Business Ethics And Corporate Governance

CHAPTER ONE
AN OVERVIEW OF BUSINESS ETHICS
Definition
 Ethics is derived from the Greek word „ethos‟ which means a person‟s fundamental
orientation towards life
 Ethics refers to well based standards of right and wrong that prescribe what humans ought to
do in terms of right, obligation, benefit to society, fairness or specific virtues.
 Ethics is the branch of philosophy that studies the values and behavior of a person.
 Ethics is a set of moral principles or values that governs the conduct of an individual or a
group.
Look at the following comparative understanding of ethics.
Ethics and Feeling
Ethics is not feelings. Feeling provides important information for our ethical choice.
Ethics and Science
Ethics is not science. Social and natural science can provide important data to help us make
better ethical choice. But science alone does not tell us what we ought to do. Science may
provide an explanation for what human are like. But ethical provides reasons for how humans
ought to act. And just because something is scientifically or technologically possible, it may not
Ethics and Morality
Ethics and morals both relate to “right” and “wrong” conduct. However, ethics refer to the series
of rules provided to an individual by an external source, e.g. their profession or religion. Morals
refer to an individual‟s own principles regarding right and wrong. Morality works on a smaller

scale than ethics. The word Ethics‟ is derived from Ancient Greek éthikos‟ meaning character‟
where as the word ‘moral’’ is derived from Latin ‘mos’ meaning custom.’
Character is a personal attitude, while custom is defined by a group over a period of time. For
example People have character, Societies have custom.
Ethics deals with individual character which is a personal attribute. Ethics is the response of
individual to a specific situation e.g. whether in this situation, it is ethical to state the truth.
Morals deal with customs set by groups or some authority like religion. Morals are general
principles e.g. you should speak truth.
ETHICS AND LAW

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The law is defined as the systematic body of rules that governs the whole society and the actions
of its individual members. Ethics means the science of a standard human conduct.Law is
common for masses but ethics is a moral obligation on any individual which he /she learns from
family, society, school etc. Law is made to bring peace and social order in society whereas ethics
is made to how particular individuals behave with other individuals and it help to differentiate
between what is right and wrong.
BASIS FOR
LAW ETHICS
COMPARISON
Refers to a systematic body of rules that a branch of moral philosophy that
governs the whole society and the actions of guides people about the basic
Meaning
its individual members. human conduct.
Set of rules and regulations Set of guidelines
Individual, Legal and Professional
Governed By Government
norms
Expression Expressed and published in writing. They are abstract.
not permissible which may result in There is no punishment for
Violation
punishment like imprisonment or fine or both. violation of ethics.
Law is created with intent to maintain social Ethics are made to help people to
Objective order and peace in the society and provide decide what is right or wrong and
protection to all the citizens. how to act.
TYPES OF ETHICS
Philosophers now-a-days tend to divide ethical theories into the following three areas
A. META-ETHICS
 Meta Ethics focuses on the issues of universal truths, ethical judgments and the meaning
of ethical terms. It looks at the origins and meaning of ethical principles. Meta ethics
is the study of moral thought and moral language. It is not concerned with finding out
which actions or things are right and wrong, or which states are good and bad, but with
understanding the nature and meaning of concepts of right and wrong, good and bad.
 It attempts to answer questions like “what is morality?”, “what is goodness?”, “how to
identify if something is good or bad?”

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 Furthermore, Meta ethics attempts to examine what people mean by words like good,
bad, right and wrong (moral semantics. Lastly, it also examines how we can know if
something is right or wrong. However, unlike normative ethics, meta ethics does not try
to evaluate specific choices as better, worse, good, bad, or evil.
 Meta ethical discussions are the most abstract discussions in all of ethics.
Example
If we begin to consider whether or not one should be a just person, for example, then we are very
quickly faced with questions about the nature of justice and about what being a 'just' person
means. Is justice a human invention? Can we accept that ideas of justice can be different in
different societies? Or is the notion of justice an eternal, unchanging concept that should be
upheld by everyone, everywhere, and throughout all time? This is not merely an abstract,
academic question. The question of whether or not one culture's notion of justice can and should
be imposed upon another has historically been - and continues to be - a cause of profound
conflict between people.
B. NORMATIVE ETHICS.
The word normative is an adjective which comes from "norm. Normative ethics is a branch
of moral philosophy, or ethics, concerned with criteria of what is morally right and
wrong. It includes the formulation of moral rules that have direct implications for what
human actions, institutions, and ways of life should be like. Normative ethics (also known as
moral theory) can be used to regulate the right and wrong behavior of individuals. Normative
ethics is concerned with the content of moral judgments and the criteria for what is right or
wrong. Normative ethics studies about ethical action. Basically, normative ethics attempts to
determine which actions are right and wrong, or which character traits are good and bad.
Normative ethics is normative in that they have either moral principles as standards of right
action or virtues as standards of good character in terms of which right action can be known
eventually.
Two focuses of normative ethics are:
 Which actions are right and wrong
 Which states of character are morally good or bad?
THERE ARE FOUR MAJOR NORMATIVE THEORIES:

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Utilitarianism
According to this theory, the right action is the action that produces the greatest balance of
overall happiness. It holds that an action is right if it leads to the most happiness for the greatest
number of people. That means principle of utility as the basic moral principle

CONSEQUENTIALISM
Consequentialism is a class of normative, that holds the consequences of one's conduct are the
ultimate basis for judgment about the rightness or wrongness of that conduct. Consequentialism
refers to a set of normative ethical theories that states an action should be judged right or wrong
on the basis of its consequences. For example, telling a lie is a right action if it can have good
consequences like saving someone‟s life. Thus, according to consequentialism, a morally right
act is an act that will produce good results
EXAMPLE
The consequentialist philosophy might require that the interest of someone is sacrificed for something
better. One of the most stated examples of this concept is in nursing. Assume that a nurse is treating to
a cancer patient, and is faced with the dilemma of whether or not to tell him the truth that he has only a
few months to live. What should she do in this case? If she tells him, he might be brave enough to face
it and spend his last days with his family, which is a good consequence. Then again, if she does not tell
him, it may be mentally traumatic for him to know whether he is going to live or die. Who is to decide
what consequence is right in this case? These opinions can differ from person to person. From a
neutral perspective, however, it would be better to tell him the truth, despite the fact that it might be
considered cruel for many, because he would at least get a chance to say goodbye, to do the things he
hadn’t done so far.

DEONTOLOGICAL ETHICS
Deontology is a normative ethical theory that focuses on the rightness or wrongness of actions
themselves, instead of focusing its consequences or any other considerations. We sometimes
describe this theory as duty-, rule-, or obligation-based. In fact, the name „deontological‟
originated from the Greek word deon, which refers to duty. Thus, this theory simply requires
people to follow rules and do their duty. In short, deontology is a non-consequential theory since
the goodness or badness of an action in this theory does not depend on its consequences.

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Deontology is associated with philosopher Immanuel Kant, who believed that ethical actions
follow universal moral laws. Universal moral laws here refers to rules such as don‟t kill, don‟t
lie, don‟t steal. According to this theory, people have to do the right action, even if it brings bad
results.

Example
It concentrates on the correctness and wrongness of actions based on how well the rules of duty and
responsibility were followed. For instance, consider that a man has saved enough money to buy a
house for his family, but has to deal with an unfortunate situation when his son meets with an
accident. It is his duty to provide a better shelter for his family, and it is also his duty to save his son’s
life. In such a case, the best and right action would be to save his son, for if his son is safe and sound,
he will be mentally happy and relieved to earn more money and plan a better future for his family .

To sum up
Deontology is an ethical theory that states it is possible to determine the rightness or wrongness
of actions by examining actions themselves, without focusing on their consequences whereas
consequentialism is an ethical theory that states it is possible to determine the rightness or
wrongness of actions by examining its consequences.
More importantly, deontology doesn‟t focus on the consequences of action, whereas
consequentialism mainly focuses on the consequences.
Virtue Ethics
A virtue is an excellent trait of character. Virtue is moral excellence. A virtue is a trait or quality
that is deemed to be morally good and thus is valued as a foundation of principle and good moral
being. In other words, it is a behavior that shows high moral standards: doing what is right and
avoiding what is wrong.
This theory focuses on the inherent (inborn) character of a person rather than on specific actions.
In other words, it focuses on the role of character and virtue rather than doing one‟s duty or
acting in order to bring about good consequences. It stresses on the fact that morality of a
person or action depends on how ideal the character traits are. That means virtues as its focus.
Example at work, Mark is an accountant, and his compassion also has a place there. He
helps his peers regularly and goes out of his way to make sure a project gets done. This is virtue

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ethics. Employees who hold a set of morals and virtues personally will use them every day, both
in and out of work

Example
As mentioned earlier, this theory solely focuses on ideals. For instance, consider an individual who is
the bank manager, and his own son has been caught in the act of robbing the bank. Virtue ethics state
that the man must be ideal and righteous and moral, and have the criminal punished despite the fact
that he is his son. In this scenario, he failed in his duty as a father, and the consequences of his act
would affect his entire family. Yet, the ones in favor of virtue ethics would state his act to be correct and
honorable. While the above concepts exhibit certain criteria for morality, the truth is, moral conduct
widely depends on circumstances, which is probably why the cliché ‘it was all in the moment’ is actually
true. While going through a trying situation, an individual tends to do what is right at that time, for it
does not make sense to think about the likes of deontology or consequentialism

DIFFERENCE BETWEEN MET ETHICS AND NORMATIVE ETHICS

Definition
Meta ethics is the study of the nature of ethics, whereas normative ethics is the study of ethical
action.
Content
While Meta ethics analyzes the meaning of moral language and metaphysics of moral facts,
normative ethics evaluates standards for the rightness and wrongness of actions.
Nature
Meta ethics is more philosophical in nature as it analyzes the nature of ethics and morality, while
normative ethics is more practical in nature.
Conclusion
Basically, Meta ethics and normative ethics are two major branches of ethics. The main
difference between Meta ethics and normative ethics is that Meta ethics is the study of the
nature of ethics, whereas normative ethics is the study of ethical action.

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C. Descriptive/Applied ethics looks at controversial issues like war, animal rights and capital
punishment and human rights, abortion and nuclear war. Applied ethics is a discipline of
philosophy that attempts to apply ethical theory to real-life situations. The applied ethics is
basically the application of normative ethics to particular issues. Basically, normative ethics
is the study of ethical action whereas descriptive ethics is the study of people's views
about moral beliefs. Descriptive ethics, as its name implies, describes the behavior of people
and what moral standards they follow.
BUSINESS ETHICS
Business may be defined as an activity in which different persons exchange something of value,
whether goods or services for mutual gain or profit.
In the normal sense, the term „Business‟ includes every type of economic activity carried on by
a business enterprise like manufacturing, marketing, trading, importing, exporting and providing
various types of services and such activities may be conducted by an individual, a partnership
firm or a limited company. However, as we are concerned with the ethical values of a modern
corporate entity, it is felt that the usage of the term „Corporate Ethics‟ will be more appropriate
for our discussion rather than the term „Business Ethics‟. When it comes to governance of
companies, it is used as the term „Corporate Governance‟ and not „Business Governance‟.
Thus
 Business ethics are ethics that refer to the moral rules and regulations governing the
business world. In other words, they are the moral values that guide the way corporations or
other business make decisions. Business ethics is the behavior that a business adheres to in
its daily dealings with the world.
 Business ethics is thus a set of professional standards, which emphasize principles of honesty
and duty to the business and the general public. Principles and standards that determine
acceptable conduct in business.
 Business ethics aims at to manage all relationships; both internal and external with total
commitment and integrity and with a view to ensure the long-term survival of a corporate
organization.
Characteristics of Business Ethics
The main characteristics of business ethics are as follows

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Economic activity: Business is an essential economic activity. Profit motive is the key element
that inspires a businessman to work efficiently.
Human activity: Business is a human activity. In this sense, business is considered to be an
economic activity of human beings only. A business is by the people and for the people.
Social process: Business is a social process. All the individuals involved in a business, such as
owners, customers and employees, are an integral part of society. Business has to fulfill its social
responsibilities.
System: A system is a combination of things or parts forming a unitary whole. It is an
established arrangement of components for the attainment of objectives. Similarly, business is a
system consisting of various subsystems that are operated in a balanced and coordinated way.
Human aspect: Business ethics is concerned with the human aspect. It provides information to
customers, government, society, etc., on good or bad, right or wrong conducts of business.
TYPES OF BUSINESS ACTIVITIES
All human activities concerned with earning money are included under the term business.
Cultivation by a farmer, teaching by a teacher and treatment taken by a patient from a doctor are
also treated as business activities.
There are different types of business activities, which may be classified as follows:
Industry: An industry includes the activities connected with the production and processing of
goods. Manufacturing enterprises are engaged in the production of goods. These kinds of
industries can be classified as follows:
 Analytical enterprises: An oil refinery that separates crude oil into petroleum, kerosene
and diesel oil is an analytical concern.
 Synthetic enterprises: An enterprise which combines several materials to produce one
product is a synthetic enterprise. All soap mills and cement factories are synthetic
enterprises.
 Assembling enterprises: All those plants engaged in the production of products, such as
radios, scooters and television sets are assembling enterprises. A few enterprises involved
in mining are involved in mineral resource production, for example, iron ore, coal, gold
and silver.
 Commerce: It is the total of all those activities that are engaged in the removal of
hindrances of persons or trade, places or transportation, risk of loss or insurance and time,

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such as warehousing, banking and financing of commodities. Commerce can be divided

into two categories: trade and aid to trade. Trade can be further divided into two
categories, which are as follows:
 Internal: This includes the trade that is done with the country, such as wholesale and
retail trade.
 External: This includes the trade that is done with various countries, such as export and
import. Aid to trade can be divided into transport, banking and insurance.

CHARACTERISTICS OF BUSINESS
Business means the creation of utilities. There are many features of business activities and, thus,
the business. The essential characteristics of business may be summarized as follows:
 Exchange or sale: A business includes the sale, purchase and exchange of goods and
services.
 Creation of utilities: A business creates transfers and utilities of goods by making them
available in proper form at the appropriate time and place.
 Social institution: A business deals with the people of society. All the persons engaged
in the business, such as owners, customers, employees and other professionals belong to
the society. A business has to fulfill its social responsibilities towards each part of the
community and has to follow the business ethics as well.
 Profit motive: Business activities are carried out to make profit. A non-profitable
business cannot continue to exist for long. Profits are essential for growth of a business.
 Risk and uncertainty: There are two types of risks in a business. The first type of risk is
floods and thefts. The second type of risk is loss due to fall in demand and labor trouble.
Uncertainty arises because of unpredictability of profit in a business. Profit is such an
element which cannot be predicted in advance.
 Customer satisfaction: A business always tries to satisfy its customer with better quality
and reasonable prices.
Responsibilities of a Business towards Various Interest Groups
Interest groups consist of the various persons connected with a business, such as consumers,
shareholders and the community. The responsibilities of a business towards various interest
groups are as follows:

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1. Responsibilities towards consumers: A consumer is a person who determines what goods

shall be produced and whether they should be sold in the market or not. Consumers not only
determine the income of the business but also affect the success and survival of the business.
Therefore, a business has some basic responsibilities towards the consumers and these are as
follows:
 To produce those goods that meet the needs of consumers of different tastes, classes
and purchasing power
 To establish the lowest possible price with efficiency and reasonable profit to the
business
 To ensure fair distribution of products among all sections of the consumers
 To make the products more satisfactory to consumers through the study of consumer
needs
 To handle the complaints of consumers more carefully and to analyze them properly
2. Responsibilities towards shareholders: The basic responsibility of a business is to ensure the
safety of investment and higher rate of return on the investment. Owners of a business may be
proprietors, partners or shareholders. The interest of shareholders lies in participating in the
management and getting regular dividends at appropriate rates. It is, therefore, the responsibility
of the management to improve communication between the company and its shareholders.
3. Responsibilities towards community: The management has the responsibility of informing
the community about the organizational policies, activities and contribution towards the
betterment of society. The various other responsibilities towards the community are as follows:
 Financial help to the municipal and district boards for the improvement of housing
conditions
 To help the community by aiding hospitals ,schools, colleges, religious institutions, and
so on
 To organize community forums and group discussions to promote better understanding of
national and local affairs
 To encourage sports and provide recreational facilities
IMPORTANCE OF BUSINESS ETHICS
 Control business malpractice
 Better relation with employees
 Improve customer satisfaction

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 Increase profitability
 Improve business good will
 Better decision making
 Protection of society
SCOPE OF ETHICS /ETHICS IN THE FUNCTIONAL AREA
Ethical issues can arise in various functional areas of a business such as marketing, research and
development, HRM, production and finance. Ethical issues in all these functional areas must be
controlled or coordinated by the chief executive officer (CEO) of the enterprise.

ETHICS IN MARKETING
Marketing is an important part of every business organization. It is the means through which it
improves the sales and profitability of the business. Marketing practices should be ethical and
should avoid the adoption of any unfair means.
Marketing is a technique that is used to attract and persuade customers. Marketing provides a
way in which a product is sold to the target audience. Marketing is a management process that
identifies, anticipates and supplies consumer requirements efficiently and effectively. The main
aim of marketing is to make customers aware of the products and services. It also focuses on
attracting new customers and keeping existing customers interested in the product. The various
ethical issues covered are pricing issues like price discrimination and price skimming,
misleading advertisements, black marketing, anti-competitive practices, wrong advertisement
content etc.
The marketing department consists of various subdivisions, such as sales, after-sales service and
marketing and research. Figure1: subdivision of marketing

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In the field of sales, the following ethical issues require safeguards against unethical behavior:
 Not supplying the products made by the company as per the order
 Not accepting responsibility for the defective product
 Not giving details about the hidden costs, such as transportation cost, while making the
contract with the client
 Changing the specifications of the product without giving any prior information to the
customer
 Delaying the delivery of the goods without giving any proper reason
 Treating two customers differently
 Not providing the after sales service as per the contract
 Selling the same product at different prices to different customers
Advertising and promotion provide the means for communicating with the customer. In the field
of advertising and promotion, the following are examples of unethical communication practices:
 Making false commitments to the customers about the benefits of the product
 Supplying products that are different from those that are advertised
 Giving wrong prices to the customers during advertising
 Not giving the promised gift in the promotional campaign
 Providing wrong testimonials about the product to prospective customers
 Making false references about the competitive products
In the field of after-sales service, the following ethical issues require safeguards against
unethical behavior:
 Not taking the service calls if the location is not easy to reach, while free service was
promised before the sale of the product

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 Making only temporary adjustment in the product, which can last only for a short time or
to make the product useful for the time being
 Not keeping proper service records of major products for future use, as they can help in
easy diagnosis of problem
ETHICS IN HUMAN RESOURCE MANAGEMENT (HRM)
HRM is concerned with the management of the „people‟ of an organization. The term HRM is
used to refer to the procedures, philosophy, policies, and practices related to the management of
people within an organization. it is responsible for performing various functions like planning,
organizing, directing and controlling of human resources.

General Manager
HRM

Recruitment Training Administration Industrial

Manager Manager Manager Relation

The following are examples of unethical practices during the recruitment process of a company:
 Recruitment of known persons without assessing their abilities
 Recruitment on the basis of financial favors
 Recruitment of the relatives of other employees
 Recruitment based on the recommendations of friend, business associates and other
persons close to the leader
 Recruitment of under qualified persons
 Recruitment of overqualified persons
 Recruitment of less acceptable men when there are better suited women available for the
job.
 Employing children below fourteen years for the job
The training manager of the company can also indulge in unethical practices as can be seen
from the following points:
 Arranging training only for favorite employees, whether they deserve it or not

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 Employing outsiders for providing training to trainees even when there are several
persons available inside
 Planning and organizing the training programme without even knowing the need for
training
 Organizing training during peak seasons or on days when workload is very high
 Starting training programmes in an ill-prepared manner
 Extending the time of the training programme to allow the trainees to have a relaxed time
 Supplying outmoded and old training materials for the purpose of training
 Experimenting with trainees by asking them to set their own timetable for Training
In the area of administration, the following are the unethical practices the manager include
 Tampering leave records of the employees
 Giving leaves continuously to favorite employees
 Giving promotions to non-eligible persons merely on the recommendations of a friend or
business associate
 Ignoring issues related to the security of the company
 Interference in various activities of the administration from the top management
 Giving the contract for uniforms of the employees to the wrong companies just for the
sake of personal benefits
ETHICS IN FINANCE
Finance is an important element of an organization and it helps in its growth and development.
Finance plays an important role in making resources available in an organization, such as man,
machine, material, market and money. The finance manager of the firm is responsible for
arranging the finances for the firm. The finance manager can raise funds from the following two
sources:
1. Internal Sources: Internal sources means the owner‟s own funds that are invested as equity in
the organization. In case of small organizations, the owner‟s contribution in terms of equity is
low. Therefore, large amount of money is raised from external sources. The entrepreneur can
raise finance internally from various sources:
 Deposits and loans given by owner
 Personal loan from provident fund and life insurance policy
 Funds accumulated by the retention of profits
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2. External Sources: External sources mean the various financial institutions from where
entrepreneurs can raise funds, such as fixed capital, commercial banks and development banks.
The entrepreneur can raise finance by:
 Borrowing money from friends and relatives
 Borrowing from financial institutions

General Manager of
finance

Finance Accounts Costing Audit

Figure 3: organizational chart for finance function

The finance department of an enterprise is prone to the following unethical practices:
 Over estimating promoters‟ capital utilization
 Over budgeting project costs
 Using underhand tactics with the financers to gain benefits for the firm as well as for
themselves
 Purchasing capital equipment at a time when there is no requirement for it
 Selling the capital equipment in order to raise additional and unaccounted funds
 Investing unapproved funds in order to gain extra profits
 Claiming insurance cover for losses that never happened
 Overpricing the current assets in order to gain more working capital than permitted
 Using working capital funds for personal gains
The accounts department of an enterprise is prone to the following types of unethical issues:
 Showing inflated salaries and getting receipts from employees for an amount larger than
what they actually get
 Playing inflated vendor bills in order to get discounts or commissions
 Paying overtime wages when there is no requirement for them

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 Maintaining two different sets of books, one for the management and the other for
income tax
 Refusing to reject unacceptable raw materials when the vendor bills have to be paid
 Delaying the clearance of the bills payable in order to get maximum interest for the
amount to be paid
 Showing wrong figures in the monthly trial balances for personal benefits
The following are the unethical practices of the costing manager:
 Reducing manufacturing costs by manipulating work hours
 Ignoring cost of rejects
 Ignoring cost of rework
 Not accounting for man-hours lost due to strikes and absenteeism
 Not accounting for man-hours lost in maintenance work
 Not considering the work stoppages due to change in models
 Ignoring time lost in failed experimentations
 Not taking into account the benefits of economies of sales and experience curve
The following points describe the unethical behavior of the auditing manager:
 Ignoring major deviations from the budgets
 Rejecting the tender having lowest cost among all due to personal reasons
 Helping in hiding black money in order to reduce the tax payable amount
 Ignoring inflated travel bills of selected employees
 Accepting payments made by the directors for personal purchases as official payments
 Approving payments to suppliers without checking bills or deliverables
ETHICS OF PRODUCTION
Ethics in business helps in monitoring and controlling the overall production activities. It ensures
that production processes do not adversely affect the business. Ethics frames production policies
by considering organization goals, objectives and various environmental factors.
Attempts are made to minimize the degree of risk and danger. The various ethical issues covered
are defective and dangerous products, environmental ethics and pollution issues, Issues arising
out of new technologies and product testing issues. Implementation of ethics controls these
issues and fosters overall productivity.

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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.
FACTORS INFLUENCING BUSINESS ETHICS
Business leaders are answerable to many stakeholders, including shareholders, customers,
investors and managers in a business. The purview of business ethics isn‟t restricted to laws and
procedures. It‟s a combination of formal and informal ways of doing things. Therefore, there are
several factors influencing business ethics. Some of the factors that influence business ethics are:
 CULTURE
Where people come from is a part of their identity. It defines social norms, practices and customs
of specific groups of people. This is called culture. Culture is defined as „the way we do things‟.
It defines what‟s acceptable and what isn‟t for a specific culture. This definition explains why
culture is a factor influencing business ethics. Understanding diverse cultures can help managers
and leaders solve complex business ethics problems related to cultural issues
 PERSONAL ETHICS
People often have personal moral philosophies based on idealism or relativism. Idealists believe
that harming others is always bad and that the right action can help achieve favorable
consequences. Relativists believe there are no moral absolutes; they depend on situational
circumstances to make their moral judgments. Whatever their philosophy, personal ethics guide
individuals in governing their actions and decision-making process. Thus, more often than we‟d
imagine, personal ethics become an important factor influencing business ethics. As individuals
can have sparring moral philosophies, various ethical issues in the workplace can arise
 COMPANY ETHICAL CODE
Another important factor influencing business ethics is the code of ethics established by an
organization. All companies have a set of rules and regulations that employees must follow to
perform effectively. The company code of ethics includes the kind of behavior employees need
to adopt at work. Because of the diversity in workplaces, individual codes of ethics may create
confusion. Thus, the company code of ethics serves as a common guideline for managers and
leaders and helps them determine the right path in case of conflicts
 RULES SET BY THE GOVERNMENT
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The government forms some rules and regulations that all the citizens need to follow. The laws
of the country in which the business operates govern how to avoid various ethical issues that
crop up in business. For example, there are specific laws to combat discrimination and racism.
However, there may be some ethical issues in business that aren‟t governed by law. Lack of
guidance by law can cause disturbance in organizations. Legislation is a factor
influencing ethical issues in international business
Organizational goals
The objectives of an organization influence the values of its members. A business is an economic
institution and it must be profitable. The classical economic theory stressed profit maximization
goal. Many times, achieve organizational goals. However, the goal may be tempered by many
values. Leadership, integrity, knowledge and skills, survival are some of them. All these factors
change the goals of an organization and consequently expected behavior from its members.
Superiors
Most people succumb to pressure from superiors in doing things that they may consider unethical
otherwise. For example, a secretary may tell a visitor that the boss is out, when he is actually in
because her boss has told her to do so. Many a time, an employee may sign false documents due
to pressure from the boss.
Peers and colleagues
An individual in a work group tends to conform to the norms of the group. He does so either to
get approval or friendship of his colleagues. He adopts the attitudes, beliefs and values of the
group to which he is associated. Thus, the behavioral standards of the peers and colleagues
exercise a significant influence on the value system of an individual. For example, a person may
justify some indiscretions on the basis that „everybody is doing it‟.
HOW TO AVOID ETHICAL ISSUES IN BUSINESS?

We‟ve learnt about ethical issues in business, but how to avoid ethical issues in business? That‟s
the main question. There are various factors influencing business ethics that cannot be changed
naturally. The organization will have to implement changes in their working system to solve
ethical issues in the workplace. The company can:

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 Business Ethics And Corporate Governance

MAKE A NEW CODE OF CONDUCT

The company can add new laws and rules to their code of conduct to include a wide range of
ethical issues. These will work as a guideline for all employees and managers, and help
employees seeking justice against any unethical practices.
MONITOR ONLY WORK-RELATED TABS IN LAPTOPS
For privacy security, companies should only look into the work-related emails of employees and
shouldn‟t have access to their private correspondence. By monitoring their work email, you can
also determine their work efficiency. This step will help in avoiding ethical issues in
international business.
LEAD BY EXAMPLE
Leaders who display the behavior that they wish to see among their employees find few outliers.
As most employees emulate their leaders, one of the best ways to ensure ethical practices is to
follow them yourself
AVOID OR INFORM ABOUT CONFLICTS OF INTEREST
It isn‟t uncommon for leaders to be in conflict of interest scenarios. It‟s best practice to disclose
conflict and avoid creating it. For example, if one of your family members applies for a tender at
your organization and wins it, there still is a conflict of interest. It‟s important to follow the
company‟s guidelines in this case or disclose your relationship to the board or panel deciding the
vendor.
PROVIDE TRAINING
This aspect can help prevent harassment and ethical problems. Training the employees on the
prevalent work culture and informing them about their rights will help minimize instances of
harassment.
NON-DISCLOSURE AGREEMENT
The employees should sign a non-disclosure agreement before performing any work based on
sensitive information. It will help in building the organization‟s trust.

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