Module 6-Business Ethics

Introduction:
The word ethics is derived from the greek word ethikos meaning custom or character. It is the science of morals describing set a set of rules of behaviors. Business ethics itself is an offshoot of applied ethics. The study of business ethics essentially deals with understanding what is right and morally good in business.

Meaning of ethics:
Ethics is a branch of philosophy and is considered a normative science because it is concerned with the norms of human conduct, as distinguished from formal sciences such as mathematics and logic, physical sciences such as chemistry and physics and empirical sciences such as economics and psychology. As a Science, ethics must follow the same rigours of logical reasoning as other sciences. Ethics is a conception of right and wrong behavior, defining for us when our actions are moral and when immoral.

Business ethics:
Business ethics is the art and discipline of applying ethical principles to examine and solve complex more dilemmas. Business ethics proves that business can be and have been ethical and still make profits. Business ethics is the application of general ethical ideas to business behavior. The principles of ethical reasoning are useful tools for sorting out the good and bad components within complex human interactions. Ethical business behavior is expected public, prevents harm to society, improves harm to society, improves profitability, fosters business relations and employee productivity, reduces criminal penalties, protects business against unscrupulous employees and competitors, protects employees from harmful actions by their employer and allows people in business to act consistently with their personal ethical beliefs. Ethical problems occur in business for many reasons including the selfishness of a few, competitive pressures on profits, clash of personal values and business goals and cross-cultural contradictions in global business operations.

Relation between ethics and business ethics:

There are definite interconnections between ethics and business ethics. Many of the theories, principles, concepts and precepts of ethics are successfully used in business ethics. There are 3interrelations between these subjects: 1. Ethical theories offer various concepts and precepts which are relevant to business managers in conceptualizing certain ethical issues in relation to business. Some of the concepts are deonticism, utilitarianism, consequentialism, morality, value and virtues and so on. 2. Ethical theories provide a set of analytical guidelines and moral standards which can be directly or indirectly applied to the solutions of business problems in a fairly, just and satisfactory way proper knowledge of the standards and principles of ethics can make a manager more analytically capable and expert in interpreting many ethical issues in business in day to day life. 3. One of the most important ways in which ethical theories can contribute to business management is the building up of ethical models (framework) about ethical decision making, ethical audit, solving ethical dilemmas and so on. This exercise helps managers understand the structure of ethical problems in management and assist in providing an ethical solution to the same.

Evolution of Business Ethics:

The study of business ethics evolved through five distinct stages; (1) before 1960, (2) the 1960's, (3) the 1970's, (4) the 1980's, and (5) the 1990's, and continues to evolve in the twenty-first century. a) Before the 1960's, business ethics were discussed primarily through a religious perspective. It was in 1962 that John F. Kennedy established the Consumer's Bill of Rights, in which he outlined four basic consumer rights: the right to safety, the right to be informed, the right to choose and the right to be heard. b) In the 1970's, business professors began to write and teach about social responsibility, an organization's obligation to maximize its positive impact on stakeholders and minimize its negative impact. Companies became more concerned with their public image and wanted to address ethical issues more directly. c) In the 1980's, centers of business ethics provided publications, courses, Conferences, seminars, ethics committees, and social policy committees. The Defense Industry Initiative on Business Ethics and Conduct was developed to guide corporate support for ethical conduct. Its principals had a major impact on corporate ethics. This effort established a method for discussing best practices and working tactics to link organizational practice and policy to successful ethical compliance.

d) In the 1990's businesses with international operations set up new ethical issues. The Federal Sentencing Guidelines for Organizations was approved by Congress in 1991 to reward organizations for taking actions to prevent misconduct, such as developing effective internal legal and ethical compliance programs. e) In 2002, Congress passed the Sarbanes-Oxley Act which made securities fraud a corporate offense and stiffened penalties for corporate fraud. Top executives are now required to sign off on their firms' financial reports, and they risk heavy fines and long prison sentences if they misrepresent their company's financial position. The term ethical culture can be viewed as the Character or decision making process that employees use to determine whether their responses to an ethical issue are right or wrong. An ethical culture creates shared values and support for ethical Decisions and is driven by top management.

Nature of Business Ethics:

1. Ethical Value: Business ethics is so concerned with morality in business. Todays world business community forms a large part of the society and its actions are bound to have a direct impact on the well being and welfare of the society. Therefore it is necessary that business community conducts its activities with self-check, self-control, self-sacrifice keeping always in mind the interest of community at large. 2. Relative Terms-Ethics is a relative term i.e, the concept of morality and immorality differs from one individual to other or society. What is moral in one society may be immoral in other. 3. Interest of society: Business ethics implies that the business should do first good to the society and then to itself. Business is an important institution and has a social responsibility to protect the interest of all those groups like employees, shareholders, consumers who contribute to the success of business. 4. Business-Society relationship-Business ethics set the terms and standards to understand the business-society relationship. It indicates what society expects from business and what it thinks about business. 5. Provide Framework-Like an individual, business is also bound by social rules and regulations. Business is expected to confine its activities within the limits of social, legal, cultural and economic en environment.

Importance of Business Ethics:

1. Ethical behavior can bring significant benefits such as: Attract customers to the firm's products, thereby boosting sales and profits make employees want to stay with the business, reduce labor turnover and therefore increase productivity Attract more employees wanting to work for the business, reduce recruitment costs and enable the company to get the most talented employees Attract investors and keep the company's share price high, thereby protecting the business from takeover. 2. Unethical behavior or a lack of corporate social responsibility, by comparison, may damage a firm's reputation and make it less appealing to stakeholders. Profits could fall as a result.

Need and purpose of Business Ethics:

1. Ethical behavior is a necessity to gain trust. Trust will be used as an indicator variable of ethics. Basically trust is three dimensional i.e, trust in supplier relationship trust in employee relationships and trust in customer relationships. 2. Trust leads to predictability and efficiency of business. Ethics is all about developing trust and maintaining it fruitfully so that the firm flourishes profitably and maintains good reputation. 3. Lack of ethics would lead to unethical practices in organizations as well as in personal life so following of ethics is very important. 4. Applying ethics in business makes good sense because it induces others to follow ethics in their behavior. Ethics are important not only in business but in all aspects of life.

Scope of Business Ethics:

Scope of business ethics are related to various levels which are as follows: Societal level: a) b) c) d) e) Concern for poor and down-trodden. No discrimination against any particular section/group. Concern for clean environment. Preservation of scarce resources for prosperity. Contributing for better quality of life.

Stakeholder level: I. Employees: a) Security of job.

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b) Better working conditions. c) Better Recommendations. d) Participative management. e) Welfare facilities. Customers: a) Better quality of goods. b) Goods and services at reasonable prices. c) Not to corner stocks and create securities. d) Not to practice discriminatory pricing. e) Not to make false claims about products in advertisements. Shareholders: a) Ensure capital appreciation. b) Ensure steady and regular dividends. c) Disclose all relevant information. d) Protect minority shareholders interest. e) Protect interests in times of mergers, takeovers and amalgamations. Banks and other lending institutions: a) Guarantee safety of burrowed funds. b) Prompt repayment of loans. Government: a) Complying rules and regulations. b) Honesty in paying taxes and other dues. c) Activity as partner in the progress of the country.

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3. Internal policy level: a) Fair practices relating to recruitment, compensation, lay-offs, perks and promotion. b) Transformational leadership to motivate employees to aim at better and higher things in life. c) Better communication at all level. 5. Personal policy level: a) Not to misuse others for personal ends. b) Not to indulge in politics in gain power. c) Not to spoil promotional chances of others. d) Not to use office car, stationary and other facilities in personal use. e) Promise keeping. f) Mutual help.

g) Not to adopt shortcuts for easy money making. h) No violence i) Respect for persons and property.

Sources of ethical knowledge for business roots of unethical behavior: Employees in the organization indulge in unethical practices such as lying, accepting bribery, coercion, conflicting interests etc. There are certain factors that make the employees to think and act in unethical ways. Some of such influencing factors are: 1. Pressure to balance work and family. 2. Poor communications. 3. Poor leadership. 4. Long working hours. 5. Heavy work load. 6. Lack of management support. 7. Pressure to meet sales or profit goals. 8. Little or no recognition of achievements. 9. Company politics 10. Personal financial worries. 11. Insufficient resources.

Ethical decision making:

While people have always had to face a host of complex ethical issues, the current environment of continuous and rapid change presents an array of novel challenges. In previous times, people could draw upon a fairly stable stock of values and principles that had been tried, tested and found to be relatively adequate to the task of providing guidance. Unfortunately, the shape of the world is such that it is no longer satisfactory to rely on a set of 'virtuous habits'. Instead, people need to be able to exercise sophisticated judgments and then justify their decisions by appeal to a set of well-developed reasons. In other words, people have to think through ethical questions and not just apply solutions that might have worked at some time in the past. If you are faced with an ethical dilemma and would like some quick pointers to help you on your way, the following questions should help you get started with your decision-making process: Is the decision you are taking legal? If not legal, it is not ethical Is the decision you are taking fair? In other words, it should be a win-win equitable risk and reward.

Some unethical Issues:

1. Bribery: Bribery is a manipulative method where one buys the power or the influence of other person in order to satisfy his selfish need. Bribes create a conflict of interest between the person receiving bribe and his/her organization. This conflict would result in unethical practices. When somebody is bribed for something his thinking and actions are oriented towards his personal goals. This direction towards personal goals always results in a mismatch between the interest of the organization and of the individual. When there is a mismatch between the goals, naturally he cannot be loyal to the organization and inturn he will indulge in unethical practices. 2. Coercion: Coercion is forcing a person to act in a manner that is against the persons beliefs It is an external force or a man-made constraint created in circumstances asking the other to act against his free will. Authority of the person who demands certain activity plays an important role i.e, blackmailing or arm-twisting an individual in an organization. This may be in the form of threat of blocking a promotion or loss of job. This sort of unethical practices in the organization will lead further unethical behavior of an individual. 3. Insider Trading: This is one form of misuse of official position by an individual in the organization. Here the employee leaks out certain confidential data to outsiders or to other insiders which inturn ruin the reputation of the company. Insider trading may lead to the bad performance of the company. If the employees trade the confidential matters, the competitor may intervene and make use of opportunity. Insider traders often defend their actions by claiming that they dont injure anyone. 4. Tax Evasion: There are major unethical practices towards tax evasion. Many large corporations hire the services of professional tax consultants to take advantage of loopholes in the law and evade taxes to the extent possible. The reason their attribute for such behavior is the prevalent rate of corporate taxation which is very high. In fact this has generated a parallel economy in spite of governments continuous Endeavours to channelize this money towards legitimate purposes. 5. Conflicts of interest: Even the most loyal employees can find that their interests collide with that of the organisation.Sometimes this clash of goals and desires can take serious form of conflicts.In an organistion conflict of interest arises when employees at any level behave with their private interests that are substantial enough to interfere with their job or duties.This conflicting interests in the individual and the decisions taken may act against the desire of the employer. 6. Pollution: The unethical practice towards pollution affects society and population to major extent.The high levels of pollution due to the indiscriminate and improper disposal of effluents by industries has rendered the world a highly unsafe place for progeny.

Benefits of managing ethics at workplace:

1. Attention to business ethics has substantially improved society- A matter of decades ago, children in our country worked 16-hour days. Workers limbs were torn off and disabled workers were condemned to poverty and often to starvation. Trusts controlled some markets to the extent that prices were fixed and small businesses choked out. Price fixing crippled normal market forces. Employees were terminated based on personalities.

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Influence was applied through intimidation and harassment. Then society reacted and demanded that businesses place high value on fairness and equal rights. Anti-trust laws were instituted. Government agencies were established. Unions were organized. Laws and regulations were established. Ethics programs help maintain a moral course in turbulent times-Attention to business ethics is critical during times of fundamental change -- times much like those faced now by businesses, both nonprofit and for-profit. During times of change, there is often no clear moral compass to guide leaders through complex conflicts about what is right or wrong. Continuing attention to ethics in the workplace sensitizes leaders and staff to how they want to act consistently. Ethics programs cultivate strong teamwork and productivity-Ethics programs align employee behaviors with those top priority ethical values preferred by leaders of the organization. Usually, an organization finds surprising disparity between its preferred values and the values actually reflected by behaviors in the workplace. Ongoing attention and dialogue regarding values in the workplace builds openness, integrity and community critical ingredients of strong teams in the workplace. Employees feel strong alignment between their values and those of the organization. They react with strong motivation and performance. Ethics programs support employee growth and meaning- Attention to ethics in the workplace helps employees face reality, both good and bad -- in the organization and themselves. Employees feel full confidence they can admit and deal with whatever comes their way. Bennett, in his article Ethics programs are an insurance policy -- they help ensure that policies are legalThere is an increasing number of lawsuits in regard to personnel matters and to effects of an organizations services or products on stakeholders. As mentioned earlier in this document, ethical principles are often state-of-the-art legal matters. These principles are often applied to current, major ethical issues to become legislation. Attention to ethics ensures highly ethical policies and procedures in the workplace. Its far better to incur the cost of mechanisms to ensure ethical practices now than to incur costs of litigation later. A major intent of well-designed personnel policies is to ensure ethical treatment of employees, e.g., in matters of hiring, evaluating, disciplining, firing, etc. Ethics programs help avoid criminal acts of omission and can lower fines-Ethics programs tend to detect ethical issues and violations early on so they can be reported or addressed. In some cases, when an organization is aware of an actual or potential violation and does not report it to the appropriate authorities, this can be considered a criminal act, e.g., in business dealings with certain government agencies, such as the Defense Department. The recent Federal Sentencing Guidelines specify major penalties for various types of major ethics violations. However, the guideline potentially lowers fines if an organization has clearly made an effort to operate ethically. Ethics programs help manage values associated with quality management, strategic planning and diversity management -- this benefit needs far more attention- Ethics programs identify preferred values and ensuring organizational behaviors are aligned with those values. This effort includes recording the values, developing policies and procedures to align behaviors with preferred values, and then training all personnel about the policies and procedures. This overall effort is very useful for several other programs in the workplace that require behaviors to be aligned with values, including quality

management, strategic planning and diversity management. Total Quality Management includes high priority on certain operating values, e.g., trust among stakeholders, performance, reliability, measurement, and feedback. Eastman and Polaroid use ethics tools in their quality programs to ensure integrity in their relationships with stakeholders. Ethics management techniques are highly useful for managing strategic values, e.g., expand marketshare, reduce costs, etc. McDonnell Douglas integrates their ethics programs into their strategic planning process. Ethics management programs are also useful in managing diversity. Diversity is much more than the color of peoples skin its acknowledging different values and perspectives. 8. Ethics programs promote a strong public image- Attention to ethics is also strong public relations admittedly, managing ethics should not be done primarily for reasons of public relations. But, frankly, the fact that an organization regularly gives attention to its ethics can portray a strong positive to the public. People see those organizations as valuing people more than profit, as striving to operate with the utmost of integrity and honor. Aligning behavior with values is critical to effective marketing and public relations programs. Consider how Johnson and Johnson handled the Tylenol crisis versus how Exxon handled the oil spill in Alaska. Bob Dunn, President and CEO of San Francisco-based Business for Social Responsibility, puts it best: Ethical values, consistently applied, are the cornerstones in building a commercially successful and socially responsible business. 9. Overall benefits of ethics programs-Business Ethics explain that managing ethical values in the workplace legitimizes managerial actions, strengthens the coherence and balance of the organizations culture, improves trust in relationships between individuals and groups, supports greater consistency in standards and qualities of products, and cultivates greater sensitivity to the impact of the enterprises values and messages. 10. Last - and most -- formal attention to ethics in the workplace is the right thing to do.

Recognising ethical organizations:

There are certain principles by which we can identify the ethical organizations: 1. On the basis of corporate excellence: Corporate excellence mainly centres on the corporate culture. Values and practice of such values constitute the corporate culture. Values of the organization give a clear direction to the employees. Values are found in the mission statement of the organisations. When values act in tune with the goals of organisation we call it as corporate culture of the organisation.Often we see conflicting interests between the value and organisations goal.An organisation must eradicate such impediments to be identified as an ethical organisation. 2. In reference to the stakeholders: Meeting the needs of the stakeholders by the activities of the managers determine whether the organisation is ethical or not.The top management represents the stakeholders and every decision taken must satisfy the needs of the stakeholder.The management is taking decisions must see that the stakeholders enjoy the maximum benefit of that decision. 3. In relation to corporate governance: Managers are only stewards of the owners of the assets of the company.Thus they are accountable for the use of the assets to the owners.If they perform well in the prescribed manner,then there would not be

much question of corporate governance.Such behavior of the top managers would generate ethical practices or atleast would encourage ethical practices in the organisations.If only the top management is paid as per their performance, this approach would work.

Approaches to Business Ethics:

1. Profit Motive Approach-Some Business people argue that there is a symbolic relation between ethics and business. Good ethics results in good business. Moral business practices are profitable. 2. Legal Approach- This approach assumes that moral obligations in business are restricted to what the law requires. Moral principles beyond the requirement of law. The unreasonableness of such a moral requirement are all the more evident in societies that do have a strong external source of morality. 3. Moral Obligations approach-The third approach to business ethics is that morality must be introduced as a factor that is external to both profit motive and law. This is the view of most philosophers of business ethics. The most convenient way to explore this approach is to consider among other. The five legal moral principles suggested by philosophers are: Harm Principle-Businesses should avoid causing unwarranted harm. Fairness principle-All business practices should be fair. Human rights principle-Business should respect human rights. Autonomy Principle-Businesses should not infringe on the rationally reflective choices of people. Veracity principle-Businesses should not be deceptive in their practices. 4. Social Approach-This approach enables the company to operate in such a way that it actively recognizes that central role of business plays in the structure of the society by initiating innovative ways to improve the quality of life of a broad community.

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