BUSINESS ETHICS

Unit – 1 Nature and Essence of Business Ethics

Meaning of Ethics
Ethics is a mainly known as principles of moral conduct that makes a distinction between good
and bad/evil, right and wrong, virtue and non-virtue.
The word ethics is a Greek word 'ethos' meaning character.
Ethics is that branch of knowledge that governs right and wrong conducts and behaviour of
individuals, profession, group or organisation.
Ethics is concerned with morality and right v/s wrong and good v/s bad. It is applied universally.
There is ethics in professions such as journalism, advertising, education, medicine, etc.

Features of ethics
1. Ethics is a set of moral standards and values acceptable in a society. It is relevant in the context
of society only.
2. Ethics guide human conduct or behaviour. If any member of the society behaves contrary to
the norms and customs, society disapproves it. Moral principles serve as a guide for professional
and personal conduct.
3. Ethical principles are universal in nature. They prescribe obligations and virtues for everybody
in a society. Ethics is not only important only in business and politics but in every human
endeavour.
4. Ethical standard differs from society to society for example - abortion and artificial birth control
is a taboo in most of the Islamic state but these practices are fully ethical in countries like China,
Russia, Japan etc.
5. Ethics is normative and prescriptive in nature - it does not rest on feelings of approval or
disapproval but on principles. For example, it may be unpleasant to fire an employee but morality
may require it.
6. Ethical norms might not be legally binding. But these are most powerful than law as these have
sanction of society.
7. Ethics relates to behaviour of individuals and groups and not to be behaviour of animals
and insect or birds.
8. Ethics is not hard and fast rules. They are an expression of a society’s attitudes and beliefs.
There is an element of discretion as a person has the option to adopt ethical norms. Ethics may
differ from place to place and time to time.
9. Ethics aims at perfection in human conduct. It guides law makers in framing proper laws to
regulate the behaviour of all citizens.
10. The concepts of equity and justice are implicit in ethics. Fair and equitable treatment to all is
its primary aim.

Scope of Ethics
1. Meta Ethics
Investigates where our moral values, languages and principles come from and what they mean.
It is concerned with " What is morality? " Rather than “What is moral?”. It deals into the nature
of ethical properties, attitudes and judgements. For example, a media critic’s description of a TV

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series as ‘good drama’ does not necessarily denote that the program is morally sound. It is the
function od meta ethics to define such vague concepts in ethical terms.
2. Applied Ethics
Is a problem-solving branch of moral philosophy. It uses the insights derived from meta ethics
and general principles and rules of normative ethics. It seeks to apply philosophical tools to
examine specific controversial issues and provide practical solution to moral problems. For
example, decision ethics, professional ethics, clinical ethics, business ethics, social ethics,
organisational ethics.
3. Normative Ethics
Deals with standards or norms by which we can judge human actions to be right or wrong. It
delas with the criteria of what is morally right or wrong. For example, if someone murders a
person, everyone will agree that it is wrong. The question is: why is it wrong to murder someone?
There are a lot of answers we could give, but if we want to specify a principle that stated why is
it wrong, the answer might be: murder is wrong because when we kill someone, we violate their
right to live. Another perspective might be to inflict unnecessary suffering on the person being
murdered or their family is wrong.

Importance of ethics

Ethics is important because of the following

1. Satisfying basic human needs
being fair, honest and ethical is one of the basic human needs.
2. Creating credibility
An organisation believed to be driven by moral values in respected in the society for example –
Infosys.
3. Uniting people and leadership
an organisation driven by values is reversed by its employees also
4. Improving Decision making
In order to achieve set goals proper and timely decision are driven by values
5. Long term grains
org guided by ethics and values are profitable in the long run though is the short run they may
seem to lose money
6. Securing the society
Often ethics succeeds law is safeguarding the society

Types of Ethics
1. Personal responsibilities
This refers to personal beliefs of an individual. Every individual has certain firm beliefs a certain
matter such as honesty, avoiding criminal acts, obedience to elders, writing to perform accepted
duties, promptly setting the dines etc.
2. Official Responsibilities
Only persons or human beings occupy positions. A person who is occupying a certain norms and
other standards set for that official capacity.

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3. Personal Loyalties
There include loyalties of a subordinate his superior. So long as the superior is just and honest,
the subordinates shall not face any problem.
4. Corporate Responsibilities
Corporations, as a separate legal entity, have certain moral responsibilities may not be identical
with the personal moral codes of the manager who run the company. These responsibilities may
be internal or external.
5. Organisational Loyalties
Many people develop a deep sense of loyalty towards the organisation as an entity that goes
beyond their personal interest this loyalty has arisen out of love and affection. This factor can be
stimulated effectively. If so, the employees will work hard and help the enterprise in achieving
its objectives.
6. Economic Responsibilities
This type of morality guides the individual actions of an economic nature. For instance, some
businessmen think it is immoral to borrow. However, this type of people is very rare to see.
7. Technical Morality
Professional people should adhere to certain ethical standards established by competent bodies
or persons or by customs. The code of conduct set for them by the concerned institutions
governing the profession binds lawyers, chartered accountants, doctors etc.
8. Legal Responsibilities
It refers to the responsibility imposed by law what are illegal are supposed to be unethical also.
Everyone should be law-abiding citizen.

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Business Ethics - Meaning

The term business ethics refers to the system of moral principles and rules of the conduct applied to
business.
Business Ethics is generally coming to know what is right. This is in regard to effect of pls and is
relation to the stakeholders
In short, business ethics is a systematic study of ethical matter pertaining to the business, industry
or related activities institutions and belief.

Characteristics of Business Ethics

1. Code of Conduct
Business ethics is a code of conduct that explains what a company can and must not do. It
explains how an organisation must behave towards the society in which it operates. There are
also regulations for how the firm treats its employees and customers. There is no scope for any
establishment to deviate from this code of conduct.
2. Moral And Ethical Values
The nature of business ethics is that it is based on moral and social values. It means that the
company must follow practices that will benefit society. It includes self-control, consumer
protection, the welfare of society, service to society, fair treatment to social groups, not exploiting
anybody connected to the firm, etc. Organisations must ensure that the products they supply don’t
affect society in any manner.
3. A Relative Term
We have seen that business ethics means operating as per moral and social values. These values
are not the same for all societies, communities or countries. So, the company must understand
what is acceptable in their society and do it accordingly. The company must understand the
morals and ethics in the location and follow them accordingly.
4. Protect The Interests of The Society
It is one nature of business ethics that deals with protecting the interests of society. A business is
supported by its stakeholders, employees, customers, business partners, etc. All these people live
in the society around the company. When the organisation protects society’s interests, it indirectly
takes care of all the above people who support the business in its operations. It must protect
society by supplying quality products at reasonable prices.
5. Improves Business Social Relationship
Business ethics is a way of ensuring that the relationship between society and the business
remains good. By following strict measures for the welfare of society, companies benefit from it.
The business also benefits from society through the support they provide as customers,
employees and investors.
6. Provides Basic Framework
Business ethics provides the basic framework for organisations to operate in. It provides the
social, economic, cultural and legal limits within which the company must function. This nature
of business ethics helps the company follow rules that are good for itself and society.

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7. It Is Voluntary
Following business ethics must be voluntary. The company should not be forced by any law to
follow these moral and social values. When it does this by itself, the organisation earns a good
name from society, customers and its employees.
8. Businessmen Should Be Educated
Not all business people are aware of a place’s social and moral values. They also don’t know
what business ethics they must follow to earn the support of the society around them. This nature
of business ethics makes it necessary for them to be educated in these values so that they don’t
violate any of the directions. Trade associations must inform companies about the benefits they
will gain from following business ethics.
9. Business Ethics Is Not Against Making Profits
It is a misconception that most people have. Having ethics doesn’t go against the principles of
business. All companies work to make profits, and nothing is wrong with it. Business ethics only
demands that organisations earn profits by fair means. They must not cheat the customers,
employees, shareholders or others to earn profits.
10. Good Employee Relationship
Companies need to maintain good relationships with their employees. They depend on the
company for their livelihood, career and personal growth. The organisation and its employees
must have a good relationship to benefit both. The company must ensure that the staff are paid a
fair salary and are treated well. This nature of business ethics is very important for the progress
of companies.

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 organisation which
they can respect and be proud of, because they perceive it to be ethical.
2. Credibility in public
Ethical values of an organisation create credibility in the public eye. people will like to buy
the products 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 success.
3. Credibility with employees
When employees are convinced of the ethical values of an organisation they are working for,
they hold the organisation in high esteem. It creates common goals, values and language.
4. Better decision making
Respect for ethics will force a management to take various economic, social and ethical
aspects into consideration while taking decisions. Decision making will be better if the
decisions are in the interest of public, employees and company’s own long term good.
5. Profitability
Being ethical does not mean not making any profits, Every organisation 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.

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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.

Factors influencing business ethics

Business ethics is a quality of being useful or desirable. It is commonly used to all things which
people regard as good, desirable and just some of the factors influencing Business ethics are:

1. Norms
Norms of expectations of a proper behaviour in a society. These are not requirements or must.
For example, we in India treat elders with respect. When we address our teacher we say
sir/madam.
2. Beliefs
Ethical codes of thought. Belief is an abstract thinking process. Here there is no action as in
norms. Beliefs support norms. For example, thinking of saving money or energy.
3. Ethos
Characteristics of a community or of a culture. Code of values by which a group or a society
lives. For example, generosity o a group.
4. Morality
It is a standard that an individual or a group that knows that is good, what is right and which is
proper. For example, since last decade political morality is decreasing in India.
5. Moral
Concerns regarding principles of right and wrong. For example, it is always right to tell the truth.
6. Moral norms
Are expectations of society a level of morals in the society. For example, do not harm innocent
man.
7. Moral values
Are desired level of morals. Usually these are statements, regarding describing Moral features.
For example, honesty is the best policy.
8. Moral behaviour
Moral behaviour is a study of right and wrong in human behaviours.

Sources of Business Ethics

Business ethics can be defined as the application of morals and principles to a business code of
conduct. Business ethics guides to work in socially and economically acceptable way. The major
sources of business ethics are as following:

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Religion: Business ethics are heavily sourced from religious sentiments. Every religion has some
theories describing what is right and wrong, and businesses follow the same while surviving in
society. By doing what is ethically right, businesses follow societal rules and responsibilities and

contribute to the economy's welfare. In a way, the business follows the social and religious code of
conduct.

2. Culture: Business ethics are also sourced from the culture people follow in the area where the
business is operated. Going against the morals, norms, and perceptions of the culture of people
will make the business culturally misfit. People will not prefer such companies that do not respect
their culture.

3.Law: The legal rules and regulations guide the businesses to follow and apply ethics to the
business that must be followed. These ethics are the rules that society expects businesses to follow.
Any basic shop or large business enterprise should follow these rules--for example, poor quality
products, unnecessarily high prices, pollution, adulteration, and so on.

Principles of Business Ethics

The fundamental principles of business ethics are as follows:
1. Loyalty
Is remaining faithful to business partners, coworkers and clients demonstrate your commitment.
2. Honesty
Requires a commitment to telling a truth regardless of the consequences. Honesty encourages
trust among colleagues and between a business and the public.
3. Compliance
The most basic levels of ethical business practiced is compliance with any laws related to your
business. For example, trading regulations, state tax, local building ordinance.
4. Integrity
Having integrity means adhering to a set of moral standards at all times even if no one is aware
of your choice.

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5. Fairness
Being fair in workplace involves treating everyone the same from assistants and interns to the
CEO. Fairness also means avoiding preferential treatment and encouraging everyone to share
their thought and ideas.
6. Trustworthiness
Trustworthy workers keep their word to customers, colleagues and business partners. Honouring
commitments proves that others can count on you, making you a trusted employee and
coworkers.
7. Respect
Treating others with respect is a cornerstone of business ethics. Each and every team member
deserves a voice and the ability to share options.
8. Accountability
Ethics is all about taking individual responsibility. It goes both ways. Individuals are responsible
for unethical practices of the firm because they did not come forward to become whistle-blowers.
Similarly, when an employee indulges in unethical business practices, the firm is responsible.
9. Avoid Conflicts
Firms need to minimize conflicts of interest in the workplace. Excessive competition within the
workforce can end disastrously.
10. Law Abiding
Corporate laws protect the rights of every section of society. Any kind of discrimination is
unethical. Personal biases of individuals should not affect the decision-making of leaders.

Scope of Business Ethics

Ethical problems and phenomena arise across all the functional areas of companies and at all levels
within the company.

2. 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

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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.
3. 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

4. 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.
• 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.

5. 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.

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6. 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 are:
• 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.

Approaches to the study of Business Ethics

1. Teleological Approach
Also known as consequentiality approach, it determines the moral conduct on the basis of the
consequence of an activity. Whether an action is right or wrong would depend upon the judgement
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 eg; with this approach, lying to lave one's life would be ethically
acceptable.
2. Deontological Approach
While a teleologic focuses on doing that will maximize societal welfare, a deontologist focuses on
doing what is "right" based on his moral principles. Accordingly, some actions would be
considered wrong even if the of these actions’ consequences were good.
3. Emotive Approach
This approach is proposed by AJ Ayer He suggests that morals and ethics are just the personal
viewpoints and moral judgements are meaningless expressions of emotions. This means that if a
person feels good about an act, then in his view, it is a moral act.
for eg:
• using loopholes to cheat on is come ton may be immoral from societal point of view, but a
person filing the income tax returns sees nothing wrong in it.
• Similarly, not joining the army time of war may be unethical and unpatriotic from the point
of view of the society and the country, but the person concerned may consider war as
immoral in itself.
Accordingly, the whole idea of the emotive theory focuses on the personal view point.
4. Moral- Rights Approach
This approach views behaviour 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 Prill of
Rights in America and UN.
5. Justice Approach
The justice view of moral behaviour is based on the belief that ethical decisions do not discriminate
people on the basis of any types of preferences.

Arguments for and against Business Ethics

More and more companies recognize the link between business ethics and financial performance.
Companies displaying a ‘clear commitment to ethical conduct” consistently out perform

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companies that do not display ethical conduct. Some of the following points are the arguments
discussed are claimed for (advantages) business ethics:

1. Holistic Approach
In last two centuries Importance was given to production and goods and Services and the
promotion more and more knowledge. In present modern century, a lot of significance is attached
to the growth of values and ethical ideal.
2. Leadership
Business Ethics in organisations requires value-based leadership from top management. Openness
and continuous efforts to improve the organisation’s ethical performance are to be directed from
the leadership of the organisation.
3. Employee commitment
The performance of the employees bound to increase under ethical conditions because of the
positive environment. A trustworthy atmosphere increases efficiency and enterprise.
4. Customer Satisfaction
Most of the customers focus as socially responsible organization rather ahead & badly reputed
organizations. Ethical conduct of organisation towards customers builds a strong competitive
position.
5. Changing mindset of stakeholders
Stakeholders apply their values and standards such as ideal working conditions, consumer rights
environmental issues and customer care.

The following points are the arguments claimed against (disadvantages) the business ethics:
1. No need for ethics separately
If business firms are interested in doing their main job of business, there is no need for teaching
separate way.
2. Demand and supply forces
The forces that govern the business is limited by two market forces like demand and supply and
hence restricted in business.
3. Compliance & Laur.
Any bis has to be ins compliance Lair of Land for eg: Competition Law in India encourages growth
f healthy competition.
4. Conflicts of interest
Business promotes conflicts of interest between employer and employee, Sellers and buyers,
owners and govt etc. In an atmosphere dominated by conflicts of interest, possibility of ethical
operations is limited.
5. Profit is object of business
The main objective of any business is to make profit and indicate the progress. Profits are made
through various business operations or techniques. These techniques are based on exploitation.
Hence there may not be a good scope for business ethics in modern days.

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