Lecture Note On: Business Ethics & CSR

Chapter One
Introduction to Business Ethics & Corporate Social Responsibility
1.1. Definition of Business Ethics
The term "ethics" is derived from the Greek word "ethos" which refers to character or customs or
accepted behaviors. Ethics is the moral principle that governs a person's behavior or how an activity is
conducted. Ethics are codes of values and principles that govern the action of a person, or a group of
people regarding what is right versus what is wrong. Ethics is a set of principles or standards of human
conduct that govern the behavior of individuals or organizations. It is the discipline dealing with ‘what is
good (right) and bad’ (wrong). Ethics is a moral philosophy that guides individuals to decide what is
wrong or right, good or bad, and what comprises desirable behavior in a particular set of social
circumstances. Ethics is an application of frameworks, values and principles for developing moral
awareness and guiding behavior and action. It is the study of moral obligation involving the distinction
between right and wrong. The nature and concept of Business Ethics is nothing but the application of
Ethics in business. Ethics set standards as to what is good or bad in organizational conduct and
decision making. It is the standard of conduct and moral values governing actions and decisions in the
work environment.

Business ethics is concerned with the behavior of businessman in doing a business. Business Ethics is
an art and science for maintaining harmonious relationship with society as well as recognizing the moral
responsibility for the rightness and wrongness of business conduct. Business ethics refers to the
application of moral principles to solve business problems. The purpose of business ethics is to guide
the efforts of managers in discharging their duties to the satisfaction of various stakeholders e.g.,
employees, owners, customers, suppliers, and the general public. Business ethics implies general ethical
ideas to business behavior. It is the study of the complex business practices and behaviors that give rise
to ethical issues in organizations.

It deals with internal values that are a part of corporate culture and shapes decisions concerning social
responsibility with respect to the external environment. In the business setting, being ethical means
applying principles of honesty and fairness to relationships with coworkers and customers. Business
ethics is defined as the rules, standards, codes, or principles that provide guidance for morally
appropriate behavior in managerial decisions relating to the operations of the corporation, and business
relationship with the society. Business ethics refers to a 'code of conduct' which businessmen are

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 Lecture Note On: Business Ethics & CSR

expected to follow while dealing with others. Business Ethics is a set of moral principles for arriving at
a decision within the values of the organization. It is the study of business situations, activities and
decisions where issues of right or wrong are addressed. Business ethics comprises the principles and
standards that define /guide behavior in the conduct of business. Business ethics is a combination of two
important words: Business and Ethics.

Business is any organized activity by an individual or organization to produce and sell, for a profit
goods and services that satisfy the needs of society. Ethics: moral guidelines which govern good
behavior. Ethics is about one’s ability to differentiate right from wrong. Put together, business ethics is
a form of professional ethics that examines ethical principles and ethical problems that arise in a
business environment. Business ethics is defined as the principles and standards that determine
acceptable conduct in business organizations. The acceptability of behavior in business is determined by
customers, competitors, government regulators, interest groups, and the public, as well as each
individual’s personal moral principles and values. It is moral guidelines for the conduct of business
based on the notions of what is right and wrong. It addresses moral and ethical issues that may occur in
the business environment.

Characteristics of Business Ethics

There are several characteristics or features of business ethics.
 Business ethics are based on social values, as the generally accepted norms of good or bad and
‘right’ and ‘wrong’ practices.
 It is based on the social customs, traditions, standards, and attributes.
 Business ethics determine the ways and means for better and optimum business performance.
 Business ethics provide basic guidelines and parameters towards most appropriate perfections in
business scenario.
 Business ethics offers to establish the norms and directional approaches for making an appropriate
code of conducts in business.
 Business ethics are based on the concepts, thoughts and standards.
 Business ethics basically inspire the values, standards and norms of professionalism in business for
the well-being of customers.
 Business ethics is to motivate and is consistently related with the concept of service motives for the
customers’ view point.

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 Lecture Note On: Business Ethics & CSR

 Business ethics shows the better and perspective ways and means for most excellences in
customization.
 Business ethics aims to emphasize more on social responsibility of business towards society.
Elements of Business Ethics
Some of the elements of Business Ethics are:
1. A Formal Code of Conduct: Code of conduct is statements of organizational values. The code
should reflect the managements desire to incorporate the values and policies of the organization.
2. Ethics Committee: Ethics committees can rise concerns of ethical nature; prepare or update code of
conduct, and resolve ethical dilemma in organization. They formulate ethical policies and develop
ethical standards. They evaluate the compliances of the organization with these ethical standards.
3. Ethical Communication System: it helps the employees in making enquiries, getting advice if
needed and reporting all the wrong done in the organization.
Objectives of ethical communication system are:
 To communicate the organizations values and standards of ethical conduct or business to
employees.
 To provide information to employees on the company’s policies and procedures regarding ethical
code of conduct.
 To help employees get guidance and resolve queries.
 To set up means of enquiries such as suggestion boxes and e-mail facilities.
 Top management can communicate the ethical standards to the lower management which can be
further transferred to the operational level.
4. Ethics Training Program: Any written ethical code will not work unless supported and followed
by a proper training program. When new employees are to be recruited, the induction training should
be arranged for them. Training will help them to familiarize with company’s ethical code of
behavior.
5. A Disciplinary System: it should be established in the organization to deal with ethical violations
promptly and severely. If unethical behavior is not properly dealt with, it will result in threatening
the entire social system. A company should adopt fair attitude towards everyone without any
discrimination.

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6. Monitoring: To make an ethical program, a successful monitoring program needs to be developed.

A monitoring committee is formed. Monitoring can be done by keen observation by ethics officer,
surveys and supporting systems.
Principles of Business Ethics
1. Principle of Conscience: it is based on inner-feeling of persons to analyze the sense of right and
wrong.
2. Principle of Publicity: all the activities and performance as conducting in business should be well
informed to every person or organizations that are directly or indirectly attached with business.
3. Principle of Purity: every businessman should follow the politeness, truthfulness and tolerance for
developing the feelings of mental peace.
4. Principle of Humanity: every businessman should follow the human values and human aspects
within their policies, programs and different working areas.
5. Principle of Universal Values: every businessman should conduct and perform the task and
different business activities to be based on universal assumptions, customs and overall accepted
norms and principles by society.
6. Principle of Rationality: On the basis of the ethical code of conduct, every businessman should
analyze and evaluate the good or bad, right or wrong, ethical or unethical aspects within their
business transaction and day to day working of the business houses. They must follow the rational
attitudes and behavior.
7. Principle of Satisfaction: Every businessman is required to create and develop their role and
behavior to establish pleasure and happiness with other persons and the society at large.
8. Principle of Transparency: All the business activities should be well informed with justified
manners with their different stakeholders and society.
Determinants of Business Ethics
The major determinants of business ethics are:
1. Family, School and Religion: The formation of ethics begins early in life. As a child one learns
about what is good and bad from parents. Schools and Religion also greatly influence the formation
of ethical values (such as truthfulness, honesty, sincerity, tolerance, etc.) at an early age.
2. Peers, Colleagues and Superiors:
In the company of good friends, the child realizes the importance of high ethical standards in life. If he
wishes to make friends with peers who steal, smoke and use drugs, he will probably accept those

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 Lecture Note On: Business Ethics & CSR

behaviors as ethical. Colleagues in an organization, too, shape the value system of an individual. He
adopts the attitudes, beliefs and values of the group to which he belongs. Likewise, most people yield to
pressure from superiors in doing things that many consider unethical otherwise.
3. Experiences in Life: Experiences in life teach many lessons.
4. Values and Morals: People who value material possessions in life may not have strong ethical
standards regarding behaviors that lead to accumulation of personal wealth.
5. Threatening Situations: An employee threatened with losing a permanent job may resort to
unethical acts to save his job. Situations force people to change their ethics and respond in an
unexpected manner.
6. Organizational Demands: Corporate goals are paramount and exert considerable pressure on
executives to change their ethical views.
7. Government Legislation, Rules and Regulations: Laws are generally passed in response to social
demands. Government regulations regarding product safety, working condition are all supported by
laws. They determine what are the acceptable standards and practices.
8. Social Pressures: Social forces and pressures have considerable influence on ethics in business.
Code of ethics: It is an organizational published statement of moral expectations for employee
conduct. Codes of Ethics –Formalized rules and standards that describe what a company expects of its
employees. Ethical Dilemma: An ethical dilemma is a situation where one is in conflict between moral
imperatives. Ethical dilemma is also known as ethical paradox. Ethical dilemma is a situation in which it
cannot be determined whether the action is right or wrong. Whistle blowing
is the act of an employee exposing an employer’s wrongdoing to outsiders, such as the media or
government regulatory agencies.
Importance of Business Ethics in functional area of business
Business ethics plays a very crucial role in various business functions, which are given as follows:
o Ethics in Finance: It deals with various ethical dilemmas and violations in day-to-day financial
transactions. An example of ethical violations is data avoidance in which enterprises present a
fabricated statement of accounts and other records, which are open to investigation.
o Ethics in Human Resource Management: It deals with the enforcement of the rights of
employees in an enterprise.
o Ethics in Marketing: deals with misinforming the customers about the products or services,
deciding high prices for the products and services, creating false impression on the customers

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about the features of products and promoting sexual attitudes through advertising; thus, affecting
the young generation and children.
o Ethics in Production: It deals with the responsibility of an organization to make sure that product
and processes of production is not causing harm to the environment.
1.2. Definition of Corporate Social Responsibility (CSR)
Corporate social responsibility is the continuing commitment by business to behave ethically and
contribute to economic development while improving the quality of life of the work force and their
families as well as the local community and society at large. It is a concept whereby companies integrate
social and environmental concerns in their business operations and in their interaction with their
stakeholders on a voluntary basis. Corporate social responsibility associations reflect the organization's
status and activities with respect to its perceived societal obligation. It is a concept whereby
organization’s consider the interests of society, based on the impact of their activities on customers,
employees, shareholders, communities and the environment, for all aspects of their operations. It is a
business’s obligation to maximize its positive impact and minimize its negative impact on society. It is a
company concern and commitment towards society sustainability and development. It is the ethical
behavior of company towards society. It is an idea where by companies integrates economic, societal
and environmental concerns in their business operation. It is a business concern for social welfare. It a
responsibility towards the community and environment in which it operates. It is business philosophy
that stresses the need for the firms to behave as good corporate citizens. Corporate Social Responsibility
involves going beyond minimum requirements to protect the environment and contributing to social
welfare generally. CSR is a management concept where companies integrate social and environmental
concerns in their business operations and interactions with their stakeholders. Corporate Social
Responsibility (CSR) is a voluntary approach that monitors and ensures that an enterprise adheres to
ethical standards and norms.

Benefits of CSR

 It maintains a positive reputation of the  It increases employee loyalty.

company.  It encourages environmental consciousness.

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 It increases involvement with local  It enhances relationships with stakeholders.

community.  Differentiating yourself from the competitors
Reputation management is an effort to enhance a corporation’s image.
1.3. Corporate Citizenship
Corporate citizenship refers to a company’s responsibilities toward society. Corporate Citizenship: it is
the extent to which businesses meet the legal, ethical, economic, and voluntary responsibilities placed on
them by their stakeholders. Corporate citizenship involves the social responsibility of businesses and the
extent to which they meet legal, ethical, and economic responsibilities, as established by shareholders.
It embraces all facets of corporate social responsibility, responsiveness and performance.
Principles of Corporate Citizenship
Good corporate citizens strive to conduct all business dealings in an ethical manner, make a concerted
effort to balance the needs of all stakeholders, while working to protect the environment.

1. Engages in fair and honest business practices in its relationship with stakeholders.
2. Sets high standards of behavior for all employees.
3. Strives to manage the company for the benefit of all stakeholders.
4. Initiates and engages in genuine dialogue with stakeholders.
5. Invests in the communities in which corporation operates.
6. Respects the rights of consumers.
7. Offers quality products and services.
8. Provides information that is truthful and useful.
9. Provides a family-friendly work environment.
10. Provides an equitable reward and wage system for employees.
11. Engages in open and flexible communication with employees.
12. Strives for a competitive return on investment.
13. Engages in fair trading practices with suppliers.
14. Demonstrates a commitment to the environment & sustainable development.

The Development of Corporate Citizenship

The five stages of Corporate citizenship are:

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1. Elementary: a company’s citizenship activities are basic and undefined because there are limited
corporate awareness and little senior management involvement.
2. Engagement: companies will develop policies that promote the involvement of employees and
managers in activities.
3. Innovative: Citizenship policies become more comprehensive.
4. Integrated: citizenship activities are formalized & blend with the company’s regular operations.
Performance in community activities is monitored.
5. Transforming: they understood that corporate citizenship plays a strategic part in sales growth
and expansion to new markets.
1.4. Social Responsiveness &Performance
Social responsiveness emphasizes action, activity. Responsiveness connotes a dynamic, action oriented
condition. Social responsiveness is an action- oriented compliment to CSR. Social responsiveness
refers to the capacity of a corporation to respond to social pressures. Social performance emphasizes
outcomes, results.

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