Concepts and Theories of

Business Ethics
 Definition of Ethics
Ethics as a moral and normative science refers to
principles that define human behaviour as right, good
and proper.

“Morality”, according to philosophers, refers to human

conduct and values.
 Law and Morality
There is a clear-cut difference between law and
morality. In a particular situation, an act that is legal
may not be morally right. For example, it will be legal
for an organization running in loss to lay off a few
employees so as to sustain itself. But it is not morally
right to do so, because the employees will find it
difficult to find a living.

On the other hand, an action performed can be illegal

but morally right. For example, it was illegal to help
Jewish families to hide from the Nazis, but it would
have been a morally admirable act.
Law Vs Morality in Organizations

In the organization too, we will find such situations where

an act will be morally right and legally wrong to perform.
The strong ethical base of the individual as well as that of
the organization helps an employee overcome such a
situation. The law cannot cover the wide variety of
possible individual and group conduct. The law prohibits
actions that are against the moral standards of society.
 Ethical Theories in Business
Ethics is a normative study, i.e., an investigation that
attempts to reach normative conclusions.

Ethical theories in business include:

• Consequentialist normative theory: Normative themes

—egoism, utilitarianism

• Non-consequentialist normative theory: Non-

consequentialist normative themes—duties, moral
rights, and prima facie principles
Classification of Normative Theories

Normative Theories

Consequentialist Non-consequentialist
(Deontological – Duty-
based)
Egoism Utilitarianism Kantian
ethics
 Normative Themes
Egoism
• contends that an act is morally right if and only if it best promotes an
agent’s long-term interests
• makes use of self-interest as the measuring rod for actions
performed
• is equated with an individual’s personal interest but it is equally
identified with the interest of an organization or society
• intends to provide positive consequences to the party’s interest
without considering the consequence to the other parties
Normative Themes: Egoism (Contd.)

Philosophers distinguish between two kinds of

egoism: personal and impersonal.

• Personal egoism: One should pursue his/her long-

term interest and not dictated what others should
do.
• Impersonal egoism: Everyone should follow their
best long-term interest.
 Utilitarianism
The proponents were:

Jeremy Benthan (1748–1832)

John Stuart Mill (1806–1873)

Utilitarian principle: An action is ethically right only if the sum total of

utilities produced by that act is greater than the sum total of utilities
produced by any other act that could have been performed in its place.

https://www.youtube.com/watch?v=mL7Pt-NHraU
 Kantian Ethics
Proponent:

Immanuel Kant (1724–1804)

This theory introduces an important humanistic

dimension to business decisions, which is to behave in
the same way that one would wish to be treated under
the same circumstances and to always treat other
people with dignity and respect.
 Kant’s Philosophy

• Stressed that action must be undertaken for duty's

sake and not for some other reason.
• Opined that the imperatives of morality are not
hypothetical but categorical. The core idea of this
categorical imperative is that an action is right if and
only if it will become a universal law of conduct.
• https://www.youtube.com/watch?v=-UhiRLuSlIU
Normative Theories of Business Ethics:
Classification
Normative Theories

Stockholder Theory Stakeholder Theory Social Contract Theory

Normative Theories of Business Ethics

Stockholder Theory: expresses business relationship

between stock owners and their managers running the
day-to-day business of the company. As per the theory,
managers should pursue profit only by all legal, non-
deceptive means.
Normative Theories of Business Ethics

Stakeholder Theory: This theory argues that a

corporate’s success in the marketplace can best be
assured by catering to the interests of all its
stakeholders (shareholders, customers, employees,
suppliers, management and the local community). This
objective is achieved when corporations adopt policies
that ensure an optimal balance among all stakeholders.
Normative Theories of Business Ethics

For example, Marico, the makers of Parachute oil,

discovered a harmless tint in the oil from one of its
production lines. The company withdrew the batch
from the market, shut down the production line, but
kept the workers on payroll and involved them in the
investigation of the cause. In a short time, the workers
located the cause, rectified it and resumed production.
Normative Theories of Business Ethics

Social Contract Theory: This is based on the

principles of “social contract”, wherein it is assumed
that there is an implicit agreement between the society
and any created entity such as a business unit, in which
the society recognizes the existence of a condition that
it will serve the interest of the society in certain
specified ways.
 Ethics and Religion

The world’s great religions—Christianity, Hinduism

and Islam—have all left their indelible marks on
morality and the conduct of people in every aspect of
human endeavour, including business. Every religion
has provided its followers its own set of catechisms,
moral instructions, beliefs, values and virtues,
traditions and commitments.
 Teachings of the Church

The Church always supports and promotes the welfare

of the poor. People often think how we can relate
business and ethical teachings of the Church. But now
the trend has changed and organizations and
institutions relate business to religion and ethics. This
transition is due to the increased importance of ethics
in business. The Church’s concerns and ethical
teachings are found in several papal encyclicals, i.e.,
letters the pope writes to his followers.
 Rerum Novarum

Since the late 19th century, there has developed a

strong tradition of reflective thought on economic
issues within the Catholic Church. This concern on
economic issues effectively started in May 1891, with
the publication of Rerum Novarum, an encyclical by
Pope Leo XIII. The central theme of the letter was the
relationship among the State, employers and workers.
 Key Feature of the Encyclical

• Directs the State and organizations to perform their

duties to the working class to avoid corruption or
unethical behaviour in the society.
• When man is deprived of dignity and equality they
will indulge in unethical practices. Mutual support
in the society and organization will help individuals
to perform their best for productivity and profit.
 Gautim Et Spes
Pastoral documentation of the Church released during
the Second Vatican Council held between 1962 and
1965.
The rapid change and technological advancement have
led to aggressive demands on individuals, forcing them
to indulge in unethical practices. There is an internal
fight of values, and basic values of human beings have
changed.
 Indian Ethical Traditions

The Hindu scriptures such as the Gita and the

Upanishads speak of the performance of right duty, at
the right time in the right manner. The rich Indian
tradition has always emphasized the dignity of human
life and the right to live in a respectful manner.
Gandhian Principles of Trusteeship

Implies that an industrialist or businessman should

consider himself to be a trustee of the wealth he
possesses. The trusteeship concept should also be
extended to the labour in industry.
The origin of the trusteeship principle can be traced to
the concept of non-possession detailed in the
Bhagawad Gita.
Practising Gandhian Principles

In the recent past, social involvement by business has,

for the most part, taken the shape of public charity.
This has included the building of temples, hospitals
and educational institutions. A few examples include
the Birla Temple in Calcutta, the Shree Vivekananda
Research and Training Institute set up by Excel
Industries in Mandvi, the L&T Welfare Centre in
Bombay, the Tata Institute of Fundamental Research
and the Voltas Lifeline Express.
Righteousness as the Way in the Gita

The Bhagawad Gita cites numerous instances of how

moral values and ethics can be incorporated into one's
work life. Many of its verses are directly significant
for the modern manager who may be confused about
his direction and struggling to find an answer to ethical
dilemmas. The Lord reiterates that work or karma is
the driving force of life, and that this work has to be
ethical.
Message of the Gita: Chapter II, Verse 47

“You have a right to perform your prescribed duty, but you are
not entitled to the fruits of action. Never consider yourself the
cause of the results of your activities and never be attached to
not doing your duty.”

This stanza implies that the performer of an action has only to

perform the prescribed duty and not think about the result of
the action, because the result is beyond his control. This
teaching of Gita draws one's attention to Nishkama Karma.
Gita’s Message in an Organization

When applied to an organization where one is only

worried of the result, he is likely to fall into improper
activities. On the other hand, if he is ready to do his
duty to the utmost of his ability and set aside the result,
he will be an ethical person in the organization.
Message of the Gita: Chapter II, Verse 56

“One who is not disturbed in mind amidst the three-fold misery or

elated when there is happiness and who is free from attachment,
fears and anger, is called a sage of steady mind.”

A steady mind gives the right attitude and right direction.

Detachment is that quality which enables the individual not to
accept anything for his personal gratification. Personal desires
and conflicting interests end up in unethical practices.
 Business and Islam

All principles covering business emanate from the Holy Quran, as

they are explained and amplified in the Hadith (collection of the
Prophet’s sayings).

The Prophet Mohammed ordained that businesses should promote

ethical and moral behaviour and should follow honesty, truthfulness
and fulfilment of trusts and commitments, while eliminating fraud,
cheating, cut-throat competition, lending money at interest to people
in need and false advertising.
Shariah and Interest on Capital

Shariah, the canonical law of the followers of Islam,

forbids payment and receipt of interest on capital and
money lent and condemns usurious practices.

Shariah requires that investors profit only from

transactions based on the exchange of assets, not
money alone, and therefore, interest is banned.
 Islamic Bonds or Sukuk

Bankers sell Islamic bonds or sukuk, by using property and other assets
to generate income equivalent to interest they would pay on
conventional debt.

The money cannot be invested on stocks of companies dealing in

alcohol, conventional financial services (banking and insurance),
entertainment (cinemas and hotels), tobacco, pork meat, defence and
weapons while computer software, drugs and pharmaceuticals, and
automobile ancillaries are all Shariah-compliant.
The Case: Martha McCaskey
Thank You