About Company ( Introduction )

 AIG was founded December 19, 1919 when American Cornelius

Vander Starr (1892–1968) established a general insurance agency,

 American International Group, Inc. (AIG) is an American

multinational finance and insurance corporation with operations in
more than 80 countries and jurisdictions. As of 2022, AIG employed
26,200 people.

 The company operates through three core businesses: general

insurance, life & retirement, and a standalone technology-enabled
subsidiary.

 AIG is the title sponsor of the AIG Women's Open golf tournament. In
2023, for the sixth consecutive year, DiversityInc named AIG among
the Top 50 Companies for Diversity list.

 AIG's corporate headquarters are in New York City and the company
also has offices around the world. AIG serves 87% of the Fortune
Global 500 .

Business
In Australia and China, AIG is identified as a large financial institution and provider of
financial services including credit security mechanisms. In the United States, AIG is the
largest underwriter of commercial and industrial insurance.
AIG offers property casualty insurance, life insurance, retirement products, mortgage
insurance and other financial services. In the third quarter of 2012, the global property-and-
casualty insurance business, Chartis, was renamed AIG Property Casualty. SunAmerica, life-
insurance and retirement-services division, was renamed AIG Life and Retirement; other
existing brands continue to be used in certain geographies and market segments

https://home.treasury.gov/sites/default/files/initiatives/financial-stability/TARP-
Programs/aig/Documents/AIG_Agreement_11252008.pdf ( Financial report
2008

Administration
During the AIG scandal in 2008, the board of directors included various individuals, some of
whom were prominent figures in the business world at the time. However, it's important to
note that board compositions can change over time. Here are some of the individuals who
served on AIG's board of directors during that period:

1. Harvey Golub (Chairman)

2. Martin Sullivan (CEO prior to the scandal)

3. Frank Savage

4. Virginia Rometty

5. George Miles

6. Arthur Martinez

7. Stephen Bollenbach

8. James Orr

9. Morris Offit

10. Douglas Foshee

These are just a few of the individuals who were on the board of directors at that time. Board
memberships can change due to resignations, retirements, or other reasons, so it's essential to
verify the current composition if needed.

During the AIG scandal in 2008, Virginia Rometty was one of the women who served on
AIG's board of directors. She later became the CEO of IBM. However, please note that the
composition of the board may have included other women as well, and it's essential to verify
the complete list if needed.

History

1919–1945: early years

AIG was founded December 19, 1919[1] when American Cornelius Vander Starr (1892–1968) established a
general insurance agency, American Asiatic Underwriters (AAU), in Shanghai, China.

Business grew rapidly, and two years later, Starr formed a life insurance operation.

1945–1959: international and domestic expansion

In 1952, Starr began to focus on the American market by acquiring Globe & Rutgers Fire Insurance
Company and its subsidiary, American Home Fire Assurance Company. By the end of the decade, C.V.
Starr's general and life insurance organization included an extensive network of agents and offices in over
75 countries.

1959–1979: reorganization and specialization

In 1967, American International Group, Inc. (AIG) was incorporated as a unifying umbrella organization
for most of C.V. Starr's general and life insurance businesses.

The 1970s presented many challenges for AIG as operations in the Middle East and Southeast Asia were
curtailed or ceased altogether due to the changing political landscape. However, AIG continued to expand
its markets by introducing specialized energy, transportation, and shipping products to serve the needs of
niche industries.

1979–2000: new opportunities and directions

During the 1980s, AIG continued expanding its market distribution and worldwide network by offering a
wide range of specialized products, including pollution liability and political risk. In 1984, AIG listed its
shares on the New York Stock Exchange (NYSE). Throughout the 1990s, AIG developed new sources of
income through diverse investments, including the acquisition of International Lease Finance Corporation
(ILFC), a provider of leased aircraft to the airline industry

2000–2012: further expansion and decline

 The early 2000s saw a marked period of growth as AIG acquired American General Corporation, a
leading domestic life insurance and annuities provider, and AIG entered new markets including
India.[35] In February 2000, AIG created a strategic advisory venture team with the Blackstone
Group and Kissinger Associates "to provide financial advisory services to corporations seeking
high level independent strategic advice. In March 2003 American General merged with Old Line
Life Insurance Company
 In 2005, AIG became embroiled in a series of fraud investigations conducted by the Securities and
Exchange Commission, U.S. Justice Department, and New York State Attorney General's Office.
Greenberg was ousted amid an accounting scandal in February 2005. The New York Attorney
General's investigation led to a $1.6 billion fine for AIG and criminal charges for some of its
executives.

2012–2016: modern era

The United States Department of the Treasury announced an offering of 188.5 million shares of AIG for a
total of $5.8 billion on May 7, 2012. The sale reduced Treasury's stake in AIG to 61 percent, from 70
percent before the transaction. Four months later, on September 6, 2012, AIG sold $2 billion of its
investment in AIA to repay government loans. The board also approved a $5 billion stock repurchase of
government-owned shares in AIA. The next week, on September 14, 2012, the Department of Treasury
completed its fifth sale of AIG common stock, with proceeds of approximately $20.7 billion, reducing the
Treasury's ownership stake in AIG to approximately 15.9 percent from 53 percent. Government
commitments were fully recovered, and Treasury and the FRBNY to date had received a combined
positive return of approximately $15.1 billion.
On October 12, 2012, AIG announced a five and a half year agreement to sponsor six New Zealand-based
rugby teams, including the world champion All Blacks. The AIG logo and the Adidas logo, the league's
primary sponsor, were displayed on the league's team jerseys.
2018–2023
AIG made a number of acquisitions in 2018. That July, AIG acquired Validus Holdings Ltd., a provider of
reinsurance based in Bermuda. The company was also a Lloyd's of London syndicate, involved in
insurance-linked securities, a specialist in US small commercial excess and surplus underwriting, and a
provider of crop insurance. The deal "brought in fresh underwriting talent," particularly in property risk
and catastrophe risk. Also in 2018 AIG acquired Ellipse, a UK life insurance business, from Munich Re. In
2018, AIG established Fortitude Re to hold most of its run-off portfolios and late in 2018 sold a minority
stake to The Carlyle Group. In November 2019, a Carlyle-managed fund and T&D Holdings acquired a
majority interest in Fortitude Re, leaving AIG with a 3.5% stake "subject to required regulatory approvals
and other customary closing conditions.

Who was Behind ( 10 Important Key players

behind scam)
 Scott Alvarez: "The Enabler"
What Was His Role: Scott Alvarez was instrumental in allowing AIG to
pay out to foreign banks 100 percent of the $62.1 billion AIG could have
potentially owed to counter parties. In particular, Alvarez went along with
French regulators' position that AIG had to pay in full or break French
laws.

 Thomas Baxter Jr.: "The Brains"

What Was His Role: Baxter helped to keep the details of the AIG bailout
under wraps from congress and the public in the midst of the crisis.

 Sarah Dahlgren

What Was Her Role: Dahlgren was involved in the PR strategy for the Fed
during its bailout of AIG and aimed to keep as much information secret as
possible

 Barbara-Ann Livanou
What Was Her Role: Barbara-Ann Levana was in charge of assessing risks on
many of the securities, including the infamous credit default swaps, which
contributed to the birth and spread of the financial crisis.
 Kevin McGinn
 What Was His Role: Continues to assess risk for AIG even after
shepherding the company to bankruptcy, Kevin McGinn remains
chairman of a committee at the canter of the financial crisis.

 Win Neuger
What Was His Role: Win Neuger was in charge of all of AIG's financial
investments during the crisis, which included the toxic assets which
burdened the balance sheet and forced the hand of the government to
intervene.

 Joseph Cassano
What Was His Role: Head of the division at the heart of AIG's collapse,
Cassano made billions of dollars in bets on credit default swaps and sub
prime securities which eventually brought AIG to its knees.

 William Dooley

What Was His Role: Replaced Joseph Cassano in 2008 after losses
mounted, but was still a key member of the financial services division
prior to that date.

 Bob Lewis

What Was His Role: In charge of handling risk at AIG, Bob Lewis failed
miserably to manage the firm's positions effectively, contributing to its
eventual collapse.

 Robert Benmosche

What Was His Role: Full of complaint after the AIG bailout for the
government's increased interaction with the firm, Benmosche became a
symbol of CEO arrogance in a time of international crisis.

WHAT THE AIG SCAM WAS

ABOUT ?
AIG is caught in scandal for fraudulent accounting with
the help of General Reinsurance Corporation. In
October 2000, AIG announced a decrease in their loss
revenues by $59 Millions, which was followed by a
drop of 6% of their stock in New York Stock Exchange.
According to investigations, AIG reserves were too
low. This resulted in criticism from Wall Street
Analysts in view of the fact that loss reserves is a
crucial measure of an insurance Company’s financial
health.

To quell the criticism, the top executives of AIG Sought

help from General Reinsurance Corporation who
structured two sham transactions to help boost AIG’s
loss reserves.
General Reinsurance agreed to pay $500 Million
premium and shift $500 worth of Claims with little or
no risk to AIG, $250 each In 2000 and 2001.
Since there is no actual risk transferred, the transaction
is not an insurance deal according to Insurance
Accounting 101 which means the $500 millions should
not be categorized as income on its income statement.
However, AIG accounted for the transaction as a
normal reinsurance deal and recorded $500 million in
their premium revenue which made up to the loss
reserves to pay claims.
As a result the Balance Sheet showed a false increase in
loss reserves while the income statement showed a
wrong increase in income for the fourth quarter in 2000
and first 2001.
AIG lied to investors and government by cooking their
Books which is not for the first time. AIG was already
involved in other illegal wrongdoings like assisting
clients in manipulating their statements and bid-rigging
and that’s why Securities and Exchange Commission
and New York Eliot Spitzer started to get suspicious
and Investigated AIG’s deal with General Reinsurance
that was made four years ago.
During the Financial Crisis of 2008, people were losing
a lot of money and the employment rate increased
drastically. Sensing such non-availability of funds,
banks decided not to give loans to individuals or
business firms. As a result, businesses were highly
affected.
However, AIG found an opportunity to maximise its
profits by finding a loophole in Basel II regulation. The
Basel II regulation determines how much amount the
banks are supposed to keep with themselves. They used
somewhat called CDS (Credit Default Swap).
➔ A CDS is an over-the-counter derivative.
➔ As a derivative financial product, it derives its value
from something else—for CDS bonds.
➔ People use CDS to manage risk.
In simple words, the seller of the Swap (AIG) will pay
the buyer (Banks) in the event of loan default. So banks
gave out money which was supposed to be kept as
reserve. AIG gave banks a way to maximise their
profits. Also because of something called Market to
Market Accounting, AIG was allowed to book the profit
from CDS based on expected profits. There was no
profits they were making. They were writing those
profits which they expected to make and they would
write it down in their books and act as if it was real
profit.
That was FRAUD!!

WHISTLE BLOWER OF THE SCAM

The AIG scandal was exposed by various investigations

and media outlets following the 2008 financial crisis.
There wasn’t one single person or entity responsible for
exposing the scandal.
The investigations into the AIG scandal were
multifaceted and involved various parties, including
government agencies, regulatory bodies, and
independent analysts. Here’s a brief overview:

1. Government Inquiries : Following the 2008

financial crisis, multiple government agencies, such
as the Securities and Exchange Commission (SEC),
the Department of Justice (DOJ), and congressional
committees, launched investigations into the causes
of the crisis and the role played by financial
institutions like AIG. These inquiries involved
subpoenaing documents, interviewing witnesses,
and holding public hearings to gather information.

2. Media Coverage : Investigative journalists from

outlets such as The New York Times, The Wall
Street Journal, and Bloomberg extensively covered
the AIG scandal. Through investigative reporting,
journalists uncovered details about AIG’s risky
financial practices, its exposure to toxic assets, and
the circumstances leading up to its near-collapse.
Media coverage played a crucial role in bringing
public attention to the issue and putting pressure on
regulators and lawmakers to take action.
 3. Independent Analysis : Economists, financial
analysts, and academics also conducted
independent analyses of the AIG scandal,
examining its causes, consequences, and
implications for the broader financial system.
These analyses often provided valuable insights
into the complex financial instruments and
practices involved in the scandal, helping to deepen
understanding among policymakers and the public.

Overall, the investigations into the AIG scandal

involved a combination of government scrutiny, media
reporting, and independent analysis, all aimed at
uncovering the truth behind one of the most significant
financial crises in modern history.
 IMMEDIATE RESPONSE OF THE
MARKET

In the immediate aftermath of the AIG scandal, the

financial markets experienced heightened volatility and
uncertainty as investors reacted to the news and its
potential implications. Some key responses included:

1. Stock Market Decline : AIG’s stock price

plummeted as investors reacted to revelations about
the company’s risky financial practices and its need
for a government bailout. The broader stock market
also experienced declines, as concerns about
systemic risk and the stability of the financial
sector weighed on investor sentiment.
2. Credit Market Disruption : The AIG scandal
exacerbated disruptions in credit markets,
particularly in the market for credit default swaps
(CDS). AIG’s substantial exposure to CDS
contracts raised concerns about counterparty risk
and the potential for cascading defaults among
financial institutions. As a result, credit spreads
widened, making it more expensive for companies
to borrow and exacerbating liquidity strains in the
financial system.

3. Flight to Safety : Investors sought refuge in safe-

haven assets such as U.S. Treasuries and gold amid
the uncertainty surrounding the AIG scandal and its
potential fallout. Government bonds benefited from
 increased demand as investors sought low-risk
assets, while gold prices surged as a hedge against
financial instability and currency depreciation.

4. Increased Regulatory Scrutiny : Regulators and

policymakers responded swiftly to the AIG scandal,
announcing investigations into the company’s
practices and taking steps to stabilize the financial
system. The U.S. government ultimately provided a
massive bailout package to AIG to prevent its
collapse and mitigate systemic risk, signaling a
significant intervention by authorities to restore
confidence and stability in the markets.

Overall, the immediate response of the market to the

AIG scandal was characterized by turmoil, with sharp
declines in asset prices, disruptions in credit markets,
and a flight to safety as investors sought refuge from the
escalating crisis. Regulatory actions and government
interventions played a critical role in containing the
fallout and restoring stability to the financial system in
the wake of one of the most significant scandals in
modern financial history.
 STAKEHOLDERS AFFECTED BY
THE SCAM

The AIG scandal had far-reaching consequences that

affected various stakeholders within the financial
system and beyond. Some of the key stakeholders
impacted by the scandal include:
1. Shareholders : AIG shareholders experienced
significant losses as the company’s stock price
plummeted amid revelations of its risky financial
practices and the need for a government bailout.
Shareholders saw the value of their investments
diminish, and many suffered financial losses as
AIG’s troubles unfolded.

2. Employees : AIG employees faced job uncertainty

and financial insecurity as the company grappled
with the fallout from the scandal. Layoffs and
restructuring efforts were common as AIG sought
to streamline its operations and reduce costs in
response to the crisis. Employees also faced
reputational damage as the company came under
scrutiny for its role in the financial meltdown.

3. Customers and Policyholders : AIG’s customers

and policyholders were affected by the uncertainty
surrounding the company’s stability and financial
health. Concerns about AIG’s ability to fulfill its
obligations led to anxiety among policyholders,
particularly those with insurance policies and
annuities tied to the company. There were fears of
potential disruptions to insurance coverage and
 claims payments, prompting some customers to
seek alternative providers.

4. Taxpayers : Taxpayers were indirectly impacted

by the AIG scandal through the government bailout
of the company. The massive infusion of taxpayer
funds into AIG was aimed at preventing its collapse
and stabilizing the financial system. However, the
bailout sparked public outrage and raised questions
about the use of taxpayer money to rescue a
troubled financial institution, leading to calls for
greater accountability and transparency in
government interventions.

5. Regulators and Government : Regulators and

government agencies faced scrutiny over their
oversight of AIG and the broader financial industry
in the lead-up to the crisis. The scandal highlighted
regulatory lapses and weaknesses in supervision,
prompting calls for reform and stricter oversight of
financial institutions to prevent similar crises in the
future.

6. Global Economy : The AIG scandal and the

broader financial crisis had profound implications
 for the global economy, leading to a deep recession
and widespread economic hardship. The
interconnected nature of the financial system meant
that disruptions in one part of the world could
quickly spread to others, amplifying the impact of
the crisis on businesses, consumers, and
governments worldwide.

Overall, the AIG scandal affected a wide range of

stakeholders, from shareholders and employees to
customers, taxpayers, regulators, and the global
economy, underscoring the interconnectedness of the
financial system and the importance of robust oversight
and risk management practices.

JUDGEMENT OF THE CASE.

AIG’s imminent collapse spelled catastrophe for the entire financial system. AIG was so big
and had traded such a wide range of products with the biggest banks in the world, ranging
from lines of credit to derivatives to securities, that in the event AIG went under, these firms
would also be threatened.

Fed officials initially believed AIG would be “bailed out” by the private sector. In
fact, Warren Buffett and his private equity partners had already been in talks with the
company before the emergency meeting took place.
Another scenario positioned AIG’s subsidiaries as essentially loaning their parent the cash it
needed to tide it over. Yet another had the German insurer Allianz taking control of AIG.

But as the weekend progressed, it became clear that these deals would not materialize. In the
early hours on Monday, September 15, Lehman declared bankruptcy. This rattled the other
banks to their cores; why would they assume more risk by taking on AIG’s troubles?

Initially, the Fed was reluctant to send assistance to AIG because of the “moral hazard”
involved with bailing it out—in other words, it would be sending the message that poor risk
management would be rewarded, which was a precedent it did not want to set.

That morning, the Fed tried to organize a consortium of banks, including JPMorgan Chase
and Goldman Sachs, to loan $75 billion to AIG, but after further downgrades, AIG’s stock
tanked, losing over half of its value in afternoon trading. The banks rejected the deal,
choosing instead to protect their own balance sheets, many of which were also in peril.

The only solution left, it seemed, was government intervention.

“The global economy was on the brink of collapse and there were only hours in which to
make critical decisions.”

–U.S. Treasury Dept spokesman, Andy Williams, in defense of AIG bailout, in

testimony to the Financial Crisis Inquiry Commission, 2010

Fearing widespread financial contagion, on a late-night conference call, the Federal Reserve
Board of Governors and Federal Reserve Bank of New York President Tim Geithner used
section 13 (3) of the Federal Reserve Act to send AIG an initial loan of $85 billion. The
federal government assumed control of AIG’s parent company as well as its primary
subsidiaries.

Under the Troubled Asset Relief Program (TARP), which was passed by Congress on
October 3, AIG received an additional $70 billion.

AIG remained under federal control until 2012, when the Treasury sold its final shares of
AIG common stock, amounting to $22.7 billion. According to the Treasury Department
website, the Treasury realized a positive return of $5 billion and the Federal Reserve gained
$17.7 billion on the deal. AIG had repaid its debts, plus interest, to the United States
government, which had amounted to a staggering $205 billion.
 AFTERMATHS.

(What happened with the company and its BoDs.)

Public Fury:
The public became enraged upon learning of AIG's involvement in hazardous financial products and
the subsequent taxpayer-funded bailout that followed. Many interpreted it as an illustration of how
corporate irresponsibility and greed fueled the financial crisis.

Government Intervention:
To prevent AIG from collapsing, the US government stepped in in September 2008. An $85 billion
bailout package from the Federal Reserve kept the corporation from going bankrupt. The overall
amount of assistance provided to AIG eventually came to about $182 billion.

Legal and Regulatory Scrutiny:

After the crisis, AIG was subject to a great deal of legal and regulatory scrutiny. Studies were carried
out on the company's risk management procedures, business operations, and the executives'
involvement in the choices that ultimately caused the company to fail.

Regulations to be Tightened:
In order to avoid future catastrophes similar to the AIG crisis, requests were made for the financial
industry to be subject to stricter regulations. Aiming to increase oversight and regulation of financial
institutions and complex financial instruments, the Dodd-Frank Wall Street Reform and Consumer
Protection Act was signed into law in 2010.

Executive Accountability:
Although certain AIG executives were criticized for their part in the catastrophe, the individuals'
legal ramifications were not very severe. Nonetheless, the controversy did raise questions about CEO
pay policies and banking industry responsibility.

Recovery and Restructuring:

In order to pay off its government debts, AIG sold off divisions and assets as part of a major
restructuring that followed the crisis. AIG was able to stabilize its business over time and reimburse
taxpayers for the bailout money it had received.
Following the 2008 financial crisis and the AIG affair, the corporation and its Board of Directors
(BoD) faced numerous difficulties and considerable changes:

Company Restructuring:
In order to stabilize its business and pay back the bailout money it got from the US government, AIG
underwent a significant restructuring exercise. In order to raise money and concentrate on its main
insurance operations, this entailed selling off non-core assets, divisions, and businesses.

Changes in Senior Leadership:

The company's senior leadership was reorganized, and new executives were appointed to guide the
business through its rehabilitation. For instance, Robert Benmosche, who joined AIG as CEO in 2009,
was instrumental in helping the business recover from the crisis.

1. Government Oversight and Regulation:

AIG, like many other financial institutions, faced increased government oversight and
regulation in the aftermath of the crisis. The Dodd-Frank Wall Street Reform and
Consumer Protection Act introduced stricter regulations aimed at preventing similar
financial crises in the future and enhancing transparency and accountability in the
financial industry.

2. Board of Directors Accountability:

While specific repercussions for individual board members might have varied, the AIG
scandal underscored the importance of board accountability and oversight in corporate
governance. Boards of Directors were urged to reassess their risk management practices
and ensure robust oversight of company operations to prevent similar crises.

3. Recovery and Rehabilitation:

Over time, AIG managed to stabilize its operations and repay the bailout funds it received
from taxpayers. The company focused on rebuilding its reputation and restoring investor
confidence through transparency, improved risk management practices, and adherence to
regulatory requirements.

PRESENT STATE OF THE COMPANY.

As of my last update in January 2022, American International Group (AIG) remains a
significant player in the global insurance and financial services industry. Here's an overview
of the present state of the company:

1. Financial Stability: AIG has made significant strides in recovering from the financial
crisis of 2008. Following the government bailout and subsequent restructuring efforts,
the company has focused on improving its financial stability and operational
efficiency.

2. Strategic Focus: AIG has undergone strategic transformations to streamline its

operations and focus on its core insurance business. The company has divested non-
core assets and businesses to simplify its structure and reduce risk.

3. Leadership Changes: Since the financial crisis, AIG has experienced changes in its
leadership. Several CEOs have led the company through different phases of recovery
and restructuring, with a focus on rebuilding trust and confidence among
stakeholders.

4. Regulatory Compliance: AIG operates in a heavily regulated industry and must

comply with regulatory requirements in various jurisdictions where it operates.
Compliance with regulatory standards remains a priority for the company.

5. Global Presence: AIG maintains a significant global presence, providing a wide

range of insurance products and services to individual and corporate clients
worldwide. The company operates in multiple segments, including property and
casualty insurance, life insurance, and retirement services.
6. Challenges and Opportunities: Like other companies in the insurance industry, AIG
faces various challenges, including evolving regulatory landscapes, changing market
dynamics, and emerging risks such as cybersecurity threats and climate change.
However, the company also sees opportunities for growth and innovation in areas
such as digital transformation and data analytics.

Overall, while AIG has faced significant challenges in the past, it continues to adapt and
evolve in response to changing market conditions and regulatory requirements. The company
remains a key player in the insurance and financial services sector, albeit in a landscape
shaped by lessons learned from the financial crisis and ongoing industry developments. For
the most current information on AIG, it's advisable to refer to recent financial reports, news
updates, and industry analyses.

BUSINESS ETHICS
ETHICS:
 Ethics is considered with what is right and what is wrong in human behavior.
 Judged on the basis of a standard form of conduct/ individual behavior.
  Ethics word origin from Greek word ‘ETHOS’
 Ethos means norms, ideals, morals prevailing in a group or society.
 Set of principle may be written or unwritten codes or governing professional or human
activity.

BUSINESS ETHICS:
 Business Ethics refer to socially determined moral principles which should govern business
activity.
Example: Charging fair prices from customer, using fair weight for measurement of
commodities, earning reasonable profit.
 Business Ethics refer to the standards for morally right or wrong conduct in business.
 Ethical business behavior improves public image, earns people’s confidence and trust, and
leads to greater success.

ELEMENTS OF BUSINESS ETHICS:

1. Top Management Commitment:
 The CEO & other higher level manager need to be openly and strongly committed to
ethical conduct.
 They give continuous leadership for developing and upholding the values of the
organization.
2. Publication of a ‘CODE’:
 Define the principles of conduct for the whole organization in the form of written
documents which is referred to “code”.
 It generally covers areas such as fundamental honesty and adherence to law, product
safety and quality, health and safety of workplace and employee, fairness.
3. Establishment of compliance mechanisms:
 Pay attention to values and ethics
 Underline corporate ethic in training.
 Communication system helps employees report incidents of unethical behavior.
4. Involving employees at all levels:
 Employee at different level who implement ethics policies.
 Involvement of employee in ethics programs becomes must.
5. Measuring Results:
 It is difficult to accurately measure the end results of ethics program
 Firm can certainly audit to monitor compliance with ethical standards.

NATURE/ CHARACTERISTICS:
1) Business Ethics is a code of conduct:
 It tells what to do and what not to do for society welfare.
 All business must follow code of conduct.
2) Business ethic is based on moral and social values:
 It contains social and moral principles for doing business like consumer protection and
welfare, service to society.
3) Gives protection to social group:
 Such as consumer, employee, small businessmen.
4) Provides basic framework:
  Business Ethics provides basic framework for doing business. It gives social cultural,
economic, legal and other limits of business.
 Business must be within these limits.
5) Business ethics is voluntary:
 Businessmen must accept business ethics on their own.
6) Requires education and guidance:
 Businessmen must be motivated to use business ethics.
 They must be informed about advantages of the using business ethics.

PRINCIPLES OF BUSINESS ETHICS:

1. Honesty:
 Honest and truthful in all their dealing.
 Do not deliberately mislead or deceive other by misrepresentations.
2. Integrity:
 Doing what is right even when there is great pressure to do otherwise.
 Should be respectful, honest, honorable and upright.
 Fight for their beliefs.
3. Loyalty:
 Do not use or disclose any information for personal advantages.
4. Promise keeping and trust worthiness:
 Make every reasonable effort to fulfill the letter and spirit of their promises and
commitment.
5. Fairness:
 Commitment for justice, equity.
6. Respect for other:
 Respect for human dignity, privacy, rights and interest of all stakeholder.
 Treat all people with equal respect and dignity, regardless of gender, race.
7. Leadership:
 Seek to be positive ethical role models by own conduct.
 Helping to create proper environment.
 Ethical decision making are highly prized.

ETHICAL APPROACHES AND THEORIES:

1. Consequentialism Approach:
 Example: A person used fake degree to get a job as a sales manager (but he has
experience)
Sales increase (right behavior) Sales decrease (wrong behavior)
 Consequentialism approach also known as Teleological Approach.
 The word teleology comes from the Greek word ‘telos’ which means ‘ultimate aim’,
‘goal’, ‘outcome’.
 Teleology Approach is referred to as result-oriented ethics.
 This approach based on the end or consequences of an act determine whether it is good or
evil.
 It deals with the consequences of action (consequentialism)
2. Deontological Approach:
 Example: A person used fake degree to get a job as a sales manager (but he has
experience)
 Sale increase (wrong behavior) Sales decrease (wrong behavior)
 The word deontology is derived from Greek word ‘deon’ which means ‘obligation’ and
‘duty’.
 It is duty-based ethics.
 It is deals with the action are right or wrong instead of end result of action.
 It is more emphasis on the rightness or wrongness of action.
 Immanuel Kant, a philosopher who believed that moral behavior should adhere to
universal moral rule or law like not lying, not stealing or not cheating.
3. Virtues Approach:
 As an alternative to consequentialism and deontology both which consider “goodness”
and “rightness” as essential to morality.
 Virtues Approach proposes to understand morality.
 Assess ethical quality action in term of “kindness”, “honesty”, “sincerity” and “justice”.
 Judges a person by his/her character rather than action.
 It is not focus on what kind of things are good/bad or what makes an action right/wrong.
 It is focus on kindness; loyalty would be moral reason for helping friend in hardship.
4. The Right:
 Ethical theory based on rights, the right established by a society are protected and given
the highest priority.
 Person has a right when he entitles to act in a certain manner. This entitlement may come
from legal system or social norms.
 Person has moral right and social right.
 Moral rights have no jurisdiction.
 Those right have three characteristics:-
(1) Moral rights are correlated with duties.
(2) Moral rights provide individual the equality to pursue their interest.
(3) Moral rights and moral justification go hand in hand.