MBA-I -428

BUSINESS ETHICS
Unit -1
Modern economies encourage market culture, which is viewed as one based on a dog eat the
dog and the devil takes the hindmost principle. But successful industrialists recognised that
business ethics greatly increase the effectiveness of the economic system. It provides desirable
rhythm and balance between benefit and cost, good and bad, and welfare and harm by
subduing the elements of market passions, i.e. thirst for money and power.

MEANING AND DEFINITION

The word ethics is derived from the Greek word ‘ethos’. Ethos means character. Ethics refers to
good character and morality. Ethics is normally used in the plural form since most people have
a system of interrelated beliefs rather than a single opinion. According to common usage, the
following terms are synonymous with ethics- moral, good, right, just, and honest.
Several writers have defined business ethics. Some of the definitions are given here.
Garrett (1970) defines business ethics as follows:
Business ethics is concerned primarily with the relationship of business goals and
techniques to specific human needs.
According to Strenberg:
Business ethics applies ethical reasoning to business situations and activities. It is based on a
combination of distributive justice – that is, the issuing of rewards for judgment that is placed
on all activities.
Laura Nash defined:
Study of how personal moral norms apply to the activities and goals of commercial enterprise.
It is not a separate moral standard, but the study of how the business context poses its own
unique problems for the moral person who acts as an agent of this system.
NATURE OF BUSINESS ETHICS
The characteristics of the discipline of ethics are given under.
Ethics is a science - Chambers Twentieth Century Dictionary defines ethics as the science of
morals. It is a branch of philosophy which is concerned with human character and conduct. In
the words of Emanuel Levinas, ethics is an awareness of other people, such that a person is
‘individuated’ by responsibility for the others. It insists that ‘other people’ are significant
variables, and that they have to be factored in when we devise strategies to pursue our goals.

Ethics is an art - Ethics is a practical discipline. It supplies knowledge and skills for analyzing
situations, and applying principles of ethics in a right way.

Ethics is Normative - Two key branches of moral philosophy are descriptive ethics and
normative ethics. Descriptive ethics is concerned with describing, characterizing, and studying
the morality of a people, a culture, or a society. It also compares and contrasts different moral
codes, systems, practices, beliefs, and values. Descriptive ethics focuses on “what is” and not
on: what ought to be”.

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For example, a survey reveals that 70 percent of salespeople are padding their expense
accounts. This describes what is taking place but it does not describe what should be taking
place.
Normative ethics aims to develop a body of moral standards that people accept and apply to
the choices in their lives. It makes an inquiry to discover right and wrong behaviors. It deals
more with “what ought to be” or “what ought not to be” in terms of business practices.
Ethics is Idealistic - Ethics is normative and law is prescriptive. Law prescribes minimum
regulations necessary for public order whereas ethics suggests norms of high order of
behavior for public good. Ethical standards are referred to as norms or principles or ideals of
human conduct.
Ethics is Evolutionary - Some ethical standards vary with the passage of time. The early 21st
century presents managers with new and emerging ethical problems that are not solved easily
with traditional ethical guidelines. For example, pollution. The cost of pollution is measured
with social cost benefit analysis.

Ethics is Relative - Ethics is relative. Ethical norms vary from place to place, individual to
individual and time to time. An action or practice- viewed as ethical may be viewed unethical
in other situations.
• Bribes and payments are accepted practices in Asian, African and Latin American
countries. But they are regarded as unethical in the US.
• Doing business with close friends and family is a standard practice in the Arab world
but it is treated as nepotism in Western Europe.
• Donations to political parties were forbidden earlier but it is allowed now.

Ethics is Universal - Ethical issues arise at all levels of management and in all functional areas.
Every country has a culture that lays down norms for human behavior. The norms are derived
from society and religion. However, there are some core principles such as Honesty,
truthfulness, service to society above self are common to all cultures.

IMPORTANCE OF BUSINESS ETHICS

Following the “greed is good” era of the 1980s, business people became increasingly concerned
with ethics. An estimated 95 percent of Fortune 500 corporations as well as many smaller
companies have now adopted ethics statements or codes of conduct (Tuyteja, 1996). The
arguments in favor of adopting ethical attitudes may be summarized as follows.
1. Positive energy
Moral energy, like physical energy, only changes form. So if one unleashes negative,
malevolent moral energy through unethicality, he or she may gain in the short run but
there is no ultimate escape.
2. Good sense
Actually many businesses simply recognized that ethical practices make good business
sense. Ethical companies endure less litigation, less resentment, and less government
regulation. As a result, companies are adding ethics officers, hotlines, workshops,
training programs, and codes of conduct.

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3. To retain the power granted by society.
Marketing executives wield a great deal of social power as they influence markets and
speak out on economic issues. However, there is responsibility tied to that power. If
marketers do not use their power in socially acceptable manner, that power will be lost
in the long run.
4. Social responsibility
Many companies are now primarily interested in incorporating ethics into their
organization because they wish to be more socially responsible. Social responsibility
gives good image and boosts employee morale.

5. Balanced view
Managers certainly need an ethical framework, a reference point for responsible decision
making in line with professional accountability. Many times laws are also insufficient
and do not cover all aspects or “gray areas” of a problem Company policies and
procedures are limited in scope and detail in covering human, environmental, and social
costs of doing business. Balancing a variety of goals and needs of stake holders cannot
be done by following law or organizational policies. Ethical awareness is important.

6. Equity in allocation of scarce resources

Business managers are allocators of scarce resources among various production means
based on the priorities. They have the responsibility of product selectivity. Therefore,
they have to perform their activities more ethically, judiciously and wisely
7. Critical success factor

Ethics is a critical bottom-line issue for all businesses. And it becomes more important
as we move into the information age. There are weighty responsibilities that go with the
newly acquired authority over information. There’s an element of ethics that deals with
how to treat human beings (privacy and security) and it’s a real, fundamental business
issue. In future, ethics will become a critical success factor for businesses globally.

8. To avoid increase in government regulation.

Business failures simply increase the probability of more government regulation.
Indeed, most of the governmental limitations on marketing are the result of
management’s failure to live up to its ethical responsibilities at one time or other. Once
some form of government control has been introduced, it is rarely removed. Business
has two alternatives: one to be ethical and free and another to be unethical and
regulated.

9. To reverse declining public confidence in marketing

Periodically we hear about misleading package labels, false claims in ads, phony list
prices, and infringements of well-established trademarks. Though such practices are
limited to only a small proportion of all marketing, the reputations of all marketers are
damaged. To reverse this situation, business leaders must demonstrate convincingly
that they are aware of their ethical responsibility and will fulfill it.

10. To protect the image of the organization

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 Ethical behaviors of organizations and its employees are important. As Procter &
Gamble put it in an annual report: “When a Procter & Gamble sales person walks into a
customer’s place of business…that sales person not only represents Procter & Gamble,
but in a very real sense, that person is Procter & Gamble”.

GROUND RULES
Principled reasoning is a simple way of resolving complex ethical issues embedded in different
situations. There are six principles – termed as ground rules for decision making. They are like
a series of filters through which every decision must be processed.

1. Trustworthiness. Trustworthiness is concerned with all the qualities and behavior that
make a person worthy of trust. Such qualities are integrity, honesty, promise keeping,
and loyalty.
2. Respect. Respect focuses certain positive qualities such as civility, courtesy, dignity,
autonomy, tolerance, and acceptance. It prohibits behaviours such as violence,
humiliation, manipulation, and exploitation.
3. Responsibility. Responsibility speaks to the moral obligation an individual has to be
accountable, to an action or result
4. Fairness and Justice. Fairness embodies concern with equity, equality, impartiality,
proportionality, openness, and due process.
5. Caring. Caring is a central value relating to sincere and abiding concern for the well -
being of others. Concepts of charity, kindness, compassion, empathy, and sharing are
included.
6. Citizenship. The concept of citizenship includes civic virtues and duties that prescribe
how we ought to behave as part of a community.
Being trustworthy is not enough. We must also be fair and caring. Obeying the law is not
enough. We must also be responsible for the consequences of our actions. As such the six
values are important.
Case of ANZ bank ground rules or code
Our expectation of all people working with us is that they comply with our Code of Conduct
and Ethics, called ‘Living The Code’. Our Code of Conduct and Ethics has eight guiding
principles; they are:
1. We act in ANZ’s best interests and value ANZ’s reputation
2. We act with honesty and integrity
3. We treat others with respect, value difference and maintain a safe working environment
4. We identify conflicts of interest and manage them responsibly
5. We respect and maintain privacy and confidentiality
6. We do not make or receive improper payments, benefits or gains
7. We comply with the Code, the law and ANZ policies and procedures
8. We immediately report any breaches of the Code, the law or ANZ policies and
procedures

MYTHS
Some myths that are confusing managers keen on ethical decision making are given here.
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Myth #1. “Business ethics” is an oxymoron.

Some opine “business ethics” is a contradiction to the way people behave in commerce world.
It is not true. Commerce is impossible without ethics. One cannot get trust without fair
practices.
Myth #2. Ethics is just a matter of opinion.

Some argue that what is ethics and what is not ethics depends on the mindset of people. In
some cases, it is true. For example, a person may tell lies to save the life an individual. Lying is
unethical but saving life is ethical. As such, it a controversial issue- and depends on opinions of
people concerned. However, every organization or society lays down a code of ethics (ground
rules) to avoid controversies. .
Myth #3. There’s no such thing as “business ethics,” because ethics should be the same
everywhere.

Ethical principles exist for all walks of life. Certain core principles do not change as one
traverses different venues. While principles are the same their application contexts vary.

Myth # 4: Business ethics is a matter of the good guys preaching to the bad guys.
Business ethics examines ethical issues and seeks to resolve them. Such solutions will lead to
harmony and cooperation among people and enhance profitability of a business. As such, the
view that the principles are talked about by good people to bad people is not correct. In fact,
value based management has gained currency. ‘Shared values’ is regarded the key driver for
excellence in Mckinsey 7-S framework.
Myth #5. Business ethics is just a matter of laws and regulation.

Business ethics goes beyond the scope of laws and regulation. Laws generally cover the areas
which society has found most important to regulate. But life situations are wide ranging and
cannot be covered by law. It is here, ethics as a regulator.
Myth #6.Professional ethics can be separated from personal ethics
Ethical issues at work place are resolved following professional ethical codes. Ethical issues
confronted in life are resolved by following personal ethical principles. Though the principles
may be common, there will be trying situations which land you in a conflict between personal
ethics and professional ethics.
Example: A manager was asked by his CEO to make a false claim of Rs.70 lakhs when real loss
due to cyclone was Rs.30 lakhs. The manager is an ethical person and believes that lying is
improper. Should be obey the instruction of CEO which will benefit the company or say no to
safeguard his ethical integrity?
METHODOLOGY
Business issues and decision making is researched by different researchers. The researchers
have adopted different methods of research developed by social scientists.
The research process involves the following steps:
Theory – Hypothesis formulation – Conceptualization– Operationalization - Choice of research
methods – Population and sampling–Data collection - Data analysis and interpretation.

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Research methods include case method, interview, observation, questionnaires.
Some researchers have used situations and asked respondents to make decisions based on
situations.
CHARACTERISTICS OF MANAGERIAL ETHICS
Managerial ethics are a set of standards that dictate the conduct of a manager operating within
a workplace. Managerial ethics is characterized by the following.
Goal - The main goal of management ethics is to treat all employees and customers justly and
fairly. It is believed that by following a moral and ethical code, business will improve. When a
management team adheres to code of ethics, employees become motivated and a workplace
environment becomes motivational. From a management perspective, behaving ethically is an
integral part of long-term career success
Concerns – Managerial ethics focuses on diverse issues like leadership, communication,
motivation and social responsibility.
Styles - Three types of Management Ethics can be observed.
• Immoral Management—A style devoid of ethical principles and active opposition to what
is ethical.
• Amoral Management – Indifference to ethical principles.
• Moral Management—Conforms to high standards of ethical behavior.

Adaptive- When managers switch companies, they are asked to follow a different code of
conduct. It mean they may have to learn additional ethics. Sometimes, different cultures respect
different ethical rules. Thus, any person who decides to move to another country may have to
adapt to cultural, and workplace, ethical differences.

Continuous - Managers have to keep in mind that almost every decision that they make on a
daily basis involves an ethical decision. . By setting a good ethical example for other employees,
managers can easily encourage all employees to follow the same ethics. Some companies offer
managers specialized management ethics courses that must be completed prior to job
acceptance.

Ethical conflict – Managers may face situations in which their personal ethics and ethics of their
superiors or peers may conflict. In such situations, finding a way out will be challenging.

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