I UNIT

BUSINESS ETHICS
The term ‘Business Ethics’ refers to the system of moral principles and rules of the conduct applied to business.
Business being a social organ shall not be conducted in a way detrimental to the interests of the society and the
business sector itself. Every profession or group frames certain do’s and do not’s for its members. The members
are given a standard in which they are supposed to operate. These standards are influenced by the prevailing
economic and social situations. The codes of conduct are periodically reviewed to suit the changing
circumstances.
Definitions:
“Business Ethics is generally coming to know what is right or wrong in the work place and doing what is right.
This is in regard to effects of products/services and in relationship with the stake holders.” —Cater McNamara

“Business ethics in short can be defined as the systematic study of ethical matters pertaining to the business,
industry or related activities, institutions and beliefs. Business ethics is the systematic handling of values in
business and industry.” —John Donaldson

Nature of Business Ethics and Values

Business ethics is the application of ethical principles and methods of analysis of Business. Business ethics deal
with the topic of study that has been given its due importance in business, commerce and industry since last 3
decades.

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Business ethics should take into consideration the following factors:
1. A business should aim to have fair dealing with everyone dealing with it.

2. Ethics should be fixed for everyone working in the organisation at any level and their implementation should
be linked with reward- punishment system.

3. Any violation of ethics should be detected at the earliest and remedial measures taken immediately.

4. Business ethics should be based on broad guidelines of what should be done and what should be avoided.

5. The ethics should be based on the perception of what is right.

SCOPE OF BUSINESS ETHICS

Ethical problems and phenomena arise across all the functional areas of companies and at all levels within the
company.
1.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.
2.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
3.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:

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 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, trade
democratization.
 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.
Companies tend to shift economic risks onto the shoulders of their employees. The boom of performance-
related pay systems and flexible employment contracts are indicators of these newly established forms of
shifting risk.
4.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.
5.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
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 Product testing ethics.
The most systematic approach to fostering ethical behaviour is to build corporate cultures that link ethical
standards and business practices.
Sources of Business Ethics:
In every society there are three sources of business ethics-Religion, Culture and Law. The HR manager in every
organisation, thus, has to be well versed with the unique system of values developed by these three sources.

These sources are discussed as follows:

1. Religion:
Religion is the oldest source of Religion is the oldest source of ethical inspiration. There are more than ethical
inspirations. 1, 00,000 religions which exist across the whole world, but all of them are in agreement on the
fundamental principles. Every religion gives an expression of what is wrong and right in business and other
walks of life. The Principle of reciprocity towards one’s fellow beings is found in all the religions. Great
religions preach the necessity for an orderly social system and emphasize upon social responsibility with an
objective to contribute to the general welfare. With these fundamentals, every religion creates its own code of
conduct.

2. Culture:
Culture is the set of important understandings that members of a community share in common. It consists of a
basic set of values, ideas, perceptions, preferences, concept of morality, code of conduct etc. which creates
distinctiveness among human groups. When we talk about culture we typically refer to the pattern of
development reflected in a society’s pattern of knowledge, ideology, values, laws, social norms and day to day
rituals. Depending upon the pattern and stage of development, culture differs from society to society. Moreover
culture is passed from generation to generation. Culture facilitates the generation of commitment to something
larger than one’s individual self interest.

Culture encourages the members of the organisation to give priority to organizational goals over and above their
personal interests. Culture also serves as a sense making and control mechanism that guides and shapes the
attitudes and behaviour of people. Managers have to run an industrial enterprise on the cutting edge of cultural
experience. The tension that their actions create makes the business ethically more complex.

3. Law:
The legal system of any country, guide the human behaviour in the society. Whatever, ethics the law defines is
binding on the society. The society expects the business to abide by the law. Although it is expected that every
business should be law abiding, seldom do the businesses adhere to the rules and regulations. Law breaking in

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business is common eg. Tax evasion, hoarding, adulteration, poor quality & high priced products, environment
pollution etc.

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. Everybody likes to be associated with an organisation
which the society respects as a honest and socially responsible organisation. The HR managers have to fulfill
this basic need of the employees as well as their own basic need that they want to direct an ethical organisation.
The basic needs of the employees as well as the managers compel the organizations to be ethically oriented.

2. Credibility in the Public:

Ethical values of an organisation create credibility in the public eye. People will like to buy the product 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 a success. Because of this reason only the cola companies are spending huge sums of
money on the advertisements now-a-days to convince the public that their products are safe and free from
pesticides of any kind.

3. Credibility with the Employees:

When employees are convinced of the ethical values of the organisation they are working for, they hold the
organisation in high esteem. It creates common goals, values and language. The HR manager will have
credibility with the employees just because the organisation has creditability in the eyes of the public. Perceived
social uprightness and moral values can win the employees more than any other incentive plans.

4. Better Decision Making:

Respect for ethics will force a management to take various economic, social and ethical aspects into
consideration while taking the decisions. Decision making will be better if the decisions are in the interest of the
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. A HR
manager, who is ethically sound, can reach out to agitated employees, more effectively than the police.

30 Principles of Business Ethics:

1. Service motive should be preferred rather than profit motive.

2. There should not be any discrimination as to the rich, the poor, the high, the low, the caste, the religion etc.
against any particular group of people.

3. Maximum satisfaction should be available to consumers.

4. Enough consideration should be given for clean environment.

5. Human feelings should be given importance.

6. Scarce resources should not be wasted.

7. Business must be a dynamic one.

8. It should provide quality products at reasonable price.

9. It must assist in raising the standard of living.

10. Competition should be healthy.

11. There should be job security to employees.

12. Businessman must pay fair wages.

13. Better working conditions should be provided.

14. Efficient employees should be properly motivated and recognized.

15. Employees should be allowed to participate in management.

16. Monetary and non-monetary incentives must be given to employees.

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17. Businessman must pay taxes and fulfill other obligations promptly.

18. It must avoid unfair trade practices such as hoarding, black-marketing etc.

19. Businessman should not form cartel agreements to control production, price etc.
20. He must disclose all relevant information to those persons who require the same.

21. He must prepare genuine books of accounts and present before all authorized persons as and when required
by them.

22. He should protect the interests of its members at the time of amalgamation, absorption etc.
23. He should be ready to extend mutual co-operation and mutual help.

24. It should work for the development of the nation.

25. He should follow proper communication system at all levels.

26. He should not make promises that could not be fulfilled.

27. Its assets should not be utilized for personal use.

28. Employees should be allowed to share their opinion in the work place.

29. It should follow proper personnel policy as to promotion, transfer etc.

30. He should not involve in politics.

FEATURES OF ETHICAL ORGANISATIONS

A company's ethics is its set of moral standards that determine how it conducts business. Ethics is akin to "doing
the right thing" in areas such as making financial decisions and the treatment of employees and customers.
Highly ethical organizations exhibit a number of key characteristics, starting with the head of the organization
and filtering down to the lowest-paid workers.
Honesty

An ethical workplace exhibits the characteristic of honesty. Honesty can occur in the relationship between
employees, such as when one admits a key mistake instead of trying to blame it on another. Honesty means that
employees refrain from stealing company property, cheating on an expense report or abusing sick days or lunch
breaks. Honesty can also take place in the customer relationship, such as when a salesperson discovers he
overcharged the customer for a service and ensures a refund or credit is issued.
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Integrity

Ethical workplaces feature employees who demonstrate a high level of integrity. Integrity involves treating
others fairly and with dignity and respect. Supervisors act with integrity when they treat all subordinates the
same in areas such as issuing raises and promotions and when disciplining acts of misconduct. Employees act
with integrity when they put the organization's interest above their own or refrain from potentially harmful
behavior, like spreading false gossip or playing the game of company politics to their own advantage.

Accountability

Ethical employees hold themselves accountable for their results and actions. They complete their work
assignments properly and on time and don't leave "messes" for other employees to clean up. They have a clear
understanding of what is expected of them and make sure they have the information or resources they need to
get the job done. If a supervisor points out an area that needs improvement, accountable employees take the
necessary corrective actions instead of dismissing the criticism as invalid.

Management Focus

Ethical organizations typically are characterized by top management personnel placing a high level of focus on
ethical behavior. Ethics are prominently mentioned in the company's mission statement and the company
implements a written code of ethics or conduct that all employees must be trained on and agree to make part of
their daily activities. Top management in these organizations set an example by adhering to the code of conduct
when taking actions or making decisions.

ETHICS OF CORPORATE GOVERNANCE

Corporate governance is the system of rules and regulation to run, control & direct a company while balancing
the interest of all stakeholders. Ethics can help to frame guiding principle for corporate governance ----

a)Transparent mechanism & democratic decision making process to majority matters will help to earn
confidence & respect of shareholder to board of directors
b)Greater sharing of responsibility , independent decision ,and merit based promotion will reduce the chances of
nepotism, predicts etc will encourage people and increase efficiency & commitments
c)Inclusion of ethics helps to understand human sentiments to consider genuine problems of employee. Eg.
Maternity concession to female employees. It will offers friendly stress free work culture to employees
d)Though corporates work for profit as in principle still they part of society so they should contribute something
for social welfare under CSR
e)Work is worship and loyalty & long term interest of company should be the main criteria. This will reduce the
corporate scam like inside trading etc
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Thus, future of country lies in corporate governance thus ethical norms are cruical for functioning of companies
in order to uphold the common human interest
Ethics and corporate governance are correlated . Where corporate governance are rules governing companies
there ethics are personal commitments, work culture to follow those rules by company . With ethical values of
integrity to observe these rules ,accountability mechanism and transparency , corporate governance is useful for
the company ,its various stake holders and the society at large .

On the other hand , in the absence of ethical norms or in the absence of proper corporate governance rules
,chances of corruption , nepotism ,chances of failure of company and loss to its shareholders increase. This can
be seen during Satyam scam ,in Sahara case and latest Tata group Cyrus case.

GLOBALISATION AND BUSINESS ETHICS

Considerations about business ethics are derived from the desire for the application of basic moral codes in the
conduct of the different aspects of business. As such, the relationship between business ethics and globalization
refers to the manner in which the concept of globalization and its application to business operations can benefit
from the practice of proper business ethics. Since the growth of globalization has led to a rise in the branching
out of companies into various counties in the world, ethical business standards help ensure that such operations
are rooted in integrity and applicable values. The challenge in the subject of business ethics and globalization is
derived from the fact that while some basic moral codes are understood to be universal, some of the specific
ethical standards are dictated by the environment, making it essential for companies to understand their market
and the ethical requirements that may be unique to that area.
Business ethics and globalization are firmly rooted in the concept of diversity among people and practices as
well as the fact that such diversity need not be an impediment since it can be channeled by the company in
question into a source of competitive advantage. As such, companies that diversify into other countries and
cultures must necessarily develop a master plan that is aimed toward providing a general framework
establishing the ethical views of the company and integrating it into the culture of the corporation. This master
plan will only be a general guide that will also make provisions for situations where beliefs and societal
practices in place in some areas call for a variation of the ethical code. A good example of this can be seen in the
case of a company that provides an equal playing field for everyone, regardless or belief or gender.
Assuming a company was to open a branch in a country where women do not have the same freedoms women
in other parts of the world take for granted, that company must adjust its ethical code to reflect the culture in
that area, even if it might only be an exception, rather than their normal corporate culture. In such a situation,
the company might have a vast majority of male employees, something that it would not allow in other
societies, but something that it must allow in that particular society due to the politics of business ethics and

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globalization. The consideration here would be that of expediency, because the culture of the people in that area
does not allow women to have the kind of freedom that would allow the company’s business ethics to be
implemented. In order to carry out business in that area, the company would have to adjust its ethics or take its
business elsewhere so that the culture will not clash with its corporate ethics.

STAKEHOLDERS PROTECTION

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