Unit 4: Business ethics

Concept of Business Ethics

Ethics is the Code of Moral principles and values that govern the behavior of a person or groups
with respect to what is right or wrong. Ethics sets standards as to what is good or bad. It is a standard of
behavior. So, business ethics is standard of business activities that are ethical in nature.
Business ethics are the standard of behavior that guide individual in their work and shape the
decision making in business.
 Ethics are formed by peer, life experience, personal value, moral and situation.
 Organizations use leadership, cultural, training, code, rules and guideline to help them manage
ethical behavior.
Reason why a business should be run ethically
1. To improve the brand image: An ethical company will have a very good reputation in the
market that helps to enhance the brand image as well.
2. To win customer loyalty: No consumer wants to make a purchase from the company that are
unethical, that has bad reputation in the market. Consumer believe and are loyal to those
company which run ethically.
3. To attract investors: ethical company will have a good name in the market and no one can deny
the fact that everyone wants to a part of good thing. So ethical company can attract investors
and have a greater access to capital.
4. To attract best employees: No individual wants to work in an unethical company. Best
employees always seek the best place which is ethical.
5. To attract vendors/ suppliers: A company with great ethical values tend to maintain a good
ethical relationship with suppliers.
6. Less stress on managers: Making ethical choices results in lower stress for corporate managers.
7. Less costly in nature: Ethical behavior is demanding and less costly.

Causes of ethical problems

In the real business world, ethical problems are common in the workplace. Different ethical dilemmas or
situations arise in the business where a person has to make a difficult choice, and unintentionally
unethical activities should be carried out. Following are some causes of ethical problems
1. Pressure
One needs to meet the company’s expectation. As a result, it might lead an individual to do
unethical activities to impress boss, to meet all the deadlines.

2. Misguided loyalty
Though being loyal is consider as a good characteristic in the organization but sometimes loyalty
might lead an individual to do unethical activities. This type of case occurs when ethical values
of company are not clearly mentioned to employees.

3. Fear
Business individual do not have all the control over the activities under any circumstance. They
work under others and have the fear factors such as losing the job, fear of losing the money etc.
 4. Lack of ethical knowledge
Not knowing what is right and what is wrong also might lead an individual to do unethical
activities.

5. Greedy
Some people do exist who only work for money lifelong. They don’t care about the ethical
values and its importance. Their only concern is about personal benefit like promotions and
money.

6. Pressure from management

Some companies which stress profits, may turn a blind eye to ethical breaches. Such companies
give the pressure to the employees to do immoral things.

7. Ambition and discrimination

Individual or workers may be under financial pressure or simply hunger for recognition. If they
can’t get the reward they may be desperate to do something unethical.

8. Unclear policies
Some organization often doesn’t define the clear policies or rules. Which may bring the
confusion to the employees and unintentionally unethical activities may be carried out.

9. Top management example

Employees are guided by top management. The organization which have unethical conduct on
the top management, it is maximum possibility that employees also do the same.

10. Unethical culture

Some organization have unethical culture. Employees who joins on such organization tend to be
unethical.
Consequences of Ethical problems
1. Reduced sales of goods: As customers may reject goods produced by the company known for
unethical behavior.
2. Drops in stock prices: Investors will be unwilling to buy the shares of unethical company, as
result stock price may decrease.
3. Negative effect on employees’ performance: Employees are not motivated to work for an
unethical company.
4. Negative publicity
5. Less job satisfaction
6. Societal trade-off and Ethics
Solutions
 Provide ethical training to employees
 Each company should have ethical policies and culture.
 Management must lead by example, by doing ethical activities
 Violators should be punished as per company’s policies.
Core Element of Ethical character
1. Trustworthiness
Trustworthiness includes honesty, reliability, and loyalty, is a core element of ethical character.
Honesty in conduct is playing by the rules, without stealing, and cheating. Reliability means
keeping commitments.
If manager is trustworthiness to customer, customers are persuaded to buy more product than
they need.
2. Respect
People are not things. Everyone has the right to be treated with respect. We should respect
everyone, regardless of who they are and what they have done.
3. Responsibility
It means being accountable for what we do and who we are. We should perform as expected by
the customer.
4. Caring
Caring means managing the business without hurting anyone. Caring managers feel an
emotional response to both the pleasure and pain of other.
5. Citizenship (civic ethic how to behave in the community)
Citizenship means duties that prescribe how we ought to behave as a part of the community.
6. Fairness
Fairness means distributing the equal opportunities and outcome to all, and treating them
equally.
7. Integrity
It is the quality of being honest and having strong moral principle.
8. Consumer focus
It involves the conduct which focuses the consumer.
Making Ethics Work in Organization
Work Ethics is the norms, value, culture, culture of the organization in relation to work standard, hard
work, autonomy, fairness etc.
Factor/ Element (that Affect) Work Ethics
1. Top management Commitment and Involvement in the work ethics
2. Code of Ethics
3. Principle based International Standard
i. UN Global Compact
ii. Caux Round Table

1. Top management Commitment and Involvement in the work ethics

Manager must acknowledge their role in shaping organizational ethics, and grab the opportunity
to create a climate that can strengthen the relationship and reputation, on which their company success
depends. Top management has a crucial role in guiding the entire organization.
Leaders or top management have the following responsibility in influencing employees’ ethical and
unethical conduct.
 Responsibility for shaping formal organizational policies,
 Ongoing interactions with employees,
 Control over important rewards and punishments
2. Code of Ethics (Codes of Ethics are formalized rules and standards that describe what a company
expect of its employees)
Code of Ethics are the principles and expectations governing the behavior of individual and
organization. A Code of Ethics is a written guide to acceptable and ethical behavior as defined by an
organization. It outlines uniform policies, standards and punishment for violations. Because employees
know what is expected of them and what will happen if they violate the rules. A code of ethics goes a
long way towards encouraging ethical behavior.
For example, Professional Code:
i. Minimum Harm
ii. Proper conduct
iii. Act fairly
iv. Enhancing professional relationship
v. Show loyalty
vi. Act independently
3. Principle-Based International Standards
This principle is designed to offer corporations guidance on acceptable and unacceptable norms.
Principles can be imagined as moral compass for corporations. They are supposed to give guidance and
discussions about corporations’ responsibilities. These standards help managers to reflect their current
strategies and operating practices against the background of the principles.
Prominent examples of principle based standards are:
i. UN Global Compact: The extent of unethical behaviors has spread in the world wide level. So
UN got involved in helping control such unethical actions. In 2000, UN created UNGC. It has
created ten key principle to voluntarily control the unethical behavior like Human Right, Labor
right, not forcing compulsory labor, child labor, Eliminate discrimination, environment
responsibility etc.
ii. Caux Round Table (Switzerland): CRT is an international network of business leaders working to
promote a moral capitalism. CRT believes that business has a crucial role in developing and
promoting equitable solutions to key global issues.

Ethics Training Programs

Many organization and association provide ethics training for employees. Organization believe
comprehensive ethics training for all employees can greatly enhance the ethical environment
within an organization. The basic objectives of such training program is to offer assistance to
employees to understand ethical issues that are likely to arise in their work environment and
how to deal with such issues.
Reason for ethics training
The reasons for ethics training vary widely from organization to organization. Many organization
use ethics training to gain a strategic advantage, to increase employees’ awareness of ethics
and help employees to become more attentive to ethical issues. Ethics training programs can
help managers clarify their ethical framework when making decisions.
Following are the reason for ethical training.
1. Avoiding adverse publicity
2. Avoiding Potential lawsuit(Complaints)
3. Controlling illegal behavior
 4. Clarify ethical framework
5. Avoiding monetary penalties
6. Gaining strategic advantage
7. Increase employees awareness for ethics
8. Making employees attentive to ethical issues
9. Practice self-discipline

Element of ethics Training programs

1. Encouraging ethical Behavior
2. Ethics Audits
3. Corporate ethics Awards
Encouraging ethical Behavior
Business can encourage ethical behavior by limiting their opportunity to engage in misconduct. Formal
codes of ethics, ethical policies and ethics training programs reduce theses incidence of unethical
behavior by informing employees what is expected of them and providing punishment for those who fail
to comply.
Good reason to run a business ethically
1. Lawsuit avoidance
2. Regulatory freedom
3. Public acceptance
4. Investor confidence
5. Supplier/ partner trust
6. Customer Loyalty
7. Employees Performance
8. Personal Pride
9. It is the thing to do
2. Ethic Audit
Ethic audit is a mechanism or approaches by which a company assess or evaluate its ethical
climate or programs. It is intended to carefully review such ethics initiatives such as ethic
programs, code of conducts and ethics training program and other management activities. It is
done to achieve long term competitiveness of the organization. Ethics Audit is a systematic
evaluation of an organization ethics program and performance to determine whether it is
effective.
Parties Included Ethical Activities to Audited
1. Employees' 1. Financial Stability
2. Management 2. Image
3. Organization 3. Quality
4. Supplier 4. Growth
5. Clients 5. Innovation
6. Public Authorities 6. Competition
7. Provider of Capital
Corporate Ethics Awards
It is an awards that is established either by the organization to award their employees or by association
to award the organization which run in an ethical manner.

Whistle Blowing
Employees’ disclosure of illegal, immoral or illegitimate practices on the employer’s part is called
Whistle-Blowing. No organization can rely exclusively on code of conduct and ethical structures to
prevent all unethical behavior. Holding organization accountable depend to some degree on individual
who are willing to blow the whistle if they detect illegal, dangerous, unethical activities. Whistle-Blower
often report wrongdoing to outsiders such as regulatory agencies or newspapers reporters.

Whistle-Blowing is a practice in which an individual within an organization reports

organizational wrongdoing to the public or to others in position of authority. Whistle-Blowing is the
deliberate, non-obligatory act of disclosure by an individual with privileged access to data or information
of an organization, about a wrong doing or illegality under the control of their organization, to an entity
who have the power to rectify the wrongdoing.
Whether to blow the whistle on misconduct in an organization is the most difficult decision that
some people ever have to make. The decision is difficult because the stakes are high. The decision is
also difficult ethically because the whistle blowing involves a conflict between two competing parties,
to protect the public and to be loyal to an organization

Impact of ethics on business and Society

Determining how to conduct business has focused public attention and govt. involvement to
encourage more acceptable business conduct.
The impact of ethics on business and society are:
1. Judging business on right or wrong
2. Ethical and unethical
3. Legal and illegal
4. Emphasis on ethic than profit (ethical profit)
5. Social implication
6. CSR
7. Positive impact
8. Ethical organizational culture
9. Value based culture
10. Perpetual ethical value
11. Good Governance
12. Employees performance
13. Employees relation
14. Company Credibility