UNIT-1

Business Ethics: An overview, Concept, Nature

Ethics is a branch of social science. It deals with moral principles and social values. It helps
us to classifying, what is good and what is bad? It tells us to do good things and avoid doing
bad things.

So, ethics separate, good and bad, right and wrong, fair and unfair, moral and immoral and
proper and improper human action. In short, ethics means a code of conduct. It is like the
10 commandments of holy Bible. It tells a person how to behave with another person.

In short, business ethics means to conduct business with a human touch in order to give
welfare to the society.

So, the businessmen must give a regular supply of good quality goods and services at
reasonable prices to their consumers. They must avoid indulging in unfair trade practices
like adulteration, promoting misleading advertisements, cheating in weights and measures,
black marketing, etc. They must give fair wages and provide good working conditions to
their workers. They must not exploit the workers. They must encourage competition in the
market. They must protect the interest of small businessmen. They must avoid unfair
competition. They must avoid monopolies. They must pay all their taxes regularly to the
government.

Definition of Business Ethics

According to Andrew Crane,

“Business ethics is the study of business situations, activities, and decisions where issues
of right and wrong are addressed.”

According to Raymond C. Baumhart,

“The ethics of business is the ethics of responsibility. The business man must promise that
he will not harm knowinfly.”

According to Wikipedia,

“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. It applies to all aspects of business conduct and is relevant to the conduct of
individuals and entire organizations.”
Nature of Business Ethics
The characteristics or features of business ethics are:

 Code of conduct: Business ethics is a code of conduct. It tells what to do and what
not to do for the welfare of the society. All businessmen must follow this code of
conduct.
 Based on moral and social values: Business ethics is based on moral and social
values. It contains moral and social principles (rules) for doing business. This
includes self-control, consumer protection and welfare, service to society, fair
treatment to social groups, not to exploit others, etc.
 Gives protection to social groups: Business ethics give protection to different
social groups such as consumers, employees, small businessmen, government,
shareholders, creditors, etc.
 Provides basic framework: Business ethics provide a basic framework for doing
business. It gives the social cultural, economic, legal and other limits of business.
Business must be conducted within these limits.
 Voluntary: Business ethics must be voluntary. The businessmen must accept
business ethics on their own. Business ethics must be like self-discipline. It must not
be enforced by law.
 Requires education and guidance: Businessmen must be given proper education
and guidance before introducing business ethics. The businessmen must be
motivated to use business ethics. They must be informed about the advantages of
using business ethics. Trade Associations and Chambers of Commerce must also
play an active role in this matter.
 Relative Term: Business ethics is a relative term. That is, it changes from one
business to another. It also changes from one country to another. What is
considered as good in one country may be taboo in another country.
 New concept: Business ethics is a newer concept. It is strictly followed only in
developed countries. It is not followed properly in poor and developing countries.

Advantages of Business Ethics

More and more companies recognize the link between business ethics and financial
performance. Companies displaying a “clear commitment to ethical conduct” consistently
outperform companies that do not display ethical conduct.

1. Attracting and retaining talent

People aspire to join organizations that have high ethical values. Companies are able to
attract the best talent and an ethical company that is dedicated to taking care of its
employees will be rewarded with employees being equally dedicated in taking care of the
organization. The ethical climate matter to the employees.

Organizations create an environment that is trustworthy, making employees willing to rely,

take decisions and act on the decisions and actions of the co-employees. In such a work
environment, employees can expect to be treated with respect and consideration for their
colleagues and superiors. It cultivates strong teamwork and Productivity and support
employee growth.

2. Investor Loyalty

Investors are concerned about ethics, social responsibility and reputation of the company in
which they invest. Investors are becoming more and more aware that an ethical climate
provides a foundation for efficiency, productivity and profits. Relationship with any
stakeholder, including investors, based on dependability, trust and commitment results in
sustained loyalty.

3. Customer satisfaction

Customer satisfaction is a vital factor in successful business strategy. Repeat

purchases/orders and enduring relationship of mutual respect is essential for the success of
the company. The name of a company should evoke trust and respect among customers for
enduring success. This is achieved by a company that adopts ethical practices. When a
company because of its belief in high ethics is perceived as such, any crisis or mishaps
along the way is tolerated by the customers as a minor aberration. Such companies are
also guided by their ethics to survive a critical situation. Preferred values are identified
ensuring that organizational behaviours are aligned with those values. An organization with
a strong ethical environment places its customers’ interests as foremost. Ethical conduct
towards customers builds a strong competitive position. It promotes a strong public image.

4. Regulators

Regulators eye companies functioning ethically as responsible citizens. The regulator need
not always monitor the functioning of the ethically sound company. The company earns
profits and reputational gains if it acts within the confines of business ethics. To summaries,
companies that are responsive to employees’ needs have lower turnover in staff.

 Shareholders invest their money into a company and expect a certain level of return
from that money in the form of dividends and/or capital growth.
 Customers pay for goods, give their loyalty and enhance a company’s reputation in
return for goods or services that meet their needs.
 Employees provide their time, skills and energy in return for salary, bonus, career
progression, and learning.

Scope of Business Ethics

Ethical problems and phenomena arise across all the functional areas of companies and at
all levels within the company.

1. Ethics in Compliance
Compliance is about obeying and adhering to rules and authority. The motivation for being
compliant could be to do the right thing out of the fear of being caught rather than a desire
to be abiding by the law. An ethical climate in an organization ensures that compliance with
law is fuelled by a desire to abide by the laws. Organizations that value high ethics comply
with the laws not only in letter but go beyond what is stipulated or expected of them.

2. Ethics in Finance
The ethical issues in finance that companies and employees are confronted with include:

 In accounting – window dressing, misleading financial analysis.

 Related party transactions not at arm’s length
 Insider trading, securities fraud leading to manipulation of the financial markets.
 Executive compensation.
 Bribery, kickbacks, over billing of expenses, facilitation payments.
 Fake reimbursements

3. Ethics in Human Resources

Human resource management (HRM) plays a decisive role in introducing and implementing
ethics. Ethics should be a pivotal issue for HR specialists. The ethics of human resource
management (HRM) covers those ethical issues arising around the employer-employee
relationship, such as the rights and duties owed between employer and employee.

The issues of ethics faced by HRM include:

 Discrimination issues i.e. discrimination on the bases of age, gender, race, religion,
disabilities, weight etc.
 Sexual harassment.
 Affirmative Action.
 Issues surrounding the representation of employees and the democratization of the
workplace, trade.
 Issues affecting the privacy of the employee: workplace surveillance, drug testing.
 Issues affecting the privacy of the employer: whistle-blowing.
 Issues relating to the fairness of the employment contract and the balance of power
between employer and employee.
 Occupational safety and health.

Companies tend to shift economic risks onto the shoulders of their employees. The boom of
performance-related pay systems and flexible employment contracts are indicators of these
newly established forms of shifting risk.

4. Ethics in Marketing
Marketing ethics is the area of applied ethics which deals with the moral principles behind
the operation and regulation of marketing. The ethical issues confronted in this area include:
  Pricing: price fixing, price discrimination, price skimming.
 Anti-competitive practices like manipulation of supply, exclusive dealing
arrangements, tying arrangements etc.
 Misleading advertisements
 Content of advertisements.
 Children and marketing.
 Black markets, grey markets.

5. Ethics of Production
This area of business ethics deals with the duties of a company to ensure that products and
production processes do not cause harm. Some of the more acute dilemmas in this area
arise out of the fact that there is usually a degree of danger in any product or production
process and it is difficult to define a degree of permissibility, or the degree of permissibility
may depend on the changing state of preventative technologies or changing social
perceptions of acceptable risk.

 Defective, addictive and inherently dangerous products and

 Ethical relations between the company and the environment include pollution,
environmental ethics, and carbon emissions trading.
 Ethical problems arising out of new technologies for eg. Genetically modified food
 Product testing ethics.

The most systematic approach to fostering ethical behaviour is to build corporate cultures
that link ethical standards and business practices.

Evolving ethical values

Dated back to Code of Hammurabi some 4,000 years ago, business ethics is a social science, whose
main aim is to define and examine the responsibilities of businesses and their agents as a part of the
general moral environment of a given society.

Business ethics refers to how ethical principles guide a business’s operations. Common issues that
fall under the umbrella of business ethics include employer-employee relations, discrimination,
environmental issues, bribery and insider trading, and social responsibility. While many laws exist to
set basic ethical standards within the business community, it is largely dependent upon a business’s
leadership to develop a code of ethics. Practicing strong ethics keeps a business within the
parameters of the law; as well as building goodwill and brand equity. Popular social issues largely
drive business ethics; as different issues come to the forefront, organizations respond by bringing
their ethical tenets in line with the new social norms.
Business Ethics in the ’60s

The 1960s brought the first major wave of changes in business ethics. Cultural values were shifting,
with individualism and fierce dedication to social issues such as environmentalism and world peace
coming into vogue. While young workers were idealistic and wanted to make the world a better
place, employers found their work ethic, compared to that of previous generations, to be lacking.
Drug use was rampant, and the new focus on individualism caused many workers to look upon their
employers with disdain.

Companies responded by beefing up human resources departments and establishing mission

statements and codes of conduct. In response to the changing desires of their employees, however,
businesses also began embracing social responsibility at a level not previously seen; the 1960s saw
companies trumpet environmental friendliness for the first time and find new ways to give back to
their communities.

Major Events in the ’70s and ’80s

During the 1970s and 1980s, two events shaped changes in business ethics: defense contractor
scandals that became highly publicized during the Vietnam War and a heightened sense of tension
between employers and employees. In response, the government implemented stricter policies
governing defense contractors, and companies revamped contracts with employees to focus less on
rigid compliance and more on values; popular management philosophy shifted from pure
authoritarianism to more collaboration and working on equal footing.

The ’90s and Environmentalism

The 1990s saw a rebirth of environmentalism, social responsibility reaching new heights and graver
legal ramifications for ethical missteps. Tobacco companies and junk food manufacturers faced
heightened scrutiny, along with several highly publicized lawsuits, over the public health
ramifications of their products. Oil companies and chemical companies had to contend with
increasing public pressure to answer for environmental damage. Class action lawsuits rapidly gained
in popularity; in response, businesses were forced to spend more on their legal departments.

The Online Realm in 2000+

From the year 2000 forward, business ethics have expanded to the online realm. The big ethical
dilemmas of the 21st century have mostly centered on cybercrimes and privacy issues. Crimes such
as identity theft, almost unheard of 20 years before, remain a huge threat to anyone doing business
online—a majority of the population. As a result, businesses face social and legal pressure to take
every measure possible to protect customers’ sensitive information. The rise in popularity of data
mining and target marketing has forced businesses to walk a fine line between respecting customers’
privacy and using their online activities to glean valuable marketing data.
Arguments against Business Ethics
Businesses are not real: They are conceptual, abstractions. The big change that moved us towards
the huge multinational businesses we see today was the legal decision to allow businesses to be
treated as their own entities and we should honour that separation.

The same is true of government when people talk about government morality.

The sole purpose of any business is to make money.

The sole purpose of a government is to retain stability, order and retain power.

Ethics are personal. This is not to say they aren’t important, they are. They should be venerated to the
degree that wealth and youth are in western society, even if they aren’t.

Businesses and democratic governments are abstractions we created to fulfil human needs and
desires. We want to have lots of money and not have a dangerous, chaotic environment.

Politics and business leverage evolution. We have created artificial environments with artificial
rewards. Organisms that can’t get enough food, keep themselves safe and attract a mate die. This
works remarkably well and has for a very very long time. It is the only successful way to create an
efficient economy that can improve quality of life, alternatives like communism fail in the large scale
because they can’t provide this evolutionary simulation.

Business has a clear metric – money. If you make a profit you survive, if you don’t you ‘die’
(bankruptcy). Businesses can breed (merge), they can grow. A characteristic of any living organism
has to be passed on through breeding but business ideas that work spread regardless. Think agile
programming, or the idea of specialisation at work even at a more basic level. Businesses that
implemented them had a greater chance of success, more of them survived. Now most surviving
businesses implement them.

So where does ethics come in? Two places. Businesses should be ethical if it makes them money.
There are defined markets for ethical goods. People are attracted by fair trade labels, they will
(sometimes) pay more to know the workers who made their clothes live acceptable lives.

The second is people in the business. They have the responsibility to ethical because they are people,
real people, not abstract concepts.

Which has two implications:

1. People should not be overly celebrated for being rich. This is not a virtue.
2. People should be celebrated for their ethics.
The reverse obviously being true for companies.

The problem is a western culture that overvalues entrepreneurs, apologies entrepreneurs. There are
many dangerous side effects of this.

When evaluating the success of a company you might say how wonderful apple is for example. They
hit the $1 trillion valuation today. You remark about how great their profit margins are. How
wonderful they are at marketing their products. How good they are at turning relatively cheap
hardware into a product that feels and seems to react in a premium way. How good they are at
trapping people in their ecosystem.

But there is no point judging apple by its ethics because it isn’t designed to be ethical.

But this DOESN’T transfer to the person in charge, or the people in charge. It is strange. Why judge
those peoples success on their ability to generate wealth, which is their profession and not judge an
engineer by his ability to write code or build bridges? It doesn’t make any sense. Someone making
lots of money is neither good nor bad. Whether they make that responsibly is entirely different.

People whinge all the time about businesses not being ethical, when it isn’t their purpose to be
ethical. It is, purely, people shirking their responsibility to exercise ethics. You can’t defer the
problem by blaming these other entities. That leads to the weak thinking that there is no point trying
to be ethical because these huge entities are evil and have all the power.

The key for people is to remember you have no control businesses or anyone else, all you can do is
attempt to exercise self control and act ethically, as well as encourage everyone else to do the same.
This applies at work and at home

The key for business ethics is for the workers to exercise ethics and to remember that the business is
the abstract concept, made of people making decisions. It is NOT the case that you are just ‘a cog of
the system’ and thus your role is purely profit driven, because it isn’t the case.

Whether or not the company is considered “ethical” with the positive connotation we normally give
this word is another matter that involves judgments based on morality. Such a label is subjective, but
the business community, as a whole, looks at key factors to decide whether or not a business is
practicing good business ethics:

 Business structuring
 Moral decision making
 Ethical business principles

One of the foundations of business ethics is the theory of utilitarianism. Utilitarianism states that,
when weighing all options, the option that produces the greatest net benefits for the least net cost, is
the most ethical option. Which factors are considered in this cost/benefit analysis, however, could
greatly skew the results one direction or another. Successful companies recognize the need for fair
and responsible ethical behavior, not just from a moral standpoint, but from a business standpoint, as
well.