BUSINESS ETHICS

Dr.Srikrishna.G
Professor
MBA-MRIET
INTRODUCTION

 Ethics is the branch of philosophy that studies the values and behaviour of a
person. Value study of a person is used to determine his positive and negative
attitude towards life. Ethics studies concepts like good and evil, responsibility and
right and wrong.
 Ethics can be distinguished in three categories: normative ethics, descriptive
ethics and metaethics.
 Metaethics focuses on the issues of universal truths, ethical judgements and the
meaning of ethical terms. Normative ethics can be used to regulate the right and
wrong behaviour of individuals. Descriptive ethics, also called applied ethics, is
used to consider controversial issues, such as, animal rights, capital punishment
and nuclear war.
Meaning of Ethics
The term ‘ethics’ defines the standards that bear on right and wrong issues of society.
Business ethics is thus a set of professional standards, which emphasize principles of
honesty and duty to the business and the general public. The other significant
principles included in business ethics are:

 Fairness
 Integrity
 Commitment to agreements
 Broad-mindedness
 Considerateness
 Importance given to human esteem and self-respect
 Responsible citizenship
 Attempt to excel
 Accountability
 BUSINESS ETHICS DEFINED

Some special aspects must be considered when applying ethics to business.

 Businesses must earn a profit to survive, but these profits should not come
from misconduct.

 Businesses must balance their desires for profits against the needs and
desires of society.
BUSINESS ETHICS DEFINED

 Morals refer to a person’s personal philosophies about what is right or wrong.

 Business ethics comprises organizational principles, values, and norms that may
originate from individuals, organizational statements, or from the legal system that
primarily guide individual and group behavior in the world of business.

 Principles are specific and pervasive boundaries for behavior that should not be
violated.

 Values are enduring beliefs and ideals that are socially enforced.
Investors, employees, customers, interest groups, the legal system, and the community
often determine whether a specific action is right or wrong and ethical or unethical.
 Business Ethics – Definition

According to Crane, "Business ethics is the study of business situations, activities,

and decisions where issues of right and wrong are addressed.“

Baumhart defines, "The ethics of business is the ethics of responsibility. The

business man must promise that he will not harm knowingly.“

Garett defines “Business Ethics is primarily concerned with the relationship of

business goals and techniques to specific human needs”.
WHY STUDY BUSINESS ETHICS?

A Crisis in Business Ethics

 Ethical misconduct is a major business concern, and organizations are under

greater scrutiny than ever by stakeholders.
 Misuse of company resources, abusive behavior, harassment, accounting fraud,
conflicts of interest, defective products, bribery, and employee theft are all
problems cited as evidence of declining ethical standards in business and in other
areas like government or sports. Misconduct can occur in any organization.
 Regardless of an individual’s beliefs about a particular action, if society judges it
to be unethical or wrong, whether correctly or not, that judgment directly affects
the organization’s ability to achieve its business goals.
Why studying business ethics is valuable

 Business ethics is not merely an extension of an individual’s own personal

ethics—an individual’s personal values and moral philosophies are only one
factor in the ethical decision-making process.
 Being a good person with sound personal ethics is not sufficient to handle the
ethical issues that arise in a business organization.
 Business strategy decisions involve complex and detailed discussions. A high
level of personal moral development may not prevent an individual from
violating the law in an organizational context.
 The values people learn from family, religion, and school may not provide
specific guidelines for complex business decisions.
Studying business ethics helps business people begin to

 Identify ethical issues,

 Recognize the approaches available to resolve them,
 Learn about the ethical decision-making process and ways to promote ethical
behavior, and
 Begin to understand how to cope with conflicts between personal values and
organizational values.
THE BENEFITS OF BUSINESS
ETHICS
 THE BENEFITS OF BUSINESS ETHICS

 The field of business ethics is rapidly changing as more firms recognize the
benefits of improving ethical conduct and the link between business ethics and
financial performance.
 Among the rewards for being more ethical and socially responsible in business
are
 increased efficiency in daily operations,
 greater employee commitment,
 increased investor willingness to entrust funds,
 improved customer trust and satisfaction, and
 better financial performance.
Ethics Contributes to Employee Commitment

 Employee commitment comes from employees who believe their future is

tied to that of the organization and their willingness to make personal
sacrifices for that organization.
 The more a company is dedicated to taking care of its employees, the more
likely it is that the employees will take care of the organization.

 Issues that may foster the development of an ethical climate for employees
include
 the absence of abusive behavior,
 a safe work environment,
 competitive salaries, and
 the fulfillment of all contractual obligations toward employees,
 as well as social programs such as stock ownership plans and community
service
 An organization with a strong, ethical corporate culture helps to increase
group creativity, decrease turnover, and increase job satisfaction.

 Trusting relationships within an organization between both managers and

their subordinates and upper management contribute to greater decision-
making efficiencies.

 Research indicates that the ethical climate of a company matters to employees.

 Ethics Contributes to Investor Loyalty

Investors today are increasingly concerned about the ethics, social responsibility, and
the reputation of companies in which they invest.

 Investors recognize that an ethical climate provides a foundation for efficiency,

productivity, and profits; while negative publicity, lawsuits, and fines can lower
stock prices, diminish customer loyalty, and threaten a company’s longterm
viability.
 Investors look at the bottom line for profits or the potential for increased stock
prices or dividends, and for any potential flaws in the company’s performance,
conduct, and financial reports.
 Gaining investors’ trust and confidence is vital to sustaining the financial stability
of the firm.
Ethics Contributes to Customer Satisfaction

 Customer satisfaction is one of the most important factors in successful

business strategy.

 By focusing on customer satisfaction, a company continually deepens the

customer’s dependence on the company, and as the customer’s confidence
grows, the firm gains a better understanding of how to serve the customer.
 Successful businesses provide an opportunity for customer feedback, which can
engage the customer in cooperative problem solving.

 Research indicates that a majority of consumers prefer companies that give back
to society in a socially responsible manner.
 A strong organizational ethical environment usually focuses on the core
value of placing customers’ interests first.
 An ethical climate that focuses on customers incorporates the interests of
all employees, suppliers, and other interested parties in decisions and
actions.
 Ethical conduct toward customers builds a strong competitive position that
has been shown to affect both business performance and product innovation
positively.
Ethics Contributes to Profits

A company cannot nurture and develop an ethical organizational climate unless it

has achieved adequate financial performance in terms of profits.
FEATURES AND PRINCIPLES OF BUSINESS ETHICS
To understand business ethics, it is necessary to know its important characteristics.
These are:

(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
behaviours 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
behaviour 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, 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.
 Features of Business Ethics
There are Eight major features of business ethics −

 Code of Conduct − Business ethics is actually a form of codes of conduct. It lets us

know what to do and what not to do. Businesses must follow this code of conduct.
Based on Moral and Social Values − Business ethics is a subject that is based on
moral and social values. It offers some moral and social principles (rules) for
conducting a business.

Protection to Social Groups − Business ethics protect various social groups

including consumers, employees, small businesspersons, government, shareholders,
creditors, etc.
Offers a Basic Framework − Business ethics is the basic framework for doing
business properly. It constructs the social, cultural, legal, economic, and other limits in
which a business must operate.
Relative Term − Business ethics is a relative term. It changes from one business
to another and from one country to another.
New Concept − Business ethics is a relatively newer concept. Developed
countries have more exposure to business ethics, while poor and developing
countries are relatively backward in applying the principles of business ethics.

Voluntary − Business ethics is meant to be voluntary. It should be self practiced

and must not be enforced by law.
Requires Education & Guidance − Businessmen should get proper education
and guidance about business ethics. Trade Associations and Chambers of
Commerce should be active enough in this matter.
 Principles of Business Ethics

The principles of business ethics are related to social groups that comprise of
consumers, employees, investors, and the local community. The important rules
or principles of business ethics are as follows −
Avoid Exploitation of Consumers − Do not cheat and exploit consumer with
measures such as artificial price rise and adulteration.
Avoid Profiteering − Unscrupulous business activities such as black marketing,
selling banned or harmful goods to earn exorbitant profits must be avoided.
Encourage Healthy Competition − A healthy competitive atmosphere that offers
certain benefits to the consumers must be encouraged.
Ensure Accuracy − Accuracy in weighing, packaging and quality of supplying
goods to the consumers has to be followed.

Pay Taxes Regularly − Taxes and other duties to the government must be honestly
and regularly paid.
Get the Accounts Audited − Proper business records, accounts must be managed.
All authorized persons and authorities should have access to these details.
 Fair Treatment to Employees − Fair wages or salaries, facilities and incentives
must be provided to the employees.
Keep the Investors Informed − The shareholders and investors must know about
the financial and other important decisions of the company.
Avoid Injustice and Discrimination − Avoid all types of injustice and partiality to
employees. Discrimination based on gender, race, religion, language, nationality, etc.
should be avoided.
No Bribe and Corruption − Do not give expensive gifts, commissions and payoffs
to people having influence.
Discourage Secret Agreement − Making secret agreements with other business
people to influence production, distribution, pricing etc. are
unethical.
Service before Profit − Accept the principle of "service first and profit next."
Practice Fair Business − Businesses should be fair, humane, efficient and
dynamic to offer certain benefits to consumers.
 Avoid Monopoly − No private monopolies and concentration of economic power
should be practiced.
Fulfill Customers’ Expectations − Adjust your business activities as per the
demands, needs and expectations of the customers.
Respect Consumers Rights − Honor the basic rights of the consumers.
Accept Social Responsibilities − Honor responsibilities towards the society.
Satisfy Consumers’ Wants − Satisfy the wants of the consumers as the main
objective of the business is to satisfy the consumer’s wants. All business operations
must have this aim.
Service Motive − Service and consumer's satisfaction should get more attention
than profit-maximization.
Optimum Utilization of Resources − Ensure optimum utilization of resources to
remove poverty and to increase the standard of living of people.
Follow Woodrow Wilson's rules − There are four important principles of business
ethics. These four rules are as follows −

Rule of publicity − According to this principle, the business must tell the people
clearly, what it tends to do.
Rule of equivalent price − The customer should get proper value for their
money. Below standard, outdated and inferior goods should not be sold at high
prices.
Rule of conscience in business − The business persons must have conscience
while doing business, i.e. a morale sense of judging what is right and what is
wrong.
Rule of spirit of service − The business must give importance to the service
motive.