What is 'Business Ethics'

The term Business Ethics refers to the system of moral principles and rules of the conduct applied to
business. Business being a social organ shall not be conducted in a way detrimental to the interests of the
society and the business sector itself. Every profession or group frames certain dos and do nots for its
members. The members are given a standard in which they are supposed to operate. These standards are
influenced by the prevailing economic and social situations. The codes of conduct are periodically
reviewed to suit the changing circumstances.
Definitions:

Business Ethics is generally coming to know what is right or wrong in the work place and doing what is
right. This is in regard to effects of products/services and in relationship with the stake holders. Cater
Mcnamara

Business Ethics: 7 Characteristics of Business Ethics

(i) A Discipline:
Business ethics are the guiding principles of business function. It is the knowledge through which human
behavior is learnt in a business situation.

ii) Ancient Concept:

Business ethics is an ancient concept. It has it origin with the development of human civilization.

(iii) Personal Dignity:

The principles of ethics develop the personal dignity. Many of the problems of ethics arise due to not
giving dignity to individual. All the business decisions should be aimed by giving dignity to the
customers, employees, distributors, shareholders and creditors, etc. otherwise they develop in immorality
in the business conducts.

iv) Related to Human Aspect:

Business ethics studies those activities, decisions and behaviors which are concerned with human aspect.
It is the function of the business ethics to notify those decisions to customers, owners of business,
government, society, competitors and others on good or bad, proper or improper conduct of business.

(v) Study of Goals and Means:

Business ethics is the study of goals and means for the rational selection of sacred objects and their
fulfillment. It accepts the principles of Pure goals inspire for pure means and Means justifies the end.
It is essential that goals and means should be based on morals.

vi) Different from Social Responsibility:

Social responsibility mainly relates to the policies and functions of an enterprise, whereas business ethics
to the conduct and behavior of businessmen. But it is a fact that social responsibility of business and its
policies is influenced by the business ethics.

(vii) Greater than Law: Although the law approves various social decisions, but the law is not
greater than ethics. Law is usually related to the minimum control of social customs whereas
ethics gives importance to individual and social welfare actions.

Importance of Business Ethics:

1. Corresponds to Basic Human Needs:

The basic need of every human being is that they want to be a part of the organization which they can
respect and be proud of, because they perceive it to be ethical. Everybody likes to be associated with an
organization which the society respects as a honest and socially responsible organization. The HR
managers have to fulfill this basic need of the employees as well as their own basic need that they want to
direct an ethical organization. The basic needs of the employees as well as the managers compel the
organizations to be ethically oriented.

2. Credibility in the Public:

Ethical values of an organization create credibility in the public eye. People will like to buy the product of
a company if they believe that the company is honest and is offering value for money. The public issues
of such companies are bound to be a success. Because of this reason only the cola companies are
spending huge sums of money on the advertisements now-a-days to convince the public that their
products are safe and free from pesticides of any kind.

3. Credibility with the Employees:

When employees are convinced of the ethical values of the organization they are working for, they hold
the organization in high esteem. It creates common goals, values and language. The HR manager will
have credibility with the employees just because the organization has creditability in the eyes of the
public. Perceived social uprightness and moral values can win the employees more than any other
incentive plans.

4. Better Decision Making: Respect for ethics will force a management to take various economic, social
and ethical aspects into consideration while taking the decisions. Decision making will be better if the
decisions are in the interest of the public, employees and companys own long term good.

5. Profitability:

Being ethical does not mean not making any profits. Every organization has a responsibility towards
itself also i.e., to earn profits. Ethical companies are bound to be successful and more profitable in the
long run though in the short run they can lose money.
6. Protection of Society: Ethics can protect the society in a better way than even the legal system of the
country. Where law fails, ethics always succeed. The government cannot regulate all the activities that are
harmful to the society. A HR manager, who is ethically sound, can reach out to agitated employees, more
effectively than the police.

Values: its meaning

According to M. Haralambos (2000), a value is a belief that something is good and desirable. For R.K.
Mukerjee (1949) (a pioneer Indian sociologist who initiated the study of social values), values are
socially approved desires and goals that are internalized through the process of conditioning, learning or
socialization and that become subjective preferences, standards and aspirations. A value is a shared idea
about how something is ranked in terms of desirability, worth or goodness.

Value System
Value system represents a basic belief that a particular conduct is personally or socially preferable or not.

Example: Is punishment is right or wrong. If a person likes power, is it good or bad.

Values are important because they influence our perception. They lay the foundation for the
understanding of attitudes and motivation.

Example: Suppose a person enters an organization with the view that pay given on the basis of
performance is right and pay given on the basis of seniority is wrong. If the organization rewards seniority
and performance, the person is likely to get disappointed and this can lead to job dissatisfaction.

ETHICAL THEORIES

Ethics is a branch of philosophy that, at its core, seeks to understand and to determine how human actions
can be judged as right or wrong. We may make ethical judgments, for example, based upon our own
experience or based upon the nature of or principles of reason. Those who study ethics believe that ethical
decision making is based upon theory and that these theories can be classified. What follows is a very
brief description of four classes of ethical theories
1. Consequentialism
2. Kantian Deontologist
3. Natural Law
4. Virtue Ethics

Consequentialism

Ethical theories that fall under the classification of consequentialism posit that the rightness or wrongness
of any action must be viewed in terms of the consequences that the action produces. In other words, the
consequences are generally viewed according to the extent that they serve some intrinsic good. The most
common form of consequentialism is utilitarianism (social consequentialism) which proposes that one
should act in such a way to produce the greatest good for the greatest number.
Kantian Deontologist

Deontologist is a position based, predominately, on the work of Immanuel Kant. Most simply,
deontologist suggests that an act must be performed because the act in some way is characterized by
universality (i.e. appropriate for everyone) or that it conforms with moral law (formal rules used for
judging the rightness or wrongness of an act). According to this theoretical position, the rightness or
wrongness of some acts are independent of the consequences that it produces and the act may be good or
evil in and of itself.

Natural Law

This theoretical position suggests that one may, through rational reflection on nature (especially human
nature), discover principles of good and bad that can guide our actions in such a way that we will move
toward human fulfillment or flourishing. This position suggests that human beings have the capacity
within themselves for actualizing their potential.

Virtue Ethics

Virtue ethics consists of two differing approaches to ethics and can, therefore, be confusing to understand.
Very briefly, the first approach to ethics in this theoretical orientation proposes that there are certain
dispositional character traits (virtues) that are appropriate and praiseworthy in general and or in a
particular role. More formally, virtue ethics represents a "systematic formulation of the traits of character
that make human behavior praiseworthy or blameworthy"

5 Different Approaches towards Ethical Behavior in Business

1. Teleological approach:
Also known as consequentiality approach, it determines the moral conduct on the basis of the
consequences of an activity. Whether an action is right or wrong would depend upon the judgment about
the consequences of such an action. The idea is to judge the action moral if it delivers more good than
harm to society. For example, with this approach, lying to save ones life would be ethically acceptable.

2. Deontological approach:
While a teleologist focuses on doing what will maximize societal welfare, a deontologist focuses an
doing what is right based an his moral principles. Accordingly, some actions would be considered
wrong even if the consequences of these actions were good. According to DeGeorge:

The deontological approach is built upon the premise that duty is the basic moral category and that the
duty is independent of the consequences. An action is right if it has certain characteristics or is of a certain
kind and wrong if it has other characteristics or is of another kind.

3. Emotive approach:
This approach is proposed by A.J. Ayer. He suggests that morals and ethics are just the personal
viewpoints and moral judgments are meaningless expressions of emotions. The concept of morality is
personal in nature and only reflects a persons emotions.
This means that if a person feels good about an act, then in his view, it is a moral act. For example, using
loopholes to cheat on income tax may be immoral from societal point of view, but the person filing the
income tax returns sees nothing wrong with it.

4. Moral-rights approach:
This approach views behavior as respecting and protecting fundamental human rights, equal treatment
under law and so on. Some of these rights are set forth in documents such as Bill of Rights in America
and U.N. Declaration of Human Rights. From ethical point of view, people expect that their health and
safety is not endangered by unsafe products.

5. Justice approach:
The justice view of moral behavior is based on the belief that ethical decisions do not discriminate people
on the basis of any types of preferences, but treat all people fairly, equitably and impartially, according to
established guiding rules and standards. All mankind is created equal and discriminating against any one
on the basis of race, gender, religion, nationality or any such criteria would be considered unethical.

From organizational point of view, all policies and rules should be fairly administered. For example, a
senior executive and an assembly worker should get the same treatment for the same issue, such as a
charge of sexual harassment.

Ethics can be defined as below;

Ethics is a body of principles or standards of human conduct that govern the behavior of individuals and
organizations. It is knowing what is the right thing to do and is learned when one is growing up, or at a
later date during an organizations ethics training program. Ethics can mean something different to
different people, especially given an organizations international workforce and the varying cultural
norms. Because individuals have different concepts of what is right, the organization will need to develop
the standards or code of ethics for the organization.

The Root Causes of Unethical Behavior

Much of the unethical behavior in organizations occurs when:

1. Organizations favor their own interest above the well-being of their customers, employees, or the
public.

2. Organizations reward behavior that violates ethical standards, such as increasing sales through
false advertising.

3. Organizations encourage separate standards of behavior at work than at home, such as secrecy
and deceit versus honesty.

4. Individuals are willing to abuse their position and power to enhance their interests, such as taking
excessive compensation for themselves off the top before other stakeholders receive their fair
share.
 5. Managerial values exist that undermine integrity, such as the pressure, managers exert on
employees to cover up mistakes or to do whatever it takes to get the job done, including cutting
corners.

6. Organizations and individuals overemphasize the short-term results at the expense of themselves
and others in the long run; for examples behavior is good based on the degree of utility, pleasure,
or good received, regardless of the effect on others.

7. Organizations and managers believe their knowledge is infallible and miscalculate the true risks,
such as when financial managers invest organizational funds in high-risk options trading.

ETHICAL PRINCIPLES

Ethical principles provide a generalized framework within which particular ethical dilemmas may be
analyzed. As we will see later in this module, these principles can provide guidance in resolving ethical
issues that codes of ethics may not necessarily provide. What follows are definitions of five ethical
principles that have been applied within a number of professions (Beauchamp & Childress, 1979):

1. Respecting autonomy
2. Doing no harm (nonmaleficence)
3. Benefiting others (beneficence)
4. Being just (justice)
5. Being faithful (fidelity)

Respecting autonomy

The individual has the right to act as a free agent. That is, human beings are free to
decide how they live their lives as long as their decisions do not negatively impact
the lives of others. Human beings also have the right to exercise freedom of thought
or choice.

Doing no harm (Nonmaleficence)

Our interactions with people (within the helping professions or otherwise) should not harm others. We
should not engage in any activities that run the risk of harming others.

Benefiting others (Beneficence)

Our actions should actively promote the health and well-being of others.

Being just (Justice)

In the broadest sense of the word, this means being fair. This is especially the case when the rights of one
individual or group are balanced against another. Being just, however, assumes three standards. They are
impartiality, equality, and reciprocity (based on the golden rule: treat others as you wish to be treated).
Being faithful (Fidelity)

Being faithful involves loyalty, truthfulness, promise keeping, and respect. This principle is related to the
treatment of autonomous people. Failure to remain faithful in dealing with others denies individuals the
full opportunity to exercise free choice in a relationship, therefore limiting their autonomy.