Gr.

12 ABM Business Ethics PRELIMS

Lesson 2 Business Ethics: An Overview

What is Ethics?
Ethics:
• is a branch of philosophy.
• is a normative science because it is concerned with the norms of human conduct.
• as a science, it must follow the same rigors of logical reasoning as other sciences.
• as a science, involves systemizing, defending and recommending concepts of right and wrong behaviour.

Principles of Professional Ethics

• Impartiality: Objectivity; • Due Diligence: Duty of care;
• Trustworthiness and honesty; • Fidelity to professional responsibilities; and
• Openness: Full Disclosure; • Avoiding potential or apparent conflict of interest.
• Confidentiality: Trust;

Principles of Personal Ethics

1. Concern for the well being of others; 5. Basic justice: being fair;
2. Respect for the autonomy of others; 6. Refusing to take unfair advantage;
3. Trustworthiness and honesty; 7. Benevolence: doing good; and
4. Willing compliance to law; 8. Preventing harm to any creature.

What is Business Ethics?

Business ethics is the application of general ethical ideas to business behaviour. It is based on the principle
of integrity and fairness and concentrates on the benefits to the stakeholders, both internal and external. Stakeholder
includes those individuals and groups without which the organization does not have an existence. It includes
shareholders, creditors, employees,
customers, dealers, vendors, government and the society.

What is not Business Ethics?

1. Ethics is different from religion. 4. Ethics is different from feelings.
2. Ethics is not synonymous to law. 5. Ethics is not a science in the strictest sense of the term.
3. Ethical standards are different from cultural traits. 6. Ethics is not just a collection of values.

Code of Conduct and Ethics for Managers

Managers must observe the following ethical values while performing their duties:
• Impartiality • Honesty
• Responsiveness to public interest • Transparency
• Accountability • Integrity

Evolution of Business Ethics over the years

The 1970s saw papers from the academic circle. Businessmen became more concerned with their public
image and addressed ethics more directly.
1974: The first conference held at the University of Kansas.

1975: Business ethics became institutionalized at many levels through writings and conferences.

1979: Three anthologies on business ethics appeared:

(i) Ethical Theory and Business by Tom Beauchamp and Norman Bowie;
(ii) (ii) Ethical Issues in Business: A Philosophical Approach by Thomas Donaldson and Patricia
Werhane; and
(iii) (iii) Moral Issues in Business by Vincent Berry.

1980s: The subject was taught in several universities in the US and Europe. There were also, by this time, many
journals of business ethics, apart from centres and societies established to promote ethical practices.
1982: Richard De George brought out Business Ethics, and Manuel G. Velasquez published his Business Ethics:
Concepts and Cases.
1990: Business ethics as a management discipline was well-established.

Parallel to these academic pursuits, the late 1980s and early 1990s saw increased concern for consumer rights,
quality, safety, price, customer service and environment in Britain.

Simultaneously, with these developments, religion also lent its powerful voice.

Importance and Need for Business Ethics

• A business organization competes in the global market on its own internal strength, in particular, on the strength of its
human resource and on the goodwill of its stakeholders.
• The value-based management and ethics that an organization uses in its governance enables it to establish productive
relationship with its internal customers, and lasting business relationship with its external customers.
• Real type situations (Tata Steel and Infosys) show that use of ethical practices in business creates high returns for
companies.

Values and Ethics in Business

A value is a view of life and judgement of what is desirable. It is very much part of a person’s personality and a
group’s morale. Business ethics relates to issues of “what is right” and “what is wrong” while doing business. What
values are to individuals, ethics are to business. Business ethics operates as a system of values, relating business goals and
techniques to specific human ends.

Why should Businesses act Ethically?

The reasons for an organization to be ethical include:
• To protect its own interest,
• To protect the interests of the business community as a whole so that the public will have trust in it,
• To keep its commitment to society to act ethically, and
• To meet stakeholder expectations.
• To prevent harm to the general public,
• To build trust with key stakeholder groups,
• To protect themselves from abuse from unethical employees and competitors,
• To protect their own reputations,
• To protect their own employees, and
• To create an environment in which workers can act in ways consistent with their values.

Ethical Decision-making
Norman Vincent Peale’s and Kenneth Blanchard’s suggestions to conduct ethical business.
• Is your decision fair?
• Is it a win-win situation for all?
• Is your decision legal? If it is not legal, it is not ethical.
• The Eleventh Commandment: “Thou shall not be ashamed when found”, meaning when hauled up for
unethical behaviour, if one’s conscience is clear, then there is nothing to be ashamed of.

How Corporations Observe Ethics in Their Organizations?

• Publish in-house codes of ethics to be strictly followed by all their associates.
• Employ people with a reputation for high standards of ethical behaviour at the top levels.
• Incorporate consideration of ethics into performance reviews.
• Give rewards for ethical behaviour.
• SEBI (Securities and Exchange Board of India (SEBI), CII (Confederation of Indian Industry (CII)) and
such other organizations representing corporations issue codes of best practices and enjoin their members to
observe them.
• IIMs and highly rated B-schools give extensive and intensive instruction in business ethics, corporate social
responsibility and corporate governance as part of their curriculum.
• Conduct an Ethics Audit.

Corporate Governance Ethics

• Corporate governance is a set of rules that governs the administration and management of companies.
 • Its goalposts are transparency, integrity, full disclosure of financial and non-financial information, and
protection of stakeholders’ interests.

Benefits from Managing Ethics in Workplace

The many benefits that arise from managing ethics in the workplace are:
• Attention to business ethics improves society.
• Ethical practice contributes towards high productivity and strong team work.
• Changing situations require ethical education.
• Ethical practices create strong public image.
• Strong ethical practices act as an insurance.

Characteristics of an Ethical Organization

Mark Pastin provides the following characteristics of ethical organizations:
• At ease while interacting with diverse internal and external stakeholder groups.
• Obsessed with fairness.
• Individual responsibility, with individuals assuming personal responsibility for actions of the organization.
• See their activities in terms of purpose.

Recognizing Ethical Organizations

There are certain characteristics by which we will be able to identify an ethical organization:
• On the basis of corporate excellence
• In relation to the stakeholders
• In relation to corporate governance