Business Ethics Module 1

7/29/2019 Business Ethics Module 1

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BUSINESS ETHICS AND CORPORATE GOVERNANCE OBJECTIVE OF THE CHAPTER

The aim objective of this chapter is to give a basic understanding of ethics and its

application in the relevant fields of business study human behavior. It is to establish

& prioritize moral standards & the values of any business and understand by any

entity the scope, concept and importance of Ethics, its gradual development andthe relevance in business scenario. It also aims to encourage independent critical

thought and develop an individual system of ethics within an individual and the

organization at large. A business established with a foundation of strong ethics and

values is more promising, successful and enduring than that of rapid growth at a

cost of many compromises. Presenting moral behavior i.e. making

recommendations abt how to & how not to behave, making judgment on human

behavior based on the standards set of expressing an opinion abt human conduct in

general.

1.1AN OVERVIEW OF BUSINESS ETHICS

Customers want products and services for which they are ready to pay the price.

Businesses create these products and services and in return multiply their

returns, objective is profit. But in this process of requirements and fulfilling or

meeting out the customer requirements and the expectations, companies often

tend to ignore their basic principles of ethics during selling their products

because then their objective of profit takes the helm. There should be their profit

motive but ethically, i.e., at the same time the origin of business which was done

on certain parameters and ethics should not be ignored or over-ruled. There is

old French saying that has much relevance in today's corporate world. It runsthus saying, "He who knows deepest into the past looks farthest into the future."

Hence, it is important to look deep into the past in the hope of perceiving the

needs of the future. Business ethics reflects the philosophy of business. The

basic aim of business is to create profit at all costs. Wealth creation invariably

begins with a passion and the vision of its owners who lay the basic foundation

of the business. They build an idea to create a product or service that is market

oriented or relevant and monetarily profitable. The bottom-line of any business is

how much revenue generation it is making and what kind of brand image or the

goodwill of the company is getting created amongst the customers. Business

success is measured quantitatively in terms of profit and loss. Profit being the

mantra in business, all strategies, actions and decisions are directed towards it,

sometimes regardless of what is ethically correct. It is assumed that profitable

business cannot be done without a certain degree of unscrupulousness. An

action might be morally correct but if it is the best move for business, then it is

justified. Invariably, adjusting the numbers to record better profits becomes a

matter of routine with a common dictum that business ethics is an oxymoron

leading to the rules of business, values take a back seat. In this entire process of



sweeping business ethics under the carpet and maximizing profits, it is

overlooked that who we are and what actually influences the work that we do.

Business ethics overlaps with the philosophy of business. One of the aims of

business is to determine the fundamental purpose of the incorporation of a

company.

On one hand if it is to make profits, it should also consider sincere means to

maximize profits arid believe that there are no shortcuts to success. Corporate

social responsibilities an umbrella term under which the ethical rights and duties

existing between companies and society is debated. Issues regarding the moral

rights and duties between a company and its shareholders, fiduciary

responsibility, stakeholder concept vs. shareholder concept are argued. Ethical

issues concerning relations between different companies: e.g. hostile takeovers,

industrial espionage, Leadership issues, corporate governance; Corporate Social

Entrepreneurship, Political contributions made by corporations towards thebetterment of the society, Law reform, such as the ethical debate over

introducing a crime of corporate manslaughter and to continue the misuse of

corporate ethics & policies as marketing instruments are all considered,

understood, argued and implemented towards practicing ethics. Leadership is a

management process, a command of guidance of encouraging & helping others

to work enthusiastically towards the set objectives. For Aim Premix, chairman of

Wipro, integrity is paramount both in personal as well as business life. He

narrates that the only advice that his father gave him was to conduct him with

values and that he believes it has helped him all through his life. He has always

leaded a simple life, and considered integrity the fundamental value. He ran a

factory on captive power generation for 18 months just because he did not want

to bribe the concerned people to get an electricity connection. That sums up his

philosophy. This standard of Premji sets a benchmark for his employees in Wipro

to emulate. Integrity being the guiding principle for Premji has resulted in the

formulation of the 'Integrity Manual' in his company that guides through the

tough choices confronted within the daily execution of the employees roles and

to help create confidence in the minds of the customers , investors, suppliers

and the society at large with respect to Wipro's dependability and sincerity. This

is how the ethical choices of a business leader permeate into the company's

organizational behavior and functioning. As is shown by the performance of

companies like Wipro and Infosys a leader's personal ethics are not a deterrentto generating revenue for the company will later. It can be a foundation for

higher standards of functioning, accountability and transparency that motivates

the employees, influences the way they behave in the workplace, earns their

loyalty and eventually helps an organization endure. No doubt the organization

faces lots of turbulences in the process of inception, continuation of its proving

of existence and constant attacks and challenges but it is not to be forgotten



that it was but expected and had to be thought before the implementation of the

idea incarnated. An individual plunges into business when he thinks he is better

than somebody, can do a particular thing better, face competition more

effectively, has an enhanced vision to accomplish and dares to confront the

storms, takes the risks and gets into entrepreneurship. Ethics is seen to be at its

peak at the inception but gradually sinks when profits takeover the prime seat inbusiness or start losing hopes when sees that ethical ways are longer and

difficult comparing the easier routes of accomplishing quicker benefits growth

and meeting the reason for business establishment. So can we really meet the

above and grow, getting retained in business by following ethics throughout?

This is a challenging question which plays the foundation of the business further.

1.2 MEANING OF BUSINESS ETHICS

The term business ethics is quite ambiguous. It has various meanings with variedimplications based on its use. Business ethics appeals to people who have a strong

sense of role morality. It can be both a normative and a descriptive discipline. As a

corporate practice and a career specialization, the field is primarily normative. In

academia descriptive approaches are also taken. These_ are the business principles

and values that a company follows to do business. In future these ethical

requirements become legal requirements of business in terms of policies, safety

measures, quality products, conditions of work, needs of employee requirements

etc. Gradually companies, sometimes to save cost may opt for certain

compromises.—Even for the companies there is a dilemma that if they follow ethics

to that hardcore standards, can they really make profits? This leads to minor

acceptations in the beginning in terms of bribery, selling under quality products,etc. Historically, interest in business ethics accelerated dramatically during the

1980s and 1990s, both within major corporations and within academia. For

example, today most major corporate websites lay emphasis on commitment to

promoting non-economic social values under a variety of headings (e.g. ethics

codes, social responsibility charters etc.). When managers reporting to NASA were

thoughtful whether to ask for a postponement before what turned out to be a fateful

launch of the space shuttle Challenger, the Chair of the meeting literally said, "Take

off your engineering hat and put on your management hat." The hats symbolize the

various roles people take on in different situations. Therefore, if the main aim of the

game in business were just maximizing profit, this approach would allow abusinessman to act as if business were-a moral game where success is measured in

financial terms alone. Ethics thus refers to the moral principles, a sense of right &

wrong or the goodness & badness of the action, their motives & the consequences

further. What is ethics then?

. Ethical issues in business include the rights and duties between a company and its

employees, suppliers, customers and share holders. Many philosophers consider



ethics to be the "Science of Conduct" and many of them explain that ethics lays the

fundamental ground rules by which we live our lives. Some of them also consider

emerging ethical beliefs to be the state-of-the-art legal matters, i.e... What becomes

an ethical guideline today is often translated to a law, regulation or a rule tomorrow.

Thus applied ethics is a field of ethics that deals with ethical questions in many

fields such as medical, technical, legal and business ethics. Ethics in business issupplying the application of everyday moral of ethical means in business.

Organizations today are finding themselves under public attack and criticism and

they responded by developing the notion of social responsibility. They thus start the

social responsibility program and spend a good deal of money in advertising their

programs and how they promote the social cause. The fundamental purpose of a

company is both profit and social responsibility and adhering to both with due

consideration on ethical values and norms brings not only success but also stability

and dependability in the long run. The different sources of ethical values are

through; Genetic inheritance, code of conduct, culture, religion, legal system,

philosophical system etc. Religion here refers to a specific & institutionalized set of beliefs & practices which are generally agreed upon by a group of persons or

sections of the society.

Religion is the oldest source of inspiration for ethics. Across the globe, we find

various religions with different doctrines with a strong conviction that ethics is

indispensible and reveals what is right and wrong in all the facets of life. All the

religions stress on the need for an ordinary social system and responsibility towards

general welfare. Why business ethics? Business ethics refers to the application of

ethics in business. It is in other words an elaborative study of the good and the evil,

right & the wrong, just and unjust actions of the business. We also find transactional

ethics here which means the asymmetrical or irregular and uneven relations of

unequal claims & conflicting interests which do not exhaust the arsenal of possible

action patterns. As an individual decides principles for his life that he will not cheat

anyone, not tell lie under any circumstance, be sincere at all difficulties and

challenges etc. in the same way company sets certain standards and values or

formulates the moral philosophy of the business to conduct it in a better way. There

are many instances wherein companies did not follow business ethics and they had

to shut down, compromise profits and company image, shattered goodwill, undergo

losses etc in the long run consequently. Hence it is very critical that certain basic

structures on ethics are set and followed emphasizing the study, implementation

and regular practice of ethics in business. Business ethics came into limelight asorganizations started realizing that they need to manage a more positive image of

their company to the public. The philosophy of any business is reflected by the

business ethics followed or implemented by the organization which examines and

resolves the ethical and moral principles and problems that arise in business

environment. Environment refers to all external forces which have a bearing on the

functioning of business. Environment includes factors such as socio-economic,



technological, suppliers, competitors and the government. It applies to all aspects

of business conduct and is relevant to the conduct of individuals and the entire

organization. Problems such as corporate responsibility, corporate governance,

share holder relation, bribery and discrimination are examined in Business ethics. It

concentrates on moral standards as they apply particularly to business policies,

institutions and behavior. Discussion on ethics in business is necessary because,firms and corporations operate in the social and natural environment is duty bound

to be accountable to its surviving environment and business can go thus unethical.

There are plenty of evidences on unethical corporate practices. Irrespective of the

demands and pressures upon it, business, by virtue of its existence is bound to be

ethical, for at least two reasons: one, because whatever the business does affects

its stakeholders and two, because every juncture of action has curve of ethical as

well as unethical paths. The existence of business is justified by ethical alternatives.

The demise of small scale, high trust and face-to-face enterprises and emergence of

huge multinational corporate structures are capable of drastically affecting

everyday lives of the masses and compliments the ethical and unethical decisions

of business.

Culture at the same time means the mode of life of a particular group of people with

due reference to the way they lead their lives in the society, their dress code,

beliefs, rules and regulations, rituals, behavior and ethical practices. Therefore

cultures of different nations are different with its own predefined ethical practices.

The basic values of a society constitute nothing but the core of its culture. Man as a

social animal cannot live alone and hence his conduct has a direct or indirect

reference to the culture he belongs to. These moral standards and values have a

tremendous impact and profoundly affect the person in building his own ethical

value structure.

But it is also to be remembered that the moral conduct of a person is not confined

only to his family culture. It transcends and goes beyond family culture and spills

over to the society or the race which he belongs to. In spite of ethics being culture

specific there are certain principles which run like a common thread among all

cultures, all religions and among all the ages in history. These are nothing but the

principles of honesty, respect for life and freedom, fairness, loyalty, human dignity,

integrity etc. These principles are unchangeable, immortal and remain always valid,

transcending time, space and distance. Corporate culture is a shared value that

defines for its members as to what the organization stands for, its functioning, itspriorities and the importance of its existence. Thus it has a strong impact on

business ethics

Business ethics can be defined as the critical and structured examination of how

people and institutions should behave in the world of commerce, addressing the

moral features of a commercial activity. In particular, it involves examining

appropriate constraints on the pursuit of self interest or profits when the actions of



the individuals or firms affect others. It is a movement which refers to the

development of structures and principles internal to the company resulting in

helping the company and the employees. Some companies have always been

ethical and have structured themselves and their culture to reinforce ethical

behavior. A running business requires adequate consideration to a number of issues

outside the traditional scope of making money, of which ethics is most certainly animportant one. As business grows and becomes more significant, we concentrate

and focus on creating jobs and wealth. But it is equally important to understand the

business ethics which can build the reputation or affect it negatively if not

considered. The relationship between ethics and business can be viewed in two

angles: One is that, ethics conflicts with profits and second being that businesses

always choose profits over ethics. Business has the highest level of humanity and

social good. One of the important questions here is what are the ethical values that

a business leader needs to have?

Who decides what the right ethical conduct for business is? It’s no longer enough for

companies to produce healthy profits. They must also prepare the next generationof business executives to respond to ethical, social and environmental

considerations of today’s corporate world.

A few guidelines to manage ethics at workplace are:

1. Managing ethics is a gradual process: Ethics is a matter of values and associated

behaviors distinguished through the process of constant reflection. Ethics programs

may seem more process-oriented and prefer processes focused on deliverables with

measurements. However, experienced managers realize that the deliverables of

standard management practices (planning, organizing, motivating, controlling) are

only tangible representations of the very process-oriented practices. Practicecultural relativism which is a concept of relating any given decision about right or

wrong, true or false to the culture prevailing in a particular place. In short, it means

'Be a Roman in Rome'. Of course the process of strategic planning is more

important than the plan produced by the process. The same is true for ethics

management which produces deliverables like codes, policies and procedures,

budget items, meeting minutes, authorization forms, newsletters etc. and ethics

management program is the process of reflection and dialogue that produces these

deliverables.

2. Ethics program aims at accomplishing preferred behaviors at workplace: The best

of ethical values and intentions are relatively meaningless unless they generate

acceptable ethical behaviors in the workplace that can translate these values to

appropriate behaviors. Thus certain standardization is created and implemented

into the system from seniors to juniors.

3. Ethical dilemmas can be handled by avoiding their occurrence: Precaution is

always better than cure. The development of ethical practices such as developing



code of conduct and ethics sensitizes the employees to ethical considerations and

minimizes the chances of unethical behavior occurring in the first place.

4. Make ethics decisions in groups and then publicize the decision: It produces

better quality decisions by including diverse interests and perspectives and

increases the credibility of decision process and outcomes by reducing suspicion of unfair bias.

5. Integrate ethics management with other management practices: While

developing strategic planning, the value statement towards ethical values needs to

be more prominent in workplace as they reflect organizational objectives, goals and

the company culture. Corporate culture is a set of shared values that defines for its

members about what the organization stands for and how it functions along with

what it considers to be the most important. Integrate ethical requirements with

other management practices to create a sound corporate environment and system.

6. Cross-functional teams to develop and implement ethics management program:It is always advised to include employees in developing and operating the values of

ethical program that is to be initiated in the organization which makes them feel a

sense of participation and ownership in the program.

7. Value forgiveness: It rather sounds a little religious and preachy to hear, but it's

also one of the prime components of any management practice. An ethics

management program may increase the number of ethical issues to be dealt with

because people are more sensitive to their occurrence. At the same time, there may

be more occasions to address people's unethical behavior. It is always to be

remembered that a shaking hand and a patting attitude is always better than a

pointing finger. The most important ingredient for remaining ethical is trying to beethical. Therefore, help people recognize and address their mistakes and then

support them to continue to try operate ethically.

8. Try to operate ethically and making a few mistakes is better than not trying at all:

Some organizations have become widely known, as thus operate in a highly ethical

manner, e.g., The Tata’s, Johnson and Johnson, Hewlett Packard, etc. Unfortunately,

it seems that when an organization achieves this strong public image, it's placed on

a pedestal by some business ethics writers. All organizations are comprised of

people and people are not perfect. However, when a mistake is made by any of

these organizations, the organization has a long way to fall. In our increasingly

critical society, these organizations are accused of being hypocritical and they aresoon pilloried by social critics. Consequently, some leaders may fear sticking their

necks out publicly to announce an ethics management program. This is extremely

unfortunate. It's the trying that counts and brings peace of mind and not achieving

a heroic status in society. We can always initiate a process or a route which can

become a basis for somebody else to improvise with better ideas, concepts, means

and perceptions.



1.3 HISTORY AND DEVELOPMENT OF BUSINESS ETHICS

The history of business ethics is probably as old as business itself. Even inprehistoric societies there were most likely rules governing acceptable trade

practices which dealt considerably with issues concerning commerce, tariffs and

pricing.

The evolution of business ethics and awareness can be attributed to a number of

factors like increased globalization and decentralization of business, an expanded

corporate business to ethics and the influence of various stakeholders focusing

attention on both ethical successes and challenges. With the globalization of

economy and media and the growth of internet, companies are being held

accountable for their ethical conduct. A range of new economic issues such as the

shifting of production to developing economies, what constitutes a living wage and

how companies respond to cultural differences is being cast in ethical frames since

times.

By the 4th century B. C., ethical issues related to business and trade can be traced

receiving academic treatment in the philosophies of Plato and Aristotle. The history

of business ethics also has its formative years in the reformation. Reformation

figures like Martin Luther and John Calvin, in the 15th and 16th centuries A. D.,

applied religious and moral considerations to trade and economics leading to the

development of the Protestant work ethic. But in the following two centuries,

Enlightenment thinkers such as John Locke and Adam Smith began to separate

religious doctrine from moral and ethical considerations of commerce and business.

Locke introduced the concept of property as a natural right, and Smith developed

the foundation for modern economic theory by championing the moral values of

self-interest in guiding and promoting the progress of markets. In the 19th century,

theories like Smith's came under attack from Karl Marx and his followers, who saw

the maximization of profit dictated by self-interest as necessarily exploitative of

labor. We have seen in the past that great teachers have searched for their

disciples and instances where the student has covered a long distance in finding out

their teachers.

There are various examples like Swami Ramakrishna Paramhamsa who has seen

Mother Kali incarnating and he himself traveled around to discover his student

Swami Vivekananda, Swami Guru Ramdas who searched for his student Shiva

Maharaja, Chanukah, who went in search of and found his shishya Chandragupta

Maurya, Shri Gokhale who found Mahatma Gandhi and so on there are various

examples which exhibit how in the past religious, moral, political, social and

business concerns were met with the help of ethics identification, exploration and



ways of implementation so as to establish peace, justice, customs, behaviors,

conduct, habits and rules for the smooth administration processes. Likewise we also

have many examples wherein the student has explored his Guru and covered the

journey of their lives. When Swami Ramanandji did not accept Ramdas as his

student, since he was an untouchable, one early morning in the dawn when the

Guru was on his way to take bath in the river, Ramdas slept on the steps. The Gurudid not notice and stamped him and said Ram-Ram. Though the Guru did not accept

Ramdas as his disciple, the student took his uttered words as Gurumantra and

continued believing him as his Guru. We know the story of Sri Hanuman who waited

for his Guru Sri Ram and later was prominently known for his Guru-bhakti, both for

and because of his Guru. Ekalavya is a classic example in this stream, which was

not accepted by his Guru Shri Dronacharya as his disciple for which he made an idol

of his Guru and practiced archery.

Not only this, ethics meets its reality when he was asked for his thumb as

Gurudakshina and he did not hesitate or rethink to give it though he knew that his

dream, passion, talent and practice would come to an end after it. Thus ethicscannot be pointed and said that this is right and this is wrong. That which helps in

the multiplication of profit, social gains, benefits to individuals and society at large

without following or indulging into any illegal, prohibited, banned or illegitimate or

dishonest means can be stated as ethical or unethical the otherwise.

To this day, many of the issues and concerns raised by the religious, philosophical,

and economic traditions have continued in various forms in discussions of ethics

and morality in business practices. But business ethics as a separate, formal

academic discipline is a fairly recent development. In the midst of the changes in

social attitudes that emerged in the 1960s, questions about the social and moral

responsibilities of businesses and corporations began to emerge in academic and

professional circles. Sociologist Raymond Baumhart was among the first

academicians to explicitly teach and study the ethics of business and commerce

and by 1974 there was enough of a developing discipline in the field to give rise to a

landmark conference at the University of Kansas. Since then, courses and organized

studies in the field have emerged in universities throughout the world, even

spawning sub-disciplines such as marketing, accounting, and financial ethics.

Business ethics has only existed as an academic field since the 1970's.

During the 1960's corporations found themselves increasingly under attack over

unethical conduct. As a response to this, corporations in the developed socialresponsibility programs involved charitable donations and funding local community

projects. This practice was unorganized and it differed from industry to industry and

from company to company.

Business schools in large universities began to incorporate social responsibility

courses into their syllabi around this time. But it was mostly focused on the law and

management strategy Social responsibility has been descried as being a pyramid



with four types of responsibility involved into called as — Economic, legal, ethical

and philanthropic. Ethical issues were dealt with in social issues and were not

considered in their own right until the 1970's when philosophers began to write on

the subject of business ethics.

Previous to this development, only the management professionals, theologians and Journalists had been highlighting problems of this nature on a regular basis. When

philosophers became involved they brought ethical theory to bear on the relevant

ethical issues and business ethics became a more institutionalized, organized and

integral part of education in business. This aspect of business ethics differentiated it

from social issue courses in three ways, like;

• Business ethics provided an ethical framework for evaluating business and the

corporate world.

• It allowed critical analysis of business and development of new and different

methods.

• Business ethics focused on personal and social responsibility together and gave it

a theoretical foundation.

In this way we find business ethics had a broader remit than the social issues and

was a good deal which was more systematic and constructive. Business ethics also

recognized that the world of business raised new and unprecedented moral

problems and covered by personal systems of morality. Common sense morality is

sufficient to govern judgments about stealing from your employer, cheating

customers and tax frauds. It could not provide all the necessary required tools forevaluating moral justification of affirmative action, the right to strike and whistle-

blowing. Business ethics being part of the larger social ethics, always has been

affected by the ethics of time.

The followers of Epicures, a Greek follower who taught and gave the doctrine that

pleasure was the chief God meant Epicure or Epicureanism. At different periods,

people, especially the elites of the world, were blind to ethics and morality and

obviously unethical to the succeeding ages. History of business, thus, is tainted by

and through the history of slavery and colonialism and later by the history of cold

war. The need for business ethics in the current times had begun gaining more

attention since 1970s. Historically, firms started highlighting their ethical stature

since the late 1980s and early 1990s, as the world witnessed serious economic and

natural disasters due to unethical business practices.

The Bhopal disaster, and the fall of Enron are instances of the major disasters

triggered by bad corporate ethics. It should be noted that the idea of business

ethics caught the attention of academics, media and business firms by the end of



the overt Cold War. Of the many, the first definition of social business ethics in India

dates back to around 1000 to 1600 BC. In the Bhagavada Gita, Shri Krishna laid

down the rights and obligations of each one of us. Shri Krishna said that a manager

must look upon the task that he has been set for that he sets himself, not interms of

personal gains or profit but purely interms of its fulfillment and the satisfaction that

he gets out of that. To elaborate the same, it can be a better instance to relate theinstance provided by Mr.Prakash Tandon, when he was the director of Hindustan

Lever in 1956 and it became a public company with its first board meeting with a

every scholarly chairman, Lord Heyworth, whose name had been associated with

Unilever for 30years.

At the board meeting, Lord Heyworth said that there was one little thing that he

would like to discuss. Did the directors of Hindustan Lever buy and sell Hindustan

Lever shares or not. Did they get involved in any personal manner in the company,

or was their involvement only professional? After a brief discussion, the chairman

said if they understood the market well, they could trade in other company’s

shares: but he advised them not to be associated with any personal gain inHindustan Lever beyond their remuneration.

Many years later an American scholar, Elliot Jacques, created a new term for this

kind of professional manager, he allied him 'property-less manager', one who

manages the company but does not own any part of it as his personal property.

Jacques went straight back to Shri Krishna's definition of a true manager, one who

does his job, not for personal gain but for the sheer fulfillment of the task and the

satisfaction, which he derives.

Lord Buddha enunciated the same concept in his words with a beautiful phrase that

a trade is like a honey bee, which sucks honey out of the flower but does not harmthe flower.

Buddha of course did not realize, that the bee actually helps the flower in the

process of fertilization by pollinating it. What Lord Buddha wanted to emphasize

was that no harm must be done in quest of personal gain. Arthashastra from the

Mauryan's lays down the concept of accountability (duty, responsibility) of the

manager to keep complete accounts; it also mentions that he should be subject to

an audit from time to time on clarity and truthfulness of his fair accounts. Akbar

gave us something indispensible for regular ethical functioning; a clear and stable

commercial set-up.

1.4 NATURE OF BUSINESS ETHICS

Business ethics reflects the philosophy of business and the aim is to determine the

fundamental purpose of the incorporation of a company. The moral philosophy, the

business philosophy, employer-employee philosophy and the responsibilities

towards the customers need the optimum priority and attention in business ethics.

It is now considered as an important discipline because of its relevance and the



customers high awareness level. Hence the need of reformulate nature of business

ethics or doing business ethically has secured a more important place of

prominence today.

If a company's purpose is to maximize shareholder returns, then sacrificing profits

to other concerns is a violation of its deemed responsibilities. Economist MiltonFriedman writes that corporate executives' responsibility generally will be to make

as much money as possible while conforming to their basic rules of the society.

Similarly business consultant Peter Drucker observed, "There is neither a separate

ethics of business nor is one needed, implying the standards of personal ethics

covers all business situations."

Another view of business is that it must exhibit corporate and social responsibility

and an ethical business must act as a responsible citizen of the communities in

which it operates even at the cost of profits or other goals. Stakeholders have the

right to expect a business to be ethical; if business has no ethical obligations, other

institutions could make the same claim which would be counterproductive to thecorporation. Ethics and Values have their own stand and play a vital role.

Ethics can be denied as a description of norms and behavior that provide a

comparable protection to the coherence of the society whereas Values are global

beliefs that guide actions and judgments across a variety of situations. Values

represent basic convictions of what is right and wrong, good or bad, just or unjust,

fair or unfair etc. Business ethics or corporate ethics is a form of applied ethics or

professional ethics which examines ethical principles and morals or ethical

problems that arise in a business environment. It applies to all aspects of business

conduct and is relevant to the conduct of individuals and the entire organization.

Consequently, business ethics can be strong preventative medicine and there aremany benefits of managing ethics in the workplace. Similarly Money Laundering

which is squandering of money involving transactions of cash outflow, conducted in

a manner as to appear that they were made honestly.

Laundering actually means 'cleaning up'. Money laundering cloaks the illegal

activities and protects the lawbreakers.

Wallace and Peel explain that attention to business ethics is critical during times of

fundamental changes in times much like those faced by businesses like values that

were previously taken for granted might now strongly be questioned.

Many of these values are no longer followed. Consequently, there is no clear moral

compass to guide leaders through complex dilemmas about what is right or wrong.

Attention to ethics in the workplace sensitizes leaders and staff to how they should

act. Perhaps most important attention to ethics in the workplace helps ensure that

when leaders and managers are struggling in times of crises and confusion, they

retain a strong moral compass. However, attention to business ethics provides

numerous other benefits also. Business ethics refers to the application of ethics to



business. To be considered ethical a business must draw its idea about what is a

desirable behavior from a common or a reliable source. It should anyhow not try

evolving into its own principles to justify its actions.

Also in order to have a long run existence and sustained profitability it is important

for a business to have an ethical foundation and function as responsible corporatecitizen of a country. Business ethics is considered as management discipline,

especially since the origin of social responsibility movement. In 1960's, social

awareness movements raised expectations of businesses to use their massive

financial and social influence to address social problems such as poverty, crime,

environmental protection, equal rights, public health and improving education.

An increasing number of people asserted that because businesses were making

profit from using the country's resources, they owed it to the country by improving

society. Many researchers, business schools and managers have recognized this

broader constituency, and in their planning and operations have replaced the word

"stockholder" with "stakeholder," meaning to include employees, customers,suppliers and the wider community.

Organizations can manage ethics in their work place by establishing an ethics

management program which is made up of values, policies and activities which

impact the propriety of organization behavior. To maintain the ethical culture in

Infosys, employees are encouraged to report cases of fraud, in person or by writing

anonymously through e-mail or to the corporate counsel.

1.5 SCOPE AND IMPORTANCE OF BUSINESS ETHICS

The success of business depends on various factors which are both internal and

external to the organization. Strategies are chalked out or action plan is worked

before executing or implementing any idea or a long run theory. Strategy refers to a

plan of action designed to achieve a particular goal or the relevant alternatives

chosen to make a desired future such as achievement of a goal or solution to a

problem. It is otherwise the art and science of planning of the resources for their

most efficient and effective use.

Conducting business requires adequate consideration to a number of issues outside

the traditional scope of making money. In the process of making profits and

achieving growth, business people and organizations face many challenges related

to environment and conduct of business. So important part of doing businessprimarily understands the business ethics.

If organizations and people fail to understand and consider, it might affect

reputation of the business and can even ruin the business affecting long standing

establishments and success. Ethics being a subjective topic might not have

importance across all areas of business. But ethics has significant role to play in

most of the areas of business be it sales and marketing, product development,



customer service and even to some extent finance. So ethics plays an important

role in ensuring business success and ultimately living up to the corporate social

responsibility.

Thus adopting ethics approach to doing business is critical towards ensuring a

strong business model with long term potentials. Business ethics is especiallyimportant in dealing with customers, maintaining integrity with customer and

building client relationships. On the other side of your business, it's also important

to adopt an ethical approach which considers your various responsibilities towards

shareholders, employees and the society at large. Ethics is no doubt an important

business subject for any entrepreneur to study, but it also has a wider application

throughout organizations. So what is ethical to one may not be ethical to others

hence, it's important to establish a collective set of ethics that represent the entire

organization rather than just adopting it individually. This can be done through

training, through having standard business policies and even by careful selection of

human resource.

An ethical image for a company can build goodwill and loyalty among customers

and clients and the importance of business ethics can be highlighted;

• Ethical motivation works on employee motivation which protects and improves

reputation of the organization by creating an efficient and productive work

environment.

• Balancing the needs and wishes of stakeholders is also a critical requirement.

There is pressure on business to recognize its responsibilities to society. Business

ethics requires business to think about the impact of its decisions on people or

stakeholders who are directly or indirectly affected by such decisions. Companiesbuild their image by acting in accordance with their values. Creating a positive

public image comes from demonstrating appropriate values. Publicizing and

following a company's values allows stakeholders to understand what the company

stands for.

• A global challenge not only leads to business growth and expansion but has to

become aware of the ethical diversity of the world because of increasing

globalization of the economy. Business must learn the values of other cultures and

apply them to its decisions, combining with its own values. • Ethical pay-offs help

the organization to reduce risks such as breaches of law, regulations or company

standards, and damage to reputation of the organization in long run.

• Employee Retention is a successful Business Ethics program which establishes a

culture that rewards making the right decision and helps company to retain talent.

One of the major costs in business is employee turnover. The loss of people is loss

of valuable experience and training the new personnel cost the company.



• Prevention and Reduction of Criminal Penalties through following a set of ethical

practices can help a company have "an effective program to detect and prevent

violations of law". Exc7itives cannot always be aware of everything done in a

company's name.

• Market Leadership ^xi be seen when a company fully integrates its values into itsculture, gradually quality rises due to the employee's focus on values. Customers

see that the employees care about the customer's concerns. Employees reflect

appropriate values in their attitude and conduct.

• Following ethical practices can help the company to set an example in the society

and the market and also lead to recognize the company as a leader.

1.6 NEED FOR BUSINESS ETHICS

Why to promote business ethics in organizations? Customers are more educatedtoday and their awareness level has comparatively increased. Business

organizations will always set objectives for the business and focus towards profit

maximization and growth. The most important question is how managers make

profit and achieve growth?

They work towards understanding and working towards meeting these objectives.

Business considers why to make profits, and why should do so legally. But why

should they be concerned about ethics, as long as they are making money and

staying out of legal problems making a legal profit for the firm. These dimensions

and arguments are confusing and often mistaken. So it is important to first

understand why should business people be ethical?

To say that one should do something is another way of saying it is ethical. If it is not

ethical, then one should not do it. Perhaps when business people ask why they

should be ethical, they have a different question in mind: what is the motivation for

being good (ethical)? One should be good because "good" is, by definition, that

which one should be. As for motivation, good behavior often brings a reward, but

not every time. Think about it. If it were always in one's interest to be good, there

would be no need for ethics. We could simply act selfishly and forget about

obligation. People invented ethics precisely because it does not always coincide

with self interest. No doubt organizations prove their existence by profit taking, but

it is always not necessary to opt for the unethical way. In the past a number of

factors have brought ethical matters into sharper focus. A few of the following

points put an effort to explain the need and intent of business ethics:

1. Globalization : Global expansion has brought about greater involvement with

different cultures and social-economic systems. With this kind of a development,

the ethical considerations such as the different assumptions about the



responsibilities of business, about accepted business practices and about the values

needed to build a cohesive successful organization taking-up the lead and become

more important.

2. Competition. Rising competition brings with it added pressure to corners.

Simultaneously, leaders looking for new ways to differentiate their companies and

moreover to a new level of excellence. Some believe that a proactive ethical stance

can have a positive impact on the bottom-line.

3. Technology. The added capabilities of technology have created a new level of

transparency and immediacy to business communities. Now the conduct of

businesses around the globe is more exposed than it ever was before. The boon of

science and technology is completely exploited by business arena and used as

stepping stones to success.

4. Public perception and the law. This is a perceived decline in social ethics that

yields uncertainty. Managers are no longer comfortable assuming the employees

joining their companies and possess the desired ethical values. Public expectations

have also changed enormously. That which ones deemed unacceptable is now more

readily scrutinized. New laws and stepped up enforcement efforts Rave increased

the risk of personal and organizational liability.

Why Study Ethics? Ethics courses have a number of features that influence

behavior. It provides a language and conceptual framework with which one can talk

and think about ethical issues. They present ethical theories help define what a

valid ethical argument looks like. They give an opportunity to think through,

complex ethical issues that are likely to arise later.

None of this convinces one to be good, but it is useful to those who want to be

good. It may also improve business conduct in general. How many of the recent

business scandals would have occurred if subordinates had possessed the skills,

vocabulary and conceptual equipment to raise an ethical issue with their

coworkers?

Participatory ethics is a privileged part of business ethics. Parties co-operate

voluntarily committing themselves to a self imposed and non-enforceable obligation

producing a distant common good. Similarly recognition ethics is an ethics of self

development guided by the principles of fidelity to one's basic self which clarifies

and supports the Principle of recognition (formal and conscious when one gets

involved in situations of moral asymmetry) and the Principle of beneficence (that no

harm should be done to others or avoided or compensated thereof).

Ethics and management are closely related. Business management is all about

making decisions. Ethics is all about making the right decision. So what is the

difference between the two? Management is concerned with how decisions affect



the functioning of a company, while ethics is concerned about how decisions affect

everything else including the existence of a company.

Management operates in the specialized context of the firm, while ethics operates

in the general context of the world. Management is therefore part of ethics. A

business manager cannot make the right decisions without understandingmanagement in particular as well as ethics in general. Business ethics is thus

nothing but management carried out in the real world. Hence a businessman should

study and understand ethics. The need of business ethics can be more

appropriately discussed with, the following relevance's :

• Introducing Socialism in Business which elaborates that the gains of business

must be shared by all and not just by owner of business. Profit is the result of group

efforts and hence all concerned i.e., the workers, shareholders, consumers and all

others who contribute to the success of the business should share the gain and

profits.

• Interest of Industry should be protected by big firms which normally try to

dominate and eradicate small firms. If industry follows code of conduct, small firms

can fight for their existence and stay in the business for longer times contributing

success and economy.

• Buyers Market is taking its importance in many products by converting sellers

market into buyers market. Under such changed business conditions business ethics

needs to stress the importance of consumer satisfaction and service orientation in

place of profit orientation.

• Better Relations with business and society, reconciling conflicting interests of

various sections of society such as workers, shareholders, consumers, distributors,

suppliers, competitors and government can be done by implementing and following

Code of conduct.

• Advantages to Business and Society can be shown by Ethics pointing out what is

good and bad, so also what is right and wrong. It brings to the notice of the

business community the importance of honesty, sincerity, fairness which makes

them alert and socially conscious.

Thus business ethics helps business and society at large ensuring healthy

atmosphere in business which further leads to improvement in social, economic and

cultural values of the society.

1.7 BENEFITS OF BUSINESS ETHICS

Most of the organizations today are taking up challenges related to bringing in

ethical practices and are also looking at the benefits that organizations get by

following business ethics. So these benefits are related to many dimensions like



societal, public, employees, stakeholders and organizations. However, the following

list describes various types of benefits from managing ethics in the workplace.

1. Attention to business ethics has substantially improved society : A matter of

decades ago, children in our country worked 16-hour days. Workers' were harassed

and exploited and disabled workers were condemned to poverty and often tostarvation. Big players affected the small players and prices were fixed on ground

rules. Employees were terminated with no valid reason. Then society reacted and

demanded that businesses place high value on fairness and equal rights. Anti-trust

laws were brought in, government agencies were established, Unions were

organized, Laws and regulations were established.

2. Ethics programs help maintain a moral course in turbulent times and the times

when change is essential : Every organization passes through tough times and need

for major changes in operations and technology as it is demanded from the

changing business environment. During such times culture of following ethical

practices helps the organizations to hold the momentum and face the challenge.

3. Ethics programs cultivate strong teamwork and productivity : Ethics programs in

the organization helps to bring proper alignment between employee behaviors with

ethical values preferred by leaders of the organization. So there must be proper

exhibition of right behaviors by employees which can match organizational values.

These values in the workplace build openness, integrity and teamwork which results

-in motivation and performance.

4. Ethics programs support employee growth and meaning : Following ethics in the

workplace helps employees face reality, both good and bad in the organization and

within themselves. Employees will express full confidence to handle the tasks andsituation thus taking better decision which helps them to produce better results.

These results in turn help employees to perform better and achieve growth.

5. Ethics programs help ensure that policies are legal : Ethical practices usually

complement legal requirements and these practices are applied in the current

situation and which will impact the future too. So it is better to invest time and

resources to ensure ethical practices now than investing on handling litigation later.

So most of the time ethical principles are often state-of-the-art legal matters.

Attention to ethics ensures highly ethical policies and procedures in the workplace.

6. Ethics programs help avoid crimes and can lower fines : Ethics programs always

help the team to identify ethical issues and violations even before theimplementation so that they can be reported or addressed. In some cases, when an

organization is aware of violation and does not report it to the appropriate

authorities, this can be considered a criminal act. So if organization attempts to

follow the ethical practices, the intensity of fine and penalties will be less.

7. Ethics programs help manage values associated with quality management,

strategic planning and diversity management : Organizations today, will have to



face challenges due to dynamism of market ,thus focusing on managing strategic

planning, diversity management and quality management. Ethics programs help to

identify preferred values to achieve better quality and strategic growth. This effort

includes recording the values, developing policies and procedures to align behaviors

with preferred values, and then training all personnel about the policies and

procedures. This overall effort is very useful for several other programs in theworkplace that require behaviors to be aligned with values, including quality

management, strategic planning and diversity management

8. Ethics programs enhances public image of the company : Business organization

will have certain responsibilities towards society and public. Attention to ethics is

also strong public relations but managing ethics should not be done primarily for

reasons of public relations. But the fact that an organization regularly gives

attention to its ethics can portray a strong positive image to the public. People see

those organizations who value people more than profit, as striving to operate with

utmost integrity and honor. 9. Overall benefits of ethics programs : Managing

ethical practices has lot of positive impacts on business and organization. Itstrengthens the team coherence and balances organization's culture, improves trust

and relationships between individuals and groups, supports greater consistency in

standards and qualities of products and cultivates greater sensitivity to follow

organization values. 10. Formal attention to ethics in the workplace is the right

thing to do : As part of organization's practice it is important to follow ethics and it

also emphasizes on legal

. 1.8 ARGUMENTS AND DILEMMAS FOR AND AGAINST BUSINESS ETHICS

There are different arguments in business wherein a category of people believe that

following ethics is safer and rewarding in the long run though it brings with it a lot of problems and challenges, thrills and breakdown time and by for the businessman.

But after all success is assured at a cost of long awaited patience and hard work.

The arguments purport to show that a businessman ought to maximize profit and

nothing else. Money is very important for anything be it continuation or the

existence of the business, hence wealth maximization is a must. At the same time a

situation in which one had more money is necessarily preferable only if other things

are equal, which they often are not. If I am offered a pay-raise naturally am inclined

to accept it, but not if it would entail moving house and saying good-bye to all my

friends, or moving to a location where there are no good schools for my children or

if it would involve working under hazardous conditions, or if it would require of one

telling lies to prospective customers. While the other category of people deny with

the fact and feel that we i have to mould ourselves and be as per the situation and

circumstances and thus being indifferent 7 should achieve the organizational

objectives and achieve profit maximization. Situational changes will decide about

our being or not being or in other words towards the change of 4 business etc,

hence being successful by hook or crook is important.



Maxi misers try to sidestep the argument by changing the content of what is being

maximized. Instead of money it is t profits, instead of profits it is long-term profits.

Arguments for : Business organizations today have accepted ethics as a part of their

business conduct. They have realized that business exists and operates within the

society and is a part of the subsystem society, so its functioning should contribute

to the welfare of the society. As a company grows, the public takes more interest init as it has a great impact on the community. There is a greater social responsibility

on the mangers to maintain a proper image of the company in the minds of the

public. The company cannot resort to unethical behavior or disregarding social

welfare.

Ethical practices sometimes reduce the cost of production in the long-run. Ethical

and moral behavior gives a unique edge and advantage in the market place. This

has been well proved by the Tata group of companies that have based their

business activities on ethical principles. There have been different discussions and

contradictions for this view of following and implementing ethics in business or not.

Argument Against : Businesses are economic entities and should concentrate onproducing goods and services efficiently and thus maximizing the profits to the

shareholders.

Some economists like Friedman believed that if business ethics is a part of

corporate culture, the customer would have to bear the cost of the ethical practices

of the organization as some ethical practices increase the price of products. Earlier

people feared that ethical code of conduct would mean a sacrifice of efficiency and

productivity and the competitiveness of the marketplace would fade. It was

believed that business should use their resources and engage in activities designed

to increase profits. But now it is seen that the fears expressed by philosophers and

psychologists have changed gradually.

Business Ethics Module 1

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