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Unit 1: Nature and Concept Chapter 1: Introduction to Business Ethics Lesson 1: Meaning and Nature of Business Ethics Hello

dear students ever did something, which was against your values, beliefs & moral principles. The straightaway answer will be no, never. O.K. then answer all these questions in just yes or no: You did not help a person who met with an accident in front of you and was lying on the road waiting for someone to give him assistance? Have you ever bribed someone for getting your work done? Have you ever discriminated someone because of his caste, creed, sex or any other thing?

If the answer of any of the above mentioned question is yes then my friend its time you should revise your definition of values, beliefs and moral principles. I can understand that it is difficult to judge what is right and what is wrong because what is right in one situation can be wrong and improper in another situation. So for getting a clear picture of what is right and what is wrong. Lets start with the first topic of this subject. Points to be covered in this lecture: Meaning of Ethics and business Ethics Organization and Business Ethics Arguments for and against business ethics.

INTRODUCTION There is a big difference between what you have a right to do and what is right to do. - Justice Potter Stewart Never let your sense of morals get in the way of doing whats right. - Issac Asimov Man is a social animal. Though rules of nature control humans as they control other living beings, man himself has derived certain principles to govern his own individual and group behavior. These rules, in the form of behavioral standards may differ across cultures and times, but their basic objectives are always mutual existence and peace within the particular community or the social group. By ensuring security and protection of the group these standards helps in the survival of the particular community or a social group and thus its members. These standards of behavior are called ethics. Few socio-biologists argue that humans have biologically inherited capacity to make ethical judgments by evaluating actions as either good or evil. Internally in an Page 1 of 8

organization, apart from the organizational culture, its top leadership and their ideologies also influence ethical orientation of a people. As in the case of individuals, organizations irrespective of their size are also monitored and evaluated by a set of ethical standards. Apart from internal ethical code of conduct, external entities like professional and legal bodies, government and other public interests groups influence the norms of behavior for organizations. International bodies like United Nations and other non-government organizations like Amnesty International also influence these norms. They try to govern ethical concerns that are globally important by influencing policies and rules framed by the governments. MEANING OF ETHICS: What is Ethics? A few years ago, sociologist Raymond Baumhart asked business people, "What does ethics mean to you?" Among their replies were the following: "Ethics has to do with what my feelings tell me is right or wrong." "Ethics has to do with my religious beliefs." "Being ethical is doing what the law requires." "Ethics consists of the standards of behavior our society accepts." "I don't know what the word means." These replies might be typical of our own. The meaning of "ethics" is hard to pin down, and the views many people have about ethics are shaky. Like Baumhart's first respondent, many people tend to equate ethics with their feelings. But being ethical is clearly not a matter of following one's feelings. A person following his or her feelings may recoil from doing what is right. In fact, feelings frequently deviate from what is ethical. Nor should one identify ethics with religion. Most religions, of course, advocate high ethical standards. Yet if ethics were confined to religion, then ethics would apply only to religious people. But ethics applies as much to the behavior of the atheist as to that of the saint. Religion can set high ethical standards and can provide intense motivation for ethical behavior. Ethics, however, cannot be confined to religion nor is it the same as religion. Being ethical is also not the same as following the law. The law often incorporates ethical standards to which most citizens subscribe. But laws, like feelings, can deviate from what is ethical. Pre-Civil War slavery laws in the US and the apartheid laws of South Africa (before independence) are grotesquely obvious examples of laws that deviate from what is ethical. Finally, being ethical is not the same as doing "whatever society accepts." In any society, most people accept standards that are, in fact, ethical. But standards of behavior in society can deviate from what is ethical. An entire society can become ethically corrupt. Nazi Germany is a good example of a morally corrupt society. Page 2 of 8

Moreover, if being ethical were doing "whatever society accepts," then to find out what is ethical, one would have to find out what society accepts. To decide what I should think about abortion, for example, I would have to take a survey of American society and then conform my beliefs to whatever society accepts. But no one ever tries to decide an ethical issue by doing a survey. Further, the lack of social consensus on many issues makes it impossible to equate ethics with whatever society accepts. Some people accept abortion but many others do not. If being ethical were doing whatever society accepts, one would have to find an agreement on issues, which does not, in fact, exist. What, then, is ethics? Ethics is two things: First, ethics refers to well-based standards of right and wrong that prescribe what humans ought to do, usually in terms of rights, obligations, benefits to society, fairness, or specific virtues. Ethics, for example, refers to those standards that impose the reasonable obligations to refrain from rape, stealing, murder, assault, slander, and fraud. Ethical standards also include those that enjoin virtues of honesty, compassion, and loyalty. And, ethical standards include standards relating to rights, such as the right to life, the right to freedom from injury, and the right to privacy. Such standards are adequate standards of ethics because they are supported by consistent and well-founded reasons. Secondly, ethics refers to the study and development of one's ethical standards. As mentioned above, feelings, laws, and social norms can deviate from what is ethical. So it is necessary to constantly examine one's standards to ensure that they are reasonable and well-founded. Ethics also means, then, the continuous effort of studying our own moral beliefs and our moral conduct, and striving to ensure that we, and the institutions we help to shape, live up to standards that are reasonable and solidly-based. Definitions of Ethics: Ethics is a set of moral principles or values which is concerned with the righteousness or wrongness of human behavior and which guides your conduct in relation to others (for individuals and organizations). Ethics is the activity of examining the moral standards of a society, and asking how these standards apply to our lives and whether these standards are reasonable or unreasonable, that is, whether they are supported by good reasons or poor ones. Therefore, a person starts to do ethics, when he or she takes the moral standards absorbed from family, friends, and asks: what do theses standards imply for the situations in which I find myself? Do these standards really make sense? What are the reasons for or against these standards? Why should I continue to believe in them? What can be said in their favor, and what can be said against them? Are their implications in this or that particular situation reasonable?

Goal of a theory of ethics Page 3 of 8

The goal of a theory of ethics is to determine what is good, both for the individual and for the society as a whole. Philosophers have taken different positions in defining what is good, on how to deal with conflicting priorities of individuals versus the whole, over the universality of ethical principles versus "situation ethics" in which what is right depends upon the circumstances rather than on some general law, and over whether goodness is determined by the results of the action or the means by which results are achieved. BUSINESS ETHICS: According to an old joke business ethics is a contradiction in terms. For some this is only humor. For others there is a serious question: As business is by nature unethical, how can there be such a subject as business ethics? The new economy is changing the world of work and the people who work in it fundamentally. Technology, globalization, intangibles and the war for talent are all driving the new economy and helping to create new corporate paradigms. In the new economy, business models can be seen as groupings of assets (or stakes), and businesses will need to be accountable to each asset owner (or stakeholder) in some kind of mutually agreed way. Wider accountability involves wider ethical dimensions that businesses must grapple with, and with this comes a greater risk of ethical conflicts that can damage an organization. Avoiding the ethical conflicts presents a new management challenge. Ethical behavior is not an act but a habit. Just as good health requires cultivating the habits of getting enough sleep and eating wholesome food, Aristotle believed that right action was the result of developing good moral habits. In a business context, this means training at the deepest level, something we call corporate culture. Definition of Business Ethics: 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. Ethical Issues Relate to All Functional Areas Accounting Finance Management Marketing WHY DO WE NEED TO STUDY BUSINESS ETHICS: Now that we have understood the meaning of the terms Ethics and Business Ethics, its time we should understand the importance of this concept. IMPORTANCE OF BUSINESS ETHICS: It is now recognized that it is good business to be ethical. An ethical image for a company can build goodwill and loyalty among customers and clients.

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Ethical motivation: It protects or improves reputation of the organization by creating an efficient and productive work environment. At a time of mass corporate downsizing, one of the most effective ways to appeal to the fragile loyalty of insecure employees is to promote an ethical culture, which gives employees a greater sense of control and appreciation. Balance the needs and wishes of stakeholders: There is pressure on business to recognize its responsibilities to society. Business ethics requires businesses to think about the impact of its decisions on people or stakeholders who are directly or indirectly affected by those decisions. Companies build their image by acting in accordance with their values, whatever they might be. Creating a positive public image comes from demonstrating appropriate values. Publicizing and following a company's values allows stakeholders to understand what the company stands for, that it takes its conduct as an organization seriously.

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. In a world where transnational corporations and their affiliates account for two-thirds of the world's trade in goods, and employ 73 million people, corporations cannot afford to ignore the reality of multicultural ethics. Ethical pay-off: They serve to protect the organization from significant risks, and to some degree help grow the business. Risks such as breaches of law, regulations or company standards, and damage to reputation were perceived to be significantly reduced. Employee Retention: One of the major costs in business is inappropriate turnover. The loss of valuable experience and development of new personnel is a cost companies can control. Seldom is pay the primary factor in losing an employee. What would a company give to retain valuable employees? With a successful program, the employees work with managers and supervisors in making decisions based on the company's values. A successful Business Ethics program establishes a culture that rewards making the right decision. Prevention and Reduction of Criminal Penalties: The United States Sentencing Commission Guidelines state that to receive a 40% reduction in federal penalties,

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a company must have "an effective program to detect and prevent violations of the law". Executives cannot always be aware of everything done in a company's name. Jeffrey Kaplan in his article The Sentencing Guidelines: The First Ten Years points out that recent cases also show that prosecutors are electing not to pursue some actions because the companies in question have sound programs in place. This is a tremendous asset to companies under regulatory scrutiny. Preventing civil lawsuits: Many times employees that experience issues in the workplace first try to resolve these issues internally. If their complaints are ignored, employees feel compelled to go to an outside advocate. That could be a private attorney, government regulator or news agency. Giving employees an internal outlet can solve problems without the event becoming public knowledge or an issue for the courts. Having the values permeate the company culture enhances the staff's trust in senior management. Why? Because with an effective program, the staff recognizes that management also operates within these appropriate values. Market Leadership: When a company fully integrates its values into its culture, quality rises due to the employee's focus on values. Customers see that the employees care about the customer's concerns. Employees reflect appropriate values in their attitude and conduct. Roy Koerner in his article Want More Profit? Try Ethical Business Practices points out that businesses demonstrating the highest ethical standards are also the most profitable and successful. Setting the Example: By setting the example in the community and market, the entire industry has a new standard that allows the community and the market to recognize the company as a leader. When the word gets out, competitors will have to answer questions about why they were not establishing similar values.

ORGANIZATIONS AND ETHICS As in other social entities, ethics are inevitable in organizations. Research has already shown that ethics do pay. Since unethical practices cost industries billions of dollars a year and damage the images of corporations, emphasis on ethical behavior in organizations has increased over the recent years. Societal expectations, and pressures from legal and professional bodies have forced organizations to be more concerned about their social responsibilities and ethical practices. In the mid-1990s Shell faced one of its worst public relations nightmare due to its unethical business practices in Nigeria. In 1997 the Financial Times in its annual survey of Europes most respected companies identified Shells ethical problems as the key reason for the companys dramatic drop in rankings. Shell turned upside down in the Page 6 of 8

aftermath of these unfavorable experiences and thus started correcting itself for sustainable growth. Like Shell, many other organizations whose business practices are perceived to be unethical and their products are considered to be harmful to the consumers (e.g. cigarettes) face strong social condemn. In recent corporate history, the Enron and Arthur Anderson episodes, stress the importance of ethical practices in business. Ethical problems are problems of choice. Ethical problems arise not because of peoples tendency to do evil, but because of the conflicting nature of standards and interests, which are valid in themselves. Problems in ethical decision-making and behavior occurs only when individual interests and social norms conflict with each other. Every organization has its own accountability towards its stakeholders employees, capital investors, consumers, government, competitors, suppliers, and other community members. In most situations the organizations are able to balance its obligations towards these varied stakeholders. However, sometimes conflicts do arise between the interests of two or more stakeholders. In such situations the more influential and powerful group could gain precedence over others, to protect their own interests. For example, though maximizing financial returns is an organizations obligation towards its shareholders, it could be at the cost of the ecological system or legal business practices. Managers under these situations face the dilemma of protecting long-term interests of the organizations and short-term profits. Recent thrust on high output driven performance and reward linkages in organizations is driving to short-term interests. It might adversely affect the adherence to ethical norms in organizations. In order to ensure ethical business practices of an organization, it is important to ensure ethical orientation of the people who own, manage, and work for it. Adopting proper structures and practices could ensure it. Structure, policies and practices of an organization influence ethical behavior through flow of communication, reinforcements for ethical behavior etc. Many successful organizations consider ethical conduct a critical measure in performance evaluations and compensation. Jack Welch, one of the successful CEOs of GE, insists that the leaders of his organization should be oriented more towards the organizational values, than being highly results oriented. He rated GEs top-level managers not only on their performance in meeting targets, but also the extent to which they lived GE values.

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ARGUMENTS AGAINST IMPLEMENTATION OF BUSINESS ETHICS: Argument 1: In perfectly competitive markets, the pursuit of profit will by itself ensure that the members of society are served in the most socially beneficial ways. Counter points to this argument: 1. Most industrial markets are not perfectly competitive as the argument assumes, and to the extent firms do not have to compete they can maximize profits in spite of inefficient production. 2. The argument also assumes that any steps taken to increase profits will necessarily be socially beneficial - then what about bribery, hiding product hazards, surrogate advertising, harmful pollution etc. Argument 2: Business managers should do what is in the best interest of the firm. This is known as loyal agents argument. Counter points to this argument: 1. The argument shows that the manager should serve the employer in whatever way the employer wants to be served and this means that ethics does not matter because we are assuming an unproven moral standard. 2. No limits to managers duties which is morally not correct. Argument 3: To be ethical it is enough for business people merely to obey the law. Business ethics is essentially obeying the law. Counter points to this argument: It is wrong to see law and ethics as identical. It is true that some laws require behavior that is the same as the behavior required by our moral standards. Laws that prohibit murder, theft, fraud and so on. In such cases, laws and morality coincide, and the obligation to obey such laws is the same as the obligation to be moral.

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