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BUSINESS ETHICS

INDEX 1. Introduction

2. What is Business Ethics

3. Importance of Ethics in Business

4. Case Study: Kraft Foods.

1. INTRODUCTION TO BUSINESS ETHICS Ethics in business are nothing but the dos and donts by the business users in the business. In other words it could be referred as set of principles a business man ought to follow. There should be business ethics means that the business should be conducted according to certain self recognized moral standards. Few unethical elements in the present day business are cheating, stealing, lying, bribing, corrupting etc. Business ethics can be defined as written and unwritten codes of principles and values that govern decisions and actions within a company. In the business world, the organization's culture sets standards for determining the difference between good and bad decision making and behavior.

Stakeholder versus Shareholder There are two schools of thought regarding how companies should approach a definition for business ethics: the shareholder perspective and the stakeholder perspective. Shareholder Perspective: Those who approach ethical decision making from a shareholder perspective focus on making decisions that are in the owners' best interest. Decisions are guided by a need to maximize return on investment for the organization's shareholders. Individuals who approach ethics from this perspective feel that ethical business practices are ones that make the most money. Stakeholder Perspective: The phrase corporate social responsibility is often used in discussions of business ethics. The idea behind this concept is the belief that companies should consider the needs and interests of multiple stakeholder groups, not just those with a direct financial stake in the organization's profits and losses. Organizations that approach business ethics from a stakeholder perspective consider how decisions impact those inside and outside the organization. Stakeholders are individuals and groups who affect or who are affected by a company's actions and decisions. Shareholders are definitely stakeholders, but they are not the only ones who fall under the definition of stakeholder. Stakeholders may include: employees, suppliers, customers, competitors, government agencies, the news media, community residents and others. The idea behind stakeholder based ethical decision making is to make sound business decisions that work for the good of all affected parties.

2. What is Business Ethics?


Different people have different beliefs about what constitutes ethical behavior. The law defines what is and is not legal, but the distinctions between moral right and wrong are not always so clear. In many situations lines between right and wrong are blurred. Such situations can lead to ethical dilemmas. When faced with ethical dilemmas, it's important to consider outcomes of the decision-making process. One way of dealing with ethical dilemmas is by using the four way test to evaluate decisions. This test involves asking four questions: 1. Is my decision a truthful one? 2. Is my decision fair to everyone affected? 3. Will it build goodwill for the organization? 4. Is the decision beneficial to all parties who have a vested interest in the outcome? When these four questions can truthfully be answered with a "yes," it is likely that the decision is an ethical one.

Management and Business Ethics


A company's managers play an important role in establishing its ethical tone. If managers behave as if the only thing that matters is profit, employees are likely to act in a like manner. A company's leaders are responsible for setting standards for what is and is not acceptable employee behavior. It's vital for managers to play an active role in creating a working environment where employees are encouraged and rewarded for acting in an ethical manner. Managers who want employees to behave ethically must exhibit ethical decision making practices themselves. They have to remember that leading by example is the first step in fostering a culture of ethical behavior in their companies. No matter what the formal policies say or what they are told to do, if employees see managers behaving unethically, they will believe that the company wants them to act in a like manner.

3. Importance of Ethics in Business


Business Ethics and Corporate Responsibility: Corporate responsibility is a phrase heavily used in the business world. Often mentioned to enhance the image of an organization, corporate responsibility does have a true meaning. Businesses that use energy efficient lighting and offer their employees a fair pay rate are practicing corporate responsibility. Corporate responsibility is an integral part of business ethics and should be practiced by all entities, whether large or small. Corporate responsibility simply means that each individual within a company is practicing personal and professional responsibility in a way that will benefit him and others. Ethics Affect Everyone: To understand the importance of ethics in business, youll want to understand how business ethics affect those involved. The ethics of a business collectively and of those involved, have the power to help or harm people. Business ethics are important because if an enterprise lacks ethics, the employees, the customers, and everyone else involved with the company can be harmed. The Effects of Unethical Business Practices: When the CEO of a company accepts a raise or does not take a pay-cut when several people are being laid off, this is considered unethical by many. The CEO has a responsibility to do what's best for the corporation. It is almost never best to lay off loyal and hard-working employees. Employees are the life-blood of every organization and without them; the beauty of industry would not exist. The ultimate affects of such a practice are potentially devastating. The company could suffer significant profit losses due to under-staffing. Former employees could end up homeless and the general public, if and when they find out, will have a negative view of such an organization; thus, the company's reputation will be damaged. The Effects of Ethical Practices: On a more positive note, an establishment that gives its surplus to a charity donation each year is practicing ethical behavior. While this practice benefits the company by allowing them to bypass additional taxes, it also sends out a positive message. This can bring in more customers, increase or enhance positive business relationships, and even allow the firm to add new employees.

4. Case Study: Kraft Foods


Abstract: The case examines the growing impact of junk foods on American society. It examines the role played by food companies in the increase in the obesity growth rate in the US and Canada. The case discusses how Kraft Foods, the number one food products company in the US, faced criticism during the early 21st century for encouraging unhealthy eating habits and which led to numerous health problems. It then describes the anti-obesity initiatives undertaken by the company to quell the criticism. The case also discusses the responsibility of companies towards their consumers and society as a whole from an ethical dimension. Finally, it examines the role of consumers and the government in the increase in the obesity growth rate, and discusses ways in which this crisis could be handled. Issues: Junk foods are and the dangers associated with consuming such food products in large quantities Social and corporate obligations of food companies to be 'honest' about their products and services

Kraft Foods in Trouble In May 2003, Kraft Foods, the number one food company in the US and the world's second largest food company, saw one of its most popular products under attack. A lawsuit filed against the company claimed that its Oreo cookies contained Trans fatty acids.3 The lawsuit alleged that Kraft Foods used hydrogenated vegetable oil in these cookies, which was detrimental to the health of consumers in the long run. Citing the possible health hazards, the lawsuit demanded a ban on the marketing and selling of Oreo cookies to children in California. Stephen Joseph (Joseph), the lawyer who filed the lawsuit in the general public's interest, also claimed that Kraft Foods did not even list the amount of trans fatty acids present in Oreo cookies on its pack. However, Kraft Foods had a different version of the story. Vice-President (Corporate Affairs) Michael Mudd (Mudd) said that the company had approached the US Food and Drug Administration (FDA) twice regarding permission for the inclusion of details about fats that were often connected with high cholesterol, diabetes and heart disease, on its products' labels

Reportedly, many health and social welfare organizations were blaming food companies for the increasing problem of obesity in the US and Canada (the region is referred to as North America hereafter). The problem of obesity had taken the form of an epidemic since the late 1990s (over 60% of adults were overweight). The number of obese people was growing at an alarming rate in the early 21st century. Though analysts felt that Kraft Foods was not likely to be indicted, they said that the lawsuit might nevertheless affect its reputation and performance. Given these circumstances, it became imperative for Kraft Foods to undertake initiatives that could appease the critics. KRAFT FOODS INC. Kraft Foods Inc., incorporated in 2000, is a leading manufacturer and marketer of packaged food products. Leading global tobacco giant Altria, formerly known as Philip Morris, owns 84% of Kraft Foods. The company in its 21st century form has been formed by the integration of many popular food brands and companies, some of them dating back to the mid-1700s (Refer Exhibit I for a brief history of Kraft Foods). In the early 21st century, Kraft Foods was the second leading food and beverage company in the world (behind the Swiss FMCG major Nestle) AMERICA AND JUNK FOOD The consumption of junk foods has increased constantly in North America since the mid 20thcentury. Many factors contributed to this trend - a booming economy, an increase in the standard of living and a decrease in the time available for food preparation on account of job pressures. Apart from this, the new food types offered by food companies, backed by cleverly-crafted promotional campaigns, added an element of fun to eating. Gradually, junk foods became a popular option for customers who did not have time for cooking IMPACT ON AMERICAN SOCIETY The junk food culture soon took its toll on Americans. By the early 21st century, according to the Center for Disease Control (CDC, US) more than 60% of adults in America were overweight and 20% of the total Americans were considered obese, 5 as compared to 12% in the early 1990s. In urban areas, the number of obese adults was 25%. Health specialists and various other public welfare organizations had long been warning people of the problems of obesity and advising them to take part in moderate physical activity for at least 30 minutes a day. However, not many Americans followed a health regime, due to their packed work schedules

Kraft Shares the Blame Kraft Foods' product portfolio comprised hundreds of products in various segments that could be classified as junk food (such as beverages, snacks, grocery, convenience foods and cheese). Most of its product categories (such as frozen treats and pizzas; hot dogs; meat snacks; cheese products; enhancers; desserts; snack foods such as sugar confectionaries, cookies, biscuits; and ice creams) contained ingredients that qualified them as junk food. Considering that over 99% of households in the US used Kraft Foods products, analysts felt that the company could significantly influence the health of its consumers. Like most other food companies, most Kraft Foods advertisements targeted children. One of the company's advertisements for Oreo cookies had met with a lot of opposition. This advertisement was criticized for being too sedentary, since it showed a group of inactive youngsters enjoying Oreo cookies Kraft Foods - Anti-Obesity Initiatives In early July 2003, Kraft Foods announced a new set of initiatives to address the problem of obesity. The anti-obesity initiatives of Kraft Foods focused on four key areas - Product Nutrition, Marketing Practices, Consumer Information, and Public Outreach and Dialogue (Refer Table I for details of these initiatives) As part of its anti-obesity initiatives, Kraft Foods formed a global advisory council with experts from various disciplines such as nutrition, human behavior, obesity, public health, physical activity, and lifestyle education and intervention programs. The advisory council was given the task of reviewing the company's product profile and recommending changes in line with the initiatives. The council was also expected to help the company develop policies related to its anti-obesity drive, and set standards and timetables for the implementation of the same. The main functions of the advisory council included determining the levels at which the portion size of Kraft Foods' single-serve packages should be capped; setting guidelines for nutrient characteristics for all products