BUSINESS ETHICS

Slides For Assignments

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Definition of Business Ethics
• Ethics is based on well-founded standards of right and wrong that prescribe what humans should
to do.
• Business Ethics is the study of complex business practices and behaviors that gives rise to ethical
issues in organizations.

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Difference between Ethics, Morality and Law
• Law
• Formal rules that govern how we behave as members of society
• Specify what we must do and what we must not do
• Upheld and applied by the state and courts system
• Role is to create basic enforceable standards
• Narrow scope than Morality and Ethics
• Morality
• Refers to an informal framework of values, principles, beliefs, customs and ways of leaving.
• Not enforced by the state
• Social pressure to follow to moral norms.
• Inherit from family, community and culture
• Ethics
• Branch of philosophy that aims to answer the question ‘What should I do’?
• Process of reflection in which people’s decisions are shaped by their values, principles and purpose
rather unthinking habit or social conventions.
• Ethical decision is one based on conscious reflection which gives effect to our values, principles and
purpose in pursuit of a profit goal.
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Principles of Business Ethics
• Fairness
• Respect and concerns for others
• Law abiding
• Fulfilling Commitments
• Commitments to Excellence
• Avoid Conflicts
• Integrity
• Honesty
• Accountability

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Importance of Business Ethics
• Controls business malpractices
• Better relations with employees
• Improves customer satisfaction
• Increases profitability
• Improves business goodwill
• Better decision making
• Protection of society

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Approaches to Business Ethics
• Amoral Approach
• Win at all cost including breaking the law
• Legalistic Approach
• Obey the law but not more than that
• Responsive Approach
• Accepts that being Ethical is pay off
• Ethical Approach
• Ethical practice is at the core of the business
• Balance profits with the need of society

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Normative Theories Of Ethics
• Consequentialist Theory
• Judges the rightness or wrongness of an action based on the consequences that action has.
• Example would be utilitarianism--``that action is best that produces the greatest good for the
greatest number'' (Jeremy Bentham).
• Non-consequentialist Theory
• Judges the rightness or wrongness of an action based on properties intrinsic to the action,
not on its consequences.
• Example would be libertarianism - People should be free to do as they like as long as they
respect the freedom of others to do the same.

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Ethical Leadership

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Definition of Ethical Leadership
• Leadership
• Leadership in business is the capacity of a company's management to set and achieve
challenging goals, take fast and decisive action when needed, outperform the competition,
and inspire others to perform at the highest level they can.
• Ethical Leader
• Exhibits behavior that is allowable and suitable towards general welfare

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Ethical Organizational Culture
• Attention to moral implication
• Clarifying Expectation
• Role Modeling
• Allocation of Rewards
• Smart Recruiting

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Role of Organizational Culture in Ethical
Decision Making
• Ethical decision making actually plays an important role in corporate culture. If corporate culture
is the way by which a company works, then a company's ethical culture is how a company
operates with respect to ethics. If a company's ethical culture is strong, then ethical decision
making comes more naturally as well.

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Traits of Ethical Leaders
• Leads by example
• Unbiased respect for everyone
• Make decisions based on values
• Open communications
• Practice justice and respects
• Hire ethical employees

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Characteristics of Ethical Leadership
• Stress on team building
• Promote a sense of social belonging and team spirit
• Not just concentrate on personal objective
• Motivate Initiatives
• Innovative ideas of employees are rewarded
• Ethical violations are not tolerated
• Expect that their employees maintain their ethical conduct at all time
• Strict polices against ethical violations
• Fairness
• Everyone is treated equally
• Honest
• Followers trust on him

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Advantages of Ethical Leadership
• Abides by law
• Create healthy work environment
• Emphasize diligence
• Encourage sense of responsibilities
• Minimize harm in workplace
• Consistency
• To avoid uncertainty

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Disadvantages of Ethical Leadership
• Requires capacity of leaders to inspire others
• Unethical action of a single leader can negatively affect the whole company
• Employees put an effort to be in complete agreement with each other, which is time consuming
• Everyone believes that their own set of morals are correct

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Ethics in Workplace

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Definition of Ethics in Workplace
• The moral code that guides the behavior of employees with respect to what is right and wrong in
regard to conduct and decision making.

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Importance of Ethics in Workplace
• Following ethics in workplace stimulate positive employee behaviors that lead to organizational
growth, just as unethical behavior in the workplace can inspire damaging headlines that lead to
organizational demise.

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Ethics Traits in Workplace
• Appearance: Displays proper dress, grooming, hygiene, and manners.
• Attendance: Arrives and leaves on time, tells supervisor in advance of planned absences.
• Attitude: Shows a positive attitude, appears confident and has true hopes of self.
• Character: Displays loyalty, honesty, dependability, reliability, initiative, and self-control.
• Communication: Displays proper verbal and non-verbal skills and listens.
• Cooperation: Displays leadership skills; properly handles criticism, conflicts, and stress; maintains proper
relationships with peers and follows chain of command.
• Organizational Skill: Shows skills in management, prioritizing, and dealing with change.
• Productivity: Follows safety practices, conserves resources, and follows instructions.
• Respect: Deals properly with diversity, shows understanding and tolerance.
• Teamwork: Respects rights of others, is a team worker, is helpful, is confident, displays a customer
service attitude, and seeks continuous learning

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Ethical Issues in Workplace
• Unethical Leadership
• Asking to skip a standard procedure
• Manipulating numbers in a report
• Spending company money on inappropriate activities
• Toxic Workplace Culture
• Toxic work culture is one where workers are exposed to psychosocial hazards
• Signs of a toxic workplace
• Employees’ input is not valued - Low morale
• Lack of transparency and communications issues
• Unfair polices
• Lack of work-life balance
• Low morale
• Discrimination on the basis of race, gender, disability or age
• Conflicting Goals of employer and employee
• Questionable Use of Company Technology
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Ethical Dilemma, Examples & Its Solutions
• Definition
• An ethical dilemma (ethical paradox or moral dilemma) is a problem in the decision making
process between two possible options, neither of which is absolutely acceptable from an
ethical perspective.
• Examples
• Taking credit for others’ work
• Offering a client a worse product for your own profit
• Utilizing inside knowledge for your own profit
• Solutions
• Refute the paradox (dilemma): The situation must be carefully analyzed. In some cases, the
existence of the dilemma can be logically refuted.
• Value theory approach: Choose the alternative that offers the greater good or the lesser evil.
• Find alternative solutions: In some cases, the problem can be reconsidered, and new
alternative solutions may arise.
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Business Ethics & Corporate Social
Responsibility

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Corporate Social Responsibility (CSR):
Definition & Types
• CSR
• The idea that business has obligations to society beyond the pursuit of profit
• 3Ps – Profit, People, Planet
• Types of Corporate Social Responsibility
• Environmental responsibility refers to the belief that organizations should behave in
environmentally friendly way.
• Ethical responsibility is concerned with ensuring an organization is operating in a fair and
ethical manner.
• Philanthropic responsibility refers to a business’s aim to actively make the world and society
a better place.
• Economic responsibility refers to not pursuing profit maximization but also impact positively
on environment, people and society.

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Differences Between Business Ethics & CSR
CSR Business Ethics
Definition Social responsibility ensures all norms of a Business ethics include what a business needs
society are being followed in the right to follow to profit its employees and
manner while running a business. stakeholders harmlessly.
Aim To benefit society To profit the employees and company.
Nature Used in a general sense. Used in a business sense.
Involves Involves society or individual Involves corporate and companies
What is it Social responsibility is about seeing and Business ethics is about knowing what is good
about? keeping the morals of a society and or bad for the company and its employees
environmental targets in mind.

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Corporate Governance

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Definition of Corporate Governance
• Corporate governance is the combination of rules, processes or laws by which businesses are
operated, regulated or controlled.

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Basic Principles of Corporate Governance
• Accountability
• Transparency
• Fairness
• Responsibility

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Inter-relationship between Business Ethics and Corporate
Governance
• Ethics are the philosophical and morally decent standards that a corporation attempts to stand by.
• Corporate Governance processes are the means by which a corporation attempts to remain as
ethical as possible while still making a profit. It represents the moral framework, the ethical
framework and the value framework under which an enterprise takes decisions.
• Corporate governance is important because:
• It creates a system of rules and practices that determine how a company operates and how it
aligns the interest of all its stakeholders. Good corporate governance leads to ethical business
practices, which leads to financial viability.
• It ensures everyone in an organization follows appropriate and transparent decision-making
processes and that the interests of all stakeholders (shareholders, managers, employees,
suppliers, customers, among others) are protected.

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Marketing Ethics & Consumerism

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Ethical Issues in Product
• Misleading information about the value of the product and its function
• Marketers must take into consideration:
• Product safety
• Impact of product on culture
• Environmental concerns

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 Ethical Issues in Price
• Is price is fair.
• Consumer getting what he has paid for.
• Price fixing should be avoided
• Price fixing occurs when competitors agrees to raise prices in the market
• Negative effect on consumer as they incur higher charges
• Predatory pricing
• Intentionally setting prices so low that is drives out competitors
• To maintain monopoly
• In long term negative impact on consumers (high prices)
• Price discrimination
• When business charge different prices to different customer groups for same product – not
an unethical activity
• Ethical issue arises when price discrimination occurs even the product value and quality is the
same
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 Ethical Issues in Promotion
• Advertising is the visual elements in marketing and it poses many ethical issues
• Promotions effectiveness relies on building an emotional relationship with consumer in order to
gain attention.
• Ethical issues arise when
• Customers becomes victims of false or misleading promotional tactics in order to increase
sales.
• Marketing campaigns directed at children results in losing control of parents on their children

• Marketers adopts sexual themes to promote products

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Ethical Issues in Place (Distribution)
• Ethical Issues in distribution impact relationship between producers and the middleman. The role
of the middleman is to ensure that products have successfully reached the end consumer.
• Ethical concerns arise
• When intermediaries exploit other intermediaries for personal gain.
• When manufactures demand that only their products are sold by certain retailers.

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Ethical Issues in Retailing
• Should a retailer sell merchandise that it suspend was made using child labor?
• Should a retailer advertise its prices are the lowest available in the market even though some items
are not?
• Should retail salespeople hoard certain products when the product is the best for customer needs?
• Should a retailer treat some customers better than other customers?

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Ethical Issues in the Use of Direct Marketing
• Definition of Direct Marketing
• Direct marketing consists of any marketing that relies on direct communication or distribution to
individual consumers, rather than through a third party.
• Types of Direct Marketing
• Direct Email
• SMS Marketing
• Leaflet Marketing using letterbox drops and hands out
• Social Media Marketing
• Telemarketing
• Ethical Issues in Direct Marketing
• Irritation: Many people find the increasing number of direct-marketing solicitations by phone,
television, and e-mail to be a nuisance.
• Unfairness: easy purchasing to capture buyers who have low sales resistance.
• Deception and fraud: Some nonprofit organizations pretend to conduct surveys when they are
actually trying to identify donors.
• Invasion of privacy: Marketers know too much about their customers and that they may use this
knowledge to take unfair advantage. 36
Responsible Consumer
• Definition
• Socially responsible consumer is someone who translates their concern for social and
environmental problems into their purchasing and consumption actions
• Characteristics
• Intention to purchase specific products such as environmentally safe products
• Reducing consumption
• Consuming local products
• Investing their money in an ethical bank
• Reusing, Repairing, Recycling

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Ethics in Human Resource Management

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Ethical Issues in HRM
• Definition of HRM:
• Human Resource Management (HRM) deals with work force management, manpower
planning and other employee related activities in an organization.
• Ethical Issues in HR
• No discrimination on grounds of gender, race, religion, disability etc.
• Safety and Health
• Performance Appraisal
• Timely promotion
• Fair remuneration
• Privacy of employees
• Training and development
• Unfair Dismissal

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Moral Choices for Employees
• Abuse of official position
• Bribes
• Gifts and entertainment
• Whistle-blowing

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Ethics for Financial Manager

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Code of Ethics for Financial Manager
• The role of ethics in financial management is to balance, protect and preserve stakeholders'
interests.
• Code of Ethics in Finance
• Act with honesty and integrity
• Avoid conflict of interest in professional relationship
• Provide accurate and understandable information
• Never share confidential information (inside information) or use it for personal gain
• Maintain an internal control system to guard against unethical behavior

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 Unethical Issues in Financial Management
• Money laundering
• Aim to convert money from being illegitimate (dirty money) to being legitimate (clean
money) through the three the principles of hiding, moving, and investing.
• Reward unethical behavior
• Organizations sometimes rewards unethical behavior, e.G., If an organization rewards
financial managers for making decisions that benefit the company, not the clients.
• Misselling to customers
• In the banking industry, misselling to customers is a serious breach of ethics. Misselling is a
sales practice in which a service is deliberately misrepresented or a customer is misled about
its suitability.
• Handling cash
• Mistakes in handling cash accounts are not unethical, but hiring someone with less-than-
stellar skills may constitute an ethical dilemma if the mistakes continue.
• Manipulation of financial records to get favorable results

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Business Ethics & Environment

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Business Ethics & Environmental Issues
• Companies that provide goods and services are responsible for protecting our natural resources.
• Major Ethical Issues involve:
• Pollution
• Global Warming
• Waste Disposal
• Public Health Issues
• Deforestation
• Loss of Biodiversity
• Ozone Layer Depletion

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Environmental Ethical Principles
• Justice
• Everyone should be treated equally and have the same access to sustainable natural
resources.
• It is unjust for some populations to live in polluted environments while others have unlimited
access to things like clean water and air.
• Sustainability
• Sustainability is making decisions that do not have negative consequences for either current
or future generations.
• Sufficiency
• All forms of life (human & animal) are entitled to enough goods to live on and flourish
• No one should waste or hoard resources intended for the sufficiency of all

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Islam & Business Ethics

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Islamic Worldview
• Islamic worldview states that
• Allah has appointed human as His Kahlifah (vicegerent) on earth and has endowed him with
resources as Amanah (trust)
• These sources should be managed for the benefit of the whole society to improve the world
on His behalf (Quran 2:30).
• Wealth should be considered as fadl-e-Allahi (bounty from Allah) and striving for its
acquisition is not only legitimate but also admirable (Quran 4:32).
• Wealth should be acquired through permissible means (Quran 4:29) as satisfying this
condition will brings barakah (Divine blessing) i.e., an unexplainable increase in the benefit of
wealth. This infers that adherence to Shariah guidance results in prosperity,

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Business Ethics & Norms
• Justice & fair dealing
• Fulfilling the contracts
• Paying liabilities
• Mutual cooperation
• Removal of hardship
• Free marketing and fair pricing
• Freedom from Dharar (Detriment)

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Maqasid-e-Shariah in Financial Transactions
• Circulation of wealth
• Includes creation, distribution and consumption of wealth.
• Prevent hoarding of money in a few hands
• Transparency
• Requires that all the contracting parties should be well informed about the details of the
covenant
• Justice.
• Two dimensions: macro and micro.
• Justice at macro level involves social justice which requires that basic needs of all the sectors
of society should be satisfied.
• Justice at micro level requires that each individual should have equal rights and opportunities
and should be protected from biased dealing .

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Prohibited Transactions in Islam
• Dealing in stolen goods
• Transactions with short measures
• Transaction involves interest
• Trading in alcohol & drugs
• Transactions involved gharar
• Hoarding of food stuff
• Exploitations of one ignorance of market & commodity conditions

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