BBA-N-107

Unit-1

Q1. What do you understand by ethics? Give its scope and importance?
Ans. The word “Ethics” which is coined from the Latin word ‘Ethics’ and Greek word
‘Ethikos’ pertains to character. Ethics is thus said to be the science of conduct. As a matter of
fact it deals with certain standard of human conduct and morals.
The field of ethics involves systematizing, defending and recommending concepts of right
and wrong behavior. Ethics is a mass of moral principles or set of values about what is right
or wrong, true or false, fair or unfair, proper or improper what is right is ethical and what is
wrong is unethical.
Peter F. Drucker writes— “There is only one ethics, one set of rules of morality, one code
that of individual behavior in which the same rules apply to everyone alike.”
Swami Vivekananda has set the tone for ethics. He says- “Supreme oneness is the
rationale of all ethics and morality. Ethics cannot be derived from the mere sanction to any
personage. Some eternal principle of truth has the sanction of ethics. Where is the eternal
sanction to be found except in the only infinite reality that exists in you and us and in all, in
the self, in the soul?”
Discussion on ethics cannot be completed without Swami’s views on ethics. He suggested
ethics as the degree of faith in oneself. Ethics comes from the attainment of freedom,
renunciation, which comes only when the individual attain a superior strength.
According to Swamiji— “ The difference between weakness and strength is of a heaven
degree; the difference between virtue and vice is that of a degree; the difference between and
hell is that of a degree, all differences in this world are of degrees and not a kind of
characteristics.”
“An individual is an infinite circle whose center is everywhere and circumference
nowhere ethics disappears in the situations where people recon to the thinking,” I am pure,
others are impure.
So in short, we can say that ethics goes beyond the immediate facts that pertain to a moral
question— what the situation is, it addresses the question of what ought to be. The inner
content of individual, the character of individual can lead ethical
Individuality to ethical collectivity.
The ethical, the right thing to do, is action that best serves the ideas of honesty, integrity,
morality and good management practices.
Objectives of Ethics:
The objectives of ethics are as below:
1. The very basic objective is to define the greatest good of man and establish a standard
for the same.
2. Set/Establish moral standards/norms of behavior.
3. An overall study of human behavior: what is moral or immoral should be assessed.
4. Apply judgment upon human behavior based on these standard and norms.
5. Suggest moral behavior, Prescribes recommendations about Do’s and Don’ts.
6. One’s opinion or attitude about human conduct is expressed in general.

Nature of Ethics:
The nature of ethics can be explained by these points:
1. The concept of ethics is applied to human beings only as they have freedom of Choice
and means of free will. They can only decide the degree of ends they wish to pursue
and the means to achieve the ends.
2. The study of ethics is nothing but a field of social science in which a set of systematic
knowledge about moral behavior and human conduct is learned.
3. Ethics deals with human conduct which is voluntary not forced by circumstances or
humans. So we can say that at the ground level ethics deals with moral judgment
regarding set directed human conduct.
4. The science of ethics is a normative science. It is a search for an ideal litmus test of
proper behavior. Normative science involves arriving at moral standards that regulate
right and wrong conduct.

Q 2. Define the meaning of Business Ethics in corporate?

Ans. In any organization from top executive to bottom line employees, ethics is considered as
everybody business. It is not just only achieving high level of economic performance but also
to conduct one of business’s most important social challenges, ethically at the same time.
Here what we get a combination of two familiar words—‘Ethics and Business’ in ‘Business
Ethics’. Different meaning is given to business as follows:
• Business ethics are the application of general ethical rules to business behavior.
• Business ethics are rules of business by which propriety of business activity may be
judged.
 By Cater Mcnamara— “Business ethics is generally coming to know what is right or
wrong in the workplace and doing what is right—this is in regard to effects of
products/services and in relationship with stake holders”.
“Attention to ethics in workplace sensitizes managers and staff to know they should act so
that they retain a strong moral compass. Consequently, business ethics can be strong
preventive medicine.”
According to John Donaldson- Business ethics in short can be desired as the systematic
study of ethical matters pertaining to business industry or related activities, institutions and
beliefs. Business ethics is the systematic handling of values in business and industry.
• Business ethics are the rules of business by which the propriety of business activity
may be judged.
• Business ethics concentrate on moral standard as they apply to business policies,
institutions and behavior. It is a specialized study of moral right or wrong. It is a form
of applied ethics.

Law + Knowledge = Ethics

NEED AND OBJECTIVES OF BUSINESS ETHICS

Need of business ethics:
1. Business operates within the society.
2. Every business irrespective of size exists more on ethical means or in total regards to
all its social concern to survive long.
3. Business needs to function as responsible corporate citizen in the country.

Objectives of Business Ethics:

According to Peter Pratley–Business ethics has a twofold objectives-‘it evaluates human
practices by calling upon moral standards, also it may give prescription advice on how to act
morally in a specific kind of situation’.

Features of Business Ethics:

1. Ethical Values:

Business ethics is concerned with morality in business in today’s business world,

community firms is large part of society and its action is bond to have a direct impact
on the wellbeing and welfare of the society. Business affects society in terms of what
products it supplies. Therefore, it is necessary that business community conduct its
activities with self-control, self-check, and self scarifies .i.e. acting with less concern
for you than for the success of the joint activity. And keeping always in mind the
interest of community at large signifies ethical values.

2. Relative term:
Ethics is a relative term in the concept of morality and immorality. It differs from one
individual to another or from society to society. What is moral to one may be immoral
to another.

3. Interest of society:
Business ethics implies that business should first do good to the society and then to
itself. Business is an important institution and has a social responsibility to protect the
interest of all those groups who are directly or indirectly related to the organization
like employees, shareholders and consumers etc. to contribute to the success of
business.

4. Business social relationship:

Business ethics set the terms and standards to understand the societal relationship of
business. It indicates what society expects from business and what it thinks about the
business.

5. Provides the framework:

Like an individual, business is also bound by social rules and regulations. Business is
expected to restrict its activities within the limits of social, legal, cultural, and
economic environment.

6. Facilitates protection of social groups:

Business ethics gives protection to consumers and other social groups such as
shareholders, employees and the society at large. Business should give priority to
social interest or social good. Such ethical approach creates good name, add status to
business and helps in its growth and expansion.
 7. Not against profit making:
Business ethics is not against fair profit making. However, it is against making profit
by cheating and exploiting consumers, employees or investors. It supports expansion
of business activities but by fair means and not through illegal activities or corrupt
practices.

8. Needs willing acceptance:

Business ethics cannot be imposed by law or by force. It must be accepted as self-
discipline by businessmen. It should come from within. Businessmen should go for
ethical trade practices on their own and not by force of law.

The important characteristics of Business Ethics are:

 Stakeholder balance
Businesses tend to subscribe to one of two viewpoints; whether their goal delivering
maximum shareholder value or balancing the needs of multiple stakeholders. Ethical
businesses do the latter. Stakeholders often include employees, customers and the local
community, but bear in mind the definition can be broad. In 2012 Bolivia passed a
proposition to give the Earth ‘rights,’ to encourage organizations to be aware of how their
actions affect the environment.
 Mission and Vision Driven
Ethical businesses are commonly driven by something more concrete than profit, often in the
form of a mission statement or charter of values. When these values are championed by
management and valued by employees, the workforce becomes a community united by
common goals rather than simply co-existing to pursue profit. This can yield significant
benefits for employee engagement and a better relationship with the public. It can also help
get the business through trying times.
 Process Integrity
Organizational culture is the product of thousands of different processes that take place on a
daily basis. These processes can be healthy or corrupt, depending on a variety of factors
unique to the process. For example, ‘healthy’ competition is defined by humility, shared
commitment to success, equal treatment by management and fair distribution of spoils.
Unhealthy competition is completely different, defined by misaligned goals, superiority and
unequal treatment of the better performers. HR directors must regularly review the integrity
of internal processes and protect them with sufficient oversight and transparency.
 Leadership Effectiveness
Ethical role models must be in place to solidify ethics as a cornerstone of company culture.
Building an ethical business is driven by a ‘top-down’ approach – policies on, for example,
eco-friendly initiatives must be introduced and reinforced by management. The success of a
‘green champions’ policy is dependent on the personality and beliefs of the people involved.
Some are apprehensive to ‘tell colleagues what to do.’ Also, green champions can leave. The
impetus must come from management because then it’s a codified, enforceable policy rather
than passed on verbally by employees.
 Long-term perspective
Companies with a long-term view are often seen as more ethical. This long-term view should
not only relate to profit but also the company’s place in the community and the world. Self-
reflection is a key part of this characteristic; businesses must ask questions, openly and
transparently, about their overall direction. These questions must be opened to employees so
they feel part of the company’s long-term vision. Thinking in the long-term also allows
businesses to more effectively plan for future developments and help ensure longevity.
Not surprisingly, there’s significant overlap between these characteristics. Taking a long-term
view will inevitably require balancing the needs of multiple stakeholders, while maintaining
process integrity will need strong direction from management. Ultimately, HR directors must
develop a harmonious policy that works to create change in all these areas.

Q 3. “Good business ethics promotes good business”. Discuss it.

OR
Explain the significance of business ethics in present corporate scenario.

Ans. SIGNIFICANCE OF BUSINESS ETHICS: “Good business ethics promotes good

business”, This statement is supported by the research findings of some well-known
authorities– Raymond Baumhart, Brener and Molander, and Strom and Ruch. It was clear
from their findings that only those businesses can develop on a long term bases which
conducts activities on ethical grounds.
 Once ‘Robert Day’ has said that good ethics not only promotes professionalism in
management but it purifies the inner mind of every business man. Another writer Thomas
Donaldson (Ethics in business-
a new look) has observed that-”there are some key reasons why business ethics is vital and
why ethics plays a key role in business.”
(1) Positive Consequences:
Business depends on the approval of the society, acceptance of rules, mutual trusts
and confidence. Prof. Robert Day writes—”when ethical conduct is displayed, it puts
some kind of trust and confidence in relationship.” So business with ethics always
leads to positive consequences.
(2) Goodwill of the Business and Businessman:
Good ethical behavior will increase the goodwill of both business as well as the
businessman. Strong public image is a symptom of success in the long run. On the
other hand, once an organization’s image is tarnished it would have direct
consequences on sales, profits, morale or day-to-day running of the business.
(3) Protection—Both Sides:
If ethical implications are there in organization businessmen act more sincerely and
the level of commitment would be higher. Ethics protects people in dealing with each
other. Prof. Robert Day writes “Good ethics is sound business insurance.”
(4) Self-satisfaction:
In the dynamic world, businessmen are seeking self-satisfaction, mental relief, free
from anxiety, release tension. To attain the inner satisfaction certain people consider
only good ethics can promote good business. As a businessman is first a member of
the society than a businessman, so some do not implement a decision which stands on
unethical ground because it wouldn’t provide the satisfaction to their sub-conscious
mind.
(5) Encourage Others:
When a few people start following ethics side by side to profit making, they
encourage, motivate others and set examples for them. As Prof. Learned and
Associates writes— “Businessman who follows the ethical principles in the conduct
of business, motivates others also, to follow the same principles.”
(6) Success and Development:
Ethical conduct of business leads to development and series of success. Learned
writes—
 ‘A sincere person who does hard work becomes ethical and always succeed in his
efforts but an unethical person cannot’.
(7) New Management:
In the era of global economy, new principles are required in new management. Prof.
‘Day’ writes that management cannot become a profession so far as it does not follow
good ethics. An important feature of a profession is that it has a laid down code of
conduct which remains on all the principles of “service to humanity. So to run
the good business in modern scenario you have to develop and follow ethics.

Q 4. Define the tools, policies and procedures of ethical values.

Ans.
1. Update policies and procedures to produce behaviors preferred from the code of
conduct, including, e.g., personnel, job descriptions, performance appraisal forms,
management-by-objectives expectations, standard forms, checklists, budget report
formats, and other relevant control instruments to ensure conformance to the code of
conduct. In doing so, try to avoid creating ethical dilemmas such as conflicts-of-
interest or infringing on employee’s individual rights.

2. There are numerous examples of how organizations manage values through use of
policies and procedures. For example, we’re most familiar with the value of social
responsibility. To produce behavior aligned with this value, organizations often
institute policies such as recycling waste, donating to local charities, or paying
employees to participate in community events. In another example, a high value on
responsiveness to customers might be implemented by instituting policies to return
phone calls or to repair defective equipment within a certain period of time. Consider
the role of job descriptions and performance appraisals. For example, an advanced
technology business will highly value technical knowledge, creativity and systems
thinking. They use job descriptions and performance appraisals to encourage
behaviors aligned with these values, such as rewarding advanced degrees, patents, and
analysis and design skills.
3. Include policies and procedures to address ethical dilemmas. See the next section,
“Ethics Tools: Resolving Ethical Dilemmas,” to select a method which is most
appropriate to your organization’s culture and operations.

4. Include policies and procedures to ensure training of employees about the ethics
management program. See a following section, “Ethics Tools: Training.”

5. Include policies and procedures to reward ethical behavior and impose consequences
for unethical behavior.

6. Include a grievance policy for employees to use to resolve disagreements with

supervisors and staff.

7. Consider establishing an ethics “hotline.” This function might best be provided by an

outside consultant, e.g., lawyer, clergyperson, etc. Or, provide an anonymous “tip”
box in which personnel can report suspected unethical activities, and do so safely on
an anonymous basis.

8. Once a year, review all personnel policies and procedures. If yours is a small
organization, consider including all staff during this review. Take a full day for all
staff to review policies and procedures, and suggest changes.

9. For guidance in establishing personnel policies, see the Guide to Personnel

Management and Policies.

Q5. Discuss the essential elements and scope of Business Ethics?

Ans. The following are the essential elements of Business Ethics are:

1. Self-imposed Discipline: Business ethics is usually something more than the

requirement of law. It is self-imposed and calls for the importance of playing fair with
others.
2. Honesty: Business ethics stresses honesty on the part of a businessman. It suggests
the ways and means of running a business which are morally justified.
 3. Helpful attitude: Business ethics calls for helping attitude of the business towards all
those who are associated with it. It should never causes damage to the interest of any
class of society with its dealings and deeds.
4. Equality: Business ethics owes its obligation to treat everyone at par. Nobody should
be discriminated on the basis of caste, creed, religion, riches and poverty.

5. Guiding Force: Business ethics provides te broad guidelines for what a business
should do or should not do. Therefore, ethics acts as a guiding force while formulating
business rules.
6. Social values: Morality, behavior, beliefs emerges from social values. Social forces
exercise influences on business to observe ethics in the business.

SCOPE OF BUSINESS ETHICS

Ethical problems and phenomena arise across all the functional areas of companies and at all
levels within the company.

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.

Ethics in Finance: The ethical issues in finance that companies and employees are
confronted with include:

• In accounting – window dressing, misleading financial analysis.

• Related party transactions not at arm’s length

• Insider trading, securities fraud leading to manipulation of the financial markets.

• Executive compensation.

• Bribery, kickbacks, over billing of expenses, facilitation payments.

• Fake reimbursements
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.

•Issues surrounding the representation of employees and the democratization of the

workplace, tradeization.

• 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.

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 markets, grey markets.

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.

• Ethical problems arising out of new technologies for eg. Genetically modified food

• Product testing ethics.

The most systematic approach to fostering ethical behaviour is to build corporate cultures
that link ethical standards and business practices.

ADVANTAGES OF BUSINESS ETHICS

More and more companies recognize the link between business ethics and financial
performance. Companies displaying a "clear commitment to ethical conduct" consistently
outperform companies that do not display ethical conduct.

1. Attracting and retaining talent: People aspire to join organizations that have high
ethical values. Companies are able to attract the best talent and an ethical company that is
dedicated to taking care of its employees will be rewarded with employees being equally
dedicated in taking care of the organization. The ethical climate matter to the employees.
Ethical

Organizations create an environment that is trustworthy, making employees willing to rely,

take decisions and act on the decisions and actions of the co-employees. In such a work
environment, employees can expect to be treated with respect and consideration for their
colleagues and superiors. It cultivates strong teamwork and Productivity and support
employee growth.

2.Investor Loyalty: Investors are concerned about ethics, social responsibility and reputation
of the company in which they invest. Investors are becoming more and more aware that
an ethical climate provides a foundation for efficiency, productivity and profits. Relationship
with any stakeholder, including investors, based on dependability, trust and commitment
results in sustained loyalty.

3.Customer satisfaction: Customer satisfaction is a vital factor in successful business

strategy. Repeat purchases/orders and enduring relationship of mutual respect is essential for
the success of the company. The name of a company should evoke trust and respect among
customers for enduring success. This is achieved by a company that adopts ethical practices.
When a company because of its belief in high ethics is perceived as such, any crisis or
mishaps along the way is tolerated by the customers as a minor aberration. Such companies
are also guided by their ethics to survive a critical situation. Preferred values are identified
ensuring that organizational behaviors are aligned with those values. An organization with a
strong ethical environment places its customers’ interests as foremost. Ethical conduct
towards customers builds a strong competitive position. It promotes a strong public image.

4.Regulators: Regulators eye companies functioning ethically as responsible citizens. The

regulator need not always monitor the functioning of the ethically sound company. The
company earns profits and reputational gains if it acts within the confines of business ethics.
To summaries, companies that are responsive to employees’ needs have lower turnover in
staff.

•Shareholders invest their money into a company and expect a certain level of return from
that money in the form of dividends and/or capital growth.

•Customers pay for goods, give their loyalty and enhance a company’s reputation in return
for goods or services that meet their needs.

•Employees provide their time, skills and energy in return for salary, bonus, career
progression, and learning.

Q5. Discuss the arguments for and against the business ethics?
Ans. Arguments against Business Ethics:

1. In a free market economy, the pursuit of profit will ensure maximum social benefits is
business ethics is not needed.
2. A manager’s most important obligation is loyalty to the company regardless of ethics.
3. So long as company obeys the law they will do all that ethics required.

Arguments for Business ethics:

1. Ethics apply to all human activities.

2. Business cannot survive without ethics.
3. Ethics is consistent with profit seeking.
4. Customers, employee, and people in general care about ethics.
5. Studies from ethics do not detract from profit and seems to contribute the profits.

Q 7. What do you understand by Ethical Decisions? Give its approaches.

Ans.
ETHICAL DECISION MAKING
Business owners often face difficult ethical dilemmas, such as whether to cut corners on
quality to meet a deadline or whether to lay off workers to enhance profits. A current ethical
debate concerns the use of extremely low-wage foreign workers, especially in the garment
industry.
The intense pressures of business may not always allow you the luxury of much time for
reflection, and the high stakes may tempt you to compromise your ideals. How will you
respond? No doubt, you already have a well-developed ethical outlook. Nevertheless, by
considering various approaches to ethical decision making, you may be better able to make
the right choice when the need arises.
The subject of business ethics is complex. Fair-minded people sometimes have significant
differences of opinion regarding what constitutes ethical behavior and how ethical decisions
should be made. This article discusses four approaches that business owners can use to
consider ethical questions. The method you prefer may not suit everyone. Hopefully, by
considering the alternatives, you will be able to make decisions that are right for you.
Utilitarian:
The utilitarian approach to ethical decision making focuses on taking the action that will
result in the greatest good for the greatest number of people. Considering our example of
employing low-wage workers, under the utilitarian approach you would try to determine
whether using low-wage foreign workers would result in the greatest good.
For example, if you use low-wage foreign workers in response to price competition, you
might retain your market share, enabling you to avoid laying off your U.S. employees, and
perhaps even allowing you to pay your U.S. employees higher wages.
If you refuse to use low-wage foreign workers regardless of the competition, you may be
unable to compete. This could result in layoffs of your U.S. workers and even your foreign
workers, for whom the relatively low wages may be essential income. On the other hand,
using low-wage workers may tend to depress the wages of most workers, thus reducing
almost everyone’s standard of living and depressing their ability to purchase the very goods
you and others are trying to sell.

Moral Rights:
The moral rights approach concerns itself with moral principles, regardless of the
consequences. Under this view, some actions are simply considered to be right or wrong.
From this standpoint, if paying extremely low wages is immoral, your desire to meet the
competition and keep your business afloat is not a sufficient justification. Under this view,
you should close down your business if you cannot operate it by paying your workers a
“living wage,” regardless of the actions of your competitors.

Universalism:
The Universalist approach to ethical decision making is similar to the Golden Rule. This
approach has two steps. First, you determine whether a particular action should apply to all
people under all circumstances. Next, you determine whether you would be willing to have
someone else apply the rule to you. Under this approach, for example, you would ask
yourself whether paying extremely low wages in response to competition would be right for
you and everyone else. If so, you then would ask yourself whether someone would be
justified in paying you those low wages if you, as a worker, had no alternative except
starvation.

Cost-Benefit:
 Under the cost-benefit approach, you balance the costs and benefits of taking versus not
taking a particular action. For example, one of the costs of paying extremely low wages
might include negative publicity. You would weigh that cost against the competitive
advantage that you might gain by paying those wages.

Q8 . Explain the factors high lightening the importance of Business ethics?

Ans. Factors highlighting the importance of business ethics

The four major factors which highlight the importance of business ethics (we define business
ethics here):

1. Long-term growth: sustainability comes from an ethical long-term vision which

takes into account all stakeholders. Smaller but sustainable profits long-term must be
better than higher but riskier short-lived profits.
2. Cost and risk reduction: companies which recognize the importance of business
ethics will need to spend less protecting themselves from internal and external
behavioral risks, especially when supported by sound governance systems and
independent
3. Anti-capitalist sentiment: the financial crisis marked another blow for the credibility
of capitalism, with resentment towards bank bailouts at the cost of fundamental rights
such as education and healthcare.
4. Limited resources: the planet has finite resources but a growing population; without
ethics, those resources are replete for purely individual gain at huge cost both to
current and future generations.

1. Long-term growth

Large profits are always attractive, potentially allowing faster achievement of strategic goals,
a greater provision against risk and a greater sense of success and stability. However, there
are countless examples in corporate history of dramatic boom and bust cycles (both on a
micro, corporation level and macro-economic level). Now, more than ever, we need to re-
evaluate our endless search for bigger and bigger profits with the bigger and bigger risks that
entails. The financial crisis which began in 2008 is painful evidence of that. Whole countries
have gone to the brink of bankruptcy as a result of an unwillingness or inability to plan long-
term.

More and more organizations are recognizing what most owner-run businesses have always
known: that stable profits are a better bet in the long run than large profits now and an
uncertain future. It is on the long term which we must focus to avoid the blindness which
leads to such huge corporate collapses as Lehman Brothers (2008) and such huge risks and
balance sheet holes as Morgan Stanley (as late as 2012). Even the largest remaining
investment banks like Goldman Sachs are having to recognize this (if only to try and fend off
more aggressive regulation) and attempting to make their bonus allocations more dependent
on longer term value than the current year’s performance. One can only hope that the heads
of such organizations recognize the importance of business ethics and the resulting need to
change to a more sustainable model of growth.

Certainly the only way to change the huge, unwieldy vessel that is global business is to focus
on the business benefits. While it may seem contradictory and hypocritical to place self-
interest at the heart of change for the better, it is the only conclusion that seems to offer hope.
Fundamentally the importance of business ethics is driven by personal ethics and morality
and most people are fundamentally self-interested. But, if it is in people’s best interest to be
ethical, this has the potential to drive real change. It is already happening in several consumer
markets where demand is shifting to ethical products and social networks are instrumental in
spreading stories about unethical practices. (Sadly, very rarely is positive action rewarded
with the same degree of enthusiasm but with some good - but earnest - marketing, it can be
given a kick start and be highly successful long term.)

2. Cost and risk reduction

A precedent which argues the case made above is the Quality Management industry. In the
West, this sprung up in the early 1980s, when products began to be inspected before leaving
the factory in an attempt to reduce the amount of costly customer complaints. Now, most
products come with at least a one-year warranty and in the case of some car manufacturers,
up to five years. What started off as a self-interested need to reduce costs has led to more
reliable products.
Meanwhile, we offer another analogy from wider society. Just as widespread bribery and
corruption in society are recognized as being inimical to the development of a healthy
economy, similarly the lack of a high standard of ethical behavior in a company is inimical to
trust and loyalty, which in turn has a detrimental effect on the health of the company over the
longer term.

It may be argued that an owner can run a business in whichever way he or she wishes, and at
first glance there would appear to be a case for this so long as no other shareholders are
involved, and only his or her money is at risk, and of course with the acquiescence of the
employees and trading partners. However, in many years of observing different standards of
behavior in different business circumstances, one recognizes the relationship between the
perception of ethics which permeates an organization and the degree of trust and loyalty
present among employees and between staff and management. The conclusion one reaches is
that loyalty and trust have a significant value in terms of the efficiency and effectiveness with
which a business can be run, and the concomitant cost of control systems needed.

In other words, a highly ethical operation is likely to spend much less on protecting itself
against fraud and will probably have to spend much less on industrial relations to maintain
morale and common purpose. This should be motivation in itself to recognize the importance
of business ethics and instill good corporate governance in any organization.

Importance of Business Ethics: Pressures on Long-Term Growth

3. Anti-capitalist sentiment

The eye-watering profits of some of the world’s largest corporations attracts a lot of negative
sentiment from those outside the world of business and finance. While clearly a result of the
scale of these organizations, there is always a suspicion that these profits have been achieved
through not entirely ethical means - and in some cases downright unethical means, often
resulting in major public failures, most recently in Japan, where the senior management of
Nomura resigned en masse after an insider trading scandal.

Banks in particular receive a lot of bad publicity over profits and executive pay (especially
bonuses), and while not always justified, the fact is, an industry at the center of the credit
crunch and resulting economic and financial crisis continued to produce hefty profits and
bonuses even while making large numbers redundant. This is, of course, a huge
generalization and simplification of the issue (this is not place for such details) but it is the
natural reaction of the general public, who lack such detailed information and understanding.
Public sentiment cannot be ignored. This situation makes the importance of business ethics
all the more pressing in the 21st century.

4. Limited resources

One irrefutable fact is that this planet has limited resources. Probably the biggest failure in
human development over the last three hundred years has been in recognizing that and
attempting to minimize use and maximize re-use and recycling. While there are now global
initiatives to try and reverse this trend, and much progress has been made, there is still a long
way to go. In the major developing economies, especially, history is repeating itself on a
massive scale. With notable exceptions, this applies not only to specific environmental and
sustainability issues but to corporate governance generally and the importance of business
ethics to the new high growth regions and corporations.

This is another example of short-termism prevailing over long-term vision and preservation
of limited resources for future generations - and in some cases the same generation, as in
deforestation driving native peoples and animal species to the point of extinction. Just as
basic financial management requires planning to ensure capital reserves and so solvency, the
same principles should clearly apply to the extraction and usage of natural resources.

There are some notable exceptions, of course, with the likes of Sir Richard Branson (founder
of the Virgin empire) taking a keen interest in environmental affairs (as well as
entrepreneurship). On a governmental level, the 2012 London Olympics are the "greenest"
ever, with 40% reduction in water usage (despite the record amount of parks and planting)
and 98% waste recycling. Let’s see how Brazil picks up the baton in the quest for a carbon
neutral Olympics. And how the private sector accepts the importance of business ethics in the
rapid development they are experiencing.