UNIT I
NATURE AND CONCEPT
LESSON 1:
MEANING AND NATURE OF
BUSINESS ETHICS
Hello dear students ever did something, which was against your
values, beliefs & moral principles. The straightaway answer will be
no, never. O.K. then answer all these questions in just yes or no:
• You did not help a person who met with an accident in front
of you and was lying on the road waiting for someone to give
him assistance?
• Have you ever bribed someone for getting your work done?
• Have you ever discriminated someone because of his caste,
creed, sex or any other thing?
If the answer of any of the above mentioned question is yes
then my friend its time you should revise your definition of
values, beliefs and moral principles. I can understand that it is
difficult to judge what is right and what is wrong because what is
right in one situation can be wrong and improper in another
situation.
So for getting a clear picture of what is right and what is wrong.
Lets start with the first topic of this subject.
Points to be covered in this lecture:
• Meaning of Ethics and business Ethics
• Organization and Business Ethics
• Arguments for and against business ethics.
Introduction
There is a big difference between what you have a right to do
and what is right to do. - Justice Potter Stewart
Never let your sense of morals get in the way of doing what’s
right. - Issac Asimov
Man is a social animal. Though rules of nature control humans as
they control other living beings, man himself has derived certain
principles to govern his own individual and group behavior.
These rules, in the form of behavioral standards may differ across
cultures and times, but their basic objectives are always mutual
existence and peace within the particular commu- nity or the
social group. By ensuring security and protection of the group
these standards helps in the survival of the particular community
or a social group and thus its members. These standards of
behavior are called “ethics.”
Few socio-biologists argue that humans have biologically inherited
capacity to make ethical judgments by evaluating actions as either
good or evil. Internally in an organization, apart from the
organizational culture, its top leadership and their ideologies also
influence ethical orientation of a people.
As in the case of individuals, organizations irrespective of their
size are also monitored and evaluated by a set of ethical
standards. Apart from internal ethical code of conduct, external
entities like professional and legal bodies, government and other
public interests groups influence the norms of behavior for
organizations. International bodies like United Nations and
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CHAPTER 1:
INTRODUCTION TO BUSINESS ETHICS
other non-government organizations like Amnesty Interna-
tional also influence these norms. They try to govern ethical
concerns that are globally important by influencing policies and
rules framed by the governments.
Meaning of Ethics
What is Ethics?
A few years ago, sociologist Raymond Baumhart asked business
people, “What does ethics mean to you?” Among their replies
were the following:
“Ethics has to do with what my feelings tell me is right or
wrong.”
”Ethics has to do with my religious beliefs.”
”Being ethical is doing what the law requires.”
”Ethics consists of the standards of behavior our society
accepts.”
”I don’t know what the word means.”
These replies might be typical of our own. The meaning of
“ethics” is hard to pin down, and the views many people have
about ethics are shaky.
Like Baumhart’s first respondent, many people tend to equate
ethics with their feelings. But being ethical is clearly not a matter
of following one’s feelings. A person following his or her
feelings may recoil from doing what is right. In fact, feelings
frequently deviate from what is ethical.
Nor should one identify ethics with religion. Most religions, of
course, advocate high ethical standards. Yet if ethics were
confined to religion, then ethics would apply only to religious
people. But ethics applies as much to the behavior of the atheist
as to that of the saint. Religion can set high ethical standards
and can provide intense motivation for ethical behavior. Ethics,
however, cannot be confined to religion nor is it the same as
religion.
Being ethical is also not the same as following the law. The law
often incorporates ethical standards to which most citizens
subscribe. But laws, like feelings, can deviate from what is ethical.
Pre-Civil War slavery laws in the US and the apartheid laws of
South Africa (before independence) are grotesquely obvious
examples of laws that deviate from what is ethical. Finally, being
ethical is not the same as doing “whatever society accepts.” In
any society, most people accept standards that are, in fact, ethical.
But standards of behavior in society can deviate from what is
ethical. An entire society can become ethically corrupt. Nazi
Germany is a good example of a morally corrupt society.
Moreover, if being ethical were doing “whatever society
accepts,” then to find out what is ethical, one would have to
find out what society accepts. To decide what I should think
about abortion, for example, I would have to take a survey of
American society and then conform my beliefs to whatever
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society accepts. But no one ever tries to decide an ethical issue by
doing a survey. Further, the lack of social consensus on many
issues makes it impossible to equate ethics with whatever
society accepts. Some people accept abortion but many others
do not. If being ethical were doing whatever society accepts, one
would have to find an agreement on issues, which does not, in
fact, exist.
What, then, is Ethics?
Ethics is Two Things
First, ethics refers to well-based 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,
for example, refers to those standards that impose the reasonable
obligations to refrain from rape, stealing, murder, assault, slander,
and fraud. Ethical standards also include those that enjoin virtues
of honesty, compassion, and loyalty. And, ethical standards
include standards relating to rights, such as the right to life, the
right to freedom from injury, and the right to privacy. Such
standards are adequate standards of ethics because they are
supported by consistent and well- founded reasons.
Secondly, ethics refers to the study and development of one’s
ethical standards. As mentioned above, feelings, laws, and social
norms can deviate from what is ethical. So it is necessary to
constantly examine one’s standards to ensure that they are
reasonable and well-founded. Ethics also means, then, the
continuous effort of studying our own moral beliefs and our
moral conduct, and striving to ensure that we, and the institu-
tions we help to shape, live up to standards that are reasonable
and solidly-based.
Definitions of Ethics
• Ethics is a set of moral principles or values which is concerned
with the righteousness or wrongness of human behavior and
which guides your conduct in relation to others
(for individuals and organizations).
• Ethics is the activity of examining the moral standards of a
society, and asking how these standards apply to our lives and
whether these standards are reasonable or unreasonable, that
is, whether they are supported by good reasons or poor ones.
Therefore, a person starts to do ethics, when he or she
takes the moral standards absorbed from family, friends, and
asks: what do theses standards imply for the situations in
which I find myself? Do these standards really make sense?
What are the reasons for or against these standards? Why
should I continue to believe in them? What can be said in their
favor, and what can be said against them? Are their
implications in this or that particular situation reasonable?
Goal of a Theory of Ethics
The goal of a theory of ethics is to determine what is good,
both for the individual and for the society as a whole. Philoso-
phers have taken different positions in defining what is good, on
how to deal with conflicting priorities of individuals versus the
whole, over the universality of ethical principles versus
“situation ethics” in which what is right depends upon the
circumstances rather than on some general law, and over
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whether goodness is determined by the results of the action or
the means by which results are achieved.
Business Ethics
According to an old joke “business ethics” is a contradiction in
terms. For some this is only humor. For others there is a
serious question: “ As business is by nature unethical, how can
there be such a subject as business ethics?”
The new economy is changing the world of work and the
people who work in it fundamentally. Technology, globaliza-
tion, intangibles and the war for talent are all driving the new
economy and helping to create new corporate paradigms. In the
new economy, business models can be seen as groupings of
assets (or stakes), and businesses will need to be accountable to
each asset owner (or stakeholder) in some kind of mutually
agreed way. Wider accountability involves wider ethical dimen-
sions that businesses must grapple with, and with this comes a
greater risk of ethical conflicts that can damage an organization.
Avoiding the ethical conflicts presents a new management
challenge.
Ethical behavior is not an act but a habit. Just as good health
requires cultivating the habits of getting enough sleep and
eating wholesome food, Aristotle believed that right action was
the result of developing good moral habits. In a business
context, this means training at the deepest level, something we
call “ corporate culture”.
Definition of Business Ethics
Business Ethics is a specialized study of moral right and wrong.
It concentrates on moral standards as they apply particularly to
business policies, institutions, and behavior.
Ethical Issues Relate to all Functional Areas
• Accounting
• Finance
• Management
• Marketing
Why do we need to Study Business Ethics
Now that we have understood the meaning of the terms
“Ethics” and “Business Ethics”, its time we should understand
the importance of this concept.
Importance of Business Ethics
It is now recognized that it is good business to be ethical. An
ethical image for a company can build goodwill and loyalty
among customers and clients.
• Ethical motivation: It protects or improves reputation of
the organization by creating an efficient and productive work
environment. At a time of mass corporate downsizing, one
of the most effective ways to appeal to the fragile loyalty of
insecure employees is to promote an ethical culture, which gives
employees a greater sense of control and appreciation.
• Balance the needs and wishes of stakeholders: There is
pressure on business to recognize its responsibilities to
society. Business ethics requires businesses to think about the
impact of its decisions on people or stakeholders who are
directly or indirectly affected by those decisions. Companies
build their image by acting in accordance with their values,
whatever they might be. Creating a positive public image
comes from demonstrating appropriate values. Publicizing
and following a company’s values allows stakeholders to
understand what the company stands for, that it takes its
conduct as an organization seriously.
• Global challenges: Business must become aware of the
ethical diversity of this world because of increasing
globalization of the economy. It must learn the values of
other cultures, how to apply them to its decisions, and how
to combine them with its own values. In a world where
transnational corporations and their affiliates account for two-
thirds of the world’s trade in goods, and employ 73 million
people, corporations cannot afford to ignore the reality of
multicultural ethics.
• Ethical pay-off: They serve to protect the organization from
significant risks, and to some degree help grow the business.
Risks such as breaches of law, regulations or company
standards, and damage to reputation were perceived to be
significantly reduced.
• Employee Retention: One of the major costs in business is
inappropriate turnover. The loss of valuable experience and
development of new personnel is a cost companies can control.
Seldom is pay the primary factor in losing an employee. What
would a company give to retain valuable employees? With a
successful program, the employees work with managers and
supervisors in making decisions based
on the company’s values. A successful Business Ethics
program establishes a culture that rewards making the right
decision.
• Prevention and Reduction of Criminal Penalties: The
United States Sentencing Commission Guidelines state that to
receive a 40% reduction in federal penalties, a company must
have “an effective program to detect and prevent violations of
the law”. Executives cannot always be aware of everything
done in a company’s name. Jeffrey Kaplan in his article The
Sentencing Guidelines: The First Ten Years points out that
recent cases also show that prosecutors are electing not to
pursue some actions because the companies in question have
sound programs in place. This is a
tremendous asset to companies under regulatory scrutiny.
• Preventing civil lawsuits: Many times employees that
experience issues in the workplace first try to resolve these
issues internally. If their complaints are ignored, employees
feel compelled to go to an outside advocate. That could be a
private attorney, government regulator or news agency.
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Giving employees an internal outlet can solve problems
without the event becoming public knowledge or an issue for
the courts. Having the values permeate the company culture
enhances the staff’s trust in senior management. Why?
Because with an effective program, the staff recognizes that
management also operates within these appropriate values.
• Market Leadership: When a company fully integrates its
values into its culture, quality rises due to the employee’s
focus on values. Customers see that the employees care
about the customer’s concerns. Employees reflect appropriate
values in their attitude and conduct. Roy Koerner in his
article Want More Profit? Try Ethical Business Practices
points out that businesses demonstrating the highest ethical
standards are also the most profitable and successful.
• Setting the Example: By setting the example in the
community and market, the entire industry has a new
standard that allows the community and the market to
recognize the company as a leader. When the word gets out,
competitors will have to answer questions about why they
were not establishing similar values.
Organizations and Ethics
As in other social entities, ethics are inevitable in organizations.
Research has already shown that ethics do pay. Since unethical
practices cost industries billions of dollars a year and damage
the images of corporations, emphasis on ethical behavior in
organizations has increased over the recent years.
Societal expectations, and pressures from legal and professional
bodies have forced organizations to be more concerned about
their social responsibilities and ethical practices.
In the mid-1990’s Shell faced one of its worst public relations
nightmare due to its unethical business practices in Nigeria. In
1997 the Financial Times in its annual survey of Europe’s most
respected companies identified Shell’s ethical problems as the key
reason for the company’s dramatic drop in rankings. Shell turned
upside down in the aftermath of these unfavorable experiences
and thus started correcting itself for sustainable growth. Like
Shell, many other organizations whose business practices are
perceived to be unethical and their products are considered to be
harmful to the consumers (e.g. cigarettes) face strong social
condemn. In recent corporate history, the Enron and Arthur
Anderson episodes, stress the importance of ethical practices in
business.
Ethical problems are problems of choice. Ethical problems arise
not because of people’s tendency to do evil, but because of the
conflicting nature of standards and interests, which are valid in
themselves. Problems in ethical decision-making and behavior
occurs only when individual interests and social norms conflict
with each other.
Every organization has its own accountability towards its
stakeholders – employees, capital investors, consumers,
government, competitors, suppliers, and other community
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members. In most situations the organizations are able to
balance its obligations towards these varied stakeholders.
However, sometimes conflicts do arise between the interests of
two or more stakeholders. In such situations the more influential
and powerful group could gain precedence over others, to protect
their own interests.
For example, though maximizing financial returns is an
organization’s obligation towards its shareholders, it could be at
the cost of the ecological system or legal business practices.
Managers under these situations face the dilemma of protecting
long-term interests of the organizations and short-term profits.
Recent thrust on high output driven performance and reward
linkages in organizations is driving to short-term interests. It
might adversely affect the adherence to ethical norms in
organizations.
In order to ensure ethical business practices of an organization, it
is important to ensure ethical orientation of the people who
own, manage, and work for it. Adopting proper structures and
practices could ensure it. Structure, policies and practices of an
organization influence ethical behavior through flow of
communication, reinforcements for ethical behavior etc.
Many successful organizations consider ethical conduct a critical
measure in performance evaluations and compensation. Jack
Welch, one of the successful CEO’s of GE, insists that the
leaders of his organization should be oriented more towards the
organizational values, than being highly results oriented. He rated
GE’s top-level managers not only on their performance in
meeting targets, but also the extent to which they “lived” GE
values.
Arguments against Implementation of
Business Ethics
Argument 1: In perfectly competitive markets, the pursuit of
profit will by itself ensure that the members of society are
served in the most socially beneficial ways.
Counter points to this argument:
1. Most industrial markets are not “perfectly competitive” as the
argument assumes, and to the extent firms do not have to
compete they can maximize profits in spite of inefficient
production.
2. The argument also assumes that any steps taken to increase
profits will necessarily be socially beneficial - then what about
bribery, hiding product hazards, surrogate advertising, harmful
pollution etc.
Argument 2: Business managers should do what is in the best
interest of the firm. This is known as loyal agent’s argument.
Counter points to this argument:
1. The argument shows that the manager should serve the
employer in whatever way the employer wants to be served
and this means that ethics does not matter because we are
assuming an unproven moral standard.
2. No limits to manager’s duties which is morally not correct.
Argument 3: To be ethical it is enough for business people
merely to obey the law. Business ethics is essentially obeying the
law.
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Counter Points to This Argument
It is wrong to see law and ethics as identical. It is true that some
laws require behavior that is the same as the behavior required
by our moral standards. Laws that prohibit murder, rape, theft,
fraud and so on. In such cases, laws and morality coincide, and
the obligation to obey such laws is the same as the obligation to
be moral.
Article
Defining and Communicating Ethics In Your Business from
Ivy Sea Online
People devote entire college degrees, careers and spiritual
practices to the topic of ethics — so you’ve got to be kidding if
you think one article will get you up to speed on the subject, or
absolve you of any ethical misgivings you might have.
The intention of this article and corresponding tip sheet is to
begin a conversation about ever-so-critical issues and provide
real-world tips to help you, your colleagues and employees
communicate about ethics in an ethical forum. Why bother? By
all means, don’t, unless you believe that what goes around
ultimately comes back around. If you believe in the cyclical
nature of intention and effort, checking in on ethics-related
beliefs and behaviors can be an enriching and focusing tool for
your group. This article contains the following sections:
• What does it mean to be ethical?
• Our ethical foundation and examples of ethics
• Tips for communicating organizational codes of ethics
What is it to be Ethical?
To us at IVC, ethics goes beyond the act of throwing money at a
deserving charity if the primary intention is to reap the public
relations perks, particularly if the ‘PR spin’ masks questionable
organizational practices and behaviors. Using a broad definition
from Webster’s Dictionary as a starting point, let’s assume for
the moment that this is what we mean by ethics:
1. A system of moral principles.
2. The branch or philosophy dealing with right and wrong and
the morality of motives and ends.
From this definition alone, we can see how ethics is not a point
set in time on the continuum of human life, which all people
use as the same reference. What do we mean? Look at the words
independent of the definition, and consider how each person
creates his or her own ethical boundaries:
• “Moral principles” — Clearly, these differ from person to
person; wars are predicated on these notions.
• “Philosophy” — a belief system or theory.
• “Right and wrong” — anyone with an opinion can attest to
the disparities between two or more people in this arena!
• “Motives” — based on a specific situation, one person
might differ from circumstance to circumstance.
• “Consequences” — a concept we at IVC add to this mix of
ethics-related words, perceived consequences are often based
on a fear of negative ramifications established through one’s
religious or philosophical beliefs and/or the norms, mores
and rules of one’s community.
So, what is ethics? What is ethical behavior? From where we
stand, it’s a very personal definition — knowledge of which
helps define the choices we make, the goals we achieve and the
path our lives take.
What Shapes our View of Ethics?
The short answer: Everything. Our experiences (or lack of);
peers; religious beliefs; edicts from a power we deem higher
than ourselves, i.e., international law or a Supreme Conscious-
ness; people to whom we are exposed, for better or worse; and
our decision to seek out models of ethical behavior are all
examples of how we shape our ethical portfolios.
Overview
• Business Ethics is a specialized study of moral right and
wrong. It concentrates on moral standards as they apply
particularly to business policies, institutions, and behavior.
• Emphasis on ethical behavior in organizations has increased
over recent years.
Activity
Define business ethics. Why do we need to study business
ethics?

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