BUSINESS ETHICS

Ethics is a branch of social science. It deals with

moral principles and social values. It helps us
to classify, what is good and what is bad? It tells
us to do good things and avoid doing bad
things.
So, ethics separate, good and bad, right and
wrong, fair and unfair, moral and immoral and
proper and improper human action. In short,
ethics means a code of conduct.
 Business ethics
Business ethics is the behavior that a business
adheres to in its daily dealings with the world.
The ethics of a particular business can be diverse.
They apply not only to how the business interacts
with the world at large, but also to their one-on-
one dealings with a single customer.
The main goal of management ethics is to treat
all employees and customers justly and fairly. It
is believed that by following a moral and ethical
code, business will improve. When a
management team adheres to management
ethics, employees become motivated and a
workplace environment becomes motivational.
In short, business ethics means to conduct
business with a human touch in order to give
welfare to the society.
According to Andrew Crane,
"Business ethics is the study of business situations,
activities, and decisions where issues of right and
wrong are addressed.“

According to Raymond C. Baumhart,

"The ethics of business is the ethics of
responsibility. The business man must promise that
he will not harm knowingly."
 Features of Business Ethics
Code of conduct : Business ethics is a code of conduct. It
tells what to do and what not to do for the welfare of the
society. All businessmen must follow this code of conduct.
Based on moral and social values : Business ethics is
based on moral and social values. It contains moral and
social principles (rules) for doing business. This includes
self-control, consumer protection and welfare, service to
society, fair treatment to social groups, not to exploit
others, etc.
Gives protection to social groups : Business ethics give
protection to different social groups such as consumers,
employees, small businessmen, government,
shareholders, creditors, etc.
Provides basic framework : Business ethics provide
a basic framework for doing business. It gives the
social cultural, economic, legal and other limits of
business. Business must be conducted within these
limits.
Voluntary : Business ethics must be voluntary. The
businessmen must accept business ethics on their
own. Business ethics must be like self-discipline. It
must not be enforced by law.
New concept : Business ethics is a newer concept. It is
strictly followed only in developed countries. It is not
followed properly in poor and developing countries.
 
Requires education and guidance : Businessmen
must be given proper education and guidance
before introducing business ethics. The
businessmen must be motivated to use business
ethics. They must be informed about the advantages
of using business ethics. Trade Associations and
Chambers of Commerce must also play an active
role in this matter.
Relative Term : Business ethics is a relative term.
That is, it changes from one business to another. It
also changes from one country to another. What is
considered as good in one country may be taboo in
another country
 Need or Importance of Business Ethics
Stop business malpractices
Improve customers' confidence
Survival of business
Safeguarding consumers' rights
Protecting employees and shareholders
Develops good relations
Creates good image
Smooth functioning
Consumer movement
Consumer satisfaction
Importance of labour
Healthy competition
 Rules or Principles of Business Ethics
Rules or principles of business ethics are the
code of conduct for businessmen. It tells us how
businessmen should do business for social good.
These principles are related to consumers,
employees, investors, local community and the
society as a whole.
The important rules or principles of business
ethics are:
Avoid exploitation of consumers
Avoid profiteering
Encourage healthy competition
Ensure accuracy
Pay taxes regularly
Get accounts audited
Fair treatment to employees
Keep investors informed
Avoid injustice and discrimination
 Woodrow Wilson's rules :
According to the late American President Sir
Thomas Woodrow Wilson, there are four important
principles of business ethics. These four rules are as
follows:-
Rule of publicity : According to this principle, the
business must tell the people what it is going to do. It
must not create doubts, misunderstanding, suspicion,
secrets, etc.
Rule of equivalent price : According to this principle, the
customer must be given proper value for their money. So
the business must not sell below standard, outdated and
inferior (poor) goods for high prices.
 Rule of conscience in business : If the business is
conducted properly, then it is beneficial to the society.
Otherwise, it is harmful to the society. Therefore, the
businessman must have a conscience, i.e. a morale sense of
judging what is right and what is wrong. He must be very
careful while taking business decisions because these
decisions affect the entire society.

Rule of spirit of service : The business must give

importance to the service motive. That is, priority must be
given to render service to human beings over profit.
 Corporate culture
Corporate culture and ethics are interrelated in many
businesses because the former often drives the latter.
A company’s corporate culture is the ideas, beliefs
and values that it strives to create in its working
environment and employees. Ethics typically are a
large part of a company culture.
To make the connection between its culture and
ethics prevalent, a company can create a mission
statement with a direct reference to ethics.
Companies must then assess business activities
through the prism of its ethical code to determine the
effectiveness of the corporate culture.
A company’s corporate culture typically is an unseen
part of a working environment. It dictates how a
company should act and react to both internal and
external parties.
For example, buying low-cost materials and passing
finished goods as high quality even though they
contain inferior materials might be unethical.
Negotiating with other businesses will not be a
hostile process when a company desires a strong,
ethical corporate culture. Companies foster this
behavior by creating a positive corporate culture.
 Ethics and culture
The relationship between business ethics and
culture can be viewed from the angle of the
influence of a particular culture on the practice of
business ethics. In its application to business ethics,
culture may be defined in terms of the place of origin
of the individuals who make up the human capital of
the organization. Culture may also be defined in
terms of a collection of a group of people who have
something in common, such as an ideology, the fact
that they are a minority, or the fact that they belong
to a particular sex or religion
Business ethics and culture may also be analyzed
from the perspective of the manner in which the
management and employees of the business apply
ethical standards to their business operations, while
conducting their business in another country.
Business ethics and culture means that the
employees and management must apply ethical
standards in their dealings with customers from
other cultures.
 Ethics committees
Group of executives assigned to oversee the
organization’s ethics by ruling on questionnaire
issues and disciplining violators. Ethical
structures represent the various systems,
positions and program a company can undertake
to implement ethical behavior. An ethics
committee is a group of executives appointed to
oversee company ethics. The committee provides
rulings on questionable ethical issues.
The ethics committee assumes responsibility for
disciplining wrongdoers which is essential if the
organization is to directly influence employee
behavior. These offices are headed by a chief ethics
officer, a company executive who oversees all aspects
of ethics and legal compliance including establishing
and broadly communicating standards, ethics
training, dealing with exceptions or problems and
advising senior managers in the ethical and
compliance aspects of decisions. Ethics training
programs also help employees deal with ethical
questions and translate the values stated in a code of
ethics into everyday behavior. Training programs are
an important supplement to a written code of ethics.
 Roles for an Ethics Committee
1. Contribute to the continuing definition of the
organization's ethics and compliance standards
and procedures.
2. Assume responsibility for overall compliance
with those standards and procedures.
3. Oversee the use of due care in delegating
discretionary responsibility.
4. Communicate the organization's ethics and
compliance standards and procedures, ensuring
the effectiveness of that communication.
5. Monitor and audit compliance.
6. Oversee enforcement, including the assurance
that discipline is uniformly applied.
7. Take the steps necessary to ensure that the
organization learns from its experiences.
 Whistle Blowing
Employees’ disclosure of illegal, immoral, or
illegitimate practices on the employer’s part is
called whistle blowing. No organization can rely
exclusively on codes of conduct and ethical
structures to prevent all unethical behavior.
Holding organizations accountable depends to
some degree on individuals who are willing to
blow the whistle if they detect illegal, dangerous
or unethical activities. Whistle blowers often
report wrongdoing to outsiders such as regulatory
agencies, senators or newspaper reporters.
 Ethical Audit
An investigation into how well (or poorly) a
company conforms to the ethical standards of its
industry or society generally. An ethics audit
may consider the company's own practices, how
it redresses grievances, how it discloses its
finances, whether it punishes whistleblowers,
and even the general cultural surrounding its
business dealings. Some companies may
formally adopt a code of ethics and conduct
periodic ethics audits to see how closely they
follow their own rules.
 Communicating Ethical Values
A communications strategy for the ethics
programme would aim to raise awareness of the
organisation’s values, its code of ethics, what
ethical practices look like and why they are
important for the success of the business.
It will also guide employees towards sources of
advice and where to raise concerns, and it will
provide examples of how the organisation is
living up to and being challenged on its values.
Ethical communication system is a necessity to educate
employees about the organizations ethical standard and
policies.
Objectives -
(i) to communicate the organizations‘ values and
standards of ethical conduct or business to employees.
(ii) to provide information to the employees on the
company‘s policies and procedure regarding ethical conduct
of business.
(iii) to help employees to get guidance and resolve
questions regarding compliance with the firms standards of
conducts and values.
(iv) to set up the means of enquiry such as telephone
hotlines, suggestion boxes and email facilities for employees
to contact with and get advice from competent authorities.
 Means of communication
Top management can communicate the ethical
standards to lower level managers and they can
communicate it to operational levels.
Sometimes the organization publishes newsletters. It
can be used to expose company‘s code or ethics. If an
organization has briefing and management meeting,
these can be used as a means of communicating values.
Certain companies use attractive multi colored posters
to publicize their codes and ethics, these posters are
placed in most visible places of the organization
premises
 Ethics Office and Officers 

Ethics offices are to be established to

communicate and implement ethics policies
among employees of the organization. For this
purpose an ethics officer is to be appointed. The
ethics officer should develop a reputation for
credibility, integrity, honesty and responsibility
through establishment of such ethics monitoring
bodies.
 Functions of the Ethics Officers 

1. Ethics officers are responsible for assessing the

needs and risks that an organization-wide ethics
programme must address.
2. To develop and distribute a code of conduct or
ethics.
3. To conduct ethical training programme for
employees.
4. To establish and maintain a confidential service to
answer employees questions about ethical issues.
5. To ensure that the organization is in
compliance with governmental regulations
6. To monitor and audit ethical conduct
7. To take action on possible violations of the
company‘s code
8. To review and update code in time
 Ethics Training Programme 

To ensure a good ethical behavior in the organization

the employees are to be given training. For this purpose
a corporate ethical training programme is to be devised.
The main objective of an ethical training program is to
offer assistance to employees to understand the ethical
issues that are likely to arise in their work place. When
new employees are to be recruited, the induction
training should be arranged for them.
This training will help to familiarize with the company‘s
ethical code of behavior. Importance of abiding code
should be dealt with at the induction meeting.
 Corporate Social Responsibility
Corporate responsibility is a company's
commitment to good corporate citizenship. It
demonstrates a company's ethics and values on
issues such as the environment, global poverty,
community programs and employee welfare.
 Corporate Social Responsibility is concerned with
treating the stakeholders of a company or institution
ethically or in a responsible manner. ‘Ethically or
responsible' means treating key stakeholders in a manner
deemed acceptable according to international norms.
Social includes economic and environmental
responsibility. Stakeholders exist both within a firm and
outside.
The wider aim of social responsibility is to create higher
and higher standards of living, while preserving the
profitability of the corporation or the integrity of the
institution, for peoples both within and outside these
entities.
CSR is a process to achieve sustainable development in
societies.
 Arguments for and against Social
Responsibility
FOR
Public expectations: Public opinion in support of
business pursuing social as well as economic
goals is now well solidified.
Long run profits: Socially responsible businesses
tend to have more and secure long run profits.
This is the normal result of the better
community relations and improved business
image that responsible
Ethical obligation: A business firm can and should
have a conscience. Business should be socially
responsible because responsible actions are right
for their own sake.
Public image: Firms seek to enhance their public
image to gain more customers, better employees,
access to money markets, and other benefits.
Better environment: Involvement by business can
solve difficult social problems, thus creating a better
quality of life and a more desirable community in
which to attract and hold skilled employees.
Discouragement of further government regulation:
Government regulation adds economic costs and
restricts management’s decision flexibility by
becoming socially responsible, business can expect
less government regulation.
Stockholder interests: Social responsibility will
improve the price of a business’s stock in the long
run. The stock market will view the socially
responsible company as less risky and open to public
attack.
Possession of resources: Business has the financial
resources, technical experts, and managerial talent to
provide support to public and charitable projects that
need assistance.
Against
Violation of profit maximization: This is the essence
of the classical viewpoint. Business is most socially
responsible when it attends strictly to its economic
interests and leaves other activities to other
institutions.
Dilution of purpose: The pursuit of social goals
dilutes business’s primary purpose: economic
productivity. Society may suffer as both economic
and social goals are poorly accomplished
Costs: Many socially responsible activities do not pay
their own way. Someone has to pay these costs.
Business must absorb these costs or pass them on to
consumers in higher prices.
Too much power: Business is already one of the most
powerful institutions in our society. If it pursued
social goals, it would have even more power. Society
has given business enough power
Lack of skills: The outlook and abilities of business
leaders are oriented primarily toward economies.
Business people are poorly qualified to cope with
social issues.
Lack of accountability: Political representatives
pursue social goals and are held accountable for
their actions. Such is not the case with business
leaders. There are no direct lines of social
accountability from the business sector to the
public.
Lack of broad public support: There is no broad
mandate from society for business to become
involved in social issues. The public is divided on the
issue. In fact, it is a topic that usually generates a
heated debate. Actions taken under such divided
support are likely to fail.
Functions of Corporate Social Responsibility

Ethical Function
Ethics are one of the most important aspects in
corporate governance and therefore have an important
function in corporate social responsibility. A company
must have internal controls regarding the expected
ethical behavior and consequences of unethical
business practices of its top executives and employees.
Behaving ethically makes the company as a whole
accountable to its investors, shareholders and
consumers.
Legal Function
The legal function of corporate social responsibility
is to encourage transparency in a company's
business practices and financial reporting.
Maintaining high levels of legal business practices,
such as adhering to Occupational Safety and Health
Administration, or OSHA, regulations promotes
goodwill toward employees. Maintaining high levels
of legal financial practices maintains good will
among investors, stakeholders and government
financial-reporting regulatory agencies such as the
Securities and Exchange Commission, or SEC.
Societal Function
The societal function of corporate social
responsibility is to respect and invest in the
communities in which the company operates.
Companies are aware of how the production of their
products affects the local community. These
companies take necessary actions to diminish the
negative impacts of factors such as increased traffic,
noise and pollution for the communities in which
they operate. The societal function of corporate
social responsibility also includes companies
reinvesting in the communities in which they
operate, such as donating money to local charities.
Ecological Function
The ecological function of corporate social
responsibility is to not only respect the immediate
environment in which the company operates but also
to respect the company's effect on the global
environment. Companies are aware of the
environmental impact the production of their products
have on their local communities. In corporate social
responsibility, these companies adhere to strict
standards in an effort to diminish the negative impact
of the environmental byproducts such as air and water
pollution from the production of their products.
Having such standards impacts both the local and
global environments.
 Types of Corporate Social Responsibility
Environmental Responsibility
People expect businesses to exhibit
environmentally responsible behavior. Specific
environmental issues that affect businesses
include global warming, sustainable resources
and pollution. Businesses are being urged by
environmental groups and governments to
reduce their carbon footprint, to obtain their
materials from sustainable sources and to
reduce their pollution.
Human Rights Responsibility
The ethical issue for corporations is ensuring
that human rights are respected throughout all
levels of the supply chain. Major companies have
received criticism for their use of sweat shops
and for sourcing resources that are harvested by
unfairly treated workers. This has lead to a push
for the use of strict labor standards to be applied
to suppliers, and a demand for fair trade
products such as chocolate and coffee.
Financial Responsibility
Financial responsibility is an important issue in
corporate social responsibility. businesses are
questioned about the accuracy of their financial
reporting by increasingly skeptical shareholders
and government officials, as evidenced by the
Sarbanes-Oxley Act. Employees are expected to
act as whistle blowers in such situations, and
white collar crime is seeing high-profile
prosecutions.
Political Responsibility
Trading with repressive regimes is a difficult
issue in corporate social responsibility. Some
businesses argue that working with these
regimes will help to advance them and bring
rights to the countries.
 Corporate Governance
Corporate Governance refers to the way a
corporation is governed. It is the technique by
which companies are directed and managed. It
means carrying the business as per the
stakeholders’ desires. It is actually conducted by
the board of Directors and the concerned
committees for the company’s stakeholder’s
benefit. It is all about balancing individual and
societal goals, as well as, economic and social
goals.
 Benefits of Corporate Governance

Good corporate governance ensures corporate

success and economic growth.
Strong corporate governance maintains
investors’ confidence, as a result of which,
company can raise capital efficiently and
effectively.
It lowers the capital cost.
There is a positive impact on the share price.
It provides proper inducement to the owners as
well as managers to achieve objectives that are
in interests of the shareholders and the
organization.
Good corporate governance also minimizes
wastages, corruption, risks and
mismanagement.
It helps in brand formation and development.
It ensures organization in managed in a manner
that fits the best interests of all.
 Ethical bodies
Transparency International (TI) is a non-governmental
organization that monitors and publicizes corporate and
political corruption in international development. It
publishes an annual Corruption Perceptions Index, a
comparative listing of corruption worldwide. The
headquarters is located in Berlin, Germany but operates
through more than 70 national chapters.
Transparency International is the global civil society
organization leading the fight against corruption. It
brings people together in a powerful worldwide coalition
to end the devastating impact of corruption on men,
women and children around the world. TI's mission is to
create change towards a world free of corruption.
Other Bodies
Indian Council for Medical Research (ICMR)
Forum for Ethics Review Committees of Asia
Pacific (FERCAP)
Strategic Initiative for Developing Capacity in
Ethical Review (SIDCER)