Business Ethics

Dr. Imran Ahmed Khan

Business Ethics vs. Work Ethics

Business Ethics Work Ethics

• Observing morality while conducting
a business or observing morality in
business activities or business
decision making.
• Business Ethics is nothing but the
application of Ethics in business.
• Business’s private interest verses
public interest
• Honest, integrity, respect for others,
keeping promise, loyalty, fairness,
law abiding etc.
• Work ethic has been understood as a
value based on hard work and
diligence.
• “work smart”. Or Hard Work?
• Work ethic traits: appearance,
attendance, attitude, character,
communication, cooperation,
organizational skills, productivity,
respect and teamwork
Common Ethical Issues at Workplace
• Harassment and Discrimination in the Workplace: Age, Disability, Equal
Pay, Pregnancy, Race, Religion, Sex and Gender.
• Health and Safety in the Workplace
• Whistleblowing or Social Media Rants
• Ethics in Accounting Practices (2001 scandal with American oil giant
Enron, and Satyam scam in India)
• Nondisclosure and Corporate Espionage
• Technology and Privacy Practices
• Misuse of company’s resources
Ethics in Finance
• Following truthfulness and authenticity in business transactions
• Seeking the fulfillment of mutual interests
• Getting the economies and financial units freed from greed-based
methodologies.
Ethics in Human Resource Management
• Having a right to work and be compensated for the same
• Possessing a right for free association and participation
• Enjoying a right for fair treatment in an enterprise
• Holding a right to work in a hazard-free environment
• Blowing whistle (an activity where an employee can raise voice
against any wrong practice of anyone in an enterprise)
Ethics in Marketing:
• Misinforming the customers about the products or services
• Deciding high prices for the products and services
• Creating false impression on the customers/consumers about the
features of products
• Promoting sexual attitudes through advertising; thus, affecting the
young generation and children.
Ethics in Production
• Products and processes of production is not causing harm to the
environment.
• Avoiding rendering services or producing products that are hazardous
to health. For example, tobacco and alcohol
• Maintaining ethical relations with the environment and avoiding
environmental pollution.
Development of Business Ethics in the US in the 20th Century
• In the 1920s, the concept of ‘living wages’ and ‘fair price’ emerged.
• In the 1930s, the business world was blamed for the economic problems and ‘New Deal’ – was introduced.
• In the 1950s and the 1960s, environmental issues and civil rights issues dominated the debates and ‘fair
deal’ emerged.
• In 1962 President John F Kennedy - the Consumers’ Bill of Rights.
• In the 1980s, business academics and practitioners acknowledged business ethics as a field of study.
• Business ethics - a prominent concern in leading companies; General Electric, Chase Manhattan,
General Motors, Atlantic Richfield, Caterpillar and S. C. Johnson & Son, Inc.
• The ethics and social policy committees to address ethical issues (Ferrell, et al., 2014, p.13).
• The 1980s self-regulation, rather than regulation by government, was in the public’s interest.
• Many tariffs and trade barriers were lifted, and businesses merged and divested within an
increasingly global atmosphere.
• In 2001, highly visible corporate misconduct at Enron, WorldCom, Halliburton, and the accounting
firm Arthur Andersen scams…. Government and the public to look for new ways to encourage
ethical behaviour (Fraud Inc., 2002).
A Bad Model: World Com
• Bernie Ebbers built World Com (a telecom company) from scratch it value
reached $175 billion at the height if the stock market boom.
• He was responsible for the merger with the telecom leader MCI, worth
$37 billion, in 1998 (The Economist, 2010, p.109).
• He wanted to show that the company was growing continuously and was
making huge profits.
• He resorted to all kinds of financial frauds.
• He was exposed and arrested. Ebbers was found guilty. The company
faced a crisis resulting in the biggest bankruptcy in the history of
America. In 2005, he was sentenced to imprisonment for 25 years.
Unethical practices will result in destruction of wealth and the death of
the organizations.
For a decision to be ethical, it should
possess the following characteristics:
a. Right – that which is morally correct and due;
b. Equitable – that which is just and equal;
c. Good – that which brings in the highest good for all concerned;
d. Proper – that which is appropriate and acceptable;
e. Fair – that which is honest and due;
f. Just – that justice is not only done, but is also seen to have been
done.
Ethics are unstructured, i.e., it does not have a
universal acceptance, mainly because:

a. Ethics depend upon our moral standards;

b. Moral standards depend upon our value system;
c. The value system of people depend upon their background and
childhood experience; and
d. The background and experience of people are vastly different.

Hence the ethical practices of people are also different.

The theories of business ethics can be divided into two
categories:
1. Teleological theories, and
2. Deontological theories.

Teleological Theories Deontological Theories

• The term ‘teleological’ is derived
from the Greek word ‘telos’
which means an end.
• According to teleological
theories the Tightness of an
action is determined solely by its
consequences rather than by any
feature of the action itself.
• The term ‘deontological’ is
derived from the Greek word
‘deon’ which means duty.
• Duty or obligation is the
fundamental concept in
deontological theories.
In classical utilitarianism, pleasure is regarded good, and pain is considered evil. In broader terms,
goodness is human well-being.
Bentham and Mill explained the doctrine of utilitarianism:

The Principle of Utility:

• Thus, the consequences of an action are measured in terms of the
pleasure and pain caused to different individuals. Bentham suggested a
procedure called hedonistic calculus for this purpose.
Bentham’s theory is criticized for two reasons.
• First, it is not always possible to measure in quantities the pleasure and
pain caused by an action.
• Second, pleasure does not constitute human well-being. Even pigs are
capable of pleasure and his theory is criticized as a ‘pig philosophy’ fit
only for swine.
The Principle of Utilitarianism
• John Stuart Mill (1806-1873) modified the principle of utility by
recognising that pleasures differ in their quality which is an important
as the quantity of pleasure.
• Mill concluded, “It is better to be a human being dissatisfied than a
pig satisfied; better to be Socrates dissatisfied than a fool satisfied.
And if the fools, or the pig, are of a different opinion, it is because
they know only their side of the question.”
Thus, there are two forms of
utilitarianism:
A. Action utilitarianism under which an action is right if and only if it
produces the greatest balance of pleasure over pain for everyone. For
example, telling a lie or breaking a promise is right if its consequences
are better than those of any alternative course of action. Thus,
classical utilitarianism does not require observing rules such as “Tell
the Truth.”

B. Rule Utilitarianism under which an action is right if and only if it

confirms to generally accepted rules and produces the greatest
balance of pleasure over pain.
The principle of utilitarianism consists of
the following elements:
• Consequentialism – The Tightness of any action depends solely on its
consequences.
• Hedonism – Pleasure alone is good.
• Maximisation – A right action is one that creates greatest amount of
net pleasure.
• Universalism – Everyone’s consequences are alike.
 Two sides of coin….
Advantages of Teleological Theories:
• theories are consistent with the ordinary
moral reasoning. Utilitarianism why telling
the truth, keeping promise, and other acts
which provide some benefit are morally
relevant.
• theories provide an objective and precise
method for moral decision-making. A
decision maker can choose the right course
of action by calculating and comparing the
consequences of different alternatives.
• Economists assume that people seek to
maximise their utility or welfare. The
economic theory is based on the ethical
theory of utilitarianism.
Limitations of Teleological Theories:
• (i) Teleological theories do not consider the
basic obligations. Parents have obligations to
their children and they must provide for their
children even when the money could be
more beneficial for orphans.
• (ii) It is not possible to measure and compare
the goodness/badness of various actions.
• (iii) Teleological theories disregard rights and
justice. For example, the right of free speech
entitles us to speak freely but restrictions on
this right might lead to better consequences.
• Similarly, discrimination violates the basic
principle of justice. But preferential rights are
often given to women and minorities.
Deontological Theories
• According to deontological theories certain actions are right not due
to some benefit to self or others but due to their basic nature or the
rules underlying them. For example, bribery by its very nature is
wrong irrespective of its consequences.

• Similarly, the Golden Rule

“Do unto others as you want them do unto you” appeals to human
dignity and respect for others.
W.D. Ross, the 20th century British philosopher
has given the following moral rules:
• Duties of Fidelity — to keep promises, both explicit and implicit, and to tell the
truth.
• Duties of Reparation — to compensate people for injury that we have wrongfully
inflicted on them.
• Duties of Gratitude — to return favors that others do for us.
• Duties of Justice — to ensure that goods are distributed according to people’s
merits.
• Duties of Beneficence — to do whatever we can to improve the condition of others.
• Duties of Self-improvement — to improve our own condition with respect to virtue
and intelligence.
• Duties of Non-maleficence — to avoid injury to other.
 Deontological theories have the following
merits and demerits
Merits Demerits
• (i) make sense in cases in which consequences • (i) Deontological theories fail to
are irrelevant. It appears more sensible to care
for relations than for consequences. For example, provide a precise criteria to
it is the duty of a manufacturer to honour the understand our moral obligations and
warranty on a defective product even when the to resolve moral conflict.
cost of doing so is more than the benefits.
• (ii) Another merit of deontological theories is • (ii) Ross gave no order of priority
that they consider the role of motives in among his rules and when these rules
evaluating actions. For example, two people give
equal amounts to charity. Here their benefit is are in conflict there is no guide. For
the same. But the action of the person who example, telling the truth or keeping a
denoted due to genuine concern for poor is promise may cause harm to someone.
better than that of the person who donated to
impress others. Thus, the motive with which
actions are done determine their Tightness.
Normative Theories of Business Ethics:
Classification
Normative Theories

Stockholder Social Contract

Stakeholder
Theory Theory
Theory
Normative Theories of Business Ethics
• Stockholder Theory: expresses business relationship between stock
owners and their managers running the day-to-day business of the
company. As per the theory, managers should pursue profit only by all
legal, non-deceptive means.

“Stay engaged in open and free competition with out deception and fraud” – Milton Friedman.
Normative Theories of Business Ethics
Stakeholder Theory:

• This theory argues that a corporate’s success in the marketplace can

best be assured by catering to the interests of all its stakeholders

• This objective is achieved when corporations adopt policies that

ensure an optimal balance among all stakeholders.
Stakeholder Theory
Stakeholder Theory
Normative Theories of Business Ethics
Social Contract Theory:
• This is based on the principles of “social contract”, wherein it is
assumed that;
• there is an implicit agreement between the society and any created
entity such as a business unit
• in which the society recognizes the existence of a condition that it will
serve the interest of the society in certain specified ways.
IKEA: Ethical Procurement Practices
Major Determinants of Business Ethics
• Family, School and Religion
• Peers, Colleagues and Superiors
• Experiences in Life
• Values and Morals
• Threatening Situations
• Organisational Demands
• Legislation
• Government Rules and Regulations
• Industry and Company Ethical Codes of Behavior
• Social Pressures
Advantages of Managing Ethics in
Workplaces
• Significant improvement to society- child labour, harassment to employees etc.
• Cultivate strong team work and productivity- helps in building openness,
integrity and a sense of oneness amongst all employees. Employees become
motivated as they feel strong alignment between their values and those of
organization.
• Support employee growth
• Insurance policy – It ensures the employees that all the policies are legal and
all the employees are treated equally in the organization.
• Avoid penal action- Ethical problems if detected at earlier stage helps in
avoiding penal action and lower fines for the organization.
• Helps in quality management, strategic planning and diversity management.
Regulations:
• Legislative Measures (The Company’s Act, Consumer Protection Act)
I. Directorate of Enforcement -is a law enforcement agency and economic intelligence
agency responsible for enforcing economic laws and fighting economic crime in India.
It is part of the Department of Revenue, Ministry of Finance, Government Of India.
II. The Securities and Exchange Board of India (SEBI) was established on April 12, 1992 in
accordance with the provisions of the Securities and Exchange Board of India Act,
1992.

• Goodwill of Business Unit,

• Social Status of Businessman,
• Trade Union,
• Business Association and
• Consumer Movement
Business Ethics include three dimensions
1. Systemic issues (the economic, political, legal, and other social systems within
which corporate enterprises are expected to operate) These include questions
about the morality of economic system, laws, regulations, industrial structures,
and social practices within which Indian Business Enterprises are required to
achieve their vision and mission.
2. Business issues (These are ethical questions raised about a particular business.
These questions include about the morality of the activities, policies, practices,
or organizational structure of an individual business taken as a whole.)
3. Individual issues environ­ment (These are ethical questions raised about a
particular individual or particular issue within a business. These include
questions about the morality of the decisions, actions, or character of an
individual manager. For example, Deepak Parekh (HDFC), Narayan Murti
(Infosys), Ratan Tata (Tata Group of Companies), H V Kamath (ICICI Bank) have
tried to integrate their personal values in their organizational values.)
Ethics and the Indian Corporate Culture
• Ethics in India is based on a number of religious scriptures, thoughts, ideas,
and Vedas….
Some of these ethical values are as follows:
• Respect
• Trust
• Spirituality
• Tolerance
• Flexibility
• Sincerity
• Patience
• Perseverance
Mahatma Gandhiji’s Emphasis on Ethics
(There is a Great Need for Building a Non-Violent, Non-Exploitative,
Sustainable Economy based on Ethics )
The Deadly Sins to be Avoided – Mahatma
• Wealth without Work
• Pleasure without Conscience
• Knowledge without Character
• Commerce without Morality
• Science without Humanity
• Religion without Sacrifice
• Politics without Principle
JC Kumarappa classified various economic
models on the basis of ethical foundations
• Parasitic Economy: In this type of economy, violence is overwhelming.
There is no ethics in such a society. This model should not be allowed
to exist.
• Predatory Economy: It acts only in self-interest. In this type of
economy selfishness is the dominant factor. This is not based on
ethics.
• Economy of Enterprise: This is based on love and sacrifice. The
benefits are not restricted to any particular group or caste or class.
• Gandhian economy of permanence is based on ethics…