BUSINESS ETHICS

By the end of this session, students will have learnt the

following:

Definition of ethics
The Kantian school of ethics
The four views of ethics
Managerial ethics
Factors that affect employee ethics
Ethical dilemma
Loyalty and the psychological contract
How to improve ethical behavior
Best ethical practices

1 WHAT IS ETHICS?

The word “ethics” is derived from Greek word “ethos” which means a code of
conduct which has social acceptance. Ethics are what society generally prescribes
as right and wrong, good and evil, just and unjust.

Being ethical has often been misunderstood as being in conformity with law. On the
contrary, ethics is about voluntarily conforming to what is good, or acceptable or
desirable without the force of any legal and social obligation.

There have been many philosophical explanations of “ethics” over the years. In the
western world, the oldest work on ethics is by Aristotle, a Greek philosopher from
384 to 322 BC. And the latest work is by English philosopher George Edward Moore
who wrote about 70 years ago. Between these two extremes was the German
philosopher Emmanuel Kant who lived in 18th Century.

According to Kant, an action is moral only if it may be seen as a universal law. Kant
calls it a “categorical imperative”. Kant contrasts this concept with what he calls
a “hypothetical imperative,” i.e, people act to achieve certain ends.

There are no “ifs” in moral action, according to Kant. Morality works according to a
categorical imperative because one must act in a given way simply because the
motive is admirable, and not because certain ends can be achieved.

2 MANAGERIAL ETHICS

There are four major views with respect to assessing ethical situations, namely, the
utilitarian view, the rights view, the justice view and the integrative social contracts
view.
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According to the utilitarian school, management decisions are ethical when they
are made solely on the basis of their outcomes. The utilitarian approach refers to a
moral behaviour that produces the greatest good for the greatest number of
people.

The rights perspective emphasizes respect and protection towards individual

liberties and privileges.

The theory of justice in managerial ethics focuses on standards of equity,

fairness, and impartiality.

Finally, the integrative social contracts theory proposes that ethical decisions
should be based on empirical (what is) and normative (what should be) factors.

3 FACTORS THAT AFFECT EMPLOYEE ETHICS

Many factors affect employee ethics at work, namely,

(i) Moral values: Such values are not inherited at birth but are acquired over a
time. This process can be broadly categorized into three distinct categories: -

a. The pre-conventional level – A person follows the dictates of law and good
behavior out of fear of punishment or expectation of reward. In the early
stage of childhood, he is taught by mother, father and teachers to follow
certain rules and he does that more out of fear of punishment or for
promised reward. This is pre-ethical stage or preparation stage for ethics. At
this level, the individual’s choice between right or wrong is based on personal
consequences involved.

b. The conventional level – A person conforms to behavioural standards to

meet the expectations of peers and society to avoid ridicule and gain
acceptance.

c. The post-conventional (or principled) level – A person develops a

personal set of values which he is not willing to compromise even in the face
of threat or personal loss. He sticks to these values for his own sake (about
20% of adults reach this stage fully or partially)

(ii) Individual characteristics: A person joins an organization with an entrenched

set of values about what is right and what is wrong. Two personality variables have
been found to influence such values, namely,

a. Ego strength is a personality measure of the strength of a person’s

convictions. Individuals who score high on ego strength are likely to resist
impulses to act unethically and.

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 b. Locus of control is a personality attribute that measures the degree to
which people believe they control their own fate. Individuals with an internal
locus of control think that they control their destiny, while persons with an
external locus of control are less likely to take personal responsibility for
the consequences of their behavior.

4 ETHICAL DILEMMA

Ethical dilemmas often arise when a person has responsibility towards more than
one entity.

A manager has responsibility towards his company, his boss, his mates, society, his
family, and so on. Quite often he finds his boss asking him to give him cover for
some mistakes he may have committed or asked to project some inflated figures to
allow boss project a better image of the department which will enable him a
promotion. Now, if he follows the boss’s orders, he is betraying his company. If he
does not, he is betraying his boss.

Similarly, the company may want him to do something which may be against larger
interests of the society. The company may want him to spy on competitors. If he
does so, he will be working against the society; and if he does not, then he is
betraying the company. And when he betrays the company, he will have to either
resign or be fired and then his wife and children may suffer as a consequence of his
action. Which side should he take?

5 PSYCHOLOGICAL CONTRACT

What is psychological contract? In a employer-employee context, a psychological

contract is, in essence, a set of economic and normative expectations developed
mutually between an employer and an employee when he or she enters the
organization.

A psychological contract is the bed rock of ethics. The gist of the psychological
contract is as follows:

i. The employee expects fair compensation for work performed.

ii. The employee expects respect and dignity from the employer.
iii. The employee expects consistent and just evaluations.
iv. The employee expects continual employment for good work.
v. The employer expects loyalty from the employee.
vi. The employer expects the employee to guard its business secrets.
vii. The employer expects the employee to work for the benefit of the company.

6 IMPROVING ETHICAL BEHAVIOR

Organizations can take a number of actions to cultivate ethical behavior among

members. Some of those are –
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 a. The selection process for bringing new employees into organizations is based
on a code of morality.
b. A code of ethics is developed for each and everybody.
c. Top management is committed to ethical behavior.
d. Employees’ job goals are made realistic and are appraised.
e. Ethics training is held periodically.
f. Independent social audits are regularly carried out.

7 BEST ETHICAL PRACTICES

Competitiveness, ambition and innovation will always be important to success but
they must be regulated by core ethical principles, namely,

HONESTY: Be honest in all communications and actions. Honesty is the

cornerstone of trust.  Those who are truthful do not deliberately mislead or deceive
others by misrepresentations, overstatements, partial truths, selective omissions,
or any other means.

INTEGRITY: Maintain personal integrity. The trust of others is earned through

personal integrity. Integrity refers to a wholeness of character demonstrated by
consistency between thoughts, words and actions. Maintaining integrity often
requires moral courage, the inner strength to do the right thing, whatever be the
costs.

LOYALTY:  By being loyal, ethical executives place a high value on protecting and
advancing the legitimate interests of their companies and their colleagues. They
demonstrate loyalty by safeguarding their ability to make independent professional
judgments. They avoid conflicts of interest and they do not use or disclose
information learned in confidence for personal advantage.  If they decide to accept
other employment, ethical executives provide reasonable notice, respect the
proprietary information of their former employer, and refuse to engage in any
activities that take undue advantage of their previous positions.
LAW ABIDING:  It is mandatory to abide by laws, rules and regulations relating to
their business activities.

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FAIRNESS:  It is important to commit to principles of fairness and not to exercise
power arbitrarily or use indecent means to gain or maintain any undue advantage.
One must manifest a commitment to justice, the equal treatment of individuals,
tolerance for and acceptance of diversity.
ACCOUNTABILITY: One has to accept personal accountability for the ethical quality
of their decisions.
REPUTATION:  Ethical executives understand the importance of their own and their
company’s reputation. Thus, they avoid actions that that can undermine their
character and reputation.
MORALE: Ethical executives understand the importance of good morale of
employees. Thus, they avoid words or actions that that may alienate them.
EXCELLENCE:  Ethical executives pursue excellence in performing their duties, are
well-informed and prepared, and constantly endeavor to increase their proficiency
in all areas of responsibility.
RESPECT:  Ethical executives demonstrate respect for the human dignity,
autonomy, privacy, rights, and interests of all those who have a stake in their
decisions; they are courteous and treat all people with equal respect and dignity
regardless of sex or race , colour or creed. Ethical executives adhere to the Golden
Rule, striving to treat others the way they would like to be treated.

LEADERSHIP:  Ethical executives are conscious of the responsibilities and

opportunities of their position and seek to lead by example.
PROMISE-KEEPING:  Those who vow by ethics make every reasonable
effort to fulfill the letter and spirit of their promises. They do not interpret
agreements in an unreasonably technical or legalistic manner in order to rationalize
non-compliance or create justifications for escaping their commitments.
CARING:  Ethical executives are caring, compassionate, benevolent and kind.
They understand the concept of stakeholders and they always consider the
business, financial and emotional consequences of their actions on all stakeholders.

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