MODULE 1

BUSINESS ETHICS

Session Topic: Importance of Business Ethics

Learning Objectives:
The following specific learning objectives are expected to be realized at the end of the session:

1. Describe the nature and origin of ethics.

2. Define business ethics and explain its importance
3. Identify the reasons for running a business ethically
4. Determine the costs of unethical business practices
5. Explain the development of business ethics and the creation of a global ethical culture
6. Describe the relationship between organizational ethics and performance

Key Points:
Ethics Development of business ethics
Socrates method Global ethical culture
Business ethics Organizational ethics and performance
Ethical culture

Core Content:

Introduction
Unethical practices of businesses resulted in the downfall of not so few mighty corporations around the world which
enormously destroyed lives and economies. The public outrage about deception, fraud, rampant destruction of environment,
and other unethical behaviors demanded a high standard of ethics and greater corporate responsibility from businesses. In
this module, we will start with the basic principles of ethics then proceed with the definition of business ethics and its
importance. The cost of unethical practices to business will be examined as well as the development of business ethics from
the 1960’s to present. The role of global ethical culture will also be presented.

Topics include the following:

1. Fundamentals of ethics
2. Benefits of business ethics
3. Costs of Unethical Business Practices
4. Development of Business Ethics
5. Organizational Ethics and Performance

In-text Activities

DEFINITION OF IMPORTANT TERMS:

Morals. A person’s personal philosophies about what is right or wrong.

Principles. Specific and pervasive boundaries for behaviour that should not be violated.

Values. Are beliefs and ideals that are socially enforced

ORIGIN AND NATURE OF ETHICS

◼ Ethics comes from the Greek word ethos, meaning character

◼ Ethics, in ancient Greece, was concerned with the development of a virtuous and moral character

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 ◼ The Greeks believed that developing character would lead one not only to knowing the right thing to do, but actually
doing the right thing or living the right way of life

Socrates Method

◼ Socrates was the first to recognize the value of questions that affect how a person should live
◼ Socratic Method – the process that Socrates made to investigate through the value of questions that affect how a
person should live
◼ Socrates preached that man must examine his life. According to him, an unexamined life is not worth living.

ETHICS DEFINED

◼ The theory of right conduct or the Philosophy of Morals

◼ The standard of character set by a particular society of men
◼ A science of moral duty, of ideal human character and of standards of human conduct
◼ The study of moral judgments

ETHICS is the study of the methods and principles used to distinguish good from bad, right from wrong actions.

BUSINESS ETHICS

◼ Is concerned primarily with the relationship of business goals and techniques to specific human ends
◼ It studies the impacts of acts on the good of the individual, the company/firm, the business community and society as
a whole
◼ Business ethics studies the special obligations that a man or a citizen accepts when he becomes a part of the world of
commerce

Importance of Ethics in the Business World

1. Business decisions can affect a very wide range of people – employees, stockholders, management, suppliers,
customers, and surrounding communities
2. Unethical behavior creates legal risks, as well as financial and marketing risks
3. Managing ethically can pay significant dividends in organizational structure and efficiency
4. A preparation for students for a career in contemporary business
5. It helps one to begin to identify ethical issues when they arise and recognize the approaches available for resolving
them.
6. To learn more about the ethical decision-making process and about ways to promote ethical behaviour within the
organization.
7. To understand how to cope with conflicts between one’s personal values and those of the organization in which one
belongs.

Nine Good Reasons to Run a Business Ethically

1. Litigation/indictment avoidance
2. Regulatory freedom
3. Public acceptance
4. Investor confidence
5. Supplier/partner trust
6. Customer loyalty
7. Employee performance
8. Personal pride
9. It’s right

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The Cost of Unethical Business Practices

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The study of business ethics evolved through five distinct stages. Before 1960, business ethics issues were discussed primarily
from a religious perspective. The 1960s saw the emergence of many social issues involving business and the concept of social
conscience as well as a rise in consumerism, which culminated with Kennedy’s Consumers’ Bill of Rights .

Business ethics began to develop as an independent field of study in the 1970s, with academics and practitioners exploring
ethical issues and attempting to understand how individuals and organizations make ethical decisions. These experts began to
teach and write about the idea of corporate social responsibility, an organization’s obligation to maximize its positive impact
on stakeholders and minimize its negative impact.

In the 1980s, centers of business ethics provided publications, courses, conferences, and seminars, and many companies
established ethics committees and social policy committees. However, less government regulation and an increase in
businesses with international operations raised new ethical issues.

In the 1990s, government continued to support self-regulation. Organizational ethics programs were promoted by providing
incentives for companies to take action to prevent organizational misconduct.

The twenty-first century ushered in a new set of ethics scandals, suggesting many companies had not embraced the public’s
desire for higher ethical standards. The United State’s Sarbanes–Oxley Act stiffened penalties for corporate fraud and
established an accounting oversight board. The Dodd–Frank Wall Street Reform and Consumer Protection Act was later passed
to reform the financial system. The current trend is away from legally based ethical initiatives in organizations and toward
cultural initiatives that make ethics a part of core organizational values. The ethical component of a corporate culture relates
to the values, beliefs, and established and enforced patterns of conduct employees use to identify and respond to ethical
issues.

GLOBAL ETHICAL CULTURE

Ethical culture

- is acceptable behaviour as defined by the company and industry

- the component of corporate culture that captures the values and norms an organization defines and is compared to by its
industry as appropriate conduct

- the goal of an ethical culture is to minimize the need for enforced compliance of rules and maximize the use of principles that
contribute to ethical reasoning in difficult or new situations

Globally, businesses are working closely together to establish standards of acceptable behavior. We are already seeing
collaborative efforts by a range of organizations to establish goals and mandate minimum levels. Examples are the creations of
the following organizations:

- European Union (EU)

- North American Free Trade Agreement (NAFTA)
- Southern Common Market (MERCOSUR)
- World Trade Organization (WTO)

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THE ROLE OF ORGANIZATIONAL ETHICS IN PERFORMANCE

• Contributes to employee commitment

Employee commitment comes from workers who believe their future is tied to that of the organization and from a
willingness to make personal sacrifices for the organization. 36 The more a company is dedicated to taking care of its
employees, the more likely the employees will take care of the organization.

• Contributes to investor loyalty

Ethical conduct results in shareholder loyalty and contributes to success that supports even broader social causes and
concerns. Investors today are increasingly concerned about the ethics and social responsibility that creates the reputation
of companies in which they invest, and various socially responsible mutual funds and asset management firms help
investors purchase stock in ethical companies. Investors also recognize that an ethical culture provides a foundation for
efficiency, productivity, and profits. Investors know, too, that negative publicity, lawsuits, and fines can lower stock prices,
diminish customer loyalty, and threaten a company’s long-term viability.

• Contributes to customer satisfaction

It is generally accepted that customer satisfaction is one of the most important factors in a successful business strategy.
Although a company continues to develop and adapt products to keep pace with customers’ changing desires and

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 preferences, it must also develop long term relationships with its customers and stakeholders. As mentioned earlier, high
levels of perceived corporate misconduct decreases customer trust. On the other hand, companies viewed as socially
responsible increase customer trust and satisfaction.

• Contributes to profits

A company cannot nurture and develop an ethical culture unless it has achieved adequate financial performance in terms of
profits. Businesses with greater resources—regardless of their staff size—have the means to practice social responsibility
while serving their customers, valuing their employees, and establishing trust with the public. Ethical conduct toward
customers builds a strong competitive position shown to positively affect business performance and product innovation

Summary

This module provided an overview of the field of business ethics and introduced the framework for the discussion of this
subject. Business ethics comprises organizational principles, values, and norms that may originate from individuals,
organizational statements, or from the legal system that primarily guide individual and group behavior in business. Investors,
employees, customers, special interest groups, the legal system, and the community often determine whether a specific action
is right or wrong, ethical or unethical. Studying business ethics is important for many reasons. Recent incidents of unethical
activity in business underscore the widespread need for a better understanding of the factors that contribute to ethical and
unethical decisions. Individuals’ personal moral philosophies and decision-making experience may not be sufficient to guide
them in the business world. Studying business ethics helps you begin to identify ethical issues and recognize the approaches
available to resolve them.

Assessment/Evaluation

1. Case study
2. End of lesson quiz

References
( Please refer to the course syllabus)

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