Chapter 1

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Business Ethics: An Overview

Business Ethics, 2e Author: A C Fernando

What is Ethics?

Ethics:
Derived from Greek word ‘ethikos’ means ‘custom or character’
Motivation based on ideas of right and wrong

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OR
The philosophical study of moral values and rules

• is a branch of philosophy.
• is a normative science because it is concerned with the norms
of human conduct.
• as a science, it must follow the same rigors of logical
reasoning as other sciences.
• as a science, involves systemizing, defending and
recommending concepts of right and wrong behavior.

Business Ethics, 2e Author: A C Fernando

Principles of Personal Ethics
• Personal Values are the conception of what an
individual or group regards as desirable

• Personal ethics refers to the application of values in

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everything one does. Principles of personal ethics
include:

1. Concern for the well being of others;

2. Respect for the autonomy of others;
3. Trustworthiness and honesty;
4. Willing compliance to law;
5. Basic justice: being fair;
6. Refusing to take unfair advantage;
7. Benevolence: doing good; and
8. Preventing harm to any creature.
Business Ethics, 2e Author: A C Fernando
Principles of Professional Ethics

• Profession : a specific branch of advance learning or

vocation
• Professional : one who engaged in specified activitiy

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• The basic principles people are expected to follow in
their professional career are the following:

• Impartiality: Objectivity;
• Trustworthiness and honesty;
• Openness: Full Disclosure;
• Confidentiality: Trust;
• Due Diligence: Duty of care;
• Fidelity to professional responsibilities; and
• Avoiding potential or apparent conflict of interest.

Business Ethics, 2e Author: A C Fernando

What is Business Ethics?
• Ethics is a conception of right and wrong behavior, defining
when our actions are moral v/s immoral

• Business ethics is the application of general ethical

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ideas to business behaviour.

• It is based on the principle of integrity and fairness and

concentrates on the benefits to the stakeholders, both
internal and external, facilitates and promotes good to
society, eliminate business offences, protect employees
and stakeholder interest etc.

• Business ethics proves that business has been can be and

ethical and still make profits.

Business Ethics, 2e Author: A C Fernando

What is not Business Ethics?

1. Ethics is different from religion.

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2. Ethics is not synonymous to law.
3. Ethical standards are different from cultural traits.
4. Ethics is different from feelings.
5. Ethics is not a science in the strictest sense of the term.
6. Ethics is not just a collection of values.

Business Ethics, 2e Author: A C Fernando

Code of Conduct and Ethics for Managers

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• Managers must observe the following ethical values while
performing their duties:

• Impartiality
• Responsiveness to public interest
• Accountability
• Honesty
• Transparency
• Integrity

Business Ethics, 2e Author: A C Fernando

Evolution of Business Ethics over the years
The 1970s saw papers from the academic circle (Raymond
Baumhart, 1960’s – Business & Ethics). Businessmen became
more concerned with their public image and addressed ethics
more directly.

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• 1974: The first conference held at the University of
Kansas. Norman Bowie dates the genesis of business
ethics as November 1974
• 1975: Business ethics became institutionalized at many
levels through writings and conferences.
• 1979: Three anthologies on business ethics appeared:

• (i) Ethical Theory and Business by Tom Beauchamp and

Norman Bowie;
• (ii) Ethical Issues in Business: A Philosophical Approach
by Thomas Donaldson and Patricia Werhane; and
• (iii) Moral Issues in Business by Vincent Berry.

Business Ethics, 2e Author: A C Fernando

Evolution of Business Ethics over the years (contd.)

• 1980s: The subject was taught in several universities in the

US and Europe. There were also, by this time, many journals

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of business ethics, apart from centres and societies
established to promote ethical practices.
• 1982: Richard De George brought out Business Ethics, and
Manuel G. Velasquez published his Business Ethics: Concepts
and Cases.

Business Ethics, 2e Author: A C Fernando

Evolution of Business Ethics over the years
(contd.)

• 1990: Business ethics as a management discipline was well-

established.

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• Parallel to these academic pursuits, the late 1980s and early
1990s saw increased concern for consumer rights, quality,
safety, price, customer service and environment in Britain.
• Simultaneously, with these developments, religion also lent its
powerful voice.

Business Ethics, 2e Author: A C Fernando

Importance and Need for Business Ethics

• A business organization competes in the global market on

its own internal strength, in particular, on the strength of its

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human resource and on the goodwill of its stakeholders.

• The value-based management and ethics that an organization

uses in its governance enables it to establish productive
relationship with its internal customers, and lasting business
relationship with its external customers.

• Real type situations (Tata Steel and Infosys) show that use
of ethical practices in business creates high returns for
companies.

Business Ethics, 2e Author: A C Fernando

Importance and Need for Business Ethics

• Trust Leads to predictability and efficiency of business. Ethics

is all about developing trust & maintaining.

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• Employees who were treated ethically will more likely to
behave ethically towards customers and business associates.

• Lack of ethics would lead to unethical practices as well as

personal life.

• Transform of “Business of Business is Business” to “Business of

Business is ethical Business”

Business Ethics, 2e Author: A C Fernando

Values and Ethics in Business

• A value is a view of life and judgement of what is desirable. It

is very much part of a person’s personality and a group’s

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morale.

• Business ethics relates to issues of “what is right” and “what is

wrong” while doing business. What values are to individuals,
ethics are to business.

• Business ethics operates as a system of values, relating

business goals and techniques to specific human ends.

Business Ethics, 2e Author: A C Fernando

Distinction Between Values and Ethics

Values Ethics

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Personal in nature (e.g. a belief in Generalized value system (e.g.
providing customer satisfaction and avoiding discrimination in recruitment
being a good paymaster) and adopting fair business practices).

Offer alternatives to choose from. Provides general guidelines within

which the management can operate.

Business Ethics, 2e Author: A C Fernando

Why should Businesses act Ethically?

• The reasons for an organization to be ethical include:

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• To protect its own interest,
• To protect the interests of the business community as a whole
so that the public will have trust in it,
• To keep its commitment to society to act ethically, and
• To meet stakeholder expectations.

Business Ethics, 2e Author: A C Fernando

Why should Businesses act Ethically? (contd.)

• The reasons for an organization to be ethical include:

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• To prevent harm to the general public,
• To build trust with key stakeholder groups,
• To protect themselves from abuse from unethical employees
and competitors,
• To protect their own reputations,
• To protect their own employees, and
• To create an environment in which workers can act in ways
consistent with their values.

Business Ethics, 2e Author: A C Fernando

Ethical Decision-making

Dog – eat – Dog philosophy can not prevail long

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• Norman Vincent Peale’s and Kenneth Blanchard’s suggestions
to conduct ethical business.

• Is your decision fair?

• Is it a win-win situation for all?
• Is your decision legal? If it is not legal, it is not ethical.
• The Eleventh Commandment: “Thou shall not be ashamed
when found”, meaning when hauled up for unethical
behaviour, if one’s conscience is clear, then there is nothing to
be ashamed of.

Business Ethics, 2e Author: A C Fernando

How Corporations Observe Ethics in Their
Organizations?

• Publish in-house codes of ethics to be strictly followed by all

their associates.

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• Employ people with a reputation for high standards of ethical
behaviour at the top levels.
• Incorporate consideration of ethics into performance reviews.
• Give rewards for ethical behaviour.

Business Ethics, 2e Author: A C Fernando

 How Corporations Observe Ethics in Their
Organizations? (contd.)

• SEBI, CII and such other organizations representing

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corporations issue codes of best practices and enjoin their
members to observe them.
• IIMs and highly rated B-schools give extensive and intensive
instruction in business ethics, corporate social responsibility
and corporate governance as part of their curriculum.
• Conduct an Ethics Audit.

Business Ethics, 2e Author: A C Fernando

Corporate Governance Ethics

• Corporate governance is a set of rules that governs the

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administration and management of companies.
• Its goalposts are transparency, integrity, full disclosure of
financial and non-financial information, and protection of
stakeholders’ interests.

Business Ethics, 2e Author: A C Fernando

Benefits from Managing Ethics in Workplace

• The many benefits that arise from managing ethics in the

workplace are:

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• Attention to business ethics improves society.
• Ethical practice contributes towards high productivity and
strong team work.
• Changing situations require ethical education.
• Ethical practices create strong public image.
• Strong ethical practices act as an insurance.

Business Ethics, 2e Author: A C Fernando

Characteristics of an Ethical Organization

• Mark Pastin provides the following characteristics of ethical

organizations:

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• At ease while interacting with diverse internal and external
stakeholder groups.
• Obsessed with fairness.
• Individual responsibility, with individuals assuming personal
responsibility for actions of the organization.
• See their activities in terms of purpose.

Business Ethics, 2e Author: A C Fernando

Recognizing Ethical Organizations

• There are certain characteristics by which we will be able to

identify an ethical organization:

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• On the basis of corporate excellence
• In relation to the stakeholders
• In relation to corporate governance

Business Ethics, 2e Author: A C Fernando