Business Ethics

Business ethics studies appropriate business policies and practices regarding

potentially controversial subjects, including corporate governance, insider trading,
bribery, discrimination, corporate social responsibility, fiduciary responsibilities,
and much more. The law often guides business ethics, but at other times business
ethics provide a basic guideline that businesses can follow to gain public approval.

KEY NOTES

 Business ethics refers to implementing appropriate business policies and

practices with regard to arguably controversial subjects.

 Some issues that come up in a discussion of ethics include corporate

governance, insider trading, bribery, discrimination, social responsibility,
and fiduciary responsibilities.

 The law usually sets the tone for business ethics, providing a basic guideline
that businesses can choose to follow to gain public approval.

Principles of Business Ethics

There are generally 12 business ethics principles:

 Leadership: The conscious effort to adopt, integrate, and emulate the other
11 principles to guide decisions and behavior in all aspects of professional
and personal life.

 Accountability: Holding yourself and others responsible for their actions.

Commitment to following ethical practices and ensuring others follow ethics
guidelines.

 Integrity: Incorporates other principles—honesty, trustworthiness, and

reliability. Someone with integrity consistently does the right thing and
strives to hold themselves to a higher standard.

 Respect for others: To foster ethical behavior and environments in the

workplace, respecting others is a critical component. Everyone deserves
dignity, privacy, equality, opportunity, compassion, and empathy.
 Honesty: Truth in all matters is key to fostering an ethical climate. Partial
truths, omissions, and under or overstating don't help a business improve its
performance. Bad news should be communicated and received in the same
manner as good news so that solutions can be developed.

 Respect for laws: Ethical leadership should include enforcing all local,
state, and federal laws. If there is a legal grey area, leaders should err on the
side of legality rather than exploiting a gap.

 Responsibility: Promote ownership within an organization, allow

employees to be responsible for their work, and be accountable for yours.

 Transparency: Stakeholders are people with an interest in a business, such

as shareholders, employees, the community a firm operates in, and the
family members of the employees. Without divulging trade secrets,
companies should ensure information about their financials, price changes,
hiring and firing practices, wages and salaries, and promotions are available
to those interested in the business's success.

 Compassion: Employees, the community surrounding a business, business

partners, and customers should all be treated with concern for their well-
being.

 Fairness: Everyone should have the same opportunities and be treated the
same. If a practice or behavior would make you feel uncomfortable or place
personal or corporate benefit in front of equality, common courtesy, and
respect, it is likely not fair.

 Loyalty: Leadership should demonstrate confidentially and commitment to

their employees and the company. Inspiring loyalty in employees and
management ensures that they are committed to best practices.

 Environmental concern: In a world where resources are limited,

ecosystems have been damaged by past practices, and the climate is
changing, it is of utmost importance to be aware of and concerned about the
environmental impacts a business has. All employees should be encouraged
to discover and report solutions for practices that can add to damages
already done.
Types of Business Ethics
 Corporate Social Responsibility:-Corporate social responsibility (CSR) is
the concept of meeting the needs of stakeholders while accounting for the
impact meeting those needs has on employees, the environment, society, and
the community in which the business operates. Of course, finances and
profits are important, but they should be secondary to the welfare of society,
customers, and employees—because studies have concluded that corporate
governance and ethical practices increase financial performance. Businesses
should hold themselves accountable and responsible for their environmental,
philanthropic, ethical, and economic impacts.
 Transparency and Trustworthiness:-It's essential for companies to ensure
they are reporting their financial performance in a way that is transparent.
This not only applies to required financial reports but all reports in general.
For example, many corporations publish annual reports to their shareholders.
Most of these reports outline not only the submitted reports to regulators, but
how and why decisions were made, if goals were met, and factors that
influenced performance. CEOs write summaries of the company's annual
performance and give their outlooks. Press releases are another way
companies can be transparent. Events important to investors and customers
should be published, regardless of whether it is good or bad news.
 Technological Practices and Ethics:-The growing use of technology of all
forms in business operations inherently comes with a need for a business to
ensure the technology and information it gathers is being used ethically.
Additionally, it should ensure that the technology is secured to the utmost of
its ability, especially as many businesses store customer information and
collect data that those with nefarious intentions can use.
 Fairness:-A workplace should be inclusive, diverse, and fair for all
employees regardless of race, religion, beliefs, age, or identity. A fair work
environment is where everyone can grow, be promoted, and become
successful in their own way.
Need for Business ethics
1. Survival of the Business Unit:-Unethical practices of businessmen will lead to
the closure of business unit. The closure of a business unit does not only create
problems to business but also to employees and the society in general.
Businessmen do not maximize the profit at the cost of existence of a business unit.
The behavior of a businessman is affected by some of the factors such as
leadership qualities, integrity, knowledge, skills, influence and exercising power.
Businessmen should protect their units in all respects.

2. Growth of Business Unit:-Business ethics ensure the growth of a business.

Whenever a businessman observes ethics strictly, definitely the particular business
unit will get developed. A business could not be run in such a manner, which is
detrimental to the interest of society or business itself. So there should be
some business ethics for the growth of a business.

3. Earning Goodwill:-If business ethics are properly followed by a business,

automatically that particular business unit earns a good name among the public.

4. Improving the Confidence:-Business ethics are necessary to improve the

confidence of the customers, employees and the like. If confidence is infused,
customers and employees will popularize the name of the particular business unit.

5. Maintaining Inter-relationship:-No business functions independently. Each

business has close relationship with another business even though the nature and
size of the other business differs. It is expected that each business unit should have
a smooth relationship with others. The inter-relationship of business is maintained
by adopting business ethics.

6. Solving Social Problems:-If a businessman observes ethics in his business, the

public will not have any difficulty in getting their wants fulfilled. There is no
bargaining between the businessman and public. There is a fair treatment of an
employee by him. This will avoid social problems like strike, lockout etc.
Determinants of Business Ethics
(1) Social Factors. Ethics are basically concerned with social morality. In other
words, ethical business conduct is that which is socially moral. Accordingly, it is
the social values, norms, traditions and customs, etc., which prescribe business
ethics and govern business conduct. And as societal norms and value undergo
changes, business ethics are also adapted to the changed social environment.

(2) Economic Factors. The level of economic development also influences the
nature and spread of business ethics. In general, business ethics assume liberal
character with the development in economic spheres, particularly business
activities. Consider, for example, the advertisement on mint: you don’t have a hole
in your head. So why have one in your mint?” (Indicating the competitor’s product
and its punch line ‘A mint with the hole’). Today, this type of advertisement is not
considered unethical but surely it would have been an immoral advertisement had
it been issued during the 1950s or 1970s.

(3) Cultural Factors. The code of conduct for individuals as well as

organizations develops under constant influence of cultural values. And the sources
of these cultural values are historical heritage, family system, religion, education,
government, etc.The constant influence of these factors determines the form and
nature of social ethics of behavior.

(4) Political Factors. Business ethics are also influenced by the ideology and
philosophy of the political party in power. Through appropriate legislative
measures, the government enforces business firms in respect of such important
aspects as business location, maintenance of quality, fair prices, fair treatments to
the workers, safety measures. Prevention of pollution, etc.

(5) Organization Factors. Organizational factors like philosophy and policy of

the firms, attitudes of the managers and superior-subordinate relations have great
impact on ethical perception and judgment of business managers and subsequent
behavior.

(6) Institutional Codes. Business conduct is also governed by codes of conduct

prescribed by various sectoral institutions. The codes of ethical behavior have been
prescribed by the professional bodies like the Institute of Chartered Accountants of
India, the Institute of Costs and Works Accountants of India, the Institute of
Company Secretaries of India, and All India Management Association for their
respective members. Organizations like Chambers of Commerce and Industry and
Trade Associations have also formulated codes of conduct for business enterprises.
Such codes of conduct act as trend-setters and create a conducive environment for
business firms to adopt ethical behavior.

Business Value
It is the standard value measure used in business valuation. PMBOK® defines
business value as the entire value of the business; the total sum of all tangible and
intangible elements. Examples of tangible elements include monetary assets,
stockholder equity, fixtures, and utility. Examples of intangible elements include
brand, recognition, goodwill, public benefit, and trademarks.

In simple terms, it simply covers both the monetary and non-monetary values of a
firm. It can be manipulated by managing the current project efficiently. All
organizations run business-related activities even if they aren’t business-driven like
a government agency or a nonprofit organization.

The concept of business value is fairly subjective and it depends on the needs of
the organization. For example, an investor aiming solely for financial benefits
would be different from an entrepreneur aspiring for personal goals and
development.
Importance of Values in Business

 Help Employees Make the Right Decisions:-Companies with good values

often have some of the best employees in the industry. This is not just
because these employees are good at what they do but also because they
make the right decisions. Doing so can be incredibly difficult, especially in
times of crisis, but having company values can make the decision-
making process easier by guiding employees in the right direction when they
need to make a decision.
 Improve Communication Between Employees:-There are different types
of business values (more on this later) and the ones that involve personal
relationships can actually help you improve communication between
employees. Trust, honesty and respect are often listed as some of the top
company values every organisation should have precisely because they make
your team work together better.
 Motivate and Engage Your Team Members:-Company core values are
also necessary for motivating and engaging your team members. When your
employees know what they are working for (except for their own salary),
they will be more interested in actually doing their jobs well. Besides, core
corporate values often include passion or drive for the company’s work, so
motivation is by far one of the most essential purposes of company core
beliefs.
 Let Clients Know What Your Brand Stands For:-Connecting with
customers can be particularly difficult for big companies that seem like
corporate machines to many consumers. Luckily, by having strong company
values that you promote to the public and actually live up to with everything
you do, you could establish that connection with your audience much faster.
Brands can be known for their products, but the experience customers get is
also valued greatly by their respective client bases.
Personal beliefs, values, attitudes and behaviour

The diagram below illustrates the influences on us that result in our behaviour and
whether that resulting behaviour is ethical. The diagram first outlines the sources
of our beliefs. It then shows the relationship between the beliefs and values to our
attitudes and our resulting behaviour.

What is a belief?

A belief is an idea that a person holds as being true. A person can base a belief
upon certainties (e.g. mathematical principles), probabilities or matters of faith. A
belief can come from different sources, including:

 a person’s own experiences or experiments

 the acceptance of cultural and societal norms (e.g. religion)

 what other people say (e.g.education or mentoring).

A potential belief sits with the person until they accept it as truth, and adopt it as
part of their individual belief system. Each person evaluates and seeks sound
reasons or evidence for these potential beliefs in their own way. Once a person
accepts a belief as a truth they are willing to defend, it can be said to form part of
their belief system.

What is a personal value?

Values are stable long-lasting beliefs about what is important to a person. They
become standards by which people order their lives and make their choices. A
belief will develop into a value when the person’s commitment to it grows and
they see it as being important. It is possible to categorise beliefs into different types
of values – examples include values that relate to happiness, wealth, career success
or family. A person must be able to articulate their values in order to make clear,
rational, responsible and consistent decisions.

What is an attitude?

Attitudes are the mental dispositions people have towards others and the current
circumstances before making decisions that result in behaviour. People primarily
form their attitudes from underlying values and beliefs. However, factors which
may not have been internalised as beliefs and values can still influence a person’s
attitudes at the point of decision-making. Typical influences include the desire to
please, political correctness, convenience, peer pressure, and psychological
stressors. A lack of self-awareness or critical insight, or the presence of
ambivalence or uncertainty about values, can lead to a less rational attitude to
choices, and ultimately to undesirable behaviour.

Social Responsibility
Social responsibility is a moral obligation on a company or an individual to take
decisions or actions that is in favour and useful to society. Social responsibility in
business is commonly known as Corporate Social Responsibility or CSR. For any
company, this responsibility indicates that they acknowledge and appreciate the
goals of the society, and therefore, would support them to achieve these goals.

Advantages of Social Responsibility

 Justification for existence and growth

 The long-term interest of the firm

 Avoidance of government regulation

 Maintenance of society

 Availability of resources with business

 Converting problems into opportunities

 A better environment for doing business

 Holding business responsible for social problems

Disadvantages of Social Responsibility

 Violation of profit maximization objective

 Burden on consumers

 Lack of social skills

 Lack of broad public support

Levels of Business Values
Values determine what people consider to be good or bad for a civilised society. In
relation to business, social values define the objectives of business as well as the
manner which business affairs should be conducted. In the light of the social
values, we evaluate policies and practices of a business. For example, an important
value of society is honest dealings. That means the society does not approve of the
sale of adulterated goods, use of false weights, hoarding of goods or black
marketing in goods, Some examples of values followed by top management of
companies include the following:

 Service to customers
 Innovation and creativity
 Safety of product and processes
 Honesty
 Loyalty to company
 Our
 Achievement
 Gender equality.

In business organisations, values are held at various levels and they all interact
constantly to give shape to the business value system. These levels are:

1. Individual Values. The members of business firm hold their own values
regarding their personal conduct in business. These values constitute the base of
business values.

2. Group Values. The values held by formal as well as informal groups in the
organisation are of great importance in determining overall organisational values.
It is important to note that the group business values may or may not be in
agreement with individual values. For example, the value system of an individual
employee may not approval of 'wages without work' or 'even, go slow', but he may
be an active member of an informal or even a formal group lending support to such
a conduct by the employees of the firm.
3. Top Management Values. The business values at the organisation level emerge
from objectives, policies, philosophy of the top management and the culture of the
organisation.

4. Environmental Values. The various environment constituents of business also

hold norms and values of good business. These constituents are investors, lenders,
customers, employees, suppliers, government, and the society as a whole.

Assumption of Social Responsibility

(i) Business belongs to Society. Business is a part of society. Therefore,
businessmen must consider it to be their duty to satisfy the needs of society. Social
improvements may be brought about by developing educational opportunities,
pollution control, or upliftment of back ward people.
(ii) Long-term Interest of Business. It is in the interest of business to fulfill the
demands and aspirations of the society. The people who have good environment,
education and opportunities make better employees, customers and neighbors for
the business.
(iii) Fear of Government Intervention or Regulation. In case the business fails
to respond to social needs voluntarily, the government may force business to
discharge social obligations through legislation. This will reduce the freedom and
flexibility of business. Hence it is in the interest of business community to
voluntarily fulfill its obligations to the society.
(iv) Public Image. A business can develop credibility with public by responding
to the society’s demands. Good public opinion is the precondition for the success
of any business. Therefore, the businessmen must shown concern for social
obligations.
(v) Moral Justification. Every business uses capital and physical and human
resources of the society for business purposes. It also depends on society for the
disposal of goods and services. Further, business firms make use of various
common facilities provided by society like roads, power and water supply.
Therefore, it is the moral responsibility of business to contribute to the well-being
of society.
(vi) Consumers’ Consciousness. The consumers are well informed. They expect
higher quality products at reasonable rates. If they do not get fair treatment from
business, they will organize themselves and compel the business to assume its
social responsibilities.

Arguments against Social Responsibility

1. Relation between Profit and Responsibility. Social responsibility and profit I

have a sequential movement. Profit come first and corporate social responsibility
later. Therefore, before committing any cost towards social cause an enterprise has
to make social cause unless its cost is known and cost is well within range of its
earned/ sure that it has sufficient profits to meet the obligation. No enterprises can
take up accumulated profits.

2. Difficult to Estimate Positive Impact. It is tough to ascertain the impact of

social responsibility on profit. Enterprise may commit its funds to social causes,
which may generate better feeling, good thinking about an enterprise. But what
impact these positive thinking in minds of people may lead to is difficult to
ascertain. Thus, cost of corporate social responsibility may or may not always
bring positive results for an enterprise.

3. Compliance of Law. Social sentiments, value-system, ethics are pure

persuasive matters and not binding on an enterprise. The only obligation an
enterprise owes complying with laws made. It is, therefore, sufficient for business
enterprise if they abide by laws of land they operate in. In short, business has no
responsibility than the compliance of law.

4. Extent of Responsibility. Business can be socially responsible only to the

extent of contractual obligation it may owe. As the scope and definition of
corporate social responsibility is so large and unpredictable that society and
stakeholders try to relate all negative impacts on them to business enterprises.
Business firms, therefore, own only such responsibilities that squarely relate to
them.

5. Role of Society in Safeguarding its Interests. Society must create its own
safeguards. There is no system, which may compensate business for harmful
effects of social decisions. Merely making business liable for all ill-effects on
society is not the solution. Thus, the argument that society is a powerful institution
and it must safeguard its interests holds good.

6. Complex Ethical Issues. Ethical issues and value system of society is so

complex that there is no unanimity as to the scope and extent of corporate
responsibility. It really becomes difficult for business to understand the social
concern in the manner it perceives.

Social Responsibility towards different groups

Social Responsibility of Business towards Different Groups shows the
responsibility of Business owners for the business’s performance. This includes
ensuring a fair return on capital, consolidating the business’ financial position, and
capital appreciation to allow owners to weather any eventuality. Let’s now look at
the different responsibilities a business has towards its associations. The business
is generally associated with owners, investors, workers, suppliers, consumers,
competitors, the government, and the community. So they are called business
associations because, by every business activity, these groups’ profits may be
affected directly or indirectly.

Responsibility towards owners and Investor:-These are the primary Social

Responsibility of Business towards Different Groups, investors, and owners:

 Run the business well-organized,

 Proper usage of assets and other resources,

 Expansion and appreciation of assets,

 A consistent and reasonable return on capital invested,

 Assuring the safety of their investment,

 Fixed retrieval of interest, and

 On-time compensation of the principal amount.

Responsibility towards Creditors:-In Social Responsibility of Business towards

Different Groups there are responsibilities toward creditors. For example,
  Timely payment,

 To ensure the safety of credit approved by them, and

 To follow standards of business as observed by others.

Responsibility towards employees:-These are the Social Responsibility of

Business towards Different Groups and their workers:

 On-time and regular payment of salaries and wages,

 Proper working conditions and well-being facilities,

 Opportunity for better job possibilities,

 Job safety and social security include provident funds, group insurance,
pensions, and retirement privileges.

 Proper living conditions like home, transportation, restaurant, etc.; and

 Timely education and improvement.

Responsibility towards suppliers:-These are the responsibilities of businesses

towards suppliers:

 Regular delivery of orders for the purchase and sale of goods,

 Adaption on reasonable terms and conditions,

 Availing sensible credit period, and

 Duly payment on time.

Responsibility towards customers:-These are the responsibilities of businesses

towards their consumers:

 Goods and services should be able to meet the needs of customers,

 Goods and services should have a high quality,

 Regularly supplement of goods and services,

 There should be a reasonable and affordable price for goods and services,
  All profits and losses of goods and procedures to use the goods must be
informed to the consumers,

 Proper function of after-sales service,

 Prioritize the grievances of the consumers and quick settlement,

 Unlawful means like under weighing the goods, corruption, etc., must be
avoided.

Responsibility towards competitors:-The responsibilities of business towards its

rivals should not be as follow:

 Offering unusually high sales commission to distributors, agents, etc.,

 Offering huge discounts or free products in every sale to the customers, and

 Defame rivals through false or vague advertisements.

Responsibility towards government:-These are the responsibilities that business

has towards the government:

 Setting up units as per rules and regulations of the government,

 Payment of fees, charges, and taxes consistently and honestly,

 Not to indulge in monopolistic and restrictive business practices,

 Adaptive to pollution control standards set up by the government, and

 Not to engage in adulteration through bribing and other illegal activities.

Responsibility towards society (community):-A community includes individuals,

groups, organizations, people, etc. They communicate with each other and are also
reliant on each other in almost all activities. There are direct and indirect
relationships between them. Business, being a part of the community, keeps its
relationship with all other community members. Therefore, it has specific
responsibilities towards the community that are as follows:

 To help the vulnerable and backward parts of the society,

 To maintain and promote social and cultural importance,

 To create employment,

 To preserve the environment,

 To save natural resources and wildlife,

 Support sports and culture, and

 To assist in progressive research on knowledge, education, medical science,

and technology.