Lesson- 6

BUSINESS ETHICS
The objectives of this chapter are to:
x Understand a meaning of Business Ethics
x To study the origin and myths of business ethics
x To aware the characteristics and principles of business ethics
x To know the need and importance of business ethics.

Structure:
6.1. Introduction
6.2. Origin of Business Ethics
6.3. Meaning business ethics
6.4. Myths of Business Ethics
6.5. Characteristics of business ethics
6.6. Principles of business ethics
6.7. Why applying Business Ethics?
6.8. Advantages of Business Ethics
6.9. Self –Assessment Questions
6.10. Further Readings

6.1. INTRODUCTION:
Business ethics reflects the philosophy of business, of which one aim is to determine
the fundamental purposes of a company. If a company's purpose is to maximize shareholder
returns, then sacrificing profits to other concerns is a violation of its fiduciary responsibility.
Corporate entities are legally considered as persons in USA and in most nations. The
'corporate persons' are legally entitled to the rights and liabilities due to citizens as persons.

Ethics are the rules or standards that govern our decisions on a daily basis. Many
equate “ethics” with conscience or a simplistic sense of “right” and “wrong.” Others would
say that ethics is an internal code that governs an individual’s conduct, ingrained into each
person by family, faith, tradition, community, laws, and personal mores. Corporations and
professional organizations, particularly licensing boards, generally will have a written “Code
of Ethics” that governs standards of professional conduct expected of all in the field. It is
important to note that “law” and “ethics” are not synonymous, nor are the “legal” and “ethical”
courses of action in a given situation necessarily the same. Statutes and regulations passed
by legislative bodies and administrative boards set forth the “law.” Slavery once was legal in
the US, but one certainly wouldn’t say forcibly enslaving humans was an “ethical” act.

Economist Milton Friedman writes that corporate executives' "responsibility...

generally will be to make as much money as possible while conforming to their basic rules of
the society, both those embodied in law and those embodied in ethical custom”. Friedman
also said, "The only entities who can have responsibilities are individuals. A business cannot
have responsibilities. So the question is, do corporate executives, provided they stay within
the law, have responsibilities in their business activities other than to make as much money
for their stockholders as possible? And my answer to that is, no, they do not. A multi-country
2011 survey found support for this view among the "informed public" ranging from 30 to 80%
Ronald Duska views Friedman's argument as consequentiality rather than pragmatic,
implying that unrestrained corporate freedom would benefit the most in long term similarly
author business consultant Peter Drucker observed.

-58-
ANU Online Education:: Acharya Nagarjuna University
Nagarjuna Nagar, Guntur, Andhra Pradesh, India - 522510
 There is neither a separate ethics of business nor is one needed", implying that
standards of personal ethics cover all business situations. However, Peter Drucker in
another instance observed that the ultimate responsibility of company directors is not to
harm—primum non nocere. Another view of business is that it must exhibit corporate social
responsibility (CSR): an umbrella term indicating that an ethical business must act as a
responsible citizen of the communities in which it operates even at the cost of profits or other
goals. In the US and most other nations corporate entities are legally treated as persons in
some respects. For example, they can hold title to property, sue and be sued and are
subject to taxation, although their free speech rights are limited. This can be interpreted to
imply that they have independent ethical responsibilities.[citation needed] Duska argues that
stakeholders have the right to expect a business to be ethical; if business has no ethical
obligations, other institutions could make the same claim which would be counterproductive
to the corporation.

Ethical issues include the rights and duties between a company and its employees,
suppliers, customers and neighbors, its fiduciary responsibility to its shareholders. Issues
concerning relations between different companies include hostile take-over and industrial
espionage. Related issues include corporate governance corporate social entrepreneurship;
political contributions; legal issues such as the ethical debate over introducing a crime of
corporate manslaughter; and the marketing of corporations' ethics policies. According to IBE/
Ipsos MORI research published in late 2012, the three major areas of public concern
regarding business ethics in Britain are executive pay, corporate tax avoidance and bribery
and

6.2. ORIGIN OF BUSINESS ETHICS:

When we trace the origin of business ethics we start with a period where profit
maximisation was seen as the only purpose of existence for a business. There was no
consideration whatsoever for non-economic values, be it the people who worked with
organisations or the society that allowed the business to flourish. It was only in late 1980’s
and 1990’s that both intelligentsia and the academics as well as the corporate began to
show interest in the same.

Nowadays almost all organisations lay due emphasis on their responsibilities towards
the society and the nature and they call it by different names like corporate social
responsibility, corporate governance or social responsibility charter. In India Maruti Suzuki,
for example, owned the responsibility of maintain a large number of parks and ensuring
greenery. Hindustan unilever, similarly started the e-shakti initiative for women in rural
villages.

Globally also many corporations have bred philanthropists who have contributed
compassion, love for poor and unprivileged. Bill gates of Microsoft and Warren Buffet of
Berkshire Hathaway are known for their philanthropic contributions across globe. Many
organisations, for example, IBM as part of their corporate social responsibility have taken up
the initiative of going green, towards contributing to environmental protection. It is not that
business did not function before the advent of business ethics; but there is a regulation of
kinds now that ensures business and organisations contribute to the society and its well
being. Nowadays business ethics determines the fundamental purpose of existence of a
company in many organisations. There is an ensuing battle between various groups, for
example between those who consider profit or share holder wealth maximisation as the main
aim of the company and those who consider value creation as main purpose of the
organisation. The former argue that if an organisations main objective is to increase the
shareholders wealth, then considering the rights or interests of any other group is unethical.
The latter, similarly argue that profit maximisation cannot be at the expense of the
environment and other groups in the society that contribute to the well being of the business.
-59-
ANU Online Education:: Acharya Nagarjuna University
Nagarjuna Nagar, Guntur, Andhra Pradesh, India - 522510
 Nevertheless business ethics continues to a debatable topic. Many argue that lots of
organisations use it to seek competitive advantage and creating a fair image in the eyes of
consumers and other stakeholders. There are advantages also like transparency and
accountability.

6.3. MEANING BUSINESS ETHICS:

Business ethics is nothing but the application of ethics in business. Business ethics is
the application of general ethical ideas to business behavior. Ethical business behavior
facilitates and promotes good to society, improves profitability, fosters business relations and
employee productivity. The concept of business ethics has come to mean various things to
various people, but generally it‘s coming to know what it right or wrong in the workplace and
doing what‘s right - this is in regard to effects of products/ services and in relationships with
stakeholders.

Business ethics is concerned with the behavior of a businessman in doing a

business. Unethical practices are creating problems to businessman and business units. The
life and growth of a business unit depends upon the ethics practiced by a businessman.
Business ethics are developed by the passage of time and custom. A custom differs from
one business to another. If a custom is adopted and accepted by businessman and public,
that custom will become an ethic. Business ethics is applicable to every type of business.
The social responsibility of a business requires the observing of business ethics. A business
man should not ignore the business ethics while assuming social responsibility.

According to Wheeler Business Ethics is an art and science for maintaining

harmonious relationship with society, its various groups and institutions as well as
reorganizing the moral responsibility for the rightness and wrongness of business conduct.
According to Rogene A. Buchholz, Business ethics refers to right or wrong behaviour in
business decisions. Business Ethics or Ethical standards are the principles, practices and
philosophies that guide the business people in the day today business decisions. It relates to
the behaviour of a businessman in a business situation. They are concerned primarily with
the impacts of decisions of the society within and outside the business organizations or other
groups who keep interest in the business activities. Business ethics can be said to begin
where the law ends.

6.4. MYTHS OF BUSINESS ETHICS:

Business ethics in the workplace is about prioritizing moral values for the workplace
and ensuring behaviors are aligned with those values -- its values management. Yet, myths
abound about business ethics. Some of these myths arise from general confusion about the
notion of ethics. Other myths arise from narrow or simplistic views of ethical dilemmas.
x Myth - Business ethics is more a matter of religion than management: Diane
Kirrane, in "Managing Values: A Systematic Approach to Business Ethics," (Training
and Development Journal, November 1990), asserts that "altering people's values or
souls isn't the aim of an organizational ethics program -- managing values and
conflict among them is ..."
x Myth - Our employees are ethical so we don't need attention to business
ethics: Most of the ethical dilemmas faced by managers in the workplace are highly
complex. Wallace explains that one knows when they have a significant ethical
conflict when there is presence of a) significant value conflicts among differing
interests, b) real alternatives that are equality justifiable, and c) significant
consequences on "stakeholders" in the situation. Kirrane mentions that when the
topic of business ethics comes up, people are quick to speak of the Golden Rule,
honesty and courtesy. But when presented with complex ethical dilemmas, most
people realize there's a wide "gray area" when trying to apply ethical principles.

-60-
ANU Online Education:: Acharya Nagarjuna University
Nagarjuna Nagar, Guntur, Andhra Pradesh, India - 522510
x Myth - Business ethics is a discipline best led by philosophers, academics and
theologians: Lack of involvement of leaders and managers in business ethics
literature and discussions has led many to believe that business ethics is a fad or
movement, having little to do with the day-to-day realities of running an organization.
They believe business ethics is primarily a complex philosophical debate or a
religion. However, business ethics is a management discipline with a programmatic
approach that includes several practical tools. Ethics management programs have
practical applications in other areas of management areas, as well. (These
applications are listed later on in this document.)
x Myth - Business ethics is superfluous -- it only asserts the obvious "do good!":
Many people react that codes of ethics, or lists of ethical values to which the
organization aspires, are rather superfluous because they represent values to which
everyone should naturally aspire. However, the value of a codes of ethics to an
organization is its priority and focus regarding certain ethical values in that
workplace. For example, it’s obvious that all people should be honest. However, if an
organization is struggling around continuing occasions of deceit in the workplace, a
priority on honesty is very timely -- and honesty should be listed in that organization’s
code of ethics. Note that a code of ethics is an organic instrument that changes with
the needs of society and the organization.
x Myth - Business ethics is a matter of the good guys preaching to the bad guys:
Some writers do seem to claim a moral high ground while lamenting the poor
condition of business and its leaders. However, those people well versed in
managing organizations realize that good people can take bad actions, particularly
when stressed or confused. (Stress or confusion are not excuses for unethical
actions -- they are reasons.) Managing ethics in the workplace includes all of us
working together to help each other remain ethical and to work through confusing
and stressful ethical dilemmas.
x Myth - Business ethics in the new policeperson on the block: Many believe
business ethics is a recent phenomenon because of increased attention to the topic
in popular and management literature. However, business ethics was written about
even 2,000 years ago -- at least since Cicero wrote about the topic in his On Duties.
Business ethics has gotten more attention recently because of the social
responsibility movement that started in the 1960s.
x Myth - Ethics can't be managed: Actually, ethics is always "managed" -- but, too
often, indirectly. For example, the behavior of the organization's founder or current
leader is a strong moral influence, or directive if you will, on behavior or employees in
the workplace. Strategic priorities (profit maximization, expanding market share,
cutting costs, etc.) can be very strong influences on morality. Laws, regulations and
rules directly influence behaviors to be more ethical, usually in a manner that
improves the general good and/or minimizes harm to the community. Some are still
skeptical about business ethics, believing you can't manage values in an
organization. Donaldson and Davis note that management, after all, is a value
system. Skeptics might consider the tremendous influence of several "codes of
ethics," such as the "10 Commandments" in Christian religions or the U.S.
Constitution. Codes can be very powerful in smaller "organizations" as well.
x Myth - Business ethics and social responsibility are the same thing: The social
responsibility movement is one aspect of the overall discipline of business ethics.
Madsen and Shafritz refine the definition of business ethics to be: 1) an application of
ethics to the corporate community, 2) a way to determine responsibility in business
dealings, 3) the identification of important business and social issues, and 4) a
critique of business. Items 3 and 4 are often matters of social responsibility. Writings
about social responsibility often do not address practical matters of managing ethics
in the workplace, e.g., developing codes, updating policies and procedures,
approaches to resolving ethical dilemmas, etc.
-61-
ANU Online Education:: Acharya Nagarjuna University
Nagarjuna Nagar, Guntur, Andhra Pradesh, India - 522510
 x Myth - Our organization is not in trouble with the law, so we're ethical: One can
often be unethical, yet operate within the limits of the law, e.g., withhold information
from superiors, fudge on budgets, constantly complain about others, etc. However,
breaking the law often starts with unethical behavior that has gone unnoticed. The
"boil the frog" phenomena are a useful parable here: If you put a frog in hot water, it
immediately jumps out. If you put a frog in cool water and slowly heat up the water,
you can eventually boil the frog. The frog doesn't seem to notice the adverse change
in its environment.
x Myth: Managing ethics in the workplace has little practical relevance: Managing
ethics in the workplace involves identifying and prioritizing values to guide behaviors
in the organization, and establishing associated policies and procedures to ensure
those behaviors are conducted. One might call this "values management." Values
management is also highly important in other management practices, e.g., managing
diversity, Total Quality Management and strategic planning.

6.5. CHARACTERISTICS OF BUSINESS ETHICS:

The following are the important features of business ethics:
x Business ethics are the principles, which govern and guide business people to
perform business functions and in that sense business ethics is a discipline.
x It is considered both as a science and an art.
x It continuously tests the rules and moral standards and is dynamic in nature.
x It is based on theological principles such as sincerity, human welfare, service, good
behavior etc.
x It is based on reality and social customs prevailing in business environment.
x It studies the activities, decisions and behavior which are related to human beings.
x It has universal application because business exists all over the world.
x Many of the ethical principles develop the personal dignity.
x Business ethics keeps harmony between different roles of businessman, with every
citizen, customer, owner and investors.

6.6. PRINCIPLES OF BUSINESS ETHICS:

The Principles of business ethics developed by well known authorities like Cantt, J.
S.Mill, Herbert Spencer, Plato, Thomas Garret, Woodrad, Wilson etc are as follows:
x Sacredness of means and ends: The first and most important principles of
business ethics emphasize that the means and techniques adopted to serve the
business ends must be sacred and pure. It means that a good end cannot be
attained with wrong means, even if it is beneficial to the society.
x Not to do any evil: It is unethical to do a major evil to another or to oneself, whether
this evil is a means or an end.
x Principle of proportionality: This principle suggests that one should make proper
judgment before doing anything so that others do not suffer from any loss or risk of
evils by the conducts of business.
x Non co-operation in evils: It clearly points out that a business should with any one
for doing any evil acts. That co-operation with others This principles states that
business should help others only in that condition when other deserves for help
x Publicity: According to W. Wilson, anything that is being done or to be done, should
be brought to the knowledge of everyone. If everyone knows, none gets opportunity
to do an unethical act.
x Equivalent price: According to W. Wilson, the people are entitled to get goods
equivalent to the value of money that he will pay.
x Universal value: According to this principle the conduct of business should be done
on the basis of universal values.

-62-
ANU Online Education:: Acharya Nagarjuna University
Nagarjuna Nagar, Guntur, Andhra Pradesh, India - 522510
 x Human dignity: As per this principle, man should not be treated as a factor of
production and human dignity should be maintained.
x Non violence: If businessman hurts the interests and rights of the society and
exploits the consumer by overlooking their interests this is equivalent to violence and
unethical act.

6.7. WHY APPLYING BUSINESS ETHICS?

x The power of influence of business in society is greater than ever before.
x Business malpractices inflict enormous harm on individuals, communities and the
environment.
x Demand of being ethical is requested in order to be competitive on a market.
x Business ethics can improve ethical decision making by acknowledging managers.
x Business ethics can provide the ability to access the benefits and to solve internal
corporations’ problems.

6.8. Advantages of Business Ethics:

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. Ethical 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. Retaining
talented people is as big a challenge as getting them in the first place. Work is a means to
an end for them, not an end in itself. The relationship they have with their employer must be
a mutual, win-win one, in which their loyalty should not be taken for granted. Talented people
will invest their energy and talent only in organizations with values and beliefs that match
their own. in order to achieve this match, managers need to build cultures, compensation
and benefits packages, and career paths that reflect and foster certain shared values and
beliefs.

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 behaviors 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.

-63-
ANU Online Education:: Acharya Nagarjuna University
Nagarjuna Nagar, Guntur, Andhra Pradesh, India - 522510
4. Regulators:
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.

6.9. SELF –ASSESSMENT QUESTIONS:

1. Define Business Ethic? Discuss the characteristics of business ethics?
2. What are the advantages of business ethics for an organization?
3. What are the business myths? Discuss?
4. Briefly explain the important principles of business ethics?

6.10. FURTHER READINGS:

x Inderjit Dube: Corporate Governance; LexisNexis Butte.
x Sanjiv Agarwal: Corporate Governance: Concept & Dimens Ltd.
x K R Sampath: Law of Corporate Governance: Principle Publications P. Ltd.
x N Balasubramanian Corporate Governance and Stewardship.
x H C Mruthyunjaya: Business Ethics and Value System, PHI.
x A C Fernando: Business Ethics – An Indian Perspective
x Mendez, M. F., Anderson, E., & Shapria, J. S. (2005). An investigation of moral
judgment in front temporal dementia. Cognitive and behavioral neurology, 18(4), 193-
197.
x Nahmias, E., Morris, S., Nadelhoffer, T., & Turner, J. (in press). Surveying freedom:
Folk intuitions about free will and moral responsibility. Philosophical Psychology.
x Pereboom, D. (2001). Living without free will. Cambridge: Cambridge University
Press. Petrinovich, L., O'Neill, P., & Jorgensen, M. J. (1993). An empirical study of
moral intuitions: towards an evolutionary ethics. Journal of Personality and
x Moral responsibility. Journal of Experimental Social Psychology, 39(653-660).
x Andersen, B. (2006). Intellectual property rights: innovation, governance and the
institutional environment. Edward Elgar Publishing. ISBN 1-84542-269-4.
x Boldrin, M.; Levine, D. K. (2008). Against Intellectual Monopoly. Cambridge:
Cambridge University Press.
x Cory, Jacques (2004-09-29). Activist Business Ethics. Boston: Springer. ISBN 0-387-
22848-Cullather, N.; Gleijeses, P. (2006). Secret History: The CIA's Classified
Account of Its Operations in Guatemala, 1952–1954]. California: Stanford University
Press. ISBN 0-8047-5468-3.
x Davies, M. (2007). Property: Meanings, histories, theories. Oxon: Routledge-
Cavendish. ISBN 0-415-42933-1.

Prepared by

Dr. R. EMMANIEL
Professor & HOD
Department of MBA
St.Ann’s College of Engineering& Technology
Chirala-AP

-64-
ANU Online Education:: Acharya Nagarjuna University
Nagarjuna Nagar, Guntur, Andhra Pradesh, India - 522510