Unit 1: Nature and Concept

Chapter 1: Introduction to Business Ethics

Lesson 1: Meaning and Nature of Business Ethics

Hello dear students ever did something, which was against your values, beliefs & moral
principles. The straightaway answer will be no, never. O.K. then answer all these
questions in just yes or no:

You did not help a person who met with an accident in front of you and was lying
on the road waiting for someone to give him assistance?
Have you ever bribed someone for getting your work done?
Have you ever discriminated someone because of his caste, creed, sex or any
other thing?

If the answer of any of the above mentioned question is yes then my friend its time you
should revise your definition of values, beliefs and moral principles. I can understand that
it is difficult to judge what is right and what is wrong because what is right in one
situation can be wrong and improper in another situation.

So for getting a clear picture of what is right and what is wrong. Lets start with the first
topic of this subject.

Points to be covered in this lecture:

Meaning of Ethics and business Ethics

Organization and Business Ethics

Arguments for and against 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 whats 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?

A few years ago, sociologist Raymond Baumhart asked business people, "What
does ethics mean to you?" Among their replies were the following:

"Ethics has to do with what my feelings tell me is right or wrong."

"Ethics has to do with my religious beliefs."
"Being ethical is doing what the law requires."
"Ethics consists of the standards of behavior our society accepts."
"I don't know what the word means."

These replies might be typical of our own. The meaning of "ethics" is hard to pin down,
and the views many people have about ethics are shaky.

Like Baumhart's first respondent, many people tend to equate ethics with their
feelings. But being ethical is clearly not a matter of following one's feelings. A person
following his or her feelings may recoil from doing what is right. In fact, feelings
frequently deviate from what is ethical.

Nor should one identify ethics with religion. Most religions, of course, advocate
high ethical standards. Yet if ethics were confined to religion, then ethics would apply
only to religious people. But ethics applies as much to the behavior of the atheist as to
that of the saint. Religion can set high ethical standards and can provide intense
motivation for ethical behavior. Ethics, however, cannot be confined to religion nor is it
the same as religion.

Being ethical is also not the same as following the law. The law often incorporates
ethical standards to which most citizens subscribe. But laws, like feelings, can deviate
from what is ethical. Pre-Civil War slavery laws in the US and the apartheid laws of
South Africa (before independence) are grotesquely obvious examples of laws that
deviate from what is ethical.
Finally, being ethical is not the same as doing "whatever society accepts." In any
society, most people accept standards that are, in fact, ethical. But standards of behavior
in society can deviate from what is ethical. An entire society can become ethically
corrupt. Nazi Germany is a good example of a morally corrupt society.

Moreover, if being ethical were doing "whatever society accepts," then to find out
what is ethical, one would have to find out what society accepts. To decide what I should
think about abortion, for example, I would have to take a survey of American society and
then conform my beliefs to whatever society accepts. But no one ever tries to decide an
ethical issue by doing a survey. Further, the lack of social consensus on many issues
makes it impossible to equate ethics with whatever society accepts. Some people accept
abortion but many others do not. If being ethical were doing whatever society accepts,
one would have to find an agreement on issues, which does not, in fact, exist.

What, then, 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.

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?

Goal of a theory of ethics

The goal of a theory of ethics is to determine what is good, both for the individual
and for the society as a whole. Philosophers have taken different positions in defining
what is good, on how to deal with conflicting priorities of individuals versus the whole,
over the universality of ethical principles versus "situation ethics" in which what is right
depends upon the circumstances rather than on some general law, and over whether
goodness is determined by the results of the action or the means by which results are
achieved.

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.
Ethical Issues Relate to All Functional Areas

Accounting
Finance
Management
Marketing

WHY DO WE NEED TO STUDY BUSINESS ETHICS: Now that we have

understood the meaning of the terms Ethics and Business Ethics, its time we should
understand the importance of this concept.

IMPORTANCE OF BUSINESS ETHICS:

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.

Ethical motivation: It protects or improves reputation of the organization by

creating an efficient and productive work environment. At a time of mass
corporate downsizing, one of the most effective ways to appeal to the fragile
loyalty of insecure employees is to promote an ethical culture, which gives
employees a greater sense of control and appreciation.

Balance the needs and wishes of stakeholders: There is pressure on business to

recognize its responsibilities to society. Business ethics requires businesses to
think about the impact of its decisions on people or stakeholders who are directly
or indirectly affected by those decisions. Companies build their image by acting in
accordance with their values, whatever they might be. Creating a positive public
image comes from demonstrating appropriate values. Publicizing and following a
company's values allows stakeholders to understand what the company stands for,
that it takes its conduct as an organization seriously.
 Global challenges: Business must become aware of the ethical diversity of this
world because of increasing globalization of the economy. It must learn the values
of other cultures, how to apply them to its decisions, and how to combine them
with its own values. In a world where transnational corporations and their
affiliates account for two-thirds of the world's trade in goods, and employ 73
million people, corporations cannot afford to ignore the reality of multicultural
ethics.

Ethical pay-off: They serve to protect the organization from significant risks, and
to some degree help grow the business. Risks such as breaches of law, regulations
or company standards, and damage to reputation were perceived to be
significantly reduced.

Employee Retention: One of the major costs in business is inappropriate

turnover. The loss of valuable experience and development of new personnel is a
cost companies can control. Seldom is pay the primary factor in losing an
employee. What would a company give to retain valuable employees? With a
successful program, the employees work with managers and supervisors in
making decisions based on the company's values. A successful Business Ethics
program establishes a culture that rewards making the right decision.

Prevention and Reduction of Criminal Penalties: The United States Sentencing

Commission Guidelines state that to receive a 40% reduction in federal penalties,
a company must have "an effective program to detect and prevent violations of
the law". Executives cannot always be aware of everything done in a company's
name. Jeffrey Kaplan in his article The Sentencing Guidelines: The First Ten
Years points out that recent cases also show that prosecutors are electing not to
pursue some actions because the companies in question have sound programs in
place. This is a tremendous asset to companies under regulatory scrutiny.

Preventing civil lawsuits: Many times employees that experience issues in the
workplace first try to resolve these issues internally. If their complaints are
ignored, employees feel compelled to go to an outside advocate. That could be a
private attorney, government regulator or news agency. Giving employees an
internal outlet can solve problems without the event becoming public knowledge
or an issue for the courts. Having the values permeate the company culture
enhances the staff's trust in senior management. Why? Because with an effective
program, the staff recognizes that management also operates within these
appropriate values.

Market Leadership: When a company fully integrates its values into its culture,
quality rises due to the employee's focus on values. Customers see that the
employees care about the customer's concerns. Employees reflect appropriate
values in their attitude and conduct. Roy Koerner in his article Want More Profit?
 Try Ethical Business Practices points out that businesses demonstrating the
highest ethical standards are also the most profitable and successful.

Setting the Example: By setting the example in the community and market, the
entire industry has a new standard that allows the community and the market to
recognize the company as a leader. When the word gets out, competitors will have
to answer questions about why they were not establishing similar values.

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-1990s 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 Europes most respected companies identified Shells ethical problems as the key
reason for the companys 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
peoples tendency to do evil, but because of the conflicting nature of standards and
interests, which are valid in themselves. Problems 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 organizations obligation

towards its shareholders, it could be at the cost of the ecological system or legal business
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 CEOs of
GE, insists that the leaders of his organization should be oriented more towards the
organizational values, than being highly results oriented. He rated GEs top-level
managers not only on their performance in meeting targets, but also the extent to which
they lived GE values.

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.
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 agents 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 managers 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.
ARTICLE:

Defining And Communicating Ethics In Your Business

from Ivy Sea Online

People devote entire college degrees, careers and spiritual practices to the topic of ethics
so youve got to be kidding if you think one article will get you up to speed on the
subject, or absolve you of any ethical misgivings you might have.

The intention of this article and corresponding tip sheet is to begin a conversation about
ever-so-critical issues and provide real-world tips to help you, your colleagues and
employees communicate about ethics in an ethical forum. Why bother? By all means,
don't, unless you believe that what goes around ultimately comes back around. If you
believe in the cyclical nature of intention and effort, checking in on ethics-related beliefs
and behaviors can be an enriching and focusing tool for your group. This article contains
the following sections:

What does it mean to be ethical?

Our ethical foundation and examples of ethics
Tips for communicating organizational codes of ethics

What is it to be ethical?

To us at IVC, ethics goes beyond the act of throwing money at a deserving charity if the
primary intention is to reap the public relations perks, particularly if the 'PR spin' masks
questionable organizational practices and behaviors. Using a broad definition from
Websters Dictionary as a starting point, lets assume for the moment that this is what we
mean by ethics:

1. A system of moral principles.

2. The branch or philosophy dealing with right and wrong and the morality of motives
and ends.

From this definition alone, we can see how ethics is not a point set in time on the
continuum of human life, which all people use as the same reference. What do we mean?
Look at the words independent of the definition, and consider how each person creates
his or her own ethical boundaries:

"Moral principles" Clearly, these differ from person to person; wars are
predicated on these notions.
"Philosophy" a belief system or theory.
"Right and wrong" anyone with an opinion can attest to the disparities between
two or more people in this arena!
 "Motives" based on a specific situation, one person might differ from
circumstance to circumstance.
"Consequences" a concept we at IVC add to this mix of ethics-related words,
perceived consequences are often based on a fear of negative ramifications
established through one's religious or philosophical beliefs and/or the norms,
mores and rules of one's community.

So, what is ethics? What is ethical behavior? From where we stand, its a very personal
definition knowledge of which helps define the choices we make, the goals we
achieve and the path our lives take.

What shapes our view of ethics?

The short answer: Everything. Our experiences (or lack of); peers; religious beliefs;
edicts from a power we deem higher than ourselves, i.e., international law or a Supreme
Consciousness; people to whom we are exposed, for better or worse; and our decision to
seek out models of ethical behavior are all examples of how we shape our ethical
portfolios.
Overview

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.

Emphasis on ethical behavior in organizations has increased over recent

years.

Activity

Define business ethics. Why do we need to study business ethics?