UNIT-2 (BUSINESS ETHICS)

Business ethics may be defined as a form of applied ethics that examines ethical principles and moral or ethical
problems that arise in a business environment.
The origin of word ethics can be traced to the Greek word ethikos which refers to human character and conduct.
Business Ethics is a specialized study of moral right and wrong. It concentrates on moral
standards as they apply particularly to business policies, institutions, and behavior.
Business ethics is the study of business situations, activities, and decisions where issues of right and
wrong are addressed.- ANDREW CRANE
It can be said that business ethics is a multi-dimensional field that addresses numerous
issues, problems and dilemmas. It may mean many things to many people:
It is an application of ethics to the complete community
It is the identification of important business and social issues.
It is a way to determine responsibility in business dealings.
Some ethical standards should be followed by top executives:
o The golden rule: Act in a way you would expect others to act towards you.
o The utilitarian principle: Act in a way that results in the greatest good for the greatest
number.
o Kants categorical imperative: Act in such a way that the action you take could be a
universal law or rule of behaviour under the circumstances.
o The professional ethics: Take actions that a disinterested panel of professional
colleagues would view as proper.
o The TV test: Ask: would I feel comfortable explaining to a national TV audience why I
took this action

Importance of Business Ethics:

o Ethical motivation: It protects or improves reputation of the organization by creating an
efficient and productive work environment.
o Balance the needs and wishes of stakeholders
o Global challenges: Business must become aware of the ethical diversity of this world because
of increasing globalization of the economy. It must learn the values of other cultures, how to
apply them to its decisions, and how to combine them with its own values.
o Ethical pay-off: They serve to protect the organization from significant risks, and to some
degree help grow the business.
o Employee Retention
o Prevention and Reduction of Criminal Penalties
o Preventing civil lawsuits
o Market Leadership

Moral Standards:
o Moral standards include the norms we have about the kinds of actions we believe are morally
right and wrong as well as the values we place on the kinds of objects we believe are morally
good and morally bad.
o Moral norms can usually be expressed as general rules, i.e. Always tell the truth. Moral
values can usually be expressed as statements describing objects or features of objects, i.e.
Honesty is good.
o During childhood moral standards are absorbed from family, friends and various societal
institutions. Later in life experiences, learning and intellectual development help a person in
forming these standards.
Why business should act ethically?
o To protect its own interest
o To protect the interests of the business community to develop trust of public
o To meet stakeholder expectations
o To prevent harm to the general public
o To protect themselves from abuse of unethical employees and competitors.
 o To protect their own reputation
o To protect their own employees
o To create an environment in which workers can act in ways consistent with their values
Code of Conduct and Ethics for Managers:
o Integrity
o Impartiality
o Responsiveness to the public Interest
o Accountability
o Honesty
o Transparency
Principles of Personal Ethics:
o Concern and respect for the autonomy of others
o Honesty and the willingness to comply with the law
o Fairness and the ability not to take undue advantage of others
o Benevolence and preventing harm to any creature
Principles of Professional Ethics:
o Impartiality: Objectivity
o Openness: full disclosure
o Confidentiality: Trust
o Due Diligence/duty of care
o Fidelity to professional responsibilities
o Avoiding potential or apparent conflict of interest
Organisational Tools that help to cultivate ethics are:
o A well developed MIS at the corporate level , the industry level ad at the functional area
level.
o Fair payment system and rational wage system
o A three tier grievance procedure for quick redress of grievances.
o Adopting a problem solving approach
o Regular management employee communication meetings
o Developing a union-management forum
o Open door policy of top management
o Quality circles
o Consultative mechanism and open organisational culture
o Workers participation in decision making
o Well delegated discretionary authority

ETHICS HAS NO PLACE IN BUSINESS. DISCUSS

Business ethics is an application of moral values when conducting a business. Business Ethics is relevant to conduct of individual and
organization. It applies to every type of activities that involved, in particular business such as meeting procedures, customer care, the
way the organization treats their employees, supplier, shareholder, sales techniques, accounting procedures and etc. Law often
controls business ethics, while other times business ethics provide an essential framework that businesses may choose to practice to
earn public acceptance.
Ethics is a study of morality that define good and bad activities. Business ethics is a process where we examine our moral standards
and applied it to the business in a right way and right time. But, there are some businessman and businesswoman denying that
applying moral values in business is not applicable. Different opinion arises that applying moral values or follows ethical guidelines in
business doesnt generate any profits to the companies or organizations.
Some businessman claims that Ethics has no place at all in business. This perspective is no doubt grounded on the assumption that
business is an autonomous human being activity. And morality does not exist and that businessman is allowed to do what they think.
To claim that business is an activity which is independent of morality is again, a shortsighted view of the relationship between ethics
and businesses. Business is a part of human society. Business activities, interrelated with the structure of belief and value system of
people. Business should also be seen and analyzed from the view of ethics. Any business activity that doesnt follow the morality will
bring more harm than good to individuals in particular, and the society in general. Further, the belief that Ethics does not mix with
business will only justify unlawful activities. Certainly, Ethics has a place in business.
Ethics is a subjective matter. Its viewed as a morality which depends on ones cultural and religious perspective. It is a wrong
perception of the role of ethics in business. Some businessman has a perspective that ethics are a morality, which means, the
fundamental concepts of right and wrong rely on cultural values of people. This implies further that what might be viewed as a right
activity in one nation may be unacceptable in another nation. Prostitution is definitely banned in Malaysia, however, legal in Thailand.
If morality is relative, then what is bad in one place may be great in other places, and vice-versa. And if ethics are viewed this way,
then whos going to tell us which actions are great and which activities are awful? The reality is, there are global ethics that people
accepts and follows regardless of religion, cultures and moral value system. For example, society in all around the world believes that
murder is definitely unacceptable action, and bribery is always wrong. The study of ethics reflects the way of our common
understanding of the fundamental ideas of right and wrong as reflected in our human nature and our human conduct.
Some businessman guarantees that good business implies good ethics. It is a myth. A business may be profitable, but the source of
gaining profits may be questionable. Drug-trafficking is a definitely profitable business, but they disregard same rules and values of
people. The study of Ethics in business encourages businessmen and managers to look closely into the end and the means of doing
business, but the ways of getting those profits must be also inspected. The end does not justify the means.
Certain business leaders and businessman have a perspective that business is a war. For them, the market is an arena of gladiators
trying to battle for survival and vying for the number one position. Because of this belief, businessmen often use predatory strategies
to destroy the competitors in order to emerge as the market leader. Business is a good human activity. And as an integral part of the
society, it must promote healthy competition and not to destroy competitors.
Ethics plays an essential part of business. Without ethics, business will be a chaotic human activity. Ethics is a not a study of positive
laws. Laws are always insufficient. They cant regulate all aspects of human nature and human action. The law is sometimes absent
and unclear in certain areas. Ethics is unwritten law and written in the hearts of men. An action is may be legal and may not
necessarily moral. The ethics provides clear distinction between morality and legality. Peter Ducker argues that, the enterprise is an
organ of society and its actions have a decisive impact on the social scene. Drucker simply reminds us that a business corporation is
not just created to make profits, but to consider its moral and social obligation to the stakeholders. Businesses should not just look
after their own interests, but also the interest of the common good.

SOCIAL RESPONSIBILITY
No chapter on ethics would be complete without a discussion on social responsibility. People, not only companies, can engage in
social responsibility. Being socially responsible shows both social awareness and self-management skillsthat is, an awareness of
how our decisions affect others. This section will first discuss social responsibility on the corporate level and then social responsibility
on the individual level. As we discussed with ethical company standards, it is difficult to separate corporate ethics and corporate social
responsibility from individual ethics and social responsibility, since people are the ones making the corporate policies. For purposes of
this section, we will first discuss social responsibility on the corporate level and then on the individual level.
Since social responsibility was first mentioned in the 1960s, companies have felt pressure from society to behave in a more socially
responsible manner. Social responsibility is the duty of business to do no harm to society. In other words, in their daily operations,
businesses should be concerned about the welfare of society and mindful of how its actions could affect society as a whole. We know
that social responsibility doesnt always happen, despite the seemingly best efforts of a company. For example, court papers accuse
British Petroleum (BP) of gross negligence for safety violations and knowingly failing to maintain the oil rig, which caused the death
of eleven workers and leaked oil in the Gulf of Mexico for eighty-seven days.United Press International. (2012, February 24). BP trial
will push gross negligence claim, accessed February 24, 2012, In this case, and others like it, people question the ability of companies
to fulfill their duty to society. Ideally, companies should look at four main areas of social responsibility and act ethically in all four
areas. In fact, even as individuals we should be aware of these areas of social responsibility, which we will discuss in this section.
Those four areas are the following:

Economic aspects. Companies need to maintain strong economic interests so they can stay in business. Being profitable and
providing value to shareholders is part of a company being socially responsible.
Legal aspects. A company must follow the law and have a legal obligation to do so. For example, car companies are required to meet
a certain level of emissions standards in car production.
Ethical aspects. Acting ethically means going above and beyond the legal requirements and meeting the expectations of society. In a
recent example, Apple Inc. policies were questioned when it was discovered the high suicide rate of workers producing iPhones in the
Chinese Foxxconn factory. As a result of the newfound awareness, Foxxconn raised the salary for workers from 900 yuan ($143) to
1,800 yuan.Eaton, K. (2012, February 24). Apple and Foxconns ethics hit your gadget prices In other words, the ethical expectations
(and outrage) of society can encourage companies to act ethically.
Philanthropic aspects. This is the expectation that companies should give back to society in the form of charitable donations of time,
money, and goods. Some organizations, such as REI, based in Seattle, Washington, donate 3 percent of profit and thousands of hours
to nonprofit community groups each year.
Corporate Social Responsibility
o Social Responsibility recognizes that organisations have significant influence on the social
system, which must be considered and balanced in all organisational actions.
o Corporate Social Responsibility is defined as the ethical behavior of a company towards
the society, and usually manifests itself in the form of programs initiated by business
organisation in various sectors like education and health etc.
o Corporate social respnsibility is basically a new business strategy to reduce investment
risks and maximise profit by taking all the key shareholders into confidence.
Levels of Corporate Social Responsibility
o Social responsibility can be exercised at three levels:
1. Level 1: Social Obligation- The organisation fulfill economic and legal responsibilities laid
out in government regulations and are socially responsible for eg. Tobacco companies carry
the statutory warning on cigraettepacks etc.
2. Level 2:Social Responsiveness- organisations respond to issues raised by aware citizens,
the media and other interest groups. For eg: Johnson and Johnson chose to loose money to be
socially responsive, but in the long run they gained the trust of their customers.
3. Level 3:Social Responsibility- Organisations go beyond the mandatory obligations and
exhibit responsible behavior proactively.The teach India intiative of The times of India is one
such pro-actuive, socially responsible behavior.
o The best level of social responsibility is level 3 where organisations naturally take
decisions by keeping the larger interest of all stakeholders and society. In order to increase
voluntary and proactive socially responsible behavior the ethical orientation of people
working in the organisation must be encouraged.
Importance of Corporate Social Responsibility at internal as well as external level:
o Externally it helps organisation in following ways:
(a) To create positive image amongst the people for its company.
(b) Earn a special respect for the top management and the subordinates- Create short term
employment opportunity by taking various projects like campaigns against smoking, literacy
programs etc.
(c) By having good reputation, it is easy for the management to recruit employers and move
important is to retain them.
(d) By controlling pollution and minimizing wastes by recycling used products.
o Internally it is helpful to an organisation through various ways:
(a) It creates a sense of loyalty and trust amongst the employees in the employees in the
organisational ethics.
(b) It serves as a diversion from routine workplace practice and gives a feeling of a satisfaction to
the employees
(c) It improves operational efficiency of the company by increasing the efficiency of employers
resulting into increase in quality of product and productivity.
(d) Employers feel motivated and are more productive.
(e) Corporate social responsibility helps to ensure that the organisation employees wit
regulatory requirement.