CHAPTER-10 BUSINESS ETHICS

ETHICS: It is a system of moral principles. These are moral guidelines which leads to good behavior. The word “Ethics” is
latin which is called “ethicus” . it means character or manners.
Definition :------Peter F Drucker- “Ethics deals with the right actions of the individual”
Types of ethics

1. Normative ethics: it is the largest branch of ethics which deals with how individuals can decide the correct moral
action that they should take in a given situation of ethical nature.
2. Meta ethics: it seeks to understand the nature of ethical properties and judgements such as if true values can be
found. It is one of the branch recognized by the philosophers.
3. Applied ethics: this is the study of applying ethical theories developed by various philosophers in our everyday life.
4. Moral ethics: it is the study of human behavior ie: what is right or wrong or good or bad etc. in a society.

Business ethics- meaning

It is the applications of general ethical rules to business behavior. These are the rules of business by which owner of
business activity may be judged. It is the applied ethics. It is the application of ethics in business.
According to Andrew crane, “ business ethics is the study of business situations, activities, and decisions where issues
of right and wrong are addressed”.
It is generally coming to know what is right or wrong in the workplace and doing what is right- this is in regard to effects
of products or services and in relationship with stakeholders.
Thus business ethics or ethical standards are the principles, practices that guide the business people in the day to day
business decisions. It relates to the behavior of a businessman in a business situations.

Characteristics of Business Ethics

1. A discipline
2. It is art, science and both
3. Dynamic
4. An ancient concept
5. Theological base
6. Study of goals and means
7. Based on social reality and custom
8. Relating to human aspect
9. Universal application
10. Develop personal dignity
11. Maintains good relation

Scope of business ethics

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 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.
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.
• over billing of expenses, facilitation payments.
• Fake reimbursements
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.
• Affirmative Action.
• Issues surrounding the representation of employees and the democratization of the
workplace, tradeization.
• 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.
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.
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 arise out of the fact that there is usually a degree of
danger in any product or production process and it is difficult to define a degree of permissibility, or the degree of
permissibility may depend on the changing state of preventative technologies or changing social perceptions of
acceptable risk.
• 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

Factors influencing business ethics

1. A man’s personal code of ethics that is what one considers moral is the foremost responsible factor influencing
his behaviour.
2. It is already stated that the Government will intervene and enact laws only when the businessmen become too
unethical and selfish and totally ignore their responsibility to the society.
3. Laws support Government regulations regarding the working conditions, product safety, statutory warning
etc. These provide some guidelines to the business managers in determining what are acceptable or recognized
standards and practices.
 4. When a company grows larger, its standard of ethical conduct tends to rise. Any unethical behaviour or
conduct on the part of the company shall endanger its established reputation, public image and goodwill.
5. Social forces and pressures have considerable influence on ethics in business. If a company supplies sub-
standard products and get involved in unethical conducts, the consumers will become indifferent towards the
company. Sometimes, the society itself may turn against a company.
6. The firms, which strictly adhere to the ethical code, can retain its position unaffected in its line of business. If
the company’s performance is below than other companies, in the same industry, it cannot survive in the field in
the long run.
Arguments for and against business ethics
• Ethics applies to all human activities.
• Business cannot survive without ethics.
• Ethics is consistent with profit seeking.
• Customers, employees, and people in general care about ethics.
• Studies suggest ethics does not detract from profits and seems to contribute to profits.
• To meet demands of business stakeholders
• To enhance business performance
• To promote personal morality
Arguments Against Business Ethics
• In a free market economy, the pursuit of profit will ensure maximum social benefit so business ethics is not needed.
• A manager’s most important obligation is loyalty to the company regardless of ethics.
• So long as companies obey the law they will do all that ethics requires.
• An ethical company cannot be competitive and viable.
• Employees, as "loyal agents," - obligated to serve their to advance the employer's self-interest.

BASICS OF BUSINESS ETHICS

1. Honesty. Ethical executives are honest and truthful in all their dealings and they do not deliberately mislead or
deceive others by misrepresentations, overstatements, partial truths, selective omissions, or any other means.
2. Integrity. Ethical executives demonstrate personal integrity and the courage of their convictions by doing what they
think is right even when there is great pressure to do otherwise; they are principled, honorable and upright; they will
fight for their beliefs. They will not sacrifice principle for expediency, be hypocritical, or unscrupulous.
3. Principle of proportionality: This principle suggests that one should make proper judgment before doing anything
so that others do not suffer from any loss or risk of evils by the conducts of business.
4. Non co-operation in evils: It clearly points out that a business should not co-operate with any one for doing any evil
acts.
5. Co-operation with others: This principles state that business should help others only in that condition when other
deserves for help.
6. Commitment to excellence. Ethical executives pursue excellence in performing their duties, are well informed and
prepared, and constantly endeavour to increase their proficiency in all areas of responsibility.
7. Leadership. Ethical executives are conscious of the responsibilities and opportunities of their position of leadership
and seek to be positive ethical role models by their own conduct and by helping to create an environment in which
principled reasoning and ethical decision making are highly prized.8. Universal value: According to this principle the
conduct of business should be done on the basis of universal values.
8. Human dignity: As per this principle , man should not be treated as a factor of production and human dignity should
be maintained.
9. Non violence : If businessman hurts the interests and rights of the society and exploits the consumer by overlooking
their interests this is equivalent to violence and unethical act.
10. concern for others
11. respect for others
12. accountability

Principles of business ethics

1. Sacredness of means and ends.: it emphasis that the means and techniques adopted to serve the business ends
must be pure. That means good end cannot be attained with wrong means.
2. Not to do any evil: it indicates that it is unethical to do a major evil to another or to oneself, whether this evil is a
means or an end.
3. Principle of proportionality: it is unethical to permit a major evil to another or to oneself without proportionate
reason. It suggests that one should make proper judgement before doing anything so that others do not suffer
from any loss by the conduct of business.
4. Non cooperation in evils
5. Co-operation with others
6. Publicity
7. Equivalent price
8. Service motto
9. Universal value
10. Human dignity
11. Promise keeping
12. Non violence

IMPORTANCE OF BUSINESS ETHICS

There may be many reasons why business ethics might be regarded as an increasingly important area of study,
whether as students interested in evaluating business activities, or as managers seeking to improve their decision
making skills.
It is generally viewed that good business ethics promote good business.
1. The power and influence of business in society is greater than ever before. Business ethics helps us to understand
why this is happening, what its implications might be, and how we might address this situation.
2. Business has the potential to provide a major contribution to our societies, in terms of producing the products and
services that we want, providing employment, paying taxes, and acting as an engine for economic development and
thereby increases the goodwill.
3. Business malpractices have the potential to inflict enormous harm on individuals, on communities and on the
environment. Through helping us to understand more about the causes and consequences of these malpractices,
business ethics helps to create mutual trust and confidence in relationship.
4. The demands being placed on business to be ethical by its various stakeholders are constantly becoming more
complex and more challenging. Business ethics provides the means to appreciate and understand these challenges
more clearly, in order that firms can meet these ethical expectations more effectively.
5. Business ethics can help to improve ethical decision making by providing managers with the appropriate
knowledge and tools that allow them to correctly identify, diagnose, analyse, and provide solutions to the ethical
problems and dilemmas they are confronted with.
6. A business can prosper on the basis of good ethical standards and it helps to retain the business for long years.
7. Business ethics can provide us with the ability to assess the benefits and problems associated with different ways
of managing ethics in organizations.
8. In the age of complexity in business fields , competition is increasing day by day Good ethical standard helps the
business to face the challenges

Limitations of business ethics

1. No reward for ethical conduct
2. Difficult to decide an act whether it is ethical or not
 3. No proper knowledge of ethical standard

Factors causing unethical behavior

1. Completion:
2. Pressure to earn more profit
3. Ambigues situations
4. Political corruption
5. Social values and custom are not followed by new generation
6. People neglect social responsibility

Environmental Issues That Affect Business

Key environmental issues affecting business include industrial waste, sustainable development of raw materials and
water and air emissions. These issues affect business because laws require businesses to change equipment and
procedures to meet imposed standards, which costs businesses money. Many businesses undertake stricter changes in
an effort to preserve the environment and "do what's right." These businesses pay for the protective and proactive
environmental measures and attempt to recoup the expenses through consumer good will or the added consumer
base gained from an environmentally friendly policy.
Waste: Businesses that manufacture products create, at some point in the manufacturing process, manufacturing
waste. Environmental laws and good environmental citizenship prohibit the indiscriminate dumping of manufacturing
byproduct, so businesses must decide how best to dispense with it. Many implement recycling programs, others sell
what they can of the waste to other manufacturers who use it in their own manufacturing processes as raw material.
Either way, the effect is additional cost to the business in man hours, procedures, equipment and handling all specific
to moving the waste products out of the business's manufacturing process and facilities.
Sustainable Development of Raw Materials: All manufacturers use raw materials to put together their goods. When
these raw materials are natural, such as wood, laws and good environmental citizenship require that the business take
measures to replace what it uses. Christmas tree farms are a prime example, as sellers buy from growers who harvest
and replant in order to keep from depleting entire forests of naturally occurring pine trees. Again, the affect on
business is cost in terms of higher raw materials costs, which usually include the supplier's cost to “replant” or
“restock” the natural raw materials.
Emissions: Manufacturing processes often generate air and/or water emissions, which include particle or chemical-
filled smoke, ash and particles and chemicals that seep into ground water through run-off. Environmental protection
laws require businesses to protect the environment from exposure to these emissions. Remedial process include
placing screens of specified gauges over smoke stacks, filtration of waste water and lining of retention ponds with clay
and poly liners. New regulations are implemented frequently that require retrofitting of manufacturing facilities with
increased protections, such as screens of even finer gauges and pond liners of newer and safer materials. All of these
measures are costly to business and affect businesses first by decreasing profit margins.
Pollution: Pollution is one of the world’s biggest environmental problems, as it tends to be a typical by product of
modern life. Air pollution, for instance, is the result of fossil fuel combustion, as well as various gases and toxins
released by industries and factories.
Climate change: Climate change is a global problem with grave implications: environmental, social, economic, political
and for the distribution of goods. It represents one of the principal challenges facing humanity in our day. If present
trends continue, this century may well witness extraordinary climate change and an unprecedented destruction of
ecosystems, with serious consequences for all of us.

GLOBALISATION AND BUSINESS ETHICS

Business ethics (also corporate ethics) “is a form of applied ethics or professional ethics that examines ethical
principles and moral or ethical problems that arise in a business environment. It applies to all aspects of business
conduct and is relevant to the conduct of individuals and entire organizations”.
Ethical decision making is an obligation in business, in government, in education and in our daily lives. Ethics has
gained more significant place in the competitive business environment. World has faced many ethical issues, where
1960 was a time of social unrest, 1980 was the decade of financial scandals and 1990 saw the world becoming a
“Global Village”. Though business grew and the environment offered more markets and many opportunities, but with
it also came duplication of products, child labour, money laundering, environment issues and many other business
malpractices. To add to more of these unethical practices the New Millennium faced the tsunami of business crimes.
Cyber crimes, sexual harassment in work places, intellectual property and patent thefts to name a few. To address
these serious issues, this era understood the need and significance of incorporating Business ethics as part of their
strategic business programs and alliances. With the involvement of business ethics as a part of business strategic
decision making, many companies have gained a competitive advantage, good will and recognition in the global
business world. They have attracted a good workforce and cater to a healthy organization climate. All this has
ultimately led to good profits and a healthy competition in the business world.