CHAPTER-03

BUSINESS ETHICS

DEFINITION The term "ethics" is derived from the Greek word "ethos" which refers to
character or customs or accepted behaviour’s. The Oxford Dictionary states ethics as "the moral
principle that governs a person's behaviour or how an activity is conducted".

Ethics is a set of principles or standards of human conduct that govern the behaviour of
individuals or organizations. Using these ethical standards, a person or a group of persons or an
organization regulate their behaviour to distinguish between what is right and what is wrong as
perceived by others

BUSINESS ETHICS

Business ethics is a form of applied ethics or professional ethics that examines ethical principles
and moral or ethical problems that can arise in a business environment. It is also known as
Corporate ethics. It applies to all aspects of business conduct and is relevant to the conduct of
individuals and entire organizations.

CHARACTERISTICS OF BUSINESS ETHICS

1. Business ethics are based on social values, as the generally accepted norms of good or bad
and ‘right’ and ‘wrong’ practices.

2. It is based on the social customs, traditions, standards, and attributes.

3. Business ethics may determine the ways and means for better and optimum business
performance.

4. Business ethics provide basic guidelines and parameters towards most appropriate perfections
in business scenario.

5. Business ethics is concerned basically the study of human behaviour and conducts.

6. Business ethics is a philosophy to determine the standards and norms to make mutual
interactions and behaviour between individual and group in organisation.
7. Business ethics offers to establish the norms and directional approaches for making an
appropriate code of conducts in business.

8. Business ethics are based on the concepts, thoughts and standards as contributed as well as
generated by Indian ethos.

9. Business ethics may be an ‘Art’ as well as ‘Science’ also.

10. Business ethics basically inspire the values, standards and norms of professionalism in
business for the well-being of customers.

11. Business ethics is to motivate and is consistently related with the concept of service motives
for the customers’ view point.

12. Business ethics shows the better and perspective ways and means for most excellences in
customization.

13. Business ethics aims to emphasize more on social responsibility of business towards society.

ELEMENTS OF BUSINESS ETHICS

(i) A Formal Code of Conduct: Code of conduct is statements of organizational values.

The Sarbanes-Oxley Act, 2002 made it important for businesses to have an ethics
code, something in writing which will help the employees know – with both ease and
clarity – what is expected of them on the job. The code should reflect the
managements desire to incorporate the values and policies of the organization. 4 Code
of Ethics: For every new business incorporated, it is important for the management to
have a code of ethics for his business. It is usually unwritten for small businesses. It is
basically a buzzword for the employees to observe ethical norms and form the basic
rules of conduct. It usually specifies methods for reporting violations, disciplinary
action for violation and a structure of the due process to be followed. A code of ethics
must summarize the beliefs and values of the organization. For a large business
empire, it is important to hire talent to assist existing personnel with regards to
integrity, understanding, responsibility, and cultural norms of the country.
(ii) Ethics Committee: Ethics committees can rise concerns of ethical nature; prepare or
update code of conduct, and resolve ethical dilemma in organization. They formulate
ethical policies and develop ethical standards. They evaluate the compliances of the
organisation with these ethical standards. The committee members should be
conscious about the corporate culture and ethical concise of the organisation. The
following committees are to be formed:
a. Ethics committee at the board level- The committee would be charged to
oversee development and operation of the ethics management programme.
b. Ethics management committee – It will be charged with implementing and
administrating an ethics management programme, including administrating and
training about policies and procedures, and resolving ethical dilemmas.
(iii) Ethical Communication System: Ethical communication system helps the
employees in making enquiries, getting advice if needed and reporting all the wrong
done in the organisation. Objectives of ethical communication system are:
a. To communicate the organizations values and standards of ethical conduct or
business to employees.
b. To provide information to employees on the company’s policies and procedures
regarding ethical code of conduct.
c. To help employees get guidance and resolve queries.
d. To set up means of enquiries such as hotlines, suggestion boxes and e-mail
facilities. Top management can communicate the ethical standards to the lower
management which can be further transferred to the operational level.
(iv) An Ethics Office with Ethical Officers: The job of an ethics officer is to
communicate and implement ethical policies amongst employees of the organisation.
Ethics officer should develop a reputation for credibility, integrity, honesty and
responsibility. Functions of ethics officer are:
a. Assessing the needs and risks that an ethical programme must address.
b. Develop and distribute code of conduct.
c. Conduct ethical training programme.
d. Maintain confidential service to answer employee’s questions about ethical issues.
e. To ensure that organisation is in compliance with governmental regulations.
f. To monitor and audit ethical conduct.
g. To take action on possible violation of company’s code. h. To review and update
code in time.
(v) Ethics Training Programme: Any written ethical code will not work unless
supported and followed by a proper training programme. Some companies have an in-
house training department while others may opt for an out-source expert. To ensure
ethical behaviour, a corporate training programme is established which deals in
assisting employees to understand the ethical issues that are likely to arise in their
workplace. When new employees are to be recruited, the induction training should be
arranged for them. Training will help them to familiarize with company’s ethical code
of behaviour.
(vi) A Disciplinary System: A disciplinary system should be established in the
organisation to deal with ethical violations promptly and severely. If unethical
behavior is not properly dealt with, it will result in threatening the entire social
system. A company should adopt fair attitude towards everyone without any
discrimination.
(vii) Establishing an Ombudsperson: An ombudsperson is responsible to help
coordinate development of policies and procedures to institutionalize moral values in
the workplace.
(viii) Monitoring: To make an ethical programme, a successful monitoring
programme needs to be developed. A monitoring committee isformed. Monitoring
can be done by keen observation by ethics officer, surveys and supporting systems.

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 etc.,
• 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.
UNETHICAL BEHAVIOUR
The Civil Service Commission of Philippines defined an unethical behaviour as any
behaviour prohibited by law. An unethical behaviour would therefore be defined as
one that is not morally honourable or one that is prohibited by the law. Many
behaviours will fall in the classification including corruption, mail and wire fraud,
discrimination and harassment, insider trading, conflicts of interest, improper use of
company assets, bribery
CAUSES OF UNETHICAL BEHAVIOUR IN WORKPLACE
1. Misusing Company Time One of the most regularly revealed “bad behaviours”
in the workplace isthe misuse of company time. This category includes knowing
that one of your colleagues is directing personal business on company time, staff
appearing late, extra breaks or fake timesheets. These negative behaviour patterns
can rapidly spread to different workers. It can also cultivate hatred amongst
colleagues, severely influencing morale and efficiency.
2. Unethical Leadership Having a personal issue with your boss or manager is a
certain thing, yet reporting to a person who is acting dishonestly is another. This may
come in a clear form, such as manipulating numbers in a report or sending company
money on improper activities; nonetheless, it can also happen more subtly, through
bullying, accepting inadequate gifts from suppliers, or requesting that you avoid a
standard system just once. With studies demonstrating that managers are responsible
for 60 percent of workplace wrongdoing, the abuse of leadership authority is a
disastrous reality.
3. Lying to Employees The quickest way to lose the trust of your employees is to lie
to them, but managers do it constantly. One out of every five workers report that their
supervisor or manager has lied to them within the previous year.
4. Harassment and Discrimination Laws require associations to be equivalent to
business opportunity employers. Organizations must select a various workplace,
authorize policies and training that help an equivalent opendoor program, and
encourage a situation that is respectful of a wide range of people. Unfortunately, there
are still numerous people whose practices break with EEOC rules and regulations.
When harassment and discrimination of employees based on ethnicity, race, gender,
handicap or age occur, has a moral line been crossed as well as a legitimate one also.
5. Violating Company Internet Policy Cyberloafers and Cybershackers are terms
used to recognize people who surf the web when they ought to work. It’s a huge,
multi-billion-dollar issue for organizations. Every day at least 64 percent of
employers visit sites that have nothing to do with their work.
6. Pressure to Succeed Employees may choose to act unethically based on
unrealistic expectations to succeed. For example, a salesperson may make false
claims to secure a deal to meet their quota.
Arguments against business ethics:

1) No need for ethics separately.2) Demand and supply forces only operate.3) Compliance of
law.4) Conflicts of interest.5) Profit is the object of business.6) Poor moral standards of society.

1) No need for ethics separately:

If business firms are interested in doing their main job of business, there is no need for teaching
ethics in a separate way. A business has to prepare its business plan and executeit and satisfy all
the needs of stakeholders. Then ethics has no separate place. All good business activities
themselves will cover ethical issues.
2) Demand and supply forces:
Any market which is the heart of any business is governed by the two market forces,namely
demand and supply. The price, output and many other decisions are based onthese two market
forces. Hence the scope for business ethics is very much restricted in business.
3) Compliance of law:
Any business has to be in compliance of the law of land. For example in India theCompetition
Law encourages the growth of healthy competition. Apart from this, thereare labour laws to
protect the working and service conditions of labour. Similarly thereare legal provisions to take
care of the customers and customer welfare. In this context,the scope for business ethics is
limited.
4) Conflicts of interest:
Business promotes conflicts of interest such as conflict between employers and employees,
conflict between sellers and buyers, conflict between owners and governments well as conflict
between the different competitors. In an atmosphere dominated by conflicts, the possibility of
ethical operations is limited.
5) Profit is the object of business:
The object of any business is to make profit and indicates its progress. While making profit
through its various operations, a business has to follow different techniques and tactics. Most of
these business techniques are based on exploitation. Hence there may not be a good scope for
business ethics in modern days