Chapter One

Introduction to Business Ethics & Understanding Corporate Social Responsibility

1.1. Introduction to Ethics
Definition & Nature of business ethics: The term "ethics" is derived from the Greek word "ethos"
which refers to character or customs or accepted behaviors. Ethics refers to well- founded standards of
right and wrong that prescribe what humans ought to do, usually in terms of rights, obligations, benefits
to society, fairness, or specific virtues. Ethics is a set of principles or standards of human conduct that
govern the behavior of individuals or organizations. Using these ethical standards, a person or a group of
persons or an organization regulate their behavior to distinguish between what is right and what is wrong
as perceived by others. It is not a natural science but a creation of the human mind. For this reason, it is
not absolute and is open to the influence of time, place and situation.
Ethics can be defined as the discipline dealing with moral duties and obligation, and explaining what is
good or not good for others and for us.
Ethics is the study of moral decisions that are made by us in the course of performance of our duties.
Ethics is the study of characteristics of morals and it also deals with the moral choices that are made in
relationship with others.
Ethics is concerned with truth and justice, concerning a variety of aspects like the expectations of
society, fair competition, public relations, social responsibilities and corporate behavior.
Business Ethics:
Business ethics is a form of applied ethics. In broad sense ethics in business is simply the application
moral or ethical norms to business. Business ethics refers to a 'code of conduct' which businessmen are
expected to follow while dealing with others. 'Code of conduct' is a set of principles and expectations
that are considered binding on any person who is member of a particular group. The alternative names
for code of conduct are 'code of ethics' or 'code of practice'.
Business ethics comprises the principles and standards that guide behavior in the conduct of business.
Businesses must balance their desire to maximize profits against the needs of the stakeholders.
Maintaining this balance often requires tradeoffs. To address these unique aspects of
businesses, rules - articulated and implicit, are developed to guide the businesses to earn profits
without harming individuals or society as a whole. The coverage of business ethics is very wide as it
deals with norms relating to a company and its employees, suppliers, customers and neighbors, its

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fiduciary responsibility to its shareholders. It reflects the philosophy of business, one of whose aims is to
determine the fundamental purposes of a company.
Business ethics stands for the saneness or purity of purpose that is upheld through carefully designed
actual practices of business enterprises. It is an embodiment of conscience concern towards execution of
business processes in tune with the nobility of the purpose.
1.1.2 Main Approaches to Ethical Thinking
Not everyone understands or interprets ethics in the same way, and thus disagreement exists as to the
appropriate behavior by business in society. Many decisions involving ethics are made automatically
without thinking, based on individual value standards and judgments and not ethical principles.
Unfortunately, automatic decisions cannot be relied upon. Different countries, cultures, and religions
may define right and wrong differently. More complexity results in situations where no option is clearly
right, giving rise to dilemmas where effort is required to sort out right versus wrong. For some
dilemmas, the choice might be between what some would consider two wrongs. Throughout history,
ethicists have described various theories and principles to help understand the ethics of decision making.
The difficulty is that numerous theories exist and some even have multiple interpretations. This section
describes the three dominant approaches to normative theories of ethics:
A. Deontological ethics, or rule-based theories of ethics, actions are ethical if done for the sake of
what is good without regard for the consequences of the act. Decisions are based upon duty and
adherence to universal principles. In other words, individuals have a duty to do the right thing even
if the consequences of another action are preferable. It is most important to act in a way in which
one would like to see others act in the same or similar circumstances. A variation of deontology is
broadened to the societal level, where individuals are born with natural rights possessed equally.
But it is difficult to determine the rights to possess. Another variation is based on the principles of
justice used to meet a "veil of ignorance" test. That is to say, a rule is just if everyone agrees to it is
made ignorant of their position in society, thereby eliminating personal bias and guaranteeing
fairness. A universal rule would result that could be used in similar circumstances and treating
everyone with respect.
B. Teleological ethics, or consequential theories of ethics, focus on the outcomes or results of actions.
A well-known variation is utilitarianism, which is based on utility or usefulness. The approach looks
to the end results and individuals make decisions based on the consequences of the action. The
decision is believed to be good if the end result is good. A decision is to result in the greatest good

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 or happiness for the greatest number, and allows for bad consequences or harms. This approach is
used every day by individuals and in business to view the relative outcomes; that is, the distribution
of harms and benefit. Thus, moral character depends upon the practical matter relating to the extent
to which actions benefit or harm those involved.
C. Virtue ethics: which emphasizes the character or identity of the individual and focuses upon being
rather than doing. Morality is based on the development of good character traits or virtues and
assumes that a good person will perform ethically. There are dozens of desirable traits; nine were
listed by Aristotle-wisdom, prudence, justice, fortitude, courage, liberality, magnificence,
magnanimity, and temperance. Virtue ethics acknowledges that absolute rules are unlikely to apply
in all situations. Dozens of possible virtues exist, and the approach does not focus on which sorts of
actions are morally permitted and which ones are not. An illustration is provided by responses to the
question, "What virtues make a good businessperson or leader?" Possible answers include foresight,
courage, commitment, compassion, respectfulness, and honesty

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1.2 Definition of Corporate social responsibility CSR
Corporate social responsibility(CSR) has had many definitions to date; one is the way a corporation
achieves a balance among its economic, social, and environmental responsibilities in its operations so as
to address shareholder and other stakeholder expectations. CSR is known by many names, including
corporate responsibility, corporate accountability, corporate ethics, corporate citizenship,
sustainability, stewardship, and the triple-E bottom line (economical, ethical, and environmental).
CSR is a general management concern; that is, it is important to all aspects of business, and it is
integrated into a corporation's operations through its values, culture, decision making, strategy, and
reporting mechanisms. Its ISO 26000 standard defined social responsibility as the responsibility of an
organization for the impacts of its decisions and activities on society and the environment, through
transparent and ethical behavior that:
• contributes to sustainable development, including health and the welfare of society;

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• takes into account the expectations of stakeholders;
• is in compliance with applicable law and consistent with international norms of behavior; and
• is integrated throughout the organization and practiced in its relationships

According to Wood, the "basic idea of corporate social responsibility is that business and society are
interwoven rather than distinct entities" and that expectations are placed on business due to its three
roles: as an institution in society, as a particular corporation or organization in society, and as
individual managers who are moral actors within the corporation.
These roles result in three levels of analysis-institutional, organizational, and individual-and can be
expressed in terms of three principles of corporate social responsibility: legitimacy, public
responsibility, and managerial discretion.
The principle of legitimacy refers to society's granting of legitimacy and power to business, and
businesses appropriate use of that power and the possibility of losing that power. Corporate social
responsibility defines the institutional relationship between business and society that is expected of any
corporation. Society has the right to grant this power, to impose a balance of power among its
institutions, and to define their legitimate functions. The focus is on business' obligations as a Social
institution, and society takes away power or imposes some sort of sanction on business if expectations
are not met.
The principle of public responsibility means that business is responsible for outcomes related to its areas
of involvement with society. The level of application is organizational- that is, the corporation and
confines business' responsibility to those problems related to a firm's activities and interests.
Last, the principle of managerial discretion refers to managers as moral actors who are obliged to
exercise such discretion as is available to them to achieve socially responsible outcomes. Discretion is
involved because the actions of managers are not totally prescribed by corporate procedures. The level
of application is the individual who has the choices, opportunities,
and personal responsibility to achieve the corporation's social responsibility.

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1.3. Corporate Citizenship

Corporate citizenship has recently become a commonly used term to describe the role of business in
society. Despite the common usage of the term, definitions vary.
Corporate citizenship: occurs when a corporation demonstrates that it takes into account its complete
impact on society and the environment as well as its economic influence. It concerns the economic,
ethical or social, and environmental responsibilities to all stakeholders involved, with consideration
given to inputs from various stakeholders and the practices of corporations to develop relationships with
stakeholders.
Many justifications for corporate citizenship exist, with one of the most frequently referenced being the
"Business Case for Corporate Citizenship" that was posted on the World Economic Forum website.
According to this report, good corporate citizenship can provide business benefits in eight areas:
• Reputation Management-A corporate reputation is built and maintained by fulfilling the expectations
of multiple stakeholders.
• Risk profile and risk management-Risk is reduced when corporations understand stakeholder concerns.

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• Employee recruitment, motivation and retention -Obtaining and keeping employees is made easier
for companies known as good corporate citizens.
• Investor relations and access to capital-Many investors are interested in non-financial as well as
financial performance, and there is a proven link between good corporate citizenship and good financial
performance.
• Learning and innovation-Corporate citizenship objectives can encourage creativity and innovation.
• Competitiveness and market positioning-Increasingly, consumers are inquiring about the corporate
citizenship performance of companies and tend to be loyal to those with a good record.
• Operational efficiency-A focus on corporate citizenship can lead to direct improvements to the bottom
line.
• License to operate-Companies with a good record of corporate citizenship are given greater leeway
when problems occur and are less subject to unfair criticism. This list illustrates the broad scope of
activities and stakeholders that are impacted by corporate citizenship practices, including on a global
scale. The report concluded that increasing corporate citizenship was an integral part of good business
management.
The quantity and diversity of the literature on corporate citizenship makes it difficult to concisely
review. The following discussion attempts to organize the views that are held regarding corporate
citizenship (inappropriate; limited, equivalent, extended; and business). The final section argues that
a more appropriate term is business citizenship.

The Inappropriate View: Many have posed the questions, "Can the corporation be a citizen?" and "Is a
corporate citizen the same as an individual citizen?" The nature of citizenship has its roots in political
theory, philosophy, Jaw, sociology, and psychology and is a complex phenomenon that ha~ been
discussed and debated for centuries. Individual citizenship involves the relationship of the person to the
state, the rights and duties of citizens, and the national and cultural identity involved. Any attempt to
extend the individual's role as a citizen to that of a corporation is thought by many to be completely
inappropriate.

Limited View: Corporate giving or philanthropic responsibility was the focus reasoning is that
something should be given back to the community considered to be enlightened self-interest.

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Equivalent View: Citizenship is defined as what society expects are responsibilities of business
emphasis on sustainability, the stewardship role of business, and the stakeholder approach considered to
be rebranding or re-launching existing ideas and concepts of business-society relations.
Extended View: Building on the "extended" view that citizenship is based on the shared
understanding of basic social, civil, and political rights, a different way of considering corporate
citizenship emerges. However, it is questionable whether social and political rights can be regarded as
rights of the corporation. Instead, the corporations could be viewed as powerful actors that have a
responsibility to respect individual rights.
Business View: Wood and Logsdon argue that the term "business citizenship" may better incorporate
the broader perspective on business rights and duties, stakeholder relationships, and responses to the
opportunities and challenges that accompany the global socio-economy of the twenty-first century.
Business citizenship includes the responsibilities of corporate citizenship on a local and national basis

and extends it to a global or universal scope. The authors explain the status of citizenship for individuals
and then compare this reasoning to the business organization or the corporation. Thus, the individual as
citizen is local, community, and national in scope and the relationship of the individual is with the state
and involves rights and duties. Today, the individual as citizen is global or universal in scope and
concerned with common humanity, interdependence, and universalism, which are less grounded on
fixed rules or laws.
Further, the corporation as citizen can be considered as either a "corporate" citizen or a "business"
citizen. As a corporate citizen, corporations are a responsible player in local environments, involved
with volunteerism, charity, and rights and duties in and for the community. Today, thinking in terms of
being a corporate citizen associated with corporate-community relations may be too narrow to represent
the depth and variety of business-society relationships. Thus, a "business citizen" would be responsible
not only for local actions-that is, concerned with organizations' rights and societies within and across
national and/or cultural borders-but also for global or universal actions.

1.4. Social responsiveness

Many arguments support the involvement of business in society; that is, they support the social
responsibility or social responsiveness of business. Business must realize that society is a "system" of
which corporations are a part, and that the system is interdependent. Therefore, if business institutions

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interact with others in society, the need for social involvement along with increasing interdependence
brings the need to participate in the complex system that exists in society. There are many mutual
involvements among individuals, groups, and organizations in society, or among subsectors of society.
Business is vulnerable to the actions or events that occur in other subsectors. As a result, business should
operate in such a way as to fulfill society’s needs or expectations. It should do so for a very pragmatic
reason: it is believed in some quarters that business functions by the consent of society and therefore
must be sure to satisfy the needs of society. Social responsibility is in the shareholder's interest; that is,
corporate virtue is good for profits, especially in the long term. A poor social responsibility role on the
part of the corporation means poor management to some investors. They view failure to perform in
society's interests in much the same way as they view the corporation's failure to perform in financial
matters. Similarly, investors and consumers are showing increasing interest in and support for
responsible business. Most top corporate managers consider social responsibility