UNIT - 1

INTRODUCTION

The term "ethics" is derived from the Greek word "ethos" which refers to character
or customs or accepted behaviour’s. The Oxford Dictionary states ethics as "the
moral principle that governs a person's behaviour or how an activity is conducted".
The synonyms of ethics as per Collins Thesaurus are - moral code, morality, moral
philosophy, moral values, principles, rules of conduct, standards. Ethics is a set of
principles or standards of human conduct that govern the behaviour of individuals
or organizations. Using these ethical standards, a person or a group of persons or
an organization regulate their behaviour to distinguish between what is right and
what is wrong as perceived by others

BUSINESS ETHICS

Business ethics is a form of applied ethics or professional ethics that examines

ethical principles and moral or ethical problems that can arise in a business
environment. It is also known as Corporate ethics. It applies to all aspects of
business conduct and is relevant to the conduct of individuals and entire
organizations.

DEFINITION

Definition of Thomas J. Adams:

Business ethics deals with the values of what is right and wrong, good and bad and
moral and immoral in business relationship.

SOURCES

The various sources from where ethical values have been evolved. The main
sources are ◦ Religion ◦ Society ◦ Legal System ◦ Genetic inheritance ◦
Marketplace ◦ Nature ◦ Culture

CHARACTERISTICS OF BUSINESS ETHICS

1. Business ethics are based on social values, as the generally accepted norms of
good or bad and ‘right’ and ‘wrong’ practices.
2. It is based on the social customs, traditions, standards, and attributes.

3. Business ethics may determine the ways and means for better and optimum
business performance.

4. Business ethics provide basic guidelines and parameters towards most

appropriate perfections in business scenario.

5. Business ethics is concerned basically the study of human behaviour and

conducts.

6. Business ethics is a philosophy to determine the standards and norms to make

mutual interactions and behaviour between individual and group in organisation. 7.
Business ethics offers to establish the norms and directional approaches for making
an appropriate code of conducts in business.

8. Business ethics are based on the concepts, thoughts and standards as contributed
as well as generated by Indian ethos.

9. Business ethics may be an ‘Art’ as well as ‘Science’ also.

10. Business ethics basically inspire the values, standards and norms of
professionalism in business for the well-being of customers.

11. Business ethics is to motivate and is consistently related with the concept of
service motives for the customers’ view point.

12. Business ethics shows the better and perspective ways and means for most
excellences in customization.

13. Business ethics aims to emphasize more on social responsibility of business

towards society.

ELEMENTS OF BUSINESS ETHICS

A Formal Code of Conduct: Code of conduct is statements of organizational

values. The Sarbanes-Oxley Act, 2002 made it important for businesses to
have an ethics code, something in writing which will help the employees
know – with both ease and clarity – what is expected of them on the job.
The code should reflect the managements desire to incorporate the values
and policies of the organization.
i) Code of Ethics: For every new business incorporated, it is important
for the management to have a code of ethics for his business. It is
usually unwritten for small businesses. It is basically a buzzword for
the employees to observe ethical norms and form the basic rules of
conduct. It usually specifies methods for reporting violations,
disciplinary action for violation and a structure of the due process to
be followed. A code of ethics must summarize the beliefs and values
of the organization. For a large business empire, it is important to hire
talent to assist existing personnel with regards to integrity,
understanding, responsibility, and cultural norms of the country.
(ii) Ethics Committee: Ethics committees can rise concerns of ethical
nature; prepare or update code of conduct, and resolve ethical dilemma in
organization. They formulate ethical policies and develop ethical standards.
They evaluate the compliances of the organisation with these ethical
standards. The committee members should be conscious about the corporate
culture and ethical concise of the organisation. The following committees
are to be formed: a. Ethics committee at the board level- The committee
would be charged to oversee development and operation of the ethics
management programme. b. Ethics management committee – It will be
charged with implementing and administrating an ethics management
programme, including administrating and training about policies and
procedures, and resolving ethical dilemmas.
(iii) Ethical Communication System: Ethical communication system helps
the employees in making enquiries, getting advice if needed and reporting
all the wrong done in the organisation. Objectives of ethical communication
system are: a. To communicate the organizations values and standards of
ethical conduct or business to employees. b. To provide information to
employees on the company’s policies and procedures regarding ethical code
of conduct. c. To help employees get guidance and resolve queries. d. To set
up means of enquiries such as hotlines, suggestion boxes and e-mail
facilities. Top management can communicate the ethical standards to the
lower management which can be further transferred to the operational level.
(iv) An Ethics Office with Ethical Officers: The job of an ethics officer is
to communicate and implement ethical policies amongst employees of the
organisation. Ethics officer should develop a reputation for credibility,
integrity, honesty and responsibility. Functions of ethics officer are: a.
Assessing the needs and risks that an ethical programme must address. b.
Develop and distribute code of conduct. c. Conduct ethical training
programme. d. Maintain confidential service to answer employee’s
questions about ethical issues. e. To ensure that organisation is in
compliance with governmental regulations. f. To monitor and audit ethical
conduct. g. To take action on possible violation of company’s code. h. To
review and update code in time.
(v) Ethics Training Programme: Any written ethical code will not work
unless supported and followed by a proper training programme. Some
companies have an in-house training department while others may opt for
an out-source expert. To ensure ethical behaviour, a corporate training
programme is established which deals in assisting employees to understand
the ethical issues that are likely to arise in their workplace. When new
employees are to be recruited, the induction training should be arranged for
them. Training will help them to familiarize with company’s ethical code of
behaviour.
(vi) A Disciplinary System: A disciplinary system should be established in
the organisation to deal with ethical violations promptly and severely. If
unethical behavior is not properly dealt with, it will result in threatening the
entire social system. A company should adopt fair attitude towards everyone
without any discrimination.
(vii) Establishing an Ombudsperson: An ombudsperson is responsible to
help coordinate development of policies and procedures to institutionalize
moral values in the workplace.
(viii) Monitoring: To make an ethical programme, a successful monitoring
programme needs to be developed. A monitoring committee isformed.
Monitoring can be done by keen observation by ethics officer, surveys and
supporting systems.

SCOPE OF BUSINESS ETHICS

Ethical problems and phenomena arise across all the functional areas of
companies and at all levels within the company.
1. Ethics in Compliance
Compliance is about obeying and adhering to rules and authority. The
motivation for being compliant could be to do the right thing out of the
fear of being caught rather than a desire to be abiding by the law. An
ethical climate in an organization ensures that compliance with law is
fuelled by a desire to abide by the laws. Organizations that value high
ethics comply with the laws not only in letter but go beyond what is
stipulated or expected of them.
2. Ethics in Finance
The ethical issues in finance that companies and employees are
confronted with include: • In accounting – window dressing, misleading
financial analysis. • Related party transactions not at arm’s length •
Insider trading, securities fraud leading to manipulation of the financial
markets. • Executive compensation. • Bribery, kickbacks, over billing of
expenses, facilitation payments. • Fake reimbursements
3. Ethics in Human Resources
Human resource management (HRM) plays a decisive role in
introducing and implementing ethics. Ethics should be a pivotal issue for
HR specialists. The ethics of human resource management (HRM)
covers those ethical issues arising around the employer-employee
relationship, such as the rights and duties owed between employer and
employee. The issues of ethics faced by HRM include: • Discrimination
issues i.e. discrimination on the bases of age, gender, race, religion,
disabilities, weight etc. • Sexual harassment. • Affirmative Action. •
Issues surrounding the representation of employees and the
democratization of the workplace, trade etc., • Issues affecting the
privacy of the employee: workplace surveillance, drug testing. • Issues
affecting the privacy of the employer: whistle-blowing. • Issues relating
to the fairness of the employment contract and the balance of power
between employer and employee. • Occupational safety and health.
Companies tend to shift economic risks onto the shoulders of their
employees. The boom of performance-related pay systems and flexible
 employment contracts are indicators of these newly established forms of
shifting risk.
4. Ethics in Marketing
Marketing ethics is the area of applied ethics which deals with the moral
principles behind the operation and regulation of marketing. The ethical
issues confronted in this area include: • Pricing: price fixing, price
discrimination, price skimming. • Anti-competitive practices like
manipulation of supply, exclusive dealing arrangements, tying arrangements
etc. • Misleading advertisements • Content of advertisements. • Children
and marketing. • Black markets, grey markets. 5. Ethics of Production
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. • Defective, addictive and inherently
dangerous products and • Ethical relations between the company and the
environment include pollution, environmental ethics, and carbon emissions
trading. • Ethical problems arising out of new technologies for eg.
Genetically modified food • Product testing ethics.

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.

Significance/Importance of Business Ethics

1. Control Business Malpractices: Business ethics directly influence the

operations of the business. It is the one which helps business in deciding
what is wrong and what is right. These ethics set certain rules and principles
to be followed strictly by business, and their violation leads to a penalty.
Implementation of these principles ensures that business does not indulge in
any unfair practices like black marketing, providing misleading
advertisement, frauds in measures and weight, adulteration, etc. Through
business, ethics works on providing better products to its customers at
reasonable prices.
2. Better Relation with Employees: Employees are an important part of the
business and necessary for the survival of the business. Business ethics
ensures that business works for the welfare of its employees working with it.
The business should not only work for the achievement of its objectives like
 profit maximization and higher growth but should also focus on peoples
working with it. These ethics ensures that business provides better monetary
compensation and good working conditions to its employees, active
participation in decision making, addressing complaints, and providing
promotions as per their progress. This helps in maintaining a good
relationship with employees.
3. Improves Customer Satisfaction: The consumer is termed as king in the
market and is the one who decides the success or failure of every business. It
is important that the business fulfills the needs of its customers. Business
ethics provides principles for business operations under which it is required
to provide better quality products at reasonable prices. It ensures that the
business provides better customer support and redressal of all complaints.
This helps businesses in improving the satisfaction levels of its customers.
4. Increase Profitability: Business ethics improve the productivity and
profitability of every business. It sets certain rules to be followed by every
person working with the business. Every employee is required to adhere to
these rules and should focus on its duties with sincerity. These ethics ensure
that there is no wastage of resources, and every resource is efficiently
utilized. This eventually leads to an increase in business profit in the long
run.
5. Improves Business Goodwill: Business goodwill has an important effect on
capturing the market. Better goodwill businesses are able to attract more and
more customers. By implementing ethics in its operations business aims at
providing better service to the market. Businesses that work ethically operate
at the low-profit base and with honesty. This develops a better image in front
of the public and is easily accepted by customers with fewer efforts.
6. Better Decision Making: Ethics in business helps them in making better
decisions timely. It provides certain rules and guidelines that every business
needs to follow in its operations. Every decision is taken in light of the
moral principles and social values provide through these ethics. It helps
businesses in deciding what is right and what is wrong. Every person
working within the business is required to respect these ethics, violation of
which would lead to the penalty.
7. Protection of Society: Society is very important for the success of every
business. If a business does not consider the interests of its society, then it
will harm its survival. Business ethics direct that business should work for
the welfare of its society and take part in various infrastructural development
programs.
It ensures that business contributes actively to its corporate social
 responsibility. A business should not perform any activity that creates a
problem for the society in which business exists.

Principles of Business Ethics

It's essential to understand the underlying principles that drive desired ethical
behavior and how a lack of these moral principles contributes to the downfall of
many otherwise intelligent, talented people and the businesses they represent.

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.

Code of Conduct

A code of conduct is a collection or set of principles, rules and policies about how
employees can and cannot behave during working hours. It outlines the internal
guidelines for all employees and works as an external statement for corporate
values and commitment. In an office setting, a code of conduct can support
decision making as it gives a detailed structure to follow. Also, it helps you prepare
for any ethical dilemma that you face in your job.

Benefits of a Good Code of Conduct

1) Enhances the right organizational culture

Essentially, the purpose of a professional code of conduct is to create

organizational culture where managers and employees trust one another. Ethical
codes often foster integrity, trust, and respect. They also provide a guide on
people’s behavior. The ethical values of an organization are well defined and
documented in a professional code of ethics to ensure that all members of the
organization are behaving in a certain way. This leads to a common culture that is
characterized by specific ethical values and principles.

2) Establishes a good image for the organization

Customers and shareholders choose organizations with good reputation. In a
competitive business environment and a saturated marketplace, customers can
choose the companies that they trust. Those that don’t uphold ethical practices can
go drying on the hanger. Companies also need to uphold ethical values in order to
establish lasting relationships with shareholders and partners. Shareholders feel
comfortable to invest in a company with good reputation because they believe that
their money have been placed on the right hands. Therefore, ethical behavior is
essential for firms seeking good reputation and public image.

3) Enhances compliance with the law

It is safe to say that everything that is lawful is ethical, but not everything that is
ethical is lawful. By developing an ethical code of conduct, a company ensures that
its employees are drawn closer to the law, and are put on the right side of the law.
Individually, employees may also consider it wise to act professionally and
lawfully. Ethical codes spell out the values that can guide people towards good
business practices and avoid major scandals as it has happened in some bigwigs
such as Uber, Enron, WorldCom, and facebook.

4) Attracting talented employees

Nowadays, employees value companies that uphold ethical values in their business
practices. In the modern times, businesses are competing for top managers and
talented employees. To attract the best among them, it is good to present to them a
proper plan of ethical behavior. What can be the best way to that other than writing
a professional code of ethics?

5) Promotes teamwork and productivity

We already saw that a code of ethics boosts organizational culture. In regards to

that, a professional code of ethics or conduct can help build strong relationships in
the workplace. It also enhances cooperation and unity, which cultivates strong
teamwork and enhanced productivity.

6) Builds a good reputation

Today’s customers look well beyond the price tag. With so many choices,
customers gravitate toward companies they feel they can trust, and they stay far
away from those companies that don’t promote ethical behavior. But it’s not just
customers to whom ethics matter. Companies that pay strong attention to ethics
also find it easier to establish lasting partnerships both within and outside their
industry.

7) Promotes social change

One less talked-about benefit of adopting a code of ethics is that it promotes social
change. We all live on the same planet and share the same finite amount of natural
resources, so we’re all responsible for the happiness or misery of one another. By
promoting positive social change, companies can contribute to making the world a
better place for everyone, not just a select few.

8) Outlines a company's principles and values

When a company displays their code of conduct on their website, it helps potential
job candidates and clients learn more about its vision, principles and values. Based
on this, an employee can decide whether they share the same values and fit into its
culture.

9) Provides guidelines of employee behaviour

Having a code of conduct gives you a structure to follow from the moment you
join a new company. It reduces the instances of problems coming up because you
will always follow the most appropriate behaviour. Also, a code clearly outlines
the difference between appropriate and inappropriate behaviour, which helps in
strengthening relationships with your colleagues.

10) Accelerates career growth

When you know what to do and what to avoid, problems and dilemmas rarely
occur at work. You may not realise that asking other employees to punch for you
or sharing business information with outsiders is an unfair practice. But with a
code of conduct, you avoid such practices. This can help accelerate your career
growth because you utilise your energy in productive activities.

11) Increases employee morale

When every employee respects each other, it builds long-lasting relationships and
boosts the entire team's morale. Employees prefer working in an organisation that
boosts morale because they feel respected and valued. It also helps bring out your
full potential and you work towards achieving a common business goal.

12) Produces a compliant culture

Candidates prefer to work in companies with a robust and in-depth code of conduct
because it helps them understand the process for solving work-related problems.
Also, these rules make it a lot easier to report a violation of your company's
policies. With a streamlined process in place, it becomes easier to ensure
compliance.

Ethos is a set of beliefs, ideas, etc., about social behaviour and relationship
of a person or
group. Indian Ethos is all about what can be termed as <national ethos=. Indian
ethos refers to
the principles of self-management and governance of society, entity or a system by
wisdom
as revealed and brought-forth by great scriptures like Veda, Upanishads, Gita,
Mahabharata,
Bible and Quran.
Ethos is a set of beliefs, ideas, etc., about social behaviour and relationship
of a person or
group. Indian Ethos is all about what can be termed as <national ethos=. Indian
ethos refers to
the principles of self-management and governance of society, entity or a system by
wisdom
as revealed and brought-forth by great scriptures like Veda, Upanishads, Gita,
Mahabharata,
Bible and Quran.