Need or Importance of Business Ethics

These twelve points below discuss the need, importance of business ethics.
need importance of business ethics
Image Credits © Sameer Akrani.

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.
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.

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.

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.
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.

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.

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.

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.
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
organised 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.

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.

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.

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.

What is ethical for a businessman?

It is simply stated that a businessman should strictly adhere to the code of business ethics. But
there is no comprehensive list to specify those which are ethical and which are unethical? This
question poses a serious problem to the businessman acting in a particular business situation.
When there are specific legal principles, no complication will arise. He should strictly follow the
laws though it is unethical in his opinion.

A businessman should not try to violate the legal provisions. If he feels that the law is unfair or
unjust, he should seek to change them by employing democratic devices. He should gather
public opinion against such unfair legislation and persuade the Government to change or amend
it.
But in the absence of well-defined law, the businessman should face a problem in deciding what
is ethical or unethical because of contradictory moral values. His act may be ethical and
justifiable in a given situation. But it may do harm to a few. Those affected by his acts will
consider them as unethical. Thus, drawing a line between right and wrong, black and white i.e.
ethical and unethical practices is not an easy matter.

Due to this ambiguity, decisions with ethical overturns have become more complex. Arriving at a
compromising solution suitable to conflicting interests is not so easy to a practical manager.
Hence, there is a tendency to over simplify the matters of ethical problems in business
organizations.

Why Business Ethics?

Though it cannot be clearly decided as to what is ethical and unethical for all, we cannot
presume that businessman need not follow the ethical standards. Ethical considerations in
business are highly important to the managers as individuals. The need for ethics in business
had been a matter of great concern even in the ancient times.

The businessmen must render justice to various parties – the suppliers and the customers.
They should be just and honest. Truthfulness should be the basic theme of their life. They
maintain a long chain of honest tradition. This being the case the relevance of ethical code and
its importance in business world is all the greater today in the context of growing
industrialization and influence of the business on the society.

Today business has come to stay as dominant socioeconomic political institution next only to
Government. Hence, ethical questions have become a primary concern of business managers.
Besides, there are also a large number of factors, which necessitate the strict adherence of
ethical behavior by the business community.

Factors which necessitate ethical behavior in business

1. Ours is an industrial society and its values tend to become those of the entire culture.

2. There is a growing awareness among the public. The society insists the business leaders to
shoulder the responsibility for maintaining their welfare.

3. If an organization fails to live upon the expectations of the society, it will lose its market share,
its prestige and reputation.

4. Unethical practices shall lead to Government control ultimately through legislation. Hence,
prevention is better than cure.
Thus, not even for the society’s sake, but at least for his sake, the businessman, should adhere
strictly to the ethical norms and the code of conduct.

Need for Business ethics

It is necessary to observe business ethics for the following reasons:

Need for business ethics

1. Survival of the Business Unit

Unethical practices of businessmen will lead to the closure of business unit. The closure of a
business unit does not only create problems to business but also to employees and the society
in general. Businessmen do not maximize the profit at the cost of existence of a business unit.

The behavior of a businessman is affected by some of the factors such as leadership qualities,
integrity, knowledge, skills, influence and exercising power. Businessmen should protect their
units in all respects.

2. Growth of Business Unit

Business ethics ensure the growth of a business. Whenever a businessman observes ethics
strictly, definitely the particular business unit will get developed. A business could not be run in
such a manner, which is detrimental to the interest of society or business itself. So there should
be some business ethics for the growth of a business.

3. Earning Goodwill

If business ethics are properly followed by a business, automatically that particular business unit
earns a good name among the public.

4. Improving the Confidence

Business ethics are necessary to improve the confidence of the customers, employees and the
like. If confidence is infused, customers and employees will popularize the name of the
particular business unit.

5. Maintaining Inter-relationship

No business functions independently. Each business has close relationship with another
business even though the nature and size of the other business differs. It is expected that each
business unit should have a smooth relationship with others. The inter-relationship of business
is maintained by adopting business ethics.

6. Solving Social Problems

If a businessman observes ethics in his business, the public will not have any difficulty in getting
their wants fulfilled. There is no bargaining between the businessman and public. There is a fair
treatment of an employee by him. This will avoid social problems like strike, lockout etc.

30 Important principles of Business Ethics

30 Important Principles of Business Ethics

Some of the basic and important principles of business ethics are as follows:

30 Basic principles of business ethicsImage: 30 Basic principles of business ethics

1. Service motive should be preferred rather than profit motive.

2. There should not be any discrimination as to the rich, the poor, the high, the low, the caste,
the religion etc. against any particular group of people.

3. Maximum satisfaction should be available to consumers.

4. Enough consideration should be given for clean environment.

5. Human feelings should be given importance.

6. Scarce resources should not be wasted.

7. Business must be a dynamic one.

8. It should provide quality products at reasonable price.

9. It must assist in raising the standard of living.

10. Competition should be healthy.

11. There should be job security to employees.

12. Businessman must pay fair wages.

13. Better working conditions should be provided.

14. Efficient employees should be properly motivated and recognized.

15. Employees should be allowed to participate in management.

16. Monetary and non-monetary incentives must be given to employees.

17. Businessman must pay taxes and fulfill other obligations promptly.

18. It must avoid unfair trade practices such as hoarding, black-marketing etc.

19. Businessman should not form cartel agreements to control production, price etc.

20. He must disclose all relevant information to those persons who require the same.

21. He must prepare genuine books of accounts and present before all authorized persons as
and when required by them.

22. He should protect the interests of its members at the time of amalgamation, absorption etc.

23. He should be ready to extend mutual co-operation and mutual help.

24. It should work for the development of the nation.

25. He should follow proper communication system at all levels.

26. He should not make promises that could not be fulfilled.

27. Its assets should not be utilized for personal use.

28. Employees should be allowed to share their opinion in the work place.

29. It should follow proper personnel policy as to promotion, transfer etc.

30. He should not involve in politics.

The Need for Business Ethics

Every individual should be guided by certain code of conduct. Ethics deal with personal conduct
and moral duty and concerns human relations with respect to right and wrong. In business,
ethics is doubly important and the society expects the businessmen to act ethically. Business
ethics adds to the image of the company and develops a sense of trust in the minds of people
and a long lasting relationship that is to stay. If the businessmen act ethically there is no need
for legal rules and regulations that govern the code of conduct. Most of today’s businessmen
want to make a fast buck and does not have business ethics.

Business ethics

Benefits of Business Ethics

1. Creates Credibility

2. Helps in ethical decision making

3. Enhances quality of living

4. Corresponds to basic human needs

Business ethics is primarily concerned with the relationship of business goals and techniques to
specifically human ends. It is a dynamic philosophy of socio-economic adjustments whose field
is widening day by day.

Definition of Business Ethics:

Typical definitions refer to the “rightness or wrongness of behavior, but not everyone agrees on
what is morally right or wrong, good or bad, ethical or unethical.”
“Application of general principles of ethic customary in a society to the areas where business
operates.”
In the words of T.M.Garrett, “business ethics is a study of moral rightness and wrongness of the
acts involved in the production, distribution and exchange of economic goods and services.”
Elements of Business Ethics:

· It should be above business interests-no harm should be done to the society

· It is more of a code of business behavior

· It has responsibilities as roots and outcome as fruits

· It is guided not by sentiments and emotions but by definite tenets

· It has to be followed by one’s own will and cannot be enforced upon

· It cultivates high sense of honesty, general welfare, justice and responsibility in the minds of
businessmen

· It emphasizes the importance of self discipline over external control by legislation. The
businessmen should not make false promises which destroy the fair image of the business.

Principles of Business Ethics:

· Do not sell substandard or defective products or stick to under measurement

· Do not resort to hoarding, black-marketing or profiteering

· Do not destroy or distort competition

· Ensure accuracy and sincerity in advertising, labeling and packaging

· Do not tarnish the image of competitors by unfair practices

· Make accurate business records available to all authorized persons

· Pay proper taxes and satisfy other obligations

· Do not form cartel agreements to control production, price etc. to the common determinant

· Refrain from secret kick backs or pay-offs to customers, suppliers, administrators, politicians
etc.,

· Ensure payment of fair wages to and fair treatment of employees

· Fulfill honestly all responsibilities towards the organization. Owners, employees, consumers,
suppliers, government and society at large.

The most common unethical practices being followed would be:

1. Adulteration

2. Spurious products

3. Duplicates

4. Injurious products

5. Defective Advertisements

6. Low salaries

7. Poor working Conditions

8. Exploitation- Sexual harassment and bullying, use of child labor

9. Financial misconduct-Employees being made to sign for more than actually paid for

10. Tax evasion- Improper records or bogus records to show hiked up profit in the p&l

11. Pollution

12. Bribes and circulation of money to buy political support- The notoriously popular 2G scam