JUSTICE K.S.

HEGDE INSTITUTE OF MANAGEMENT

SEMINAR REPORT ON: BUSINESS ETHICS

BY : SEEMA PEREIRA I MBA B SECTION TO : PROF. SUPRABHA K

CONTENTS:
INTRODUCTION IMPORTANCE AND NEED OF BUSINESS ETHICS CODE OF CONDUCT AND ETHICS FOR MANAGERS BENEFITS OF MANAGING ETHICS IN THE ORGANISATION ROOTS OF UNETHICAL BEHAVIOUR CASE STUDY
NESTLE COMPANY WAL-MART

CONCLUSION

BUSINESS ETHICS
INTRODUCTION
The word Ethics is derived from the Greek word ethikos meaning custom or character. Ethics is a conception of right and wrong behaviour, defining for us when our actions are moral and when they are immoral. Business ethics is the application of general ethical ideas to business behaviour. Ethical behaviour is expected by the public; it facilitates and promotes good to society, improves profitability, fosters business relations and employee productivity, reduces criminal penalties from public authorities and regulators, protects business against unscrupulous employees and competitors and allows the people in business to act consistently with their personal ethical beliefs. Ethical problems occur in business for many reasons, the selfishness of a few, competitive pressures on profits, the clash of personal values and business goal and cross cultural contradictions in global business operations. Business Ethics is the art and discipline of applying ethical principles to examine and solve complex moral dilemmas. Business ethics proves that business has been and can be ethical and still make profits. Until the last decade, business ethics was thought of as being a contradiction in terms. But today things have changed; today more and more interest is being shown to the application of ethical practices in business dealings and ethical implications of business. Business Ethics is that set of principles or reasons which should govern the conduct of the business whether at the individual or collective level A business or company is considered called ethical only if it tries to reach a trade off between its economic objectives and its social obligations, such as obligations to the society where it exists and operates to its people for whom it pursues, economic goals, to the environment, from where it takes its resources and the like. Business ethics is based on the principle of integrity and fairness and concentrates on the benefits to the stakeholders, both internal and external. Stakeholders include those individual and groups without which the organisation does not have an existence. It includes shareholders, creditors, employees, customers, dealers, vendors, government and the society.

IMPORTANCE AND NEED FOR BUSINESS ETHICS

Increased prevalence of formal importance to ethics clearly demonstrates the criticality of business ethics for a corporate entity in the present day business scenario. This happened because of the following reason: LONG-TERM SUCCESS: if an organisation wants to be successful in the long run, it must be built on a foundation of principles. Unethical practices lead to the demise of the organisation sooner or later, as has been seen in the debacle of Satyam computer services. DEMAND OF STAKEHOLDERS: It is essential for todays managers to be both socially responsible as well as ethical in letter and spirit because the and its stakeholders consider the practice of business ethics as an essential part of managerial responsibility. EXTENT OF IMPACT OF BUSINESS ON SOCIETY: both the size of business organisation and dependence of society on them have increased considerably. In such a scenario, the display of unethical behaviour by business organisations can have a significant impact on different stakeholders of the business, including society at large. EFFECTIVE AND FAIR DECISION MAKING: being ethical in behaviour helps a manager to solve conflicts of interest and clashes of business in an optimum, fair and transparent manner without biases, prejudices etc. this increases the credibility of a manager in the eyes of his/her superiors and subordinates and significantly contributes to the effectiveness of decision-making process and its outcome. OVERALL IMPACT ON ORGANISATIONAL CULTURE AND OUTPUT: the ethical position of a company has a considerable impact on establishing a quality culture in the organisation. It also conveys to different stakeholders about the importance of ethical behaviour while representing and acting upon behalf of the company. INVESTIGATIVE JOURNALISM: the media has become extremely proactive in bringing out unethical issues in the public domain for a corrective action by the government and regulating agencies. Therefore it is important for the management of business organisations to voluntary follow the ethical practices in order to avoid the negative press that can destroy their reputation and tarnish the image of the brand in the eyes of the key stakeholders. INCREASED CONCERN OF A WELL-INFORMED PUBLIC: with spread of literacy, increased communication through electronic media and strengthening of consumer movement, the present day consumer is significantly more aware than he used to be in the past. He is not only aware but has also become conscious of his rights. He wants business organisations to deliver what is due to him, failing which he can adopt different means to get justice. Therefore, it is in the interest of the business organisations to be ethical in their dealings with the customer. This helps not only in retaining the satisfied customers but also in avoiding the generation of negative word of mouth. REGULATORY BODIES: in India, business related laws have been tightened steadily, and empowered regulatory agencies are being set up to oversee their compliance. Some

important regulatory bodies that act as watchdogs for the compliance with respect to ethical behaviour are: SEBI, Insurance Regulatory and Development Authority(IRDA, ETC).SEBI has been instituted to curb the manipulations and unethical behaviour with respect to the operations of the securities market and share prices on different stock exchanges.

CODE OF CONDUCT AND ETHICS FOR MANAGERS

INTEGRITY: Integrity is the cornerstone of all values. A business manager should be morally upright. It is this characteristic that distinguishes a professional manager from a mercenary. IMPARTIALITY: A manager should look at and treat all aspects of an issue in a fair and unprejudiced manner. RESPONSIVENESS TO THE PUBLIC INTEREST: Though a manager is paid to serve the interests of the stockholders of the company, public interest is no less important. In fact, managers should consider it as of paramount importance, if they have to be successful in their tasks. ACCOUNTABILITY: Business managers are responsible for all their actions and are accountable to all stakeholders, shareholders, creditors, employees, consumers, government and society at large. HONESTY: A cardinal ethical value that a manager should possess is this quality. Managers should be fair, just and sincere both in character and behaviour. They should not indulge in cheating or stealing and should be free of deceit and untruthfulness. TRANSPARENCY: Good business managers should be transparent and set standards for others to follow. They should be frank and open. Their actions should be easily discussed and understood by others.

BENEFITS OF MANAGING ETHICS IN THE ORGANISATION

Carter McNamara describes various (10) benefits from managing ethics in the workplace as under: Attention to business ethics has substantially improved society. Ethics programmes help maintain a moral course in turbulent times. Ethics programmes cultivate strong teamwork and productivity. Ethics programmes support employee growth and meaning Ethics programmes are an insurance policy- they help ensure that policies are legal. Ethics programmes help avoid criminal acts of omission and can lower fines.

 Ethics programmes help manage values associated with quality management, strategic planning and diversity management. Ethics programmes promote a strong public image. Overall benefits of ethics programmes. Formal attention to ethics in the workplace is the right thing to do.

ROOTS OF UNETHICAL BEHAVIOUR

There are certain factors that make the employees think and act unethically. Some of the influencing factors are, pressure to balance work and family, poor communications, poor leadership, long working hours, heavy work load, lack of management support, pressures to meet sales or profit goals, little or no recognition of achievements, company politics, personal financial worries and insufficient resources. The statistical the data given by Ethics Officer Association in 1997 show how certain practices or factors contribute to unethical behaviour: Balancing work and family Poor leadership Poor internal communication Lack of management support Need to meet goals 52% 51% 51% 48% 46%

From the above statistics it is very much evident that conflicting interests lead to most of the unethical practices.

CASE STUDY: NESTLE HISTORY OF THE COMPANY: In the 1860s Henri Nestl, a pharmacist, developed a food for babies who were unable to breastfeed. His first success was a premature infant who could not tolerate his mother's milk or any of the usual substitutes. People quickly recognized the value of the new product, after Nestl's new formula saved the child's life, and soon, Farine Lacte Henri Nestl was being sold in much of Europe. In 1905 Nestl merged with the Anglo-Swiss Condensed Milk Company. By the early 1900s, the company was operating factories in the United States, Britain, Germany and Spain. World War I created new demand for dairy products in the form of government contracts. By the end of the war, Nestl's production had more than double.After the war Government contracts dried up and consumers switched back to fresh milk. However, Nestl's management responded quickly, streamlining operations and reducing debt. The 1920s saw Nestl's first expansion into new products, with chocolate the Company's second most important activity Nestl felt the effects of World War II immediately. Profits dropped from $20 million in 1938 to

$6 million in 1939. Factories were established in developing countries, particularly Latin America. Ironically, the war helped with the introduction of the Company's newest product, Nescaf, which was a staple drink of the US military. Nestl's production and sales rose in the wartime economy. The end of World War II was the beginning of a dynamic phase for Nestl. Growth accelerated and companies were acquired. In 1947 came the merger with Maggi seasonings and soups. Crosse & Blackwell followed in 1960, as did Findus (1963), Libby's (1971) and Stouffer's (1973). Diversification came with a shareholding in L'Oral in 1974.Nestl's growth in the developing world partially offset a slowdown in the Company's traditional markets. Nestl made its second venture outside the food industry by acquiring Alcon Laboratories Inc.. Nestl divested a number of businesses1980 / 1984. In 1984, Nestl's improved bottom line allowed the Company to launch a new round of acquisitions, the most important being American food giant Carnation.The first half of the 1990s proved to be favorable for Nestl: trade barriers crumbled and world markets developed into more or less integrated trading areas. Since 1996 there have been acquisitions including San Pellegrino (1997), Spillers Petfoods (1998) and Ralston Purina (2002). There were two major acquisitions in North America, both in 2002: in July, Nestl merged its U.S. ice cream business into Dreyer's, and in August, a USD 2.6bn acquisition was announced of Chef America, Inc.The year 2003 started well with the acquisition of Mvenpick Ice Cream, enhancing Nestl's position as one of the world market leaders in this product category. In 2006, Jenny Craig and Uncle Toby's were added to the Nestl portfolio and 2007 saw Novartis Medical Nutrition, Gerber and Henniez join the Company. UNETHICAL PRACTICE: Nestle, is the world's largest baby food company and increases it's profits by promoting artificial infant feeding in violation of the W.H.O. code that has been signed by the US and many other nations. Nestle knows that once a bottle has become between a mother and her child breastfeeding is more likely to fail and the company has gained a customer. In order to sell more of its infant formula in third world countries, Nestle would hire women with no special training and dress them up as nurses to give out free samples of Nestle formula. The free samples lasted long enough for the mother's breast milk to dry up from lack of use. Then mothers would be forced to purchase the formula but, being poor, they would often mix the formula with unsanitary water or 'stretch' the amount of formula by diluting it with more water than recommended. The result was that babies starved all over the Third World while Nestle made huge profits from this predatory marketing strategy.

Then In 1977, a world-wide boycott was launched against the Nestle Corporation, which was found to

be the most unethical of the several companies selling baby formula at the time. Consumers all across the world stopped purchasing Nestle products. The World Health Organization drafted the International Code on the Marketing of Breast Milk Substitutes, which was signed by much of the world in the early '80's and finally by the United States in 1994.

Now After a brief hiatus the Nestle boycott was relaunched in 1988 and continues to this day. A recent report called "Cracking the Code" outlines the many present-day violations of the W.H.O. code. Presently, the International boycott of Nestle products covers 18 countries: Australia,

Canada, Finland, France, Germany, Ireland, Italy, Luxembourg, Mauritius, Mexico, Norway, Philippines, Spain, Sweden, Switzerland, Turkey, UK and USA. The International Boycott is presently being coordinated by Baby Milk Action.

CASE 2: WALMART CASE Wal-Mart Unethical Business Practices - Business Research Paper Wal-Mart, the big giant, the place where a lot of people usually do their shopping for the low prices and the variety of products was founded by Sam Walton. Walton was an entrepreneur with an innovative vision,started his own company and made it into the leader in discount retailing that it is today. In fact, Wal-Mart is considered to be the biggest company in the U.S. and it has stores worldwide. According to PBS, Wal-Mart employs more people than any other company in the United States outside of the Federal government, yet the majority of its employees with children live below the poverty line.(www.pbs.org) In addition, Wal-Mart likes to portray itself as a seller of U.S. manufactured goods but in reality the company has products on its shelves made in foreign countries and at questionable workshops. It would seem that Wal-Mart encourages made in the USA but it really encourages products made outside the USA. As a result, Wal-Mart has forced many manufacturers out of business. As a matter of fact, this big giant is facing a significant amount of controversy for unethical business practices. In fact, some of these unethical business practices include the following. .Unfair Treatment of Employees: Wal-Mart has been accused of discriminating against women. Women had been denied training and promotion opportunities that are offered to men. In addition women are underpaid. That is, men are paid more than women. According to Hoovers handbook of American business, in June 2001 a group of six current and former female Wal-Mart employees filed a sex discrimination lawsuit (seeking to represent up to 500,000 current and former Wal-Mart workers) against the company.(Hoovers Handbook, pg.907) The suit was filed because WalMart failed to provide equal employment for women. In fact, there are over 70 percent of women

working at Wal-Mart, but only a small amount of those women are managers. So, men are holding more management positions than women. In addition, Wal-Mart is the nation's largest employer of women, but unfortunately they are being treated without dignity and respect." (www.arkansasnews.com)So it seems then that discrimination is a big problem at Wal- Mart. If Wal-Mart wants to avoid lawsuits they need to give more job opportunities to women and they should get paid as much as male employees. Even though Wal-Mart is such a successful company, they can do better if they put a stop to discrimination for it will save them money on lawsuits. In fact, Wal-Mart recently introduced workplace diversity initiatives, intended to prevent further gender bias.( usgovinfo.about.com) Another issue that Wal-Mart is facing right now is the fact that employees wages are very low. An average worker makes between $12,000 and 17,000 a year which is not much. As a result employees have to apply for public assistance and this public assistance comes from our tax dollars. Basically, one of the reasons for Wal-Mart low wages is because they want to cut operating costs and they want to continue offering low prices. So, Wal-Mart's ultimate defense is that it offers lower prices and somehow that justifies all sins." (www.usatoday.com)It seems that Wal-Mart cares more about keeping its prices low than to increase employees wages. Besides low wages, Wal-Marts health insurance is so expensive that some of the employees can not even afford to pay for it. So, those employees who couldnt afford the health plan will probably have to get their health care benefits through their spouses or the state from our tax dollars. Wal-Mart responded to this problem by offering discounts on health care coverage. Members can save as much as 50% on services not normally covered by medical insurance.(www.ufcw324.org) Discounts is not enough. Wal-Mart still has a moral responsibility to provide affordable health care to its employees not shift the cost onto the American taxpayers. Wal-Mart can also raise employees wages so they can afford to pay for their health plan. While wages are low at Wal-Mart, too often employees didnt get paid at all for overtime. In fact, according to Wal-Marts policy, they are supposed to pay employees for every minute they work. But, since Wal-Mart is such a big company, there will be cases in which managers might do unethical things. For instance, employees were forced to work unpaid overtime. As a result, they filed a suit against Wal-Mart for not getting paid for overtime. So in February 2004, a federal judge ruled that Wal-Mart should pay workers for overtime hours (Hoovers Handbook).But, the case is still pending. In fact Wal-Mart claimed their policy is against such work. So Wal-Marts managers who required overtime were disciplined and fired. In fact, it is Wal-Marts responsibility to make sure that people get paid. They should settle the suit by paying their employees for unpaid overtime. It seems that Wal-Mart needs to periodically examine its pay practices to make sure that all employees are getting paid for all the hours worked.

Finally, Wal-Mart was under investigation for the use of illegal immigrants as workers. In fact, in October 2003 federal agents uncovered hundreds of illegal immigrants employed by outside contractors cleaning its stores.(Hoovers Handbook, pg907) As a result, the company became the target of a class action suit. So, Wal-Mart was accused of breaking immigration laws. In addition, according to Hoovers Handbook, Wal-Mart cheated immigrant janitors out of wages and the government out of workers compensation, social security payments, and federal payroll taxes.(Hoovers handbook, pg.907) But, Wal-Mart claimed they hired those particular jobs out to contractors and it was the contractors that were at fault for the use of the illegal immigrants. Even if the situation is as they describe it, they hired a contractor who failed to follow United States laws without questioning or researching them first. Thus, Wal-Mart failed to do a thorough background check of any potential employee. A background check would have helped determine the integrity of an employee for it includes job experiences, references, legal documents, etc.

CONCLUSION:
Business Ethics plays a very important role in the present day environment. Business ethics seeks to proscribe behaviour that businesses, firm managers and workers should not engage in. Ethics is a source of guidance beyond enforceable law. It is clear and uncontroversial that firms and their workers should not engage in unlawful acts, selling harmful or defective products, and ignorance of the law cannot be used as a justification for unlawful actions. Business and management goes beyond the law to provide guidelines as to what is acceptable behaviour in business transactions