City College of Commerce and Business Administration

Semester: IV
MODULE: II
Subject: BUSINESS ETHICS
UNIT - 1
Topic: INTRODUCTION TO BUSINESS ETHICS
Teacher – Sharmistha Mallick

Areas to be covered:
1. Definition of ethics
2. Morality and ethics
3. Types of ethics
4. Branches of ethics
5. Definition of business ethics
6. Relationship between ethics and business ethics
7. Features of business ethics
8. Scope of business ethics
9. Factors affecting business ethics
10. Arguments in favour and against business ethics
11. Social responsibility
12. Types of social responsibility
13. Corporate social responsibility
14. Features of CSR
15. Constituents of CSR
16. Strategies and principles of CSR
17. Need for corporate social responsibility
18. Pyramid of responsibilities
19. Business ethics and CSR
20. Arguments for and against CSR
21. CSR in the Indian context
 INTRODUCTION TO BUSINESS ETHICS

DEFINITION OF ETHICS:
Ethics is the study of what is right or good human conduct. It is the science of morals in human
conduct. As per Albert Schweitzer “Ethics is the activity of man directed to secure the inner
perfection of his own personality.”

Ethics is a branch of philosophy and social science, which is concerned with the study and
rationalization of moral belief.

MORALITY AND ETHICS:

The term ethics and morality are synonyms but both have a different meaning. Morality involves
individual character and disposition but ethics studies how one should behave in a group or society.
Ethics has a standard code of conduct for behaviour in a group or society.

For examples: If the son of a big politician has committed a crime and he uses his powers to free his
son from legal consequences, as this is immoral act as politician is trying to save a culprit.

If a very close relative of an interviewer has gone for an interview and without as king a question he
gets selected. This is unethical because the selection process must be transparent.

TYPES OF ETHICS:
There are four types of ethics such as:

1. Personal ethics
2. Professional ethics
3. Organizational ethics
4. Societal ethics

BRANCHES OF ETHICS:

Ethics

Applied ethics
Descriptive ethics Normative ethics Meta ethics
(how do we take
(what do people (how should (what do rights
moral knowledge and
think as right?) people act?) imply?)
put it into practice?)
 1. Descriptive ethics: describes and compare how people or groups think and act ethically.
2. Normative ethics: proposes what should be considered right and wrong behaviour.
3. Meta ethics: explores the origins, nature and scope of ethics. It is concerned with the
significance of ethical judgments which comprehends the statements, attitude and judgments
and how they can be reinforced.
4. Applied ethics: decides how people should act in real life situations such as controversial real
world topics.

DEFINITION OF BUSINESS ETHICS:

Business ethics means to conduct business with human touch in order to give welfare to the society.
it is concerned with the attitude of the businessperson in conducting business by inculcating morality
in his business.

According Caster Mcnamara “ Business ethics is generally coming to know what is right or wrong in
the workplace and doing what is right in this regard to effect of product or services and in
relationship with stakeholder.”

E.g. – charging reasonable prices from customers, providing a good environment to employees etc.

RELATIONSHIP BETWEEN ETHICS AND BUSINESS ETHICS:

There is a definite interconnection between the ethics and business ethics. There are many theories
and concept of ethics those are used in business directly or indirectly. As ethical theories providers a
set of analytical guidelines and moral standards applied to the solution of business problems in a
fairy satisfactory manner. The most important ways in which ethical theories can contribute to
business management is to build up ethics models and ethical decision making and solving ethical
problems.

FEATURES OF BUSINESS ETHICS:

1. Code of conduct - It is actually a form of code of conduct.
2. Based on moral and social value - It is a subject that is based on moral and social values.
3. Social responsibility - It implies that business should first think about the welfare of the
society and then to itself.
4. Building framework - It constructs the social, cultural, legal, economic, and other limits in
which a business must operate.
5. Requires education and guidance - Businessmen must be given proper education and
guidance before introducing business ethics.
6. Relative term - It is a relative term. It changes from one business to another and from one
country to another.
7. Against being unethical not profit making - It supports expansion of business activities but
by fair means and not through illegal activities or corrupt practices.
8. Gives protection of social groups – It gives protection to social groups such as consumers,
employees, small businessmen, government, and shareholders.
 9. New concept - It is a new concept. It strictly followed only in developed or developing
countries but not much well adopted in poor countries.

SCOPE OF BUSINESS ETHICS:

1. 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.

Few product related issues in ethics are:

• Defective, addictive and inherently dangerous products.

• Ethical problems arising out of new technologies.
• Ethical relations between the company and the environment.

2. 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 the advertisements clamming fake facts.
• Black markets where under the table transactions takes place.

The ethics of HRM covers those issues arising around the

3. Ethics in HRM:
employer-employee relationship, such as the rights and duties owed
between employer and employee and also it plays a major role in being
ethical while recruiting people.
4. Ethics in Accounting and Finance: The ethical issues in finance that companies and employees
are confronted with the folloeing ethical issues in accounting and finance:

• Window dressing, misleading financial analysis.

• Insider trading, securities fraud leading to manipulation of the financial markets.
• Executive compensation.
• Bribery, kickbacks, over billing of expenses, facilitation payments.
• Fake reimbursements.
• Higher expenses or less profit percentage.
FACTORS AFFECTING BUSINESS ETHICS:
1. Personal code of ethics
2. Organizational code of ethical conduct
3. Societal pressure
4. Government rules and regulations
5. Creating an ethics environment – The firms which strictly adhere to the ethical code can
retain its position unaffected in its line of business for a long term. When other firms in the
same industry are strictly adhering to the ethical standards the firm would be in question and
should also perform up to the level of others. In such a scenario the firm practicing unethical
practices in peer pressure will have to follow ethical code.
6. Legislation – Unethical behavior is not tolerated by any society. It will certainly exert
pressure on the government and the government consequently has no other alternative to
prohibit such unhealthy behavior of the businessmen.

ARGUMENTS IN FAVOUR AND AGAINST BUSINESS ETHICS:

Arguments in Favour of Business Ethics:

1. Meets the demands of business stakeholders – Stakeholders often apply their values and
standards such as ideal working conditions, consumer rights, environmental issues as well as
customer care, provide resources etc for the long term success of the firm. Hence, meeting
stakeholders demand is deemed as good and ethical business.
2. Prevents or minimizes harm
3. Promotes personal morality – The employees spend an extensive amount of time at work, an
ethical commitment to the organization improves commitment and productivity and thus
strengthening organizational loyalty.
4. Reduces business risks: A well-defined code of ethical conduct helps businesses operate
within the standards set by the industry and maintain a robust brand image.
5. Avoids customer boycotts by building customer loyalty towards the organization.
6. Improvement of social conditions creates an environment favourable for long-term prosperity
of the business.

Arguments Against Business Ethics:

1. The Milton Friedman argument – according to Noble-prize winning American economist,
Milton Friedman the ethical duty of business people is to maximize profit. So they should
study business and maybe law not ethics.
2. The argument from incentives – Business people do what’s good for them. Encouraging
ethical behavior among employees as well as among other stakeholder groups by adjusting
financial incentives. Ethics instruction is irrelevant.
3. The gut feeling argument – Ethics is something you feel, not something you think about.
Values are based on personal preference, taste etc.
 4. The moral development argument –Moral character is formed in childhood. As individuals
grow and mature, they trend to exhibit greater rigidity towards moral development. So ethical
instructions serve no purpose.
5. Employees serve as loyal agent – Employees, as loyal agents, are obligated to serve their
employers. So there is no need for ethical instructions.
6. Legal obedience is sufficient for business – Obeying the law is sufficient for businesses and
that business ethics is essentially nothing more than obeying the law.

Thus, none of the arguments for keeping ethics out of business seems forceful. In contrast, there
are fairly strong arguments for bringing ethics into business.

SOCIAL RESPONSIBILITY:
Social responsibility is an ethical framework and suggests that an entity, be it an organization or
individual, has an obligation to act for the benefit of society at large. It is a means of achieving
sustainability. The companies are expected to behave in manner such that they fulfill the social
responsibility towards all of their stakeholders.

TYPES OF SOCIAL RESPONSIBILITY:

There are five types of social responsibility mainly famous-

1. Responsibility towards Government

2. Responsibility towards Society
3. Responsibility towards Shareholders
4. Responsibility towards Consumers
5. Responsibility towards Employees

CORPORATE SOCIAL RESPONSIBILITY:

Corporate Social Responsibility (CSR) is a business approach that contributes to sustainable
development by delivering economic, social, and environmental benefits for all stakeholders. Simple
stated, it is a company’s sense of responsibility towards the community and environment (both
ecological and social) in which it operates. It is how companies manage their business processes to
produce an overall positive impact on society.

So basically CSR is an ethical behavior of a company towards society.

FEATURES OF CSR:
1. It is a very broad concept.
2. It is a strategic management concept.
3. It happens to be the way through which a company achieves a balance between three
concerns, namely economic (profit of the company), environmental (planet) and social
(people) concerns [hence referred to as the triple bottom line- TBL approach].
 4. It is an organizational policy.
5. It is a form of corporate self-regulation integrated into a business model.
6. CSR is a continuing commitment by businesses to behave ethically and contribute to overall
development of the society.

CONSTITUENTS OF CSR:
There are three basic constituents of CSR –

1. To supply socially necessary products create employment opportunities and contribute

towards the sustainable environment.
2. To make desirable social changes and respond to the changing values and priority patterns of
the society.
3. To actively contribute towards the improvement of social environment and discontinue or
internalize all the negative externalities.

STRATEGIES AND PRICIPLES OF CSR:

1. One of the best principles for discharging CSR is to have respect for the human rights.
2. It is necessary to respect for difference of views on CSR subject, methods, time and so on.
3. Diversity and non-discrimination.
4. The CSR activities should make some social contribution.
5. The project should be based on creativity and self realization.
6. Fair dealings and collaboration with the participants in the CSR project should be an
important principal at all times.

NEED FOR CORPORATE SOCIAL RESPONSIBILITY:

1. It helps to reduce social cost.
2. Enhances employees performance.
3. There is no contradiction between CSR and long run profitability of a business concern.
4. Improves public image of the company.
5. Satisfaction of the stakeholders, employees, suppliers as involving in CSR activity will give
them a positive motivation to work better.
6. Generate high profit in the long run for the company.

PYRAMID OF RESPONSIBILITIES:
Archie Carroll organized different corporate social responsibility as a four layered pyramid model
and called it the pyramid of responsibilities.
 Contribute resources to the
Be a good corporate community, improve the quality of
Philanthropic life
citizen responsibilities
Obligation to do what is right,
just and fair, and avoid harm

Be ethical Ethical
responsibilities Law is society’s
codification of right
and wrong

Be law-abiding
Legal responsibilities
The
foundation
on which
Be other levels
profitable rest
Economic responsibilities

BUSINESS ETHICS AND CSR:

Business ethics covers all ethics-related issues including supply-chain process, marketing and
financing in all areas of functionally business.

On the other hand, CSR is more focused on the corporation (or organization) and its obligations and
behavior to other stakeholders in the larger social system.

is, strictly speaking, only about the responsibilities of a company (not individuals) towards society
(not individuals). So a company’s responsibilities to a customer are part of business ethics, but not
part of CSR. And a company’s responsibilities to an employee are part of business ethics, but not
part of CSR.

So Business ethics and social responsibility are two concepts in the business environment. According
to Procedia Economics and Finance, CSR is a subset of business ethics. CSR is related to business
ethics but the former is a narrow topic within the latter area. Businesses should use corporate social
responsibility along with processes like corporate governance, corporate outreach and politics,
business process redesign and corporate strategy to reconcile with the ethicality of doing business,
according to Procedia Economics and Finance.

ARGUMENTS FOR AND AGAINST CSR:

Arguments in Favour of CSR:

1. Corporate business houses have got some moral and social obligations to undertake welfare
programmes.
2. Companies follow CSR practice to maintain a good public image and a source of satisfaction
and a competitive edge for the business.
3. Businesses are responsible for the society as a whole and concern for its development must
take precedence over mere profit-earning motives of the business.
4. By adopting CSR programs companies can avoid legal complications in future.
5. When companies demonstrate their CSR ideas to their employees in attract the employees
and create a sense of satisfaction among the employees.

Arguments Against CSR:

1. CSR programmes will be expensive for the business houses so they may tend to ignore it.
2. CSR involves ethical and social responsibility these are not the special areas of any
business.
3. CSR is often based on subjective considerations.
4. CSR is a complex issue, hence managers may not have proper idea about it how to solve
various social problems.
5. Solving social problems become difficult or even unfeasible in a competitive business
environment unless all firms in an industry follow the same policy.

CSR IN THE INDIAN CONTEXT:

Since the last decade there has been a noticeable shift in the CSR activity, it not only restricts itself to
charity but also to the development of society.

India is the first country in the world to make CSR mandatory, folloeing the amendment to the
Companies Act, 2013 in April 2014.

The Ministry of Corporate Affairs has notified Section 135 and Schedule VII of the Companies Act,
2013 as well as the provisions of the Companies Rules, 2014 which was effective from April, 2014.
Section 135, Chapter IX of The Companies Act, 2013 says that the following companies are
necessary to constitute a CSR committee-

• Companies with a net worth of rupees 500 crores or higher, or

• Companies with a turnover of rupees 1000 crores or higher, or
• Companies with a net profit of rupees 5 crores or higher, or

During any three preceding financial year.

Such Indian companies qualifying for CSR have to mandatorily spend 2% of their average net
profit earned immediately preceding three financial years on CSR activities.

CSR is applicable to-

• All private and public companies in India

• Including its holding and subsidiary
• A foreign company having its branch office and project in India.

In terms of CSR policy, rules and Schedule VI of the Companies Act, 2013 companies focus on need
centric initiatives such as-

• Education
• Poverty
• Women empowerment
• Health care sector
• Skill development for uplifting of rural areas
• Contribution to the PM’s Relief Fund
• Animal welfare etc.

MCQ for Practice:

1. Ethics is a set of _____ or values which is concerned with the righteousness or wrongness of
human behavior.
a) moral principles b) legal principles
c) organizational principles d) all of these

2. Ethical behavior is not in the long run interest of business.

a) true b) false

3. Business ethics are ethics are ethics that refer to the _____ and regulations governing the
business world.

a) the supervisor’s behavior b) moral rules

c) code of ethics d) all of the these

4. Ethical decision making models are to :

 a) examine the influence of individual beliefs and their organizational context on decision
making

b) set out techniques for making ethical decisions

c) help improve corporate economic performance

d) take account of the interests of all stakeholders

5. Business ethics also known as _____

a) personal ethics b) corporate ethics

c) environment ethics d) none of these

6. Ethics refers to a code of principles values that guide the actions of people and groups. These
actions relate to issues that are in the domain of :

a) free choice b) codified law

c) social standards d) all of the above

7. Ethical decisions in the workplace can have tremendous influence on _____

a) individuals b) corporations involve

c) both (a) and (b) d) none of these

8. Corporate social responsibility concerns:

a) how an organization meets the expectations of its stakeholders.

b) the behavior of individual managers.

c) external stakeholder relationships.

d) the way in which an organization exceed its minimum required obligations to stakeholders.

9. Indians companies qualifying for CSR have to mandatorily spewnd at least ______ of their
average net profits earned during immediately preceding three financial years on CSR activities.

a) 2% b) 3%

c) 4% d) 10%

10. every company having a net profit of _______ crore or more during any financial year shall
constitute a CSR committee.

a) 2 b) 3

c) 5 d) 10
Answers to MCQs

1. (a) 2. (b) 3. (b) 4. (a) 5. (b) 6. (c) 7.(c)

8. (d) 9. (a) 10. (c)

References:

• Dr. Soheli Ghosh & Soulina Banerjee, Entrepreneurship Development and

Business Ethics, ABS Publication House
• Dr. Anupam Karmakar, Entrepreneurship Development and Business Ethics,
oriental Book Co. Pvt. Ltd.

The Teacher may be contacted at: sharmistha.mallick375@gmail.com