Chapter 1

Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.
Chapter 1
Business Ethics: An
Overview
Business Ethics and Corporate Governance, 2e A. C. Fernando

What is Ethics?
Ethics:
• is a branch of philosophy.
• is a normative science because it is concerned with the norms
of human conduct.
• as a science, it must follow the same rigours of logical
reasoning as other sciences.
• as a science, involves systemising, defending and
recommending concepts of right and wrong behaviour.

Principles of Personal Ethics
Personal ethics refers to the application of values in

everything one does. Principles of personal ethics include:
1. Concern for the well being of others;

2. Respect for the autonomy of others;
3. Trustworthiness and honesty;
4. Willing compliance to law;
5. Basic justice: being fair;
6. Refusing to take unfair advantage;
7. Benevolence: doing good; and
8. Preventing harm to any creature.

Principles of Professional Ethics
The basic principles people are expected to follow in their

professional career are the following:
• Impartiality: Objectivity;
• Trustworthiness and honesty;
• Openness: Full Disclosure;
• Confidentiality: Trust;
• Due Diligence: Duty of care;
• Fidelity to professional responsibilities; and
• Avoiding potential or apparent conflict of interest.

What is Business Ethics?
Business ethics is the application of general ethical ideas to

business behaviour.
It is based on the principle of integrity and fairness and concentrates

on the benefits to the stakeholders, both internal and external.
Stakeholder includes those individuals and groups without which
the organization does not have an existence. It includes
shareholders, creditors, employees, customers, dealers, vendors,
government and the society.

What is not Business Ethics?
1. Ethics is different from religion.

2. Ethics is not synonymous to law.
3. Ethical standards are different from cultural traits.
4. Ethics is different from feelings.
5. Ethics is not a science in the strictest sense of the term.
6. Ethics is not just a collection of values.

Code of Conduct and Ethics for Managers
Managers must observe the following ethical values while performing

their duties:
• Impartiality
• Responsiveness to public interest
• Accountability
• Honesty
• Transparency
• Integrity

Evolution of Business Ethics over the years
The 1970s saw papers from the academic circle. Businessmen
became more concerned with their public image and addressed
ethics more directly.
1974: The first conference held at the University of Kansas.

1975: Business ethics became institutionalized at many levels
through writings and conferences.
1979: Three anthologies on business ethics appeared:
(i) Ethical Theory and Business by Tom Beauchamp and

Norman Bowie;
(ii) Ethical Issues in Business: A Philosophical Approach by
Thomas Donaldson and Patricia Werhane; and
(iii) Moral Issues in Business by Vincent Berry.

(contd.)
• 1980s: The subject was taught in several universities in the US

and Europe. There were also, by this time, many journals of
business ethics, apart from centres and societies established to
promote ethical practices.
• 1982: Richard De George brought out Business Ethics, and
Manuel G. Velasquez published his Business Ethics: Concepts
and Cases.

(contd.)
• 1990: Business ethics as a management discipline was well-

established.
• Parallel to these academic pursuits, the late 1980s and early
1990s saw increased concern for consumer rights, quality,
safety, price, customer service and environment in Britain.
• Simultaneously, with these developments, religion also lent its
powerful voice.

Importance and Need for Business Ethics
• A business organization competes in the global market on its own

internal strength, in particular, on the strength of its human
resource and on the goodwill of its stakeholders.
• The value-based management and ethics that an organization

uses in its governance enables it to establish productive
relationship with its internal customers, and lasting business
relationship with its external customers.
• Real type situations (Tata Steel and Infosys) show that use of
ethical practices in business creates high returns for companies.

Values and Ethics in Business
A value is a view of life and judgement of what is desirable. It is

very much part of a person’s personality and a group’s morale.
Business ethics relates to issues of “what is right” and “what is

wrong” while doing business. What values are to individuals,
ethics are to business.
Business ethics operates as a system of values, relating

business goals and techniques to specific human ends.

Distinction Between Values and Ethics
Values Ethics
Personal in nature Generalized value

(e.g. a belief in system (e.g. avoiding
providing customer discrimination in
satisfaction and being recruitment and
a good paymaster) adopting fair business
practices).
Offer alternatives to Provides general
choose from. guidelines within which
the management can
operate.

Why should Businesses act Ethically?
The reasons for an organization to be ethical include:
• To protect its own interest,

• To protect the interests of the business community as a whole so
that the public will have trust in it,
• To keep its commitment to society to act ethically, and
• To meet stakeholder expectations.

Why should Businesses act Ethically? (contd.)
The reasons for an organization to be ethical include:
• To prevent harm to the general public,

• To build trust with key stakeholder groups,
• To protect themselves from abuse from unethical employees and
competitors,
• To protect their own reputations,
• To protect their own employees, and
• To create an environment in which workers can act in ways
consistent with their values.

Ethical Decision-making
Norman Vincent Peale’s and Kenneth Blanchard’s suggestions to

conduct ethical business.
•Is your decision fair?

•Is it a win-win situation for all?
•Is your decision legal? If it is not legal, it is not ethical.
•The Eleventh Commandment: “Thou shall not be ashamed when
found”, meaning when hauled up for unethical behaviour, if one’s
conscience is clear, then there is nothing to be ashamed of.

How Corporations Observe Ethics in Their
Organizations?
• Publish in-house codes of ethics to be strictly followed by all their

associates.
• Employ people with a reputation for high standards of ethical
behaviour at the top levels.
• Incorporate consideration of ethics into performance reviews.
• Give rewards for ethical behaviour.

How Corporations Observe Ethics in Their
Organizations? (contd.)
• SEBI, CII and such other organizations representing corporations

issue codes of best practices and enjoin their members to
observe them.
• IIMs and highly rated B-schools give extensive and intensive
instruction in business ethics, corporate social responsibility and
corporate governance as part of their curriculum.
• Conduct an Ethics Audit.

Corporate Governance Ethics
• Corporate governance is a set of rules that governs the

administration and management of companies.
• Its goalposts are transparency, integrity, full disclosure of financial
and non-financial information, and protection of stakeholders’
interests.

Benefits from Managing Ethics in Workplace
The many benefits that arise from managing ethics in the workplace
are:
•Attention to business ethics improves society.
•Ethical practice contributes towards high productivity and strong
team work.
•Changing situations require ethical education.
•Ethical practices create strong public image.
•Strong ethical practices act as an insurance.

Characteristics of an Ethical Organization
Mark Pastin provides the following characteristics of ethical

organizations:
•At ease while interacting with diverse internal and external
stakeholder groups.
•Obsessed with fairness.
•Individual responsibility, with individuals assuming personal
responsibility for actions of the organization.
•See their activities in terms of purpose.

Recognizing Ethical Organizations
There are certain characteristics by which we will be able to identify

an ethical organization:
•On the basis of corporate excellence

•In relation to the stakeholders
•In relation to corporate governance

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Copyright © 2012 Dorling Kindersley (India) Pvt. Ltd.

Business Ethics and Corporate Governance, 2e A. C. Fernando

Business Ethics and Corporate Governance, 2e A. C. Fernando

Personal ethics refers to the application of values in

1. Concern for the well being of others;

Business Ethics and Corporate Governance, 2e A. C. Fernando

The basic principles people are expected to follow in their

Business Ethics and Corporate Governance, 2e A. C. Fernando

Business ethics is the application of general ethical ideas to

It is based on the principle of integrity and fairness and concentrates

Business Ethics and Corporate Governance, 2e A. C. Fernando

1. Ethics is different from religion.

Business Ethics and Corporate Governance, 2e A. C. Fernando

Managers must observe the following ethical values while performing

Business Ethics and Corporate Governance, 2e A. C. Fernando

1974: The first conference held at the University of Kansas.

(i) Ethical Theory and Business by Tom Beauchamp and

Business Ethics and Corporate Governance, 2e A. C. Fernando

• 1980s: The subject was taught in several universities in the US

Business Ethics and Corporate Governance, 2e A. C. Fernando

• 1990: Business ethics as a management discipline was well-

Business Ethics and Corporate Governance, 2e A. C. Fernando

• A business organization competes in the global market on its own

• The value-based management and ethics that an organization

Business Ethics and Corporate Governance, 2e A. C. Fernando

A value is a view of life and judgement of what is desirable. It is

Business ethics relates to issues of “what is right” and “what is

Business ethics operates as a system of values, relating

Business Ethics and Corporate Governance, 2e A. C. Fernando

Personal in nature Generalized value

Business Ethics and Corporate Governance, 2e A. C. Fernando

The reasons for an organization to be ethical include:

• To protect its own interest,

Business Ethics and Corporate Governance, 2e A. C. Fernando

The reasons for an organization to be ethical include:

• To prevent harm to the general public,

Business Ethics and Corporate Governance, 2e A. C. Fernando

Norman Vincent Peale’s and Kenneth Blanchard’s suggestions to

•Is your decision fair?

Business Ethics and Corporate Governance, 2e A. C. Fernando

• Publish in-house codes of ethics to be strictly followed by all their

Business Ethics and Corporate Governance, 2e A. C. Fernando

• SEBI, CII and such other organizations representing corporations

Business Ethics and Corporate Governance, 2e A. C. Fernando

• Corporate governance is a set of rules that governs the

Business Ethics and Corporate Governance, 2e A. C. Fernando

Business Ethics and Corporate Governance, 2e A. C. Fernando

Mark Pastin provides the following characteristics of ethical

Business Ethics and Corporate Governance, 2e A. C. Fernando

There are certain characteristics by which we will be able to identify

•On the basis of corporate excellence

Business Ethics and Corporate Governance, 2e A. C. Fernando

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