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Business Ethics (Unit 1)
Business Ethics (Unit 1)
Business Ethics:
Business ethics studies appropriate business policies and practices regarding potentially controversial
subjects, including corporate governance, insider trading, bribery, discrimination, corporate social responsibility,
fiduciary responsibilities, and much more. The law often guides business ethics, but at other times business ethics
provide a basic guideline that businesses can follow to gain public approval.
Key Takeaways
Business ethics refers to implementing appropriate business policies and practices with regard to arguably
controversial subjects.
Some issues that come up in a discussion of ethics include corporate governance, insider trading, bribery,
discrimination, social responsibility, and fiduciary responsibilities.
The law usually sets the tone for business ethics, providing a basic guideline that businesses can choose to
follow to gain public approval.
The concept of business ethics began in the 1960s as corporations became more aware of a rising consumer-based
society that showed concerns regarding the environment, social causes, and corporate responsibility. The increased
focus on "social issues" was a hallmark of the decade.
Since that time, the concept of business ethics has evolved. Business ethics goes beyond just a moral code of right
and wrong; it attempts to reconcile what companies must do legally vs. maintaining a competitive advantage over
other businesses. Firms display business ethics in several ways.
Business ethics (also known as corporate ethics) is a form of applied ethics or professional ethics, that examines
ethical principles and moral or ethical problems that can arise in a business environment. Business ethics refers to
contemporary organizational standards, principles, sets of values and norms that govern the actions and behavior
of an individual in the business organization.
Ethics are the rules or standards that govern our decisions on a daily basis. Many consider "ethics" with conscience
or a simplistic sense of "right" and "wrong."
Others would say that ethics is an internal code that governs an individual's conduct, ingrained into each person by
family, faith, tradition, community, laws, and personal mores.
CHARACTERISTICS
1. Defines code of conduct
2. Protects social group
3. Control business malpractices
4. Related to moral and social values
5. Requires willingness to accept
6. Creates good image
7. Relative term
8. Requires education and guidance
It's essential to understand the underlying principles that drive desired ethical behavior and how a lack of these
moral principles contributes to the downfall of many otherwise intelligent, talented people and the businesses they
represent.
Leadership: The conscious effort to adopt, integrate, and emulate the other 11 principles to guide
decisions and behavior in all aspects of professional and personal life.
Accountability: Holding yourself and others responsible for their actions. Commitment to following
ethical practices and ensuring others follow ethics guidelines.
Integrity: Incorporates other principles—honesty, trustworthiness, and reliability. Someone with integrity
consistently does the right thing and strives to hold themselves to a higher standard.
Respect for others: To foster ethical behavior and environments in the workplace, respecting others is a
critical component. Everyone deserves dignity, privacy, equality, opportunity, compassion, and empathy.
Honesty: Truth in all matters is key to fostering an ethical climate. Partial truths, omissions, and under or
overstating don't help a business improve its performance. Bad news should be communicated and
received in the same manner as good news so that solutions can be developed.
Respect for laws: Ethical leadership should include enforcing all local, state, and federal laws. If there is a
legal grey area, leaders should err on the side of legality rather than exploiting a gap.
Responsibility: Promote ownership within an organization, allow employees to be responsible for their
work, and be accountable for yours.
Transparency: Stakeholders are people with an interest in a business, such as shareholders, employees,
the community a firm operates in, and the family members of the employees. Without divulging trade
secrets, companies should ensure information about their financials, price changes, hiring and firing
practices, wages and salaries, and promotions are available to those interested in the business's success.
Compassion: Employees, the community surrounding a business, business partners, and customers
should all be treated with concern for their well-being.
Fairness: Everyone should have the same opportunities and be treated the same. If a practice or behavior
would make you feel uncomfortable or place personal or corporate benefit in front of equality, common
courtesy, and respect, it is likely not fair.
Loyalty: Leadership should demonstrate confidentially and commitment to their employees and the
company. Inspiring loyalty in employees and management ensures that they are committed to best
practices.
Environmental concern: In a world where resources are limited, ecosystems have been damaged by past
practices, and the climate is changing, it is of utmost importance to be aware of and concerned about the
environmental impacts a business has. All employees should be encouraged to discover and report
solutions for practices that can add to damages already done.
There are several reasons business ethics are essential for success in modern business. Most importantly, defined
ethics programs establish a code of conduct that drives employee behavior—from executives to middle management
to the newest and youngest employees. When all employees make ethical decisions, the company establishes a
reputation for ethical behavior. Its reputation grows, and it begins to experience the benefits a moral establishment
reaps:
When combined, all these factors affect a business' revenues. Those that fail set ethical standards and enforce them
are doomed to eventually find themselves alongside Enron, Arthur Andersen, Wells Fargo, Lehman Brothers, Bernie
Madoff, and many others.
There are several theories regarding business ethics, and many different types can be found, but what makes a
business stand out are its corporate social responsibility practices, transparency and trustworthiness, fairness, and
technological practices.
Corporate social responsibility (CSR) is the concept of meeting the needs of stakeholders while accounting for the
impact meeting those needs has on employees, the environment, society, and the community in which the business
operates. Of course, finances and profits are important, but they should be secondary to the welfare of society,
customers, and employees—because studies have concluded that corporate governance and ethical practices increase
financial performance. Businesses should hold themselves accountable and responsible for their environmental,
philanthropic, ethical, and economic impacts.
It's essential for companies to ensure they are reporting their financial performance in a way that is transparent. This
not only applies to required financial reports but all reports in general. For example, many corporations publish
annual reports to their shareholders.
Most of these reports outline not only the submitted reports to regulators, but how and why decisions were made, if
goals were met, and factors that influenced performance. CEOs write summaries of the company's annual
performance and give their outlooks.
Press releases are another way companies can be transparent. Events important to investors and customers should be
published, regardless of whether it is good or bad news.
The growing use of technology of all forms in business operations inherently comes with a need for a business to
ensure the technology and information it gathers is being used ethically. Additionally, it should ensure that the
technology is secured to the utmost of its ability, especially as many businesses store customer information and
collect data that those with nefarious intentions can use.
Fairness
A workplace should be inclusive, diverse, and fair for all employees regardless of race, religion, beliefs, age, or
identity. A fair work environment is where everyone can grow, be promoted, and become successful in their own
way.
According to the philosophies, environment means humanity. Today‘s ethics approaches note depending on keeping
human wants under pressure for the benefits of all human beings. By these words environment includes not only
men, but also animals, plants i.e., the nature. Ethics occurs by relations of humans with themselves and their
physical and social environment. Therefore, the origin of the problems and solution is human. The philosophies
note many approaches in these relations. These approaches can be grouped into three groups:
Every approach describes one of parts of the whole environmental ethics. But the common point of these approach is
that all human beings and their equal rights take place in the ecosystem. By the r ach in the concept of deep ecology
it is accepted that the diversity of the ecosystem has an internal value and no one has any right to decrease this
diversity and difference.
For centuries, people have established a lot of establishments to achieve these goals. Human beings have seen that
producing something by cooperation is more productive and effective than doing it alone, so they have established
enterprises. They have seen unlimited needs, increasing wants and scarcity of objects and they have also seen
establishing enterprises as a way of producing more. But in this century humans saw a lot of impacts from our
living. Air, water and soil pollution, the danger of consuming natural resources, acid rain, and gas, dust, and liquids
industries caused, soiling of natural foods, industrial pollution, and dangerous wastes, just to mention a few
problems we face.
These environmental problems make us reconsider the goals of organizations and their responsibilities to the society
and nature. The organizational goals are often not environmentally friendly. In some events the goal of the
establishment is opposite to the environment and sometimes organizational activities damage the environment in
achieving the goals. In this process, we should emphasize the reasons why they should have responsibility. First,
they use environmental resources and resources are limited. Second, they damage the environment by their
activities. Third, they use common assets of mankind.
Finally, the enterprises have various forces to influence the environment: Economic force, social and cultural force,
technological force, politic force, forces on individuals and physical environment.
In spite of these impacts and forces of establishments, there is no social control system on the activities of
enterprises. This point emphasizes business ethics terms as an institutional framework, i.e., social ethics. As an
institutional term, social ethics means searching ethical norms to protect the social benefits, and determining the
possibilities for achieving a kind society. Then, business ethics means, the norms, duties, responsibilities, courses of
actions of enterprises to protect the benefits of whole society.
In a broader view, because of the impacts on the natural and social environment, business ethics concepts determine
the responsibilities towards s ecosystem. It is the common denominator of business ethics and environmental ethics
is the interrogation of relations and dilemmas between economy and nature, man and society.
According to the common classification of conceptual approaches on business ethics, The approaches. three are
there. The first approach reconciles ethical values with economic goals. The second approach gives priority to the
ethical values. According to Ulrich, a new multidimensional goal system should replace to the profit maximization.
And the third approach is pragmatic approach. In this approach, the attitudes model of business managers is the
focus of interests.
The last two approaches are very important for us to develop a new concept and term on business ethics. The
approach which gives priority to the ethical values is important, because the enterprises are not a purpose, they are
only a tool which we use to get benefits. If this tool causes various damages on the ecosystem to get profit, then we
should revise our organizational goals, targets and activities. A pragmatic approach is characterized with the
importance of individual conscience and discussion of alternative individual courses of actions.
Therefore, these two approaches define the new term business ethics as an institutional concept. This concept
includes both organizational responsibility and individual duties as business managers, also covered the ecosystem.
We can name this concept as ―environment oriented business ethics‖ or ―enterprise ethics‖ and As determined
above, if people are the focus of the problems and solution, educating people becomes our great responsibility.
People should be educated as a member of business organizations. This education process should begin in childhood
continue during our life.
Normative Ethics:-
Ethics is a normative science. It means it lay down the norms or standard of what is good and what is bad. It
specifies what we ought to do and what we ought not to do, in a certain situation. Normative ethics is the branch of
philosophical ethics that investigates the set of Questions that arise when we think about the question ―how should
one act, morally speaking?‖ Normative ethics is the discipline that produces moral norms or rules as it end product.
Normative ethics prescribe moral behaviour. It is a branch of ethics concerned with classifying actions as right and
wrong, attempting to develop a set of rules governing human conduct, or a set of norms for action‘
Traditionally, normative ethics (also known as moral theory) was study of what makes actions right and wrong.
These theories offered an overarching moral principle to which one could appeal in resolving difficult moral
decisions‘
Normative ethical systems can generally be broken down into three categories: deontological, teleological and virtue
ethics. The first two are considered deontic or action-based theories of morality because they focus entirely upon the
actions which a Person performs. When actions are judged morally right based upon their them consequences we
have teleological or consequentiality ethical theory. When actions are judged morally right, based upon how well
they conform to some set of duties; we have a deontological ethical theory.
Prescriptive Ethics:-
Business ethics is a branch of ethics which prescribes standards of how the business is to be carried out. It lays
down guidelines for the company‘s response and accountability to its various stakeholders. It has to maintain a fine
balance and take care of the interest of the shareholders on one hand and other like the employees, suppliers,
customers and community at large on the other hand. All the stakeholders have different objective of what they
expect from the company and at times these objectives may be conflicting in nature.
Applied Ethics:-
Applied ethics is a branch of ethics that deals with specific, often controversial moral issues such as abortion,
female feticide and infanticide, displacement of tribal people due to huge hydro- electric projects, cloning, testing
drugs on animals, etc. Business too faces many controversial moral choices such as misleading advertising, insider
trading bribery, corruption etc.
Ethical theories lay down certain moral standards that provide a reference point for judging the moral value of a
decision. When applied to business, these theories should enable the manager to distinguish between right and
wrong and to make morally acceptable decision
Ethical Theories
Ethics is the study of morality – i.e. right and wrong, good and bad. The syllabus looks at 3 ethical theories:
Utilitarianism
Kant’s deontological ethics
Aristotle’s virtue ethics
Each theory provides a framework intended to guide moral behaviour. We can apply these theories to ethical
dilemmas such as „is it ok to steal?‟
For utilitarian theories, what matters is the consequence of an action. If your stealing a loaf of bread, say, prevents
your family from dying of starvation, then the annoyance of the shopkeeper is likely to be outweighed by your
happiness that your family is still alive. So stealing the bread is morally permissible.
Kant‘s deontological ethics takes a rule-based approach. According to Kant, there are certain moral laws that are
universal and we have a duty to follow them. He provides two tests to determine what these laws are. Based on these
tests, Kant would say stealing is always wrong, regardless of the consequences.
Aristotle‘s virtue theory takes a different approach to both Kant and utilitarianism. Kant and utilitarianism both give
formulas for what to do, whereas Aristotle is more concerned with what sort of person we should be. So, if a
virtuous person would not steal in a particular set of circumstances, then it is wrong to steal in those circumstances.
Utilitarianism
Utilitarian ethical theories are consequentialist. They say that it‘s the consequences of an action that make it either
right or wrong. The most obviously relevant consequences are pain and pleasure. Generally speaking, utilitarian
theories look to minimise pain and maximise pleasure.
For example, a utilitarian might argue that it is justified for a poor person to steal from a rich person because the
money would cause more happiness for the poor person than it would cause unhappiness for the rich person.
Similarly, a utilitarian might argue that murder is justified if the victim is himself a murderer and so killing him
would save 10 lives.
Act utilitarianism: we should act so as to maximise pleasure and minimise pain in each specific instance
Rule utilitarianism: we should follow general rules that maximise pleasure and minimise pain (even if
following these rules doesn’t maximise pleasure in every specific instance)
Preference utilitarianism: we should act to maximise people’s preferences (even if these preferences do
not maximise pleasure and minimise pain)
Act utilitarianism
―The greatest happiness of the greatest number is the foundation of morals and legislation.‖
Rule utilitarianism
―though the consequences in the particular case might be beneficial—it would be unworthy of an intelligent agent
not to be consciously aware that the action is of a class which, if practiced generally, would be generally injurious,
and that this is the ground of the obligation to abstain from it.‖
Preference utilitarianism
Preference utilitarianism is a non-hedonistic form of utilitarianism. It says that instead of
maximising happiness (hedonistic utilitarianism), we should act to maximise people‘s
preferences.
Good will is one that acts for the sake of duty. This, according to Kant, is the source of moral worth.
So, if you save someone‘s life because you expect to be financially rewarded, this action has no moral worth. You‘re
acting for selfish reasons, not because of duty.
However, if you save someone‘s life because you recognise that you have a duty to do so, then this action does have
moral worth.
Duty
Deontology (as in Kant‘s deontological ethics) is the study of duty.
Kant argues that we each have a duty to follow the moral law. The moral law, according to Kant, is summarised by
the categorical imperative.
Like Kant, Aristotle‘s ethics are somewhat long-winded. Aristotle also makes a bunch of different arguments that
can sometimes seem a bit unconnected.
The first thing to say is that Aristotle starts by answering a slightly different question to Kant and utilitarianism.
Instead of answering “what should I do?” (action-centred) he addresses a question more like “what sort of person
should I be?” (agent-centred). It‘s basically the other way round: Instead of defining a good person as someone who
does good actions, Aristotle would define good actions as those done by good people.
Aristotle could reply that virtue theory was never intended to provide a set of rules for how to act. Life is
complicated – that’s the whole reason why you need to develop practical wisdom in the first place, so you
can act virtuously in the many complicated situations that arise. Plus, we can still reflect whether an
action is, for example, courageous or stupid. We could also ask questions like “how could I be more
friendly in this situation?” that help us decide how to act. Just because virtue theory doesn’t provide a
specific course of action, that does not mean it provides no guidance whatsoever.
The virtue ethical theory judges a person by his character rather than by an action that may deviate from his
normal behavior. It takes the person’s morals, reputation and motivation into account when rating an unusual
and irregular behavior that is considered unethical. For instance, if a person plagiarized a passage that was
later detected by a peer, the peer who knows the person well will understand the person’s character and will
be able to judge the friend. If the plagiarizer normally follows the rules and has good standing amongst his
colleagues, the peer who encounters the plagiarized passage may be able to judge his friend more leniently.
Ethical governance
Ethical Governance refers to values and ethical behaviours, processes, procedures, culture, ways of doing and
being that ensure high standards of performance, economy, effectiveness, efficiency, quality, satisfaction.
Governance is the set of processes and abilities needed to achieve the objectives and fullfil the responsabilities of
whatever business ororganisation, whether public, for profit or not for-profit, in the healthcare sector or in anyother
field of economic activity.
The primary responsibility of those who, either elected or delegated power, have the task of managing governance,
is to make decisions that must always be in tune with the values, identity, vision and mission of the organisation
they work for. These decisions have to be ethical ones.
Corporate ethics are a set of beliefs to which a company adheres that govern its behavior in the ways it conducts
business. Some corporations have well defined ethical parameters and others don’t, or they sacrifice ethical
behavior to profit and determine that gaining profit and power are the most desired motives. When discovered in
this type of activity, there is often a strong backlash that results in losing profits. This suggests that even if the
decision to adopt defined corporate ethics is purely motivated by profit, it may be good business.
The ways companies conduct business are multiple and complex, and corporate ethics may operate on numerous
levels. Ethical considerations can determine how a corporation competes at the business level with other
corporations. Are they aggressive, and prone to change their minds or drop allegiances with other companies for
their own benefits, or does the corporation cheerfully compete with and support the efforts of its competitors?
Employee relations is a different aspect of corporate ethics. Are employees provided with decent living wages and
health care access? If profits go down, does the company immediately lay off workers to satisfy shareholders, or
does it work to retain people‘s jobs in difficult economic times? How a corporation handles this is variable and is
one of many ethical dilemmas all corporations face.
Ethics are not easy, and might be considered as a series of judgment calls. A corporation must engage ethically with
multiple parts of itself, other competitors, and the public, deciding what to do when ethical responsibilities conflict.
Following corporate ethics in one way might prevent satisfying some other part of the corporation: for example,
laying off employees to satisfy shareholders or using more polluting chemicals to save on costs to save employee
jobs. Such decisions are difficult to make. Nevertheless, corporations that take a strong stance on ethical operation
must try to negotiate each judgment call, while remaining true to their ethical code.
When a company does not have a code of corporate ethics, its behavior tells others what the corporation
considers ethical. Constantly negative and only profit-induced decisions can be greatly disparaged by the
public. Additionally, employees come to work with moral codes of their own, and might find it challenging to
adopt a conflicting code at work. It is true, that many people sacrifice personal ethics in order to work or fail to
see the obvious discrepancies between personal and business ethics.
Guidance
It helps to steer a company or employee’s ethical course of action when it is not obvious or apparent.
A code of ethics helps to acquaint its staff members with their values and company culture, and serves as
an everyday reminder. This also extends to the company’s associates, third party contractors, and even
customers.
Consistent management standards
It helps to standardise management standards in terms of their responsibilities to their staff and serves as
a layer of protection for staff in positions of power who may otherwise, with or without malice, abuse said
power.
Regulations compliance
Complex government regulatory standards can be tricky to manage and a code of ethics helps in
traversing these issues. For example, in the USA the Sarbanes-Oxley Act of 2002 requires that all public
companies must have a code of ethics in place for all senior financial officers in order to protect the
company, its staff and their customers.
A code of ethics goes a long way to ‘walking the walk’ in terms of being a good, honest business that
customers and colleagues alike can understand your transparent values. It demonstrates that the
company is taking their ethical responsibilities seriously which will attract responsible investors and build
trust in the brand.
Self preservation
Having a code of ethics ensures that there are mechanisms in place with which to defend the company in
case of a lawsuit (as long as it is followed correctly).
When it comes down to it, the main, and most obvious, benefit is that it maintains a high level of moral
standard. This demonstrates with actions the lengths to which a company will go to prove their
commitment to good ethical practices, which in turn will translate into high morale with their staff,
investors and customers. This promotes and develops positive social change, ultimately contributing in a
highly positive manner to good business practices.
There are a few best practices for a code of ethics that must be followed when implementing your plan. The
following code of ethics template should serve to be a guide when successfully setting up a code in a business.
In this day and age, companies cannot afford to focus solely on the bottom line anymore. The ethical aspects of
doing business are becoming just as important as the financial ones, and a well-thought-out code of ethics is
emerging as a necessary prerequisite for success.
Ethical leadership in business is focused on the collective values, morals, and beliefs of individuals and their
organizations. The role of business leaders is to uphold and exemplify a company‘s ethical values and embody the
heart and soul of an organization.
These leaders do more than merely manage staff. Ethical leaders take the lead, inspire others by what they say and
do, and set high standards. Ethical leaders don‘t direct others but rather guide and nurture them, according to
Business News Daily. Even their virtual personas on social media mirror the company‘s and their own values.
Leaders set the tone for a company‘s culture and mission. Pair that with a clearly defined code of conduct and
employees are more likely to feel empowered to act ethically, whether they‘re in accounting, product development,
human resources, customer service, sales, or information technology. Employees also tend to perform better and
conduct themselves ethically when they are treated fairly and feel respected, trusted, and valued.
1. Honesty. Honesty makes ethical leaders worthy of the trust others place in them. It means leaders
commit to presenting facts as they are, playing fair with competitors, and communicating honestly with
others.
2. Justice. To be fair means to treat everyone equally, offer opportunities with no favoritism, and condemn
improper behaviors and manipulations, as well as any other actions that could harm someone.
3. Respect. Ethical leaders respect others around them, regardless of their position or identifying
characteristics. This means they listen to each stakeholder, foster inclusion, and value diversity.
4. Integrity. Integrity is shown when values, words, and actions are aligned and consistent. It is not enough
to talk the talk, one has to walk the walk to demonstrate integrity.
5. Responsibility. Responsibility means accepting to be in charge, embracing the power and duties that
come with it, and always responding and being present in challenging situations.
6. Transparency. Transparency concerns mainly the communication with all stakeholders. It means keeping
an open dialogue, accepting feedback, and disclosing the information others need to deliver their work.