Business Ethics

“Going beyond what is

legal and doing what is
right even when no one is
looking”
Outline
 Definition of ethics
 Ethical concepts,
theories, models
 Business ethics
 Ethical dilemma
 Unethical practices and
behaviour
 Improving business
ethics
 Code of ethics
 What is Ethics?
 Study of moral principles and values that
govern the actions and decisions of
individuals or groups
 Branch of philosophy that deals with study
of rightness or wrongness of human
actions
 Studies concepts like good and evil,
responsibility, and right and wrong
 What is Ethics?
 defines the standards - derived from
religions, philosophies and culture - that
bear on right and wrong issues of society
 covers the following dilemmas
◼ How to live a good life
◼ Our rights and responsibilities
◼ The language of right and wrong
◼ Moral decisions – what is good and bad?
  Difference of a
person’s ethical
standards from
those of society
as a whole
 Choice to act
selfishly
 Ignorance/indiff
erence to
issues

Acting unethically
Being ethical

 is what defines us as human beings –

◼ Ethical people have “well-informed
conscience” (Thomas Aquinas)
◼ Ethical people live “an examined life”
(Socrates)
◼ Ethical questions explore “a life well-lived”
(Aristotle)
 Need for Ethics
 Values give us our foundation and
frame of reference so we can deal
with the world around us.
◼ Many commonly held ethical
values have been incorporated
into laws.
 There is nothing wrong with
pursuing one’s own interests.
However, an ethical person must
be willing – at least sometimes –
to place the interests of others
ahead of self-interest.
Ethical Theories

 Ethical subjectivism
 Ethical relativism
 Consequentialism
 Deontological ethics
 Ethics of virtue
 Ethical Models
 Used to define ethical situations and
manage ethical dilemmas that may occur
in the organization
◼ Golden Rule model
◼ Kantian model - everybody has some
fundamental rights in this ethical universe. Any
action is ethically correct if it reduces the
stakeholders’ collective violation of rights.
 Never lie to your colleagues.
 Never act in a manner that would make your family
or organization ashamed of you.
 Always work hard to be the best performer.
 Business Ethics
 also known as corporate ethics
 form of applied ethics that examines
ethical principles and moral or ethical
problems that can arise in a business
environment
 code of standards by which one can
determine what is right and what is wrong
for the business enterprise
 Business Ethics
 Standards of moral conduct,
behaviour and judgment in business
 Application of ethical values to
business behaviour
◼ Encompasses many areas ranging from
board strategies to negotiation with
suppliers
 Ethical Challenges
 Ethics have become an overriding issue in
both our society and the financial
community.
 Ethical violations attract widespread
publicity.
 Negative publicity often leads to negative
impacts on a firm.

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Need for Ethics
 Ethical behaviour defines who
we are individually and as a
society. These are norms of
behaviour that everyone
should follow. Society may
fall into chaos if each of us
could choose what the right
thing to do is.
 Importance of Business Ethics
 Businesses are part of society.
 Reconciles conflicting interest of various sections
of society e.g. shareholders, employees,
customers, suppliers, competitors, and
government, thus expediting better relations
between business and society
 Advantages of good ethics to business
◼ Attracting and retaining talent
◼ Investor loyalty
◼ Customer satisfaction
◼ Regulatory scrutiny
 Values Associated with
Ethical Behavior

Trustworthiness
Loyalty and
Integrity Honesty and Promise
Confidentiality
Keeping

Fairness and Caring for Respect for Responsible

Openness others others citizenship

Pursuit of
Accountability
excellence
 Core Values for Ethical Behavior
4. Responsibility
◼ Being accountable for one’s actions and exercising
restraint
◼ Pursuing excellence and leading by example,
including perseverance
5. Caring
◼ Being genuinely concerned for the welfare of
others; showing benevolence
6. Citizenship
◼ Obeying laws and performing one’s share to make
society work
Source: Josephson Institute of Ethics, a nonprofit membership
organization for the improvement of ethical quality of society
 Core Values for Ethical Behavior
1. Trustworthiness – includes
a. Honesty – requires good faith intent to convey
the truth
b. Integrity – person acts according to
conscience, regardless of situation
c. Reliability – making all reasonable efforts to
fulfill commitments
d. Loyalty – responsibility to promote and protect
the interests of certain people and
organizations

Source: Josephson Institute of Ethics, a nonprofit membership

organization for the improvement of ethical quality of society
 Core Values for Ethical Behavior
2. Respect
◼ Includes notions such as civility, courtesy,
dignity, tolerance and acceptance
◼ A respectful person treats others with
consideration and accepts individual differences
and beliefs without prejudice.
3. Fairness
◼ Includes issues of equality, impartiality,
proportionality, openness and due process
◼ Similar situations are handled consistently.
Source: Josephson Institute of Ethics, a nonprofit membership
organization for the improvement of ethical quality of society
Categories of Ethical Principles
• Justice/fairness
• Concern/respect for rights of others
Personal • Trustworthiness/honesty
• Compliance with law

• Professional competence
• Professional behaviour
Professional • Integrity and objectivity
• Confidentiality
• Avoidance of conflict of interest

• Fair competition
• Global/domestic justice
Business • Social responsibility
• Concern for environment
Principles of Professional Conduct
 General
◼ Ethical awareness, commitment, and
competency
 Specific
◼ Service to others
◼ Integrity and objectivity
◼ Professional competence
◼ Solidarity and teamwork
◼ Social and civic responsibility
◼ Global competitiveness
◼ Equality of all professions
  extend beyond moral principles and
include standards of behavior for a
professional person that are designed for
both idealistic and practical purposes

“ a mixture of moral and practical concepts,

with a sprinkling of exhortation to ideal
conduct designed to invoke right action
on the part of the members of the
profession concerned – all reduced to
rules which are intended to be
enforceable, to some extent at least, by
disciplinary action”
- Carey, Doherty “Ethical
Standards of the Accounting
Professional Profession”, AICPA, 1966

Ethics
 Professional Ethics
 Professional Ethics or Codes of Behavior are
adopted by professional groups to
◼ Ensure high standards of competence among the
profession’s members
◼ Regulate and strengthen relationships between and
among members
◼ Promote and protect the image of the profession and the
welfare of the community
 Ethical Dilemma
 A situation that an individual faces involving a
decision about appropriate behavior
◼ The welfare of one or more individuals is
affected by the decision.
 Much of what is considered unethical in a
particular society is not specifically prohibited.
◼ How do we know whether we are acting
ethically?
◼ Who decides what standards of conduct are
appropriate?
◼ Is any type of behavior ethical as long as it does
not violate a law or rule?
 Resolving Ethical Dilemma
1. Obtain the relevant facts.
2. Identify the ethical issues from the facts.
3. Determine who is affected by the outcome of
the dilemma and how each person or group is
affected.
4. Identify the alternatives available to the
person who must resolve the dilemma.
5. Identify the likely consequence of each
alternative.
6. Decide the appropriate action.
 Unethical Business Practices
 Accounting
◼ creative accounting
 Production
◼ producing sin products
 Sales and marketing
◼ advertising
 Human resources
◼ Employee discrimination
Corruption
 Corruption
◼ An act in which a person uses his
position to gain some personal
advantage at the expense of the
organization he represents
◼ Generally, an outsider is involved
(e.g., vendor)

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Corruption
 Corruption schemes include:
I. Bribery
II. Illegal gratuities
III. Economic extortion
IV. Conflicts of interest

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Corruption
 Bribery
◼ Bribe: Offering, giving, receiving or
soliciting any thing of value to
influence an official act (government)
◼ Buys influence of the recipient
◼ Schemes classified in two basic ways
 Kickbacks
 Bid-rigging schemes

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Corruption
 Illegal Gratuities
◼ Given to reward a decision rather
than influence it
◼ Decision made to benefit a person
or company but is not influenced
by any sort of payment
◼ May influence future decisions

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Corruption
 Economic Extortion
◼ “Pay up or else”
◼ Employee demands payment from
a vendor in order to make a
decision in the vendor’s favor

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Corruption
 Conflicts of Interest
◼ Employee, manager or executive
has an undisclosed economic or
personal interest in a transaction
that adversely affects the
company
◼ Victim organization is unaware of
the employee’s divided loyalties
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 Corruption
 Conflicts of Interest
◼ fraudster approves the invoice because
of his own hidden interest in the vendor
(vs. bribery)
 Direct transfer from organization to vendor to
employee: Kickback
 Direct transfer from organization to vendor
and indirect transfer to employee (thru
hidden economic interest): Conflict of
Interest
 Perpetrator may share the wealth transfer
with others
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 Improving Business Ethics
1. Institute code of conduct to set consistent
standards.
2. Rethink employee incentives.
3. Set the tone at the top. Model appropriate
behaviour.
4. Encourage complaint reporting.
5. Take time to address complaints.
Code of Conduct
• A set of rules outlining • A well-written code of
social norms, religious conduct clarifies an
rules and responsibilities organization’s mission,
of, and proper practices values and principles,
for, an individual linking them with
standards of professional
conduct. The code
articulates the values the
organization wishes to
foster in leaders and
employees and, in doing
so, defines desired
behavior.
Sample
Code of
Ethics and
Professional
Conduct
THINK ABOUT IT …

In making ethics work in an

organization, it is important
that there is synergy between
vision statement, mission
statement, core values, general
business principles and code of
ethics.
END OF PRESENTATION
Ethics is about …
✓ Relationships
✓ Struggling to develop a well-informed
conscience
✓ Being true to the idea of who we are and what
we stand for
✓ Having the courage to explore difficult questions
✓ Accepting the cost of doing what we think is
right
✓ Asking one simple question, “What ought I do?”