Lesson 3:Business Ethics

Business Ethics

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What is ethical decision making? Explain the framework for
ethical decision making process.
The essence of management is decision-making. When a
manager is discharging his functional responsibility; he actually
makes a decision by selecting the most suitable course of
actions from different alternatives available. Ethical decision
making requires ethical thinking. A framework for ethical
decision making involves:

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1. recognizing an ethical issue- i.e. recognizing if there is
something wrong personally, interpersonally, or socially. It
is necessary or find if the conflict, the situation, or the
decision damages people or the community.
2. Finding if the issue has gone beyond legal or
institutional concerns.
3. Knowing whether any individuals and/or groups have an
important stake in the outcome.
4. Evaluating alternative actions from various ethical
perspectives and analyzing which option will produce the
most good and do the least harm.
 
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5. Utilitarian Approach:- the ethical actions is the one that
will produce the greatest balance of benefits over harms.
6. Rights Approach:- The ethical action is the one that most
dutifully respects the rights foal l affected and is fair to all
stakeholders.
7. Fairness or Justice Approache:- the ethical action is the
one that trats people equally,
8. Common Good Approach:- the ethical actions is the one
that contributes most to the achievement of a quality
common life together.
9. Virtue Approach:- the ethical action is the one that
embodies the habits and values of human at their best
10. Implement your decision. 4
Social responsibility of business is to contribute towards
human and social development
Social responsibility is understood as the obligation of
decision makers to take actions that protect and improve
the welfare of society as whole along with their own
interests. Every decision the business person takes and very
action he contemplates has social implications.

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It is said that the acceptance of corporate social responsibility is the
morally correct position. This notion suggests that our modern
industrial society faces many serious social problems brought on, to
large extent, by multinational companies. The corporations therefor
have a moral responsibility to help solve or ameliorate these
problems.

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A corollary to this notion is that because business firms control so
many of the resource in an economy, they should devote some of
these resources to the overall betterment of society. In the last forty
years, the concept of business social responsibility has continued to
evolve and expand. The view that total social responsibilities are
broader than economic responsibilities has become more compelling,
more accepted by managers and more widely put into practice than
ever before.

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• Today, corporations carry out a number of social actions.
The span includes programs of education, public health,
employee welfare, housing, urban development,
environmental protection, resource conservation, and
many more.
• The fundamental reason why the concept and range of
social responsibilities have expanded is that accelerating
industrial activity continuously changes society. In such a
situation, social responsibilities arise from the impacts of
corporate actions on society. And we are more aware
today about adverse consequences of some business
activities.
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• However, given the fact that business operates in a
world of poverty and hunger, the economic efficiency of
business is top priority. Hence its main social
responsibility is to make profits for its stakeholders,
creditors, nation, and its employees and then it should
discharge tis social responsibilities and welfare
commitments.

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1. Business ethics provided an ethical framework for
evaluating business and the corporate world.
2. It allowed critical analysis of business and development of
new and different methods.
3. Business ethics are mixed of personal and social
responsibilities to gather and give it a theoretical foundation.

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• Corporate governance is the requirement of the day
• Corporate governance is the process whereby people in power
direct, monitor and lead corporations, and thereby either
create, modify or destroy the structures and systems under
which they operate.
• The concept of good corporate governance connotes that
ethics is as important as economics, fair play as crucial as
financial success, moral as vital as market share. The concept of
corporate governance, which emerge as a response to
corporate failures and widespread dissatisfaction with the way
may corporates functions, has become on of wide and deep
discussions around the globe recently.

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 Need for corporate governance : the adequacy and
quality of corporate governance shapes growth and
future of any capital market and economy. Focus on
corporate governance and related issues is an inevitable
outcome of a process, which leads the firms to
increasingly shit to financial markets as the pre-eminent
source for capital. In the process, more and more people
are recognizing that corporate governance is
indispensable to effective market discipline. 12
• In an age where capital flows worldwide, just as quickly
as information, a company that does not promote a
culture of strong, independent oversight, risks its very
stability and future health.
• Classic example here is of Indian company of Infosys,
which ahs its systems in place, allows sufficient freedom
to the boards and management to take decision towards
the progress of their companies and to innovate, while
remaining within a framework of effective accountability.

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• Another important aspect of corporate governance relates to
issues of insider trading. It is important that insiders do not use
their position of knowledge and access to inside information about
the company, and take unfair advantage of the resulting
information.
• Good corporate governance, beside protecting the interests of
shareholders and all other stakeholders, contributes to the
efficiency of the business enterprise, to the creation of wealth and
to the country’s economy.

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• Justice and fairness
• Justice means giving each person what he or she
deserves or, in more traditional terms, giving each
parsons his or her due. Justice and fairness are closely
related terms that are often today used interchangeably.
There have, however, also been more distinct
understandings of the two terms. While justice usually
has been used with reference to a standard of rightness
fairness often has been used with regard to an ability to
Jude without reference to one’s feelings or interests;
fairness has also been used to refer to the ability to
make judgments that are not overly general but that are
concrete and specific to a particular case. 15
• In fact, most ethical scholar today hold the view that
there would be no point of talking about justice or
fairness if it were not for the conflicts of interest that are
created when goods and services are scarce and people
differ over who should get what. When such conflicts
arise in our society, we need principles of justice that we
can all accept as reasonable and fair standards for
determining what people deserve.

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• Different kinds of justice:
• There are different kinds of justice. Distributive justice
refers to the extent to which society’ institutions ensure
that benefits and burdens are distributed among
society’s members in ways that are fair and just. When
the institutions of a society distribute benefits or burdens
in justice ways, there is a strong presumptions that those
institutions should be changed.

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• A second important kind of justice is retributive or
corrective justice. Retributive justice refers to the extent
to which punishments are fair and just.
• Yet a third important kind of justice is compensatory
justice. Compensatory justice refers to the extent to
which people are fairly compensated for their injures by
those who have injured them.
• As the philosopher Immanuel Kant and others have
pointe out, human beings are all equal in this respect:

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The Relationship Between Ethics and Businesses

The relationships between ethics and business can be viewed from

two angles:
1. Ethics conflict with profits, and
2. Business always choose profits over ethics
 Everyone in business are interested in one thing: money, and

they will do anything that has to be done to make money.

That’s what business is really all about.

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 The problems for business and business ethics is the equation
of business with money, specifically profits, and the pressure
to increase those profits.
 The organization is structured, people are hired, jobs are
described, raw materials are acquired, and technology
engaged to increase the profit.

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 What is needed, is a framework or blueprint for business and
for people in business to be able to appreciate the ethics of
business, and to regulate themselves rather than waiting for
political, legal, and religious demands to be imposed on them
from the outside.
 In other words, business ethics should be tied to profit
maximization, but to understand of profit maximization needs
to be done on ethical way.

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 It is ethical for business to make profits. The first and the most
important ethical obligations is to make profits for the
company shareholders, for its employees, for creditors and for
the company to be able to perform its social responsibilities
and welfare commitments.
 A sick and loss making company is unwanted and fails to
perform its responsibilities towards its shareholders, creditors
and the society at large. Such businesses are highly unethical.

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 Question and Answers
Define Ethics and Business Ethics?
 Ethics refers to a system of moral principles, a sense of right and
wrong, goodness and badness.
 Business ethics refers to the applications of ethics to business. To
be more specific, business ethics is the study of good and evil, right
and wrong, and just unjust actions of businesses.

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What are the objectives of ethics?
The objectives of ethics are:
 Study of the human behavior and making evaluative assessment
 Establishing moral standards/norms of behavior.
 Making judgment upon human behavior based on these standards
and norms.
 Prescribing moral behavior i.e. making recommendations about
how to or how not to behave.
What's the needs and importance of ethic to the business ?

The following points explain the need for business ethics:

1. Globalization: Globalization leads business involvement
with different cultures and socio-economic systems. Ethical
considerations- such as the different assumptions about the
responsibilities of business, and acceptable business
practices required business ethics.
2. Technology: The capabilities of technology have created a new
level transparency and urgency to business communication. Now
the conduct of businesses around the globe is more exposed than
it was eve was before.
3. Competition: Rising competition brings pressure to managers
to look for new ways to differentiate their companies. Which a
proactive ethical states can have a positive impact on business.
3. Public perception and the law: Managers are no longer
comfortable assuming that employees joining their companies needs
to behave according to manager behavior. public expectations have
changed too. That which was acceptable before, now may not. New
laws enforced which increased the personal and organizational
responsibilities.

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What are the argument for and against of business ethics?
Argument against:
 Businesses are economic entities and should concentrate on
producing goods and services efficiently and maximizing profits
for the shareholders.
 some ethical practices increases the price of products, customers
need bear that. Ethical practices decreases the business
productivities and competitiveness in the market.

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Argument for:
 Business organizations today have accepted ethics as a part of
their business conduct. They have realized that business exists
and operates within the society and is a part of a subsystem
society, so its activities should contribute to the welfare of the
society.
 There is a greater social responsibility on the mangers to
maintain a proper image of their company in the public mind.

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 Ethical practices sometimes reduce the cost of production in
the long run. Ethical and moral behavior gives a unique
advantage in the market place.

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What is Nature of Business Ethics?

 Business ethics refers to the applications of ethics to

business.
 Business exists and operate within the society and is a part of
a subsystems of society, its activites must contribute to the
welfare of the society.

 To survive, develop and excel, business must earn social

sanctions of the society wherein it exists and operates.

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 Without social sanctions, a business cannot find loyal
customers, cannot operate in a market place and soon will
die.
 Business needs to remain ethical for its own good. For the
long run existence and sustained profitability of the firm.

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What is value?

 Values are beliefs that guide actions and judgments across a

variety of situations
 Value are at the core of personality and are a powerful source
affecting behavior. They have an important influences on the
attitudes, perceptions, needs and motives of people at work.

 Values form the structure of culture. They provide the context

within which a society’s norms are established and justified.

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What Are The Relationship Between Ethics and Businesses?

The relationships between ethics and business can be viewed from

two angles:
1. Ethics conflict with profits, and
2. Business always choose profits over ethics

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 The problems for business and business ethics is the equation
of business with money, specifically profits, and the pressure
to increase those profits.
 The organization is structured, people are hired, jobs are
described, raw materials are acquired, and technology
engaged to increase the profit.

35
 What is needed, is a framework or blueprint for business and
for people in business to be able to appreciate the ethics of
business, and to regulate themselves rather than waiting for
political, legal, and religious demands to be imposed on them
from the outside.
 In other words, business ethics should be tied to profit
maximization, but to understand of profit maximization needs
to be done on ethical way.

36
 It is ethical for business to make profits. The first and the most
important ethical obligations is to make profits for the
company shareholders, for tis employees, for creditors and for
the company to be able to perform its social responsibilities
and welfare commitments.
 A sick and loss making company is unwanted and fails to
perform its responsibilities towards its shareholders, creditors
and the society at large. Such businesses are highly unethical.

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