CHAPTER 7

ETHICAL ISSUES
IN THE
FUNCTIONAL
AREA
 Structure:
7.0 Introduction

7.1 Ethics in Marketing 7.6 Ethics in Information

Ethical issues in Technology
7.2 Advertising
7.7 Ethics in Banking
7.3 Ethical issues in Takeovers
and Mergers
7.4 Ethics in Finance
Ethics in Human Resources
7.5 Management
 INTRODUCTION
• Ethical in the functional areas of any business is
necessary to ensure a good rapport between the
management and the employees.

• In fact all Functional areas namely; Marketing,

Finance, Human Resources as well as information
technology should follow a code of ethics so as to
functions well and give maximum output.
• Each employee should feel responsible and try to
stand by what is right in any given situation.

• In other words, it should be a team effort across all

levels of the organization, within an organization, one
would find a spectrum of ethical issues based on the
function of business organization.
7.1 ETHICS IN MARKETING
 Marketing is a technique that is used to attract and persuade
customers.

 Marketing provides a way in which product is sold to the target

audience

 Marketing is a process that identifies, anticipates and supplies

consumer requirements efficiently and effectively.
In the field of sales, the following ethical issues require
safeguards against unethical behaviour:
 Not supplying the products made by the company as per the
order.
• Not accepting responsibility for the defective product.
• Not giving details about the hidden costs, such as transportation
cost, while making the contract with the client.
• Changing the specifications of the product without giving any
prior information to the customer.
• Changing the terms of the business without taking anhy approval
from the client.
• Delaying the delivery of the goods without giving anyn proper
reason.

• Treating two customers differently

• Not providing the after sales service as per the contract

• Selling the same product at different prices to different

customers.
In the field of Advertising and Promotion the following are
examples of unethical communication process :

● Making false commitments to the customers about the benefits

of the product.

● Not giving the promised gift in the promotional campaign

● Making false references about the competitive products

● Providing wrong testimonals about the product to prospective

customers.
In the field of after-sales service, the following ethical
issues require safeguards against unethical behaviour:
● Using below-standard material for the service and charging for
relatively better material from the customer.

● Using outmoded service equipment which can be harmful for

the products during service.

● Not taking the service calls if the location is not easy to reach,
while free service was promised the sale of the product.
● Making only temporary adjustments adjustments in the product,
which can last only for a short time or to make the product useful
for the time being.

● Not keeping proper service records of major products for future

use, as they can help in easy diagnosis of problem.

● Overbilling the service charges, when the customer is not aware

of actual rates.
● Using rejected or below-standard components for customer’s
temporary relief.

● Refusing the service of the product due to personal reasons.

● Exchanging healthy parts with below-standard parts when the

product comes for servicing.
In the field of marketing research, the following are
example of unethical behaviour:

● Research is focused on the areas that do not need to be

covered.

● The research report is sold to the competitor.

● The report does not need include important facts.

 7.2
ETHICAL ISSUES
IN ADVERTISING
 In the advertising field, the ethical issue include desicisions on what
business and market a corporate organization should enter.
 Though it is important that ethical standards be provided for the
advertising of a particular product, it is not easy to establish common
ethical standards which are agreed upon by different organization

 According to Ferrel and Gresham:

“There is no clear consensus about ethical conduct; that ethical standards are
neither absolute nor constant; and that attempts to determine wether
particular marketing activities are ethical or non-ethical cannot produce a
definitive code of marketing behaviour.
 However, there is a general view also related to ethics in advertising.
This view is that advertising practices, such as deceptice advertising, price
fixing, holding of product test data and falsifying research behaviour in
the market are unethical practices.

 Organizations follows various method that are unethical while advertising

for this products and services. These methods are:
• AMBIGUITY
• CONCEALED FACTS
• EXAGGERATION
• PSYCOLOGICAL APPEAL
7.2.1 AMBIGUITY
 Ambiguous advertisements are mostly deceiving for customers.
Advertisements become ambiguous when they are wrongly interpreted and
also with, the use of words through which organization can avoid making
direct statements.

 For example you can consider the word “help”.

• Help us keep young
• Help you improve your complexion
• Help prevent cavities
Us
• Help keep our house insect free
7.2.2 CONCEALED FACTS
 Organizations can conceal information related to a product that may result in
Cless selling of that product there by resulting in loss.

 Two considerations regarding advertisements that force organization to

conceal facts.
• The first consideration is that information that will help in selling a
product in the best way should be provided.
• The second consideration is that the information about a product should
be provided in such a manner that;
 Individuals, who will be purchasing the product do not
feel that false promises have been made to them and
they have been let down.

 Advertisments related to a product are able to avoid

objections from agencies that are responsible for
monitoring advertising.
7.2.3 EXAGGERATIONS
 Organizations may mislead the customers by providing exaggerated
information in the advertisements of their product.

 Organizations can exaggerate information in advertisements by using

superlative phrases.

For example: if a washing powder manufacturing organization uses the phrase

‘best loved by housewives’ then no harm may be caused to customers of
washing powder.
7.2.4 PSYCOLOGICAL APPEAL
 Is the appeal made considering the emotions of customers.

 The main objective of psycological appeal is to persuade

customers to purchase products by appealing to their emotions
and not to reason.
7.3 ETHICAL ISSUES IN TAKEOVERS
AND MERGERS
 Mergers and takeovers are stimulated by the urge to diversify or
to anchor the new market rather than to dominate an industry.

 This diversification may decrease overhead costs or protect the

organization from economic descent in its actual industry.
There are certain events that lead to mergers:

● Lack of funds to compete with organizations with better

facilities, new equipment and a large workforce.

● A growing number of competitors who have recovered from their

respective economic conditions with the help of mergers and
acquisitions.

● Liberalization has weakened the economy in many Indian

organizations as they have not been able to adjust with the
competitive market.
● Due to technological advancements, there is technical
competition making it difficult to attain economies of scale and
to retain skillful personnel

● Emergence of multinationals that have substantial resources to

pose a challenge to the market share of Indian organizations.
7.3.1 The Merger Process
 Every merger and takeover has certain characteristics. The
merger process involves:
• The decision to consider options of merging;
• Search of a suitable merger partner;
• The decision to merge with a specific partner;
• Making a proposal to a suitable partner;
• Negotiation of merger agreements;
• Formulation of implementation plans;
• Accomplishing the implementation plan;
• Review and evaluation.
7.3. 2 Issues During the Merger Process

 Some organizations are not prepared to face

issues and problems that come up during the
merger process.
 They barely have a systematic and expansive process for
planning and implementation due to the following reasons:

• Often, the steps taken during the merger are in response to

internal and external stress. So, there is always the question
of whether the merger will be able to achieve the
organizational objectives.

• As average organizations do not have experience in mergers,

it is tough for them to identify their problems and formulate
alternatives.
● The initial problems that follow mergers mark a chain of events
that affects jobs and work assignments. The top management
neglects the long-term effects on relevant stakeholders under the
pressure of mergers.

● Mergers lead to new organizations with new management

structures, so it becomes difficult to determine directions and
policies.
7.3.3 Hostile Take-overs
 Mergers and takeovers seem friendly but they are increasingly
evolving into bitter conflicts.

 This is due to the reason that the top-level managers want to

ensure that they are saved in the event of a merger.

 A merger car be referred to as the coming together of two

organizations in their mutual interests and combining to form a
large organization.

 In case of a conflict, one organization takes over an unwilling

partner, which is called a hostile takeover.
7.4 ETHICS IN FINANCE
 Finance is an important element of an organization and it helps
in its growth and development. Finance plays an important role
in making resources available in an organization, such as man,
machine, material, market and money. The finance manager of
the firm is responsible for arranging the finances for the firm.
The finance manager can raise funds from the following two
sources:
 Internal Sources: Internal sources means the owner's own funds
that are invested as equity in the organization.
• Deposits and loans given by owner.
• Personal loan from provident fund and life insurance policy.
• Funds accumulated by the retention of profits.
• Ploughing back of profits.

 External Sources: External sources means the various financial

institutions from where entrepreneurs can raise funds, such as fixed
capital, commercial banks and development banks.

• Borrowing money from friends and relatives.

• Borrowing from financial institutions.
The finance department of an enterprise is prone to the
following unethical practices such as;

 Overestimating capital utilization

 Over budgeting project costs
 Using underhand tactics
 Purchasing unnecessary capital equipment
 Selling the capital equipments
 Siphoning funds
 Investing unapproved funds
 Claiming insurance
 Overpricing current assets
 Using working capital funds for personal gain
The accounts department of an enterprise is prone to the
following types of unethical issues such as;

 Inflated salaries
 Playing with vendor bills for discounts
 Paying overtime wages when there in no requirement for them
 Maintaining separate books for management and income tax
 Rejecting unacceptable raw materials
 Delaying bill clearance
 Alloting extra allowances to favorite employees
 Showing incorrect figures in monthly trial balances for personal
benefits
The costing manager's unethical practices includes;

Manipulating work hours

Ignoring reject and rework costs
Not accounting for strike and absenteeism
Not accounting man-hour lost in maintenance work
Not considering the work stoppages due to change in
models
Ignoring time lost in failed experimentations
Not considering economies of sales and experience
curve
The auditing manager's unethical behavior includes;

 Ignoring budget deviations

 Rejecting low-cost tenders
 Hiding black money
 Ignoring employee travel bills
 Accepting personal payments
 Enabling overseas money transfers
 Approving payment to supplier without checking bills
7.5 ETHICS IN HUMAN RESOURCE
MANAGEMENT (HRM)
 HRM is the management of an organization's people, focusing on
procedures, philosophy, policies, and practices to achieve desired
goals. It promotes cooperation and coordination between
management and employees, promoting, developing, and
maintaining a competent workforce. HRM includes planning,
organizing, directing, controlling, procurement, development,
compensation, and maintenance.
 According to Ivancevich and Glucck, 'Human resource
management is the function performed in organizations that
facilitates the most effective use of people (employees) to
achieve organizational and individual goals.” It is present in all
organizations and at all levels, focusing on action rather than
theoretical procedures. HRM encourages employees to utilize
their skills and potential, through systematic procedures like
recruitment, selection, training, and development. Effective HRM
helps organizations achieve their goals more efficiently and
improves the quality of work life by providing fair conditions and
terms of employment.
 The following are the key objectives of HRM:

• To recruit trained and spirited employees,

• To help the organization reach its goals,
• To train the employees for best results,
• To communicate HR policies to the employee,
• To ethically respond to the needs of the society.
 The following are examples of unethical practices during the
recruitment process of a company:hiring known individuals
without assessment relying on financial favors, hiring relatives,
recommending friends and associates, hiring under qualified or
overqualified persons,Recruitment of less acceptable men when
there are better suited women available for the job, employing
children under fourteen, and giving less than minimum wages
fixed by the government.
 The company's training manager may engage in unethical
practices, such as arranging training for favorite employees,
employing outsiders, planning training without even knowing the
need for training, organizing during peak seasons, starting
programs ill-prepared manner, extending training time, using
outdated materials, and allowing trainees to set their own
schedules.

 In the area of administration, the following are the unethical

practices the manager can indulge in: tampering with employee
leave records, giving promotions to unqualified individuals,
Ignoring issues related to the security of the company, involving
top management in administration activities, and giving employee
7.6 ETHICS IN INFORMATION TECHNOLOGY
 Information Technology

- refers to the gathering, processing, creation, delivery and

storage of information and all the processes that make all
this possible.

- it is new to the world in which the clear legal

environment is yet to develop, so getting benefits by using
IT can't be surely ethical or legal.
 Computer Ethics
• was founded by MIT ( Massachusetts Institute of Technology )
Professor Norbert Wiener in the early 1940's when he was
providing a helping hand in the development of an aircraft
cannon, capable of gunning down fast-moving war planes.

 Cybernetics
• a new branch of science, called as the science of information
feedback created by Wiener. Due to the combination of
cybernetics with digital computers, he foresaw revolutionary
social and ethical consequence.
 Technology Ethics
• the application of ethical thinking to the practical concerns of
technology.

 The profile of technology ethics is as follows:

1. Thinking ethically about human biotechnology.
2. Taking responsibility for e-wastage like environmental damage
from computer and other electronic wastages.
3. Employers must check whether employees are wasting time at
recreational websites or sending unprofessional e-mails.
4. Sometimes the invasions of piracy occurs through to use of the
Internet services.
 Computer Ethics
• Walter Maner innovated this separated branch of applied ethics
which he defined as the branch of applied ethics that studies
ethical problems - transformed, aggravated or created by computer
technology.
 On the other hand, James Moor described that computer ethics
often face issues due to a lack of policy on how technology should
be used, as new capabilities and actions present new choices for
action. According to him, computer ethics should include:
1. Identification of computer-generated policy vacuums.
2. Clarification of conceptual muddles,
3. Formulation of policies for the use of computer technology,
4. Ethical justification of such policies.
 Ethical Issues

• In 1986, Masovi had classified ethical issues in the following four groups
1. Accessibility
 involves the right of assessing the required information as well as the true
payment of charges to access information.
2. Privacy
 deals with the degree of privacy and dissemination of information about an
individual.
3. Property
 ownership and value of information
4. Accuracy
 the information which is viable and being accessed is now much more accurate
and authentic
 The Computer Ethics Institute in Washington DC has laid down the following
ten commandments of computer ethics.

1. You will not use computer to harm other people.

2. You will not interfere with the computer network of other people.
3. You will not snoop around in files of other people's computer.
4. You will not use a computer to steal.
5. You will not use a computer to bear false witness.
6. You will not copy or use proprietary software for which you have not paid.
7. You will not use other people's computer resources without authorization.
8. You will not use other people's intellectual output.
9. You will think about the social consequences of the programme you are
writing or the system you are designing.
10. You will always use a computer in ways that demonstrate considerations and
respect for your fellow humans.
7.7 ETHICS IN BANKING
 The unfettered love of money is the root of all evil.

 Banking is an industry that is meant for safeguarding the

customers' money. The complexities of handling customers' money
in the intricacies of investing the same have open been a major
bone of contention for bankers. As custodians of customers' wealth,
it becomes imperative for banks to maintain the confidentiality of
the customers.
 Trust, transparency and responsibility should form the basis for a
value system in banking. Transcendence to a transparent corporate
culture can facilitate in solving ethical issues.

 There are certain basic traits which should symbolize the bank
managers, namely;

1. efficiency
2. discipline
3. honesty
4. integrity
5. transparency
 Unethical actions by banker can include ignoring banking
guidelines and concealing facts.
 The ethical premise for the banking industry should consist of trust
and values
 The very nature of banking is such that any wrong decisions or any
mistake of however minute nature can have large impact.
 Banks primarily transact in accepting deposits and advancing of
loans.
 Banks take up payment of cheques, bills and letters from credit and
receiving payment for customers.
 Profit maximization as well as human and environment well-being
should be the motto of banks.
7.7.1 Principles of Ethical Banking
 Irrespective of the fact that, economies may be in various phases
of development, it becomes imperative for all concerned to have
complete awareness about ethics in relation to banking products
and services.

 for the operational function of any business system, leave alone

banking, most of the transactions are based on the principle of
mutual trust.

 Mutual trust precedes mutual benefit and interests which gives

confidence to both the parties that they will not be cheated
 If both factors achieved, then it is important for the boat parties to
be well intended and not to treat each other in any way which may
be deceptive.
 There should not be any conflict of interest and both the parties
need to exercise tolerance and have to compromise when
necessary.
 There should not be any conflict of interest and both the parties
need to exercise tolerance and have to compromise when
necessary.
 Monopolistic attitude should be curtailed.

 There should not be any conflict of interest and one's own personal
interest should not supersede the common interest.
 7.7.2 Code of Ethics to be followed by Bank Managers
 There should be sorrow professionals who are not selfish.

 If a bank manager does not have integrity, he/she will be

influenced by clients while carrying out his responsibilities.

 A bank manager is responsible for all his/her acts and decisions.

 A bank manager should be an honest person so that the question of

conflict of interest does not arise.

 A bank manager should have excellent leadership qualities.

7.7.3 General Standards of Banks
 Avoid a high concentration of loans in one particular sector.

 Prerequisites for loan security are to be adhered to by the clients.

 The procedure for loan approval has to be strictly followed.

 The financial documents and reports have to be accompanied with

loan application.

 Loan should be granted with an amortization payment schedule.

7.7.4 Bangko Sentral ng Pilipinas
 The Central Bank of the Republic of the Philippines
established on 3 July 1993 pursuant to the provisions of
the 1987 Philippine Constitution and the New Central
Bank Act of 1993.
 Responsibilities
• Liquidity Management
The BSP formulates and implements monetary policies aimed at
influencing money supply consistent with its primary objective to
maintain price stability.

• Currency Issues
All notes and coins issued by the BSP are fully guaranteed by
the government and are considered legal tender for all private and
public debts.
• Lender of last resort
Extend discounts, loans and advances to banking institutions for
liquidity purposes.

• Financial Supervision
The BSP supervises banks and exercise regulatory powers over
non-bank institution performing quasi-banking functions.

• Management of foreign currency reserves

The BSP seeks to maintain sufficient international reserves to
meet any foreseeable net demands for foreign currencies
• Determination of exchange rate policy
The BSP adheres to a market-oriented foreign exchange rate
policies.

• Other activities
The BSP functions as the banker, financial advisor and official
depository of the government
 7.7.5 Philippine Deposit Insurance
Corporation(PDIC)
Philippine Deposit Insurance Corporation is a
government instrumentality created in 1963 find
the virtue of Republic Act of 3591; insures the
deposits of all bank.
 THANK YOU
CATIBOG, VJAY C.
UYAGON, DESI-ANNE
MALABANAN, MICHAEL P.
LATA , JESSALYN B.