PRINCIPLES OF BUSINESS

ETHICAL AND LEGAL ISSUES

IN BUSINESS
 INTRODUCTION

Entrepreneurs will make decisions that affect other

people, organizations and the environment. Usually
there are laws and regulations that guide the decisions
and ensure that no one is harmed or cheated. However,
where no laws exist to guide some decisions, the
entrepreneur and other business persons must follow
basic principles of right and wrong.
When there is no law to guide an action of a business
person, they have to do what they think is ‘right’.
WHAT IS MEANT BY BUSINESS ETHICS
Set of moral rules that governs
how businesses operate, make
decisions and how stakeholders
(employees, customers,
government etc.) are treated.
These rules or morals may not
be illegal but is against the norm
of society and business
operations. Beliefs about what
are ‘right’ and ‘wrong’ actions
or behaviour.
 EXAMPLES OF ETHICAL ISSUES IN
BUSINESS
1. Some firms produce video games featuring violence and
sex and target children as their customers
2. Some firms falsify invoices so as to pay less tax.
3. Some firms produce misleading advertisements conveying
false information which could result in harm to citizens.
4. Coaches may encourage athletes to take drugs e.g. steroids.
5. Some firms produce pornographic material using children
as their subjects.
6. Some supermarket do not give the full weight for dry
ingredients.
7. Conducting experiments on animals
WHAT ARE LEGAL ISSUES RELATING
TO BUSINESS?

Legal issues refer to activities

that are guided by the laws of a
country.
OTHER ILLEGAL BUSINESS PRACTICES
 EXAMPLES OF ILLEGAL ISSUES
RELATING TO BUSINESSES

1. Money laundering – using money that

has been illegally gained in a legally
registered business.
2. Polluting the environment e.g disposal
of garbage in rivers, gullies and sea.
3. Evading taxes – avoiding the payment
of taxes
4. Paying employees below the minimum
wages
5. Wrongfully dismissing employees
MONEY LAUNDERING
CONSEQUENCES OF UNETHICAL AND
ILLEGAL PRACTICES IN BUSINESS
 Loss of sale – consumer decides not to purchase from
business
 Loss of reputation – Loss of important contracts

 Loss of lives and endangering of the health and lives of

employees, customers and other stakeholders.
 Inability to obtain loans

 Negative publicity – people may protest the activities of

the business which may lead to boycott of the product or
service.
 Government may revoke licences

 Legal actions- entrepreneur may be faced with criminal

charges.
 GUIDELINES TO ENSURE THAT
ETHICS ARE CARRIED OUT IN
BUSINESSES
 Engage in proper management
 Develop a sense of integrity and accountability in
business practices
 Treat all stakeholders with respect

 Be transparent in all business deals/activities

 Maintain excellent standard in all operations

 Being proactive in dealing with ethical matters

 Develop a set of core values and allow these to guide

business decisions.
 CODE OF ETHICS
An organization's overall
principles that guide its decisions
and actions in relation to internal
and external issues. It provides a
general understanding of the
ethical or moral responsibly that
the owners and governing body
are expected to meet e.g. acting
with honesty and transparency.
 CODE OF CONDUCT

A code of conduct is an internal document that is the

practical application of the code of ethics. It is in effect
a set of rules and guidelines that describe how people
within the organization are expected to behave. It guide
personnel in how to respond under certain
circumstances, including personal behaviour, bullying,
confidentiality and conflicts of interest.
 CODE OF PRACTICE

A code of practice is a set of written

rules which explain how people
working in a particular profession
should behave as they carry out their
work. E.g. doctors, lawyers, teachers
etc.
 ACTIVITY
Busy Bees is an agency that employs a team of 200 people
who carry out a variety of property maintenance activities,
including housework, gardening and decorating. Busy
Bees’ clients include individual homeowners and also
small hotels. Busy Bees has two owners.
(a) Identify two stakeholders of Busy Bees.

(b) Give One reason why Busy Bees could usefully create
a code of ethics.
(c) Who would Busy Bees’ code of ethics be primarily
directed towards?
(d) Give three consequences of unethical practices carried
out by Busy Bees.