Business Ethics

Module 1: An Overview of Business Ethics

Meaning of Ethics
Ethics refers to a system of moral principles a sense of right and wrong and goodness and
badness of actions, and their motives and consequences.

Objectives of ethics
(i) To study of human behaviour and making evaluative assessment about that as moral or
immoral.
(ii) To establishing moral standards/norms of behaviour.
(iii) To ensure judgement upon human behaviour based on these standards and norms.
(iv) To prescribe moral behaviour i.e. making recommendations about how to or how not to
behave.
(v) To express an opinion about human conduct in general.

Meaning of Business Ethics

Business Ethics means conducting all aspects of business and dealing with all stakeholders in
an ethical manner. It refers to the application of ethics to business. To be more specific,
business ethics is the study of good and evil, right and wrong, and just and unjust actions of
businesses.

Nature of Business Ethics

Ethics can be defined as a description of the norms of behaviour that provide a comparable
protection to the coherence of a society. Business ethics refers to the application of ethics to
business. Since business exists and operate within the society and is a part of a subsystem of
society, its functioning must contribute to the welfare of the society. To survive, develop and
excel, business must earn social sanction of the society wherein it exists and functions.
Without social sanctions, a business cannot earn loyal customers, cannot operate in a market
place and will soon wither and die away. No business, however great or strong or wealthy it
may be, can exist on unethical means, or in total disregard to its social concern.
Business needs to remain ethical for its own good. For the long run existence and sustained
profitability of the firm, business is required to conduct itself ethically. Business needs to
function as responsible corporate citizens of the country. To be considered ethical, business
must draw its idea about what is desirable behaviour from the same sources as anyone else. It
should not try to evolve its own principles to justify its actions.

Nature of values
Values are global beliefs that guide actions and judgements across a variety of situations.
Values represent basic convictions of what is good and what is bad or what is desirable or
undesirable in one’s conduct. Values are at the core of personality and are a powerful source
affecting behaviour. They have an important influence on the attitudes, perceptions, needs
and motives of people at work. Values are relatively stable and enduring.
Values form the bedrock of a culture. They provide the context within which a society’s
norms are established and justified. They may include a society’s attitudes towards such
concepts as individual freedom, democracy, truth, justice, honesty, loyalty, social obligations,
collective responsibility, the role of women, love, sex, marriage, and so on. Values are not
just abstract concepts; they are invested with considerable emotional significance.
People differ in their choice of values, the enforcement of one person’s or one group’s values
on an individual are an ethical issue in its own right.

Importance of business ethics:

Globalisation: Global expansion has brought about greater involvement with different
cultures and socio-economic systems. With this development, ethical considerations- such as
the different assumptions about the responsibilities of business, about acceptable business
practices, and about the values needed to build a cohesive, successful organisation- become
more important.
Technology: The added capabilities of technology have created a new level of transparency
and immediacy to business communication. Now the conduct of businesses around the globe
is more exposed than it was ever was before.
Competition: Rising competition brings with it added pressure to corners. Simultaneously,
leaders are looking for new ways to differentiate their companies and move them to a new
level of excellence. Some believe that a proactive ethical stance can have a positive impact on
the bottom line.
Public perception: There is a perceived decline in social ethics that yields uncertainty.
Managers are no longer comfortable assuming that employees joining their companies posses
the desired ethical values. And public expectations too have changed. That which was once
deemed acceptable is now more readily scrutinised. New laws and stepped up enforcement
efforts have increased the risk of personal and organisational liability.

Sources of Business ethics

Religion: Religion is the oldest source of inspiration for ethics. Various religions exist across
the globe; and they have different doctrines. But they all agree on the belief that ethics are
indispensable and will reveal what is right and wrong in all facets of life. All the religions
stress the need for an orderly social system and social responsibility in such a way so as to
contribute to general welfare.
Culture: Culture means the mode of life of a particular group of people, especially with
reference to their pattern of life in society, their dress, rituals beliefs, rules, regulations,
conduct, behaviour and ethical practices. Cultures of different nations are different. Each
culture of the world has its own ethical practices. The basic values of a society constitute the
core of its culture. Man being a social animal, cannot live alone and hence his conduct has a
direct or indirect reference to the culture he belongs to this moral standards and value system
is constructed by the customs and norms of his culture. Family culture has a tremendous
impact and profoundly affects a person in building up his own ethical value structure.
However, the moral conduct of a person is not confined only to his family culture. It
transcends family culture and spills over to the culture of the society or the race he belongs
to. Inspire of ethics being culture- specific, there are certain principles which run like a
common thread among all cultures, all religions and among all ages in history. These are the
principles of honesty, respect for life and freedom, fairness, loyalty, human dignity, integrity,
etc. These principles are unchangeable, immortal and remain valid, transcending time, space
and distance.
Legal system: The legal system provides the human society with the minimum standards of
behaviour but laws do not duplicate the value system of the society. Laws are not a replica of
the ethical system, nor are laws an expression of the moral standards of the society. Laws
merely provide us with the guidelines of behaviour for a disciplined, peaceful and safe
society, society expects business to abide by law and abiding by law is presumed to be ethical
behaviour.
Genetic inheritance: Although the view remains theoretical, sociobiologists have in recent
years have found persuasive evidence and arguments which suggest that the evolutionary
forces of natural selection influence the development of qualities such as co-operation and
altruism that lie at the core of our ethical systems. Those qualities of goodness often
associated with ethical conduct may, in some measure, be a product of genetic traits
strengthened over time by the evolutionary process.
Philosophical systems: To the Epicureans, the quality of pleasure to be derived from an act
was the essential measure of its goodness. The stoics, like the Puritans and many
contemporary Americans, advocated a disciplined, hardworking, thrifty lifestyle. These
philosophies and others have been instrumental in the society’s moral development.
Codes of conduct: Codes of conduct are statements of rules. Codes of conduct typically are
comprised of a list of rules, stated either affirmatively or as prohibitions. In order to act with
integrity, a firm must first articulate its values, its priorities. The most prevalent form of
values articulation and communication is a corporate mission, code of conduct, or code of
ethics. Once the firm has defined its individual value structure, individual decision makers
within the firm have guidance in connection with difficult dilemmas. Codes may refer to
general areas of business conduct or may apply to a specific area of the firm’s business.

Arguments for business ethics

Business organizations today have accepted ethics as a part of their business conduct. They
have realized that business exists and operates within the society and is a part of a subsystem
society, so its functioning should contribute to the welfare of the society. As a company
grows, the public takes more interest in it as it has a great impact on the community. There is
a greater social responsibility on the managers to maintain a proper image of their company
in the public mind. The company cannot resort to unethical behaviour or disregarding social
welfare. Ethical practices sometimes reduce the cost of production in the long run. Ethical
and moral behaviour gives a unique edge and advantage in the market place. This has been
well proved by the TATA group of companies that have based their business activities on
ethical principles.
Arguments against Business Ethics
Businesses are economic entitles and should concentrate on producing goods and services
efficiently and maximizing profits for the shareholders. Some economists like Friedman
believed that if business ethics is a part of a corporate culture, the customer would have to
bear the cost of ethical practices of the organization as some ethical practices increase the
price of products. Earlier people feared that ethical code of conduct would mean a sacrifice of
efficiency and productivity and the competitiveness of the marketplace would fade. It was
believed that business should use their resources and engage in activities designed to increase
profits as it stays within the games of the rules. Now the fears expressed by philosophers and
psychologists have been changed.

Factors influencing business ethics

Leadership: The quality and worth of leadership can only be measured in terms of what a
leader intends, values, believes in or stands for- in other words, character. Character refers to
the enduring marks or etched in factors in our personality, which include our in-born talents
as well as the learned and acquired traits imposed upon us by life and experience. These
engravings define us, set us apart and motivate behaviour. It is not only useful but essential to
examine the character of those who lead us. Leaders must engage followers, not merely direct
them. Leaders must serve as models and mentors, not martinets; “Power without morality” is
no longer power. The task of leaders as teacher is to empower people with information, offer
insights, new knowledge, and alternative perspectives on reality. The leader as teacher is not
just about teaching people how “to achieve their vision” but rather, is about fostering,
learning, offering choices and building consensus. Hence, we must be careful while choosing
are leaders.
Strategy and performance: Generally, three types of strategies are found in firms:
Corporate Strategy, Business Strategy and Functional Strategy.
Corporate strategy is framed at the corporate level and it represents the pattern of
entrepreneurial actions and intents underlying the organisation’s strategic interest in different
business, divisions, product lines, technologies, customer groups and customer needs.
Business Strategy is a plan for directing and running of specific business units. This strategy
mainly focuses on: (1) How to deal with competition, (2) How will a particular business unit
contribute to the overall success of the organisation and (3) Allocation of resources.
Functional Strategy is the plan to manage a principal subordinate activity within a business.
Ethical business performance implies adhering to society’s basic rules that define right and
wrong behaviour.
Corporate Culture: Managing ethics in organisations is not just about managing formal
ethics/ compliance programs. Researchers have suggested that the broader ethical context in
an organisation- referred to as the ethical climate or culture- is particularly important, perhaps
more important than specific ethics/compliance program goals or characteristics. The
elements of ethical culture that guide employee thought and action include leadership, reward
systems, perceived fairness, ethics as a topic of conversation in the organisation, employee
authority structures, and an organisational focus that communicates care for employees and
the community.
Environment: Business has an ethical responsibility to become an active partner in dealing
with social concerns. Corporations can and must develop a conscience and this includes an
environmental conscience. The environment speaks to us in the form of droughts, heat waves,
dying lakes, forest fires, contaminated water, polluted air, and the like. Businesses have heard
the call of Earth planet and are working towards being environmentally friendly.

Issues of business ethics

Economic Issues: Business organizations were created as economic entities designed to
provide goods and services to societal members. The profit motive was established as the
primary incentive for entrepreneurship. The business organization was the basic economic
unit in our society. The principal role of any business was to produce goods and services that
consumers needed and wanted and to make an acceptable profit in the process. Many a times
profit motive got transformed into a notion of maximum profits, and this has been an
enduring value ever since. All other business responsibilities are predicated upon the
economic responsibility of the firm, because without it the others become moot
considerations.
Legal Issues: Society has not only sanctioned business to operate according to the profit
motive; at the same time business is expected to comply with the laws and regulations
promulgated by federal, state, and local governments as the ground rules under which
business must operate. As a partial fulfilment of the “social contract” between business and
society, firms are expected to pursue their economic missions within the framework of the
law. Legal responsibilities reflect a view of “codified ethics” in the sense that they embody
basic notions of fair operations as established by our lawmakers. Even if the legal issues are
dealt separately, they are coexisting with economic responsibilities as fundamental precepts
of the free enterprise system.
Ethical Issues: Although economic and legal responsibilities embody ethical norms about
fairness and justice, ethical responsibilities embrace those activities and practices that are
expected or prohibited by society even though they are not codified into law. Ethical
responsibilities embody those standards, norms, or expectations that reflect a concern for
what consumers, employees, shareholders, and the community regard as fair, just, or in
keeping with the respect or protection of stakeholders’ moral rights. To change ethics or
values precedes the establishment of law because they are the driving force behind creation of
laws or regulations.
Philanthropic Issues: Philanthropy encompasses those corporate actions that are in response
to society’s expectation that businesses be good corporate citizens. This includes actively
engaging in acts or programs to promote human welfare or goodwill. Examples of
philanthropy include business contributions of financial resources or executive time, such as
contributions to the arts, education, or the community. The distinguishing feature between
philanthropic and ethical issues is that the former are not expected in an ethical or moral
sense. Community’s desire firms to contribute their money, facilities, and employee time to
humanitarian programs or purposes, but it are not regarded as the firms unethical behaviour if
they do not provide the desired level. So, philanthropy is more voluntary on the part of
businesses. Philanthropy is highly desired but is less important than the other three categories
of social responsibility.