then
people will take their business elsewhere.
5. A company must care for its employees and community in which it resides. They must
have compassion for its customers and help its community. This must be shown time and time
again, on a consistent basis because people are short sited.
6. Another ethical universalism is to respect the rights of others. People should always be
treated with dignity and respect. Treat your neighbor as yourself. One has to give respect to get it.
7. Companies must always take responsibility for their actions and show compassion. In our
time of globalization, companies are acting more and more unethically. They are constantly
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passing the buck and not taking responsibility for their actions, which leads to negativity toward
one‘s company.
8. Corporate social responsibilities or citizenship encourage a positive impact through its
activities on the environment, consumers, employees, communities, stakeholders, or the public in
general. Being a positive driving force in the community should be the goal of every company in
the world. A positive brand name breeds customer loyalty and opens new markets.
9. Companies acting in a way that does not harm others. With the problems in the gulf, BP
showed how it was employing practices that harm employees and local environment. They
showed the negativity attached to implementing unethical practices and cutting corners. They are
the latest example of companies acting unethical and harming others.
10. Companies must take all precautions to not hurt or degrade the environments in which they
work. Again B.P. is the perfect example of a company degrading the environment by not
practicing safety that resulted in oil spewing into the gulf. The negative out cry of the community,
which turned into billions of dollars in lawsuits and a CEO‘s resignation. Even with all the focus
on ethics, we still have big companies choosing profits over safety of employees and environment.
kantianism vs utilitarianism
11. Immanuel Kant‘s moral philosophy and utilitarianism differ on many different levels. One
of the most basic differences are their attitudes toward what makes a right act right. Utilitarianism
would argue that the end justifies the means. It would say that so long as the greatest number of
people are receiving happiness, then the act is good, regardless of in what way the happiness was
obtained. However, Kant‘s ethical beliefs imply just the opposite. Kant says that the end never
justifies the means. We do what we are obligated to do, and our obligations would have us do what
is morally good. To give an example, a utilitarian could justify telling a lie, as long as it produced
more happiness when compared to the choice of telling the truth. On the other hand, Kant would
say that no matter the amount of good that lying would bring, lying is always an immoral act. Even
if telling the truth brings harm, we tell the truth because we have a duty to act justly. Another key
point that differentiates the two is Kant‘s use of categorical imperatives. Categorical imperatives
would best be described as universalized principles of conduct. The idea of these universal laws
offers a direct contradiction to a utilitarian way of thinking, in that there can be no universal laws
in utilitarianism, for what gives happiness in one situation (i.e. lying to a friend for their own
good), does not necessarily ensure happiness as always being a result of the action (i.e. lying to
your partner about being faithful). Therefore, utilitarianism could not possibly accept any universal
laws on what ways of acting are morally correct, for the only thing that matters to a utilitarian is
producing the largest amount of happiness. Another of the differences between the two ideologies
is Kant believed that people should never be treated as simply means, only as ends. Every rational
being has dignity, so we should never exploit another for any reason. However, utilitarianism
seems to scoff at the idea that human beings should be treated with dignity, that would be
irrelevant, the only thing that would seem to matter is achieving the ends, no matter the means.
When it comes to abortion, Utilitarianism and kantianism have different views. Utilitarianism is
defined as the idea that the moral worth of an action is determined solely by its utility in providing
happiness. kantianism has to do with the categorical imperatives, and weather they satisfy them.
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when it comes to utilitarian ethics, we would have to consider the impact of the abortion on the
others involved. For instance, if the birth of the baby would send the mother, father, and baby into
crushing poverty and lead them into unhappiness, then the Utilitarian thing to do would generally
be to have the abortion. This would make abortion moral
when it comes to Kantian ethics however, abortion could be moral or immoral, depending on the
circumstances. For example, having an abortion simply because the fetus is not the sex that the
couple prefers would make the abortion be immoral, as it would be violating the second
formulation of the categorical imperative,to act in such a way that you treat humanity, whether in
your own person or in the person of another, always as an end and never simply as a means.
Kantianism vs Utilitarianism
Details Kantianism Utilitarianism
Explicit and direct appeal to
consequences in
determining right or wrong
Absent yes
Motive for action Sole importance Incidental
Permit sacrifice of
individuals or minorities to
collective self interest
No Yes
Ethics of: Duty Welfare
Theory: Non Consequentialism
(Deontological)
Consequentialism
Formulations on: Sense of Duty, Categorical
imperative maxim
Utility, Maximise
happiness,
Hedonism
Common good must have
priority over every thing
else
Yes No
Deontology vs Utilitarianism
12. Although there are a variety of values and criteria for debaters to select from when
formulating their cases, two of the most prevalent in LD debate are utilitarianism and deontology.
Often used as both criteria and as values in LD, these are two time-honored philosophical positions
that apply to a wide variety of topics. All LD debaters need to be familiar with these competing
philosophies in order to be consistently successful in competition.
Utilitarianism: Utilitarianism is an ethical system that is most often attributed to philosophers such
as John Stuart Mill and Jeremy Bentham. Utilitarianism believes that the most ethical thing to do is
to maximize the happiness within a society. Utilitarians believe that actions have calculable
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outcomes and that ethical choices have outcomes which lead to the most happiness to the most
members of a society. Utilitarianism is thus often considered a 'consequentialist' philosophical
outlook because it both believes that outcomes can be predicted and because it judges actions
based on their outcomes. Thus, utilitarianism is often associated with the phrase 'the ends justify
the means.'
Deontology: Deontology is an alternative ethical system that is usually attributed to the
philosophical tradition of Immanuel Kant. Whereas utilitarianism focuses on the outcomes, or
ends, of actions, deontology demands that the actions, or means, themselves must be ethical.
Deontologists argue that there are transcendent ethical norms and truths that are universally
applicable to all people. Deontology holds that some actions are immoral regardless of their
outcomes; these actions are wrong in and of themselves. Kant gives a 'categorical imperative' to act
morally at all times. The categorical imperative, in its most widely used formulation, demands that
humans act as though their actions would be universalized into a general rule of nature. Kant
believes that all people come to moral conclusions about right and wrong based on rational
thought. Deontology is roughly associated with the maxim 'the means must justify the ends.'
The conflict illustrated: A classic example illustrates the conflict between these two ethical
systems. Suppose an evil villain holds you and ten other people at gunpoint and tells you that she
will kill all ten of your fellow prisoners unless you kill one of them yourself. You have no doubts
about the veracity of the villain's threats; you believe fully that she will do as she says she will.
Therefore, you have two options. The first option is to kill one of the ten people to save the lives of
the other nine. The other option is to do nothing and watch the villain kill all ten people.
Utilitarians would most likely conclude that you should kill the one person because it has the most
beneficial outcome. Deontologists would most likely conclude that you should not kill the one
person because killing another person is wrong as a universal moral truth.
Utilitarianism's answers to deontology: Utilitarianism's first answer to deontology is to say that
there are no 'universal moral truths.' Such truths are difficult, if not impossible, to ascertain. On the
other hand, the benefits and disadvantages of actions are much more easily calculated. Thus, rather
than relying on amorphous, vague moral truths to guide action we should look to more concrete
ways of determining the ethics of a particular act. Also, utilitarianism would argue that deontology
leads to morally untenable outcomes, such as in the example above. Utilitarians would argue that
the outcome of ten deaths is much less desirable than one. Thus, we should always look to the ends
rather than the means to determine whether an act is ethical or not.
Deontology's answers to utilitarianism: Deontology's first answer to utilitarianism is to say that the
ends are illusory. That is, it is impossible to predict the outcomes of one's actions with absolute
certainty. The only thing one can be sure of is whether his or her actions are ethical or not based on
the categorical imperative. Additionally, deontologists believe that we can only be responsible for
our own actions and not the actions of others. Thus, in the example above you are only responsible
for your decision whether to kill the prisoner or not; the villain is the one making the unethical
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choice to kill the rest of the prisoners. One is only responsible for following the categorical
imperative. Finally, deontologists argue that utilitarianism devolves into dangerous moral
relativism where human beings are allowed to justify heinous acts on the grounds that their
outcomes are beneficial.
Utilitarianism and Deontology are two terms associated with morality. In fact, they are two
different schools of thought regarding morality. Utilitarianism believes in the concept of the ‗end
justifies the means‘. As a matter of fact, the term was first used by the philosophers John Stuart
Mill and Jeremy Bentham.
It is interesting to note that according to utilitarianism, utility is all about the result of an action.
Hence, the followers of utilitarianism school of morality give more value to the outcome of an
action. Thus, consequentiality becomes very important in this school of thought.
Health care follows the utilitarianism principles to a great extent. There is a belief that the
philosopher thinks and implements ideas that are more selfish in the utilitarianism school of
thought.
On the other hand, deontology is exactly the opposite of utilitarianism when it comes to the
explanations of its concepts. Deontology does not believe in the concept of ‗the end justifies the
means‘. On the other hand, it says ‗the end does not justify the means‘. This is the main difference
between utilitarianism and deontology.
Another important difference between the two schools of thought regarding ethical behavior is
that, utilitarianism is more consequence-oriented in character. On the other hand, deontology is not
consequence-oriented in nature. On the other hand, it is totally dependent on scriptures.
Thus, it can be understood that deontology follows scriptures that show sufficient light on the rules
of conduct or moral rules and intuition. The meaning of the word ‗deontology‘ is ‗the study of
duty‘. This word is derived from the Greek words ‗deon‘ and ‗logos‘. It is important to know that
deontology insists the ethical importance of both the action and the consequence.
One of the finest principles included in the school of thought of deontology is that, every action
should be characterized by morality. It is the morality of an action that can determine the morality
of its outcome. Deontology says that if the action is not moral in character or nature then the
outcome too cannot be moral or ethical. This is one of the important principles laid down by the
ethical school of thought called deontology.
Deontology takes the universally accepted codes of conduct into account. On the other hand,
utilitarianism does not take universally accepted codes of conduct into account. These are the
important differences between the two schools of thought regarding morality, namely,
utilitarianism and deontology
QUESTION 18: VIRTUE ETHICS
ANSWER 18:
Virtue ethics emphasizes the role of one's character and the virtues that one's character embodies
for determining or evaluating ethical behaviour. Virtue ethics is one of the three major approaches
to normative ethics.
Virtue ethics is currently one of three major approaches in normative ethics. It may, initially, be
identified as the one that emphasizes the virtues, or moral character, in contrast to the approach
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which emphasizes duties or rules (deontology) or that which emphasizes the consequences of
actions (consequentialism). Suppose it is obvious that someone in need should be helped. A
utilitarian will point to the fact that the consequences of doing so will maximize well-being, a
deontologist to the fact that, in doing so the agent will be acting in accordance with a moral rule
such as ―Do unto others as you would be done by‖ and a virtue ethicist to the fact that helping the
person would be charitable or benevolent. Virtue ethics is a broad term for theories that emphasize
the role of character and virtue in moral philosophy rather than either doing one‘s duty or acting in
order to bring about good consequences. A virtue ethicist is likely to give you this kind of moral
advice: ―Act as a virtuous person would act in your situation.‖
Most virtue ethics theories take their inspiration from Aristotle who declared that a virtuous person
is someone who has ideal character traits. These traits derive from natural internal tendencies, but
need to be nurtured; however, once established, they will become stable. For example, a virtuous
person is someone who is kind across many situations over a lifetime because that is her character
and not because she wants to maximize utility or gain favours or simply do her duty.
Unlike deontological and consequentiality theories, theories of virtue ethics do not aim primarily
to identify universal principles that can be applied in any moral situation. And virtue ethics
theories deal with wider questions—―How should I live?‖ and ―What is the good life?‖ and ―What
are proper family and social values?‖
• It asks What kind of person should we be?
• It does three things
• It defines the concept of virtue
• It must offer some list of virtues
• It offers some justification of that list and explain how we define what are virtues and vices
• Emphasizes on role of individual traits
• Virtue is defined as a character trait that manifests itself in habitual action
• For Greeks virtue means Excellence
• Virtue Ethics= Excellence of Human Character
Strengths
• Help to resolve Ethical Dilemmas
• It takes into account the importance of relationships.
QUESTION 19: PROSONER‟S DILEMMA
ANSWER 19:
A paradox in decision analysis in which two individuals acting in their own best interest pursue a
course of action that does not result in the ideal outcome. The typical prisoner's dilemma is set up
in such a way that both parties choose to protect themselves at the expense of the other participant.
As a result of following a purely logical thought process to help oneself, both participants find
themselves in a worse state than if they had cooperated with each other in the decision-making
process.
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Options for the Prisoners
• If both A and B confess. A and B are put in jail for five years each. The net loss in this scenario
is 10. This is the least desirable alternative from the collective standpoint.
• If one confesses and the other does not. The confessor is released immediately while the non-
confessor gets seven years in prison. This maximizes the confessor's self interest but severaly
punishes the patriotic, non-confessor. Net loss is 7.
If both do not confess. After six months of half-hearted interrogation (most of this time is for
processing the prisoners' release), both are set free for lack of evidence. While not maximizing
self interest (this lies in confessing while the other remains silent) this does maximizes overall
welfare by producing a net loss of only 1.
• The Prisoner's Dilemma is designed to model the reality of corporate governance where the
directors/owners of a corporation delegate responsibility for the corporation's operations to
managers who are charged with pursuing, not their own interests, but those of their directors. The
problem of corporate governance is how this cooperative arrangement is institutionalized. Can
managers be left alone and trusted to pursue the best interests of the corporation?
• The Prisoner's Dilemma models the central problems of corporate governance by asking
whether cooperation naturally emerges between managers and directors or whether it needs to be
manufactured through a system of punishments and rewards.
• The prisoners‘ dilemma is the best-known game of strategy in social science. It helps us
understand what governs the balance between cooperation and competitionin business, in politics,
and in social settings.
• In the traditional version of the game, the police have arrested two suspects and are
interrogating them in separate rooms. Each can either confess, thereby implicating the other, or
keep silent. No matter what the other suspect does, each can improve his own position by
confessing. If the other confesses, then one had better do the same to avoid the especially harsh
sentence that awaits a recalcitrant holdout. If the other keeps silent, then one can obtain the
favorable treatment accorded a state‘s witness by confessing. Thus, confession is the dominant
A Confess A Not Confess
B Confess Both go to jail for 5 years
(Net loss is 10)
A goes to jail for 7 years. B
is released. (Net loss is 7)
B Not Confess B goes to jail for 7 years. A
is released (Net loss is 7)
Both held for six months,
then released. (Net los is
1.0)
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strategy (see game theory) for each. But when both confess, the outcome is worse for both than
when both keep silent. The concept of the prisoners‘ dilemma was developed by RAND
Corporation scientists Merrill Flood and Melvin Dresher and was formalized by Albert W. Tucker,
a Princeton mathematician.
• The prisoners‘ dilemma has applications to economics and business. Consider two firms, say
Coca-Cola and Pepsi, selling similar products. Each must decide on a pricing strategy. They best
exploit their joint market power when both charge a high price; each makes a profit of ten million
dollars per month. If one sets a competitive low price, it wins a lot of customers away from the
rival. Suppose its profit rises to twelve million dollars, and that of the rival falls to seven million. If
both set low prices, the profit of each is nine million dollars. Here, the low-price strategy is akin to
the prisoner‘s confession, and the high-price akin to keeping silent. Call the former cheating, and
the latter cooperation. Then cheating is each firm‘s dominant strategy, but the result when both
―cheat‖ is worse for each than that of both cooperating.
QUESTION 20 PPT ME SE..KUMAR MANGALAM REPORT
OTHERS:
Role of a CEO
• Power and influence through personal action
• Handling the organizational politics
• Role as a negotiator
• Role as a communicator
• Role of being a role model
Role of Board:
The board should focus on activities connected to its monitoring role.
The key tasks are selecting, evaluating and rewarding the CEO and Senior
Executives, approving corporate strategy and ensuring compliance with law and ethical
standards.
The areas to be monitored by the board can be divided into 5 main segments –
1. Strategic Planning
2. Capital Allocation
3. Long Range Goals
4. Performance Appraisal
5. Manpower Planning
Rights of Investors / Shareholders
• Investors who purchase CORPORATE stock enjoy a number of rights pertaining to their
ownership. Unlike partnership law, where the owners of businesses are also the primary managers
of the businesses, owners of a corporation generally do not run the company. Shareholders in a
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corporation are shielded from personal liability for the debts and obligations of the corporation.
However, shareholders can lose their investments should the corporation fail.
• Voting rights on issues that affect the corporation as a whole
• Rights related to the assets of the corporation
• Rights related to the transfer of stock
• Rights to receive dividends as declared by the board of directors of the corporation
• Rights to inspect the records and books of the corporation
• Rights to bring suit against the corporation for wrongful acts by the directors and officers
of the corporation
• Rights to share in the proceeds recovered when the corporation liquidates its assets
Various Committees on Corporate Governance
With the CG reports of Adrian Cadbury in the United Kingdom, Mervyn King in South
Africa and Kumar mangalam Birla in India the subject was reduced to controlling
shareholder operations and ensures ethical practices in the financial sector.
From there, it has moved into other areas of the organization but unfortunately restricts
itself to the management and control of funds. The ambit of significance of CG lies far
beyond this.
• Cadbury Committee Report (1992)
• The Cadbury Report, titled Financial Aspects of Corporate Governance, is a report of a
committee chaired by Sir. George Adrian Cadbury that sets out recommendations on the
arrangement of company boards and accounting systems to mitigate corporate governance risks
and failures.
• The 'Cadbury Committee' was set up in May 1991 with a view to overcome the huge problems of
scams and failures occurring in the corporate sector worldwide in the late 1980s and the early
1990s.
• It was formed by the Financial Reporting Council, the London Stock of Exchange and the
accountancy profession, with the main aim of addressing the financial aspects of Corporate
Governance.
• Other objectives include :
i. uplift the low level of confidence both in financial reporting and in the ability of auditors to
provide the safeguards which the users of company's reports sought and expected;
ii. review the structure, rights and roles of board of directors, shareholders and auditors by
making them more effective and accountable;
iii. address various aspects of accountancy profession and make appropriate recommendations,
wherever necessary;
iv. raise the standard of corporate governance; etc Keeping this in view, the Committee published
its final report on 1st December 1992.
The report was mainly divided into three parts:-
I. Reviewing the structure and responsibilities of Boards of Directors and recommending a Code
of Best Practice
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II. Considering the role of Auditors and addressing a number of recommendations to the
Accountancy Profession
III. Dealing with the Rights and Responsibilities of Shareholders
Reviewing the structure and responsibilities of
Boards of Directors and recommending a Code of Best Practice
• The boards of all listed companies should comply with the Code of Best Practice. All
listed companies should make a statement about their compliance with the Code in their
report and accounts as well as give reasons for any areas of non-compliance.
• The Code of Best Practice is segregated into four sections and their respective
recommendations are :-
1. Board of Directors - The board should meet regularly, retain full and effective control over the
company and monitor the executive management. There should be a clearly accepted division of
responsibilities at the head of a company, which will ensure a balance of power and authority,
such that no one individual has unfettered powers of decision. All directors should have access
to the advice and services of the company secretary, who is responsible to the Board for
ensuring that board procedures are followed and that applicable rules and regulations are
complied with.
2. Non-Executive Directors - The non-executive directors should bring an independent judgment
to bear on issues of strategy, performance, resources, including key appointments, and standards
of conduct. The majority of non-executive directors should be independent of management and
free from any business or other relationship which could materially interfere with the exercise
of their independent judgment, apart from their fees and shareholding.
3. Executive Directors –
There should be full and clear disclosure of directors‘ total emoluments and those of the
chairman and highest-paid directors, including pension contributions and stock options, in the
company's annual report, including separate figures for salary and performance-related pay.
4. Financial Reporting and Controls - It is the duty of the board to present a balanced and
understandable assessment of their company‘s position, in reporting of financial statements, for
providing true and fair picture of financial reporting. The directors should report that the
business is a going concern, with supporting assumptions or qualifications as necessary. The
board should ensure that an objective and professional relationship is maintained with the
auditors.
Considering the role of Auditors and addressing a number of recommendations to the
Accountancy Profession
• The Cadbury Committee recommended that a professional and objective relationship
between the board of directors and auditors should be maintained, so as to provide to all a
true and fair view of company's financial statements. Auditors' role is to design audit in
such a manner so that it provide a reasonable assurance that the financial statements are
free of material misstatements. Further, there is a need to develop more effective
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accounting standards, which provide important reference points against which auditors
exercise their professional judgement.
• Secondly, every listed company should form an audit committee which gives the auditors
direct access to the non-executive members of the board. The Committee further
recommended for a regular rotation of audit partners to prevent unhealthy relationship
between auditors and the management. It also recommended for disclosure of payments to
the auditors for non-audit services to the company.
• The Accountancy Profession, in conjunction with representatives of preparers of accounts,
should take the lead in:-
(i) Developing a set of criteria for assessing effectiveness;
(ii) Developing guidance for companies on the form in which directors should report; and
(iii) Developing guidance for auditors on relevant audit procedures and the form in which
auditors should report.
However, it should continue to improve its standards and procedures.
Dealing with the Rights and Responsibilities of Shareholders
• The Committee's report places particular emphasis on the need for fair and accurate reporting of
a company's progress to its shareholders, which is the responsibility of the board.
• It is encouraged that the institutional investors/shareholders to make greater use of their voting
rights and take positive interest in the board functioning. Both shareholders and boards of
directors should consider how the effectiveness of general meetings could be increased as well
as how to strengthen the accountability of boards of directors to shareholders.
• Kumar Mangalam Birla Committee Report
on
Corporate Governance
• It is almost a truism that the adequacy and the quality of corporate governance shape the
growth and the future of any capital market and economy.
• The concept of corporate governance has been attracting public attention for quite some
time in India. The topic is no longer confined to the halls of academia and is increasingly
finding acceptance for its relevance and underlying importance in the industry and capital
markets.
• The Committee‘s recommendations are not based on any one model but are designed for
the Indian environment.
• Corporate governance extends beyond corporate law. Its fundamental objective is not mere
fulfillment of the requirements of law but in ensuring commitment of the board in
managing the company in a transparent manner for maximizing long term shareholder
value.
• In early 1999, Securities and Exchange Board of India (SEBI) had set up a committee
under Shri Kumar Mangalam Birla, member SEBI Board, to promote and raise the
standards of good corporate governance.
• The report submitted by the committee is the first formal and comprehensive attempt to
evolve a „Code of Corporate Governance', in the context of prevailing conditions of
governance in Indian companies, as well as the state of capital markets.
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The Committee's terms of the reference were to:
1) suggest suitable amendments to the listing agreement executed by the stock exchanges with the
companies and any other measures to improve the standards of corporate governance in the listed
companies, in areas such as continuous disclosure of material information, both financial and non-
financial, manner and frequency of such disclosures, responsibilities of independent and outside
directors;
2) draft a code of corporate best practices; and
3) suggest safeguards to be instituted within the companies to deal with insider information
and insider trading.
• The primary objective of the committee was to view corporate governance from the
perspective of the investors and shareholders and to prepare a ‗Code' to suit the Indian
corporate environment.
• The committee had identified the Shareholders, the Board of Directors and the
Management as the three key constituents of corporate governance and attempted to
identify in respect of each of these constituents, their roles and responsibilities as also their
rights in the context of good corporate governance.
• Corporate governance has several claimants –shareholders and other stakeholders - which
include suppliers, customers, creditors, and the bankers, the employees of the company, the
government and the society at large. The Report had been prepared by the committee,
keeping in view primarily the interests of a particular class of stakeholders, namely, the
shareholders, who together with the investors form the principal constituency of SEBI
while not ignoring the needs of other stakeholders
Mandatory and non-mandatory recommendations
• The committee divided the recommendations into two categories, namely, mandatory and
non- mandatory. The recommendations which are absolutely essential for corporate
governance can be defined with precision and which can be enforced through the
amendment of the listing agreement could be classified as mandatory. Others, which are
either desirable or which may require change of laws, may, for the time being, be classified
as non-mandatory.
• Applies To Listed Companies With Paid Up Capital Of Rs.3 Crore And Above
• Composition Of Board Of Directors – Optimum Combination Of Executive & Non-
Executive Directors
• Audit Committee – With 3 Independent Directors with One Having Financial and
Accounting Knowledge.
• Remuneration Committee
• Board Procedures – At least 4 Meetings of the Board in a Year with Maximum Gap of 4
Months between 2 Meetings. To Review Operational Plans, Capital Budgets, Quarterly
Results, Minutes Of Committee's Meeting. Director Shall Not Be A Member Of More
Than 10 Committee And Shall Not Act As Chairman Of More Than 5 Committees Across
All Companies
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• Management Discussion And Analysis Report Covering Industry Structure, Opportunities,
Threats, Risks, Outlook, Internal Control System
• Information Sharing With Shareholders
Non-Mandatory Recommendations:
• Role Of Chairman
• Remuneration Committee Of Board
• Shareholders' Right For Receiving Half Yearly Financial Performance Postal Ballot
Covering Critical Matters Like Alteration In Memorandum Etc
• Sale Of Whole Or Substantial Part Of The Undertaking
• Corporate Restructuring
• Further Issue Of Capital
• Venturing Into New Businesses
• As per the committee, the recommendations should be made applicable to the listed
companies, their directors, management, employees and professionals associated with such
companies, in accordance with the time table proposed in the schedule given later in this
section. Compliance with the code should be both in letter and spirit and should always be
in a manner that gives precedence to substance over form.
• The ultimate responsibility for putting the recommendations into practice lies directly with
the board of directors and the management of the company.
• The recommendations will apply to all the listed private and public sector companies, in
accordance with the schedule of implementation. As for listed entities, which are not
companies, but body corporate (e.g. private and public sector banks, financial institutions,
insurance companies etc.) incorporated under other statutes, the recommendations will
apply to the extent that they do not violate their respective statutes, and guidelines or
directives issued by the relevant regulatory authorities.
• The Committee recognizes that compliance with the recommendations would involve
restructuring the existing boards of companies. It also recognizes that some companies,
especially the smaller ones, may have difficulty in immediately complying with these
conditions.
• The recommendations were implemented through Clause 49 of the Listing Agreements, in
a phased manner by SEBI.