BUSINESS ETHICS

UNIT I
 The Nature and Purpose of Ethical Reflections
 Introduction Definition of Ethics
 Moral Behaviour.
 Charactenstics of Moral Standards
 Business Ethics Mediating between Moral Demands and
Interest
 Relative Autonomy of Business Morality.
 Studies in Business Ethics
 Role of Ethics in Business.
 Theory of Voluntary Mediation
 Participatory Ethics.
 Duty ethics in the Business Environment
 Theories of Virtue
 Case Study : Trade In Human Organs.
 Ethics: What Does It Really Mean???

 Derived from word ‘Ethicos’ meaning

Character
Greek or Manners

 Science of character of a person expressed as right or

wrong conduct or action.

 Set of moral principles prescribing code, explains

what is good and right, or bad and wrong.
 Definition:
“An area of study that deals with ideas about what is
good and bad behavior “

EHICAL DELIMA RELATES TO

TWO DIMENSIONS:

 Personal
 Professional
 FORD MOTORS

The Ford Motor Company decided to produce the first lowest-priced

car in the USA. The Company President Mr. Lee Iacocca wanted to
rush the development of a car costing less than $2,000, as he
promised the public that his company will bring out a car at that price
(as low as $2,000) and also fight the growing popularity of
Volkswagen’s Beetle. Preliminary tests showed that it involved an
additional cost of $11 to enhance the safety of the car.

He organized a meeting of company executives to decide how to

reduce the cost below $2,000. Many executives suggested that the
company should sell the car at $2,011 but include the safety feature.
Some executives thought that the company should sell the car at
$2,000 as promised but exclude the safety feature. The company
decided to go ahead without the safety feature.
The car was released and sold at $2,000. After six
months of release, one of the cars was involved in
an accident killing all the passengers. Competitors
influenced newspapers to publish this accident and
the newspapers in the U.S.A. highlighted the
absence of the safety feature. This incident
resulted not only in the loss of sales, but also in the
closure of the unit resulting in a loss of $250
million to the company.
 Business Ethics – History
The history of Ethics goes back to 1970’s when the term Business
Ethics was commonly used. Increasingly unethical conduct was
found by corporations during the 1960s. To counter this,
corporations developed social responsibility programmes which
included charitable donations and funding local community
projects.
This new aspect of business ethics differentiated it from social
issues courses in three ways:
i. It provides an ethical framework for evaluating business and
the corporate world.
ii. It allows critical analysis of business and development of new
and different methods.
iii. It fused personal and social responsibility together and gave it a
theoretical foundation.
 Definition
 Everything you need to know about business ethics. Business
ethics implies general ethical ideas to business behaviour.

 Ethical behaviour not only improves profitability but also

fosters business relations and employees productivity. Business
ethics is concerned with the behaviour of businessman in doing
a business. Unethical practices create problems to businessman
and business units.

 “Business Ethics is an art and science for maintaining

harmonious relationship with society, its various groups and
institutions as well as recognizing the moral responsibility for
the tightness and wrongness of business conduct” -Wheeler.
 Meaning of Ethics

Good or
Taken Bad,
Decided by Leads to Series of together Right or
Character Conduct
of a man of a person Actions Considered As wrong,
Moral or

Immoral
By which
we can
Known as
Judge
Moral
again
Judgement

Moral
Standards Requires
 Foundation of ethical Behavior

Treat others as you would be treated

 Respect
 Honesty
 Trust
 Principal Components of ‘Ethics’:
i. Ethics are principles, values and beliefs that define what is
right and wrong behavior.
ii. Ethics are broader than what is stated by law, customs and
public opinion. For example, accepting gifts from father-in-
law might be socially acceptable but not ethical; owners
pocketing profits without sharing the gains with workers
might be legally permissible but not ethical.
iii. Ethical behaviour may differ from society to society. For
example, birth control is mandatory in Communist societies
but not in Catholic Christian societies.
iv. Ethical standards are ideals of human conduct. Defining
ethical stand­ards is not an easy task.
 Objective of Ethics

 Studies human behavior and makes evaluative

assessment about them as moral or immoral

 Establishes moral standards and norms of behavior

 Makes upon human behavior based on these

standards
judgment and norms

 Prescribes moral behavior and makes recommendations about

how to or how not to behave

 Expresses an opinion or attitude about human

conduct in general
Deals with human Normative Science
beings only

Nature of Ethics

Deals with Human Dealing with Moral

Conduct Judgment
 Business Ethics
 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: What Does It Really Mean???

 comprises principles and standards that guide

behavior in the world of business
 According to John Donaldson “Business Ethics can
be described as the systematic study of moral
(ethical) matters pertaining to business, industry or
related activities, institutions, or practices and
beliefs. It is the systematic handling of values in
business and industry.”
Business Ethics – 13 Main Characteristics
There are several characteristics or features 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 are based on the concepts, thoughts and standards
as contributed as well as generated by Indian ethos.
9. Business ethics may be an ‘Art’ as well as ‘Science’ also.
10. Business ethics basically inspire the values, standards and
norms of professionalism in business for the well-being of
customers.
11. Business ethics is to motivate and is consistently related with
the concept of service motives for the customers’ view point.
12. Business ethics shows the better and perspective ways and
means for most excellences in customisation.
13. Business ethics aims to emphasise more on social responsibility
of business towards society.
 Views on relationship
between Business & Ethics
Unitarian View: Business & morality cannot be separated and it must
play by the rules of ethics of the community.

Moral Structure

Business

Moral Ethics
 Separatist view of Ethics

 Proposed by Adam Smith and Milton Friedman:

Business is a distinct entity and does not include ethics
and morality

Business Ethics
 Integration view of ethics

 Proposed by Talcott Parsons

Law
Government

Morality
Business &
Ethics

Business
Market Systems Society
Ethics
 Business Ethics

When business people speak about “business ethics” they usually

mean one of three things:

1. Avoid breaking the criminal law in one’s work

related activity

2. Avoid action that may result in civil law suits

against the company

3. Avoid actions that are bad for the company image

Businesses are especially concerned with these three things since

they involve loss of money and company reputation.
 Why ethical behavior is
important???
 Business is a subsystem of society

 Empowers all stakeholders concerned

 Reduction in cost of friction with social

environment
 Important for organizations leaders because
they influence the ethical climate for the
rest.
 Why Ethical problems occur?

 Personal gain
 Individual values widely differ with
organizational goals
 Managers values and attitudes

 Competitive pressures

 Cross-Cultural contradictions
 Sources of Ethical Norms

Culture Regions of
Fellow Workers
Country

Family Profession
The Individual
Conscience
Friends Employer

The Law Religious

Society at Large
Beliefs
 Moral behavior
 Moral behavior is action or actions that produce
good outcomes for the individuals as members
of a community, or society, it can be applied to
the whole global society.
 Moral Standards
Moral standards include the norms we have about the kinds of
actions we believe are morally right and wrong as well as the
values we place on the kinds of objects we believe are morally
good and morally bad. Moral norms can usually be expressed
as general rules, ie. “Always tell the truth.” Moral values can
usually be expressed as statements describing objects or
features of objects, i.e. “ Honesty is good.”
Origin Of Moral Standards-
During childhood moral standards are absorbed from family,
friends and various societal institutions. Later in life experiences,
learning and intellectual development help a person in forming
these standards.
 Moral Standards
 Moral standards deal with matters, which can seriously injure
or seriously benefit human beings while it is not the case with
non-moral standards. Examples of non-moral standards include
the standards of etiquette by which we judge manners as good
or bad, and the standards we call “law” by which we judge
legal right and wrong.
 Moral standards are not formed or changed by the decision
of particular authoritative bodies and the validity of these
standards lies on the adequacy of the reasons that are taken
to support and justify them.
 If a person has the moral obligation to do something,
then the person is supposed to do that even if this conflicts
with other non-moral values or self-interest.
 Moral standards does not evaluate standards on the basis of
the interests of a particular individual or group, but one
that goes beyond personal interests to a universal stand
point in which everyone’s interests are impartially counted
as equal.
 Moral standards are associated with special emotions and
a special vocabulary. If a person tells a lie so as to fulfill a
purpose and then afterwards he starts feeling guilty or
ashamed of his behavior.
 Mediate between Moral Demand & Interest
 Business always faces the problem of developing well
informed ideas on how to mediate between moral
demands and strategic concerns. The reason behind
strategic concerns (interest) in business ethics is to
know how business can survive in the long run
without sacrificing justified moral demands against
inflated economic concerns.
 Business ethics is concerned with integrating the
values of society like trust, honesty etc. with
that of the business so that the activities of the
business is carried out in a fair manner helpful for
the society.
 Moral demands are the requirement that the society
demands form any individual entity
 According to Peter Pratley, “Business ethics adapts the
methods and purpose of normative ethics to the specific
requirements of moral issues in business. It studies the
specific moral demands that apply to this particular
sphere of modern civilization”.

 Business ethics is concerned with integrating the values

of society like trust, honesty, etc., with that of the
business so that the activities of the business is carried-
out in a fair manner helpful for the society. Moral
demands are the requirement that the society demands
from any individual entity.
 Relative Autonomy of Business Morality
  A very basis of business ethics refers to an idea of how business
fits into modern society as a whole, a social philosophy of
business. Characteristics of Modernity: Private Life Economic
Life Political Life
 Fundamental division of modern civilization:
1. Moral Community: The values (warmth, recognition, support)
of each moral community drawn from the pre-modern local
traditions.
2. Specialized functional spheres: Modern social experience
consist of specialized functional spheres (healthcare, tourism,
etc.) where each sphere performs their specific task through
formal procedure and rules.
 Social Philosophies of Business
1. Unitarian view of ethics Moral Structure Business Moral
Ethics
2. Separatist view of ethics (Adam Smith & Milton Friedman)
Business Ethics
3. Integration view of ethics (Talcott Parsons) Business ethics
Law Market System Society Morality & Ethics Business
Government
 Theory of Voluntary Mediation In situation of conflicts when
two or more parties come together voluntarily to resolve the
dispute and achieve their goals by taking help of a third
eligible party (known as mediator) then this process is known
as voluntary mediation. It includes following three types of
ethics: 1. Participatory ethics. 2. Transactional ethics. 3.
Recognition ehtics.
 1. Principles of mediation: Self-determination Impartiality Conflicts
of interest Competence Confidentiality Quality of the process
2. Participatory Ethics: It provides idea about how to mediate between
business goals and moral demands and how to serve the society in
more ethical way and gain corporate excellence. Example; Ford
Foundation
3. Transactional Ethics Here all parties involved in the action pattern
have interests that happens to coincide in time but that do not affect
each other. In order to let each party’s transaction run smoothly, all
parties have to accept the principle of equality. In order to let things
run smoothly following principle requires: 1. Honesty 2.
Reciprocity
 Recognition Ethics It regards moral interaction as a matter of
protecting individual liberty and granting public welfare. According
to this view the rights of individuals and our duties to them override
personal egocentric interests. Moral agents are bound to the whole
of society by a tacit social contract.