Lesson No.

Business Ethics: An Overview

Learning Objectives:
This chapter will help to understand:

The Meaning of Business Ethics

Relation b/w Ethics and Business
Historical Evolution Of Business Ethics
Nature and Scope of Business Ethics
Need, purpose and importance of business Ethics
Approaches Of Business Ethics
Sources Of Ethical Knowledge for Business Ethics
Ten Popular Myths About Business Ethics

What is Business Ethics?

The followings are some of the important definitions of Business Ethics:

Business Ethics is the application of the principles of ethics in the realm of

business, trade and commerce.
Business Ethics is the evaluation of Business in terms of certain ethical
principles and norms.
Business ethics deals with certain moral principles that can tell us whether a
particular business concern is run in a morally right or wrong way.
Business ethics is the systematic analysis of ethical principles pertaining to
business, industry, commerce, trade and other related activities, institutions,
beliefs and practices.
Business ethics is the sum-total of rules and principles which can be regarded
us the standard norm to evaluate and guide business activities.

Relation between Ethics and Business Ethics

There are at least the following three inter-relations between these subjects.

First, Ethical theories offer various concepts and percepts which are relevant
to business managers in conceptualizing certain ethical issues in relation to
business. Some of these concepts are: deonticism, utilitarianism,
consequentialism, morality, value and virtues, and so on.
Second, Ethical theories provide a set of analytical guidelines and moral
standards, which can be directly or indirectly applied to the solutions of
business problems in a fairly just and satisfactory way.

Third, one of the most important ways in which ethical theories can
contribute to business management is the building up of ethical models
(framework) about ethical decision-making , ethical audit, solving ethical
dilemmas and so on.
It must be understood that ethics and business ethics are integrative in
nature, and there are many commonalities between these two subjects.
Whereas ethics is more theoretical, business ethics is more practical and is
the application of the theoretical principles of ethics, as revealed in the
definitions given earlier.

Evolution of Business Ethics:

Business Ethics is a rather new discipline. But the idea that ethics is important in
business goes back to the time of Socrates and Confucius and many catholic
discourses.
With the development of capitalism, the entire gamut of work ethics got
dramatically changed in the western world. In terms of historical sequences, the
change from Mercantilism to individualistic capitalism and then to corporate type
business enterprise is a reflection of changes in attitude towards a new institution
for promoting business enterprises.
The Classical and neo-classical views considered business ethics as irrelevant and
supported unbridled expansion of capitalism and market forces. Free market
competition, they say can lead to several types of benefits supported by the
theories of both deonticism and utilitarianism (consequentialism). The following are
ways through which a free market philosophy leads to social and economic benefits
and so becomes ethical.

Benefits Of Free Market Philosophy

1. Market Ethics may generate social benefits through human selfishness. All
sellers, motivated by self-interest, provide goods and services in abundance
and all the essential social needs are satisfied by the mechanism of free
market forces.
2. Competition and Free Market Price setting may lead to maximization of
production with minimum possible per unit cost. This generates the
producers and consumers surpluses that positively benefit the society.
3. Expansion of business renders free choice and liberty for the
consumers. This satisfies the libertarian view of ethics, and the growth
technology and different means of production give a choice to producers too
regarding production technology, production methods and production mixes.
4. Free market Philosophy maximizes individual freedom and utility
(Utilitarianism).

Contemporary Development

The issue of ethical consciousness in

business can be classified into the following six periods. However, this periodization
is not based on any clear-cut apple-pie order of historical events but is based on the
broad trend with the temper of time.

Historical Evolution of Business

Ethics
Before 1960s

1960s

1970s

1980s

1920s: capitalism was in question and

employers were asked to provide fair
wages to employees.
1930s: The new deal blamed business
for the economic predicament and
lower personal income.
1950s: President Truman considered
environment problems as ethical issues
to be addressed by business
management.
Religious leaders and catholic churches
raised questions about morality in
capitalism, labour practices, workers
rights and unfair wages.
Many catholic colleges started courses
on social ethics. Religious tradition
provided the very building block for the
growth of business ethics.
Growth of the idea of corporate social
responsibility.
Businessmen became more aware of
ethical issues in business and the
Watergate scandal focused on the
importance of ethical in administration
and government.
Business ethics was formally recognized
by various business organizations.500
courses were offered in colleges and
ethical organizations started growing in
leaps and bound.
Defence industry took the initiative of

guiding the corporate sector in matters

of business ethics.
This was the period of
institutionalization of business ethics.
Bill Clinton worked hard to implement
business ethics particularly in healthrelated business organizations.
Organizational ethical compliance
programmes were stringently applied in
business organizations.
In spite of the institutionalization of
business ethics, many business houses
in America did not like the idea and
were often involved in scandals.
Many person and firms were involved in
accounting scandals, unethical business
practices including Arthur Anderson,
Enron, and so on.

1990s

2000s

Nature Of Business Ethics

There are generally two recognized perspectives of BE:
1. Naturalist Approach
2. Normative Approach (Frederick, 2002)
1. Naturalist Approach
The naturalist approach to BE takes into account the natural laws, natural
religion and nomological principles embedded in the natural system.
2. Normative Approach
The normative approach is couched in empirical terms.

Nature Of Ethical Enquiry in Business

There are the following five dimensions of the ontology of business ethics.
I.
II.
III.
IV.
V.

Business
Business
Business
Business
Business

ethics
ethics
ethics
ethics
ethics

as a subject is analytical.
is diagnostic in nature.
is evaluative in nature.
is prescriptive in nature.
sets the moral standard in business.

Scope Of Business Ethics

Business Ethics works at different planes and levels. It encompasses different levels
of activities:

Individual Level(Personal Level)

Organizational Level (May or may not be business organizations)
Association Level (May be with various types of institutions and domestic
associations)
Societal Level (Customers, banks and Government)
Internal Policy Making (Making Business strategies)
Global Level( Business Interactions)

In all these five levels, some ethical issues are conspicuously present and such
issues come within the domain of business ethics. The scope of business ethics is
very vast. It encompasses the following area where ethical issues are directly or
indirectly involved with a business concern:
1. Ethical responsibilities of Business
2. Unethical practices in HRM, finance, marketing and information
technology.
3. Ethical responsibilities towards employees, consumers, suppliers and
other stakeholders.
4. Ethical leadership and performance of social responsibilities.
5. Ethical decision-making and solution of various types of ethical dilemmas.
6. Ethical issues in corporate governance.
7. Ethical business strategy.
8. International Business Ethics.
9. Ethical Audit.
10.
Professional Ethics.

Need And Purpose Of Business Ethics

Business Ethics is necessary to give guidance to uphold the interests of
stakeholders including consumers, shareholders, suppliers, distributors and
investors. Business ethics is necessary to remind the business firm that it is the
moral duty of the firm as a part of society to undertake some social responsibilities.
The following are the five primary objectives of business ethics:

Objectives/ Purposes

Business Ethics teaches us the ethical rules and principles that are relevant
for business.
Business ethics is concerned with the application of ethical standard and
values to business.
Business ethics teaches the manager as to how to run the business on ethical
lines.
The rules of business ethics enable a business firm to identify the areas which
are not practicing ethical principles and therefore can prescribe the necessary
ethical code.

Business ethics can help a firm to make business decisions and strategy
which are morally fair, just and consistent.

Importance Of Business Ethics

The importance and significance of business ethics can be summarized as give
below:

Business Ethics provides a broad framework for giving guidance to all those
who run the business.
A company based on ethical principles is trusted by all the stakeholders like
customers, suppliers, employees and the public.
A business based on ethics improves its social image which gives it a long
standing goodwill and financial pay off at the end.
Business ethics improves and strengthens organizational culture at all levels
both within and without.
The strategic value and decision-making goals of a business concern are
founded on ethical beliefs and values and not on its balance sheet position
and profit mark-up.
A company which is ethically strong and committed generates a sense of
empowerment and security among its employees and stakeholders.
Ethics-based companies are empirically found to have strong team work.
Ethically conscious employees and management are responsible for changing
the work culture and motivation towards a better end without any formal
inducement or coercion.
A company run on the basis of business ethics can avoid many types of workrelated conflicts both within and outside the firm.
A business firm that is run on ethical principles can save a lot of money every
year as it can avoid criminal and legal involvement.

Approaches to Business Ethics

There are basically the following three approaches to business ethics.
1. Profit-based morality Approach
This approach recognizes the symbiotic relation between profits and moral
activities (Hartley, 1993) Thus when the profit of a firm is high, its morality
gets a better priority.
2. Law-based Morality Approach
This approach believes that the law of a country is mostly based on moral
principles.
3. As against the above two approaches on morality, there is the third one that
derives its strength from the prevailing natural laws and spiritual practices
and advices. This approach upholds the view that there are the following five
moral obligations for business ethics (Laczniak, 1983):
Veracity Principle

Non-injury(no harm) principle

Fairness (Honesty) principle
Human Rights principle
Autonomy Principle

Sources of Ethical Knowledge for Business

There are five possible sources of ethical knowledge for a business firm:
Empiricism:
According to this view, the knowledge of moral right or wrong comes to a firm
by experience and empiricism.
Intuition:
The knowledge about what is right and what is wrong is acquired through
intuition.
Principle of Rationality:
A rational human being, as a businessman is, can, on the basis of common
sense, know what is good and what is morally bad.
Principle Of Revelation:
This shows that what is already revealed is an important source of ethical
knowledge.
There are the following six primary sources of ethical Knowledge.
1. Philosophical System: Existing in a country does influence the pattern of
business behavior.
2. Legal System is an influential factor in business ethics.
3. Codes of conduct: There are various codes of conduct that business people
have to adhere to.
4. Cultural Experience
5. Genetic Inheritance
6. Religion and Religiosity

Ten People Myths About Business Ethics

Myths One: When a business house is obeying the laws of the land, it is
ethical.
Myths Two: Business Ethics is best suited to philosophers but not to others.
Myths Three: Business Ethics is more a matter of religion than of
management.
Myths Four: Business Ethics is preaching of good persons to bad persons,
and even good persons can make mistakes and take bad decisions.
Myths Five: Business Ethics is a new type of policing in business and is a
recent phenomenon.
Myths Six: Our employees are reasonable and good people, so business
ethics is not necessary.
Myths Seven: Business and Ethics cannot go together.

Myths Eight: Business Ethics is a personal or private matter and not for
public debate or practice.
Myths Nine: Good business means good ethics.
Myths Ten: Ethics in business is always relative.