Concept of business ethics

Subject of organizational behavior

which deals with the fair and unfair
actions/activities of a business.
 Concept of business ethics

Business ethics is a thought or philosophy of a

company or business house about a subject
for analyzing and guiding its attitude and
behaviour towards the stakeholders
benefits/welfare.
 Business ethics
• The behaviour shown by the various
employees/business organization according to
the rules and regulations fixed by the
organization for fulfillment of the
stakeholders’(employees, management,
government, consumers, suppliers, owners
etc) expectation.
 Concept of business ethics
“Ethical responsibilities embody those
standards, norms, or expectations that reflect a
concern for what consumers, employees,
shareholders and the community regard as fair,
just, or in keeping with the respect or protection
of stakeholders’ moral right.” Carroll(1991)
All activities that are expected and prohibited
by the society from the corporation even
though they are not codified by law.
 Some Specific Agendas of B.Ethics (Expected ethical
behaviours /Actions from business)
• Fair wages and benefits
• Fair employment practices(potential employees)
• Safe working conditions
• Product safety and quality
• Honesty in advertisement
• Truth worthiness while serving customer
• No window dressing in financial statements
• Fair return on investment
• Increase profit earning capacity by fair pricing
• Sustainable use of natural resources
• Good relationship with the society
• Fulfillment of human right
• Environment friendly activities
• Honest commercial dealings
• Law abiding
 Importance of Ethics in Business
( Two faces of Business: Profit and Ethics)
• Helps not to involve in corporate
malpractices/misconducts/ethics discourage the business
to involve in malpractices
• Build good and harmonious relationship with customers,
suppliers and employees
• Attract new investors and keep the high share price by
earning more profit
• Stay free from legal penalties and various government
interferences
• Assist for sustainable existence of the business
• Helps to expand the business
 Myths about Business Ethics(common believes/ideas)

• Business ethics is an oxymoron(no place for ethics in business; profit is

contradictory)
• It is easy to say for being ethical(mere ethical decisions are easy but difficult
to implement)
• Business ethics is more a matter of religion than management
• Our employees are ethical so we don’t need to attention to business ethics.
• Business ethics is a discipline best led by philosophers, academics and
theologians(subject of theory not application)
• Ethics can’t be managed (famous business houses has also ethical issue)
• We have never broken the law so we must be ethical
• Business ethics and social responsibility are the same thing
• The business of a business is the business(do business to make profit,
ignores humanities and feelings)
• Ethics is a matter of opinion; it is just a matter of personal value
 Moral Reasoning

• Process of determining whether an idea is good or bad

(right or wrong)in a particular situation by using his or
her mind or logic. So it is understood as the cognitive
that people use in making ethical decision.
• Moral reasoning is a reflection of the moral
development level.
• Many times law does not cover all aspects of a problem.
There are simple, difficult and controversial areas for
making decision; where moral reasoning is required.
• Lowrence Kohlberg(1927-1987)is well known for his
significant contributions in the area.
Kohlberg’s Argument of Moral Development(Moral reasoning ch
anges as people grew older)

Levels Stages
Pre-conventional 1-Obedience and punishment
orientation[obedient to the authority]
2-Self interest orientation (right or wrong as per
self interest)

Conventional 3.-Interpersonal accord and conformity (fulfilment

of expectation of others is ethical)
4-Authority and social order maintaining
orientation(respect of law and order)

Post conventional 5-Social contract orientation (everyone has

different views and should respect them)
6-Universal ethical principles(respect to human
ethics/universal ethics)
 Principles of moral reasoning
• Deontological reasoning (based on the actions adherence to
certain rule. Performing actions with in the rule is ethical and vice versa. Bringing
books from library without authority is unethical and reading books from library
)
with authority is ethical

• Teleological reasoning (based on The result of the actions .

Optimum benefit is taken as ethical rather than right action. Distribution of food to
the needy people from food store in case of black marketing is ethical)

• Ontological reasoning (actions which build positive character like

courage, justice, truthfulness in human mind is termed as ethical and actions
which creates negativity in mind like sorrow, bad feeling, regret are unethical)
 Heinz’s Moral Dilemma
• Heinz’s wife was near death from cancer. Doctors said a new drug might save her.
The drug had been discovered by a local chemist and the Heinz tried desperately
to buy some, buy the chemist was charging ten times ($2000) than its cost ($200)
to make the drug and this was much more than the Heinz could afford.
Heinz could only raise half the money cost ($1000), even after the help from
family and friends. He explained to the chemist that his wife was dying and asked
if he could have the drug cheaper or pay the rest money later.
The chemist refused, saying that he had discovered the drug and was going to
make money from it. The husband was desperate to save his wife, so later that
night he broke into the chemist’s laboratory and stole the drug. In this
context;Kohlberg asked a series of questions:
• Should Heinz have stolen the drug?
• Would it change anything if Heinz did not love his wife?
• What if the person dying was a stranger, would it make any difference?
• Should the police arrest the chemist for murder if the women died?
 The Morality of Profit Motive

Good sides of the morality of profit motive:

• Solving the unemployment problems
• Launching of new products and services
• Dividend for the shareholders
• Growth of the organization
• Contribution for tax to the state
• Optimum use of resources
Bad sides of the morality of profit motive:
• Increase rival
• Negative trust among consumers
• Misuse of natural resources
• Focus on self interest
• Increment in ego
Core elements of ethical character
• Trustworthiness
• Respect
• Responsibility
• Caring
• Citizenship
 Ethics and Philosophy
• Ethics: Subject of persons’/organizational
behavior which deals with the fair and unfair
actions/activities of a business.
• Philosophy: Way of thinking about universe,
world, life, power, morality etc
 Branches of Philosophy
• Metaphysics (Study of existence)
• Epistemology (Study of knowledge)
• Logic (Study of reasoning)
• Ethics (Study of action)
• Politics (Study of power)
• Esthetics (Study of nature of art, beauty and
taste)
 Ethics and Morality

• Ethics is the rules provided by the outsider.

• Morality is an individual's own principles
regarding right or wrong which comes from
the inner side of a person.
Difference between ethics and morality
• Ethics refers rule of other and morality is an
individual’s own principles
• Ethics are governed by legal entity where
morality is governed by the culture of an
individual
• Ethics can be taken as behavior with reference
to group/authority where morality in personal
• Ethics may diversify in daily life where morality
remains same.
 Benefits of Business Ethics

• Increases the employees` commitment and

trust
• Maintains investors’ loyalty and trust
• Increases customers' satisfaction and trust
• Contributes to enhance profit
 Code of Conducts

• Formal statement which listed out what an

organization expects from the employees. It is
the conditions in which every employee must
perform their job.
• Specific behaviour that must be shown by the
members or employees.
• Specific behaviour that are required or
prohibited by the organization. “Dos and
don’t”
Meaning of Corporate Social Responsibility

CSR is the obligation that has to fulfill by the

organization towards the society. It is a concept of
operating business in a socially responsible way; being a
part of the society.
An organization receives inputs from society in the form
of skilled/unskilled labour, material and natural
resources and the business provides products or
services to the society in return.
Nepal government implemented a rule that every
business organization has to contribute 1% of their
earning to the CSR.
 Importance of CSR
• Improves consumer loyalty about product
• Enhance brand image and reputation
• Increase sales volume of the product
• Increase profitability and dividend capacity
• Enhance the ability to attract and retain employees in the business
• Helps to reduce activism by various stakeholders
• Assists to reduce legal penalties and government interfere
• Positive support from society and other stakeholders
• Reduction in cost by sustainable use of resources
• Easy access to capital
• Development of society
• Enhance quality life of people
• Building of national competitiveness
• Environmental sustainability
Importance of Corporate Social Responsibility

Parties Concerns that the business organization has to be fulfilled

Employees Job security, fair remuneration, participation in profit,
compensation, respect, truthful communication, safe working
environment, modern equipment and technology for the work
Customer Low price, qualitative products, customer care, ethical product,
honesty in advertisement, reliability in supply of product
Suppliers Payment on time, continuity of business, equitable business
opportunities
Creditors Good image of a debtor, new business and contract, liquidity
Shareholders High rate of return, sustainable growth, good reputation,
succession planning, value or share maximization
Government Fair payment of tax and VAT, employment opportunity, true
presentation of financial reports, fulfillment of legal provisions
Community Maximum utilization of local resources, priority in employment
opportunities, environmental protection, shares in the business,
fair communication to the community
 Importance of Corporate Social
Responsibility
Parties Concerns that the business organization has to be fulfilled
Trade Unions Job security, healthy working environment, equitable behavior,
fair wages, protection of employees right
Business Gain bargaining power, social prestige, strong pressure group
Associations
Intergovernmental Protection of human right, social justice, promise for anti
Organizations corruption, participation in environmental protection
 A Moral Argument of CSR

• Argument based on negative externalities (people think the

business is established to earn profit which leads it toward
pollution, resource depletion, environmental problem etc.)
• Argument based on corporate power (Now org are super
power in-terms of resource mobilization, size and power.)
• Argument based on symbiotic relationship with society ( It
argues that successful companies need a healthy society
and healthy society needs successful companies)
• Argument based on the concern of future generation/use of
natural resources with optimum way.
 The evolution of CSR
In USA, idea of CSR appeared around the beginning of 20 th century. Two broad
principles emerged in society about CSR
• The charity principle (supporting to needy or less fortunate people by
wealthiest people, Volunteering action for good cause) Steelmaker Andrew
Carnegie and John D. Rockefeller who became great Philanthropist gave much
of their wealth to education and charitable donations.
• The stewardship principle ( Today corporate executives see themselves as
stewards or trustees, who act in general people’s interest, not only
responsible for stockholders but for society as well)
Steps of CSR Evolution:
• From profit focus to company
• From company to philanthropy
• From philanthropy to community/society
• From community/society to sustainable business
 The evolution of CSR in Nepal

• Started with the philanthropic practices in Nepal such as guthi

(trust) ( maintenance of shrine, temples, and serve poor people)
• Construction of wells for drinking, rest place for traveler and
porter (pati, pawa, chautaro) Rest house of piligrims
(dharmashala)
• Donation of land, money for school cause
• Serving free meal to poor people
• Serving poor and houseless people after earthquake.
• Policy formulated and implementation of CSR provision i.e. 1% of
Profit must be contributed for CSR by every business
organization.
• Sustainable use of natural resource
 Increasing relevancy of CSR

• Growing affluence (pressure for demonstration for

SR activity for the affluent society. Fear of boycott of
product and services and expectation to pay
premium price)
• Ecological sustainability (Depleting resources,
Afforestation, multi use of resources )
• Free flow of information( become scandal in a
second by using media or cc camera)
• Enhancing Branding (socio-marketing)
• Globalization and localization (adjustment)
 The social responsibility and ethics

• Carroll (1979) has positioned ethical

responsibility of business as one of the section
of overall CSR.
• The theory of social responsibility is built on a
system of ethics.
• SR movement arose during 1960s with
increase public consciousness about the role
of business in maintaining ethical practices in
society at large.
 Four domains/responsibilities argued by
Carroll(1979)
• Economic responsibility/domain(for earn maximum
profit to satisfy the shareholder)
• Legal responsibility(operate business with in rules
and regulation of the organization and state/nation)
• Ethical responsibility (do the right
actions/behaviour according to the ethics)
• Discretionary/philanthropic responsibility
responsibility(contribution for betterment of
society/state if it is demanded)
 CSR domains(three domain model).

• In 2003, Schwartz and Carroll

• Economic domain (motive: to be
profitable).Having direct or indirect positive
economic impact on the company.
• Legal domain (motive: to obey the law)
Responsiveness as per the compliances.
• Ethical domain (motive: to sustain
legitimization) Meeting and complying with
societal expectation.
 Case Study
Pratham 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.
 Case Study
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?
 Case Study
Pratham 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?
 Case study

1.Ethical issues observe in this case:

-Subordinates are not fulfil their responsibility
-Employees break the code of conduct
-Lower qualitative work performance
-Involve with various malpractices
2.Mr Singh is an unethical person(deontological morality)
-Not able to control malpractices
-Not able to control the employees on the qualitative work time.
Mr Singh is an ethical person(Teleological morality)
-Aim to complete the project on time
-Retention of employee on the project
 Case study

3.Yes, there is conflict of interest:

-employees interest to do work on short time period but
management needs long time and devotion of the employees.
-employees are just want to complete the project but
management want to qualitative completion of the project.
4.If I am a project manager, I set a code of conduct at first.
-Evaluate the performance of each employees and find out the
deviation there of
-Identify the malpractices made by an employee and make
corrective action
-Provide training and seminar for their professional development.
 Assignment for presentation
• Branches of Ethics
(Meta,Normative,Descriptive,Applied)
• The Kantian Ethics Theory and Criticisms
• Utilitarianism Theory of Jeremy Bentham and
John Stuart Mill and Criticisms
• The Morale Positivism of Thomas Hobbes and
Criticisms
• The Divine Command Ethics Theory and Criticisms
• The Virtue Ethics Theory and Criticisms