Chapter One

Introduction to Business Ethics

What is Business Ethics?

 Business Ethics
 Before we move to business ethics, we need to spell out
clearly the word ethics. The word Ethics is derived from
ancient Greek word ethos, ethics has come to mean moral
character.
 Ethical behavior is what is good or right. Ethical senses
always make use of good, bad, right and wrong.
 Ethics is the discipline that deals with what is good and bad
and with moral duty and obligation.
 Ethics can also be regarded as a set of moral principles or
values.
 Morality is a doctrine or system of moral conduct. Moral
conduct refers to principles of right and wrong in behavior.
 Business Ethics - defined
 Comprises organizational principles, values, and norms that
may originate from individuals, organizational statements, or
from the legal system that primarily guide individual and
group behavior in business
 Ethical decisions occur when accepted rules no longer serve
and decision makers must weigh values and reach a
judgment
 Values and judgments play a critical role when we make
ethical decisions
 Morals: refer to a person’s personal philosophies about
what is right or wrong
 Morals are personal and singular
 Business Ethics - defined
 Principles: Specific and pervasive boundaries for behavior
that should not be violated
 Human rights, freedom of speech and justice
 Values: Enduring beliefs and ideals that are socially enforced
 Teamwork, trust and integrity
 Laura Nash defined business ethics as “the 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.”
 Nash stated that business ethics deals with three basic
areas of managerial decision making:
o 1) choices about what the laws should be and whether to
follow them;
o 2) choices about economic and social issues outside the
domain of the law; and
o 3) choices about the priority of self-interest over the
company’s interests.
 Social Responsibilities of Business
o What is Social Responsibility?
 In your daily life, you perform a number of activities.
 For example, brushing your teeth, listening to your parents,
showing respect to elders, obeying traffic rules on road etc.
 Now why do you perform all these activities?

• It is because you live in a family as well as in a society and the

members of your family as well as the society want you to do
all of them.
• They do several things for you and expect something from
you, which you must do. The expectations of the family or
society become your obligations, which you need to fulfill.
 Social Responsibility…
 Social Responsibility - management’s acceptance of the obligation
to consider profit, consumer satisfaction, and societal well-being
of equal value in evaluating the firm’s performance.
 For example, contributions to the overall economy, job
opportunities, and charitable contributions and service. Measured
through social audits.
 The concept of social responsibility discourages businessmen from
adopting unfair means: black-marketing, hoarding, adulteration,
tax evasion and cheating customers etc. to earn profit. Instead, it
encourages them to earn profit through judicious management of
the business, by providing better working and living conditions to
its employees, providing better products, after sales-service, etc.
to its customers and simultaneously to control pollution and
conserve natural resources.
 Why should business be socially responsible?
 Social responsibility is a voluntary effort on the part of
business to take various steps to satisfy the expectation of
the different interest groups.
 The interest groups may be owners, investors, employees,
consumers, government and society or community.

 Why the business should come forward and be responsible

towards these interest groups?
 The reasons are:
o Public Image
o Government Regulation
o Survival and Growth
o Employee satisfaction
o Consumer Awareness
 Competitors
Investors Society

Employees Business Suppliers

Government
Customers
Owners
  Responsibility towards owners
 Run the business efficiently.
 Proper utilization of capital and other resources.
 Growth and appreciation of capital.
 Regular and fair return on capital invested.

 Responsibility towards investors

Ensuring safety of their investment,
 Regular payment of interest,
Timely repayment of principal amount.
  Responsibility towards employees
 Timely and regular payment of wages and salaries.
 Proper working conditions and welfare amenities.
 Opportunity for better career prospects.
 Job security as well as social security like facilities of provident
fund, group insurance, pension, retirement benefits, etc.
 Better living conditions like housing, transport, canteen, crèches
etc.
 Timely training and development.
 Responsibility towards suppliers
o Giving regular orders for purchase of goods.
o Dealing on fair terms and conditions.
o Availing reasonable credit period.
o Timely payment of dues.
  Responsibility towards customers
 Products and services must be able to take care of the needs of
the customers.
 Products and services must be qualitative
 There must be regularity in supply of goods and services
 Price of the goods and services should be reasonable and
affordable.
 All the advantages and disadvantages of the product as well as
procedure to use the products must be informed to the
customers.
 There must be proper after-sales service.
 Grievances of the consumers, if any, must be settled quickly.
 Unfair means like under weighing the product, adulteration, etc.
must be avoided.
  Responsibility towards competitors
o not to offer exceptionally high sales commission to distributers,
agents etc.
o not to offer to customers heavy discounts and /or free products in
every sale.
o not to defame competitors through false or ambiguous
advertisements

 Responsibility towards government

• Setting up units as per guidelines of government
• Payment of fees, duties and taxes regularly as well as honestly.
• Not to indulge in monopolistic and restrictive trade practices.
• Conforming to pollution control norms set up by government.
• Not to indulge in corruption through bribing and other unlawful
activities.
  Responsibility towards society

o to help the weaker and backward sections of the

society
o to preserve and promote social and cultural values
o to generate employment
o to protect the environment
o to conserve natural resources and wildlife
o to promote sports and culture
o to provide assistance in the field of developmental
research on education, medical science, technology
etc.
 The Role of Ethics in Business
 Doing the right thing” matters to employers, employees,
stakeholders, and the public.
 To companies and employers, acting legally and ethically
means saving billions of dollars each year in lawsuit,
settlements, and theft.
 Costs to business also include:
– deterioration of relationships;
– damage to reputation;
– declining employee productivity,
– creativity, and loyalty;
– ineffective information flow throughout the organization;
and absenteeism.
Ethics courses and training can do the following:
• Provide people with rationales, ideas and
vocabulary to help them participate effectively in
ethical decision-making processes
• Help people “make sense” of their environments by
abstracting and selecting ethical priorities
• Providing intellectual weapons to do battle with
advocates of economic fundamentalism and those
who violate ethical standards
• Enable employees to act as alarm systems for
company practices that will not meet society’s
ethical standards
 Business Ethics Vs. Social Responsibility
 Social responsibility is a broader concept that concerns the impact
of the entire business’s activities on society.
 Business ethics relates to an individual’s or a work group’s
decisions that society evaluates as right or wrong.
 Business ethics and social responsibility are commonly used in
everyday parlance almost interchangeably. While social
responsibility is self explanatory, ethics is a word that puts one in a
dilemma. Social responsibility looks clearly defined and
demarcated.
 Companies have a policy of social responsibility known as
corporate social responsibility whereby they commit to follow
their businesses in such a way so as to benefit the community at
large. But ethics is a loose term that is dependent upon a person’s
conscience. There are certain differences between the two and the
two are not overlapping completely.
 Stakeholders
• The stakeholder concept has become a central idea
in understanding business and society relationships.
• The term “stakeholder” is a variant of the more
familiar and traditional idea of stockholders - the
investors in or owners of business.
o What is a Stake?
• A stake is an interest or a share in an undertaking. If
a group is planning to go out to dinner and show for
the evening, each person in the group has a stake, or
interest, in the group’s decision.
 Cont’d

• A stake is also a claim. A claim is an assertion to a

title or a right to something.
• A claim is a demand for something due or believed to
be due. We can see clearly that an owner or a
stockholder has an interest in and an ownership of a
share of a business.

• A stakeholder may be thought of as “any individual

or group who can affect or is affected by the actions,
decisions, policies, or goals of the organization.
 Who are business’s stakeholders?
• In today’s competitive, global business environment,
there are many individuals and groups who are
business’s stakeholders.
• From the business point of view, there are certain
individuals and groups that have legitimacy in the
eyes of management. That is, they have a legitimate
interest in, or claim on, the operations of the firm.
• The most obvious of these groups are:
o stockholders
o employees, and
o customers.
 Cont’d
• From the point of view of a highly pluralistic society,
stakeholders include not only these groups, but other
groups as well. These other groups include:
o competitors
o suppliers
o the community
o special-interest groups
o the media, and
o society or the public at large.
• It has also been strongly argued that the natural
environment, non-human species, and future generations
should be considered among business’s important
stakeholders.
  Primary social stakeholders include:
 Shareholders and investors
 Employees and managers
 Customers
 Local communities
 Suppliers and other business partners
 Secondary social stakeholders include:
– Government and regulators
– Civic institutions
– Social pressure groups
– Media and academic commentators
– Trade bodies
– Competitors
 Primary non-social stakeholders include:

 The natural environment

 Future generations
 Non-human species
 Secondary non-social stakeholders include:
oEnvironmental pressure groups
oAnimal welfare organizations
 Corporate Social Responsibility
o Economic responsibilities:
– Produce goods and services that society wants at a
price that perpetuates the business and satisfies its
obligations to investors.
o Legal responsibilities:
– Obey local, state, federal, and relevant international
laws
o Ethical responsibilities:
– Meeting other social expectations, not written as law.
o Philanthropic responsibilities:
– Additional behaviors and activities that society finds
desirable and that the values of the business support.
 Business Ethics
 Five different levels of business ethics have been identified based on
what type of business and how their actions are evaluated.

1. The society level: which defines ethical behavior and assesses the effect of
business on society.
2. The industry level: which suggests that different industries have their own
set of ethical standards (e.g., chemical industry vs. pharmaceutical
industry)
3. The company level: under which different companies have their own set
of ethical standards
4. The individual manager level: at which each manager and other corporate
participants are responsible for their own ethical behavior
5. The association level: accountants, information technology (IT)
professionals, lawyers, physicians, and management consultants can refer
to their professional association’s charter or code of ethics for guidelines
on conducting business
 Cont’d

 CONSEQUENTLY, one feasible way to judge ethical

behavior is to focus on determinants of business
ethics and behavior such as:
o corporate culture,
o incentives,
o opportunities, and
o choices.
See you next!!!

Thank you!!