BUSINESS ETHICS

Business ethics is nothing but the application of ethics in business.

Business ethics is the application of general ethical ideas to business
behavior. Ethical business behavior facilitates and promotes good to society,
improves profitability, fosters business relations and employee productivity.
The concept of business ethics has come to mean various things to various
people, but generally its coming to know what it right or wrong in the
workplace and doing whats right - this is in regard to effects of products/
services and in relationships with stakeholders.
Business ethics is concerned with the behavior of a businessman in doing a
business. Unethical practices are creating problems to businessman and
business units. The life and growth of a business unit depends upon the
ethics practiced by a businessman. Business ethics are developed by the
passage of time and custom. A custom differs from one business to another.
If a custom is adopted and accepted by businessman and public, that
custom will become an ethic. Business ethics is applicable to every type of
business. The social responsibility of a business requires the observing of
business ethics. A business man should not ignore the business ethics while
assuming social responsibility. Business ethics means the behaviour of a
businessman while conducting a business, by observing morality in his
business activities.
According to Wheeler Business Ethics is an art and science for maintaining
harmonious relationship with society, its various groups and institutions as
well as reorganizing the moral responsibility for the rightness and
wrongness of business conduct.
According to Rogene. A. Buchholz , Business ethics refers to right or
wrong behaviour in business decisions .
Business Ethics or Ethical standards are the principles, practices and
philosophies that guide the business people in the day today business
decisions. It relates to the behaviour of a businessman in a business
situation. They are concerned primarily with the impacts of decisions of the
society within and outside the business organizations or other groups who
keep interest in the business activities . Business ethics can be said to begin
where the law ends. Business ethics is primarily concerned with those
issues not covered by the law, or where there is no definite consensus on
whether something is right or wrong
IMPORTANCE OF BUSINESS ETHICS
There may be many reasons why business ethics might be regarded as an
increasingly important area of study, whether as students interested in

evaluating business activities, or as managers seeking to improve their

decision-making skills.
It is generally viewed that good business ethics promote good business.
1 The power and influence of business in society is greater than ever before.
Business ethics helps us to understand why this is happening, what its
implications might be, and how we might address this situation.
2 Business has the potential to provide a major contribution to our societies,
in terms of producing the products and services that we want, providing
employment, paying taxes, and acting as an engine for economic
development and thereby increases the goodwill.
3 Business malpractices have the potential to inflict enormous harm on
individuals, on communities and on the environment. Through helping us to
understand more about the causes and consequences of these malpractices,
business ethics helps to create mutual trust and confidence in relationship.
4 The demands being placed on business to be ethical by its various
stakeholders are constantly becoming more complex and more challenging.
Business ethics provides the means to appreciate and understand these
challenges more clearly, in order that firms can meet these ethical
expectations more effectively.
5. Business ethics can help to improve ethical decision making by providing
managers with the appropriate knowledge and tools that allow them to
correctly identify, diagnose, analyse, and provide solutions to the ethical
problems and dilemmas they are confronted with.
6 A business can prosper on the basis of good ethical standards and it helps
to retain the business for long years.
7 Business ethics can provide us with the ability to assess the benefits and
problems associated with different ways of managing ethics in organizations.
8 In the age of complexity in business fileds , competition is increasing day
by day Good ethical standard helps the business to face the challenges
CHARACTERISTICS OF BUSINESS ETHICS

Ethical values, translated into active language establishing standards or rules

describing the kind of behavior an ethical person should and should not
engage in, are ethical principles. The following list of principles incorporate the
characteristics and values that most people associate with ethical behavior.
Ethical decision making systematically considers these principles.

1. HONESTY. Ethical executives are honest and truthful in all their dealings
and

they

do

not

deliberately

mislead

or

deceive

others

by

misrepresentations, overstatements, partial truths, selective omissions, or

any other means.
2. INTEGRITY. Ethical executives demonstrate personal integrity and the
courage of their convictions by doing what they think is right even when
there is great pressure to do otherwise; they are principled, honorable and
upright; they will fight for their beliefs. They will not sacrifice principle for
expediency, be hypocritical, or unscrupulous.
3. PROMISE-KEEPING & TRUSTWORTHINESS. Ethical executives are
worthy of trust. They are candid and forthcoming in supplying relevant
information and correcting misapprehensions of fact, and they make every
reasonable effort to fulfil the letter and spirit of their promises and
commitments. They do not interpret agreements in an unreasonably
technical or legalistic manner in order to rationalize non-compliance or
create justifications for escaping their commitments.
4. LOYALTY. Ethical executives are worthy of trust, demonstrate fidelity and
loyalty to persons and institutions by friendship in adversity, support and
devotion to duty; they do not use or disclose information learned in
confidence for personal advantage. They safeguard the ability to make
independent professional judgments by scrupulously avoiding undue
influences and conflicts of interest. They are loyal to their companies and
colleagues and if they decide to accept other employment, they provide
reasonable notice, respect the proprietary information of their former
employer, and refuse to engage in any activities that take undue advantage
of their previous positions.
5. FAIRNESS. Ethical executives and fair and just in all dealings; they do
not exercise power arbitrarily, and do not use overreaching nor indecent
means to gain or maintain any advantage nor take undue advantage of
anothers mistakes or difficulties. Fair persons manifest a commitment to
justice, the equal treatment of individuals, tolerance for and acceptance of
diversity, the they are open-minded; they are willing to admit they are wrong
and, where appropriate, change their positions and beliefs.

6. CONCERN FOR OTHERS. Ethical executives are caring, compassionate,

benevolent and kind; they like the Golden Rule, help those in need, and seek
to accomplish their business objectives in a manner that causes the least
harm and the greatest positive good.
7. RESPECT FOR OTHERS. Ethical executives demonstrate respect for the
human dignity, autonomy, privacy, rights, and interests of all those who
have a stake in their decisions; they are courteous and treat all people with
equal respect and dignity regardless of sex, race or national origin.
8. LAW ABIDING. Ethical executives abide by laws, rules and regulations
relating to their business activities.
9. COMMITMENT TO EXCELLENCE. Ethical executives pursue excellence
in performing their duties, are well informed and prepared, and constantly
endeavour to increase their proficiency in all areas of responsibility.
10. LEADERSHIP. Ethical executives are conscious of the responsibilities
and opportunities of their position of leadership and seek to be positive
ethical role models by their own conduct and by helping to create an
environment in which principled reasoning and ethical decision making are
highly prized.
11. REPUTATION AND MORALE. Ethical executives seek to protect and
build the companys good reputation and the morale of its employees by
engaging in no conduct that might undermine respect and by taking
whatever actions are necessary to correct or prevent inappropriate conduct
of others.
12. ACCOUNTABILITY. Ethical executives acknowledge and accept personal
accountability for the ethical quality of their decisions and omissions to
themselves, their colleagues, their companies, and their communities.

PRINCIPLES OF BUSINESS ETHICS

The Principles of business ethics developed by well known authorities like
Cantt, J. S.Mill, Herbert Spencer, Plato, Thomas Garret, Woodrad, Wilson
etc are as follows

1. Sacredness of means and ends : The first and most important principles
of business ethics emphasize that the means and techniques adopted to
serve the business ends must be sacred and pure.It means that a good end
cannot be attained with wrong means, even if it is beneficial to the society.
2. Not to do any evil: It is unethical to do a major evil to another or to
oneself , whether this evil is a means or an end.
3. Principle of proportionality: This principle suggests that one should
make proper judgment before doing anything so that others do not suffer
from any loss or risk of evils by the conducts of business.
4. Non co-operation in evils: It clearly points out that a business should
with any one for doing any evil acts .that
5. Co-operation with others This principles states that business should
help others only in that condition when other deserves for help
6. Publicity: According to W. Wilson, anything that is being done or to be
done, should be brought to the knowledge of everyone. If everyone knows,
none gets opportunity to do an unethical act.
7. Equivalent price: According to W. Wilson , the people are entitled to get
goods equivalent to the value of money that he will pay.
8. Universal value: According to this principle the conduct of business
should be done on the basis of universal values.
9. Human dignity: As per this principle , man should not be treated as a
factor of production and human dignity should be maintained.
10. Non violence: If businessman hurts the interests and rights of the
society and exploits the consumer by overlooking their interests this is
equivalent to violence and unethical act.

RELEVANCE OF VALUES IN MANAGEMENT

In the growing age of complexities corporate must attach great importance to
customer values, shareholder values, employee values, societal values and
leadership values. According to Dr.Athreya value based management is a
good recipe for long-term success of a corporate. Living on principles and
values is a must for every corporate manager
Values and ethics are the key elements for the success of a business.
Organization is just a composite of individuals and that the values of the
organization are only a derivative and inference from the collective value of

individuals. Human values based on spiritual reality constitute the bedrock

and foundation to build the ethical and moral edifice of management on top.
Management must work continuously to develop organizational values.
Excellent organizations must have values and it is the duty of management
to shape values that are service oriented and ethical. Values are previous
reminders that the individual obey to bring order and meaning into their
personal values. Without values there is no guideline for direction. The key
ingredient of any culture is values. Often misunderstood, values are simply
preferences and priorities, which reflect whats more important. In all
organizations, values are at work every day.
If an organization values profit, productivity and quality it will prefer to
operate in a way that prioritizes action and behavior that reflects those
values. Another organization that values innovation, research and learning
will prefer to operate in a way that prioritizes action and behavior that
reflects those values. For either organization, if the values that are
influencing daily behavior and actions are not aligned with the strategies
then their performance and results will suffer.
ETHICAL MANAGEMENT
To create an ethical organization certain steps are to be taken. Ethical or
unethical behavior of individual employees is influenced in the workplace
both by their own moral development and the influence that the
organization culture exerts on them. They are influenced by a group of
forces that surround them such as their peers, their supervisors, and
superiors, the reward system, group norms , company values and policies
and the manner of their implementation. Ethical behavior can be developed
and managed in a number of ways. The pivotal role to manage and develop
ethical

behavior

management
department

of
can

among
that
execute

employees

lies

organization.
this

with

Human

through

the

human

resource

training,

resource

management

communication

and

discipline. The big organizations which are ethically committed, assign the
primary task of managing and monitoring ethical behavior to HRM
department. In some other organizations, there may be ethics officers who
are entrusted with the responsibility to bring ethics and managed ethics in
every endeavor of their organization.
STRUCTURE OF ETHICS MANAGEMENT

Every one who is entrusted to manage ethics in this organization is bound to

prepare a sound ethical programme which should include the following
components:1. Formal code of conduct
2. Ethics committee
3. Ethical communication
4. An Ethic office with Ethical officers
5. Ethics Training Programme
6. A disciplinary system
7. Establishing an ombudsperson.
8. Monitoring
1. Code of conduct
Several organizations that have undertaken to implement ethical behavior at
their workplaces have started the process with developing and implementing
codes of conduct for their employees. Codes of conduct are statements of
organizational values. It comprises of three elements such as a code of
ethics, a code of conduct and statement of values. a code of conduct is a
written document, inspirational in contents and specifies clearly what is
acceptable or unacceptable behavior at workplace and beyond ,when the
employees represent their organizations outside. In general the code should
reflect the managements desire to incorporate the values and policies of the
organization. The statement of values envisages by the management to serve
the public and normally addresses the stakeholders groups.
Code of Ethics
Every time a new business is launched anywhere in the world , whether a
one man operation or a full blown brick and- mortar corporate enterprise,
the owners must adopt a code of ethics for the business. For small
businesses the code is usually unwritten. And sometimes not even
discussed and decided upon, but still a code exists. Larger businesses often
have written codes of ethics and employees are twined in them and required
to adhere to the code. A code of ethics is a buzzword to employees to observe
ethical norms and forms the basis for rules of conduct. It is comprehensive
enough to cover the entire scheme of organizational ethics expected to be
followed by everyone in the company. It usually specifies methods for
reporting violations, disciplinary action for violations and a structure of the
due process to be followed.

A code of ethics in business is just as important as a sound marketing plan,

a solid financial strategy, and an organized business plan.
A code of ethics must summarize the beliefs and values of the organization.
Those beliefs and values should become internalized by all employees and
used regularly in all business practices, no matter the type of business.
Owners of businesses that routinely engage in unethical practices cannot
help but pass those values and principles along to the other people working
in the business. Small businesses suffer even more, because unethical
behavior and actions are easier for customers to take notice of. Once
customers become aware that a business does not have high ethical ideals,
they will take their business elsewhere.
Codes of ethics vary among businesses, and also from one country to
another,. When business grows large enough to expand its operations into
other countries, It is critical to hire talent to assist in training existing
personnel with regard to the integrity, understanding, responsibility, and
cultural norms of the country where the new operation is located. All
employees must be treated equally, and any issues of inequality must be
dealt with quickly, fairly, and in a manner that is satisfactory to all.
Today, more than ever before, consumers pay a great deal of attention to
corporate governance and proper behavior of businesses and their owners.
Because the marketplace is flooded with numerous variations of the same
businesses, promises must be fulfilled and the price and quality of products
must be equal to what is advertised, or another business will step into
deliver. Therefore a code of ethics where unarticulated or formally
documented is vital to ensuring that a business will succeed.
A code of ethics that is both defines and acted upon is part of the business
culture of every successful business, and must become the mantra of every
business owner. Growing a flourishing business through the use of sound
ethical principles will reap not only the benefits of grown and prosperity, but
also the satisfaction of being able to sleep soundly at night.
2. Ethics committee
Ethics committee is formed in many organizations. They are wholly devoted
at work places. These committees can rise concerns of ethical nature;
prepare or update code of conduct, and resolve ethical dilemma in
organizations. they formulate ethical policies and develop ethical standards.
The committee evaluates the compliance of the organization with these
ethical norms. The members of the ethical committee should be selected
from those persons who have knowledge in their industry, their code of
ethics and community standards. The committee members are also
conscious about
organization.

the

corporate

culture and

ethical

concise

of

the

The following committees are to be formed :i. Establishing an ethics committee at the board level
The committee would be charged to oversee development and operation of
the ethics management programme.
ii. Establishing an Ethics Management committee
Ethics Management committee would be charged with implementing and
administrating an ethics management programme, including administrating
and training about policies and procedures, and resolving ethical dilemmas.
The committee should be comprised of senior officers.
3. Ethical communication system
The next step is the establishment of an effective ethical communication
system. Ethical communication system place an important role in making
an ethics programme successful. It should allow employees to make
enquiries , get advice if needed or report wrong doing. Ethical
communication system is a necessity to educate employees about the
organizations ethical standard and policies. It has the following objectives
i.to communicate the organizations values and standards of ethical conduct
or business to employees.
ii.to provide information to the employees on the companys policies and
procedure regarding ethical conduct of business.
iii.to help employees to get guidance and resolve questions regarding
compliance with the firms standards of conducts and values.
iv.to set up the means of enquiry such as telephone hotlines, suggestion
boxes and email facilities for employees to contact with and get advice from
competent authorities.
Along with these means of communication there are other ways , that can be
used to communicate an organizations moral standards to its employees.
Top management can communicate the ethical standards to lower level
managers and they can communicate it to operational levels. Sometimes the
organization publishes newsletters. It can be used to expose companys code
or ethics. If an organization has briefing and management meeting, these
can be used as a means of communicating values. Certain companies use
attractive multi colored posters to publicize their codes and ethics, these
posters are placed in most visible places of the organization premises.
4. Ethics office and officers
Ethics offices are to be established to communicate and implement ethics
policies among employees of the organization. For this purpose an ethics
officer is to be appointed. The ethics officer should develop a reputation for
credibility, integrity, honesty and responsibility through establishment of
such ethics monitoring bodies.
Functions of the ethics officers

1. Ethics officers are responsible for assessing the needs and risks that an
organization-wide ethics programme must address.
2. To develop and distribute a code of conduct or ethics
3. To conduct ethical training programme for employees
4. To establish and maintain a confidential service to answer employees
questions about ethical issues.
5. To ensure that the organization is in compliance with governmental
regulations
6. To monitor and audit ethical conduct
7. To take action on possible violations of the companys code
8. To review and update code in time
5. Ethics Training Programme
To ensure a good ethical behavior in the organization the employees are to be
given training. For this purpose a corporate ethical training programme is to
be devised. The main objective of an ethical training program is to offer
assistance to employees to understand the ethical issues that are likely to
arise in their work place. When new employees are to be recruited, the
induction training should be arranged for them.
This training will help to familiarize with the companys ethical code of
behavior. Importance of abiding code should be dealt with at the induction
meeting. A well developed and proper training programme will help the
employees to understand the organizations policies and expectations,
important and relevant rules, bye laws and regulations which are to be
complied in the organization by the employees. For the success of the
training programmes , the senior executive from every department must
involve fully in the training programme.
6. Disciplinary system
Code of conduct or ethical behavior codes should be properly enforced in the
organization to achieve the organizations objectives. A disciplinary system
should be established to deal with ethical violations promptly and severely. If
unethical behavior is not properly dealt with, it will threaten the entire social
system that supports the ethical behavior of the organization. While
enforcing disciplines to ensure ethical conduct, companies should be
consistent. ,i.e., the company should adopt a fair attitude towards every one
without any discrimination or bias.
7. Establishing an ombudsperson
The ombudsperson is responsible to help coordinate development of the
policies and procedures to institutionalize moral values in the workplace.
This position usually is directly responsible for resolving ethical dilemmas by
interpreting policies and procedures.
8. Monitoring

To become an ethical programme fruitful and successful, an effective

monitoring committee is to be formed. It can be monitored through keen
observation by ethics officers, internal audits, surveys, investigations and
supporting systems.
Advantages of Managing Ethics in Workplace
1. Significant improvement to society
Application of business ethics helps to avoid many evils from the society. It
includes child labour, unscrupulous price fixing, harassment of employees,
poverty and starvation of employees etc.
2. Cultivate strong team work and productivity
Ethical programme helps to tune employee behavior in accordance with the
values preferred by leaders of the organization. It helps to build openness,
integrity and a sense of oneness among all. Employees feel strong alignment
between their values and those of the organization and they react with
strong motivation and performance.
3. Support Employee Growth
Ethics programme help employees to face reality, both good and bad in the
organization and themselves. They feel full confidence to admit and deal
with whatever comes their way.
4. Insurance policy
Ethical programs help to ensure that policies are legal. Ethical principles are
often applied to current, major ethical issues and become legislation. A
major intent of well designed personnel policies is to ensure ethical
treatment of employees.
5. Avoid Penal action
Ethical programs help to detect issues and violations early so that they can
be reported or addressed which helps to avoid subsequent penal actions and
lower fines.
6. Helps in Quality Management, Strategic planning and diversity
management
Ethical programme identify favorite values and ensure organizational
behaviors which are associated with those values. This complex effort can be
aligned with values, including quality management, strategic planning and
diversity management
ROLE OF ORGANIZATION CULTURE IN ETHICS
An organization culture can potentially influence the ethical conduct of the
organization. Organization culture has been identified as one of the main
factor which influenced the ethical conduct at workplaces. An organization
can guide the conduct of its employees by embedding ethical values in its
dominant culture.

Organization culture refers to a system of shared meaning held by members

that distinguishes the organization form other organizations. It is a set of
assumptions, beliefs, values and norms that are shared by organization
members. It is the basic pattern of shared assumptions and values that
governs behavior with in a particular organization. It can be created by the
founder of the organization based on his or her values and expectations.
Eg.Jamshedgi Tata in Tata Industries and DhirubhaiAmbani in Reliance
Industries. Each organization tries to develop its own culture based on the
values of its founder wants to transmit in the workplace.
Organization culture represents the common perception shared by members
of an organization. Individuals with different backgrounds in an
organization altogether have a tendency to describe the organization culture
in almost similar terms. The strength of an organization culture has an
influence on ethical behavior of managers. If the culture is strong and
supports high ethical standards, it should have a very powerful positive
influence on a managers ethical behavior, In a weak culture managers are
more likely to rely on sub cultural norms to guide their behavior.
An effective organizational culture should encourage ethical behavior and
discourage unethical behavior. The corporate culture of a firm is evolved by
its people imbibing values, good or bad which its top executives have an
ethical and social conscience, than they will, by their thoughts and deeds,
inspire their subordinates to exhibit these values, both inside and outside
their workplace.
HOLISTIC APPROACH FOR MANAGERS IN DECISION MAKING
Profit maximization is the guiding principle for decision making in an
economics based view of management. Executives who follow this
rational style of management believe that objectives of the business can
be achieved through precise and calculated means. This dominant style of
management sometimes could not produce the desired results and in such
situation a more forward thinking decision making strategy called holistic
approach can be followed by management. Holistic decision making
encourages us to be aware of our actions and their impact on the whole; it
ensures that we take responsibility and accept accountability for the
decisions we make and empowers us to be part of the ongoing process of
change. In order to provide managers with the necessary tools to manage
modern organizations with a view to building long-term sustainable
competitive advantage, it is imperative that organizations embrace a more
holistic approach to problem solving.

A holistic approach takes into account any number of different factors.

These managers believe firm value is derived from socially complex
resources and relationships, and they are better understand the impact of
their decisions on the overall culture of their company. Holistic approach to
decision making is a comprehensive planning and management process that
helps people to improve their quality of life and their finances while
simultaneously restoring the environment on which we all depend.
It is a process that allows people to make decisions , based on their deeper
values, which will be economically, socially and environmentally sound.
Holistic Management addresses all the separate parts as an integrated
whole, instead of as separate parts. Holistic management is a new
framework for decision making on all levels that is based on resource
management of the whole. This method helps the decision makers identify
all the important people and resources relating to the issue at hand and
bring these elements together into a new Whole , represented by a short
statement of purpose. With this broad holistic goal in place, the group
has a bench mark by which they can measure their future decisions. A
subsequent testing phase reaches back to often ignored considerations to
make sure that none are being forgotten.
In holistic approach which is characterized by attention to multiple factors,
including relationships are seen as visionary. Holistic managers are more
likely to have a positive impact on their organization by encouraging a
greater sense of employee optimism and improving overall performance of
the firm. It may seem that holistic decision making may create better long
term results for a company than the more traditional rational approach. The
holistic managers are seen as more visionary and less autocratic.