ANAND ENGINEERING COLLEGE, AGRA BBA UNIT-1

PROGRAM BUSINESS ETHICS

INTRODUCTION

There is a big difference between what you have a right to do and what is right to
do. - Justice Potter Stewart

Never let your sense of morals get in the way of doing what’s right. - Issac Asimov

Man is a social animal. Though rules of nature control humans as they control
other living beings, man himself has derived certain principles to govern his own
individual and group behavior. These rules, in the form of behavioral standards may
differ across cultures and times, but their basic objectives are always mutual existence
and peace within the particular community or the social group. By ensuring security and
protection of the group these standards helps in the survival of the particular community
or a social group and thus its members. These standards of behavior are called “ethics.”

Few socio-biologists argue that humans have biologically inherited capacity to make
ethical judgments by evaluating actions as either good or evil. Internally in an
organization, apart from the organizational culture, its top leadership and their ideologies
also influence ethical orientation of a people.

As in the case of individuals, organizations irrespective of their size are also

monitored and evaluated by a set of ethical standards. Apart from internal ethical code of
conduct, external entities like professional and legal bodies, government and other public
interests groups influence the norms of behavior for organizations. International bodies
like United Nations and other non-government organizations like Amnesty International
also influence these norms. They try to govern ethical concerns that are globally
important by influencing policies and rules framed by the governments.

MEANING OF ETHICS:

What is Ethics?

Ethics is two things:

First, ethics refers to well-based standards of right and wrong that prescribe what
humans ought to do, usually in terms of rights, obligations, benefits to society, fairness,
or specific virtues. Ethics, for example, refers to those standards that impose the
reasonable obligations to refrain from rape, stealing, murder, assault, slander, and fraud.
Ethical standards also include those that enjoin virtues of honesty, compassion, and
loyalty. And, ethical standards include standards relating to rights, such as the right to
life, the right to freedom from injury, and the right to privacy. Such standards are
adequate standards of ethics because they are supported by consistent and well-founded
reasons.

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 ANAND ENGINEERING COLLEGE, AGRA BBA UNIT-1
PROGRAM BUSINESS ETHICS

Secondly, ethics refers to the study and development of one's ethical standards.
As mentioned above, feelings, laws, and social norms can deviate from what is ethical.
So it is necessary to constantly examine one's standards to ensure that they are reasonable
and well-founded. Ethics also means, then, the continuous effort of studying our own
moral beliefs and our moral conduct, and striving to ensure that we, and the institutions
we help to shape, live up to standards that are reasonable and solidly-based.

Definitions of Ethics:

 Ethics is a set of moral principles or values which is concerned with the

righteousness or wrongness of human behavior and which guides your conduct in
relation to others (for individuals and organizations).

 Ethics is the activity of examining the moral standards of a society, and asking
how these standards apply to our lives and whether these standards are reasonable
or unreasonable, that is, whether they are supported by good reasons or poor ones.
Therefore, a person starts to do ethics, when he or she takes the moral standards
absorbed from family, friends, and asks: what do theses standards imply for the
situations in which I find myself? Do these standards really make sense? What are
the reasons for or against these standards? Why should I continue to believe in
them? What can be said in their favor, and what can be said against them? Are
their implications in this or that particular situation reasonable?

Nature of Ethics

1. Ethics is a normative science

Ethics deals with ideals. Hence, Ethics is said to be a normative science. A
normative science seeks to determine norms, ideals, standards or values. Ethics is
concerned not with human conduct as it is but as it ought to be. It passes moral
judgment upon human actions with reference to the moral ideal. While the
judgments of the positive science are judgments of fact. Moral judgments are not
descriptive but prescriptive, that state what we ought to do, not what we actually
do. They evaluate our conduct as right or wrong.

2. Ethics relates with human conduct which is voluntary and not forced or coerced
by persons or circumstances.

3. The concept of ethics is concerned with human beings only, because only human
beings have been endowed with the freedom of choice and the means of free will.

4. The main motto of ethics is to define highest good of man and set a standard for
the same. In doing so, ethics has to deal with various interrelated and complex
problems which are psychological, legal, commercial, philosophical, sociological
and political in nature.
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 ANAND ENGINEERING COLLEGE, AGRA BBA UNIT-1
PROGRAM BUSINESS ETHICS

5. To pass moral judgment on a conduct, ethics requires that agent must:

 Perform the deed out of his free will
 Be in possession of fully developed rational faculty which can help him
distinguish right from wrong, good from bad, and
 Not lose his normal personality, i.e. he must have a unified and
continuous mental life.

ORGANIZATIONS AND ETHICS

As in other social entities, ethics are inevitable in organizations. Research has

already shown that ethics do pay. Since unethical practices cost industries billions of
dollars a year and damage the images of corporations, emphasis on ethical behavior in
organizations has increased over the recent years.

Societal expectations, and pressures from legal and professional bodies have
forced organizations to be more concerned about their social responsibilities and ethical
practices.

In the mid-1990’s Shell faced one of its worst public relations nightmare due to its
unethical business practices in Nigeria. In 1997 the Financial Times in its annual survey
of Europe’s most respected companies identified Shell’s ethical problems as the key
reason for the company’s dramatic drop in rankings. Shell turned upside down in the
aftermath of these unfavorable experiences and thus started correcting itself for
sustainable growth. Like Shell, many other organizations whose business practices are
perceived to be unethical and their products are considered to be harmful to the
consumers (e.g. cigarettes) face strong social condemn. In recent corporate history, the
Enron and Arthur Anderson episodes, stress the importance of ethical practices in
business.

Ethical problems are problems of choice. Ethical problems arise not because of
people’s tendency to do evil, but because of the conflicting nature of standards and
interests, which are valid in themselves. A problem in ethical decision-making and
behavior occurs only when individual interests and social norms conflict with each other.

Every organization has its own accountability towards its stakeholders –

employees, capital investors, consumers, government, competitors, suppliers, and other
community members. In most situations the organizations are able to balance its
obligations towards these varied stakeholders. However, sometimes conflicts do arise
between the interests of two or more stakeholders. In such situations the more influential
and powerful group could gain precedence over others, to protect their own interests.

For example, though maximizing financial returns is an organization’s obligation

towards its shareholders, it could be at the cost of the ecological system or legal business

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 ANAND ENGINEERING COLLEGE, AGRA BBA UNIT-1
PROGRAM BUSINESS ETHICS

practices. Managers under these situations face the dilemma of protecting long-term
interests of the organizations and short-term profits. Recent thrust on high output driven
performance and reward linkages in organizations is driving to short-term interests. It
might adversely affect the adherence to ethical norms in organizations.

In order to ensure ethical business practices of an organization, it is important to

ensure ethical orientation of the people who own, manage, and work for it. Adopting
proper structures and practices could ensure it. Structure, policies and practices of an
organization influence ethical behavior through flow of communication, reinforcements
for ethical behavior etc.

Many successful organizations consider ethical conduct a critical measure in

performance evaluations and compensation. Jack Welch, one of the successful CEO’s of
GE, insists that the leaders of his organization should be oriented more towards the
organizational values, than being highly results oriented. He rated GE’s top-level
managers not only on their performance in meeting targets, but also the extent to which
they “lived” GE values.

BUSINESS ETHICS: According to an old joke “business ethics” is a contradiction in

terms. For some this is only humor. For others there is a serious question: “ As business
is by nature unethical, how can there be such a subject as business ethics?”

The new economy is changing the world of work and the people who work in it
fundamentally. Technology, globalization, intangibles and the war for talent are all
driving the new economy and helping to create new corporate paradigms. In the new
economy, business models can be seen as groupings of assets (or stakes), and businesses
will need to be accountable to each asset owner (or stakeholder) in some kind of mutually
agreed way. Wider accountability involves wider ethical dimensions that businesses must
grapple with, and with this comes a greater risk of ethical conflicts that can damage an
organization. Avoiding the ethical conflicts presents a new management challenge.

Ethical behavior is not an act but a habit. Just as good health requires cultivating
the habits of getting enough sleep and eating wholesome food, Aristotle believed that
right action was the result of developing good moral habits. In a business context, this
means training at the deepest level, something we call “corporate culture”.

Definition of Business Ethics:

Business Ethics is a specialized study of moral right and wrong. It concentrates on moral
standards as they apply particularly to business policies, institutions, and behavior.

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 ANAND ENGINEERING COLLEGE, AGRA BBA UNIT-1
PROGRAM BUSINESS ETHICS

Unethical Practices

 Bribery
 Coercion
 Undue Influence
 Insider Trading
 Tax Evasion
 Pollution
 Unfair dealing and discrimination
 Improper accounting practices

IMPORTANCE OF ETHICS IN BUSINESS:

It is now recognized that it is good business to be ethical. An ethical image for a company
can build goodwill and loyalty among customers and clients.

Profit Maximization

The importance of ethics in business can be understood by the fact that ethical businesses
tend to make much more profits than the others. The reason for this is that customers of
businesses which follow ethics are loyal and satisfied with the services and product
offerings of such businesses. Let us take an example. Suppose, there is an organization
named XYZ which manufactures cosmetics. XYZ greatly believes in the importance of
ethics in business. When XYZ advertises its cosmetics in the market, being an ethical
organization, it will be very truthful and honest in its communication with the probable
customers. It will tell correctly about the kind of ingredients it has used while
manufacturing the cosmetics. It will not lie or exaggerate about the benefits or uses of its
products either. So the customers, who buy its cosmetics, know precisely what they are
buying and how useful that product is going to be for them. This way, the product will
meet their expectations and thus, satisfy the customers. When customers are satisfied,
they will become loyal to the company and come back again for re-purchasing. This will
surely increase the profits of the organization. Thus, the importance of business ethics is
that it creates loyalty in customers and maximizes the profits.

Efficient Utilization of Business Resources

In an organization, people working at the junior levels often emulate the ones working at
the top. The same applies with ethics too. If the management or seniors of an
organization follow ethical business practices, i.e, they do not bribe to get their way or
they do not cheat the customers, investors, suppliers, etc., the employees will follow suit.
The employees too will refrain from using the office property or resources for personal
benefits. This will result in better and efficient utilization of the business resources.

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 ANAND ENGINEERING COLLEGE, AGRA BBA UNIT-1
PROGRAM BUSINESS ETHICS

Creates Goodwill in the Market

An organization, which is well-known for its ethical practices, creates goodwill for itself
in the market. Investors or venture capitalists are more willing to put their money in the
businesses which they can trust. Shareholders too, remain satisfied with the practices of
ethical businesses. Thus, ethics creates goodwill and builds long-term relationships, and
that cannot be denied. Also, an ethical business puts greater value on its employees and
thus, employees remain loyal to such an organization too.

The chief goal of any organization is to maximize its profits. The importance of business
ethics can be understood from the fact that it helps the businesses in achieving its goal of
profit-making by creating goodwill for the business in the market, increasing its loyalty
among the customers, by aiding in employee retention and by maximum utilization of its
resources.

Evolving Ethical Values

1. HONESTY. Ethical executives are, above all, worthy of trust. They are honest in all
their actions and communications. They are not only truthful they are candid and
forthright. Ethical executives do not deliberately mislead or deceive others by
misrepresentations, overstatements, partial truths, selective omissions, or any other means
and when trust requires it they supply relevant information and correct misapprehensions
of fact.

2. INTEGRITY. Ethical executives earn the trust of others through personal integrity.

They demonstrate moral courage, doing what they think is right even when there is great
pressure to do otherwise. Ethical executives are principled, honorable, upright and
scrupulous. They fight for their beliefs and do not sacrifice principle for expediency.

3. PROMISE-KEEPING. Ethical executives can be trusted because they make every

reasonable effort to fulfill the letter and spirit of their promises and commitments. They
do not interpret agreements in an unreasonably technical or legalistic manner in order to
rationalize non-compliance or create justifications for escaping their commitments.

4. LOYALTY. Ethical executives justify trust by being loyal to their organization and

the people they work with. They do not put their loyalty above other ethical principles but
they place a high value on protecting and advancing the lawful and legitimate interests of
their companies and their colleagues. They faithfully safeguard their ability to make
independent professional judgments by avoiding undue influences and conflicts of
interest and they do not use or disclose information learned in confidence for personal
advantage.  If they decide to accept other employment, ethical executives provide

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 ANAND ENGINEERING COLLEGE, AGRA BBA UNIT-1
PROGRAM BUSINESS ETHICS

reasonable notice, respect the proprietary information of their former employer, and
refuse to engage in any activities that take undue advantage of their previous positions.

5. FAIRNESS. Ethical executives strive to be fair and just in all dealings. They do not
exercise power arbitrarily nor do they use overreaching or indecent means to neither gain
or maintain any advantage nor take undue advantage of another’s mistakes or difficulties.
Ethical executives manifest a commitment to justice, the equal treatment of individuals,
tolerance for and acceptance of diversity. They are open-minded; willing to admit they
are wrong and, where appropriate, change their positions and beliefs.

6. LAW ABIDING. Ethical executives abide by laws, rules and regulations relating to

their business activities.

7. COMMITMENT TO EXCELLENCE. Ethical executives pursue excellence in

performing their duties, are well-informed and prepared, and constantly endeavor to
increase their proficiency in all areas of responsibility.

8. LEADERSHIP. Ethical executives are conscious of the responsibilities and

opportunities of their position of leadership and seek to be positive ethical role models by
their own conduct and by helping to create an environment in which principled reasoning
and ethical decision making are highly prized.

9. REPUTATION AND MORALE. Ethical executives seek to protect and build the

company’s good reputation and the morale of its employees by engaging in no conduct
that might undermine respect and by taking whatever actions are necessary to correct or
prevent inappropriate conduct of others.

10. ACCOUNTABILITY. Ethical executives acknowledge and accept personal

accountability for the ethical quality of their decisions and omissions to themselves, their
colleagues, their companies, and their communities.

ARGUMENTS AGAINST IMPLEMENTATION OF BUSINESS ETHICS:

Argument 1: In perfectly competitive markets, the pursuit of profit will by itself

ensure that the members of society are served in the most socially beneficial ways.

Counter points to this argument:

1. Most industrial markets are not “perfectly competitive” as the argument

assumes, and to the extent firms do not have to compete they can maximize
profits in spite of inefficient production.

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 ANAND ENGINEERING COLLEGE, AGRA BBA UNIT-1
PROGRAM BUSINESS ETHICS

2. The argument also assumes that any steps taken to increase profits will
necessarily be socially beneficial - then what about bribery, hiding product
hazards, surrogate advertising, harmful pollution etc.

Argument 2: Business managers should do what is in the best interest of the firm.
This is known as loyal agent’s argument.

Counter points to this argument:

1. The argument shows that the manager should serve the employer in whatever
way the employer wants to be served and this means that ethics does not
matter because we are assuming an unproven moral standard.
2. No limits to manager’s duties which is morally not correct.

Argument 3: To be ethical it is enough for business people merely to obey the law.
Business ethics is essentially obeying the law.

Counter points to this argument:

It is wrong to see law and ethics as identical. It is true that some laws require
behavior that is the same as the behavior required by our moral standards. Laws
that prohibit murder, rape, theft, fraud and so on. In such cases, laws and morality
coincide, and the obligation to obey such laws is the same as the obligation to be
moral.

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