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Chapter:3 Business Ethics

Introduction of Ethics & Business ethics

The word ethics which in Latin is called Ethicus and in Greek s called Ethikos has come from word ethos, meaning character & manners. Ethics is thus said to be the science of morale, a treatise on this, morale principles . Recognize rules of conduct. The character of the man is expressed in terms of his conduct. Conduct of a person is a series of action, which when taken together, can be termed as good or bad, right or wrong , moral & immoral.

Moral judgment requires moral standards by which we judge human conduct thus , ethics can also be termed as the science of character of a person expressed as a right or wrong conduct on action. In general, ethics is deal with god than evil. Business ethics Business ethics is nothing but the application of ethics in business. Business ethics proves that business can be, and have been , ethical and still can make profits.

Business ethics deals with the morality in the business environment. It involves morale judgments, based on the understanding of the norms of the society. Ethics extends legal questions and involves the goodness or badness of the act. Therefore an action may be legally right but ethically wrong. Example: In a small village, a trader may charge a high price for his product , and legally he may be entitled do so, but ethically not.

What is Ethics?

Ethics and Religion Ethics and Social Responsibility Ethics - two levels of concern individual organizational Social Responsibility - Win -Win Ethics - Dont do things that may be in your own self interest

Definition of Ethics

The science of human duty; the body of rules of duty drawn from this science; a particular system of principles and rules concerting duty, whether

true or false; rules of practice in respect to a

single class of human actions; as, political or social ethics; medical ethics.


Business Ethics

The application of general ethical concepts to the unique situations confronted in business. It asks what is right or wrong behavior in business and what principles or rules can be used as guidance in business situations.

Profit maximization and discharge of social responsibility at the maximum limit can be carried on simultaneously. Concern for worker & concern for productivity opposite to each other. Consideration should be given to see whether alternative means of arrangement can be made people disturb or not. Merger & acquisition take place between companies

Why Study Ethics?

Will not make you more ethical

Help in trying to do the right thing

What is Ethical Behavior?

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, its important to consider outcomes of the decision-making process. One way of dealing ethical dilemmas is by using the four way test to evaluate decisions. This test involves asking four questions:

Is my decision a truthful one? Is my decision fair to everyone affected? Will it build goodwill for the organization? 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.

Objectives of business ethics

Ethics studies human behavior and makes evaluative assessment about them as moral or immoral. Ethics establishes moral standards and norms of behavior. Ethics makes judgment upon human behavior based on these standards & norms. Ethics prescribed moral behavior and makes recommendation about how to or how not to behave. Expresses on opinion or attitude about human conduct in general

Ethics studies human behaviour and makes evaluative assessment about them as moral & immoral. Ethics establishes moral standards and norms of behaviour. Ethics make s judgment upon human behaviour based on these standards and norms. Ethics prescribes moral behaviour and makes recommendation about how to or how not to behave. Expresses an opinion or attitude about human conduct in general.

Two Characteristics

Tells people what they ought to do Set of principles or rules


Robbing a Bank Driving Above the Speed Limit Cheating on an Exam

Nature /features of business ethics

Ethical decisions are not limited only to themselves, but affect a wide range of other situation. Every person is individually responsible for the ethical or unethical decision and action that takes. Ethical action are voluntary human action. Ethical decision differ with the individual perspective of different persons.

The consequences of most ethical decision are not clear. Most ethical decisions involve a trade off between cost incurred and benefits received.

Top 10 principles for positive business ethics

Business Ethics are built on Personal Ethics. There is no real separation between doing what is right in business, and playing fair, telling the truth and being ethical in your personal life. Business Ethics are based on Fairness. Would a disinterested observer agree that both sides are being treated fairly? Are both sides negotiating in good faith? Does each transaction take place on a level playing field? If so, the basic principles of ethics are being met.

Top 10 principles for positive business ethics

Business Ethics are built on Personal Ethics. There is no real separation between doing what is right in business, and playing fair, telling the truth and being ethical in your personal life. Business Ethics are based on Fairness. Would a disinterested observer agree that both sides are being treated fairly? Are both sides negotiating in good faith? Does each transaction take place on a level playing field? If so, the basic principles of ethics are being met.

Business Ethics require Integrity. Integrity refers to whole-ness, reliability and consistency. Ethical businesses treat people with respect, honesty and integrity. They back up their promises, and they keep their commitments. Business Ethics require Truth-telling. The days when a business could sell a defective product and hide behind the buyer beware defense are long gone. You can sell products or services that have limitations, defects or are out-dated, but not as first-class, new merchandise. Truth in advertising is not only the law, business ethics require it.

Business Ethics require Dependability. If your company is new, unstable, about to be sold, or going out of business, ethics requires that you let clients and customers know this. Ethical businesses can be relied upon to be available to solve problems, answer questions and provide support. Business Ethics require a Business Plan. A companys ethics are built on its image of itself and its vision of the future and its role in the community. Business ethics do not happen in a vacuum. The clearer the companys plan for growth, stability, profits and service, the stronger its commitment to ethical business practices.

Business Ethics apply Internally and Externally. Ethical businesses treat both customers and employees with respect and fairness. Ethics is about respect in the conference room, negotiating in good faith, keeping promises and meeting obligations to staff, employers, vendors and customers. The scope is universal. Business Ethics require a Profit. Ethical businesses are well-run, well-managed, have effective internal controls, and clear expectations of growth. Ethics is about how we live in the present to prepare for the future, and a business without profits (or a plan to create them) is not meeting its ethical obligations to prepare for the future well-being of the company, its employees and customers.

Business Ethics are values-based. The law, and professional organizations, must produce written standards that are inflexible and universal. While they may talk about ethics, these documents are usually prescriptive and refer to minimal standards. Ethics are about values, ideals and aspirations. Ethical businesses may not always live up to their ideals, but they are clear about their intent. Business Ethics come from the Boss. Leadership sets the tone, in every area of a business. Ethics are either central to the way a company functions, or they are not. The executives and managers either lead the way, or they communicate that cutting corners, deception and disrespect are acceptable. Line staff will always rise, or sink, to the level of performance they see modeled above them. Business ethics starts at the top

Regulation of business ethics

Legislative measures: The purpose of enforcing act is to protect the public interest including business & businessmen.e.g. consumer Act, Company Act etc. Goodwill of Business Unit: Businessmen use ethics to earn goodwill in to the market. Social Status of Business man: Businessmen thinks that he gets recognition from the public in a place where he does business.

Trade Union: It may be registered or un registered one. Trade union acts as watchdog to ensure observation of business ethics. Business Association: It guides the business as how to observe business ethics, stating the reason for doing so. Consumer movement: Consumer movement take active part in the adoption of business ethics. For example, if purchase product is not up to the mark as specified standard consumer able to claim the damage.

Management and Business Ethics

A companys 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 companys leaders are responsible for setting standards for what is and is not acceptable employee behavior. Its 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.

Ethical Dilemmas in Business

Conflict of Interest Have two interests - cannot purse one without having negative impact on other Two Types Private Interest Conflicts with Corporate Business Interest Conflicts with Public

Factors affecting business ethics

Unhealthy competition Abnormal profit motive Political interference Political uncertainty Unjust legislation Corruption Lack of ethical attitude Lack of education Non cooperation of employees Red tapism

Other Factors Impacting Organizational Ethics

Corporate culture. Formal & informal policies & rules. Norms for acceptable behavior. Financial Reward system. Company attitude towards employee. How employee are selected for promotion. Hiring practice. Degree to which professionalism is emphasized. The companys decision making process. Behavior &attitude of organization's leader.

Principles of Business ethics

Business must be just & humane as well as efficient and dynamic Service first, profit next Overriding obligations to make the fullest & best possible use of inputs Human values grows with the increase in size of the business to which it applies.

The social role of business can be best be assumed in an atmosphere of freedom in to the least possible restraint on healthy & open competition in absence of undisrebale restriction or interference from government. The purpose of all economic activities is to meet consumer needs and to contribute to the well being of the community.

Importance of Ethical Business Decisions

Companies and businesspeople who wish to thrive long-term must adopt sound ethical decisionmaking practices. Companies and people who behave in a socially responsible manner are much more likely to enjoy ultimate success than those whose actions are motivated solely by profits. Knowing the difference between right and wrong and choosing what is right is the foundation for ethical decision making. In many cases, doing the right thing often leads to the greatest financial, social, and personal rewards in the long run.

Arguments against business ethics

Business is as a economic activity , should have nothing to do with morale. Difference between What people do? And What people ought to do? Business motive is to earn more profits. In competitive world , it is difficult to survive without deception Business manager does not know & does not need to know , where public interest lies. Ethical practice do not necessarily increase the cost of production , in fact that tend to reduce the cost in short or long term.

How company ethically make profit?

Business must concern & understand the needs & welfare of the community & society & provide the same. Combine the qualities of private excellence for public good. There is only one responsibility of the business except the profit, to use its resources & engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say within the rule of the game, which is to say , engage in open & free competition without fraud.

Social responsibility towards stakeholders. Introduce business ethics as a part of corporate culture to attract talented employees & customers. Today, business felt that , they are responsible for social welfare , since they live & operate within the social structure. Companies are indulge in ethical conduct. It creates goodwill, loyalty, genuine pride, employer branding. In short, we can say that mental peace can not be calculated through money.

Indian managers attitude towards business ethics

A majority of business manager believes in good ethics, various circumstances like unnatural competition, company policy and plethora of rules & regulation often prevent the manager from putting belief in to practice. Dishonest methods used by competitors and the unethical climate in the industry. Manager were dissatisfied with the idea that profit should be only guidelines for businessman in decision making

A majority of the manager welcomed the idea of the code of the conduct and felt that it would help to improve the ethical climate in the country. The attitudes & reaction of the older business manager to situation demonstrated a greater ethical awareness than those of younger ones. The ethical attitude of those who belonged to specific religion Self regulation- best suited to the enforcement of the code.

Buying business using gifts, bribes, personal favors. Personal problem which lead anxiety , but mostly lead to conflict of head & heart. Importance of the company influencing ethical decision. Formal education & training did not seem to have simulated the desire to act honestly. Corruption & greed of the government official. More time in decision making when business considered ethical application. The influence of supervisors, though whom the company policy is most often transmitted, was considered important in ethical action


Is It Legal Test?
Ethical Quadrant II Ethical and Illegal
Codification Manifestation

Quadrant I Ethical and Legal


Corporate Decisions


Quadrant IV Unethical and Illegal Unethical Priyanka D. Sharma_ Business ethics

Quadrant III Unethical and Legal