MODULE 1: AN OVERVIEW OF BUSINESS ETHICS

Definition of Ethics and Business Ethics, Normative Concept and Descriptive Concept, Characteristics of
Moral Standards, Moral Development - Kohlberg’s Theory, Role of Ethics in Business, Characteristics of
Ethical Organisation, Ethical Decision Making Practices by Business Organizations.

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Ethics

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Ethics or moral philosophy is a branch of philosophy that involves systematizing, defending, and
recommending concepts of right and wrong conduct. The term ethics derives from the Ancient Greek

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word ethikos, which is derived from the word ethos (habit, “custom”).

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As a branch of philosophy, ethics investigates the questions “What is the best way for people to live?” and
“What actions are right or wrong in particular circumstances?” In practice, ethics seeks to resolve questions

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of human morality, by defining concepts such as good and evil, right and wrong, virtue and vice, justice and
crime. As a field of intellectual enquiry, moral philosophy also is related to the fields of moral psychology,

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descriptive ethics, and value theory.
Three major areas of study within ethics recognised today are:

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• Meta-ethics, concerning the theoretical meaning and reference of moral propositions, and how their
truth values (if any) can be determined

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• Normative ethics, concerning the practical means of determining a moral course of action
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Applied ethics, concerning what a person is obligated (or permitted) to do in a specific situation or a
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particular domain of action.
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Business Ethics studies how to deal with corporate governance, whistleblowing, corporate culture,
and corporate social responsibility. It emphasizes standard principles prescribed by governing bodies.
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Non-compliance with business ethics leads to unnecessary legal actions.

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The discipline also emphasizes a code of conduct; a set of unwritten rules which are not legally enforceable.
There is a lot of fine print when it comes to ever-changing corporate regulations. Business ethics, therefore,
educates businessmen and employees about ethical procedures and penalties for non-compliance.
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Business ethics ascertain social, cultural, legal, and other economic limitations and safeguard the interest of
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parties involved. Further, it emphasizes moral and social values like consumer protection, welfare, fair
business practices, and service to society.
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Businesses are expected to be fair and honest in all their dealings. If businesses fail to do so, they face dire
consequences. The statutory laws govern ethics. But ethics go beyond enforcement; they are to be self-
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imposed and followed diligently. To uphold ethics, businesses must conduct internal audits and quality
control checks at regular intervals. Also, ethics vary from company to company.
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What is Normative Ethics?

Normative ethics is the study of ethical action. In simple words, it analyses how people ought to act, in terms
of morality. It is also concerned with the criteria of what is morally right and wrong. Moreover, the core
concept of normative ethics is how to arrive at basic moral standards and how to justify basic moral
standards. Teleological and deontological theories are the tools that help to determine this concept. In
teleological ethics, the goodness or badness of action is determined by examining the consequences of that
action, whereas, in deontological theories, the goodness or badness of action is determined by examining the
action itself.
There are four major normative ethics theories as Kantianism, Utilitarianism, ethical intuitionism, and virtue
ethics. Furthermore, Kantianism and intuitionism are non-teleological theories, while utilitarianism and
virtue ethics are teleological theories.
What is Descriptive Ethics?
Descriptive ethics or comparative ethics is the study of people’s views about moral beliefs. In other words, it

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analyses ‘what do people think is right?’ Thus, the study of descriptive ethics involves describing people’s
moral values and standards as well as their behaviour.

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Furthermore, descriptive ethics is a type of empirical study that incorporates research from the fields of
psychology, sociology, anthropology, and history. Such empirical studies observe that all cultures and

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societies have their own moral standards that advocate or forbid certain types of actions. Descriptive ethics

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also analyse the differences and similarities between the moral practices of different societies, and evaluate
the development of the standards behind these practices.

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Differences
Normative ethics is the study of ethical action whereas descriptive ethics is the study of people’s views about

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moral beliefs. While normative ethics analyses how people ought to act whereas descriptive ethics analyses
people’s moral values, standards and behaviour.Moreover, normative ethics attempts to evaluate or create

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moral standards and prescribes how people ought to act whereas descriptive ethics simply describes how
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people behave and what types of moral standards they claim to follow.
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Characteristics of Moral Standards
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a) Moral Standards involve serious wrongs or significant benefits

Moral standards deal with matters which can seriously impact, that is, injure or benefit human beings and
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other sentient beings.

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b) Moral Standards take precedence over other standards and considerations, especially self-interests
If a moral standard states that a person has the moral obligation to do something, then they are supposed to
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When a particular law becomes seriously immoral, it may be people’s moral duty to exercise civil disobedience.
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c) Moral Standards are not established by authority figure

Moral Standards cannot be changed nor nullified by the decisions of particular authoritative body. One thing
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about these standards, nonetheless, is that its validity lies on the soundness or adequacy of the reasons that
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are considered to support and justify them.

d) Moral Standards have the trait of universality

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It means that everyone should live up to moral standards. However, it entails that moral principles must
apply to all who are in the relevantly similar situation.

e) Moral Standards are based on impartial considerations

Moral Standards go beyond personal interests to a universal standpoint, in which each individual’s
interests are impartially counted as equal. Impartiality in morality requires that we give equal and/or
adequate consideration to the interests of all concerned parties.

f) Moral Standards are associated with special emotions and vocabulary

If a person violates a moral standard by telling a lie even to fulfil a special purpose, it is not surprising if
he/she starts feeling guilty or being ashamed of his behavior afterwards.
Moral Development - Kohlberg’s Theory

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Kohlberg's theory of moral development is a theory that focuses on how children develop morality and moral

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reasoning. Kohlberg's theory suggests that moral development occurs in a series of six stages and that moral
logic is primarily focused on seeking and maintaining justice.

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Here we discuss how Kohlberg developed his theory of moral development and the six stages he identified as
part of this process.

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Level 1. Preconventional Morality

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Preconventional morality is the earliest period of moral development. It lasts until around the age of 9. At

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this age, children's decisions are primarily shaped by the expectations of adults and the consequences of
breaking the rules. There are two stages within this level:

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Stage 1 (Obedience and Punishment): The earliest stages of moral development, obedience and

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punishment are especially common in young children, but adults are also capable of expressing this type of
reasoning. According to Kohlberg, people at this stage see rules as fixed and absolute.6 Obeying the rules is
important because it is a way to avoid punishment. ac
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Stage 2 (Individualism and Exchange): At the individualism and exchange stage of moral development,
children account for individual points of view and judge actions based on how they serve individual needs.
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In the Heinz dilemma, children argued that the best course of action was the choice that best served Heinz’s
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needs. Reciprocity is possible at this point in moral development, but only if it serves one's own interests.
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Level 2. Conventional Morality

The next period of moral development is marked by the acceptance of social rules regarding what is good
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and moral. During this time, adolescents and adults internalize the moral standards they have learned from
their role models and from society.
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This period also focuses on the acceptance of authority and conforming to the norms of the group. There are
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two stages at this level of morality:

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Stage 3 (Developing Good Interpersonal Relationships): Often referred to as the "good boy-good girl"
orientation, this stage of the interpersonal relationship of moral development is focused on living up to social
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expectations and roles.6 There is an emphasis on conformity, being "nice," and consideration of how choices
influence relationships.

Stage 4 (Maintaining Social Order): This stage is focused on ensuring that social order is maintained. At
this stage of moral development, people begin to consider society as a whole when making judgments. The
focus is on maintaining law and order by following the rules, doing one’s duty, and respecting authority.

Level 3. Post conventional Morality

At this level of moral development, people develop an understanding of abstract principles of morality. The
two stages at this level are:
Stage 5 (Social Contract and Individual Rights): The ideas of a social contract and individual rights cause
people in the next stage to begin to account for the differing values, opinions, and beliefs of other
people.6 Rules of law are important for maintaining a society, but members of the society should agree upon
these standards.

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Stage 6 (Universal Principles): Kohlberg’s final level of moral reasoning is based on universal ethical
principles and abstract reasoning. At this stage, people follow these internalized principles of justice, even if

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they conflict with laws and rules.
Kohlberg believed that only a relatively small percentage of people ever reach the post-conventional stages
(around 10 to 15%). One analysis found that while stages one to four could be seen as universal in

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populations throughout the world, the fifth and sixth stages were extremely rare in all populations.

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Role of Ethics in Business / Organizational Functioning

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An organization is generally defined as a group, in number from two people to tens of thousands of people,

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who intentionally aims to accomplish a shared common goal or a set of goals. In order to achieve shared

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goals, the organization acts as a system composed of (i) inputs such as resources both human and monetary,
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(ii) processes such as strategies to accomplish goals, (iii) outputs such as products and services, and (iv)
outcomes such as end results or benefits to consumers. The ethics of the organization refers to the active
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attempt of the organization to define its mission and core principles, to identify values which can cause
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tension, to seek best solutions to these tensions, and to manage the operations which maintain its values.
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Ethics in the functioning of the organization means the application of ethical values and morals to everyday
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processes, behaviours, and policies of the organization. It is a practice which is applied uniformly to
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everyone employed in the organization, regardless of the position, level of responsibility, and range of
responsibilities. It is related to all the organizational disciplines such as human resource management,
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production, sales and marketing, and finance etc. In the organizational context, ethics is non-negotiable.
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Ethics is essential for the organization as well as for its success. Organization with codes of ethics realizes
that these efforts can improve reputation, positively affect employees’ commitment to work and enhance
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customers’ loyalty. Organizational ethics is particularly important in dealing with customers.

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Although several people use the terms ‘ethics’ and ‘morality’ interchangeably, the two terms do not mean the
same thing. While the ethics is a system of moral principles and methods of applying them, the morality is
the differentiation of intentions, decisions, and actions between those which are right and those which are
wrong. Management can promote ethical behaviour by employees by limiting their opportunity to engage in
misconduct. Incidences of unethical behaviour can be reduced by ethical policies, formal codes of ethics, and
ethics training programs informing employees what is expected of them and providing punishments for those
who fail to comply.
Ethics refers to a code of conduct which guides the employees in dealing with others and it is non-negotiable.
The morality rules and ethical behaviour codes of the organization apply uniformly to all the employees
alike. Ethical behaviour and undertakings relate to actions, which are characterized by honesty, integrity,
morality, and good management practices. Ethics are the values the organization demonstrates in its goals,

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policies, and practices and. It is the heart of the workplace culture. Organization which has ethical workplace

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culture outperforms the competitors and peers in all the categories that matter.

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Broadly speaking, organizational ethics is concerned with standards and principles for human behaviour

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within the organizational structure to avoid harmful behaviour and to promote those behaviours which ensure

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an ambiance of fairness, trust, honesty and respect. The common ground which the organizational ethics
shares with business ethics and practical ethics is the pursuit of what is right and just.

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Ethical behaviour is based on values such as trustworthiness, respect, responsibility, caring, fairness and

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justice, and good citizenship. It also depends on the adherence to moral rules. Organizational values tell what

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is important and this, in turn, helps in making decisions about right and wrong. Morals are the rules for
deciding what is good and what is bad.
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Ethical Decision-Making Process

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What Is Ethical Decision-Making?

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In business, ethical decision-making is a strategy that prioritizes moral principles as a set of standards, rather
than economic considerations, for making business decisions. Businesses that value ethical behavior may
consider several ethical values, including how their actions reflect upon themselves and how their decisions
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affect the company, its employees, and the greater community or world. Common ethical issues in business
include environmental concerns, employee well-being, operations transparency, product honesty, and
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customer satisfaction; many ethical dilemmas in business weigh these variables against economic growth.
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Ethics philosophers have created dozens of models to help guide ethical decision-making, each with varied
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considerations and concerns. For example, consequentialist theories (like the utilitarian approach or the
common good approach) center mainly on the consequences of actions, while non-consequentialist theories
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(like the duty-based approach or the rights approach) instead center on the intentions of the decision-maker
or ethical obligation.
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How to Make Ethical Decisions

Though there is not a single framework for making ethical decisions, each ethical decision-making model
incorporates these four core steps:

1. Identify the facts. To make a good decision about an ethical problem, you must first verify that you
have all the facts. This means basing your choices on verified events, details, and actions rather than
a gut feeling, intuition, personal experience, or emotions. In addition, consider your ethical
awareness; think through every angle of the situation and determine if you are missing a key point of
 view. When identifying the facts of a particular situation, you may find that it’s best to bring all the
affected stakeholders together in a meeting to decide as a team.
2. Lay out all possible options. Once you have the facts of the situation, outline all possible options
for the business decision. Be open and honest about each option, regardless of its perceived
ethicality. Also, be aware of any aspects you may have overlooked in the situation and take time to

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brainstorm possible solutions you may not have considered.
3. Sort options by implication. Once you have outlined all of your options in the ethical decision-

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making process, it’s time to consider the effects or consequences of each option. Consider the
following questions: Which options have the greatest benefit (or the greatest good) for the most
people? Which options have the fewest negative consequences (or do the least harm) for the most

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people? Which options benefit your company the most or the least? Which options are in line with

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your company values? Which options reflect your personal values or ethical standards? Which

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options do you consider ethical actions, and which do you consider unethical? Why or why not?
4. Weigh your considerations. After you’ve thoroughly considered the implications of each option,

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decide which ethical principles are most important to your company and which are least important—
this is your framework for ethical decision-making. Ethical choices value variables like widespread
good, honesty, transparency, fairness and equality, rights, and duty. Decide which model of ethics is

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right for you and your company, and move forward with the strongest ethical course of action in your

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situation.

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