Business ethics is concerned with the behaviour of a businessman in doing a business. Unethical practices are creating problems to businessmen and business units.
The life and growth of a business unit depends upon the ethics practiced by a businessman. Business ethics are developed by the passage of time and custom. A custom differs from one business to another. If a custom is adopted and accepted by businessmen and public, that custom will become an ethic.
Business ethics is not only applicable to any particular type of business but is applicable to every type of business. The social responsibility of business requires the observing of business ethics. A businessman should not ignore the business ethics while assuming social responsibility.
Learn about:-
1. Definitions of Business Ethics 2. Nature of Business Ethics 3. Objectives 4. Characteristics 5. Elements 6. Significance 7. Principles 8. Levels 9. Activities 10. Unethical Business Behaviour
11. Guidelines 12. Stimulation 13. Ethical Code of Conduct 14. Factors Causing Unethical Conducts 15. Factors Influencing 16. Risks of Ignoring 17. Corporate Code of Ethics 18. Benefits of Code of Ethics 19. Limitations 20. Managing Code.
Business Ethics: Definitions, Nature, Objectives, Characteristics, Elements, Significance, Principles, Levels and Managing Code
Contents:
- Definitions of Business Ethics
- Nature of Business Ethics
- Objectives of Business Ethics
- Characteristics of Business Ethics
- Elements of Business Ethics
- Significance of Business Ethics
- Principles of Business Ethics
- Ethical Intensity Levels
- Ethical Business Activities
- What is Unethical Business Behaviour
- Guidelines for Ethical Behaviour
- Stimulation of Ethics in Business by 5 P’s
- Ethical Code of Conducts in Business
- Factors Causing Unethical Conducts
- Factors Influencing Business Ethics
- Risks of Ignoring Ethics in Business
- Corporate Code of Ethics
- Benefits of Code of Ethics
- Limitations of Code of Ethics
- Making Code of Ethics Successful
Business Ethics – Definitions Provided by P.W. Wright, Webster, Hurley, Wheeler and T. M. Garrett
Business ethics deals with determination of rules or behaviour of business enterprises. It determines Tightness or wrongness of actions of businessmen. “It is the study of what is ethically permissible and of what is positively virtuous, in regard to business activity.”
‘Management ethics’ is a concept closely related to the concept of social responsiveness of a firm. It is “the discipline of dealing with what is good and bad, or right and wrong or with moral duty and obligation.”
“It is the set of moral principles that governs the actions of an individual or a group.” Business ethics is the application of ethical principles to business relationships and activities. It governs the way a business runs and carries its operations. It determines the standard of behaviour that guides managers at work.
Business ethics is concerned with the behaviour of a businessman in doing a business. Unethical practices are creating problems to businessmen and business units. The life and growth of a business unit depends upon the ethics practiced by a businessman. Business ethics are developed by the passage of time and custom. A custom differs from one business to another. If a custom is adopted and accepted by businessmen and public, that custom will become an ethic.
Business ethics is not only applicable to any particular type of business but is applicable to every type of business. The social responsibility of business requires the observing of business ethics. A businessman should not ignore the business ethics while assuming social responsibility.
The word ‘ethics’ is derived from ‘ethos’, which to refers character. In literature, ethics means a set of principles or morals. The adoption of morality results in forming an ethic in the performance of a work.
P. W. Wright defines, “Ethics is that branch of philosophy which is the systematic study of reflective choice, of the standards of right or wrong by which it is to be guided and of the goods towards which it may ultimately be directed.”
Webster defines ethics as “the discipline dealing with that which is good and bad and with moral duty and obligation.”
Hurley defines, “Ethics as a system of moral principles.”
There is no unanimity of opinion about what business ethics is? Eminent authors define business ethics in their own way.
Some of the important definitions of business ethics are given below:
Wheeler, “Business ethics is an art and science for maintaining, harmonious relationship with society, its various groups and institutions as well as reorganising the moral responsibility for the lightness or wrongness of business conduct.”
T. M. GARRETT “Business ethics is primarily concerned with the relationship of business goals and techniques to specifically human ends.”
Business ethics may be defined as a set of moral rules and principles to protect the interest of customers, employees, society, business unit and the industry as a whole.
Business Ethics – Nature
Firstly, the concept of Ethics deals with human beings only, because only human beings have been endowed with the freedom of choice and the means of free will. Only a human being can distinguish between good and evil, between right and wrong, between just and proper. Only a human being can distinguish between the end which he wishes to pursue and the means to gain that end. Hence, only for a human being, does the question of ethics, values and moral conduct arise.
Secondly, the study of Ethics has today become a set of systematic knowledge about moral behaviour and conduct. Hence, the study of Ethics is a science-a field of Social Science.
Thirdly, the science of ethics is a normative science. Normative sciences judge the value of the facts in terms of an ideal. Normative sciences are concerned not with factual judgements but with judgements of what ‘ought to be’. Hence, Ethics is concerned with judgement of value or what ought to be. Ethics seeks to determine the nature of the norm, ideal or standard, and seeks to enquire into the fitness of human actions to this ideal.
Fourthly, Ethics deals with human conduct which is voluntary and not forced or coerced by persons or circumstances. That is exactly why injuring or even killing a person who has come to kill you is not considered a moral or legal offence, whereas a cold-blooded murder is considered to be the highest kind of moral and legal crime.
Ethics is basically an area dealing with moral judgement regarding voluntary human conduct. Moral Judgement requires moral standards by which to judge human conduct. These moral standards are the ultimate end or the highest good for all concerned. Ethics tries to set the standard for the ultimate end or the highest good to be perused.
Moral standards are also related to moral obligations, or the duty to do what we consider to be ‘right’ and ‘proper’. The primary objective of Ethics is to define the highest good of man and set a standard for the same. In doing so, Ethics has to deal with several inter-related and complex problems which are psychological, legal, commercial, philosophical, sociological and political in nature.
Business Ethics – Objectives
The objectives of ethics are manifold. Ethics –
i. Studies human behaviour and makes evaluative assessment about them as moral or immoral (a diagnostic goal);
ii. Establishes moral standards and norms of behaviour;
iii. Makes judgement upon human behaviour based on these standards and norms;
iv. Prescribes moral behaviour and makes recommendations about how to or how not to behave (therapeutic goal);
v. Expresses an opinion or attitude about human conduct in general.
Business Ethics – Characteristics: Applied Ethics, Comprehensive Term, Collective Term, Principles, Different from Morals and Different from Law
1. Applied Ethics – Business ethics is a form of applied ethics. It applies the moral principles to business situations. It deals with moral issues in business.
2. Comprehensive Term – Business ethics is a comprehensive term as it covers all business practices and policies. Business ethics regulates both the ends of business as well as the means used to achieve those ends.
3. Collective Term – It is the conduct of individuals which collectively moulds the conduct of business. Therefore, moral standards need to be inculcated in individuals at the collective level, i.e., organisation as a whole.
4. Principles – As principles of personal and professional conduct, ethics is universally applicable in all businesses.
5. Different from Morals – The terms ethics and moral are used interchangeably. But ethics is broader than morals. Morals indicate what people do while ethics represents what people should do.
6. Different from Law – Ethics is different and not coextensive with law. Though law contains several ethical principles of society, ethics is broader than law, customs, and public opinion. Some acts may not be illegal {e.g., cow slaughter) but are unethical.
Business Ethics – Elements: Top Management Commitment, Publication of a Code, Establishment of Compliance Mechanism, Measuring Results and a Few Others
The word ‘ethics’ has been derived from a Greek word ‘ethics’ which refers to the moral principles or customs that govern a person’s behaviour.
Business ethics refers to the combination of moral principles, values and norms that govern the business decision and actions.
Ethical business behaviour will include the right business practices like paying fair wages/ salary to its employees, offer good quality goods and service, not pollute the environment and so on.
Unethical business behaviour is reflected in the wrong business practices like overcharging, black marketing, adulteration etc.
Over the past few years we have witnessed a phenomenal shift in the approach of the business towards adopting ethical business practices commonly best business practices. This paradigm shift has occurred due to multiple factors like, increasing awareness among the consumers, globalisation, and stringent government measures and so on.
The basic elements of business ethics are described below:
1. Top Management Commitment:
The top management in every organisation plays a vital role in instilling and developing an ethical culture within the organisation. They have the power to shape the working of the organisation through their exemplary behaviour.
2. Publication of a ‘Code’:
The well-defined guidelines for the ‘code of conduct’ is essential for the effective implementation of ethical business behaviour. A ‘code’ refers to the principles of conduct for the whole organisation in the form of written documents and propagates values like honesty, sincerity, adherence to laws and so on.
3. Establishment of Compliance Mechanism:
The existence of an effective controlling system is must to ensure that the employees do display desired ethical behaviour. This may be done through setting-up compliance mechanisms like efficient communication systems, audit controls, etc.
4. Involving Employees at all Levels:
It is imperative that employees’ participation is sought both in defining and implementation of the necessary code of conduct within the organisation. Through active involvement of the employees it will be easy to mould their attitude in the right perspective.
5. Measuring Results:
In order to ensure ethical behaviour within the organisation, regular and timely follow-up actions are a must. This helps the organisation to take appropriate actions to ensure the achievement of the desired results.
Business Ethics – Significance: Enlightened Self-Interest, Moral Consciousness, Public Image, Social Pressure, Legal Imperative, Employee Welfare and a Few Others
Ethics is necessary and important in business due to several reasons which are given below:
1. Enlightened Self-Interest:
Ethical conduct is in the long-term interest of businessmen. A business enterprise that is honest and fair to its customers, employees, and other stakeholders earns their trust, and goodwill. Business ethics creates self- discipline on the part of businessmen making them honest, just and responsible citizens. It ultimately results in customer satisfaction, healthy competition, industrial peace, and higher earnings.
2. Moral Consciousness:
Ethical business behaviour is not only good business but good citizenship as well. Morally conscious businessmen have created a name for themselves and built business empires. They serve the customers with good quality at fair prices, treat employees with respect, and dignity, and reward shareholders with good dividends, and capital gains, and pay taxes honestly.
3. Collective Human Endeavour:
Business is a group of human beings working in an orderly manner. The interests of several groups are involved in it. Shareholders, employees, customers, Government are examples of these stakeholders. Ethical business behaviour helps to serve them all. If human element is taken out from business, there is no other live factor of production.
4. Public Image:
Ethical policies and practices enable a business enterprise to build goodwill for itself. A business firm that adheres to morality gains a competitive advantage and builds long-term value. On the other hand, unethical practices ultimately lead to closure of business. Enron, Worldcom, Tyco, Lehman Brothers are some examples.
5. Social Pressure:
Trade unions, consumer forums, shareholders’ associations, and other social groups pressurise business firms to behave ethically. These groups oppose unethical business practices such as false claims in advertisements, profiteering, exploitation of labour, etc. Business makes use of society’s resources and must discharge its social obligations through ethical behaviour.
6. Legal Imperative:
Several laws are in force to discourage unethical practices in business. Any business man who indulges in unfair trade practices faces severe penalties under the law. It is obligatory for businessmen to conduct business in an ethical manner. The cost of unethical business behaviour can be very high.
7. Stability and Peace in Society:
Business can prosper only when the society is stable and peaceful. Unethical business practices create distrust, disorder and turmoil in society.
8. Employee Welfare:
Ethical business behaviour helps to boost the morale and job satisfaction of employees. They feel safe and comfortable. High employee morale leads to higher productivity and higher earnings for business.
Business enterprises are economic institutions and they seek profits. But it is incorrect to assume that they have nothing to do with ethics and morality. No doubt a business concern is a commercial venture and its primary motive is profit. But businessmen are an integral part of society.
Any unethical action on their part will be harmful to society and ultimately harmful to business. For example, flushing of factory wastes into rivers without treating them would spoil public health making it difficult for business to hire healthy workers. Moreover, the business firm would lose its reputation in society, tricks like adulteration, overcharging, misleading advertising, may initially increase profits but ultimately result in loss of public trust, and market control.
Frauds and scandals in business have led to the downfall of both the enterprises and their owners. Several rivers in many countries have been so much polluted by industries that their water is not suitable even for irrigation.
As a result business firms find it difficult to obtain agricultural products as raw material for their industries. If, for example, a business firm asks an employee to tell lies to a customer to close a sale or suppress a material fact, it is likely to lose the customer trust in the long run. Moreover, the employee may adopt unethical practices at the cost of the firm.
Business and ethics are complementary terms. By adopting ethical norms in business, business can ensure its long-term survival and success. Business must care for the welfare of the society of which it is an integral part.
There is a growing realisation among businessmen that ethical behaviour is not only right it pays off financially as well. Ethics is essential for every business and for the progress of every society. In the long run, ethics and business go together. According to the Institute of Business Ethics companies displaying a clear commitment to ethical conduct consistently outperform companies that do not display ethical conduct.
Business like other human activities pre-supposes morality and would be impossible without it. To sum up, “good ethics is good business.”
Business Ethics – Principles: Be Trustful, Keep an Open Mind, Meet Obligations, Have Clear Documents, Become Community Involved, Ethical Codes and a Few Others
1. Be Trustful:
Recognise customers want to do business with a company they can trust; when trust is at the core of a company, it’s easy to recognise. Trust defined, is assured reliance on the character, ability, strength, and truth of a business.
2. Keep an Open Mind:
For continuous improvement of a company, the leader of an organisation must be open to new ideas. Ask for opinions and feedback from both customers and team members and your company will continue to grow.
3. Meet Obligations:
Regardless of the circumstances, do everything in your power to gain the trust of past customers and clients, particularly if something has gone away. Reclaim any lost business by honouring all commitments and obligations.
4. Have Clear Documents:
Re-evaluate all print materials including small business advertising, brochures, and other business documents making sure they are clear, precise, and professional. Most important, make sure they do not misrepresent or misinterpret.
5. Become Community Involved:
Remain involved in community-related issues and activities, thereby demonstrating that your business is a responsible community contributor. In other words, stay involved.
6. Maintain Accounting Control:
Take a hands-on approach to accounting and record keeping, not only as a means of gaining a better feel for the progress of your company, but as a resource for any “questionable” activities. Gaining control of accounting and record keeping allows you to end any dubious activities promptly.
7. Be Respectful:
Treat others with the utmost of respect. Regardless of differences, positions, titles, ages, or other types of distinctions, always treat others with professional respect and courtesy. — Institute of Business Ethics (IBE).
8. Ethical Codes:
Codes of ethics or codes of conduct prescribed by trade associations, chambers of commerce {e.g., FICCI), professional bodies (e.g., The Institute of Chartered Accountants of India, All India Management Association, etc.) guide, and govern the behaviour of businessmen and managers.
Business Ethics – Ethical Intensity Level: Individual Level, Corporate Level, Societal Level and Global Level
Within overall business scenario, there are 4 main levels of ethical intensity in that ethical issues and performance may be considered.
The levels are:
(i) Individual level – It is concerned with individual values, perceptions and motives. The intellectual bias is an important part of spiritual development. Probably, it has the issues like bribery, corruption and unethical behaviour etc.
(ii) Corporate level – It is concerned of the ethical values with social motives. Some issues like anti-competitive practices, immoral attitudes, black marketing, misleading tasks and fiduciary responsibilities etc., may be included in it.
(iii) Societal level – The ethical aspects at society level have a comprehensive part to be based on social values. Some of the issues like intellectual rights, discrimination in resource utilisation, protect unsocial elements and issues of cultural respects are included in it.
(iv) Global level – It is concerned with global environment, human rights and duties and technology utilisation etc.
Business Ethics – Ethical Business Activities Observed by Business Managers
Amongst a host of ethical activities that managers perform, a study conducted by Barry Posner and Warren Schmidt highlights the following ethical activities observed by business managers:
1. The foremost goal of managers is to make their organizations effective.
2. Profit maximization and stockholders’ interest is not the central goal of managers.
3. Attending to customers was seen as important.
4. Integrity was the characteristics most highly rated by managers at all levels.
5. Pressure to conform to organizational standards was seen as high.
6. Spouses are important in helping their mates grapple with ethical dilemmas.
7. Most managers seek the advice of others in handling ethical dilemmas.
Business Ethics – What is Unethical Business Behaviour: Environmental Competition, Inter-Organisational Dependence, Pressure for High Performance and a Few Others
Unethical behaviour is that which does not follow the moral rights, obligations and duties.
The following factors contribute to unethical business behaviour:
1. Environmental Competition:
In industries where there is intense competition amongst the companies producing similar products like paper industry, electrical industry, etc. companies tend to foster unethical behaviour in their desire to win customer confidence.
2. Inter-Organisational Dependence:
Companies that manufacture tinned food items can sell them after getting approval of Food Products Organisation (FPO). To expedite such approvals, companies tend to resort to unethical practices like bribery or presentation of false data or samples.
Bribery and kickback can take the forms of money (paying money to get the work done, for example, paying money to an official to obtain license for starting a business), gifts (to get the work done by offering gifts like jewellery, electronic gadgets etc.), entertainment (offering facilities in five star hotels, foreign trips etc.) or political contributions (giving donations to political parties for their election campaigns, providing them hotel accommodation etc. in order to procure quotas, licenses or orders.)
(a) Bribery is a payment or remuneration for performing an act which is inconsistent with the nature of work or for which one has been hired to perform. It is in the form of personal payment, gift or special favour to an official to get the work done.
(b) Kickback is different in terms of mode of payment from bribery. In this, payment is given after the favour gets completed.
3. Pressure for High Performance:
When workers are pressurised by management to report high performance in terms of production, they may adopt short cuts, compromise with quality and speed up the assembly line. This is unethical in nature.
4. Poor Financial Performance:
If firms are reporting financial losses and heavy debts and are unable to recover them through regular business operations, they many adopt unethical practices to convert their loss-incurring units into profit making units. (This was done by Satyam Computers in 2009).
5. Labour Dissatisfaction:
If workers are dissatisfied with their employers’ behaviour and policies, they resort to unethical behaviour to show the discontentment and disregard for their employers.
Business Ethics – Guidelines for Ethical Behaviour Prescribed by James O’ Toole
Though each individual or group has own set of ethical values, a few guidelines are prescribed by James O’ Toole to be followed by managers:
1. Obey the law – Obeying legal practices of the nation is conforming to the ethical values.
2. Tell the truth – Disclosing fair accounting results and telling the truth are also ethical behaviour of managers.
3. Respect for people – Management ethics requires managers to respect people who have any connection with business.
4. The golden rule – The golden business principle is “Treat others as you would want to be treated”. This will always result in ethical behaviour.
5. Above all, do not harm – Even if law does not prohibit use of chemicals for producing certain products, managers should avoid using them if they pollute the environment.
6. Practice participation – Not paternalism – Managers should not decide on their own what is good or bad for stakeholders. They must assess their needs, analyze them in the light of business needs, and integrate the two by allowing stakeholders to participate in the decision-making processes.
7. Act when you have responsibility – Actions which should be taken by managers only (given the level of their competence and skill) must be conscientiously taken by them for the benefit of the organizations and the stakeholders.
Business Ethics – Stimulation of Ethics in Business by 5 Ps: Purpose, Perspective, Persistence, Patience and Pride
There are 5 Ps which denotes the ways and means to stimulate the ethics in business.
The 5 Ps are briefly stated here:
1. Purpose (P1) – The corporate missions and values determine the purposes and intelligences pertaining to ethics with some signifying aspects.
2. Perspective (P2) – It stimulate the quality and skills of individual, acceptable, ethical parameters and most excellences in performance by ethical grounds.
3. Persistence (P3) – There are some challenging and uncertainties in ethical ways but one needs to determine with diligently the challenging aspects to stimulate the ethical norms.
4. Patience (P4) – It is being a part of sacrificing to wait for the right time to follow the ethics. There is a need of long term existence for it.
5. Pride (P5) – It is being self-esteem and self-importance that have a goodness to follow and implement the ethical behaviour.
Business Ethics – Ethical Code of Conducts in Business: Code of Ethics and Code of Conduct
Within the purview of business scenario, there is a need to formulate the code of conducts in context of the ethical parameters to be designed. In order to implement and perform the business activities properly, there is a need to formulate the code of conducts by means of different aspects.
In any business, there is need to prepare two types of code of conducts as given here:
1. Code of Ethics:
The contents of the code of ethics for any business are briefly stated here:
i. There is an accommodation of business plans, policies, programmes among different employees,
ii. The formulation of ethical rules towards different operational tasks of organisation,
iii. The formulation of values are essential in managerial practices and to perform the role and behaviour of employees,
iv. Ethical decision making process and its implications by ethical rules and value based assumptions,
v. The determination of values with rights and responsibilities in context of policy implementation, transparency, coordination, accountability, integration and management etc.,
vi. Identify and formulation of values needed to make the standards of behaviour towards build up the ‘SWOT’ areas and its implications,
vii. Identify and consider some top level of ethical values which are much needful at the work performance stages. The values may be truthfulness, integrity, loyalty, respect, kindness, pursuit of excellences, fairness, justice, impartiality and accountability etc.,
viii. The specified corporate ethical rules may be formulated and included in code of conducts. Some of them are- to maintain a certain level of quality standards, to make a better level of work performance, to manage healthy work culture and to discourage the unethical conducts and behaviour,
ix. It is also needful to listing out to honour the fundamental rights of consumers in the market,
x. Review and analyse the ethical norms and standards that are needful at our work performance as well as relevant to laws and regulations.
2. Code of Conduct:
The contents of the code of conduct of any business may incorporate the aspects as given here:
i. Policies, Plans and Strategies – The policies, plans and strategies of the concern may be included in the code of conducts concerning the business. They provide basic directions, guidelines and parameters towards the managerial and organisational functions which can be carried out.
ii. Visions and Missions – The visions and missions concerning of the goals orientations and prospective paths to be achieved. These are the aspirations to get a better and appropriate managerial goals. All the relevant directions are based on the visions and missions in the business code.
iii. Norms and Regulations – The norms and regulations in respect of administrative and managerial caders in business may be included in it. The provisions about directors, secretary, shareholders and different partners and standards of their business relations are involved in it.
iv. Business Practices – There are different business practices as decisional, directional, leadership, motivational, informational and liasional etc., are performing in business. It is required to determine the norms, standards and basic directions to perform these practices which may be included in business code of conduct.
v. Employees’ Practices – The employees perform several operational tasks. The code may include their work specifications, standards and different target oriented norms towards making some excellences in corporate governances.
vi. Business policy documents – The code for business is required to involve the Business policy documents. These documents may incorporate the policy frame work, business rules and regulations, objectives and targets, memorandums, standards, projects, programmes and procedures etc.
vii. Communication and Information – There is a need of fair and effective communication system in the organisation. The code of conducts may involve the required methods, means and medias of communication and on these basis a frequent and proper facts and information may be transferred to different stakeholders.
viii. Organisational Structure – The organisational structure as based on activities, skills, decision making and mutual relations may be involved in it. It provide the norms and parameters about work determination, right and duties, responsiveness, delegation of authority, span of control and work performance etc.
ix. Customisation – Customisation is an important part in business activities. So, the policies, provisions and techniques of customisation may be incorporated in code of conduct of any business.
x. Service Standards – The business organisations formulate the pre and after sale services for their customers. So the standards, methods and practices about services may be incorporated in code of conduct.
xi. Marketing Strategies – There are different strategies in respect of product, price, place, promotion and services which are introduced by business houses. The standards and process of these strategies may be included in it.
xii. Transparency – The norms and parameters for good transparency may be included particularly for true and reliable practices for timely disclosure with right information.
xiii. Accountability – Within the framework of administrative board, the level and composition of accountabilities are also a foremost part towards the formation of business practices. It also specified the distribution of rights and responsibilities among different people as engaged in business.
Business Ethics – Factors Causing Unethical Conducts
There are different causes to be responsible to create unethical and undesirable role and behaviour of business.
Some of them are stated here:
1. In present business environment, the feelings of vested interest and self-interest with wishful tendencies have been arising among businessmen, managers, employees, and other groups of persons,
2. There are increasing trends and attitudes to earn more and more profit among all the persons in entire business areas,
3. Almost in every part of organisation, there are self-centered, narrow mindedness, lack of tolerance and flattering arising among people. These tendencies could not develop the ethical behaviour,
4. There are some decreasing tendencies about to make character in human beings. With the declining of character, the morality and other value based behaviour cannot develop properly.
5. We are not being fully prepared to discourage and overcome the social evils and unethical behaviour in our society,
6. There are wide tendencies of dishonesty, indifferences, unpoliteness, untolerances and undesirableness among different persons engaged in business areas,
7. There are a wide range of materialistic development, undesirable technological upgradation, untolerable fashions and false knowledge of ethical education which are also some important causes to be responsible for unethical behaviour in society.
8. In most of the cases, the business houses are not fully aware to fulfill the social responsibilities towards different sections of the society,
9. There is an attitude of dishonesty and unjustified treatment to get undue benefits and keeping contracts with the business partners,
10. There is a cheating or fraud with the customers. There is unfair practices, misrepresentation and dishonest advertisement etc., which may develop the negative attitudes and behaviour,
11. There is a discrimination in recruiting, hiring and selection of employees. Also, there is biased promotion, transfer and transmission of the work that duly affects negatively among employees,
12. In business, there is a misuse to organisational funds or business assets or an over capitalisation exists. Besides, a tax concealment or evasion procedure is adopted by the concern secretly, by contravening the tax laws.
Thus, within the purview of business scenario, the profit and service motives have mutually interrelated and visualise the optimum business performance. The ethical norms and values may be able to coordinate the business tasks and determine the right and wrong conducts and behaviour.
Business ethics are based on social values and provide basic standards towards business excellences.
Business Ethics – Factors Influencing Business Ethics: Social Factors, Cultural Factors, Economic Factors, Political Factors, Organisational Factors and a Few Others
The major factors that influence the level of ethics in business are as follows:
1. Social Factors:
Every society has its own values, norms, beliefs, and customs. Business is a part of society and therefore, social morality determines business morality. As social values and norms change, business ethics also undergoes change. A business person’s level of ethics is conditioned by the values of his/her family, relatives, friends, etc.
2. Cultural Factors:
Cultural values originate from religion, heritage, family system, education system, etc. These values mould the norms and values used in business. Cultural values are passed on from one generation to another. They exercise an everlasting influence on business behaviour.
3. Economic Factors:
The level of economic development in a country influences the nature and level of business ethics. In general, business ethics tend to become more liberal with industrial and commercial growth. For example, in a highly competitive business, comparing one’s product with competitive products in advertisements is considered ethical.
4. Political Factors:
The ideology of the political party in power exercises influence on business ethics. Government regulates business behaviour through legislation. For example, Government of India’s policy of liberalisation, privatisation, and globalisation (LPG) since 1991 has led to a shift in business ethics.
5. Organisational Factors:
The philosophy of promoters, management policy, and attitudes, superior-subordinate relations influences the ethical perception, judgment, and behaviour of a business enterprise.
6. Business Associations:
Trade associations, chambers of commerce, and professional bodies (e.g., All India Management Association, Institute of Chartered Accountants of India) prescribe codes of conduct for their members. These codes help to improve ethical standards on the part of businessmen and managers.
7. Media:
Media and judiciary have in recent years become more active. They put pressure on unethical businessmen to shun unethical practices. Media also highlights the activities of ethical businessmen and executives.
Business Ethics – Risks of Ignoring Ethics in Business: Harms the Sale, Negative Returns, Criminal Cases and a Few Others
1. Unethical Behaviour Harms the Sales – Different surveys show that the people decide to buy a firm’s goods or services partly on their perception of its ethics.
2. Negative Returns – Investments in unethical firms earn abnormally negative returns. Why should people buy the stock of a company which disregards ethics?
3. Unethical Behaviour Promotes Civil/Criminal Cases – Unethical behaviour of a business enterprise worsens the risks from civil/criminal cases. It should be remembered that today’s ethical guidelines are tomorrow’s legal requirements.
4. Once viewed as a Corrupt Company Become One for All Time – It takes years to build a good business reputation, but one false move can destroy it overnight. Moral bankruptcy eventually leads to financial bankruptcy.
5. Unethical Behaviour Encourages Employees Frauds – Ethics keeps employees of a firm under moral obligations of doing their work honestly and efficiently. Unethical behaviour, conversely, helps employees’ in indulging scandalous activities.
6. Unethical Behaviour Worsens Productivity – “Nobody should have any doubts of the linkages between poor ethics in the workplace and low productivity. When workers don’t trust each other and their supervisors, then morale is low, stress is high and output is undermined.”
7. Unethical Behaviour’s Others Effects-
(i) Unethical behaviour in business has adverse effects on profits.
(ii) It affects customers’ retention.
(iii) It affects employees retention as well. It is always costly to lose good employees.
(iv) It worsens sabotaging behaviour. — Josephson Institute of Ethics
Business Ethics – Corporate Code of Ethics
Managers at all levels and in all functional areas face ethical issues. In fact there is seldom a decision wherein an ethical dimension is not involved. Matters of right and wrong, just and unjust, fair, and unfair arise frequently. In order to deal with these issues, managers need some guidelines. Organisations, both business, and non-business formulate such guidelines in the form of a code of conduct or code of ethics.
The need for a corporate code of conduct has increased due to frequent corporate scandals, insider trading, and misuse of funds. With globalisation of business, more and more companies are developing codes of ethics. Moreover, every profession has a code of conduct for its members.
The Institute of Chartered Accountants of India, Medical Council of India, Bar Council, All India Management Association (AIMA), and other professional bodies have their own professional codes.
A corporate code of conduct may be defined as a document which contains the core values and moral principles which all those working in the company are expected to follow in the course of their duties and day-to-day activities. It reflects a commitment and measures taken by the company to ensure ethical behaviour on the part of its members.
It indicates how employees should act in general and in specific situations. A code of conduct lays down ‘dos’ and ‘do nots’. It describes socially acceptable and responsible behaviour. A code of ethics is a tangible guide to ethically desirable behaviours.
Business Ethics – Benefits of Code of Ethics as Listed by Mark Schwartz
A corporate code of conduct helps members to promote high standards of ethics and practice. It makes them aware and become sensitive to ethical dilemmas. By adhering to the code of conduct, business-people can observe high standards of conduct and personal integrity so as to win the trust and confidence of stakeholders.
Mark Schwartz has listed the following advantages of code of conduct:
1. As a rulebook, the code acts to clarify the behaviour expected from employees.
2. As a signpost, the code guides employees to consult others to determine their appropriate behaviour.
3. As a mirror, the code gives employees a chance to confirm if their behaviour is acceptable or not.
4. As a magnifying glass, the code serves as a notion of caution to be careful before acting.
5. As a shield, the code helps employees to resist unethical requests.
6. As a smoke detector, the code helps to convince others and warn them of in appropriate behaviour.
7. As a fire alarm, code helps employees to report violations to appropriate authority.
8. As a club, code causes employees to comply with its provisions.
According to the Josephson Institute of Ethics code of ethics – (i) creates trustworthiness – honesty, integrity, promise-keeping, loyalty; (ii) enhances respect- autonomy, privacy, dignity, courtesy, tolerance, acceptance; (iii) develops responsibility – accountability, pursuit of excellence; (iv) inculcates caring – compassion, consideration, giving, sharing, kindness, loving; (v) establishes justice and fairness – procedural fairness, impartiality, consistency, equity, equality, due process; (vi) helps civic virtue and citizenship – law abiding, community services, protection of environment.
Business Ethics – Limitations of Code of Ethics
(i) Code of conduct does not provide answers to all the problems that may arise in business. For example, to boost sales whether to increase sale staff or to increase advertising budget.
(ii) Ethics are subjective and may not deal with the realities of business.
(iii) Moral standards contained in a code are inflexible and become out-dated with changing times.
(iv) It is difficult to enforce a code of conduct under highly competitive and tempting conditions.
(v) Ethics committee, ethics officers, and grievance cell have to be set up to implement a code of conduct. These involve cost in terms of time and money.
Business Ethics – Steps for Making the Code of Ethics Successful
Some of the steps that can be taken to make the code of conduct effective are as follows:
1. Establish compliance standards and procedures that can reduce misconduct.
2. Top management to set an example by following the code diligently.
3. Ethics officers consisting of Heads of Departments to oversee compliance with the standards and procedures.
4. Do not assign substantial discretionary authority to anyone.
5. Communicate and explain standards and procedures to all the employees.
6. Regular monitoring and reporting of violations.
7. Training programmes to contain ethics training.
8. Full protection to those who report violations.
9. Appropriate disciplinary measures to enforce the code of conduct.
10. Appropriate response to prevent violations in future.