1.0.

Business Ethics
Ethics is a branch of social science. It deals with moral principles and social values. It helps
us to classify, what is good and what is bad? It tells us to do good things and avoid doing bad
things.
So, ethics separate, good and bad, right and wrong, fair and unfair, moral and immoral and
proper and improper human action. In short, ethics means a code of conduct. It is like
the 10 commandments of holy Bible. It tells a person how to behave with another person.
So, the businessmen must give a regular supply of good quality goods and services at
reasonable prices to their consumers. They must avoid indulging in unfair trade practices
like adulteration, promoting misleading advertisements, cheating in weights and measures,
black marketing, etc. They must give fair wages and provide good working conditions to
their workers. They must not exploit the workers. They must encourage competition in the
market. They must protect the interest of small businessmen. They must avoid unfair
competition. They must avoid monopolies. They must pay all their taxes regularly to the
government.

In short, business ethics means to conduct business with a human touch in

order to give welfare to the society.
1.1. Definition of Business Ethics

According to Andrew Crane, "Business ethics is the study of business situations, activities,
and decisions where issues of right and wrong are addressed."

According to Raymond C. Baumhart, "The ethics of business is the ethics of responsibility.

The business man must promise that he will not harm knowingly."

1.2. Nature or Features of Business Ethics

The characteristics or features of business ethics are:-
1. Code of conduct: Business ethics is a code of conduct. It tells what to do and what
not to do for the welfare of the society. All businessmen must follow this code of
conduct.
2. Based on moral and social values: Business ethics is based on moral and social
values. It contains moral and social principles (rules) for doing business. This includes
self-control, consumer protection and welfare, service to society, fair treatment to
social groups, not to exploit others, etc.
3. Gives protection to social groups: Business ethics give protection to different social
groups such as consumers, employees, small businessmen, government,
shareholders, creditors, etc.
4. Provides basic framework: Business ethics provide a basic framework for doing
business. It gives the social cultural, economic, legal and other limits of business.
Business must be conducted within these limits.
 5. Voluntary: Business ethics must be voluntary. The businessmen must accept
business ethics on their own. Business ethics must be like self-discipline. It must not
be enforced by law.
6. Requires education and guidance: Businessmen must be given proper education and
guidance before introducing business ethics. The businessmen must be motivated to
use business ethics. They must be informed about the advantages of using business
ethics. Trade Associations and Chambers of Commerce must also play an active role
in this matter.
7. Relative Term: Business ethics is a relative term. That is, it changes from one
business to another. It also changes from one country to another. What is
considered as good in one country may be taboo in another country.
8. New concept: Business ethics is a newer concept. It is strictly followed only in
developed countries. It is not followed properly in poor and developing countries.

1.3. Need or Importance of Business Ethics

These twelve points below discuss the need, importance of business ethics.

1. Stop business malpractices: Some unscrupulous businessmen do business

malpractices by indulging in unfair trade practices like black-marketing, artificial high
pricing, adulteration, cheating in weights and measures, selling of duplicate and
harmful products, hoarding, etc. These business malpractices are harmful to the
consumers. Business ethics help to stop these business malpractices.
2. Improve customers' confidence: Business ethics are needed to improve the
customers' confidence about the quality, quantity, price, etc. of the products. The
customers have more trust and confidence in the businessmen who follow ethical
rules. They feel that such businessmen will not cheat them.
3. Survival of business: Business ethics are mandatory for the survival of business. The
businessmen who do not follow it will have short-term success, but they will fail in
the long run. This is because they can cheat a consumer only once. After that, the
consumer will not buy goods from that businessman. He will also tell others not to
buy from that businessman. So this will defame his image and provoke a negative
publicity. This will result in failure of the business. Therefore, if the businessmen do
not follow ethical rules, he will fail in the market. So, it is always better to follow
appropriate code of conduct to survive in the market.
4. Safeguarding consumers' rights: The consumer has many rights such as right to
health and safety, right to be informed, right to choose, right to be heard, right to
redress, etc. But many businessmen do not respect and protect these rights.
Business ethics are must to safeguard these rights of the consumers.
5. Protecting employees and shareholders: Business ethics are required to protect the
interest of employees, shareholders, competitors, dealers, suppliers, etc. It protects
them from exploitation through unfair trade practices.
6. Develops good relations: Business ethics are important to develop good and friendly
relations between business and society. This will result in a regular supply of good
 quality goods and services at low prices to the society. It will also result in profits for
the businesses thereby resulting in growth of economy.
7. Creates good image: Business ethics create a good image for the business and
businessmen. If the businessmen follow all ethical rules, then they will be fully
accepted and not criticised by the society. The society will always support those
businessmen who follow this necessary code of conduct.
8. Smooth functioning: If the business follows all the business ethics, then the
employees, shareholders, consumers, dealers and suppliers will all be happy. So they
will give full cooperation to the business. This will result in smooth functioning of the
business. So, the business will grow, expand and diversify easily and quickly. It will
have more sales and more profits.
9. Consumer movement: Business ethics are gaining importance because of the growth
of the consumer movement. Today, the consumers are aware of their rights. Now
they are more organized and hence cannot be cheated easily. They take actions
against those businessmen who indulge in bad business practices. They boycott poor
quality, harmful, high-priced and counterfeit (duplicate) goods. Therefore, the only
way to survive in business is to be honest and fair.
10. Consumer satisfaction: Today, the consumer is the king of the market. Any business
simply cannot survive without the consumers. Therefore, the main aim or objective
of business is consumer satisfaction. If the consumer is not satisfied, then there will
be no sales and thus no profits too. Consumer will be satisfied only if the business
follows all the business ethics, and hence are highly needed.
11. Importance of labour :Labour, i.e. employees or workers play a very crucial role in
the success of a business. Therefore, business must use business ethics while dealing
with the employees. The business must give them proper wages and salaries and
provide them with better working conditions. There must be good relations between
employer and employees. The employees must also be given proper welfare
facilities.
12. Healthy competition: The business must use business ethics while dealing with the
competitors. They must have healthy competition with the competitors. They must
not do cut-throat competition. Similarly, they must give equal opportunities to small-
scale business. They must avoid monopoly. This is because a monopoly is harmful to
the consumers.
1.4. Rules or Principles of Business Ethics
Rules or principles of business ethics are the code of conduct for businessmen. It tells us
how businessmen should do business for social good. These principles are related to
consumers, employees, investors, local community and the society as a whole.
The important rules or principles of business ethics are as follows:-
1. Avoid exploitation of consumers: Don't cheat and exploit consumers by using bad
business practices such as artificial price rise and adulteration.
2. Avoid profiteering: Don't indulge in unscrupulous activities like hoarding, black-
marketing, sale and use of banned or harmful goods, etc., for the sake of greed to
earn exorbitant profits.
3. Encourage healthy competition: Don't destroy a healthy competitive atmosphere in
the market which offers certain benefits to the consumers. Do not engage in a cut-
throat competition. Avoid making attempts to malign and spoil the image of
competitors by unfair means.
4. Ensure accuracy: Always check and verify the accuracy in weighing, packaging and
quality while supplying goods to the consumers.
5. Pay taxes regularly: Pay taxes and other charges or duties to the government
honestly and regularly. Avoid bribing government officials and lobbying for special
favours.
6. Get accounts audited: Maintain accurate business records, accounts and make them
available to all authorized persons and authorities.
7. Fair treatment to employees: Pay fair wages or salaries, provide facilities and
incentives and give humane treatment to employees.
8. Keep investors informed: Supply reliable information to shareholders and investors
about the financial position and important decisions of the company.
9. Avoid injustice and discrimination: Avoid injustice and partiality to employees in
transfers and promotions. Avoid discrimination among them based on gender, race,
religion, language, nationality, etc.
10. No bribe and corruption: Don't give expensive gifts, secret commissions, kickbacks,
payoffs to politicians, bureaucrats, government officials and suppliers. Say no to
bribe and avoid corruption.
11. Discourage secret agreement: Do not make a secret agreement with other
businessmen for controlling production, distribution, pricing or for any other activity,
which is harmful to the consumers.
12. Keep service before profit: Accept the principle of "service first and profit next." The
customer or consumer is the most important part of any business. All business
activities are done for meeting his needs and for increasing his satisfaction and
welfare.
13. Practice fair business: Make your business fair, humane, efficient and dynamic. Give
the benefits of these qualities to the consumers.
14. Avoid monopoly: Avoid forming private monopolies and concentration of economic
power. Monopolies are bad for consumers.
15. Fulfil customers’expectations: Adjust your business activities as per the demands,
needs and expectations of the customers.
16. Respect consumers rights: Give full respect and honour to the basic rights of the
consumers.
17. Accept social responsibilities:Honour responsibilities towards different social
groups.
18. Satisfy consumers’wants: Find out and satisfy the wants of the consumers. Use the
available resources to produce good quality goods and services. Supply these goods
and services regularly to the consumers. Charge reasonable prices for the goods and
 services. Give proper after-sales services. Do not produce goods and services, which
are harmful to the health and life of the consumers. Remember, the main objective
of the business is to satisfy the consumer’s wants.
19. Service motive: Give more importance to service and consumer's satisfaction and
less importance to profit-maximization. Make profits by providing services to the
consumers. Do not make profits by exploiting the consumers.
20. Protect group interests: Protect the interest of the group i.e give employees’ better
wages and good working conditions, give shareholders better rate of dividend, give
consumers good quality goods and services at low prices, etc.
21. Optimum utilization of resources: Ensure better and optimum utilization of natural
and human resources and minimize wastage of these resources. Use the resources
to remove poverty and to increase the standard of living of people.
22. Intentions of business: Use pure, legal and sacred means to do business. Do not use
illegal, unscrupulous and evil means to do business.
23. Follow Woodrow Wilson's rules: According to the late American President Sir
Thomas Woodrow Wilson, there are four important principles of business ethics.
These four rules are as follows:-
a. Rule of publicity: According to this principle, the business must tell the
people what it is going to do. It must not create doubts, misunderstanding,
suspicion, secrets, etc.
b. Rule of equivalent price: According to this principle, the customer must be
given proper value for their money. So the business must not sell below
standard, outdated and inferior (poor) goods for high prices.
c. Rule of conscience in business: If the business is conducted properly, then it
is beneficial to the society. Otherwise, it is harmful to the society. Therefore,
the businessman must have a conscience, i.e. a morale sense of judging what
is right and what is wrong. He must be very careful while taking business
decisions because these decisions affect the entire society.
d. Rule of spirit of service: The business must give importance to the service
motive. That is, priority must be given to render service to human beings over
profit.
1.5. Factors influencing Business Ethics
Business leaders today are well aware of the ethical issues and hence they want to improve
the ethical standards of the business. Self-regulation is, of course, better and produce
impressive results. Besides, there are also a number of factors, which significantly influence
the managers to take ethical decisions.Some of them are:
1. Personal Code of Ethics
A man’s personal code of ethics that is what one considers moral is the foremost
responsible factor influencing his behavior.
2. Legislation
It is already stated that the Government will intervene and enact laws only when the
businessmen become too unethical and selfish and totally ignore their responsibility to the
society. No society can tolerate such misbehavior continuously. It will certainly exert
pressure on the Government and the Government consequently has no other alternative to
prohibit such unhealthy behavior of the businessmen.
3. Government Rules and Regulations
Laws support Government regulations regarding the working conditions, product safety,
statutory warning etc. These provide some guidelines to the business managers in
determining what are acceptable or recognized standards and practices.
4. Ethical Code of the Company
When a company grows larger, its standard of ethical conduct tends to rise. Any unethical
behavior or conduct on the part of the company shall endanger its established reputation,
public image and goodwill. Hence, most companies are very cautious in this respect. They
issue specific guidelines to their subordinates regarding the dealings of the company.
5. Social Pressures
Social forces and pressures have considerable influence on ethics in business. If a company
supplies sub-standard products and get involved in unethical conducts, the consumers will
become indifferent towards the company. Such refusals shall exert a pressure on the
company to act honestly and adhere strictly to the business ethics. Sometimes, the society
itself may turn against a company.
6. Ethical Climate of the Industry
Modern industry today is working in a more and more competitive atmosphere. Hence only
those firms, which strictly adhere to the ethical code, can retain its position unaffected in its
line of business. When other firms, in the same industry are strictly adhering to the ethical
standards, the firm in question should also perform up to the level of others. If the
company’s performance is below than other companies, in the same industry, it cannot
survive in the field in the long run.

1.6. Factors affecting business ethics

The business executive working as a professional manager has to decide what is ethical or
unethical. Many factors influence this decision. In part, what is ethical is based on:
1. The individual’s personal code of behavior: The personal Code of Behavior is the result of
the complex environment that influences one’s life.
2. The ethical standards imposed on a manager by his superiors also influence him in his
decisions as to the morality of behavior. If the superior condones unethical activities such as
padding expenses accounts, the subordinate is encouraged to look upon this activity as an
acceptable practice.
3. The policies of the company also influence the determination of ethical conduct.
Standards of behavior in an industry are often influenced greatly by the dominant firms in
that industry. The authors of the company policy obviously have an effect that is decisive.
4. The ethical climate of a country. If, it is poor, then only giant corporations and large
undertakings can stand competition and be viable; a small concern is apt to go bankrupt,
since business is concerned with employment of a large number of persons, it has the
obligation to see that it adheres to an ethical atmosphere. However, considerable
differences occur among managers as to what is ethical or unethical; and business truly
lacks a Code of Ethics.
1.7. 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, trade ization.
• 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.

1.8. 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 behaviours 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.
1.9. 12 Ethical Principles for Business Executives
Ethical values, translated into active language establishing standards or rules describing the
kind of behavior an ethical person should and should not engage in, are ethical principles.
The following listof principles incorporate the characteristics and values that most people
associate with ethical behavior.
1. HONESTY. Ethical executives are honest and truthful in all their dealings and they do not
deliberately mislead or deceive others by misrepresentations, overstatements, partial
truths, selective omissions, or any other means.
2. INTEGRITY. Ethical executives demonstrate personal integrity and the courage of their
convictions by doing what they think is right even when there is great pressure to do
otherwise; they are principled, honorable and upright; they will fight for their beliefs. They
3. PROMISE-KEEPING & TRUSTWORTHINESS. Ethical executives are worthy of trust. They
are candid and forthcoming in supplying relevant information and correcting
misapprehensions of fact, and 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 are worthy of trust, demonstrate fidelity and loyalty to
persons and institutions by friendship in adversity, support and devotion to duty; they do
not use or disclose information learned in confidence for personal advantage. They
safeguard the ability to make independent professional judgments by scrupulously avoiding
undue influences and conflicts of interest. They are loyal to their companies and colleagues
and if they decide to accept other employment, they provide 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 and fair and just in all dealings; they do not exercise power
arbitrarily, and do not use overreaching nor indecent means to gain or maintain any
advantage nor take undue advantage of another’s mistakes or difficulties. Fair persons
manifest a commitment to justice, the equal treatment of individuals, tolerance for and
acceptance of diversity, the they are open-minded; they are willing to admit they are wrong
and, where appropriate, change their positions and beliefs.
6. CONCERN FOR OTHERS. Ethical executives are caring, compassionate, benevolent and
kind; they like the Golden Rule, help those in need, and seek to accomplish their business
objectives in a manner that causes the least harm and the greatest positive good.
7. RESPECT FOR OTHERS. Ethical executives demonstrate respect for the human dignity,
autonomy, privacy, rights, and interests of all those who have a stake in their decisions; they
are courteous and treat all people with equal respect and dignity regardless of sex, race or
national origin.
8. LAW ABIDING. Ethical executives abide by laws, rules and regulations relating to their
business activities.
9. 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.
10. 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.

11. 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.
12. 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.

PULSE GROUP