Business Ethics

BUSINESS ETHICS
⚫ Business ethics is the application of ethical principles in
business.
⚫ Business ethics refer to right or wrong behaviour in
business decisions
⚫ An ethically responsible business is one which has
developed a culture of caring for people and for the
environment
⚫ Business ethics also relate to the behaviour of business,
men, manager or other staff in business
Characteristics of Business Ethics
⚫ It is application of ethical principles in business
⚫ It is the code of conduct of business (Right or wrong
behaviour in business decisions)
⚫ Based on moral and social values
⚫ It is a voluntary act.
⚫ It demands adherence to rules and regulations
⚫ It demands caring of people (Employees, customers, vendors,
public)
⚫ It demands caring of environment
⚫ It is a management discipline.
⚫ Not against profit making
Objectives of Business Ethics
⚫ Establishment of moral and ethical standards in business
decisions.
⚫ Survival of business reputation, image etc
⚫ Protecting consumer rights. Health and safety, handling
customer complaints
⚫ Safeguarding employees – job security, better salary, working
conditions
⚫ Protect the interest of shareholders- disclosure of information
⚫ Develop strong relation with society
Factors influencing Business Ethics
⚫ Personal code of ethics (individual standards and
values) – of the people inside the organisation
⚫ Management Style of organisation (Leadership styles
& Degree of professionalism in management)
⚫ Legislation – Enactment and proper implementation
of Laws and other government regulations.
Factors influencing Business Ethics…
⚫ Value system and Ethical code of the company
⚫ Social pressure (Consumerism, local pressure etc)
⚫ Ethical climate of the industry – if other firms in the
industry follows ethical norms, business may compel to
follow ethical norms.
⚫ Ethical climate of a country – political factors, social
values , cultural values etc.
SCOPE OF
BUSINESS
ETHICS
 Scope of Business Ethics
Ethical problems and phenomena arise across all
the functional areas of organisations
⚫ Ethics in Conformity
⚫ Obeying and adhering to rules and authority
⚫ Ethics in Finance
⚫ Avoid window dressing and misleading financial analysis
⚫ Bribery, kickbakcs, over billing of expenses, facilitation
payments
⚫ Fake reimbursements
⚫ Related party transactions
⚫ Insider trading and securities fraud
 Scope of Business Ethics
⚫ Ethics in Human Resource
⚫ Discrimination on the basis of age, gender, race, religion, disabilities, weight etc
⚫ Sexual harassment
⚫ Trade unionism
⚫ Privacy of employees
⚫ Occupational safety and health
⚫ Security of job
⚫ Better working condition
⚫ Chances of promotion
⚫ Participation in management/decisions
⚫ Welfare activities
⚫ Fair policies relating to recruitment, compensation, promotion etc
 Scope of Business Ethics
⚫ Ethics in Marketing
⚫ Price fixing, price discrimination and price skimming
⚫ Anti competitive practices
⚫ Misleading advertisements
⚫ Content of advertisement
⚫ Black markets and gray markets
 Black Markets and Gray Markets
⚫ Black market goods are items that are illegal to manufacture or sell.
Examples of goods traded in the black market are weapons, illegal drugs,
exotic and protected species of animals, and human organs needed for
transplant surgeries.
⚫ Are grey market products fakes? In one word, no.
⚫ Grey market products are legal products being sold in non-authorised
distribution channels, in this instance as well, such activity is unofficial
but not illegal.
⚫ The term “gray market” also refers to the import and sale of goods by
unauthorized dealers; in this instance as well, such activity is unofficial but
not illegal.
⚫ Common gray market goods include cameras, cars, watches and even
pharmaceuticals.
 Scope of Business Ethics
⚫ Ethics of Production
⚫ Defective or dangerous products
⚫ Environmental pollution
⚫ Carbon emission trading
⚫ Genetically modified food
 Scope of Business Ethics
Societal Level
⚫ Concern for poor, backward & local people
⚫ No discrimination against any section or group
⚫ Concern for clean environment
⚫ Preservation of scarce resources
⚫ Contributing to better quality of life
 Scope of Business Ethics
Customers level
⚫ Better quality of goods
⚫ Goods and services at reasonable price
⚫ Not to corner stock
⚫ Not to practice discriminary pricing
⚫ Not to make false claims in advertisements
 Scope of Business Ethics
Shareholders level
⚫ Ensure capital appreciation
⚫ Ensure steady and regular dividend
⚫ Disclose all relevant information
⚫ Protect the interest of minority shareholders
⚫ Not to window dress balance sheet
⚫ Protect interest in times of mergers, amalgamations and
takeovers.
 Scope of Business Ethics
Banks and Lending institutions
⚫ Guarantee safety of borrowed funds
⚫ Prompt repayment of loans
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 Scope of Business Ethics
Government
⚫ Comply with rules & regulations
⚫ Honesty in paying taxes
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 Principles of Business Ethics
⚫ Sacredness of means and ends: (a good end cannot be
attained with wrong means)
⚫ Not to do any evil
⚫ Principles of proportionality (one should make proper
judgement before doing anything so that others do not
suffer from any loss)
⚫ Co-operation with others (help other when they deserve
it)
 Principles of Business Ethics
⚫ Publicity: disclosure of everything which prevent unethical
activities
⚫ Equivalent price : Goods= value of money
⚫ Business consciousness : give importance to his/her inner
voice
⚫ Keep universal values
⚫ Human dignity : human dignity should be maintained
⚫ Promise keeping
⚫ Non-violence
 Importance of Business Ethics
⚫ Increases Goodwill
⚫ Helps to increase mutual trust and confidence
⚫ Helps in professionalization of management
⚫ Protects each other
⚫ Release from tension
⚫ Perpetual succession
⚫ To face challenges
⚫ Ethics creates credibility with public
⚫ Ethics give management credibility with employees
⚫ Ethics help better decision making
 Limitations of Ethics
⚫No reward for ethical conduct
⚫Difficult to decide an act whether
it is ethical or not
⚫No proper knowledge of ethical
standards
Arguments for and against Business Ethics
⚫ Some people support business ethics and
listed out the reasons why the business
ethics is required.
⚫ But some others argued that the business
ethics is not a matter of business. They
listed out their own arguments to prove
the irrelevance of business ethics.
 Arguments for business ethics
(Need for Business ethics)
⚫ Business is a part of society:
Business utilises the resources of the society. Therefore
business is responsible to the society. Business ethics is a
part of this social responsibility
⚫ Moral justification:
It is the moral duty of the business to care for people and
environment.
⚫ Creating better public image:
An ethically responsible business can create better public
image.
 Arguments for business ethics…
⚫ Avoidance of government regulations and actions:
Voluntary adoption of ethics and social responsibilities will be
helpful to avoid government regulations and actions.
⚫ Improve the confidence of all:
Confidence of management, suppliers, customers, employees etc.
⚫ Ethics contributes to employee commitment
Employees will be willing to sacrifice personally for the
organisation.
⚫ Ethics contributes to sales and profit
An ethically responsible business can attract new customers and it
leads to more sales and profit.
Arguments against Business Ethics
⚫ Burden of additional cost:
Adoption of ethical practices leads to higher cost of business and
higher price burden to the consumers.
⚫ Conflict with principal purposes of business:
Profit is the reward for taking business risk. Adoption of business
ethics and social responsibilities will reduce business profit and
shareholders wealth.
⚫ Difficult to adopt standard ethical code:
No standard ethical code is available to determine which project is
ethically desirable.
 Arguments against Business Ethics….
⚫ A manager’s most important obligation is loyalty to the
company regardless of ethics
⚫ An ethical company cannot be competitive and viable
⚫ Business is just a sub set of the society. Hence the
principle that apply to society also apply to the business
⚫ Legitimacy : what is legally okay is also morally okay
 Different views of Business ethics
⚫ There are number of arguments related
with the needs of ethics in business
⚫ For and against
⚫ There is a third view between these two
(They are not discarding it fully or
accepting it fully)
Different views of Business ethics
⚫The Unitarian view
⚫The Separatist view
⚫The Integration view
 The Unitarian view
⚫ Business ethics is an integral part of business
⚫ If the business want to survive and flourish in the
long run, morality and ethics is essential in
business
⚫ Business is a part of society
⚫ Major role of business is serving the society.
 The Separatist View
⚫ Classical economists like Adam Smith and
Milton Friedman proposed Separatist view
⚫ Morality and ethics has no role in business
⚫ Business should concentrate on production,
distribution and profit maximisation
⚫ Social problems are to be tackled by the
Government
 The Integration View
⚫ Talcott Persons proposed Integration view
⚫ Ethical behaviour and business interests should be
integrated
⚫ Business has the right to make profit, but at the same
time has ethical & social obligations.
⚫ The profit maximisation and growth can be achieved only
through business ethics and social responsibilities.
⚫ Ethics and business are interrelated and are guided by
external factors such as laws, government interventions,
societal expectations etc.
 Code of Ethics
⚫ A code of ethics is a guide of principles
designed to help professional conduct business
honestly and with integrity.
⚫ A code of ethics also referred to as an ‘ethical
code’ my encompass areas such as business
ethics, a code of professional practice and an
employee code of conduct.
 Code of Ethics
⚫ It is a statement of norms and beliefs to be followed
by employees of an organization.

⚫ A code of ethics is statement setting down corporate

principles, ethics, rules of conduct, codes of practice
or company philosophy concerning responsibility to
employees, shareholders, consumers, the environment
or nay other aspects of society external to the
company ( Langlois and Schlegelmilch)
 Examples of Code of Ethics
⚫ Honesty : (do not mislead, deceive…no partial truth)
⚫ Integrity : (fight for their belief…no compromise )
⚫ Promise-keeping and trustworthiness
⚫ Loyalty :(devotion to the duty, don’t reveal secrets)
⚫ Fairness : equal treatment of individuals
⚫ Concern for others :
⚫ Respect for others
⚫ Law abiding :
⚫ Commitment to excellence : Purse excellence in duties
⚫ Leadership :
⚫ Reputation and Morale (protect and build reputation)
⚫ Accountability :
GLOBALIZATION AND BUSINESS ETHICS
⚫ Business Ethics (also Corporate Ethics) is a form of
applied ethics or professional ethics that examines ethical
principles and moral or ethical problems that arise in a
business environment.
⚫ Globalization refers to the growing interdependence of
countries resulting from the increasing business on
integration of trade, finance, people and ideas in one
global market place.
GLOBALIZATION AND BUSINESS ETHICS
⚫ By the term Globalization we mean opening up of
the economy for world market by attaining
international competitiveness.
⚫ The phenomenon of globalization is generally driven
by a mixture of economic, technological, socio-
cultural, political and biological factors.
⚫ So, it becomes important to deal with ethical issues
in cross-cultural settings.
GLOBALIZATION AND BUSINESS ETHICS
⚫ The unique ethical problems of international business
are due to many factors, such as different ethical
traditions and political and legal systems, diverse
forms of economic organization and different levels of
economic development, inadequate or ineffectual
regulation, especially in less-developed countries ,
conflicts between national and regional economic and
political interest etc.
 Relevance of Globalization for Business Ethics
⚫ Cultural and Moral Issues
⚫ Eg: Attitude to racial and gender diversity is different country
to country
⚫ Dismissal of employees in China and Europe is perceived as
different
⚫ Child Labour is strictly unethical in Europe unlike Asia
⚫ European are not approving capital punishment while many
American consider it as morally acceptable.
⚫ European Beaches , women can freely sunbath e topless on,
unlike in Pakistan
 Relevance of Globalization for Business Ethics…
Cultural and Moral Issues….
⚫ Business can only expand quickly in global markets by
being empathic to the needs, perspectives, and accepted
procedures of their foreign counterparts and parterres.
⚫ Therefore, business ethics is not entirely based on the
culture from which it is derived, it is based more on
basic moral understandings that go beyond international
boundaries.
 Relevance of Globalization for Business Ethics…
⚫ Legal Issues
⚫ The ethics and law is closely connected
⚫ Laws of Indian are binding Indian People.
⚫ When a company leave its own territory and moves to a
third world country along with its production chain then the
legal framework would be different to them
⚫ Business ethics mostly begin where the law ends
⚫ Managers must evaluate not only what is legal, but what
they, their employees, and society consider ethical as well
Relevance of Globalization for Business Ethics…
⚫ Sometimes some activities and believes may be legal,
but not perceived as ethical
⚫ Eg: In Marriott Corporate, Men employee’s hair could not
reach their collar except for religious reasons and women
could not wear skirts . Although these rules were part of
company policy, there is nothing illegal. However, in the
Marriott Corporate culture, it was considered unethical
Relevance of Globalization for Business Ethics…
⚫ Accountability Issues
⚫ Companies are generally accountable to its
shareholders only. But some companies
decisions…… for Eg: General Motors
investment decisions may affect the general
people in the country.
 Ethical Issues in Global business
⚫ Environmental issues : Neglected approach of business towards
environment (Exploitation of resources, factory waste, pollution etc.)
⚫ Employment practices
⚫ Discrimination of workers from home and host counties
⚫ Outsourcing workers
⚫ Child labour (ethical in Europe but not in India)
⚫ Exploitation of labour
⚫ Human rights: violation of human rights in workplace
⚫ Different ethical standards in different countries.
⚫ Legal issues (Business ethics mostly begins where law ends)
⚫ Lack of uniform health standards for products.
⚫ Unethical advertising and promotion.
⚫ Bribery and corruption
⚫ Industrial espionage : spying to discover the secrets of competitors.
 Ethical impacts of Globalization on various
Stakeholders
⚫ Shareholders
⚫ Globalisation provides potential for greater profitability but
also greater risks
⚫ Employees
⚫ Outsourcing gives job.
⚫ But, exploitation of employees also
⚫ Consumers
⚫ Better product with low cost
⚫ But, imperialism and westernalisation also
 Ethical impacts of Globalization on various
Stakeholders
⚫ Suppliers and Competitors
⚫ Small scale indigenous competitors exposed to powerful
global players
⚫ Government and Regulation
⚫ Increases the corporate regulations for jobs, welfare,
maintenance of ethical standard etc
⚫ Issues such as bribery, corruption, taxation and philanthropy
etc.