Everything you need to know about business ethics. Business ethics implies general ethical ideas to business behaviour.
Ethical behaviour not only improves profitability but also fosters business relations and employees productivity. Business ethics is concerned with the behaviour of businessman in doing a business. Unethical practices create problems to businessman and business units.
“Business Ethics is an art and science for maintaining harmonious relationship with society, its various groups and institutions as well as recognizing the moral responsibility for the tightness and wrongness of business conduct” -Wheeler.
1. What is Business Ethics? 2. History of Business Ethics 3. Meaning 4. Concept and Definitions 5. Characteristics 6. Elements 7. Nature
8. Principles 9. Need 10. Importance 11. Theories 12. Business Ethics and Profits of Business Ethics 13. Determinants 14. Advantages of Managing Ethics in Work Place
15. Regulations 16. Guidelines 17. Ethical Dilemma 18. Relationship between Business and Ethics 19. Rationale of Business Ethics 20. Ethics and the Indian Corporate Culture 21. Causes and Issues of Unethical Behaviour and a Few Others.
Business Ethics: History, Meaning, Concept and Definitions, Characteristics, Elements, Nature, Principles and Other Details
- What is Business Ethics?
- History of Business Ethics
- Meaning of Business Ethics
- Concept and Definitions of Business Ethics
- Characteristics of Business Ethics
- Elements of Business Ethics
- Nature of Ethics in Business
- Principles of Business Ethics
- Need of Business Ethics
- Importance of Business Ethics
- Theories of Business Ethics
- Business Ethics and Profits of Business Ethics
- Determinants of Business Ethics
- Advantages of Managing Ethics in Work Places
- Regulations of Business Ethics
- Guidelines to Determine Ethical Actions
- Ethical Dilemma
- Relationship between Business & Ethics
- Rationale of Business Ethics
- Ethics and the Indian Corporate Culture
- Causes and Issues of Unethical Behavior
- Challenges of Business Ethics
- Business Ethics in India
- Benefits of Business Ethics
- Arguments against Business Ethical
What is Business Ethics?
The erstwhile-regulated economies necessitated their governments to regulate and control business organisations and economic institutions through law and government mechanisms to enable them to play their role in contributing to the growth and wellbeing of their stakeholders in a balanced way such that the interest of the almost all the people was protected.
Various business management concepts, principles, theories, practices, goals and strategies have been under evaluation, revalidation and constant change consequent upon massive liberalisation, privatisation and globalisation of business initiated towards the end of the 20th Century and geared up in the beginning of the present century.
Governments, which were hitherto discharging the responsibilities of safeguarding the customers’ interest in respect of quality, price, safe and timely delivery of the product etc., protecting the companies from unhealthy competition, restricting the concentration of economic power in the hands of a few which should be otherwise enjoyed by the majority of the population and the like, relegated and shifted the responsibility on to the shoulders of the business organisations, often simply by encouraging trade liberalization and privatisation.
Many social scientists felt that the deregulation of business would encourage the business to reverse back to its orthodox objective of profit maximization by whatever means including practising unethical conduct. But sooner or the later, a number of incidents around the world proved that businesses should carry out their operations ethically for the sake of basic survival. The following example is a point in fact.
The Ford Motor Company decided to produce the first lowest-priced car in the USA. The Company President Mr. Lee Lacocca wanted to rush the development of a car costing less than $2,000, as he promised the public that his company will bring out a car at that price (as low as $2,000) and also fight the growing popularity of Volkswagen’s Beetle. Preliminary tests showed that it involved an additional cost of $11 to enhance the safety of the car.
He organised a meeting of company executives to decide how to reduce the cost below $2,000. Many executives suggested that the company should sell the car at $2,011 but include the safety feature. Some executives thought that the company should sell the car at $2,000 as promised but exclude the safety feature. The company decided to go ahead without the safety feature.
The car was released and sold at $2,000. After six months of release, one of the cars was involved in an accident killing all the passengers. Competitors influenced newspapers to publish this accident and the newspapers in the U.S.A. highlighted the absence of the safety feature. This incident resulted not only in the loss of sales, but also in the closure of the unit resulting in a loss of $250 million to the company.
This case indicates that business should consider ethical principles while making decisions in order to achieve its basic objective of survival. Thus, competition forces businesses to conduct their business ethically. Increasing literacy, widespread use of information technology and declining sellers markets after globalisation reduce the scope for debating on the need for conducting business ethically.
The problem regarding ethics before globalisation had neither been due to lack of information and knowledge nor due to the non-acceptance of principles of ethical behaviour underlying such knowledge, but it was due to avoiding attitudes developed by business people towards law consequent upon the opportunity provided by the sellers’ market. The issue, now, is to treat ethics as part of human behaviour and part of making individual and collective business decisions. Many business people are religious individuals, but their business suit makes them blind towards human suffering.
They used to get away with unethical behaviour more often under conditions of a seller’s market, i.e., where the seller holds the power in the market place. In fact, when conditions change and the market environment becomes a buyer’s market, this more often than not causes business people to realise that behaving ethically is not only in their interest in their personal life but also in business life, especially over the longer term.
Business Ethics – History
The history of Ethics goes back to 1970’s when the term Business Ethics was commonly used. Increasingly unethical conduct was found by corporations during the 1960s. To counter this, corporations developed social responsibility programmes which included charitable donations and funding local community projects.
Business schools began to incorporate ‘social responsibility’ courses into their syllabi but it was mostly focused on law and management strategy.
Eventually philosophers became involved and brought ethical theory to bear on the relevant ethical issues and hence business ethics became a more institutionalized part of business.
This new aspect of business ethics differentiated it from social issues courses in three ways:
i. It provides an ethical framework for evaluating business and the corporate world.
ii. It allows critical analysis of business and development of new and different methods.
iii. It fused personal and social responsibility together and gave it a theoretical foundation.
Business Ethics – Meaning
The word ethics is derived from the Greek word ‘ethos’, which means character. Ethics is a branch of philosophy concerned with human character and conduct. It is the discipline dealing with ‘what is good and bad’ and with moral duty and obligation. Ethics is the embodiment of moral values, which describes what, is ‘right’ and what is ‘wrong’ in human behaviour and what ‘ought to be’.
Ethics is a “consideration and application of frameworks, values and principles for developing moral awareness and guiding behaviour and action”. Commonly, ethics is also referred to as “moral, good, right, just and honest. Ethical standards are referred to as the principles or ideals of human conduct.” Thus, ethics implies good character and morality and refers to generally accepted human character and behaviour considered as a desirable by contemporary society.
What is ethical and unethical in general society may not be the same in business as the latter operates in different environments. Business ethics is “concerned primarily with the relationship of business goals and techniques to specific human needs. It studies the impact of acts on the good of the individual, the firm, the business community and the society as a whole.
“Business ethics study the special obligations that a man and a citizen accept when he becomes a part of the world of commerce”. Business ethics are the norms and moral values of human behaviour desired by the contemporary society exclusively and inclusively dealing with commercial transactions. These definitions on business ethics are not comprehensive but they provide an idea of what business ethics is. In fact, defining the term business ethics comprehensively is very difficult.
Business ethics means the behaviour of a businessman while conducting a business, by observing morality in his business activities.
The behaviour of a businessman has more impact within the business organisation than outside. So, he should obey the laws even though he may personally believe them to be unjust or immoral. If the businessman feels that the provisions of laws are unjust, he can take steps to change the provisions instead of disobeying them.
A businessman should observe morality not only in business activities but also in non-business activities. Such observation of morality is not required out of fear for punishment. He should observe ethics inspired by his own interest in his business and society as a whole. The reason is that there is no distinction between a businessmen and his business. According to Drucker, every individual and organisation in society should abide by certain moral codes and that there is no separate ethics of business.
Business Ethics – Concept and Definitions of Business Ethics
The nature and concept of Ethics, we can say that Business Ethics is nothing but the application of Ethics in business. Business Ethics proves that businesses can be, and have been, ethical and still make profits. Business Ethics was thought of as being a contradiction of terms. Thankfully, not any more. Today, more and more interest is being given to the application of ethical practices in business dealings and the ethical implications of business.
Human beings have been endowed with the freedom of choice and the means of free will. He can distinguish between good and evil, right and wrong, just and proper. He can distinguish between the end he wishes to pursue and the means to gain that end.
Now, what is true for human beings is also true for business, because business are carried on by human beings only, and business organisations are nothing but formal structures for human beings to carry on their businesses. Moreover, businesses are thought of as being living, growing entities. Thus, businesses also have choices-a choice to maximise their profits and a choice to do good for the society in which they live and operate.
However, at most times, profit maximisation and discharging of social responsibilities at the maximum limit, cannot be carried on simultaneously. One is bound to affect the other. For example, Concern for Task (Productivity) and Concern for Human Beings (workers) are bound to pull each other in opposite directions. It is difficult, if not impossible, to maximise both together.
A conflict arises in trying to achieve both simultaneously. Hence, many managerial choices represent Managerial Dilemmas, between the profit consideration (commercial concern) and the social consideration (welfare concern) of the organisation. Many managerial decisions have ethical implications and these decisions give rise to Managerial Dilemmas.
For example, ruining occupations of age-old inhabitants in a particular locality and their ethical way of life, by using advanced technology, is an ethical dilemma. Technological advancements have to come, have to be used; however, what to do with the people whose life and earnings are affected by the utilisation of advanced technology, is a question which is difficult to answer.
Recently an award-winning regional language file of India, depicted the plight of an aged boatman whose occupation was to transport people and goods across the local river, as there was no bridge over the river. However, his occupation gets threatened when a bridge is built over the river.
This does not mean that technology advancement must not be utilised or that modern methods should not be welcomed. Certainly, they should. Science and technology should, by all means, be used to uplift and make better the lives of human beings all over the world, and specially in such backward regions as this boatman lived.
However, consideration should also be given to see whether alternative means of arrangements can be made so that people are not unduly disturbed or that their trauma and upheaval is kept at a minimum. In case of the boatman, an ethical and effective solution lies in providing him with alternative employment on the bridge itself-as a security man, toll tax collector, etc.
Similarly, when Mergers take place between companies, or Acquisition of one company by a bigger company, where Job positions are duplicated, instead of employees losing their jobs for no fault of their, ethical solutions lies in Job Reassignment or Retraining for alternative Job Assignments.
A business or company is considered to be ethical only if it tries to reach a trade-off between perusing its economic objectives and its social obligations, i.e., between its obligations to the society where it exists and operates; its obligations to its people due to whom it can even think of pursuing economic goals; to its environment, from whom it takes so much without it demanding anything back in return; and the like.
What are the obligations of a business, is open to interpretations. The list of obligations that a company must perform is long and complex and hence, are costly to the company; yet they must be discharged, if a company wants to survive and grow in the long run and is not satisfied in making profits only in the short ran. While discharging its obligations to the society, the company not only fulfils its own duties, but also paves the way for a stronger and more ethical foundation.
The word ‘ethics’ refers to principles of behaviour that distinguish between good and bad; right and wrong. It is a person’s own attitude and beliefs concerning good behaviour. Ethics reside within individuals and as such are defined separately by each individual in his/her own way. What may be ethical behaviour to ‘X’ may be unethical to ‘Y’.
Principal Components of ‘Ethics’:
i. Ethics are principles, values and beliefs that define what is right and wrong behaviour.
ii. Ethics are broader than what is stated by law, customs and public opinion. For example, accepting gifts from father-in-law might be socially acceptable but not ethical; owners pocketing profits without sharing the gains with workers might be legally permissible but not ethical.
iii. Ethical behaviour may differ from society to society. For example, birth control is mandatory in Communist societies but not in Catholic Christian societies.
iv. Ethical standards are ideals of human conduct. Defining ethical standards is not an easy task.
Business ethics refers to the application of moral principles to solve business problems. Here, the word ‘morals’ refers to accepted customs of conduct in a society. The purpose of business ethics is to guide the efforts of managers in discharging their duties to the satisfaction of various stakeholders e.g., employees, owners, customers, suppliers, and the general public.
Managerial ethics, thus, are those principles that guide the conduct and thinking of managers with respect to what is good or bad; right or wrong (Barry). It is not always easy to divide managerial actions into clear-cut compartments of ethical and unethical behaviour because of certain complicating factors.
Business ethics implies general ethical ideas to business behaviour. Ethical behaviour not only improves profitability but also fosters business relations and employees productivity. Business ethics is concerned with the behaviour of businessman in doing a business. Unethical practices create problems to businessman and business units.
The growth of a business is dependent upon ethical practices performed by the businessman. Business custom differs from one business to another. If a custom is adopted and accepted by businessman and public, that custom will become an ethics.
“Business Ethics is an art and science for maintaining harmonious relationship with society, its various groups and institutions as well as recognizing the moral responsibility for the Tightness and wrongness of business conduct”, as said by Wheeler.
According to Rogene A Buchholz, Business ethics refers to right or wrong behaviour in business decisions.
Business ethics can be said to begin where the laws ends. It is primarily concerned with those issues not covered by the law.
Business Ethics – 13 Main Characteristics
There are several characteristics or features of business ethics.
Some of them are discussed here:
1. Business ethics are based on social values, as the generally accepted norms of good or bad and ‘right’ and ‘wrong’ practices.
2. It is based on the social customs, traditions, standards, and attributes.
3. Business ethics may determine the ways and means for better and optimum business performance.
4. Business ethics provide basic guidelines and parameters towards most appropriate perfections in business scenario.
5. Business ethics is concerned basically the study of human behaviour and conducts.
6. Business ethics is a philosophy to determine the standards and norms to make mutual interactions and behaviour between individual and group in organisation.
7. Business ethics offers to establish the norms and directional approaches for making an appropriate code of conducts in business.
8. Business ethics are based on the concepts, thoughts and standards as contributed as well as generated by Indian ethos.
9. Business ethics may be an ‘Art’ as well as ‘Science’ also.
10. Business ethics basically inspire the values, standards and norms of professionalism in business for the well-being of customers.
11. Business ethics is to motivate and is consistently related with the concept of service motives for the customers’ view point.
12. Business ethics shows the better and perspective ways and means for most excellences in customisation.
13. Business ethics aims to emphasise more on social responsibility of business towards society.
Business Ethics – Elements: A Formal Code of Conduct, Ethics Committee, Ethical Communication System, A Disciplinary System, Monitoring and a Few Others
Organizations are constantly striving for a better ethical atmosphere within the business climate and culture. Businesses must create an ethical business climate in order to develop an ethical organization.
Some of the elements of Business Ethics are:
(i) A Formal Code of Conduct:
Code of conduct is statements of organizational values. The Sarbanes-Oxley Act, 2002 made it important for businesses to have an ethics code, something in writing which will help the employees know – with both ease and clarity – what is expected of them on the job. The code should reflect the managements desire to incorporate the values and policies of the organization.
Code of Ethics:
For every new business incorporated, it is important for the management to have a code of ethics for his business. It is usually unwritten for small businesses. It is basically a buzzword for the employees to observe ethical norms and form the basic rules of conduct. It usually specifies methods for reporting violations, disciplinary action for violation and a structure of the due process to be followed.
A code of ethics must summarize the beliefs and values of the organization. For a large business empire, it is important to hire talent to assist existing personnel with regards to integrity, understanding, responsibility, and cultural norms of the country.
(ii) Ethics Committee:
Ethics committees can rise concerns of ethical nature; prepare or update code of conduct, and resolve ethical dilemma in organization. They formulate ethical policies and develop ethical standards.
They evaluate the compliances of the organisation with these ethical standards. The committee members should be conscious about the corporate culture and ethical concise of the organisation.
The following committees are to be formed:
a. Ethics committee at the board level- The committee would be charged to oversee development and operation of the ethics management programme.
b. Ethics management committee – It will be charged with implementing and administrating an ethics management programme, including administrating and training about policies and procedures, and resolving ethical dilemmas.
(iii) Ethical Communication System:
Ethical communication system helps the employees in making enquiries, getting advice if needed and reporting all the wrong done in the organisation.
Objectives of ethical communication system are:
a. To communicate the organizations values and standards of ethical conduct or business to employees.
b. To provide information to employees on the company’s policies and procedures regarding ethical code of conduct.
c. To help employees get guidance and resolve queries.
d. To set up means of enquiries such as hotlines, suggestion boxes and e-mail facilities.
Top management can communicate the ethical standards to the lower management which can be further transferred to the operational level.
(iv) An Ethics Office with Ethical Officers:
The job of an ethics officer is to communicate and implement ethical policies amongst employees of the organisation. Ethics officer should develop a reputation for credibility, integrity, honesty and responsibility.
Functions of ethics officer are:
a. Assessing the needs and risks that an ethical programme must address.
b. Develop and distribute code of conduct.
c. Conduct ethical training programme.
d. Maintain confidential service to answer employee’s questions about ethical issues.
e. To ensure that organisation is in compliance with governmental regulations.
f. To monitor and audit ethical conduct.
g. To take action on possible violation of company’s code.
h. To review and update code in time.
(v) Ethics Training Programme:
Any written ethical code will not work unless supported and followed by a proper training programme. Some companies have an in-house training department while others may opt for an out-source expert. To ensure ethical behaviour, a corporate training programme is established which deals in assisting employees to understand the ethical issues that are likely to arise in their workplace.
When new employees are to be recruited, the induction training should be arranged for them. Training will help them to familiarize with company’s ethical code of behaviour.
(vi) A Disciplinary System:
A disciplinary system should be established in the organisation to deal with ethical violations promptly and severely. If unethical behavior is not properly dealt with, it will result in threatening the entire social system. A company should adopt fair attitude towards everyone without any discrimination.
(vii) Establishing an Ombudsperson:
An ombudsperson is responsible to help coordinate development of policies and procedures to institutionalize moral values in the workplace.
To make an ethical programme, a successful monitoring programme needs to be developed. A monitoring committee is formed. Monitoring can be done by keen observation by ethics officer, surveys and supporting systems.
Business Ethics – Nature of Ethics in Business
1. In business activities, most ethical questions could be of two types – Overt and Covert. Overt ethical problems like bribery, theft, sabotage, collusion, etc. are clear for everyone to see and are generally considered reprehensible. Most people deplore it and most businesses take care not to be so openly unethical.
Hence, most problems in the business sphere are covert ethical problems. Covert ethical problems are more complex, not so transparent and generally defy ethical solutions. These types of problems occur in corporate acquisitions, marketing and personnel policies, capital investment, market war, etc. They are difficult to locate, to eliminate and are consequently much more dangerous and threatening to business.
2. For a decision to be ethical, it should possess the following characteristics. It should be –
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.
3. Ethics is unstructured, i.e., it does not have a structured format or framework. It is abstract in concept. Hence, it does not have 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.
4. Ethical decisions should express some obligations to others. If a decision merely results in benefits only to oneself, then that is not an ethical decision. The very concept of being ethical means that it results in some good for the larger society and not just for oneself.
Business Ethics – 17 Important Principles – Principle of Conscience, Wishless Work, Esprit, Publicity, Purity, Humanity, Universal Values, Commitment and a Few Others
Business ethics refers to basic guidelines to study and analyse a sense of right and wrong and goodness and badness of our tasks.
In context of business performance, there are certain principles and guidelines, based on ethical conducts as given here:
1. Principle of Conscience – This principle is based on inner-feeling of persons to analyse the sense of right and wrong. On this basis the businessmen can determine different roles and behaviour at their levels.
2. Principle of Wishless Work – This principle emphasise that there is no need to perform all the task to be self-centered or self-interest. Accordingly, we should perform all the role and behaviour to another person’s for their esteemed interest. We should be devoted to our efforts to do the work for others.
3. Principle of Esprit – According to this principle businessmen should give due attention to make best possible services and try to develop the feelings of devotion and truthfulness in services. All the behaviour and activities should be based on values and service motive in business.
4. Principle of Publicity – According to this principle, all the activities and performance as conducting in business houses, should be well informed to every person or organisation who are directly or indirectly attached with business. It aims to remove the doubtfulness and misunderstanding among people.
5. Principle of Purity – It is most needful that every businessman should follow the politeness, truthfulness and tolerance for developing the feelings of mental peace. At the same time, the mental peace and purity also becomes the ways for politeness and tolerances etc.
6. Principle of Humanity – It is needful that every businessman should follow the human values, human decorum and human aspects within their policies, programmes and different working areas. The ethical behaviour may determine the path of humanity.
7. Principle of Universal Values – It is required that every businessmen should conduct and perform the task and different business activities to be based on universal assumptions, customs and overall accepted norms and principles by society.
8. Principle of Commitment – According to this principle, every businessmen should be able to fulfill their commitments and assurances as given to other persons. The implementation of commitments should be based on honesty and responsiveness.
9. Principle of Rationality – On the basis of the ethical code of conduct, every businessmen should analyse and evaluate the good or bad, right or wrong, ethical or unethical aspects within their business transaction and day to day working of the business houses. They must follow the rational attitudes and behaviour.
10. Principle of Communicability – According to this principle, there is a need to make effective means of communication with the internal and external persons as engaged with business houses. The communication should be in cleared, open and justified manners.
11. Principle of non-Cooperation in Evils – It is needful that businessmen should try to make non-cooperation or discourage the evils, misconduct and unethical behaviour not only with different customers but with society also.
12. Principle of Cooperation with Other – Ethical norms motivate the feeling of collaboration and team spirit. It is required that on the basis of capacity and available resource, the businessmen should make full cooperation to different other persons as per their good conduct and value based behaviour.
13. Principle of Satisfaction – Every businessmen are required to create and develop their role and behaviour to establish pleasure and happiness with other persons and the society at large. Fore mostly, in business as per their products and services, the customers should be satisfied at every stage.
14. Principle of Coordinate Ends and Means – The businessmen should try to make a coordinating or balancing form between their ends and means within their work performance and its allied activities. They should develop their ventures within the limitations of resources and capacities.
15. Principle of Due Process – All the persons and different employees, as engaged in business are required to involve in decision making process and different important task. Businessmen should follow a reasonable and justified working process in their organisation.
16. Principle of Liking in Expectations – In order to establish the ethical norms and conducts in business, it is required to follow all these good and acceptable behaviour by businessmen. They must give and perform some excellence examples as per the expectations of others.
17. Principle of Transparency – Ethics denotes the concept of purity and truth. All the business activities and transactions should be well informed with justified manners with their different stakeholders and society.
Business Ethics – Need
Since business exists and operate within the society and is a part of a subsystem of society, its functioning must contribute to the welfare of the society. To survive, develop and excel, business must earn social sanction of the society wherein it exists and functions.
Without social sanctions, a business cannot earn loyal customers, cannot operate in the marketplace and will soon wither and die away. George A. Steiner, in ‘Business & Society’, says –
“The managers of the biggest companies know that as a business gets larger, the public takes more interest in it because it has a greater impact on the community. The antennae of these managers are tuned to public opinion and they react to it. They seek to maintain a proper image of their company in the public mind. This leads to the assumption of greater social responsibilities.”
No business, however great or strong or wealthy it may be at present, can exist on unethical means, or in total disregard to its social concern, for very long. Resorting to unethical behaviour or disregarding social welfare is like calling for its own doom. Thus, business needs, in its own interest, to remain ethical and socially responsible. As V.B. Day, in ‘The Social Relevance of Business’ had stated –
“As a statement of purpose, maximising of profit is not only unsatisfying, it is not even accurate. A more realistic statement has to be more complicated. The corporation is a creation of society whose purpose is the production and distribution of needed goods and services, to profit of society and itself. Each element of that statement is needed if the whole is to be accurate; you cannot drop one element without doing violence to the facts.”
Business needs to remain ethical for its own good. Unethical actions and decisions may yield results only in the very short run. For the long run existence and sustained profitability of the firm, business is required to conduct itself ethically and to run its activities on ethical lines. Doing so would lay a strong foundation for the business for continued and sustained existence.
All over the world, again and again, it has been demonstrated that it is only ethical organisations that have continued to survive and grow, whereas unethical ones have shown results only as a flash in the pan, quickly growing and even more quickly dying and forgotten.
Business needs to function as responsible corporate citizens of the country. It is that organ of the society that creates wealth for the country. Hence, business can play a very significant role in the modernisation and development of the country, if it chooses to do so. But this will first require it to come out from its narrow mentality and even narrower goals and motives.
Business Ethics – Importance of Ethics in Finance, Human Resource Development, Marketing and Production
Business ethics comprises various traits, such as trustworthiness and transparency in customer services. Ethical business practices strengthen customer relationship that is of prime importance for long-term organizational success. It deals with retaining and creating a long-lasting impression in the minds of customers. Such impressions help the enterprise to win the trust of customers and get more business.
Business ethics plays a very crucial role in various management functions, which are given as follows:
i. Ethics in Finance:
It deals with various ethical dilemmas and violations in day-to-day financial transactions. An example of ethical violations is data fudging in which enterprises present a fabricated statement of accounts and other records, which are open to investigation. Ethics in financial transactions gained importance when due to their insufficiency nations suffered massive economic meltdowns.
The following are the ethics in finance:
a. Following truthfulness and authenticity in business transactions
b. Seeking the fulfillment of mutual interests
c. Getting the economies and financial units freed from greed-based methodologies.
ii. Ethics in Human Resource Management:
It deals with the enforcement of the rights of employees in an enterprise.
Such rights are as follows:
a. Having a right to work and be compensated for the same
b. Possessing a right for free association and participation
c. Enjoying a right for fair treatment in an enterprise
d. Holding a right to work in a hazard-free environment
e. Blowing whistle (an activity where an employee can raise voice against any wrong practice of anyone in an enterprise)
iii. Ethics in Marketing:
Deals with a number of issues, which are as follows:
a. Misinforming the customers about the products or services
b. Deciding high prices for the products and services
c. Creating false impression on the customers/consumers about the features of products
d. Promoting sexual attitudes through advertising; thus, affecting the young generation and children.
iv. Ethics in Production:
It deals with the responsibility of an organization to make sure that products and processes of production is not causing harm to the environment.
It throws light on the following issues:
a. Avoiding rendering services or producing products that are hazardous to health. For example, tobacco and alcohol
b. Maintaining ethical relations with the environment and avoiding environmental pollution.
Business Ethics – Theories of Business Ethics: Teleological and Deontological Theories
The theories of business ethics can be divided into two categories:
1. Teleological theories, and
2. 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. Actions that result in greatest possible balance of good or evil are considered ethical. Thus, teleological theories are based on the concept of goodness.
Now the question is which is good and what is evil. 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:
i. The Principle of Utility:
Jeremy Bentham (1748-1832) explains this principle as follows:
“By the principle of utility is meant that principle which approves or disapproves of every action whatsoever, according to the tendency which it appear to have to augment or diminish the happiness of the party whose interest is in question – or, what is the same thing in other words, to promote or to oppose that happiness.”
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 criticised 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 criticised as a ‘pig philosophy’ fit only for swine.
According to critics, one absurd consequence of Bentham’s principle is that it would be better to live the life of a satisfied pig than that of a dissatisfied human being such as Socrates. For human beings, friendship and aesthetic enjoyment are as good as pleasure.
ii. 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.
Act utilitarianism is simple and easily understood. But rule utilitarianism is morally more sound and does not require calculating the consequences of each action.
The principle of utilitarianism consists of the following elements:
(1) Consequentialism – The Tightness of any action depends solely on its consequences.
(2) Hedonism – Pleasure alone is good.
(3) Maximisation – A right action is one that creates greatest amount of net pleasure.
(4) Universalism – Everyone’s consequences are alike.
Advantages of Teleological Theories:
These are as follows:
(i) Teleological 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.
(ii) Teleological 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.
(iii) 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:
They are as under:
(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.
The term ‘deontological’ is derived from the Greek word ‘deon’ which means duty. Duty or obligation is the fundamental concept in 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 Britisher philosopher has given the following moral rules:
(i) Duties of Fidelity — to keep promises, both explicit and implicit, and to tell the truth.
(ii) Duties of Reparation — to compensate people for injury that we have wrongfully inflicted on them.
(iii) Duties of Gratitude — to return favours that others do for us.
(iv) Duties of Justice — to ensure that goods are distributed according to people’s merits.
(v) Duties of Beneficence — to do whatever we can to improve the condition of others.
(vi) Duties of Self-improvement — to improve our own condition with respect to virtue and intelligence.
(vii) Duties of Non-maleficence — to avoid injury to other.
Thus, deontological theories refute the argument that consequences determine what we ought to do. Actions are right or wrong not because of their consequences but because of our duty or obligation.
Deontological theories have the following merits:
(i) Deontological theories make sense in cases in which consequences are irrelevant. It appears more sensible to care for relations than for consequences. For example, it is the duty of a manufacturer to honour the warranty on a defective product even when the cost of doing so is more than the benefits.
(ii) Another merit of deontological theories is that they consider the role of motives in evaluating actions. For example, two people give equal amounts to charity. Here their benefit is the same. But the action of the person who denoted due to genuine concern for poor is better than that of the person who donated to impress others. Thus, the motive with which actions are done determine their Tightness.
Deontological theories suffer from the following weaknesses:
(i) Deontological theories fail to provide a precise criteria to understand our moral obligations and to resolve moral conflict.
(ii) Ross gave no order of priority among his rules and when these rules are in conflict there is no guide. For example, telling the truth or keeping a promise may cause harm to someone.
Business Ethics – Business Ethics and Profits
Frequently the impression of most people is that ethics and profits are mutually opposed to one another, and that if a company is ethical, it can forget about making profits. People also frequently seem to believe that a profitable company must necessarily be unethical. This is like saying that a company can make profits only through unethical means. Nothing can be more further from the truth.
There are examples galore, from the pages of history, where not only have ethical companies made profits, but more importantly, it is only ethical companies which discharged its social responsibilities, that have survived competition and turbulent changes through the years and have contributed to Social Welfare and have continued to flourished undiminished.
‘Profit is a dirty word’, said Jawaharlal Nehru, in the 1950’s while referring to the public sector companies. Even private companies making profits were viewed with disdain by the public. Their dealings were suspect in the eyes of the upright moral citizens of that time. This was mainly because of the distorted view of business that society had during that time.
With the wide spread interest in business activities since then, with the introduction of business and management education all over the world, and with the rapid widening of the market place and the astronomical growth of consumerism worldwide, the value of profit has been given its deserved place.
Today, not only is profit not a dirty word, in fact, every company is expected to justify its existence in the marketplace, through the profit it generates. It has been felt that any company which cannot make profits even for its own operations has no right to exist in the marketplace and should be wiped out.
A sick and loss making company is a liability and a burden to society-it cannot discharge its responsibilities to the society, it cannot meet its welfare commitment to its employees, indeed it cannot even compensate its workforce for their efforts, it cannot generate revenue for its shareholders, it cannot meet consumer demands adequately and cannot do all those things that a healthy responsible organisation is required and expected to do. Hence, profit is today viewed as a measure of the success of the company and its justification for sustained existence, growth and diversification.
In fact, considered from all angles, it is unethical, not to make profit. It is unethical, for a company, to make losses. Because, a company which cannot make profits and makes losses, misutilises scarce national resources cannot pay back creditors, does not make wealth for its shareholders, make huge liabilities, upsets the economy, promotes inefficiency and most importantly, cannot, at any cost discharge its social responsibility, meet its welfare commitments and jeopardises the future of its employees.
Such a loss-making company becomes a nuisance and a burden to the economy and has no right to exists in the marketplace. Moreover, it has no business to force its employees into economic insecurity, which is highly unethical.
Thus, instead of profits being contradictory to ethics, business ethics dictates that the first responsibility of business is to remain profitable and generate revenue for the shareholders and the society. Rather, it is unethical, not to make profits.
Hence, the first and foremost ethical obligation of every business is to make profits for its shareholders, for its employees, for its creditors and most importantly, for itself, so that it can discharge its social responsibilities and welfare commitments. But, how much profits to make, the means and methods of making it, and at what cost-that is the ethical question.
Business Ethics – 10 Major Determinants of Business Ethics
The major determinants of business ethics may be listed thus:
Determinant # 1. Family, School and Religion:
The formation of ethics begins early in life. As a child one learns about what is good and bad from parents. Through their reinforcing actions, (rewarding good behaviours), parents inculcate high or low ethical standards among children. Schools and Religion also greatly influence the formation of ethical values (such as truthfulness, honesty, sincerity, tolerance, etc.) at an early age.
Determinant # 2. Peers, Colleagues and Superiors:
In the company of good friends, the child realises the importance of high ethical standards in life. If he wishes to make friends with peers who steal, smoke and use drugs, he will probably accept those behaviours as ethical. Colleagues in an organisation, too, shape the value system of an individual. He adopts the attitudes, beliefs and values of the group to which he belongs. Likewise, most people yield to pressure from superiors in doing things that many consider unethical otherwise.
Determinant # 3. Experiences in Life:
Experiences in life teach many lessons. These could be bitter or sweet, depending on the ability of a person to reach goals. If a person is not given a ‘pat on the back’ for good behaviour while others earn rewards for bad behaviour, the person will probably alter both, ethical standards and behavioural responses, in future.
Determinant # 4. Values and Morals:
People who value material possessions in life may not have strong ethical standards regarding behaviours that lead to accumulation of personal wealth. On the other hand, people who place a premium on quality of life will probably have strong ethics while competing with others for various things in life.
Determinant # 5. Threatening Situations:
An employee threatened with losing a permanent job may resort to unethical acts to save his job. To meet pre-determined targets, many Bank managers sanction loans to individuals with practically no creditworthiness. A housewife may practically beat a thief to death, when threatened with the prospect of losing her ornaments or child. Situations like these, force people to change their ethics and respond in an unexpected manner.
Determinant # 6. Organisational Demands:
There is growing research evidence to show that managers at top, middle and first level have compromised their personal principles to meet an organisational demand. Corporate goals are paramount and exert considerable pressure on executives to change their ethical views.
Determinant # 7. Legislation:
Laws are generally passed in response to social demands. Factors, such as low ethical standards, corruption in public life, absence of social responsibility, exploitation, sexual harassment, etc., often force people to demand legislative protection. A practice can be made illegal, if society views it as being unethical. For example, if contributions to political parties by companies are being viewed as excessive and unethical, the practice can be banned.
Determinant # 8. Government Rules and Regulations:
Government regulation regarding product safety, working condition, statutory warnings (on cigarettes and other harmful products), etc., are all supported by laws. These offer guidelines to managers in determining what are the acceptable standards and practices.
Determinant # 9. Industry and Company Ethical Codes of Behaviour:
Many times specific guidelines are provided to managers by the company’s ethical codes of behaviour. One important question in such cases is whether individuals within the organisations are really governed by the code of ethics or provide only lip service to the guidelines.
Determinant # 10. Social Pressures:
Social forces and pressures have considerable influence on ethics in business. Society, in the recent past, has demonstrated how a special status can be conferred on backward castes; boycotted products, and severe action to prevent the construction of nuclear power plants. Such actions by different groups in society may, in fact, force management to alter certain decisions by taking a broader view of the environment and the needs of society.
Business Ethics – Advantages of Managing Ethics in Workplaces
(i) Significant improvement to society- By applying business ethics, many social evils can be eliminated like child labour, harassment to employees etc.
(ii) Cultivate strong team work and productivity- Business ethics 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 organisation.
(iii) Support employee growth- It supports the employees in facing the entire situation whether good or bad.
(iv) Insurance policy – It ensures the employees that all the policies are legal and all the employees are treated equally in the organisation.
(v) Avoid penal action- Ethical problems if detected at earlier stage helps in avoiding penal action and lower fines for the organisation.
(vi) Helps in quality management, strategic planning and diversity management.
Business Ethics – Regulations: Legislative Measures, Goodwill of Business Unit, Social Status of Businessman, Trade Union, Business Association and Consumer Movement
Business ethics are observed by a businessman because of the consequences that would result due to their non-compliance.
Here, some of the regulations are presented briefly:
1. Legislative Measures:
Enforcing the legislative measures is one of the ways of making businessmen follow business ethics. The purpose of enforcing the acts is to protect the public interests including the business and the businessmen. The Company’s Act, Consumer Protection Act, M.R.T.P. Act and the like are some of the legislative measures.
2. Goodwill of Business Unit:
Generally, businessmen have to work hard to earn goodwill by adopting business ethics. Thereafter, the same practice is followed to maintain the earned goodwill.
3. Social Status of Businessman:
Businessman thinks that he gets recognition from the public in a place where he does business. It is always ethical for a businessman to keep social status. Then, he wants to enjoy social status continuously and avoid unjust or immoral business activities.
4. Trade Union:
There are number of trade unions functioning in India. A trade union may be a registered or unregistered one. Here, the trade union has to suffer a break if business ethics is not properly followed. Trade union acts as a watchdog to ensure observation of business ethics.
5. Business Association:
Outside agency like the business association guides the business as how to observe business ethics, stating the reasons for doing so. A business unit may be isolated from the business association if the particular business unit fails to comply with ethics.
6. Consumer Movement:
Now-a-days, the consumer movement has developed so much to protect consumer interests. As a matter of fact, business ethics deals with morality in the business environment. Nevertheless, consumer movements take active part in the adoption of business ethics. For example, if a purchased product is not up to the standards as specified, the consumer movement claims damages or takes steps to replace the product to the consumer and insists the business unit to maintain the quality as specified by it.
Business Ethics – Guidelines to Determine Ethical Actions
i. The Golden Rule:
Act in a way you would expect others to act toward you.
ii. The Utilitarian Principle (Utilitarian Approach):
Act in a way that offers greatest benefit to the greatest number of people. Nobel Prize winning economist, Milton Friedman, argues that using resources in ways that do not clearly maximize shareholder interests amounts to spending the owners’ money without their consent and is equivalent to stealing. The utilitarian approach, thus, puts focus on behaviours and their results, not on the motives for such actions.
iii. Kant’s Categorical Imperative (Universal Approach):
Act in way that the action taken under the circumstances could be a universal law or rule of behaviour. If you follow this approach, you should choose a course of action that you believe can apply to all people under all situations and that you would want applied to yourself.
iv. The Professional Ethic:
Take actions that might be viewed as proper by a disinterested group of professional colleagues.
v. The TV Test:
Managers should indulge in soul-searching questions such as: “would I be comfortable explaining to a national TV audience why I preferred this action?”
vi. The Legal Test (Justice Approach):
Is the proposed action or decision legal? The justice approach involves evaluating decisions and behaviour with regard to how equitably they distribute benefits and costs among individuals and groups. Generally speaking, costs and benefits should be equitably distributed, rules should be impartially applied, and those damaged because of inequity or discrimination should be compensated.
vii. The Four-Way Test:
If the answer to the following questions is “yes”, then managers are said to be on track—is the decision truthful? Is it fair to all concerned? Will it build goodwill and better friendships? Will it be beneficial to all concerned?
viii. Natural Duty Test:
This principle requires that decisions and behaviour be based on universal principles associated with being a responsible member of society. Four universal duties are to help others who are in need; not to harm or injure another; not to cause unnecessary suffering; and to support and comply with just institutions.
ix. Moral Rights Test:
The moral rights approach holds that decisions should be consistent with fundamental rights and privileges, i.e., life, freedom, health and privacy. Many laws nowadays require businesses to comply with society’s view of appropriate standards for quality of life and safety.
Employees, customers, shareholders and the general public have the right not to be intentionally deceived on matters about which they should be informed. Likewise, citizens have a moral right to control access to personal information about themselves and its use by public and private agencies.
Values in Business:
Values define what is good or bad, right or wrong. They guide our behaviour wherever we go and are the primary sources of our actions. Right from childhood, we are guided by our parents to be honest and true to ourselves and to be accountable for our actions. When we grow up and enter organisations we continue to judge events, people and situations with preconceived notions of “what ought “and” what ought not” to be(Robbins) Values (such as freedom, honesty, self-respect, equality etc.) are perceptions about what is good or bad, right or wrong. They tend to be broad views of life and are influenced by parents, teachers, peer groups and associates.
Infact, peoples’ values develop as a product of the learning and experience they face in the cultural setting in which they live. Value differences basically arise because learning and experiences differ from one person to another. As a result, one person may give more importance to money whereas another person may look at honesty and truthfulness as more important than money. Such differences are likely to be deep seated and somewhat difficult to change, many have their origins in early childhood and the way a person has been raised (Rokeach).
From a managerial standpoint, it is important to know that values are those concepts, principles, things, people or activities for which a person is prepared to work hard and even make sacrifices for. Compensation, recognition and status are common values in the workplace. Values, quite often, help managers to tie the knot between employee decisions and actions with overall corporate goals.
People are not born with values; rather they acquire and develop them early in life. Parents, teachers, relatives, friends and others influence an individual’s values. Values such as stealing is “bad”. ‘Honestly is the best policy’. ‘Respect your elders & teachers. ‘Be kind to people’ are taught and reinforced in schools, religious institutions and social groups. Over the years these values become relatively stable and enduring. As we grow in years, we often seek environments that are compatible with the values we learned as children.
For example, values help find out what companies we are attracted to and how long we stay therein. They also influence how motivated we are at work; people who share same values as the organisation are committed to the organisation that those who do not. Whenever people make decisions or talk about what constitutes appropriate behaviour at work, we can easily see the impact of values or even conflicts between different values.
For example, consider the question of laying-off employees. Managers with dominant economic values would be less hesitant to lay them off quickly than would managers with high social values. Once a particular value is internalized, it becomes a standard for guiding action. It becomes instrumental in developing and maintaining attitudes towards relevant objects and situations for justifying one’s own and others actions and attitudes, for morally defining self and others and for comparing self with others. When individuals enter an organisation with certain pre-set values, of what is right or wrong, they tend to look at the world through coloured glasses.
For example, you believe that an organisation should promote people on the basis of merit and not on seniority. However, the organisation does the opposite thing, you tend to feel disappointed and totally out of place. Your attitude and behaviour towards the organisation perhaps would be very optimistic if your values match with organization’s promotion policies. Values, thus, overpower objectivity and rationality.
Business Ethics – Ethical Dilemma
An ethical dilemma is a situation where one is in conflict between moral imperatives. Ethical dilemma is also known as ethical paradox or moral dilemma. Ethical dilemma is a situation in which it cannot be determined whether the action is right or wrong. To follow one action would result in transgressing another.
1. Choice between equally undesirable alternatives
2. Different courses of action possible
3. Involves value judgments about actions or consequences
4. Data will not help resolve issue
5. Different sources (psychology, theology) offer solutions
6. Unfavourable outcomes will result
7. Choices have far-reaching effects on persons, relationships and society
8. Resources which must be allocated are finite or limited
9. Can be resolved, not solved
10. There is no “right” or “wrong”.
1. Principle of ‘sacrifice’ – A person, who is able to sacrifice a part of his asset or effort, commands a superior place in the organisation.
2. Principle of ‘harmony’- harmony helps in avoiding conflicts in the organization.
3. Principle of ‘non-violence’- It protects an organisation from strikes and lockouts.
4. Principle of ‘reward’- The one who performs well is encouraged in form of rewards.
5. Principle of ‘justice’ – The one who works hard is awarded and the one who fails is punished.
6. Principle of ‘taxation’- The one who is taxed more is encouraged to stay fit for a longer period by proper appreciation. This principle applies to people who are hardworking and productive.
7. Principle of ‘integrity’ – Integrity emphasis unity which helps to reap the benefits of division of labour.
8. Principle of ‘polygamy’ – It emphasized on combining of two different cultures by absorption or takeover.
Business Ethics – Relationship between Business & Ethics
The relationship between business and Ethics has long been debated. If Classical economists like Adam Smith and Milton Friedman were of the opinion that the only objective of business was profit maximisation and business had no right to ‘meddle’ with ethics, the Church, in pre-medieval times, was the spokesman and judge for all spheres of the society, including business.
In medieval and pre-medieval period, the Church took upon itself to regulate the moral functioning of business, making moral declarations like-all businesses must remain closed on Sunday, the ‘holy-day’, when Jesus Christ was supposed to have taken a rest and it was morally ‘correct’ to stop working on Sundays.
These two are extreme views, known as the Unitarian View and the Separatist View. However, around the decade of 1950, Talcott Parsons, founded the Integration View which stated that neither was business an extension of morality and ethics nor can business keep itself absolutely aloof from the ethical practices of the society wherein it exists and operators. This view sought to integrate the two previous views presenting a more realistic picture.
The Unitarian View:
This view is of the opinion that business is only a subset or sub-structure of the moral structure of the society. According to this view, business and morality cannot be separated and business must play by the rules of morality and ethics of the community which guides the activities of the community.
This view was emphasised more by the Church in the European countries and the Church prescribed that business must exist only to do good for the society, and it had no other role to play apart from serving society and ushering in social welfare. This View stated that business must conduct its affairs purely through altruist motives and that profit was a dirty word.
The Separatist View:
Dramatically opposite to the Unitarian View, classical economists like Adam Smith and Milton Friedman asserted that the only goal of business should be profit maximisation; and that ethics and morality plays no part in business conduct.
In fact, Milton Friedman, the celebrated economists, who won the Noble Prize for Economics, in 1976, hold the view that business should go on with the business of producing goods and services efficiently, and leave the solution of social problems to government agencies and concerned individuals.
In short, managers should focus on what they know best—that is how to make profits. It was Friedman who forwarded the classical view that the only responsibility of business is to earn profits, arid he goes on to say, in his book, ‘Capitalism & Freedom’, thus-
“There is one and only one responsibility of business-to use its resources and engage in activities designed to increase its profit so long at it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud. Few trends could so thoroughly undermine the very traditions of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible. This is fundamentally subversive doctrine.”
Adam Smith and Friedman were of the opinion that business should be left alone to play by the rules of the prevalent market system, and the introduction of ethics would make an imbalance of the market dynamics. The Separatist View is of the opinion that business too has its own set of principles like ‘reduce production costs,’ ‘optimise labour’ and so on, and these principles are all related to the marketplace and have nothing to do with moral principles.
Playing the business game by the market rules will ensure that the ‘individual hand of the market’ would generate social welfare to community.
Theodore Levitt, the well-known psychologist, believed that if ethics and morality were allowed to enter the realms of business, then there is a danger of business values ultimately dominating over social values. He expressed thus, in his famous article, ‘The Danger of Social Responsibility’, –
“The danger is that all these things (social aspects of business functioning) will turn the corporation into twentieth-century equivalent of the medieval Church. The Corporation would eventually invest itself will all-embracing duties, obligations, and filially powers-ministering the whole man and moulding him and society in the image of the corporation’s narrow ambitions and its essentially unsocial needs”
Many intellectuals expressed the fear that any replacement of altruism for self-interest will, therefore, be fatal to the efficiency of the system. Managers should manage only in the interests of the shareholders and shareholders should be put in the position where they decide how their wealth and resources will be used. They believe that business should not have any responsibility beyond obeying certain legal codes in achieving its economic and business goals.
The Integration View:
This View was proposed by Talcott Parsons, wherein he sought to integrate ethical behaviour and business in a new area called Business Ethics. This View states that business is an economic entity and it has the right and the need to make profits, but, it must also discharge its obligations to the society where it exists and operates.
Profits is certainly not a dirty word, but, neither is morality and ethics in business. This View states that society consists of a number of subsystems, and business and morality are just two of these subsystems. Since all subsystems within the society are interlinked and interdependent, so also are business and morality interlinked.
Business and Ethics overlap and hence many business decisions are guided by moral considerations. In fact, business itself is considered to constitute of ethics, as it does so much good to so many people and specially to the society it serves. Production of goods and services and making them available to consumers who need them and benefit from them, itself, constitute a noble deed towards social welfare. Thus, business constitutes of ethics in itself, even while it pursues profits.
A sick and bankrupt organisation is a social liability and can hardly contribute in the area of social responsibility. Hence the first responsibility of a businessman is to generate surplus for his business. At the same time however, he must do so ethically, carry on his business on morally sound principles and go out of his way to assume social responsibilities beyond the legal minimum.
Business Ethics – Rationale of Business Ethics: Survival of Business, Need of a Stable Society, Growing Clout of Business, Effective Decision-Making and a Few Others
Rationale of corporate ethics are as follows:
1. Survival of Business:
Any individual business will collapse if all of its managers, employees, and customers come to think that it is morally permissible to steal from, lie to, or break their agreements with the business.
2. Need of a Stable Society:
All businesses require a stable society in which they are supposed to carry on their business dealings. Stability of any society requires that its members adhere to some minimal standards of ethics. It will create a conducive environment for the development of economic and social institutions.
3. Consistent with Business Objectives:
Ethics should be brought into business by showing that ethical considerations are consistent with business pursuits, in particular with the pursuit of profit. That ethics is consistent with the pursuit of profit and it can be shown by simply finding examples of companies where a history of good ethics has existed side by side with a history of profitable operations.
4. Growing Clout of Business:
The power and influence of business in society is greater than ever before. Evidence suggests that many members of the public are uneasy with such developments. Ethics help us to understand why this is happening, what will be its implications and how we will address this situation.
5. Safeguarding Public from Business Malpractices:
Business malpractices have the potential to inflict enormous harm on individuals, communities, and the environment. Ethics seeks, to improve the human condition by focusing on the causes and consequences of these malpractices being done by the business organisations.
6. Effective Decision-Making:
Ethics help to improve the business ethical decision-making with the appropriate knowledge and tools that allow them to correctly identify, diagnose, analyse, and provide solutions to the ethical problem and dilemmas they are confronted with day to day decision making having implications for the stakeholders.
7. Business Effectiveness:
Ethics develop the ability to assess the benefits and problems associated with different ways of managing ethics in organizations. It also improves the knowledge that transcends the traditional framework of business studies which have focused on the relevance of ethics in business.
Business Ethics – Three Dimensions: Systematic Issue, Business Issues and Individual Issues
Business ethics include three dimensions:
1. Systemic issues,
2. Business issues, and
3. Individual issues environment.
1. Systemic Issues:
These are ethical questions raised about the economic, political, legal, and other social systems within which corporate enterprises are expected to operate. These are set by the society, government and other agencies involved in ethical movements. 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. Individual behaviour of the business set the agenda for other companies working in the industry concerned and managers and employees are expected to comply with these standards. Generally, individual companies try to formulate their own ethical standards for their behaviour.
3. Individual Issues:
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.
Business Ethics – Ethics and the Indian Corporate Culture
Ethics in India is based on a number of scriptures, thoughts, ideas, and Vedas. In India, the organizational culture is divided into two broad divisions, namely professional culture and community culture. The professional culture helps the, employees to maintain a certain acceptable level of discipline in the enterprise.
The community culture of an enterprise emerges from the varied cultural backgrounds to which its employees belong. One important aspect of organizational community culture is that the beliefs and views of any particular culture or religion should not alienate any individual belonging to another culture. The Indian corporate culture has borrowed many ethical values that have been taught by Indian scriptures.
Some of these ethical values are as follows:
i. Respect – Respect means that every individual should have respect for the beliefs and values of other individuals. In a multiethnic country as India, the people should respect each other’s views, beliefs, and ideas to maintain good mutual relationships.
ii. Trust – Trust means that the employees of an enterprise should cultivate mutual trust and faith in each other. Doubts may create misunderstandings, problems, and chaos among individuals, and thus need to be avoided. Such doubts can be solved by placing trust in each other to facilitate a better working of an enterprise.
iii. Spirituality – It emphasizes the positive inner transformation of an individual’s life. An individual performs efficiently and feels satisfied at workplace when he/she is in peaceful and contented frame of mind. Now-a-days, the enterprises are realizing the importance of spirituality, contemplation, meditation, and yoga practices, which are the essence of the Indian culture. Such practices help people to lead a more sensible life, increase work efficiency, and decrease stress levels.
iv. Tolerance – It helps to maintain cordial relationships among the employees of an enterprise. Tolerance refers to increase in the level of adaptability of an employee to various organizational changes. The individuals need to be permissible and receptive to the challenges of their work. They should accept people as they are without judging them.
v. Flexibility – Flexibility refers to the degree at which an individual can adapt with the surroundings in the organizational environment. It takes into account the receptive and adaptive nature of an individual towards fellow employees and assigned tasks.
vi. Sincerity – Sincerity refers to truthfulness and transparency in the nature and behavior of employees in an enterprise. It also necessitates an honest code of conduct in an enterprise.
vii. Patience – Patience refers to the degree at which the individuals can tolerate any delays in the fulfillment of their wishes or goals. Individuals with high degree of patience are not affected by delays in getting rewards for their accomplished tasks.
viii. Perseverance – Perseverance refers to the quality of an individual to not to give up soon and keep on trying for achieving goals. Individuals with perseverance can keep their spirits high to achieve the desired goals.
Business Ethics – Causes and Issues of Unethical Behavior
Unethical behavior refers to the behavior of people that do not confirm with the acceptable standards of social and professional behavior. Such behavior may include making long-distance calls from the office, duplicating the enterprise’s system software to use at home, projecting a false report on the number of worked hours, or falsifying business records.
There can be numerous factors that cause unethical behavior in the employees of an enterprise.
Such factors are as follows:
i. Primary Factors:
Primary factors refer to the factors that comprise external stimuli and compel people to move in a particular direction without thinking about ethical parameters. For example, obedience to authority is a primary concept that affects the ethical mindset of an individual.
Children tend -to obey their parents right from the time when they do not know anything about ethics. This makes their every act conditioned to their parents’ teachings and orders. This mindset of children continues right from their school time. As a result, when an authoritative person orders the individual to do an unethical act, he/she tends to obey him/her as well. This happens due to the conditioning of their mind to obey orders right from their childhood.
ii. Personality Factors:
Personality factors refer to the prominent characteristics of an individual. If these characteristics of an individual are negative then they are reflected in his/her behavior. For example, if a person has a prominent characteristic of being late to the office regularly then indiscipline is he/she personality factor.
iii. Defensive Factors:
Defensive Factors refers to the attempts of an individual to find easy ways to escape from an act of violation of a law or a duty. Generally, the defensive factors are the maneuvers caused by two basic internal stimuli, which are guilt and shame. These two stimuli force individuals to lie, or draw a false consensus of others to cover their mistakes.
The above mentioned factors can be dealt with the help of following techniques:
a. Appointing a psychologist or consultant to help the employees deal with the strong emotions that force them to indulge in an unethical behavior
b. Ensuring that the employees know about common psychological factors of unethical behavior and the ways to deal with them
c. Recognizing the factors that cause unethical behavior; thus, finding the ways to tackle the same.
Business Ethics – Challenges in Compliance, Finance, Human Resource, Marketing and Production
(i) Ethics in Compliance:
Compliance means conforming to relevant laws, regulations, policies, standards, procedures, or contractual obligations. These may be external or internal obligations. Organizations that follow high Ethics comply with the law and ensure an ethical climate inside throughout the organization.
(ii) Ethics in Finance:
Financial statement fraud can surface in many different forms, although once deceptive accounting practices are initiated, various systems of manipulation will be utilized to maintain the appearance of sustainability.
Common approaches to artificially improving the appearance of the financials include:
(a) Overstating revenues by recording future expected sales
(b) Capitalizing operating expenses
(c) Inflating assets’ net worth
(d) Hiding obligations off of the company’s balance sheet and incorrect disclosure.
(e) Insider trading, executive compensation
(iii) Ethics in Human Resource:
HR includes numerous ethical pitfalls that can damage a company’s reputation or financial sustainability if not handled properly. Understanding the importance of ethics in human resources is crucial for any business owner, whether in a local startup or a multinational powerhouse.
The ethics of human resource management (HRM) covers those ethical issues arising around the employer-employee relationship, such as the rights and duties owed between employer and employee.
The issues of Ethics faced by HRM include:
(a) Discrimination issues, affirmative action, sexual harassment.
(b) Issues surrounding the representation of employees and the democratization of the workplace.
(c) Issues affecting the privacy of the employee, workplace surveillance, drug testing.
(d) Issues affecting the privacy of the employer- whistle-blowing.
(e) Issues relating to the fairness of the employment contract and the balance of power between employer and employee: slavery, indentured servitude, employment law.
(f) Occupational safety and health.
(iv) Ethics in Marketing:
Marketing ethics is the area of applied ethics which deals with the moral principles behind the operation and regulation of marketing.
The issues of Ethics faced through marketing are:
(a) Price Discrimination, Price war, Price skimming
(b) Misleading advertisement
(c) Black market, Grey market
(v) Ethics in Production:
Ethics in production is a subset of business Ethics that is meant to ensure that the production function or activities are not damaging to the consumer or the society.
(a) Ethical problems arising out of use of new technologies that are deleterious to health, safety and environment, genetically modified food, radiations from mobile phones, medical equipment etc.
(b) Defective services and products.
(c) Products those are innately deleterious like alcohol, tobacco, fast motor vehicles, warfare, chemical manufacturing etc.
(d) Animal testing.
(e) Pollution, global warming, increase in water toxicity and diminishing natural resources.
Business Ethics – Business Ethics in India
In India, most of the businessmen believe in good business ethics. They realise their responsibilities towards various segments of the society. Nevertheless, they find it difficult to translate business ethics into practice. The reason is that the business environment changes every second. Businessmen are ready to cope with changes at any cost by giving up business ethics.
Large numbers of businessmen wish to earn large profits, through short-cut methods. Books of accounts are prepared by recording focus expenses in order to show less profit to elude tax liability. Next, goods are invoiced at cheaper rate to lower taxes. Reduction in selling price is announced only after increasing the actual selling price. Price discrimination is followed to different types of people, say, known and unknown, educated and uneducated, rich and poor, gents and ladies and the like.
Businessmen are not ready to pay even minimum wages. The health condition of employees is not considered by the businessmen and they are reluctant to pay medical expenses if needed. In some cases, the medical expenses borne by businessmen are deducted from the wages.
Businessmen get acknowledgement from the employees for a higher amount than the amount actually paid. This type of practice cannot be controlled by anybody without the whole hearted co-operation of businessmen. The observation of business ethics is only in the hands of businessmen.
Business Ethics – Benefits to Customers, Employees, Industry, Business, Society and Government
A business may be conducted according to certain self-recognised business ethics. If so, certainly, the following benefits are available to the concerned groups.
The benefits of business ethics are listed group wise:
i. Receive quality goods.
ii. Pay reasonable price.
iii. No difficulty in obtaining goods.
iv. No price discrimination.
v. No price fluctuation.
i. Fair wages.
ii. Better working conditions and working environment.
iii. Recognising human feelings.
iv. Reward for efficiency.
v. Job security.
vi. Participation in management.
vii. Proper personnel policy.
i. Healthy competition.
ii. Better co-operation and co-ordination.
iii. Steady growth.
i. Adequate Profit.
ii. Fast growth.
iii. Fast diversification of business.
iv. Less labour turnover.
i. Better utilisation of resources.
ii. Improving standard of living.
iii. No pollution problem.
i. Prompt collection of taxes.
ii. Development of nation.
iii. Easy implementation of legislation.
Business Ethics – Arguments against Business Ethics
Though it is done very, very infrequently now-a-days, some authors and philosophers, nonetheless, do tend to put forward the argument that businesses being economic entitles, should have nothing to do with morals (i.e., with what people do) or ethics (what people ought to do).
They argue that businesses should assume no other responsibilities, other than to produce goods and services efficiently and to maximise profits for the shareholders. They believe that business being economic entities, only economic values should be their guiding principles and the sole determinant of their performances.
Milton Friedman, the celebrated Noble Prize winning economist, in his book, ‘Capitalism and Freedom’, put forward his classical view that the only; responsibility of business is to earn profits. He believed that-
“There is one and only one responsibility of business-to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud. Few trends could so thoroughly undermine the very traditions of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible. The fundamentally subversive doctrine.”
Friedman feared that if business ethics formed a part of corporate culture, ultimately the customer would be called upon to bear the cost of the ethical practices of the organisation, as Friedman erroneously assumed that such ethical practices would increase the prices of the organisation’s products. He further believed the social responsibility of business is contrary to basic business functions.
Moreover, he says that the business manager does not know, and does not need to know, where public interest lies. That is the concern of politicians, bureaucrats, concerned organisations and individuals and the state.
Today, business have found out that they are, in fact, responsible for social welfare, since they live and operate within a social structure. Without earning social sanction, no business can hope to survive, leave alone develop and flourish. And ethical practices do not necessarily increase the cost of production, in fact they tend to reduce costs. But, even if they do increase costs, short term sacrifices must be made for long term good.
Another personality, the famous psychologist, Theodore Levitt, expressed fear that if business started being concerned about ethics, then business values would come to dominate social values.
These views were put forward in the 1950s and the 1960s. Since then, there has been a radical change of views and the fears expressed by philosophers and psychologists about business ethics have largely remained unfounded.
People at that time feared that any altruism or ethical conduct or embracing of any moral philosophies by the organisation would lead it to sacrifice its efficiency and productivity; and the competitiveness of the marketplace would fade away. Nothing could be more far from the truth.
Having realised this, more and more business organisations are today accepting business ethics as part and parcel of their daily business conduct. And to their astonishment and delight, they have found that being ethical and moral have given them an unique edge and advantage in the marketplace.
Moreover, their employees, executives and managers have felt proud to belong to such organisations. For, goodwill, loyalty genuine pride, and above all, mental peace, cannot be calculated accurately in terms of money.