Business Environment

Lesson: Business Ethics

Lesson Developer: Dr. Vibhash Kumar
College/Dept: Ramanujan College
University of Delhi

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 Table of Contents

Chapter : Business Ethics

 1: Learning Outcomes
 2: Introduction
 3: Ethical Relativism
 4: Concepts in Business Ethics
 4.1: Utilitarianism
 4.2: Deontological Ethics
 4.3: Theory of Rights
 4.4: Theory of Justice
 5: Problems in Business Ethics
 5.1: Environmental Pollution & Societal Marketing Ethics
 5.2: Ethics in Human Resource Management
6: Work Ethics
7. Ethical Decision Making
 Summary
 Exercises
 Glossary
 References
 Quiz

1. Learning Outcomes
After reading this lesson, you should be able to:
 define the term ethics,
 understand the concept of business ethics,
 identify the types of ethical issues,
 understand the problems in business ethics,
 appreciate the concept of work ethics,
 apply the knowledge of ethics in real life situations.

2. Introduction
“Ethics deals with no small things, but with how we ought to live”- Socrates
Ethics is a vast field of study which addresses the question- How should the lives of
individuals be dealt with? Individuals may have come across many occasions in their life
when they made a judgement about certain things, not being right. Basically, this
judgement is determined by the investigation, done by self, to come to a conclusion
about right and wrong outcome, for a given situation. People live their lives according to
their beliefs, attitudes, and values that are followed in their own culture. Ethics differs
from ethos. People generally tend to accept the customaries in ethos whereas ethics is
all about questioning those customs.

In the same sense, philosophy discards authority as a foundation of ethics. Philosophical

ethics seeks a reasonable analysis of customs, which are being followed, and a logical

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defence on how we ought to live. In order to understand the concept of business ethics,
it must be clear what ethics means.

Figure 1: Right or Wrong

Ethics can be considered a part of philosophy which engages in the standardizing,

preserving and counseling the concepts of things and actions which are right or wrong.
This can be termed as philosophical ethics. Ethics generally involves in addressing the
disagreements in topics of moral diversity. Simply, ethics can be portrayed as „study or
investigation of morality‟. On the other hand, morality signifies the norms and standards
that individuals and groups set about what is right or wrong, in a particular situation. On
a common parlance, ethics is a discipline which investigates the moral standards of an
individual or the society at large, to assess and appraise the rationality and impact of an
action on the lives of others.

Business ethics is a variant of applied or professional ethics. Applied ethics refers to the
philosophical examination of issues, in public and private domain, which are related to
moral judgment. In other words, application of philosophical means to identify the
morally viable course of action is called applied ethics. Professional ethics, on the other
hand, includes the standard set of personal, organizational, and corporate behaviour
which is expected from a professional.

Business ethics is a branch of philosophical ethics which examines whether the customs
that are being followed in business are appropriate or not. It questions the business
decisions which have a say in our lives. Business ethics can be referred to as „a
concentrated study of moral right and wrong that ponders and deliberates upon moral
rules, as they would be relevant and appropriate to the business establishments,
associations, and behaviour‟. In the same context, a question arises, whether the actions
of corporations, on the prisms of rightness and wrongness, can be judged or not; and, is
it sensible enough to apply morality to organizations, in entirety, when individuals make
up an organization? John Searle while, giving his technical claims, asserts that corporate
organizations exist only because they are governed and regulated by individuals who
bear specific responsibilities in the organization. So, an act of the organization is
basically the act of the individuals, associated with the organization, who meet the
responsibilities and commitments of the organization. Ethical issues can be of three
types:
Figure 2: Types of Ethical Issues

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 1. Systematic – The corporations operate in varied environments viz., social,
political, legal, economic, cultural, and so on. Ethical questions or issues, which
arise in pretext of such environments, can be referred to as systematic ethical
issues. For instance, pharmaceutical industry and its member enterprises offer
commissions and other benefits to the medical professionals, practitioners of
medicines and surgery, for the prescription of medicines and recommendation of
various tests which are neither desirable nor necessary, but are suggested; the
pharmaceutical companies, manufacturing the generic versions of drugs, need to
carry out proper tests, as per the guidelines of Drug Controller General of India,
but the companies do not conduct the desirable tests, are unethical on the part of
such companies. This issue comes under the systematic legal issue in which the
Government should create a proper mechanism to ward off such problems of the
system.
2. Corporate – A corporate entity can be taken as a whole and may have its own
peculiar culture, climate and policies. Ethical issues, arising on such pretexts, can
be termed as corporate ethical issues. The example of not conducting the
desirable tests for the generic version of the drugs by the pharmaceutical
companies, in above mentioned point, is a corporate issue. Cipla, Dr. Reddy‟s and
Ranbaxy are some leading makers of generic drugs in India. Looking after these
issues should be on the priority list of these corporate entities.
3. Individual – Ethical issues can also be related to an individual with respect to
the decisions made, behaviour displayed, or character showcased. Such ethical
issues may be referred to as individual ethical issues. These issues are related to
the internal business environment of a company and should be tackled
accordingly, keeping the ethical code of conduct in mind which the company
follows in particular.

Thus, Business ethics is an investigation of appropriateness of what rules are being

followed up in business. Customary business rules, which are being followed since past,
need not to be called unethical. It is just the conscious reflection and rational analysis of
business values and beliefs upon which we act. For instance, there are certain rituals
which Indian business people follow when they start a new business, i.e., seeking divine
protection or worshipping the earth (Bhumi Pujan) at the plot sight, and so on and so
forth. This is not unethical but can cause time lags. Conscious reflection of the same can
save time.

Interactive 1

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 Value Addition 1: Case Study
Topic: Business Ethics
On Dec2, 2001, Enron Corporation, once listed as the seventh largest corporation
among the Fortune 500, declared bankruptcy. In the months that followed, numerous
other major corporations were found to have guilty of similar accounting and financial
frauds. A wave of scandals swept through the corporate world as fraudulent and
dishonest practices were uncovered at such firms as WorldCom, Merril Lynch, Citigroup
Saloman Smith Barney, and even the New York Stock Exchange itself.
Enron‟s Collapse followed public disclosure of significant debts that had been concealed
by complicated and fraudulent accounting practices. Not only Enron‟s top executives
were deeply involved in this scheme, they personally received tens of millions of dollars
from it. This massive ethical fraud was perpetrated with the support of Enron‟s
accounting and auditing firms, Arthur Andersen, at the time one of the top five
international accounting firms. Andersen played both ends of a conflict of interest by
earning money both as Enron‟s auditor and as consultants in concealing these debts.
To make the matters worse, while the stock prices were collapsing senior executives
sold hundreds of millions of dollars worth of stock to unwary investors, making
personal fortunes from the collapse. During this same period, employees were
prevented from selling their own stock that was held in their 401(k) retirement plans.
Arthur Andersen‟s accountant meanwhile, were busily shredding hundreds of
documents that could have been used in criminal and civil legal cases. Enron‟s board of
directors and particularly their audit committee twice waived internal rules of ethical
conduct that prohibited the conflict of interest practices that enabled Enron executives
to profit at the expense of the shareholders.

Discussion Questions
1. Identify the ethical issues, involved in the Enron case.
2. Identify all the people who were harmed by Enron‟s Collapse and explain the
ways in which they were harmed.
3. Do you think that corporate scandals, such as Enron, are caused by individuals
or the organizations can be held responsible for the same. Was Enron scandal a
failure of individuals, of organization structure, or of the Government?
4. What change would you make to prevent future Enrons?

There are several lessons which can be learnt from the Enron case. First and foremost,
that in this contemporary world in which we are living, there are a wide range of people
who can be adversely affected by the actions and decisions of the corporate and
businesses. Ethical perspectives and the results, which follow out of following those
perspectives, affect millions of lives. The Enron case specifies the necessity of highest
level of ethical conduct among the gatekeepers. Ironically, the arrogant and greedy
individuals are way too many, who are more than willing to destroy the legal and ethical
framework, and get benefitted in the process. However, the recent cases of fraudulent
malpractices have been witnessed in all parts of the world but there is a need to prevent
such cases in future. Indian investors have been recently tormented by the Satyam
saga, which brings out the harsh reality of the Indian business diaspora. The need of the
hour is to impart the highest level of ethical conduct among the employees, enforcement
of strict statutes, continuous monitoring of the internal structures of the organizations,
external checks and safeguards, to keep the corporate behaviour ethical and intact.

Ethical Dilemma:
Ethical dilemma is a phenomenon, which the individuals or organizations come across
during certain situations, where decision making becomes very difficult, and the person
concerned faces dilemma on what to decide. Generally, a dilemma arises when there is a
conflict of interest, for example, self-interest overpowers the overall good for the

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organization. The conflict of interest arises when an individual does not adopt the
impartial viewpoint and gives greater importance to personal gains, rather than the
overall good for the society or the organization in which the person is working. The
following case study will shed light on what kind of ethical dilemmas may be faced.

Value Addition 2 Case Study

Topic: Ethical Dilemma
Some years ago, there was an organization which was a manufacturer of vehicle parts
named B. F. Woodrich. It won the military contract to design, test and manufacture
brakes for A7D, a new airplane, which US Air Force was designing. The contract was
lucrative and managers anxious! To conserve the weight of the Aircraft, Woodrich had
to guarantee that its brake would not be more than 106 pound. [1 Pound = 0.4535 Kg]
Maximum number of braking discs (rotors) would be four, which would stop the Aircraft
within a safe distance. Kermit Victor, a Woodrich Employee, was chosen to write the
report to the Government, on the tests which had to be run on the brakes before
finalizing. Unfortunately, Victor reports were not soothing for Woodrich. Victor reported
that the brake lining on the rotors disintegrated, as there was not enough surface area
on the disks to stop the aircraft. This generated excessive heat that caused the linings
to fail and the aircraft could not stop immediately after the brakes are applied. This
would immediately put the life of the pilot in danger. Victor‟s report was adverse.

However, superiors were of the view that the reports should not be adverse. Victor,
after having done all the tests, was required to give a positive or adverse test report.
Victor asked his superiors to instruct and suggest. The conscience of Victor would not
allow him to inflict any harm upon the pilot. However, Victor was sternly instructed to
give positive report about the braking system, and anything else should not concern
him. There were two options for Victor, either to adhere to the order of the seniors or
get fired/resign. If he adhered to the orders of his seniors, he would retain his job at
an even higher salary. This was the dilemma which surfaced for Victor. His conscience
would not allow him to endanger the lives of the pilots. However, his self interest, and
the thought that a new employee would be given a fresh chance to write a positive
report for the company, paved the way for Victor, giving a positive report, while he
should have ethically given an adverse report.
Source: Velasquez, M. G. (2011) Business Ethics: Concepts and Cases (7th Edition)
Pearson

Ethical issues, which we have discussed in earlier section, can be examined with the help
of the aforesaid caselette as below:

1. Systematic – The corporations operate in varied environments viz., social,

political, legal, economic, cultural, and so on. Ethics questions or issues, which
arise in pretext of such environments, can be referred to as systematic ethical
issue. In the case above, morality of the Government could be questioned as how
it allowed Woodrich to test the adequacy of its own brake system and put the
lives of the pilots in danger.
2. Corporate – A corporate entity could be taken as a whole and may have its own
peculiar culture, climate, and policies. Ethical issues may arise on such pretexts
which can be referred to as corporate ethical issue. In this case, we can debate
and deliberate upon the actions, taken by the Company, and were they
justifiable?
3. Individual – Ethical issues can also be related to an individual, with respect to
the decisions made, behaviour displayed, or character showcased. Such ethical
issues may be referred to as individual ethical issues. In the case presented here,
the decision taken by Victor, to give a good report on the context of the brake
system, could be questioned upon as to whether the decision was morally
justified?

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Value Addition 3: Illustration
Topic: Illegal and/or Unethical?
A business practice may not be illegal but unethical. Offering discounts more than 50%
on the charge of a medical procedure/treatment to all even during a limited period, say
2 months, is not illegal but is unethical because such practice is likely to generate
distrusts about the original charge or about the quality of service offered with such
heavy discounts.
Medical device companies do overcharge patients; for example, companies force
patients to pay anything between Rs 60,000 and Rs 1 Lakh for cardiac drug through
stents. Though stents cost somewhere between Rs 28,000/- to Rs 48,000/-.
Source: Stent prices in India double that in Europe. Times of India, New Delhi, Sept
15, 2014. URL: http://www.pressdisplay.com/pressdisplay/viewer.aspx

Value Addition 4: Illustration

Topic: Should Ethics be brought into Business
Should ethics be brought into business, can be explained well through the example of
prisoner‟s dilemma. In layman‟s terminology, prisoner‟s dilemma can be stated as a
situation wherein two parties choose to co-operate or may be not, and where both the
parties gain when they co-operate and if one co-operates and other cheats, the one
who cheats gains more, and if both do not co-operate both lose.
Story behind Prisoner’s Dilemma
 Two men were arrested for robbing a store
 They secretly agree that neither will confess the crime
 Police separates them and asks to confess their crimes
 If neither admits of not robbing the store, they would be kept in jail for a year.
 If both confess of robbing the store, they will get two years in jail
 If one confesses and other keeps quiet, then the one who keeps quiet will get
three years in jail and the one who may confess will be set free…..!!!
 So, it can be seen that individually, a prisoner would confess of robbing the
store and would get a prison term of two years, when they could have received
only 1 year, had they been given to consult each other.

Prisoner’s Dilemma in Business

 Business firms interact with employees, customers, suppliers, creditors, and
others.
 If business tries to take advantage and cheat any one of the above, there will
be retaliation-
 Refusing to buy,
 Refusing to work for,
 Refusing to do business with unethical party.
Impact
 Ethical behavior, in the long run, could be mutually advantageous interaction
with cooperative parties.
Lesson
 Even if people are individualistically motivated only by self-interest, they would
still have a good reason to be ethical in business, because business is all about
creating and sustaining relationships. Therefore, if the business firm‟s
relationship with all its stakeholders is that of trust it will further the business‟s
goal in the long run and vice-versa.

Source: Velasquez, M. G. (2011) Business Ethics: Concepts and Cases (7th Edition)
Pearson

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3. Ethical Relativism
Ethical Relativism foretells that there is no absolute ethical theory which can be regarded
as true and universally applied to all the individuals, corporations and societies across
the world. It implies that the moral standards which are construed to be true and
followed in a particular region of the world may not be applied and followed in other
regions of the world. For instance, child slavery is banned in India but the same does not
hold true, more specifically, in cocoa producing countries like, Ghana and Ivory Coast. If
we go into the root cause of this difference, we may find that there are some
determinants of ethics like, culture and upbringing, which differ from person to person
and region to region. This theory of ethical relativism reminds us of the cultural
differences which exists in different societies of the world. Generally, the culture of a
region determines the moral beliefs of an individual and it would not be a misnomer to
say that the beliefs are deeply influenced by the culture of the society, prevalent in that
place. Societies defend their beliefs and practices, hold their view points and have strong
reasons to hold them.

Critiques of this theory argue that if society and its culture determine a particular course
of action, then immoral activities like, racist practices, can never be challenged, by
giving the reason that the society permits such activity. So, in the present context, if
India is still persisting with child labour (even after laws being in place to stop child
labour), because its societies want to follow this practice which makes the whole
reasoning absurd. In recent times, the lab experimentation on animals and social evils
like, abortion, are still debated because society accepts and permits such practices.

However, we cannot discard the concept of ethical relativism in its entirety because it
provides us the encouragement to explore and analyze the reasons which underlie the
beliefs of those societies which are different from ours, and confront us to evaluate our
own values and beliefs which we think are true.

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4. Concepts in Business Ethics

4.1 Utilitarian Ethics:
Utilitarianism focuses on the ultimate result or consequence of an action. It advocates
the maximisation of the “overall good or greatest good for the greatest number of
people”. The good or bad acts are judged on the basis of the consequence, emphasising
on the augmentation of wellness of the mass, not the selected elite class. However,
utilitarianism has some inherent flaws; for instance, a lie may be considered to be good
if the consequence of that lie brings greatest good for the greatest number of people.
Utilitarian theory, nevertheless, has been applied to derive the greater good. For
instance, individuals require goods to satisfy their wants, but scarcity and competition
prevent the individuals to get everything they want, utilitarian theory comes handy in
this situation, as individuals can choose according to preferences which has the
maximum want satisfying power. Utilitarianism can be applied by following a series of
steps.

Firstly, it is prudent to find out the alternative actions which are available in a particular
situation. Secondly, all the alternatives should be analysed upon the parameters of direct
and indirect benefit that would be the resultant upon every single person who is getting
affected by the decision. Thirdly, the net utility from an alternative should be calculated,
by deducting the costs which would be incurred if that alternative is chosen, from the
benefit, estimated in the last step. Lastly, the most ethically appropriate course of action
should be chosen which is producing the greatest sum total of the utility measured.

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Critiques of utilitarianism comment that it is virtually not possible to measure everything
on the basis of monetary parameters or other measures of common sense.

4.2 Deontological Ethics:

Contrary to the Utilitarian ethics, deontological ethics emphasise that sometimes, the
correct path is determined by the fulfilment of certain duties. The assessment is made
on the basis of means, not on ends, because ends do not justify means. The individuals
should not be used as means to reach on an end because the individuals also have
certain rights which should not be sacrificed. For example, child labour is a way to keep
the labour cost low which can subsequently lead to greater exports and raise the
standard of living. If only the utilitarian concept of maximum wellness is emphasised, the
use of child labour will never stop. The question arises if it is ethical to use young
children as labourers, then what is the difference between child abuse, slavery and child
labour.

One of the deontological theories is given by Kant which talks about the Categorical
Imperative, which advocates that our fundamental ethical duty is to respect the people
and treat them as equally capable entities, living an autonomous life. Kant gave the
maxims (universally accepted), according to which people‟s acts should be based upon.
It leads to the common understanding of rights, duties and justice. Taking the example
of child labour, a Kantian thinker would object to it, as it would infringe the rights of a
child and violate the duty of others to treat children with respect, no matter what greater
good it brings to the society.

4.3 Theory of Rights:

The word „right‟ here signifies „the entitlement of an individual to something‟. A legal
right is an entitlement which emancipates an individual from the legal framework and
structure of the nation concerned. The legal system authorizes an individual to act in a
particular manner. On the contrary, moral rights are those rights that every individual is
entitled to receive as a human being which other fellow human beings receive, just by
the virtue of being a human being. Moral rights are not governed by the jurisdiction or
rule of a particular land. These are universal, as for example – „The United Nations
Universal Human Rights‟.

Moral rights are strictly coupled with duties. The individuals who enjoy moral rights
require fulfilling certain duties too. These duties may be towards the nation or the
society. Moral rights offer autonomy and equality to the individuals so that they can
pursue the vocations of their interests. Further, rights also provide the very base for
justification of an individual‟s actions. Rights can be positive, negative and contractual.
Positive right becomes the duty of all the individuals to do everything which can provide
the thing(s) to the holder which is needed in order to pursue one‟s objective in an
autonomous way. Negative right does not allow unnecessary interference of other
individuals and can be asked to leave the individual alone. It requires other individuals to
be told not to meddle or interfere in the morally entitled work of a person on a genuine
basis. Contractual right refers to the right which requires the other party in agreement to
respect and keep the agreement good. A basis for moral right is provided by Immanuel
Kant who gave the Categorical Imperative, discussed above, more of which is discussed
in the Value Addition.

Interactive 2

Value Addition 5: Did You Know?

Topic: Categorical Imperative
 Immanuel Kant (1724-1804) envisaged satisfactory foundation for moral rights
through ethical theory.

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  His theory is based on moral principles, also called categorical imperative.

Categorical Imperative is the requirement that everyone should be treated as

free person equal to everyone else.
 Everyone has the moral right for being treated equally.

First Formulation –
 Universalizability – The person‟s reason for acting in a certain way should be
because of the reasons that at least everyone could act in principle. What if
everyone did that?
 Reversibility – The person‟s reason for acting in a certain way should be the
reasons he or she would let other use on him/her, i.e. „Do unto others as you
would have them do unto you.‟ How would you like it if he/she did that to you?
How would you like it if you were in her place?

Second Formulation - Act in such a way that you always treat humanity never
simply as means, but always as ends. Respect each other‟s freedom by treating
people as they have freely consented to be treated.
 Develop each person‟s capacity to freely choose the aims to pursue.

Implications
 Human beings have dignity
 They cannot be used as tools to further one‟s self interest.
 They cannot be manipulated, deceived, exploit.
 A human being cannot be made to do a thing which he himself would never
otherwise freely choose to do.
Source: Velasquez, M. G. (2011) Business Ethics: Concepts and Cases (7th Edition)
Pearson

4.4 Theory of Justice:

Justice can be referred to „a concept that talks about moral rightness which is based on
the other important concepts of rationality, ethics, statutes, equity and fairness‟.

Figure 3: Types of Justice

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In terms of ethics, Justice can be of three types:

 Distributive Justice: It refers to the concept which talks about the distribution
of the benefits and burdens of the society to every member in an equal manner.
The rationale, to follow distributive justice, arises when there is scarcity of
benefits in the society; and this phenomenon of scarcity will always persist in the
human civilization because of the economic concept of unlimited wants of every
human being. The concept of distributive justice also arises when there may be
abundance of unpleasant work in the society which cannot be burdened on one or
specific individuals.

Therefore, the questions, like, who will have the share in scarce benefits of the
society, or who will come forward to bear the unpleasant work and in what
quantity, could be examined through the theory of distributive justice.

Value Addition 6: Know More

Topic: Parameters of Distributing Justice
 Justice as Equality: Egalitarianism – Every person is equal and that every
person should be given equal share of the resources of the society. Similarly,
burdens should also be equally distributed. Egalitarians argue that if not in all
the spheres equality should be vested in each individual with respect to the
political rights i.e., equal right of participation in legislative process; and
economic rights which is equality in income, wealth, and economic opportunity.
 Justice based on Contribution: Capitalist Justice – According to this
formulation the benefits and burdens should be distributed in terms of the
contribution made by the individual to the society. Simply put, if a worker
contributes more to an organization, he should be paid commensurate to the
contribution done vis-a-vis outcomes achieved. Now the question of measuring
contribution can be based on the work effort & Puritan Ethics which talks about
every individual having an obligation to work hard in his/her work which is the
calling of the person, it can also be based on productivity i.e., the more the
quality and the quantity of the product produced the more the rewards.
 Justice based on Needs and Abilities: Socialism – In this the burden of the
work in contention should be allocated according to the ability of the person and
the benefits thereof should be allocated according to the needs of the individual
in question.
 Justice as Freedom: Libertarianism - Robert Nozick says “From each
according to what he chooses to do, to each according to what he makes for
himself and what others choose to do for him and choose to give him of what
they have been given previously and haven't yet expended or transferred”,
meaning thereby that any act done through coercion is wrongful, and even if a
person is taxed unwillingly this act also tantamount to hurting this philosophy.
 Justice as Fairness: Rawls – Resolving conflicts should be done by devising a
methodology or a fair method which would choose the principle in such a way
that the lingering conflicts are resolved purposefully.

 Retributive Justice: It refers to „the fair and just blaming or punishing the
individuals who commit a crime‟. The concept of just punishment surfaces when
there is a talk of retributive justice, which signifies that the penalty for wrong
done should be consistent and in proportion to the committed crime. Therefore,
retributive justice talks about the proper and rationale judgement, before
awarding any sentence with reference to the committed crime, and there should
be no ground for wrongful punishment, on the basis of fragile or incomplete
evidence, which can tantamount to injustice.
 Contributory Justice: It refers to ‘the person, who has lost something by the
act of someone, or has been wronged by someone, should have the aid of fair

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 justice, get restoration of the damage done to him/her‟. In this form of justice,
there are certain caveats which need to be followed like, if some person(s) has
harmed the other, then it becomes the moral duty of the former to restore the
latter, in a manner which would bring restitution.

Interactive 5

Value Addition 7: Pause and Think!

Topic: Compensatory Justice – Food For Thought!
 Most controversial form of compensation is preferential treatment of a group
in lieu of past atrocities done to them.
 Now they hold the lowest economic and social position.
 They are now given special treatment in hiring, training, promoting etc.
 Would such special treatment be a violation of justice, by violating the very
basic principle of Equal Treatment?
 Does justice legitimize quotas even if this requires turning down more highly
qualified non-minorities?

5. Work Ethics
Work Ethics refers to „a set of moral principles, standards, behaviors, or values, which
make a demarcation between proper and improper conduct at the workplace‟. It helps to
keep the varied relationships in check. The relationships can be between the
management/owner of the business and customers, management and employees,
among co-workers, and so on. The relationships should be mutually beneficial to each
other otherwise there may be conditions of conflict in the organization which can lead to
the dilution of work ethics. It strives to keep business abuses at bay. Business abuses
can be: vandalism, falsification of records, breaking of confidentiality in records, ignoring
the rules of safety and security, misrepresentation of the merchandise, providing poor or
degraded client services, showcasing of irresponsible behaviour by the employees,
gossiping during working hours, harassment of co-workers and customers, stealing in
the organization, conflict of interests, and so on. In such scenario, the employee(s)
should try and rationalize the abuse, speak up when the need be, discuss with seniors
and colleagues, and blow the whistle when need so. The employer(s)/management
should ensure proper surveillance mechanism and take every possible step which can
increase employees‟ loyalty towards the organization. Behaviors like, fair and consistent
treatment to the employees, recognition of their good work, and improvement in cultural
climate of the workplace, can be some steps to restore confidence among the employees
and build a long term relationship with them.

6. Ethical Decision Making

Ethical decision making follows the responsible decision making. The actions should be
based on informed, sound and responsible judgement, in order to practice responsible
decision making. Keeping the knowledge updated and engaging one in continual self-
examination process can lead to better thought process and development of decision
making skill. In making ethical decisions, it is prudent to involve the stakeholders who
would be affected by the aforesaid decisions. The aim of this exercise is to involve the
varied stakeholders in a collaborative partnership.

Figure 4: Steps in Making Ethical Decision

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Steps in Making Ethical Decision
1. Does a problem or dilemma actually exist?
2. Identify the problem or dilemma.
3. Is this an ethical, legal, moral, or professional problem?
4. Is it a combination of more than one of these?
5. How can you know the nature of the problem?
6. Would you consult at this early stage, as you are identifying the problem?

Identification of the potential issues, involved with creation of a collaborative

environment with the stakeholders, may facilitate the process of ethical decision making.
It is also imperative for the decision makers, in the business, to review the code of ethics
(if any) and assess whether it is in conformity with the decision to be taken up. It is also
wise to know and understand the applicable laws and regulations and check
discrepancies, if any. Further, it becomes essential, for the business managers, to
consider the possible and probable courses of action, which requires to be taken up, it
becomes prudent to have a systematic method for analyzing ethical obligations and
possible courses of action. Moreover, evaluation of the potential consequences of each
course of action should be done before the implementation of an action plan. The
utilization of ethical principles can also be used as a framework for the evaluation of the
consequence of a given course of action.

Interactive 3

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7. Problems in Business Ethics
5.1 Environmental Pollution & Societal Marketing Ethics:
Human beings, at the name of comfort and development, have done enough harm to the
earth in the form of air pollution – global warming, ozone depletion, acid rains, airborne
toxins etc.;
Water pollution – organic waste;
Land pollution – toxic substances, solid wastes, electronic wastes, nuclear wastes etc;
Depletion of species and habitats – depletion of fossil fuels, depletion of minerals etc.
Therefore, there is a need to look inside and bring a massive change in values and
lifestyles to bring the change of substance which could work.

In the same essence, ecological ethics takes the view that the non-human parts of this
universe need to be taken care of and preserved for their own entity and not to think
about the benefit they provide to the human beings. It signifies the importance of even
those creatures or entities which do not benefit human beings in any way. However, it
does not take their right away to live and exist together with human beings.

Since the ecological system is integrated and inter-related, which joins organisms and
environments, an activity in one part impacts the other parts as well. Business firms
have a huge dependence on natural environment for energy requirements, material
resources, waste disposal, and so on. Therefore, ecological environment is badly affected
by the commercial activities in offing. Ecological ethics claims that it is absolutely
necessary to have a livable environment to fulfill our human capacities. Livable
environment is an environment which has natural and free resources in abundance and
where a person can easily survive without making adjustments. It also entails that it has
not been commercially exploited or polluted, making it unfit for normal human life to
sustain. In order to ensure the possibility of human life, business organizations and
human beings should get limited freedom in the context of natural environment.

In this regard, market price of a product should be discussed. If an industry pollutes the
environment, the market price of the product will not show the true cost of product‟s
production. The reason is that the overall welfare of the society declines.

Value Addition 8: Did You Know?

Topic: Private Cost and Social Cost
• An electric firm consumes a certain amount of fuel, labour, and equipment to
produce one kilowatt of electricity. The cost of these resources is the Private
Internal Cost.
• When the same firm generates smoke or soots that settles on surrounding
neighbours. These neighbours have to bear the cost to clean up and pay for
medical expenses the smoke creates. This cost is Other‟s External Cost.
• Sum total of Internal and External Cost is Social Cost.

How much should the Electric firm pay then – the Private Internal Cost or the
Total Social Cost?

• Remedy - The Duty of the Firm - Cost of Pollution should be internalized.

• The external cost should be added up to the price of the product.
Ways to Internalize the External Cost
• The polluting agent should pay to all those who have been harmed, voluntarily

Institute of lifelong learning, University of Delhi 13

 or by law.
• This payment should be equal to the costs the pollution imposes.

Value Addition 9: Illustration

Topic: Internalization of Cost
• Think of the possible problems in this internalization of cost.
• If there are several polluters, then it is hard to determine who is being damaged
by whom.
• The Blame Game starts.
• The administrative and legal costs of assessing damages for each distinct
polluter.

Also granting separate compensations to each distinct claimant is tedious.

Solution:
• Stop the pollution at the source.
• Install pollution control devises.
• External costs of pollution will be translated into internal cost.
• Internal cost the amount paid by the firm to install the devises.
• Prices reflect the true cost of producing the commodity.
• The greatest benefit – Elimination of long range effects of pollution.

Value Addition 10: Pause and Think

Topic: Justice to Future Generations and Economic Growth Now?
• John Rawl says it is unjust not to leave anything for future generations. Leave
the World no worse than we found it.

• Care - Leave our children a world no worse than we received.

• Robin Attfield – A Utilitarian
• Leave the World as productive as we found.
•
• Economic Growth Now?
•
• For future generations to suffice, we need to stop our economic development.
• Stall increasing production till we reach a steady state.
• Economic growth today significantly lowers the quality of life tomorrow!
• What are then the challenges for the Developing World?

5.2. Ethics in Human Resource Management:

“All HR practices have an ethical foundation. HR deals with the practical consequences of
human behaviour”. (Johnson, 2003).

Some of the ethical problems which can be earmarked in human resource management
are- off-shoring and exploiting the cheap labour markets, using child labour, reneging on
company pension agreements, longer working hours, increasing work stress, the use of
disputed and dubious practices in hiring and firing of personnel, discrimination on the

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basis of age, gender, race, religion, disabilities, appearance, discrimination against
ladies, workplace surveillance, dubious practices in case of performance appraisals, and
so on.

So the question which can be asked is that how can human resource management be
used to create an ethical organization? The organization would do well if they follow the
below mentioned steps:

 By ensuring that all the utilized assessment measures are fair and just in recruitment
and selection,
 By ensuring fairness in allocation of pay and benefits, in reward management,
 By ensuring equal opportunities and equal access to all credible members, in case of
promotion and development,
 By ensuring a safe working environment to all the employees,
 By making it certain that the procedures are not unduly stressful, and that the needs
of employees‟ work–life balance are not compromised.

When redundancies occur, the organizations need to be fair and just in handling job
losses. The organizations should deal effectively with all forms of bullying and
harassment at workplace. In outsourcing and off shoring, ensuring that the contractors,
consultants and franchisees are fair and honest in their dealings with employees, clients
and customers.

Value Addition 11: Surf and Learn

Topic: Ethical Code of Conduct
• Go to http://www.tata.co.in/aboutus/articlesinside/Tata-Code-of-Conduct
• Browse and learn the ways in which Tata Company has put its code of conduct
for perusal of the stakeholders.
• Comprehend the same and discuss your findings with your peers in the class.

Value Addition 12: Surf and Learn

Topic: Business Vs Ethics: An Indian Tradeoff
• Go to http://knowledge.wharton.upenn.edu/article/business-vs-ethics-the-
india-tradeoff/
• Browse the link given above and reason out whether the difficulty in doing
business in India is related to the bribe seeking attitude of Government officials.
• Comprehend the same and discuss your findings with your peers in the class.

Value Addition 13: Quiz

Multiple Choice Questions
Click on the link below to take a quiz on business ethics.
Source:http://www.proprofs.com/quiz-school/story.php?title=ethics-multiple-choice-quiz

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Summary

 Ethics is a vast field of study that, in general, addresses the question of how
should the lives of individuals be dealt with.
 Ethics differ from ethos in the sense that in ethos people generally tend to accept
the customaries; however ethics is all about questioning those customs.
 Business ethics is a branch of philosophical ethics wherein the question is about
stepping back and analyzing whether whatever customs are being followed in the
business, is appropriate and questions the business decisions which have a say in
our lives.
 Ethical issues can be of three types: Systematic, Corporate, and Individual.
 Ethical dilemma is a phenomenon which the individuals or organizations come
across during certain situations, where making a decision becomes very difficult,
and the person concerned faces dilemma on what to decide.
 Ethical Relativism foretells that there is no absolute ethical theory which could be
regarded as true and that could be applied universally to all the individuals,
corporations and societies across the world.
 Utilitarianism theory focuses on the ultimate result or consequence of an action,
and also advocates the maximisation of the “overall good or greatest good for the
greatest number of people”.
 In Deontological Ethics, the assessment is done on the basis of means and not on
ends. Contrary to the Utilitarian ethics, deontological ethics emphasise that
sometimes the correct path is determined by the fulfilment of certain duties.
 In Theory of Rights, the word „right‟ signifies the entitlement of an individual to
something.
 Theory of Justice talks about moral rightness which is based on the other
important concepts of rationality, ethics, statutes, equity and fairness.
 Justice can be of three types: Distributive, Retributive and contributory.
 Work Ethics refers to a set of moral principles, standards, behaviours, or values
which make a demarcation between proper and improper conduct in the
workplace of an organization by an employee or a group of employees.
 Ethical decision making follows responsible decision making. In order to practice
responsible decision making the actions should be based on informed, sound, and
responsible judgement.
 Problems in business ethics are: Environmental Pollution, Societal Marketing
Ethics and Ethics in Human Resource Management.

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Exercises:

I. Objective Type Questions:

Question 1:
Match the following Ethical Issues with their correct descriptions:

Theory Description
1. Systematic a. Issues related to an individual with
respect to the decisions made,
behaviour displayed, or character
showcased.

2. Corporate b. The corporations operate in varied

environments viz., social, political,
legal, economic, cultural etc.

3. Individual c. corporate entity could be taken as a

whole and may have its own peculiar
culture, climate, and policies.

Question 2:

Match the following theories of Justice with their correct descriptions:

Theory description

1. Retributive a. Distributing the benefits and burdens

of the society in an equal manner to
everyone in the society.

2. Distributive b. Fair and just blaming and punishing

individuals for committing a crime.

3. Contributory c. Person who has lost something or has

been wronged by someone should
with the aid of fair justice, gets
restoration of the damage done to
her/him.

Question 3:
Business ethics can be referred to as a concentrated study of moral right and wrong that
ponders and deliberates upon moral rules as they would be relevant and appropriate to

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the business establishments, associations, and behaviour.

a. True

b. False

Question 4:
Ethics in the workplace is about keeping in check the varied relationships at work.

a. True

b. False

Question 5:
Theory of ethical relativism reminds us of the _________ differences which exists in
different societies of the world.

a. Societal
b. Cultural
c. Organizational
d. Legal

Question 6:
One of the deontological theories is given by Kant which talks about the Categorical
Imperative, which advocates that our fundamental ethical duty is to _________ the
people and treat them as equally capable entity living an autonomous life.

a. respect
b. help
c. disobey
d. follow

Question 7:
First step in making Ethical Decision is to Identify the ___________.

a. structure
b. solution
c. problem
d. need

Question 8:
Justice can be referred to a concept which talks about moral _________ which is based
on the other important concepts of rationality, ethics, statutes, equity and fairness.

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a. rightness
b. wrongness
c. decision
d. study

Question 9:
Ethics can be considered to be a part of __________ which engages in standardizing,
preserving, and counseling the concepts of things and actions which are right or wrong.

a. Philosophy
b. Psychology
c. Sociology
d. Anthropology

Question 10:
A dilemma arises when there is a conflict of ________.

a. Understanding
b. Interest
c. Statement
d. Decision

Question 11:
The critiques of utilitarianism comment that it is virtually ___________ to measure
everything on the basis of monetary or other commonsense measures or parameters.

a. Possible
b. Difficult
c. Not possible
d. None of the above

Question 12:
Moral rights are strictly coupled with ________.

a. Position
b. Status
c. Assignments
d. Duties

Question 13:
Categorical Imperative is the requirement that everyone should be treated as _______
person equal to everyone else.

a. Insolvent
b. Wrong
c. Free

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d. Perfect

Question 14:
Distributive Justice refers to the concept which talks about distributing the benefits and
burdens of the _______ in an equal manner to everyone in the _______.

a. Society
b. People
c. Organization
d. None of the above

Question 15:
Retributive Justice refers to the fair and just blaming and ________ individuals for
committing a crime.

a. Punishing
b. Rewarding
c. Beating
d. All of the above

Question 16:
In making ethical decisions it is prudent to involve the __________ who would be
affected by the aforesaid decisions.

a. Owners
b. Decision Makers
c. Stakeholders
d. None of the above

Question 17:
__________ ethics takes the view that the non-human parts of this universe needs to be
taken care of and preserved for their own entity and not what kind of benefit they
provide to the human beings.

a. Fairness
b. Ecological
c. Economic
d. Contributive

Question 18:
In Theory of Rights, the word ______ signifies the entitlement of an individual to
something.

a. right
b. wrong
c. influence

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d. all of the above

Question 19:
In order to practice responsible decision making the actions should be based on
informed, sound, and responsible ________.

a. Act
b. Judgement
c. Decision
d. Study

Question 20:
A business practice may not be illegal but _________.

a. Ethical
b. Legal
c. Unethical
d. None of the above

Answers to Objective Type Questions:

1. 1-b, 2-c, 3-a

2. 1-b, 2-a, 3-c

3. True,

4. True,

5. b

6. a

7. c

8. a

9. a

10. b

11. c

12. d

13. c

14. a

15. a

16. c

17. b

18. a

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 19. b

20. c

II. Short Answer Type Questions:

1. Define the term Ethics.

2. Write a short note on Business Ethics.
3. What are the different types of Ethical Issues?
4. What is Ethical Dilemma?
5. What do you mean by ethical relativism?
6. What is work ethics?
7. What do you mean by distributive justice?
8. What do you understand by „Categorical Imperative‟?
9. What do you understand by the term „Egalitarianism‟?

III. Long Answer Type Questions:

1. Explain the concept of Business Ethics. How is Utilitarianism theory different from
Deontological theory?
2. What is “Theory of Rights”? How is it different from “Theory of Justice”?
3. Explain the different types of justice.
4. Explain the environmental issues in relation to business ethics. Cite real life
business examples.
5. Explain the ethical issues which surface in HRM. How can business organizations
deal with such issues?
6. Explain the concept of Work Ethics. Mention the steps taken in Ethical Decision
Making.

Glossary
 Bullying: use superior strength or influence to intimidate (someone),
typically to force them to do something.

 Child Slavery: slavery of children at a young age

 Conflict:to come into collision or disagreement; be contradictory, at variance,

or in opposition; clash.

 Custom: a traditional and widely accepted way of behaving or doing

something that is specific to a particular society, place, or time.

 Customaries: things which are followed as tradition and uniformly over a

period of time.

 Demarcation: the action of fixing the boundary or limits of something.

 Deontological: A system of ethics that judges actions based on whether

they adhere to a rule or a set of rules.

 Depletion: reduction in the number or quantity of something.

Institute of lifelong learning, University of Delhi 22

  Dilemma: Forced choice between two (or more) courses of action which are
equally disfavoured or favoured.

 Egalitarian: Having equal rights, regardless of social, economic, or other

distinctions such as income, race, or religious or political beliefs.

 Harassment: aggressive pressure or intimidation.

 Justice: moral rightness in protection of rights and punishment of wrongs.

 Ethical Relativism: A tendency to make ethical choices only on the basis of

what looks right or reasonable according to one's own belief or value system.

 Reneging: go back on a promise, undertaking, or contract.

 Societal marketing: The societal marketing approach tends to balance the

pursuit of business profits with consumer desires and society's best interests.

 Social cost: The expense to an entire society resulting from a news event, or
an activity. It talks about the total cost incurred in carrying out a commercial
activity.

 Statute: a written law passed by a legislative body.

 Utilitarianism: An ethical philosophy in which the happiness of the greatest

number of people in the society is considered the greatest good.

 Vandalism: action involving deliberate destruction of or damage to

public or private property.

 Virtual:
Being such in power, force, or effect, though not actually or expressly.

References:

1. Work Cited:

 http://www.philosophybasics.com/branch_ethics.html
 Velasquez, M. G. (2005). Business Ethics: Concepts and Cases; Prentice Hall of
India.
2. Suggested Readings:

 Velasquez, M. G.; Business Ethics: Concepts and Cases; Prentice Hall of India;
2005
 Monks, R. / Minow, N. ; Corporate Governance ; Blackwell; 2008
 Dr R P Banerjee, Ethics in Business and Management; Himalaya Publication;
2005
 S.K. Chakraborty, Values and Ethics in Management; Sanctum Books; 2001

3. Web Links:

Institute of lifelong learning, University of Delhi 23

 1. Visit the URL http://www.philosophybasics.com/branch_ethics.html to know more on
type of ethics.
2. Visit the URL http://www.careerbuilder.com/article/cb-1382-workplace-issues-
quiz-how-ethical-are-you/ to take an interesting quiz to check how ethical you are.
3. Visit the URL http://global.oup.com/us/companion.websites/9780199997237/
student/ch20/quiz/ to take a quiz on fundamental of ethics.
4. Visit the URL http://www.differencemakers.com/swapshop/pdf/dilemma_example
.pdf to know examples of ethical dilemmas.
5. Visit the URL http://smallbusiness.chron.com/list-ethical-issues-business-
55223.html to know about various ethical issues in business.

4. Video Links:
1. Visit the URL http://education-portal.com/academy/lesson/why-ethical-problems-
occur-in-business.html#lesson to watch a video on why ethical problems in business.
2. Visit the URL https://www.youtube.com/watch?v=hsH3RujWDGI to watch a video
lecture on Ethics and Fairness in HR.
3. Visit the URL http://education-portal.com/academy/lesson/business-ethics-
corporate-social-responsibility.html#qz to watch a video on business ethics and
corporate social responsibility.

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