BUSINESS ETHICS AND SOCIAL RESPONSIBILITY

CHAPTER ONE: INTRODUCTION

INTRODUCTION
Some years ago, one sociologist asked business people, "What does an ethic mean to you?"
Among their replies were the following: "Ethics has to do with what my feelings tell me is
right or wrong." "Ethics has to do with my religious beliefs." "Being ethical is doing what the
law requires." "Ethics consists of the standards of behaviour our society accepts." "I don't
know what the word means."
DEFINITION
The term "ethics" is derived from the Greek word "ethos" which refers to character or
customs or accepted behaviour’s. The Oxford Dictionary states ethics as "the moral principle
that governs a person's behaviour or how an activity is conducted". The synonyms of ethics
as per Collins Thesaurus are - moral code, morality, moral philosophy, moral values,
principles, rules of conduct, standards.
Ethics is a set of principles or standards of human conduct that govern the behaviour of
individuals or organizations. Using these ethical standards, a person or a group of persons or
an organization regulate their behaviour to distinguish between what is right and what is
wrong as perceived by others
BUSINESS ETHICS
Business ethics is a form of applied ethics or professional ethics that examines ethical
principles and moral or ethical problems that can arise in a business environment. It is also
known as Corporate ethics. It applies to all aspects of business conduct and is relevant to the
conduct of individuals and entire organizations.
SOURCES
The various sources from where ethical values have been evolved. The main sources are
◦ Religion
◦ Society
◦ Legal System
◦ Genetic inheritance
◦ Marketplace
◦ Nature
 ◦ Culture

CHARACTERISTICS OF BUSINESS ETHICS

1. Business ethics are based on social values, as the generally accepted norms of good or
bad and ‘right’ and ‘wrong’ practices.
2. It is based on the social customs, traditions, standards, and attributes.
3. Business ethics may determine the ways and means for better and optimum
business performance.
4. Business ethics provide basic guidelines and parameters towards most appropriate
perfections in business scenario.
5. Business ethics is concerned basically the study of human behaviour and conducts.
6. Business ethics is a philosophy to determine the standards and norms to make
mutual interactions and behaviour between individual and group in organisation.
7. Business ethics offers to establish the norms and directional approaches for making
an appropriate code of conducts in business.
8. Business ethics may be an ‘Art’ as well as ‘Science’ also.
9. Business ethics basically inspire the values, standards and norms of professionalism
in business for the well-being of customers.
10. Business ethics is to motivate and is consistently related with the concept of service
motives for the customers’ view point.
11. Business ethics shows the better and perspective ways and means for most excellences
in customization.
12. Business ethics aims to emphasize more on social responsibility of business
towards society.
ELEMENTS OF BUSINESS ETHICS
(i) A Formal Code of Conduct:
Code of conduct is statements of organizational values. The Sarbanes-Oxley Act, 2002 made
it important for businesses to have an ethics code, something in writing which will help the
employees know – with both ease and clarity – what is expected of them on the job. The code
should reflect the managements desire to incorporate the values and policies of the
organization.
Code of Ethics:
For every new business incorporated, it is important for the management to have a code of
ethics for his business. It is usually unwritten for small businesses. It is basically a buzzword
for the employees to observe ethical norms and form the basic rules of conduct. It usually
specifies methods for reporting violations, disciplinary action for violation and a structure of
the due process to be followed.
A code of ethics must summarize the beliefs and values of the organization. For a large
business empire, it is important to hire talent to assist existing personnel with regards to
integrity, understanding, responsibility, and cultural norms of the country.
(ii) Ethics Committee:
Ethics committees can rise concerns of ethical nature; prepare or update code of conduct, and
resolve ethical dilemma in organization. They formulate ethical policies and develop ethical
standards.
They evaluate the compliances of the organisation with these ethical standards. The
committee members should be conscious about the corporate culture and ethical concise of
the organisation.
The following committees are to be formed:
a. Ethics committee at the board level- The committee would be charged to oversee
development and operation of the ethics management programme.
b. Ethics management committee – It will be charged with implementing and administrating
an ethics management programme, including administrating and training about policies and
procedures, and resolving ethical dilemmas.
(iii) Ethical Communication System:
Ethical communication system helps the employees in making enquiries, getting advice if
needed and reporting all the wrong done in the organisation.
Objectives of ethical communication system are:
a. To communicate the organizations values and standards of ethical conduct or business
to employees.
b. To provide information to employees on the company’s policies and procedures
regarding ethical code of conduct.
c. To help employees get guidance and resolve queries.
d. To set up means of enquiries such as hotlines, suggestion boxes and e-mail facilities.
Top management can communicate the ethical standards to the lower management which can
be further transferred to the operational level.
(iv) An Ethics Office with Ethical Officers:
The job of an ethics officer is to communicate and implement ethical policies amongst
employees of the organisation. Ethics officer should develop a reputation for credibility,
integrity, honesty and responsibility.
Functions of ethics officer are:
a. Assessing the needs and risks that an ethical programme must address.
b. Develop and distribute code of conduct.
c. Conduct ethical training programme.
d. Maintain confidential service to answer employee’s questions about ethical issues.
e. To ensure that organisation is in compliance with governmental regulations.
f. To monitor and audit ethical conduct.
g. To take action on possible violation of company’s code.
h. To review and update code in time.
(v) Ethics Training Programme:
Any written ethical code will not work unless supported and followed by a proper training
programme. Some companies have an in-house training department while others may opt for
an out-source expert. To ensure ethical behaviour, a corporate training programme is
established which deals in assisting employees to understand the ethical issues that are likely
to arise in their workplace.
When new employees are to be recruited, the induction training should be arranged for them.
Training will help them to familiarize with company’s ethical code of behaviour.
(vi) A Disciplinary System:
A disciplinary system should be established in the organisation to deal with ethical violations
promptly and severely. If unethical behavior is not properly dealt with, it will result in
threatening the entire social system. A company should adopt fair attitude towards everyone
without any discrimination.
(vii) Establishing an Ombudsperson:
An ombudsperson is responsible to help coordinate development of policies and procedures
to institutionalize moral values in the workplace.
(viii) Monitoring:
To make an ethical programme, a successful monitoring programme needs to be developed.
A monitoring committee is formed. Monitoring can be done by keen observation by ethics
officer, surveys and supporting systems.
 IMPORTANCE OF ETHICS IN VARIOUS MANAGEMENT FUNCTIONS
Ethical problems and phenomena arise across all the functional areas of companies and at all
levels within the company.
1. Ethics in Finance
The ethical issues in finance that companies and employees are confronted with include:
 In accounting – window dressing, misleading financial analysis.
 Insider trading, securities fraud leading to manipulation of the financial markets.
 Executive compensation.
 Bribery, kickbacks, over billing of expenses, facilitation payments.
 Fake reimbursements
2. 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.
The issues of ethics faced by HRM include:
 Discrimination issues i.e. discrimination on the bases of age, gender, race,
religion, disabilities, weight etc.
 Sexual harassment.
 Issues surrounding the representation of employees and the democratization of
the workplace, trade etc.,
 Issues affecting the privacy of the employee: workplace surveillance, drug testing.
 Issues affecting the privacy of the employer: whistle-blowing.
 Issues relating to the fairness of the employment contract and the balance of
power between employer and employee.
  Occupational safety and health.
Companies tend to shift economic risks onto the shoulders of their employees. The boom of
performance-related pay systems and flexible employment contracts are indicators of these
newly established forms of shifting risk.
3. 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.
 Misleading advertisements
 Content of advertisements.
 Children and marketing.
 Black markets, grey markets.
4. 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 eg. Genetically modified food
 Product testing ethics.
The most systematic approach to fostering ethical behaviour is to build corporate cultures that
link ethical standards and business practices.
NATURE OF BUSINESS ETHICS
Egoism – is a theory that suggests that an action is morally right if in a given situation all
decision makers freely decide to pursue their own self interests. In such it is okay to make a
decision that bene ts oneself. Important to ensure oneself does not confuse self-interest
with selfishness. Enlightened self-interest, we are well aware that any act of self-interest will
reap future benefits for self-interest.
Egoism limitations – Relies on an external mechanism to control individual egoists, it can
result in significant short-term harm, an egoist persona may know what they want but not
what they need.
Utilitarianism –is a theory that seeks the greatest happiness for the greatest number, the
maximum pleasure with the minimum pain. The ultimate consequentialist theory, as it
focuses clearly on the consequences of a decision
1. Ensure legality of business activities: Business activities must be legal and a business
man should not do any kind of illegal activity.
2. Customer orientation: All of his operations must be customer oriented. He must
bear in his mind that the “customer is the kinds” So, he should produce and
distribute that types of goods and services which can satisfy the customers.
3. Supplying good quality product: A businessman must have to ensure the supply of
good quality products and services. He has to maintain minimum standard of his
product and service.
4. Price: Businessman has to claim a reasonable price for has products or services that
is under buying capacity of the customers.
5. Following rules and regulations: A businessman must have to follow all business-
related rules and regulations that is formulated by the government.
6. Employer-employee relationship: This is an important issue to build up a friendly
relationship between employer and employees in an organization because a success
of the organization largely depends on it.
7. Avoiding fraud and cheating: A businessman has to avoid unfair means. He should
not try to cheat or fraud the customers or general public. He should always practice
honesty and sincerity in his activities.
8. Environmental issues: in the present world, environmental issues are considered a
vital matter. A businessman ensures healthy environment for the insiders as well as
the outsiders for running the organization smoothly.
9. Avoiding artificial shortage: Some dishonest businessmen create artificial shortage
of products and thereby they want to gain more profit. This is not acceptable.
10. Avoiding harmful competition: In order to survive in the market successfully, each
and every business organization should co-operate with each other. They should
avoid harmful competition.
 UNETHICAL BEHAVIOUR

The Civil Service Commission of Philippines defined an unethical

behaviour as any behaviour prohibited by law. An unethical
behaviour would therefore be defined as one that is not morally
honourable or one that is prohibited by the law. Many behaviours
will fall in the classification including corruption, mail and wire
fraud, discrimination and harassment, insider trading, conflicts of
interest, improper use of company assets, bribery

CAUSES OF UNETHICAL BEHAVIOUR IN WORKPLACE

1. Misusing Company Time

One of the most regularly revealed “bad behaviours” in the

workplace is the misuse of company time. This category includes
knowing that one of your colleagues is directing personal business
on company time, staff appearing late, extra breaks or fake
timesheets. These negative behaviour patterns can rapidly spread to
different workers. It can also cultivate hatred amongst colleagues,
severely influencing morale and efficiency.
Unethical Leadership

Having a personal issue with your boss or manager is a certain

thing, yet reporting to a person who is acting dishonestly is another.
This may come in a clear form, such as manipulating numbers in a
report or sending company money on improper activities;
nonetheless, it can also happen more subtly, through bullying,
accepting inadequate gifts from suppliers, or requesting that you
avoid a standard system just once. With studies demonstrating that
managers are responsible for 60 percent of workplace wrongdoing,
the abuse of leadership authority is a disastrous reality.
2. Lying to Employees

The quickest way to lose the trust of your employees is to lie to

them, but managers do it constantly. One out of every five workers
report that their supervisor or manager has lied to them within the
previous year.

3. Harassment and Discrimination

Laws require associations to be equivalent to business opportunity

employers. Organizations must select a various workplace,
authorize policies and training that help an equivalent open- door
program, and encourage a situation that is respectful of a wide
range of people. Unfortunately, there are still numerous people
whose practices break with EEOC rules and regulations. When
harassment and discrimination of employees based on ethnicity,
race, gender, handicap or age occur, has a moral line been crossed
as well as a legitimate one also. Most companies are attentive to
maintain a strategic distance from the costly legal and public
implications of harassment and discrimination, so you may
experience this ethical problem in more delicate ways, from
apparently “harmless” offensive jokes by a manager to a more
unavoidable “group think” mindset that can be a symptom of a
toxic culture. This could be a group mindset toward an “other”
group. Your best reaction is to keep up your qualities and repel
such intolerant, illegal or unethical group standards by offering an
option, inclusive aspect as the best decision for the group and the
company.

4. Violating Company Internet Policy

Cyberloafers and Cybershackers are terms used to recognize people

who surf the web when they ought to work. It’s a huge, multi-
billion-dollar issue for organizations. Every day at least 64 percent
of employers visit sites that have nothing to do with their work.
5. Pressure to Succeed

Employees may choose to act unethically based on unrealistic

expectations to succeed. For example, a salesperson may make
false claims to secure a deal to meet their quota.

ETHICAL ABUSES IN BUSINESS

Corporate ethical/legal abuses include:

 Creative accounting
 Earnings management
 Misleading financial analysis
 Insider trading
 Securities fraud
 Bribery/kickbacks
 Facilitation payments

WORK ETHICS

Work ethic is a value based on hard work and diligence. It is also a

belief in the moral benefit of work and its ability to enhance
character.

Workers exhibiting a good work ethic in theory would be selected

for better positions, more responsibility and ultimately promotion.
Workers who fail to exhibit a good work ethic may be regarded as
failing to provide fair value for the wage the employer is paying
them and should not be promoted or placed in positions of greater
 responsibility.

CHARACTERISTICS OF A GOOD WORK ETHICS

Reliability

Reliability goes hand in hand with a good work ethic. If individuals

with a good work ethic say they are going to attend a work function
or arrive at a certain time, they do, as they value punctuality.
Individuals with a strong work ethic often want to appear
dependable, showing their employers that they are workers to
whom they can turn. Because of this, they put effort
into portraying -- and proving -- this dependability by being reliable and performing
consistently.

Dedication

Those with a good work ethic are dedicated to their jobs and will do
anything they can to ensure that they perform well. Often this
dedication leads them to change jobs less frequently, as they
become committed to the positions in which they work and are not
eager to abandon these posts. They also often put in extra hours
beyond what is expected, making it easy for their employers to see
that they are workers who go beyond the rest of the workforce and
truly dedicate themselves to their positions.

Productivity

Because they work at a consistently fast pace, individuals with a

good work ethic are often highly productive. They commonly get
large amounts of work done more quickly than others who lack
their work ethic, as they don't quit until they've completed the tasks
with which they were presented. This high level of productivity is
 also due, at least in part, to the fact that these individuals want to
appear to be strong workers. The more productive they are, the
more beneficial to the company they appear to those managing
them.

Cooperation

Cooperative work can be highly beneficial in the business

environment, something that individuals with a strong work ethic
know well. Because they recognize the usefulness of cooperative
practices - such as teamwork -- they often put an extensive amount
of effort into working well with others. These individuals
commonly respect their bosses enough to work with any individuals
with whom they are paired in a productive and polite manner, even
if they do not enjoy working with the individuals in question.

Character

Those with a good work ethic often also possess generally strong
character. This means they are self-disciplined, pushing themselves
to complete work tasks instead of requiring others to intervene.
They are also often very honest and trustworthy, as they view these
traits as befitting

the high-quality employees they seek to become. To demonstrate their strong character, these workers
embody these positive traits daily, likely distinguishing themselves from the rest.

CODE OF CONDUCT

Code of conduct or what is popularly known as Code of Business

Conduct contains standards of business conduct that must guide
actions of the Board and senior management of the Company.
The Code may include the following:

 Company Values.
 Avoidance of conflict of interest.
 Accurate and timely disclosure in reports and documents
that the company files before Government agencies, as
well as in Company's other communications.
 Compliance of applicable laws, rules and regulations
including Insider Trading Regulations.
 Maintaining confidentiality of Company affairs.
 Non-competition with Company and maintaining fair dealings with the
Company.
 Standards of business conduct for Company's customers,
communities, suppliers, shareholders, competitors,
employees.
 Prohibition of Directors and senior management from
taking corporate opportunities for themselves or their
families.
 Review of the adequacy of the Code annually by the Board.
 No authority of waiver of the Code for anyone should be given.

The Code of Conduct for each Company summarises its philosophy

of doing business. Although the exact details of this code are a
matter of discretion, the following principles have been found to
occur in most of the companies:

 Use of company's assets;

 Avoidance of actions involving conflict of interest;
 Avoidance of compromising on commercial relationship;
 Avoidance of unlawful agreements;
 Avoidance of offering or receiving monetary or other inducements;
Maintenance of confidentiality;
 Collection of information from legitimate sources only.
 Safety at workplace
 Maintaining and Managing Records
 Free and Fair competition
 Disciplinary actions