Business Ethics

Unit:1
Fundamental of ethics

By: Binod Ghimire

 Some Terminology
• Morality:-Morals are the beliefs of the individual or group as
to what is right or wrong.

• Corporate Social Responsibility: A company’s sense of

responsibility towards the community and environment (both
ecological and social) in which it operates.

• Ethics:- Ethics are the guiding principles which help the

individual or group to decide what is good or bad.

• Business Ethics:- It refers to the rational decision made by the

business.
• Ethics can also mean ‘the science of rightness
and wrongness of character and conduct’
• Ethics is the study of what is right or good in
human conduct or character.
• The branch of knowledge that deals with
moral principles.
• The basic concepts and fundamental
principles of decent human conduct.
 Ethics and Morality
Morals are the social, cultural and religious beliefs or values of an individual or
group which tells us what is right or wrong. They are the rules and standards
made by the society or culture which is to be followed by us while deciding
what is right. Some examples of Morals are:
• Do not cheat
• Be loyal
• Be patient
• Always tell the truth

• Ethics is a branch of philosophy that deals with the principles of conduct of an

individual or group. It works as a guiding principle as to decide what is good or
bad. They are the standards which govern the life of a person. Ethics is also
known as moral philosophy. Some examples of Ethics are:
• Truthfulness
• Honesty
• Loyalty
• Respect
• Fairness
 Ethics and Morality

Ethics and morality is inter changeable. However some of the differentiation

can be made as follows:

a. Ethics refers to the rules provided by external sources such as code,

professional ethics whereas morale refers individual conscience regarding
right or wrong.
b. Governed by professional and legal guidelines …..from cultural norms and
values
c. Code of behavior with reference to group of people or entity… personal in
nature
d. Much diversity …..relatively more consistent in daily life.
 Ethics and Philosophy
• Ethics is a branch of philosophy that
involves systematizing, defending and
recommending concept of right and
wrong.
• As a branch of philosophy, ethics
investigates the questions, what is the
best way for people to live.
 Class Assignment

• What is ethics for you?

• What shapes your view of ethics?
Chapter Outline
• Meaning and definition of ethics
• Concept of business ethics
• Need/Importance of ethics
• Nature of business ethics
• Scope and objectives business ethics
• Factors influencing business ethics
• Ethical decision making
• Ethics in workplace and TQM
 Meaning of Ethics:-
• Ethics are the set of moral principles that guide a
person's behavior. These morals are shaped
by social norms, cultural practices, and religious
influences.
• Ethics reflect beliefs about what is right, what is wrong,
what is just, what is unjust, what is good, and what is
bad in terms of human behavior.
• They serve as a compass to direct how people should
behave toward each other, understand and fulfill their
obligations to society, and live their lives.
• Business ethics as the principles and standards that
determine acceptable conduct in business organizations.
• While ethical beliefs are held by individuals, they
can also be reflected in the values, practices, and
policies that shape the choices made
by decision makers on behalf of their organizations.
• The phrases business ethics and corporate
ethics are often used to describe the application
of ethical values to business activities.
• Ethics applies to all aspects of conduct and is
relevant to the actions of individuals, groups, and
organizations.
In under developing Country
People are not corrupted but the
system makes the people
corrupted.
 Business ethics (Corporate ethics)
• Business ethics, also called corporate ethics, is a form
of applied ethics or professional ethics that examines
the ethical and moral principles and problems that
arise in a business environment.
• It can also be defined as the written and unwritten
codes of principles and values, determined by an
organization's culture, that manage decisions and
actions within that organization.
• It applies to all aspects of business conduct on behalf
of both individuals and the entire company.

•
 Some quotes on Ethics
Ethics is the activity of man directed to secure the
inner perfection of his own personality.
-Albert Schweitzer
A man without ethics is a wild beast loosed upon
this world.
-Albert Camus
In law a man is guilty when he violates the right of
others. In ethics he is guilty if he only thinks of
doing so.
-Immanuel Kant
 Myths About Business Ethics
Ethics is just a matter of opinion.
Our employees are ethical so we don’t need
to pay attention to business ethics.
We learn ethics as a little kids, not as adults.
Ethics can’t be managed
We all know what is right. It is just a matter of
doing it.
 In short, Meaning and definition of
ethics
• The word ethics come from the Greek word
ethos which means customs or habits
• Ethics is also often called moral philosophy.
• The word moral is from the Latin word which
also means moral customs or habits.
• Thus, ethics means the science of customs or
habits of society.
• Morality deals with our reasoning and ethics
with our doing.
 Nature of business ethics
• Scientific Nature: Ethics is a normative science
which determines norms, moral values in a
person and an individual’s character. It is a
systematic explanation of what is right and
what is wrong.
• Not Art: Ethics is not art as art deals with the
acquisition of skill to produce objects, while
morality deals with motive, intention, purpose
and choice which are considered right or
wrong in the light of goodness.
• Variable Nature: Ethics is not static. It is not
always the same. Human beings change and the
morality and ethical perspective in them also
changes.
• Exclusively for Human Beings: Ethics can only be
applied to human beings as we are the ones who
have the capacity for moral judgement. We
cannot expect ethical behaviour from animals, as
they are not as intelligent as human beings are so
ethics is exclusively for human beings.
 Scope of business ethics

• Ethics in Compliance
• Ethics in Finance
• Ethics in Human Resources
• Ethics in Marketing
• Ethics of Production
 Scope of business ethics (Contd.)
a. 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.
 Scope of business ethics (Contd.)
b. Ethics in Finance
• The ethical issues in finance that companies and employees
are confronted with include:
• In accounting – window dressing, misleading financial
analysis.
• Insider trading, securities fraud leading to manipulation of
the financial markets.
• Executive compensation.
• Bribery, kickbacks, over billing of expenses, facilitation
payments.
• Fake reimbursements
Scope of business ethics (Contd.)
c. 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:
• Discrimination issues i.e. discrimination on the bases of age,
gender, race, religion, disabilities, weight etc.
• Sexual harassment.
• Affirmative Action.(Reservation)
 Scope of business ethics (Contd.)
c. Ethics in Human Resources (contd.)
• Issues surrounding the representation of employees and the
democratization of the workplace, trade unionization.
• 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.
 Scope of business ethics (Contd.)
d. 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 market
Scope of business ethics (Contd.)
e. 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.
 Objectives of Ethics
• The objectives of ethics are to study and assess
human behaviour. It is also to establish principles
and moral standards of behaviour.
• Ethics is not compulsory in a person’s life and it is
not forced upon anyone but being ethical is one
step forward towards being a good person. Ethical
objectives are based on the following factors:
• Objectivity
• Impartiality
• Accuracy
• Public Accountability
• Fairness
• Truthfulness
Importance / Benefits of Ethics-
• To improve the brand image
• To win customer loyalty
• To attract Investor
• To attract best employee
• To attract supplier
 Moral reasoning
 We are often faced with the situation in life where we
need to use our logic and instincts to decide whether the
particular situation is right or wrong.
 It is easier to do objective moral reasoning i.e to say
right or wrong but difficulty lies in using moral values,,
moral judgment to realize the consequences of our
action.
 Moral Reasoning refers to holding to people morally
accountable for the past action or actions.
 This simply means assigning to people blame or praise
for particular actions that they have performed.
 Moral Reasoning likewise refers to one’s capacity for
making moral or rational decisions on his own..
 Reasons for moral reasoning

a. Law may not cover all aspects of a problem. Law may be black and white,
difficult and controversial.

b. Free market and regulated market mechanism do not effectively aware

owners and managers about the complex issues having far reaching moral
consequences.
 Principles of moral reasoning
a. Deontological Reasoning: It is the judgment of morality based on
the actions adherence to certain rules. It creates boundaries and
defines right and wrong action. For eg. Stealing is always wrong.

b. Teleological Reasoning: It is the reasoning based on

consequences of the results of the action. Good result
becomes the benchmark rather than the specific course of
action. Law may not cover all aspects of a problem. Law may
be black and white, difficult and controversial.

C. Ontological Reasoning: All the positive character traits like

courage, justice, truthfulness etc. are the basis for moral
judgment or decision making. Ethics is grounded in-terms of
good action i.e. virtuous.
Ethical issues for business

Fraud
Fraud is a crime of lying or pretending. Some businesses mislead consumers
and trick them to buy their products or services. Such fraud and deceptive
business practices includes
• false or misleading advertising
• double ticketing items for sale

Insider Trading
Insider trading is buying or selling shares of a company based on
confidential information. This type of trading is illegal.
Ethical issues for business

Accounting Scandals: Enron!

An accounting scandal occurs when accountants or senior executives alter
accounting records for personal benefit.

Accounting information is used inside and outside of the business to make

decisions. When accounting irregularities are uncovered, a scientific accountant
investigates legal and financial documents to find evidence of altering.

Embezzlement, a type of accounting fraud, happens when an accountant or

senior executive creates false accounts and redirects money into them for personal
gain.
 Factors influencing Business Ethics

• Political and legal factors: Prominent political

parities exert their influence through
legislative enactments.
• Social values: norms, values, custom and
tradition govern behaviour
• Cultural values: passed from one generation
to generation having long-lasting impact.
• Personal values: A man's personal code of
ethics that is what one considers moral is the
foremost responsible factor influencing his
behavior.
• Industry codes: trade association, chamber of
commerce have prescribed code of conduct.
• Professional code: CA, medical professional
prescribe code of conduct.
Ethics in workplace and TQM
 Work ethics is an invisible employee
behavior, noticeable by its absence.

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 “What to do?
My producer is a bully
and hiring
like-minded people.
Ethics is becoming a
question in my
organization.”

Mike,Graphic Designer
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 “I find few employees of
my organization,
disclosing confidential
client data to our
competitors.”

Stella,
HR, Executive
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 Stephany,
HR, Executive

“Should the
performance feedback
session follow a
corrective or punitive
approach?”

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 All these are issues addressing common
workplace ethics.
Ethical Problems are inevitable in all levels of
business.

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 What is workplace Ethics?
• The application of moral principles, standards of
behavior, or set of values regarding proper conduct
in the workplace as individuals and in a group
setting.
• Workplace ethics reflects an organisation’s set of
values regarding proper conduct in the workplace.
Common Workplace Ethics

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Punctuality Responsibility
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Integrity & Loyalty
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Teamwork
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Professionalism 5
Benefits of Good Ethics in the
Workplace

• Loyalty
• Desirable work environment
• Produce results
• Build good references
• Good office morale
• Growth and expansion
• Recognition
Poor Ethics in Workplace

• Illegal practices
• Making decisions for you own personal
gain
• Lack of communication
• Stealing
• Withholding information
• Ignoring procedures and policies
• Abusing confidentiality agreements
• Falsifying information
 Important factors of developing an
ethical infrastructure
• Commitment from top management
• Code of Ethics
• Communicating ethics
• Ethics training
• Performance feedback session
• Role model
 Commitment from top management
• Top management must make it clear that
violations of ethical policies will not be
tolerated.
 Code of ethics
• A written code of conduct
• Define ethics to be maintained in an
organization.
• Each employee should have one,
including new hires.

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 Communicate ethics
• Clearly, consistently, and frequently communicate
the desired behaviors and why they are important to
the organization.

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 Ethics Training programs

• Organizations should focus on

training in ethics at the
workplace.
• A few members from the top
level management can lead the
ethics training programs.

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Performance feedback sessions should be
corrective in nature.

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Good Behavior should
be acknowledged.

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 Role model

• Seniors behaving in a morally upright manner will set

an example for employees to follow.

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Hold people accountable for demonstrating these
behaviors on an escalating path

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And finally, it is essential to communicate ethical values
to employees as you are giving them the authority to
take appropriate ethical decision
in any given situations.

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 Ethical decision making

• Ethical decision-making refers to the process of

evaluating and choosing among alternatives in a
manner consistent with ethical principles.
• In making ethical decisions, it is necessary to
perceive and eliminate unethical options and
select the best ethical alternative.
• Ethical decision making helps people make
difficult choices when faced with an ethical
dilemma, a situation in which there is no clear
right or wrong answer.
Framework for understanding ethics
decision making in business.
 How Organizations
Shape Ethical Conduct
 Ethical Awareness

Developing and practicing

code of conduct. It is the
formal statement that
defines how the
organization expects and
requires employees to
resolve ethical
questions.
 Ethical Education

Codes of conduct
cannot detail a
solution for every
ethical situation, so
corporations provide
training in ethical
reasoning.
 Ethical Action

Helping employees
recognize and reason
through ethical
problems and turning
them into ethical
actions.
 Ethical Leadership

Executives must demonstrate

ethical behavior in their
actions.

Whistle-blowing
Whistle-blowing happens
when an employee informs
officials or the public about an
illegal or ethical violation.
Case Practice
Ram Singh is the project manager of an electricity
project. He has been running the project effectively with
the help of his capable staffs. He is fully aware with the
fact that he can’t run the project without their support.

Mr. Singh has occasionally noticed that some

malpractices exist among some of his subordinates
causing harms to the project with the low quality of work
and increased costs. However, he has also noticed that
these malpractices are not contrary to the project’s
existing rules and regulations and he is sure that the
subordinate employees will be annoyed and frustrated to
continue to work with supportive attitudes, if he controls
such malpractices.
 He is therefore pretending of being ignorant of
malpractices at subordinate level just to ensure
their continued support for running the project
smoothly and completing on time.

Questions
• What kind of ethical issues do you observe in this
case?
• Do you consider Mr. Singh as an unethical person?
• Is there any conflict of interest? Clarify.
• If you were in this situation, how do you handle the
management of this project?
THANK YOU