Group:2A (Assignment1)

Concepts and Theories of Business Ethics

Ethics and morality are often used interchangeably in our day to day language but the difference between
the two are stark. Morality refers to human conducts or values whereas ethics describes the nature of
morality. Ethics attempts to define and distinguish what is right from what is wrong and this distinction is
not easy. Similar to other disciplines like say economics where there are many opinions and no right answer,
ethicists have been discussing and comprehending it for the past 2500 years. As it deals with human
behavior it becomes more complex and layered hence difficult to understand. It is believed that moral
standards are influenced by a variety of factors like our upbringing, legacy, religious values, education,
experiences, explicit and implicit standards of society, culture etc. The influence of religion can be
demonstrated from the fact that each of them has provided its followers its own set of catechisms, moral
instructions, beliefs, values, traditions and commitments.

Management of business involves hundreds of decisions and while doing so, conflicts and ethical
dilemmas are part and parcel of this process. This requires a balancing act, involving analytical approach
and sound decision making in view of the fact that each of such decisions has its own rewards and penalties.
Business managers need to recognize the impact of their decisions and actions on their own organization
and community at large. Ethics is considered as a normative study, that attempts to reach normative
conclusions. Ethical theories in business include the consequentialist and non-consequentialist normative
theories and themes of egoism, utilitarianism and Kantian ethics.

Egoism associates morality with self interest which means that an act is morally right only if it best promotes
an agent’s (person, group or organization) long term interests. This theory neglects the consequences of a
decision on other parties.

Utilitarianism considers a decision to be ethical if it provides a greater net utility than any other alternate
decisions. In the organization usefulness of utilitarian is assessed by the policy decisions that if it supports
the welfare of all more than any other alternative, then it is good. Kant introduces an important humanistic
dimension to business decisions which is to behave in the same way that one would wish to be treated under
same circumstances and to always treat other people with dignity and respect. Each of these theories has
not been easily adopted by business organizations. Hence, it led to evolution of several normative theories
that suit specific business environment. Presently, three normative theories of business ethics namely
stockholder theory, stakeholder theory, social contract theory have evolved over a period of time.

The stockholder theory expresses business relationship between stock owners and their agents who are
managers running day-to-day business of the company. As per the theory, manager should pursue profit
only by all legal non-deceptive means. It basically means that the managers have no option except to follow
the dictates of their owners regardless of whether that decision can maximize profits.

The stakeholder theory argues that a corporate’s success in the market place can be assured by catering to
the interests of all its stakeholders, namely, shareholders, employees, customers, suppliers, management
and the local community. This objective is achieved when corporations adopt policies that would ensure
optimal balance among all stakeholders. This theory is criticized mainly because it’s not applicable in
practice by corporations and also little evidence is available to suggest a linkage between stakeholder
concept and corporate performance.
The social contract theory is nascent and still evolving normative theory of business ethics. It is based on
principles of social contract wherein it is assumed that there is an implicit agreement between society and
any created entity such as business unit, in which society recognizes the existence of a condition that the
business unit will serve the interest of society in certain specified ways. However, business firms do not
provide an unmixed blessing. The interests of the public as consumers can adversely be affected by business
firms when they deplete the irreplenishable natural resources, pollute the environment and poison water
bodies, help reduce the personal accountability of its members and misuse political power through their
money power and acquired clout.