UNIT 1

Business Ethics
 Concept of Ethics
Ethics is derived from the Greek word “ethos” which means custom and character.
Ethics involves a discipline that examines good or bad practices within the context of a moral duty.
The Oxford Dictionary states ethics as "The moral principle that governs a person's behaviour or how an
activity is conducted".

Person’s ethics are formulated through the operation of five key forces in the individual’s environment.
1. Family influences
2. Peer influences
3. Experiences
4. Value and Morals
5. Situational factors

Philosophers today usually divide ethical theories into four general subject areas:
1) Descriptive ethics
It is closely related to anthropology (study of the origin and development of human societies) , sociology (study of
the development, structure, and functioning of human society), and psychology (the scientific study of the
human mind) and leans heavily on them. It consists of studying and describing the morality of people,
culture, or society.
It compares different moral systems, codes, practices, beliefs, principles, and values.
2) Metaethics
Metaethics investigates where our ethical principle come from, and what they mean.
That attempts to discover the origin or cause of right and wrong.” It discusses about the theoretical
meaning and reference of moral propositions and how their truth values may be determined.
It deals with questions like “What is goodness? What is right? what is wrong?
3) Normative ethics
Normative ethics, about the practical means of determining a moral course of action.
This may involve articulating the good habits that we should acquire, the duties that we should follow.
It deals with question like What should one do? What is the correct action?

4) Applied ethics
Applied ethics, considers how moral outcomes can be achieved in specific situations and it involves
examining specific controversial issues like abortion, animal rights, environmental concerns etc. It is the
application of moral knowledge to practical problems.

Ethics and related Connotation: Ethos, Morals, Values, Principles

 Ethos
It means “custom” or “character” in Greek. It refers to man's character or personality.
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 Morals
Moral is similar to ethics and many people use the two words interchangeably and derived from the Latin
“mores”, means custom or habit.
Ethics and morals both relate to “right” and “wrong” conduct. However, ethics refer to the series of rules
provided to an individual by an external source. E.g., Their profession.
On the other hand, morals refer to an individual’s own principles regarding right and wrong.

 Values
Value is defined as the principles and ideals, which helps them in making the judgement of what is more
important.
 Principles
It justifies or defends moral rules and/or moral judgments.

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 Business Values
 Business Values refer to the important and enduring beliefs or principles, based on which an individual
makes judgements in life/ Business.

 It is at the centre of our corporate lives which act as a standard of behaviour. They severely affect the
emotional state of mind of an individual in business world.

 They can be personal values, cultural values, or corporate values. Values are forces that cause an
individual to behave in a particular manner.

 It sets our priorities in life, i.e. It reflects what is more important for us. So, if we are true to our values
and make our choices accordingly, then the way we live to express our core values.

 Moreover, if you understand an individual’s values, you can easily identify what is important for them.

The fundamental differences between ethics and value are described in the given below points:
1. Ethics refers to the guidelines for conduct, that address question about morality. Value is defined as the
principles and ideals, which helps them in making the judgement of what is more important.

2. Ethics is a system of moral principles. In contrast to values, which is the stimuli of our thinking.

3. Values strongly influence the emotional state of mind. Therefore, it acts as a motivator. On the other
hand, ethics compels to follow a particular course of action.

4. Ethics are consistent, whereas values are different for different persons, i.e., what is important for one
person, may not be important for another person.

5. Values tell us what we want to do or achieve in our life, whereas ethics helps us in deciding what is
morally correct or incorrect, in the given situation.

6. Ethics determines, to what extent our options are right or wrong. As opposed to value which defines
our priorities for life

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 Concept of Business Ethics
“Business Ethics is generally coming to know what is right or wrong in the work place and doing what is
right. This is regarding effects of products/services and in relationship with the stake holders.” —Cater
Mcnamara

“Business ethics in short can be defined as the systematic study of ethical matters pertaining to the
business, industry or related activities, institutions and beliefs. Business ethics is the systematic handling of
values in business and industry.” —John Donaldson
The term ‘Business Ethics’ refers to the system of moral principles and rules of the conduct applied to
business Every profession or group frames certain do’s and do not’s for its members.
The members are given a standard in which they are supposed to operate. These standards are influenced by
the prevailing economic and social situations.
The codes of conduct are periodically reviewed to suit the changing circumstances. Business ethics refers to
a 'code of conduct' which businessmen are expected to follow while dealing with others.
'Code of conduct' is a set of principles and expectations that are considered binding on any person who is
member of a particular group. The alternative names for code of conduct are 'code of ethics' or 'code of
practice'.
Business ethics comprises the principles and standards that guide behaviour in the conduct of business.
Businesses must balance their desire to maximize profits against the needs of the stakeholders. Maintaining
this balance often requires trade-offs/compromises.

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  Characteristics of Business Ethics:

(i) Discipline
Business ethics are the guiding principles of business function. It is the knowledge through which human
behaviour is learnt in a business situation.

(ii) Ancient Concept

Business ethics is an ancient concept. It has its origin with the development of human civilization.

(iii) Personal Dignity

The principles of ethics develop the personal dignity. Many of the problems of ethics arise due to not
giving dignity to individual. All the business decisions should be aimed by giving dignity to the
customers, employees, distributors, shareholders and creditors, etc. otherwise they develop in immorality
in the business conducts.

(iv) Related to human Aspect

Business ethics studies those activities, decisions and behaviors which are concerned with human aspect.
It is the function of the business ethics to notify those decisions to customers, owners of business,
government, society, competitors, and others on good or bad, proper or improper conduct of business.

(v) Different from social responsibility

Social responsibility mainly relates to the policies and functions of an enterprise, whereas business ethics
to the conduct and behaviour of businessmen. But it is a fact that social responsibility of business and its
policies is influenced by the business ethics.

(vi) Greater than law

Although the law approves various social decisions, but the law is not greater than ethics. Law is usually
related to the minimum control of social customs whereas ethics gives importance to individual and social
welfare actions.

Ethical Theories

1. Deontological Theory
The deontological theory states that people should adhere to their obligations and duties when analysing
an ethical dilemma. This means that a person will follow his / her obligations to another individual or
society because following his duty is considered ethically correct.
For instance, a deontologist will always keep his promises to a friend and will follow the law. A person
who follows this theory will produce very consistent decisions since they will be based on the individual's
set duties. Deontology provides a basis for special duties and obligations to specific people, such as those
within one's family.
For example, an older brother may have an obligation to protect his little sister when they cross a busy
road together.

This theory also praises those deontologists who exceed their duties and obligations, which is called
"supererogation" For example, if a person hijacked a train full of students and stated that one person
would have to die for the rest to live, the person who volunteers to die is exceeding his or her duty to the
other students and performs an act of supererogation.

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2. Teleological Theory
It is also called as consequentiality approach, it determines the moral conduct on the basis of the
consequences(result) of an activity.

Whether an action is right or wrong would depend upon judgement about the consequences of such
action. The idea is to judge the action moral if it delivers more good than harm to society.

Example: lying to save one’s life would be ethically acceptable

An act would be considered moral if it produced more satisfaction than dissatisfaction for society.

It must be understood that this satisfaction or happiness should be for the society in general and not to the
people committing the act or the people who are directly involved in the act.

For example: Not paying the money to someone whom you owe may make you happy but it disrupts the
social system of fairness thus making society unhappy as whole. Hence, it would not be an ethical act.

3. Virtue Theory
The virtue ethical theory judges a person by his character rather than by an action that may deviate from
his normal behavior. It takes the person's morals, reputation and motivation into account when rating an
unusual and irregular behavior that is considered unethical.

Example: For instance, if a person plagiarized a passage that was later detected by a peer, the peer who
knows the person well will understand the person's character and will be able to judge the friend. If the
plagiarizer normally follows the rules and has good standing amongst his colleagues, the peer who
encounters the plagiarized passage may be able to judge his friend more leniently. Perhaps the researcher
had a late night and simply forgot to credit his or her source appropriately. Conversely, a person who has
a reputation for scientific misconduct is more likely to be judged harshly for plagiarizing because of his
consistent past of unethical behavior.

4. Emotive Approach
This approach is proposed by A.J. Ayer. He suggests that morals and ethics are just the personal
viewpoints and "moral judgements are meaningless expressions of emotions." The concept of morality is
personal in nature and only reflects a person 's emotions.

This means that if a person feels good about an act, then in his view, it is a moral act.
For example. Using loopholes to cheat on income tax may be immoral from societal point of view, but the
person filing the income tax returns sees nothing wrong with it. Similarly, not joining the army in time of
war may be unethical and unpatriotic from the point of view of the society and the country but the person
concerned may consider war as immoral in itself.

According to this approach. the whole idea about morality hinges on the personal view point. An
extension of Emotive theory focuses on the integrity of the person. While the person is looking for his
own "long term" benefit. he must have a "virtue ethics perspective" which primarily considers the
person's character, motivations and intentions. Character, motivation, and intentions must be consistent
with the principles accepted by society as ethical.

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 The advantage of this approach is that it allows the ethical decision maker to rely on relevant community
standards.

5. Kohlberg theory of Moral Development

These theories are based on the sorts of reasoning and motivation adopted by individuals with regard
to moral questions. According to Lawrence Kohlberg's Theory, the people progressed in their moral
reasoning through a series of stages.

His theory is based on the foundation that morality is a form of

reasoning that develops in structural stages. The three levels of moral development, suggested by
Kohlberg, are:

1. Pre-conventional level
2. Conventional level and
3. Post conventional level

a) Pre-conventional level
The pre-conventional level of moral development is based to derive benefits for oneself. In the first
level, individual behave according to socially acceptable norms, which are taught mainly by parents
and teachers.

At this level, individuals are motivated mainly by their interest to avoid punishment, or by their desire
to satisfy their own needs, or by the external power exerted on them.
This is the level of development of all young children and some adults, who are unable to reach
beyond a certain limit.

b) Conventional level
In the second level, the moral thinking and behavior of the individual are determined by the standards
of their family, family/community/society are accepted and adopted as the ultimate standard of morality.

At this level, individuals are motivated by the desire to please others and to meet the social units
'expectations, without bothering much about their self-interest.
Thus, as per the second level, individuals give more importance to loyalty and close identification with
society. That is, the norms or customs of one's community, and
others, then their own self-interest.

Many studies of Kohlberg reveal that most adults are living at this level only.
The second level of moral thinking is found in society generally. That's why it is named as
conventional level of moral development.

c)Post-Conventional level
In the post-conventional level, the individuals are guided by strong principles and convictions, not by
selfish needs or pressures from society.

According to Kohlberg, these individuals are called as ‘autonomous', because they think for/by
themselves and also, they do not believe that customs are always right.

The people at this level want to live by general principles that are universally applied to all people.
They always desire to maintain their moral integrity. Kohlberg felt that most adults do not reach the post-
conventional level.

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 6. Rights Theory
In the rights ethical theory, the rights set forth by a society are protected and given the highest priority.
Rights ethics are ethically correct and valid. This theory states that everyone has rights arising simply
from being born—the right to life, maximum individual liberty, and human dignity are all fundamental
rights

Individuals may also bestow rights upon others if they have the ability and resources to do so. For
example, a person may say that her friend may borrow the car for the afternoon. The friend who was
given the ability to borrow the car now has a right to the car in the afternoon.

A major complication of this theory on a larger scale, however, is that one must decipher what the
characteristics of a right are in a society. The society must determine what rights it wants to uphold and
give to its citizens. For a society to determine what rights it wants to enact; it must decide what the
society's goals and ethical priorities are. Therefore, for the rights theory to be useful, it must be used in
conjunction with another ethical theory that will consistently explain the goals of the society

Example In America people have the right to choose their religion because this right is upheld in the
Constitution. One of the goals of the founding fathers of America was to uphold this right to freedom of
religion. However, under Hitler's reign in Germany, the Jews were persecuted for their religion because
Hitler decided that Jews were detrimental to Germany's future success.

Benefits/Advantages to adopt ethics in Business

1. Satisfying Basic Human Needs:
Being fair, honest, and ethical is one the basic human needs. Every employee desire to be such himself
and to work for an organization that is fair and ethical in its practices.

2. Creating Credibility:
An organization that is believed to be driven by moral values is respected in the society even by those
who may have no information about the working and the businesses or an organization.
Example: Infosys is perceived as an organization for good corporate governance and social
responsibility initiatives. This perception is held far and wide even by those who do not even know what
business the organization is into.

3. Uniting People and Leadership:

An organization driven by values is revered by its employees also. They are the common thread that
brings the employees and the decision makers on a common platform. This goes a long way in aligning
behaviours within the organization towards achievement of one common goal or mission.

4. Improving Decision Making:

A man’s destiny is the total of all the decisions that he/she takes in course of his life. The same holds
true for organizations. Decisions are driven by values.
Example: An organization that does not value competition will be fierce in its operations aiming to wipe
out its competitors and establish a monopoly in the market.

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5. Long Term Gains:
Organizations guided by ethics and values are profitable in the long run, though in the short run they
may seem to lose money.
Example: Tata group, one of the largest business conglomerates in India was seen on the verge of
decline at the beginning of 1990’s, which soon turned out to be otherwise. The same company’s Tata
NANO car was predicted as a failure, and failed to do well but the same is picking up fast now.

6. Securing the Society:

Often ethics succeeds law in safeguarding the society. The law machinery is often found acting as a
mute spectator, unable to save the society and the environment.
Example: Technology is growing at such a fast pace that the by the time law comes up with a regulation
we have a newer technology with new threats replacing the older one. Lawyers and public interest
litigations may not help a great deal but ethics can. Ethics tries to create a sense of right and wrong in
the organizations and often when the law fails, it is the ethics that may stop organizations from harming
the society or environment.