UNIT – 1

Introduction to Ethics and Business Ethics

1.1 Ethics

The term ‘ethics’ has been derived from the Greek word ‘ethos’ which implies character, ideas and standards of behavior practiced within a society. Personal ethics define right and wrong behavior for an individual. In the business sense, ethics describe what constitutes good or bad in human conduct in organizational context. We can also say that business ethics are concerned with making life, not just living.

1.1.1 Concept of Ethics

Business ethics is the study of appropriate business policies and practices regarding potentially controversial subjects including corporate governance, insider trading, bribery, discrimination, corporate social responsibility, and fiduciary responsibilities. The law often guides business ethics, but at other times business ethics provide a basic guideline that businesses can choose to follow to gain public approval.

• Business ethics refers to implementing appropriate business policies and practices with regard to arguably controversial subjects.
• Some issues that come up in a discussion of ethics include corporate governance, insider trading, bribery, discrimination, social responsibility, and fiduciary responsibilities.
• The law usually sets the tone for business ethics, providing a basic guideline that businesses can choose to follow to gain public approval.

1.1.2 Evolution of Ethics

(i) A Bridge between Biology and Human Behavior

Social rules have evolved by interaction between cultural and biological feedbacks. Ethical systems have developed through cybernetic process. This process happens when biology and culture interact. The conflict that arise in the process develops into informal feedback which suggests people that there are serious problems which need to be addressed. The conflicts lead to human adaptation to the new order and new environment leading to survival of species. This is what we learn from the evolution of species. Evolution of ethical system is a response of human beings to survive. Therefore, ethical systems are reasoned rules of conduct that are based on past experience. There are objective moral standards that can be derived from the consequences of human actions. It can be said that ethical system is an adaption of mankind during its journey of evolution.

(ii)   Cybernetic Ethics

Ethics merges with science in cybernetic ethics. Cybernetics means “informal feedback in dynamic systems” that sustains or redirects behavior. Ethics might have developed with development of reasoning in mankind, which could have led to science and mathematics. The evolution of ethical systems is shown as an “adaptation.” Humans adapt to survive and they do so by creating standards and rules of behavior to stop viscous cycles of pain, suffering and death. The more organized and efficient human activities become, the more certain the survival of the species becomes. The science of cybernetics best describes this process. Norbert Wiener first developed Cybernetic Science in 1947

The 1960s brought the first major wave of changes in business ethics. Cultural values were shifting, with individualism and fierce dedication to social issues such as environmentalism and world peace coming into vogue.1

• Business ethics guide a company's operations and includes such things as environmental issues, social responsibility, and employee-employer relations.
• While laws related to business ethics to exist, it is up to each business to establish a code of ethics within the company.
• Business ethics saw a notable shift in the 1960s when more companies started embracing social responsibility.
• Business ethics saw another transition phase in the 1970s and 1980s when philosophy shifted from pure authoritarianism and towards greater collaboration.
• One of the most important ethical considerations in recent years is maintaining consumer privacy while companies mine user information for valuable marketing data.

1.1.3 Nature of Ethics- Personal, Professional, Managerial

Personal ethics and business ethics are essentially the same thing, but there can be significant differences in how they are applied and when they are appropriate to express. Both are moral principles that drive behavior, and often, an individual’s personal ethics code looks quite similar to a company’s business ethics code.

Personal ethics and business ethics are essentially the same thing, but there can be significant differences in how they are applied and when they are appropriate to express. Both are moral principles that drive behavior, and often, an individual’s personal ethics code looks quite similar to a company’s business ethics code.

The primary difference between personal ethics and business ethics is whose behavior they drive and the repercussions that result. Companies and individuals have different interests, different legal obligations and different social expectations placed upon them.

Personal ethics often include values like:

• Openness.
• Honesty.
• Friendliness.
• Respect for others.
• Loyalty.
• Personal responsibility.

Some personal ethics and business ethics are essentially the same thing. Values that can find their way into both personal and business ethical codes include:

• Honesty.
• Integrity.
• Transparency.
• Accountability.
• Fairness.
• Kindness.
• Commitment to sustainability.
• Always choosing the action that will do the least harm.

There are certain values that tend to appear more in business ethics codes than in personal ethics codes. These are values that relate directly to working as part of an organization and operating within a community as an organization. Many individuals also hold these values as part of their personal ethics codes, recognizing that the difference between personal ethics and business ethics is usually how they are applied to situations rather than specific values themselves. Examples of primarily business-focused values include:

• Punctuality.
• Abiding by the law.
• Nondiscrimination.
• Abiding by industry standards.
• Commitment to ethical sourcing.
• Commitment to fair trade and fair worker treatment.
• Commitment to worker safety.
• Confidentiality.

Business and personal ethics can meet in a workplace scenario and cause an individual internal conflict and stress. A few examples of an individual’s personal ethics clashing with his business and work ethics include:

• A marketer promoting a product he knows to be of lesser quality than its previous iteration as “new and improved.”
• A doctor personally feeling that a homeopathy is a poor choice for treating a patient’s condition but having to respect the patient’s bodily autonomy to choose homeopathy over the doctor’s suggested treatment.
• A judge who feels cannabis should not be illegal sentencing an individual found guilty of a cannabis-related offense.
• A college admissions officer encouraging a prospective student to enroll despite feeling that the student would not perform well in college.

An individual’s personal ethics code usually has its roots in her childhood. Her ethical foundation can come from a variety of early influences on her life, such as her family, her religion, her community and her school. Over the course of her life, the individual’s experiences and changing circumstances can drive her to rethink and reshape her ethical code multiple times.

That same individual’s sense of business ethics can come partially from her personal ethics code, but it also partially stems from her experiences in the workplace. Just like her personal ethical code, an individual’s personal business ethics can change over the course of her life.

A company’s business ethics code is different from an individual’s business ethics code. While an individual might have a personal code of how to perform her job and conduct herself at work, like never discussing her religious views in the workplace or refusing to engage in workplace gossip, she is also expected to act within her company’s business ethics code. This set of ethics, which can include values like always keeping clients’ personal information confidential and only working with suppliers that engage in environmentally sustainable practices, holds employees to a specific set of behavior and defines the company’s brand.

An important difference between personal ethics and business ethics is that business ethics can be quantified more easily. Many companies routinely evaluate their ethical codes and run diagnostics to determine how they can make more ethical choices. Evaluating a business’s ethical code can be a time-intense and resource-intense process. Before conducting an evaluation, the company should consider the pros and cons of evaluation.

Pros and cons of evaluation can arise not only from the evaluation itself but from its results. A company’s leaders might find that its employees are largely an ethically minded group, or it might find that ethical violations occur regularly and that intense restructuring and retraining is necessary to correct the company’s course

Once a company has a business ethics code in place, its leaders have a clear set of guidelines for a variety of accompanying actions. These include:

• Developing a code of conduct for employees.
• Creating a code of conduct for vendors and other third parties who work with the company.
• Altering its branding to communicate its ethics to consumers more effectively.
• Determining nonprofit partnerships that are in accordance with its ethical code.
• Developing new employee-training techniques that emphasize the company’s ethics and teach new hires how to act in accordance with them.

1.1.4 Importance of Ethics

The importance of business ethics reaches far beyond employee loyalty and morale or the strength of a management team bond. As with all business initiatives, the ethical operation of a company is directly related to profitability in both the short and long term.

The reputation of a business in the surrounding community, other businesses, and individual investors is paramount in determining whether a company is a worthwhile investment. If a company is perceived to not operate ethically, investors are less inclined to buy stock or otherwise support its operations.

Companies have more and more of an incentive to be ethical as the area of socially responsible and ethical investing keeps growing. The increasing number of investors seeking out ethically operating companies to invest in is driving more firms to take this issue more seriously.

The system of moral and ethical beliefs that guides the values, behaviors, and decisions of a business organization and the individuals within that organization is known as business ethics. Some ethical requirements for businesses are codified into law; environmental regulations, the minimum wage, and restrictions against insider trading and collusion are all examples of the government setting forth minimum standards for business ethics. What qualifies as business ethics in history has changed over time and the different areas of ethics are important to every business.

The management team sets the tone for how the entire company runs on a day-to-day basis. When the prevailing management philosophy is based on ethical practices and behavior, leaders within an organization can direct employees by example and guide them in making decisions that are not only beneficial to them as individuals, but also to the organization as a whole. Building on a foundation of ethical behavior helps create long-lasting positive effects for a company, including the ability to attract and retain highly talented individuals, and building and maintaining a positive reputation within the community. Running a business in an ethical manner from the top down builds a stronger bond between individuals on the management team, further creating stability within the company.

When management is leading an organization in an ethical manner, employees follow in those footsteps. Employees make better decisions in less time with business ethics as a guiding principle; this increases productivity and overall employee morale. When employees complete work in a way that is based on honesty and integrity, the whole organization benefits. Employees who work for a corporation that demands a high standard of business ethics in all facets of operations are more likely to perform their job duties at a higher level and are also more inclined to stay loyal to that organization.

1.1.5 Objectives

1. Ethics are a study of human behavior. Makes evaluative assessment about that as moral or Immoral.

2. Ethics establish moral standards/norms of behavior.

3. Ethics make judgment upon human behavior based on these standards and norms.

4. Ethics prescribe moral behavior, makes recommendations about how to or how not to Behave.

5. Ethics expresses an opinion or attitude about human conduct in general.

6. The very basic objective is to define the greatest good of man and establish a standard for the same.

7. Suggests moral behavior and prescribes recommendations about dos and don’ts.

8. One’s opinion or attitude about human conduct is expressed in general.

1.1.6 Scope of Business Ethics

Ethical problems and phenomena arise across all the functional areas of companies and at all levels within the company.

1. Ethics in Compliance

Compliance is about obeying and adhering to rules and authority. The motivation for being compliant could be to do the right thing out of the fear of being caught rather than a desire to be abiding by the law. An ethical climate in an organization ensures that compliance with law is fueled by a desire to abide by the laws. Organizations that value high ethics comply with the laws not only in letter but go beyond what is stipulated or expected of them.

2.     Ethics in Finance

The ethical issues in finance that companies and employees are confronted with include:

• In accounting – window dressing, misleading financial analysis.
• Related party transactions not at arm’s length
• Insider trading, securities fraud leading to manipulation of the financial markets.
• Executive compensation.
• Bribery, kickbacks, over billing of expenses, facilitation payments.
• Fake reimbursements

3. Ethics in Human Resources

Human resource management (HRM) plays a decisive role in introducing and implementing ethics. Ethics should be a pivotal issue for HR specialists. 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.

4. 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 ethical issues confronted in this area include:

• Pricing: price fixing, price discrimination, price skimming.
• Anti-competitive practices like manipulation of supply, exclusive dealing arrangements, tying arrangements etc.
• Misleading advertisements
• Content of advertisements.
• Children and marketing.
• Black markets, grey markets.

5. Ethics of Production

This area of business ethics deals with the duties of a company to ensure that products and production processes do not cause harm. Some of the more acute dilemmas in this area arise out of the fact that there is usually a degree of danger in any product or production process and it is difficult to define a degree of permissibility, or the degree of permissibility may depend on the changing state of preventative technologies or changing social perceptions of acceptable risk.

• Defective, addictive and inherently dangerous products and
• Ethical relations between the company and the environment include pollution, environmental ethics, and carbon emissions trading.
• Ethical problems arising out of new technologies for e.g. Genetically modified food
• Product testing ethics.

The most systematic approach to fostering ethical behavior is to build corporate cultures that link ethical standards and business practices.

1.1.7 Types – Transactional, Participatory and Recognition

(i) Transactional Ethics

Man is a social animal. He must act and react with others through different transactions. The practices of ethics in all these transactions is called as transactional ethics.

In order to let each party’s transaction, run smoothly, all parties have to accept the principle of equality, implying that every agent should allow every other the same amount of freedom or action he claims for himself. The moral principle of equality tells us where to refrain from intrusions in the freedom of action of others while following one’s own affairs, which is negative principle as well as basic.

Example: I need vegetables from vegetable vendor. The vendor wants customer like me for survival, as we both are dependent on each other, as long as both of us contribute appropriately, together we generate surplus that none of us on our own are able to produce.

In order to let things, run smoothly, again adherence to two specific moral principles is required:

• Principle of honesty
• Principle of reciprocity

The domain of ethics covering transactions that are performed on the basis of simultaneous or connected interest and that are general by the principles of equality, honesty and reciprocity if indicated as the domain of transactional ethics.

(ii)   Participatory Ethics

Participatory ethics is a privileged part of business ethics. Parties cooperate in order to produce more distant common good that has three characteristic features:

• The good can only be realized through the participation of all parties.
• Participation cannot be enforced into explicit moral obligation to take part in the project.
• Principle of decency where a real opportunity to contribute to the general welfare presents itself and no insurmountable obstacle arise, one should have solid moral reasons not to go for it.

The important thing is that parties in the alliance voluntarily, committing themselves to a self-imposed and non-enforceable obligation. This entails a specific type of social relations that is guided, once more, by two particular moral principles:

• Principle of decency
• Principle of enunciation

Participatory ethics is about the shape of solidarity in an age of 1individualization. It is the ethics of the civil society, recently rediscovered as a solid ground for collective arrangements where both the market and the state fail. By participating in a regular basis, in common projects on behalf of general welfare, a corporation demonstrates that it can take seriously its corporate citizenship.

(iii) Recognition Ethics

As human beings, people are endowed with the ability to understand the problems of others. This quality leads to the recognition of individuals, institutions and societies. Conflicting situations can be solved by the correct recognition of the situation.

Example: The employees aged 57-60 years morally obliged to retire to give way to some younger colleagues, who being in the midst of their careers, can raise a weightier claim to a job.

Key Takeaways:

1. Business ethics is the study of appropriate business policies and practices regarding potentially controversial subjects including corporate governance, insider trading, bribery, discrimination, corporate social responsibility, and fiduciary
2. The primary difference between personal ethics and business ethics is whose behavior they drive and the repercussions that result.
3. If a company is perceived to not operate ethically, investors are less inclined to buy stock or otherwise support its operations.
4. Marketing ethics is the area of applied ethics which deals with the moral principles behind the operation and regulation of marketing.

1.2 Business Ethics:

1.2.1 Meaning

Business ethics are moral ideas that guide the way a business act. It is the application of ethical reasoning to certain business situations and activities, so that any moral issue emerging in business can be resolved or clarified.

A businessperson is said to be ethical only when his or her actions are righteous arid in favor of the society. Ethical behavior plays a significant role in any business and in the advancement of the society. Ethical behavior results in better goodwill in the market, wins public confidence and success in the business domain.

1.2.2 Objectives of Business Ethics

(i) Personal level:

At personal level the policy should be set that not to misuse the properties of the others or of the organization keeping the promises and extending the mutual help, not to seek quick gains and not to indulge in politics to gain power.

(ii) Internal policy level:

The business organization should follow fair practices in dealing with employees and other stakeholders. The organization should have open and better communication at all levels. The organization leadership should motivate employees for better productivity and for common good.

(iii) Societal level:

The social concerns like no discrimination concerned for the downtrodden be the prime concerns of the business organizations. Optimal use of scarce resources, clean environment and ensuring better quality of life to all the stakeholders should be stressed in the internal policies.

(iv) Stakeholder’s level:

The organization should take care of the maximum number of stakeholders and follow ethical means with shareholders, customers, suppliers, employees, banks and financial institutions, government and all others that relate to the organization

1.2.3 Scope of Business Ethics towards Society and Stakeholders

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 behavior 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 behavior of a businessman while conducting a business, by observing morality in his business activities.

The behavior of a businessman has more impact within the business organization 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 organization in society should abide by certain moral codes and that there is no separate ethics of business.

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 organizations 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 maximize their profits and a choice to do good for the society in which they live and operate.

However, at most times, profit maximization 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 maximize 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 organization. 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 utilization 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 utilized 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 especially 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.

1.2.4 Role of Government in Ensuring Business Ethics

One of the central purposes of the government is to enforce the law. The law represents the will of the people who have their own cultural and ethical perceptions of reality. As a result, the government enforces the ethical and moral values of the people it governs. In other words, it can be rightly said that the government serves to accomplish the people’s perceptions of reality as represented in their ethical and moral values. This makes the role of the government more complex not forgetting that not all values of ethical and moral consideration can be enforced by the government. However, the government remains the prime custodian of people’s values. Ethics and moral values have a great influence on the operation of the society. It is therefore true that the government exercises control over the society. This is true in light of the task of enforcing laws.

In order to get a better understanding of the role of the government as far as ethics and morality is concerned; more focus should be on the law (Preston & Bishop 2000). The law is the government’s instrument of power. To perform its functions, the government relies majorly on the law. On the other hand, the law is perceived as being representative of the ethical, cultural and moral values of the people. Therefore, as much as the law might not be the perfect tool of enforcing ethical and moral values, it remains the governments’ chief weapon against unprincipled practices and immorality.

The law describes what is right and acceptable in society and therefore provides a blueprint towards an ethical and just society. In order to affirm their quest for a just society, citizens are expected to adhere to the provisions of the law. Therefore, the law binds the society together bringing harmony among different people. Failure to conform to the law is perceived as breaking ethical standards established and is thus punishable. Therefore, the law is perceived as the people’s will to be enforced by the government.

There are a lot of challenges the government faces in its ethical and moral roles. First and foremost are the different perceptions of ethics and morality. This is coupled by the practical reality that the law does not fully represent ethical and moral standards. Perceptions are a great threat to the government’s role. This is since certain parameters which are legal are sometimes perceived as violating ethical and moral standards.

A good example is the issue of abortion. As much as abortion might be legalized, it remains a debatable ethical issue. This is due to the fact that it is seen by some members in society as unethical. Other issues include divorce and promiscuity. These conflicts underline the fact that the law is not a sufficient tool of enforcing ethical and moral values. It underscores the failure of the government to ensure a just society through enforcing the law.

Certainly, government has a role in protecting society from unscrupulous business practices. However, businesses also have a fiduciary responsibility to their shareholders and a responsibility to their customers.

When government intervention and regulation insert themselves into business activities, the good intentions of regulation cause companies to neglect their shareholders and to fail to provide their customers optimum products and services.

For example, Enron and WorldCom are perfect examples of the few forcing draconian regulation, via the Sarbanes Oxley Act, on the many, perfectly legitimate and ethical businesses. This regulation has motivated public companies to go private and private businesses to go public in foreign countries. As a result, society is no better off, and out of concerns of violating Sarbanes Oxley regulations, businesses are failing in their fiduciary responsibility to shareholders.

The belief or assumption that pervades societal thought in the United States is that government regulation of business will solve the dilemma of businesses acting to the detriment of society. Since both business and government are competitors and both entities are operated by humans, how is it that the individuals operating government are more ethical than those individuals operating businesses? After all, they both seek power and influence over society.

1.2.5 Principles of Business Ethics

Integrity 

Whenever there is great pressure to do right instead of maximizing profits, this principle is tested. The executives need to demonstrate courage and personal integrity, by doing what-what think is right.

These are the principles, which are upright, honorable. They need to fight for their beliefs. For these principles, they will not back down and be hypocritical or experience.

Loyalty

No ethical behavior can be promoted without trust. And for trust, loyalty needs to be demonstrated. The executives need to be worthy of this trust while remaining loyal to the institutions and the person. There should be friendship in the time of adversity and support and devotion for the duty.

They should not use or disclose personal information. This leads to confidence in the organization. They should safeguard the ability of a professional to make an independent decision by avoiding any kind of influence or the conflicts of interest.

So, they should remain loyal to their company and their colleagues. When they accept the other employees, they need to provide a reasonable time to the firm and respect the proprietary information attach to the previous firm. Thus, they should refuse to take part in any activity that might take the undue advantage of the firm.

Honesty

The ethical executives are honest while dealing with their regular work. They also need to be truthful and do not deliberately deceive or mislead the information to others. There should be an avoidance of the partial truths, overstatements, misrepresentations, etc. Thus, they should not have selective omission by any means possible.

Respect and Concern

These are two necessarily different forms of behavior in the organization. But they go in tandem that is why they have been put under one principle. When the executive is ethical he is compassionate, kind, and caring.

There is one golden rule which states that help those who are in need. Further, seek their accomplishments in such a manner that the business objectives of the firm are achieved.

The executives also need to show respect towards the employee’s dignity, privacy, autonomy, and rights. He needs to maintain the interests of all those whose decisions are at stake. They need to be courteous and treat the person equally and rightly.

Fairness

The executives need not be just fair in all the dealings, but they also should not exercise the wrong use of their power. They should not try to use over each or other indecent manners to gain any sort of advantage. Also, they should not take undue advantage of anything or other people’s mistakes.

Fair people are inclined more towards justice and ensure that the people are equally treated. They should be tolerant, open-minded, willing to admit their own mistakes. The executives should also be able to change their beliefs and positions based on the situation.

Leadership

Any executive, if ethical, should be a leader to others. They should be able to handle the responsibilities. They should be aware of the opportunities due to their position. The executives need to be a proper role model for others.

1.2.6 3Cs of Business Ethics – Compliance, Contribution and Consequences

Compliance At minimum, managers must comply with the policies and rules of their companies as well as those of their nation’s legal system. In fact, most corporate codes of ethics are written as compliance documents by spelling out prohibitions and approved responses to ethical situations known from company experience. Research with large organizations suggest about half report taking a compliance approach to ethical issues facing their firm. Many though view the law as the minimum standard, and in so doing are less likely to run into reputational disrepute and consequently maintain their success over the medium to long-term.

Consequences Most managers worry about the consequences of their actions. In fact, one set of ethical theories uses the yardstick of whether good or bad consequences will result in deciding whether a decision is ethical or unethical. For instance, a decision to move a manufacturing plant to a lower-cost-of-labor country will likely mean good consequences for the company in terms of lower costs of production. But not all the consequences arising from such a decision will be positive.

Contributions Most managers of companies do not look at their position or corporation as just being in the business of making money. They often speak in much more enlightened terms, such as improving convenience for consumers or offering more product choice. Thus, business contributes to a more productive economy and a happier society. Whether this vision is always fulfilled is debatable, but businessmen and women often see themselves as contributing to society and not just in a narrow microeconomic sense.

1.2.7 Myths about Business Ethics

Practically business ethics at the workplace connotes an alignment between what the organization values and how to go about it. It means that the all the day to day operations or activities carried out by employees are in tandem with the organizational policies without any deviations. There are however lots of myths that surround business ethics and their relevance and effectiveness.

Many management thinkers and philosophers believe that business ethics alters people’s values. They cease to be what they are, which comes in way of realization of their full potential. Instead, business ethics should be about managing values and conflict resolution. Conflict management is what they stress the most upon.

There is a continuous tension between individual and organizational ethics. Many organizations believe that most of their human resources are ethical already and need not be trained upon. When such an ethical dilemma arises, it arises because there is a clash of principles that differ in their result priorities. Again, there ethics to counter that are equally reasonable! So, what do you choose?

One more myth that surrounds business ethics is that it is well managed and the prerogative of philosophers and theologians. They say that there is no such term as business ethics that can decide how organizations go about their day-to-day activities. Most of this may be attributed to lack of participation of business leaders in ethical decision-making process and their interest in the same.

Business ethics is also criticized as being nothing new. It is believed to something that only avows what is good and which is logical and known to everyone. But when we look at the same from the perspective of stakeholders, the society and employees who work at the bottom of the pyramid, it safeguards the interests of all these groups. Organizations cannot function in a programmed manner ensuring there is no breach of a certain code in the absence of ethics and values.

Business ethics in the context of corporations is recent, but it is fairly old if we talk of general business transactions. Cicero wrote about business ethics in his book ‘On Duties’. It looks recent because of the corporate social responsibility movement that started in early 1970’s.

Yet another myth that surrounds business ethics is that business ethics cannot be managed which is totally wrong. In reality business ethics is managed or exercised indirectly in some way. Organizations priorities can also be reflective of the ethics followed in the organizations. For example, a sale driven organization is bound to be aggressive naturally, whereas one that is into the business of hospitality is bound to be different.

Certain other sections of people in management believe that business ethics and social responsibility are the same. They are not! In fact, corporate social responsibility is only a small part of it. Corporate social responsibility concerns itself with managing business dealings and the interface with the society; it does not deal with ethics at the workplace. However, both fall under the continuum of business ethics.

1.2.8 Ethical Performance in Businesses in India

(1) Small Business and Traders:

This category has a strong feeling that tax is a burden. About three-fourths of small traders avoid tax payments and do not keep any records pertaining to transactions. This is due to the practice prevailing and the learning by observations. This trend will gradually change due to the new trend of large size stores, who give receipts to all transactions.

(2) Medium Size Corporate and Industries:

Here again the tendency of about 50% businessmen is to try and some money by avoiding taxes, paying lower salaries to employees and avoiding income tax. The tendency to make more profits by less effort is deep rooted in Indian socio-cultural values.

This is more in traditional business, non-technical areas where good old practice is continued. The realization of fair wages, social concern, customer care and corporate citizenship, professional pride is yet to get appreciated by the business houses. The recent and newer companies are in a better shape on these factors.

(3) Large Size Companies, PSU and MNCs:

By and large these companies follow the rules, regulations, employee welfare and customer care. They do it to maintain good image, attract best talents and also serve the society by attending all the statutory expectations.

Basically, all these companies are professionally managed and hence individualism or selfish attitude is very negligible. Some of the companies like Infosys, Wipro and Public Sectors are setting good example to others in ethical values, employee welfare, growth and social concern.

(4) Government Officials:

Many government officials come in contact with business due to sales tax, excise duty, pollution control, ESI, PF, electricity and water supply and various types of licenses, clearances required by various organizations. The government employees from office peon to chief secretary of the government are difficult to deal with. It has become an unwritten rule in India that any work to be done in government offices involves bribe.

In the state government offices like PWD, electricity boards, water supply boards, revenue offices, RTO, police stations, sub-registrar offices and even hospitals corruption has spread like an epidemic. The staff and officials in vigilance department of ‘Lok-Ayukta’ have to be increased ten times to keep watch on unethical practices going on in various government offices.

The ethical values have to follow from top to bottom line levels. This means our political leaders, civil servants and company CEOs have to set a trend of good examples for others to emulate.

Some outstanding Indian examples

When business ethics becomes more important than the business itself, magic happens. The business organization attains a stature totally unheard of, in the history of business ethics itself.

Take the Tata group, as an example. Some years ago, the Tata group suffered a setback, when one five-star property in Mumbai was caught in the terrorist attack. The Government stepped in and the militants were shot dead. However, the damage to the property ran into several thousands of crores.

Ratan Tata, the then Chairman, did something that is totally out of the world. He in fact taught the world some lessons in business ethics. Every single person who was affected, including those like the pav bhaji vendor outside the hotel, was offered compensation running into several lakhs of rupees. The education of children of those affected, free medical facilities for those survivors and dependents at Tata hospitals for the rest of their lives, total education of the 46 children who were affected by the bomb blast but survived, to be taken up by the Tata group, in total, and formation of a Trust for the rehabilitation of the families of the victims. Tata himself visited the families of each of the 80 employees affected by the bomb blast, and offered compensation running into several lakhs of rupees.
This was business ethics at its best. The story did not end there. Rs.10, 000 per month was also offered as compensation for policemen who had nothing to do with the blast at the hospital, but were involved elsewhere. Ratan Tata had clearly spelt what the Tata group stands for, to this day.

Ditto for the WIPRO group. Its Chairman, Azim Premji, is firm in his views. He annoyed several other fellow capitalists when he said that rich people should pay more taxes, in response to some budget proposal. Not stopping there, he justified his views in many interviews as well. WIPRO has spent upwards of some nine hundred crores in Karnataka and in Andhra Pradesh, where it has helped build school infrastructure, improve standards of education and so on. Its donations to several Government hospitals in Tamil Nadu is very much an example of the highest quality of business ethics.

Within the organization, ethics is a way of life. Several years ago, a trade union leader was sacked on the spot in Mumbai when he faked a bill for Rs.20/-. A big strike followed. The strike went on for six months, but the employee was not reinstated. Azim Premji said that he would rather close the office than reinstate the trade union leader. The employees called off the strike, after a period of six months.

Key Takeaways:

1. Business ethics are moral ideas that guide the way a business act. It is the application of ethical reasoning to certain business situations and activities, so that any moral issue emerging in business can be resolved or clarified.
2. . Ethics and moral values have a great influence on the operation of the society. It is therefore true that the government exercises control over the society. This is true in light of the task of enforcing laws.
3. Business ethics in the context of corporations is recent, but it is fairly old if we talk of general business transactions. Cicero wrote about business ethics in his book ‘On Duties’.

Reference Books:

1. Laura P. Hartman, Joe DesJardins, Business Ethics, Mcgraw Hill, 2nd Edition

2. C. Fernando, Business Ethics – An Indian Perspective, Pearson, 2010

3. Joseph DesJardins, an Introduction to Business Ethics, Tata McGraw Hill, 2nd Edition