Ethics and Regulating Ethical Behavior

 Morals and ethics involve doing the ‘right’ thing. This may not always be the same as ‘best for the individual manager or for the organization as a whole’.
 Some ethical imperatives may be enshrined in laws but ethics and law are not the same thing.
 Ethical issues exist at the level of the individual, the business or, at its widest, corporate social responsibilities.
 The desire by management to act ethically affects the scope of strategies adopted but also requires that management keep an eye on the ethical consequences of its operations.

What are Ethics and morals?

The meanings of the words ‘ethics ‘ and ‘morals’ are intermingled and difficult to distinguish. For example, the Concise Oxford Dictionary offers the following two definitions.
Morals are ‘standards of behavior or principles of right and wrong’.
Ethics are ‘the moral principles governing or influencing conduct’. Such definitions mean that we could use the two words interchangeably.
Another area in which ethics can be invoked is Corporate Social Responsibility (CSR).

For present purposes the field can be simplified by suggesting that business ethics exist at three levels.
1. Personal ethical behavior: This relates to the way you as an individual conduct yourself. Bad behavior would include bullying, stealing, discrimination against a colleague and giving away business secrets to a rival.
2. Business ethics: This is the way a firm as a whole behaves. Bad conduct here would include offering bribes to win contracts, distorting the accounts, victimization or discrimination against certain workers and telling lies to regulators.
3. Corporate social responsibility: This is the belief that a firm owes a responsibility to society as well as to shareholders. Bad behavior would be pollution, mass redundancies and dangerous products.

Ethical stance of corporation

There is a range of possibilities:
 Meet minimum legal obligations and concentrate on short-term shareholder interests;
 Recognise that long-term shareholder wealth may be increased by well-managed relationships with other stakeholders (corporate governance approach)  Go beyond minimum legal and corporate governance obligations to include explicitly the interests of other stakeholders in setting mission, objectives and strategy. In this context issues such as environmental protection, sustainability of resources, selling arms to tyrannical regimes, paying bribes to secure contracts, using child labor etc would be considered
 Public sector organizations, charities, etc where the interests of shareholders are not relevant.
The ethical stance taken is often reflected in the mission statement.

Regulating ethical behavior

Ethical business regulation operates in two ways:
1. Forbidding or constraining certain types of conduct or decisions: e.g. most organizations have
regulations forbidding ethically inappropriate use of its their IT systems. Similarly many will forbid the
offering or taking of inducements in order to secure contracts.
2. Disclosure of certain facts or decisions: e.g.. because the board sets its own pay they disclose it, and sometimes the reasons behind the awards, to shareholders in final accounts.

The IFAC Code of Ethics adopted by Chartered Accountants

Five fundamental principles:
1. Integrity: Straightforward and honest in business and professional relationships
2. Objectivity: Not allow bias, conflict of interest or influence of others to override professional or business judgement
3. Professional competence and due care: Be aware of all prevailing knowledge necessary to give professional service and apply the same diligently to affairs of the client in accordance with technical and professional standards
4. Confidentiality: Respect the confidentiality of information acquired as a consequence of professional or business engagements and not use the same for personal advantage or that of third parties
5. Professional behavior: Comply with laws and regulations and not to discredit the profession.

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