Business Ethics

Unit 2
Ethics in Business
 Meaning and Definition
• BUSINESS ETHICS
• MEANING : Ethics is a set of rules that define right and
wrong conduct. Business ethics can be defined as written
and unwritten codes of principles and values that govern
decisions and actions within a company. In the business
world, the organization’s culture sets standards for
determining the difference between good and bad decision
making and behavior.

• Business ethics refers to contemporary organizational

standards, principles, sets of values and norms that govern
the actions and behavior of an individual in the business
organization.
• Business ethics is the process of evaluating
decisions, either pre or post, with respect to
the moral standards of the society’s culture….
• Business ethics is applicable to every type of
business.
• Business Ethics means conducting all aspects
of business anddealing with all stakeholders in
an ethical manner.
 Nature of Business Ethics
• 1. Provides basic framework : boundries within which
business has to be operated….cultural, social, legal,
moral and economic limits.
• 2. code of conduct : lays out an organization's
expectations and guiding principles for
appropriate workplace behaviour..
• 3. based on moral and social values : includes fair
treatment to social groups, service to society and self
control..
• 4. willing acceptance : ethics cannot be enforced by law
or by force. It should be accepted by business as self
discipline…
• 5. education and guidance required for introduction :
awareness/ training is required for business leaders to
motivate them for following ethical business pratices..
• 6. Not against profit making : it is against making profit
by cheating and exploiting consumers, employees or
investors.
• 7. Relative Term : Business ethics is a relative term.
That is, it changes from one business to another. It also
changes from one country to another. What is
considered as good in one country may be taboo in
another country.
 Importance of Business ethics
• survival of business : sustainability of business comes
from sound ethical policies. Unethical practices may
temporarily favour the business but take away it’s
goodwill for ever.
• Smooth functioning : ethics helps in gaining the trust of
external associates of business. Thus it helps in having
higher sales and profits.
• Safeguarding consumer rights : An organization with a
strong ethical environment places its customers’
interests as foremost. Ethical conduct towards
customers builds a strong competitive position. It
promotes a strong public image.
• Develops Good Relations : between business
and society. Thus resulting in regular supply
of good quality products and services at low
prices to the society.
• Protecting stakeholders : Shareholders invest
their money into a company and expect a
certain level of return from that money in the
form of dividends and/or capital growth.
• Importance of Labour :
• The ethical climate matter to the employees.
Ethical Organizations create an environment that
is trustworthy, making employees willing to rely,
take decisions and act on the decisions and
actions of the co-employees. In such a work
environment, employees can expect to be treated
with respect and consideration for their
colleagues and superiors. It cultivates strong
teamwork and Productivity and support
employee growth.
• Stop Business Malpractices : common
malpractices are adulteration, cheating in
weights and measures, artificial high pricing,
black marketing, selling of duplicate and
harmful products, hoarding etc…
 Example….
• Google
• Although some may criticize the company,
Google(NASDAQ:GOOG) regularly makes good on its
motto: “Don’t be evil.” Through its Google Green
Program, the company has donated over $1 billion to
renewable energy projects, and has decreased its own
footprint by using energy efficient buildings and public
transportation.
• The company is also a staunch advocate of free speech,
which can be observed from its frequent conflicts with
the Chinese government. Google is also an open
supporter of gay rights.
• Just to name a few…..
• Google employees have access to free health care
and treatment from on-site doctors, free legal
advice with discounted legal services, a fully stock
snack pantry and onsite cafeteria (staffed by
world-class chefs, no less), and a free on-site
nursery.
• With such a outstanding record of social
awareness and positive employee relations,
Google is easily the best example of ethics in the
corporate world today
 Types of Ethics
• Transactional ethics : The practices of ethics in all the transactions
is called as transactional ethics. All involved parties should
reciprocate ethical practices. It is a win win approach.
• 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.
• This is based on….
• 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.
 Types of Ethics
• Transactional ethics : The practices of ethics in all the transactions
is called as transactional ethics. All involved parties should
reciprocate ethical practices. It is a win win approach.
• 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.
• This is based on….
• 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.
• 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 realised through the voluntary 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 arises …The important thing is that parties in the alliance
voluntarily, committing themselves to a selfimposed and non-enforceable
obligation.
• Participatory ethics is about the shape of solidarity (unity or agreement of
feeling or action) in an age of individualisation.
• 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.
• 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 more
weighty claim to a job.
• This requires a correct perspective and
empathy. The strong is helping the weak. The
learned is helping the lesser learned. The
experienced is helping the new entrant,
compensation is given to victims.
 Corporate Social Responsibility
Examples in India
• 1. Tata Group
• The Tata Group conglomerate in India carries out various CSR
projects, most of which are community improvement and poverty
alleviation programs. Through self-help groups, it is engaged in
women empowerment activities, income generation, rural
community development, and other social welfare programs. In the
field of education, the Tata Group provides scholarships and
endowments for numerous institutions.
• The group also engages in healthcare projects such as facilitation of
child education, immunization and creation of awareness of AIDS.
Other areas include economic empowerment through agriculture
programs, environment protection, providing sport scholarships,
and infrastructure development such as hospitals, research centers,
educational institutions, sports academy, and cultural centers.
• 2. Ultratech Cement
• Ultratech Cement, India’s biggest cement company is
involved in social work across 407 villages in the
country aiming to create sustainability and self-
reliance. Its CSR activities focus on healthcare and
family welfare programs, education, infrastructure,
environment, social welfare, and sustainable livelihood.
• The company has organized medical camps,
immunization programs, sanitization programs, school
enrollment, plantation drives, water conservation
programs, industrial training, and organic farming
programs.
• 3. Mahindra & Mahindra
• Indian automobile manufacturer Mahindra &
Mahindra (M&M) established the K. C. Mahindra Education
Trust in 1954, followed by Mahindra Foundation in 1969
with the purpose of promoting education. The company
primarily focuses on education programs to assist
economically and socially disadvantaged communities. CSR
programs invest in scholarships and grants, livelihood
training, healthcare for remote areas, water conservation,
and disaster relief programs. M&M runs programs such as
Nanhi Kali focusing on girl education, Mahindra Pride
Schools for industrial training, and Lifeline Express for
healthcare services in remote areas.
• 4. ITC Group
• ITC Group, a conglomerate with business interests across
hotels, FMCG, agriculture, IT, and packaging sectors has
been focusing on creating sustainable livelihood and
environment protection programs. The company has been
able to generate sustainable livelihood opportunities for six
million people through its CSR activities. Their e-Choupal
program, which aims to connect rural farmers through the
internet for procuring agriculture products, covers 40,000
villages and over four million farmers. Its social and farm
forestry program assists farmers in converting wasteland to
pulpwood plantations. Social empowerment programs
through micro-enterprises or loans have created
sustainable livelihoods for over 40,000 rural women.
 Relation between Corporate
responsibility and Business ethics
• Business Ethics • Corporate Responsibilty
• moral guidelines for the • a business philosophy which
conduct of business based on stresses the need for firms to
notions of what is right, wrong behave as
and fair. good corporate citizens, not
• Most business people rely merely obeying the law but
upon their own consciences in conducting their production
making business decisions, and marketing activities in a
falling back upon their own manner which avoids causing
moral and religious environmental pollution or
backgrounds for guidance. exhausting finite world
resources.
• socially responsible behaviour
can pay off in the long run,
even where it involves some
short-term sacrifice of profit.
• Ethics are important so • A firm that adopts the
as to build a reliable social response
image of a corporate… approach generally
meets its legal and
ethical requirements….
 What is CORPORATE ETHICS?
• The broad area dealing with the way in which a
company behaves towards, and conducts
business with, its internal and
external STAKEHOLDERS, including employees,
investors, creditors, customers, and regulators. In
certain national systems minimum standards are
required or recommended in order to eliminate
potential conflicts of interest or client/employee
mistreatment.
 Importance of Corporate ethics
Ethics influence and contribute to:
1. Employee commitment.
2. Investor and customer loyalty and confidence.
Legal problems and penalties.
3. Customer satisfaction.
4. The ability to build relationships with
stakeholders. Cost control.
5. Performance, revenue, and profits.
6. Reputation and image.
 Ethical Behaviour
• The term “ethical behavior” refers to how an organization ensures
that all its decisions, actions, and stakeholder interactions conform
to the organization’s moral and professional principles. These
principles should support all applicable laws and regulations and
are the foundation for the organization’s culture and values. They
distinguish “right” from “wrong.”
• Acting in ways consistent with what society and individuals typically
think are good values.
Ethical behavior tends to be good for business and involves
demonstrating respect for key moral principles that include
honesty, fairness, equality, dignity, diversity and individual rights.
 ETHICAL BEHAVIOUR AND ETHICAL
BUSINESS PRACTICE
• A code of ethics is a document which explains a business’ values
and principles.
• Businesses should have a strict code of ethics for their employees
and this code must be strictly enforced.
• White collar crime refers to crimes such as fraud and money
laundering.
• The nature of ethical decisions and actions can be measured against
the following questions:
• Do the decision / action comply with the company’s code of ethics?
• Are the decision / action within the framework of the law?
• Are the decision / action fair to the company’s stakeholders?
• Do I feel positive about my decision / action?
The professional Code provides detail
on:
• The boards and directors: role, composition,
appointment process, director development,
remuneration of directors.
• Audit committees
• Risk management
• Managing stakeholder relationships.
• Internal audits
• Integrated sustainability reporting and disclosure .
• Compliance with laws, regulations, rules and standards.
• Compliance and enforcement
• Fundamental and affected transactions
 Enforcing Ethical Standards
• Consistent enforcement is critical
• But an internal system for employees to
report misconduct is an opportunity to
register ethical concerns
• Ethics hot lines
• Questionnaires may be used to serve as
benchmarks
• Corrective actions provide standards &
punishment ..
• If a company has determined that its ethical
performance has not been satisfactory,
management may want to recognize the way
ethical decisions are made.
• A decentralized organization may be centralized
(perhaps temporarily) so that top level managers
can ensure that ethical decisions are made.
• A centralized organization may be decentralized
(perhaps temporarily) so that lower level
managers can make more decisions..
 Model Ethical Conduct in the
Workplace
Good ethical conduct in the workplace indicates
that employees take pride in their company's
ethical standards and have respect for other
employees, customers, suppliers and
partners.
• Upholding Company Values
• Respect for Company Assets
• Avoiding Questionable Business Practices
• Making Good Decisions
 Ten commandments of Ethical
Behaviour control
• 1. Be honest, truthful, forthright, candid and sincere.
• 2. Have integrity: Strive to be scrupulous.
• 3. Keep your word and abide by the spirit as well as the letter of the
law.
• 4. Maintain fidelity: Be faithful and never disclose confidential
information.
• 5. Always be fair: Demonstrate a commitment to justice, with equal
treatment of all.
• 6. Care for others: Be kind.
• 7. Respect others in every way.
• 8. Be a responsible citizen. Obey just laws and protest unjust ones.
• 9. Rigorously pursue excellence. Never be content with mediocrity.
• 10. Always be accountable: good leaders lead by
 Audit of ethical Behaviour
• An ethical behavior audit can provide an
opportunity to evaluate the extent to which
the organization's performance complies with
its code of ethics.
• It is imperative that internal auditors
possess/develop sufficient knowledge to
evaluate the risk of fraud arising from
unethical behavior.
 Six Steps to Highly Effective Ethics
Audits
• Start with a detailed foundation. An ethics audit is a
comparison between actual employee behavior and
the guidance for employee behavior provided in
policies and procedures. The more descriptive and
specific ethics-related policies and procedures are, the
easier it is to make these comparisons.
• Develop metrics. Ethics audits may not be as black-
and-white as financial or operational audits, but they
run more smoothly when tangible ethics measures are
in place. Consider adding ethics goals to annual
performance reviews and, where possible, tying
compensation to ethical behavior.
• Create a cross-functional team. Include an HR professional
familiar with people in the business unit being audited.
Most ethics audit teams include an ethics and compliance
manager where possible as well as an internal auditor and
legal managers.
• Audit efficiently. Audits frequently disrupt normal
operations in business areas subjected to review. Before
scheduling an audit, find out if internal auditors or the
finance team may be conducting reviews of the same area.
If so, combine these efforts to limit disruptions. Once the
audit has been scheduled, create a plan that spells out
employees to be interviewed, information that requires
review and any processes that require observation.