1.

1 Definition of Ethics
Ethics is a science that studies moral principles and reasoning
of what is right and what is wrong, distinguishing the good
from the bad and analyzing the motives and consequences
of human actions. Ethics studies moral standards (of a man,
an organization, and a society as a whole), examines how
these standards apply in our lives and whether these
standards are reasonable.
Five characteristics of moral standards are:
Involved with serious injuries or benefits
Not established by law or legislature
Should be preferred to other value, including self-interest
Based on important considerations; and
Associated with special emotions and vocabulary
1.2 Definition: Business Ethics
Business ethics is a specialized study of how moral standards
apply to business i.e., it studies the good and evil, right
and wrong and just and unjust actions of business persons
(entities). In other words, business ethics is applied ethics
that examines ethical principles and moral issues that arise
in the different areas of business environment and is
relevant to individuals and business organizations as a
whole.
The phrase 'business ethics' can be used to describe the
actions of individuals within an organization, as well as
the organization as a whole.
Thus business ethics can be defined as written and unwritten
codes of principles and values that govern decisions and
actions of individuals within an organization, as well as of
the organization as a whole.
1.3 Business Ethic: Normative Science?
Business ethics can be both a normative and a
descriptive discipline. As a corporate
practice and a career specialization, the field
is primarily normative.
In academia descriptive approaches are also
taken. The range and quantity of business
ethical issues reflects the degree to which
business is perceived to be at odds with
non-economic social values.
1.4 Business Ethics Redefined
Business ethics is the behavior that a
business adheres to in its daily dealings
with the world.
The ethics of a particular business can be
diverse.
They apply not only to how the business
interacts with the world at large, but also
to their one-on-one dealings with a single
customer.
1.5 Two schools of thought: shareholder perspective
Those who approach ethical decision making
from a shareholder perspective focus on
making decisions that are in the owners'
best interest.
Decisions are guided by a need to maximize
return on investment for the organizations
shareholders.
Individuals who approach ethics from this
perspective feel that ethical business practices
are ones that make the most money.
1.6 Two schools of thought: stakeholder perspective
Organizations that approach business ethics from
a stakeholder perspective believe that their
decisions have impact on all the different
stakeholder groups inside and outside the
organization and they should consider the
needs and interests of the multiple
stakeholder groups, not just those with a
direct financial stake in the organizations
profits and losses. The idea basically leads to
the concept of corporate social responsibility.
1.7 Stakeholders and Shareholders
Stakeholders are individuals and groups who affect
or who are affected by a companys actions and
decisions. Shareholders are definitely
stakeholders, but they are not the only ones who
fall under the definition of stakeholder.
Stakeholders may include: employees, suppliers,
customers, competitors, government agencies, the
news media, community residents and others. The
idea behind stakeholder based ethical decision
making is to make sound business decisions that
work for the good of all affected parties.
1.8 Issues of Business Ethics
General I ssues:
Overall philosophy of business and purposes of a company
and the interests and rights of the parties involved
Moral rights and duties of the company and of the
shareholders fiduciary responsibility, stakeholders
interest, shareholders stands
Relationship with other companies hostile takeovers,
industrial espionage etc
Leadership issues corporate governance, corporate social
entrepreneurship
Political contribution made by corporations business
policy, creating environment, national strategies
Law reforms
CSR, as well as misuse of CSR and marketing instruments
1.9 Specific Issues
Business ethics covers a lot of specific issues, from whether to
hire a friend over a better qualified stranger, relationships
within an organization, to bigger issues such as whether to be
an environmentally friendly organization but loose profits, or
take in large profits by not paying for environmental measures
but get a bad reputation and in the long run cost tax payers
more. It may also cover whole industries, such as
pharmaceutical companies and whether it is ethical for them to
charge extreme amounts of money for a life saving drug just
because they own the rights, and therefore are the only
manufacturers of the drug.
The specific issues will be discussed in details in Lecture 10
(on) Ethics and other areas of business and the focus would be
on ethics of different areas of business such as finance and
accounting, information, human resource management, sales
and marketing, production, intellectual property, knowledge
and skills, and technology.
1.10 Importance of Ethics in Business
Ethics is important in all aspects of business including in
business because it is the vital part and the foundation on
which the society is built. Ethical expectation of businesses
and professionals demand the customers, clients and
employees to deliberately seek out those who define the
basic ground, rules of their operations.
Recognition of business ethics means abiding by a code of
conduct that guides an individual in dealing with others
based on the examination of ethical principles and moral or
ethical problems that can arise in business environment. It
deals with issues regarding the moral and ethical rights,
duties and corporate governance between a company and
its shareholders, employees, customers, media,
government, suppliers and dealers.
1.11 Importance of Ethics in Business
Ethics is related to all disciplines of management like
accounting information, human resource management, sales
and marketing, production, intellectual property knowledge
and skill, international business and economic system.
Practice of business ethics improves performance in all
the aspects. The benefits are not just the implications of
distinguishing the right from the wrong the ethical behavior
in business serves individuals and the enterprise much better
in long run. For example, consumers may buy the products
of a company no matter how they feel about the producer or
the seller but a valued company (maintaining ethical
standards) appeals to its customers more than a product and
thus earns a kind of customer loyalty most corporations only
dream of. "Price is what you pay. Value is what you get" -
Warren Buffet
1.12 Importance of Ethics in Business
Business ethics is an important characteristic
of effective leaders today. In fact it is a
critical, essential and non-negotiable
characteristic of an effective leader. Strong
business ethics is a pillar of strategic
planning and strategic thinking. Companies
are encouraged to develop a set of core values
and guiding principles and publish them for
their clients and stakeholders to know that this
is the way they do business. They also need to
make sure that the core values are
demonstrated in all that they do.
1.13 Importance of Ethics in Business
Unethical behavior where people deliberately intend to harm
themselves or others, develops from and is reinforced by,
destructive states of mind, including fear, greed, anger and
jealously. In contract, ethical behavior enhances the well-being
of everyone because it is developed from and reinforced by
strong motives and emotions.
A business that behaves ethically induces other business
associates to behave ethically as well. If a company (or a
manager) exercises particular care in meeting all responsibilities
to employees, customers and suppliers it usually is awarded with
a high degree of loyalty, honesty, quality and productivity.
Employees who are treated ethically will more likely behave
ethically themselves in dealing with customers and business
associates. Ethics is a good base for continuity in business
relationship also. A company that refuses to discriminate against
older or handicapped employees often discovers that they are
fiercely loyal, hard working and productive.
1.14 Importance of Ethics in Business
A business that behaves ethically induces other business
associates to behave ethically as well. If a company (or a
manager) exercises particular care in meeting all
responsibilities to employees, customers and suppliers it
usually is awarded with a high degree of loyalty,
honesty, quality and productivity. Employees who are
treated ethically will more likely behave ethically
themselves in dealing with customers and business
associates. Ethics is a good base for continuity in
business relationship also. A company that refuses to
discriminate against older or handicapped employees
often discovers that they are fiercely loyal, hard working
and productive.
1.15 Importance of Ethics in Business
A good man or woman who steadfastly tries to
be ethical somehow always overtakes his/her
immoral or amoral counterpart in the long run.
The explanation is fairly simple: when
individuals operate with a sense of confidence
regarding the ethical soundness of their position,
their mind and energies are freed for maximum
productivity and creativity; on the other hand,
when practicing unethical behavior, the
individual finds it necessary to engage in
exhausting subterfuge, resulting in diminished
effectiveness and reduced success.
1.16 Importance of Ethics in Business
A business or society that lacks ethical principles is
bound to fail sooner or later. Businesses that violate
ethics often face lawsuits leading to fines and
sanctions. As against that, the companies and people
who behave in a socially responsible manner are
much more likely to enjoy ultimate success than those
whose actions are motivated solely by profits. The
reason is: doing the right thing often leads to the
greatest financial, social, and personal rewards in the
long run.
1.17 Importance of Ethics in Business
Arguments in support of Business Ethics
Ethics applies to all human activities
Business cannot survive without ethics (businesses do not
operate in vacuum, they earn profit because the society
allows them to do the business, consumers and employees
care about ethics)
Ethics is consistent with profit seeking (practice of business
ethics improves performance in all the aspects, increases
loyalty and productivity of employees, increases goodwill,
acceptability of businesses and the satisfaction with their
services, helps avoidance of fines and sanctions, lawsuits)
Prisoners dilemma (a situation when two parties
represented in prisoners dilemma as prisoners, cooperate,
both gain, one cooperates and other do not, the other one
gains more and if both do not cooperate, both loose)

1.17.1 Importance of Ethics in Business
Employers save billions on law suits, settlements and
thefts; companies prevent deterioration of relationships,
damage to reputation, decline in employee
productivity, creativity and loyalty
Managing ethically means managing with integrity and
better decision making, working in harmony with
society that prescribes certain norms that are binding
on business and
Ethically strong companies are profitable
organizations, too since ethical considerations are
consistent with business pursuits, including profit
earning. Employers save billions on law suits,
settlements and thefts; companies prevent deterioration
of relationships, damage to reputation, decline in
employee productivity, creativity and loyalty

1.18 Adopting Ethics in Business
Historically, businesses have gained a bad reputation
just by being in business. To many people businesses
are interested in making money, and that is the
bottom line. It could be called capitalism in its purest
form.
Making money is not wrong in itself. It is the manner
in which some businesses conduct themselves that
brings up the question of ethical behavior. This is
where the real thinking over business ethics started.
Interest in business ethics accelerated dramatically
during the 1980s and 1990s, both within major
corporations and within academia.
Today most major corporate websites lay emphasis
on commitment to promoting non-economic social
values under a variety of headings (e.g. ethics codes,
social responsibility charters).
1.19 Adopting Ethics in Business
A business may be a multi-million seller, but does it use
good business ethics and do people care? There are
popular soft drinks and fast food restaurants that have
been fined time and time again for unethical
behavior.
Business ethics should eliminate exploitation, from the
sweat shop children who are making sneakers to the
coffee serving staff who are being ripped off in
wages.
Business ethics can be applied to everything from the
trees cut down to make the paper that a business sells
to the ramifications of importing coffee from certain
countries.
1.20 Adopting Ethics in Business
Many global businesses, including most of the
major brands that the public use, can be seen not
to think too highly of good business ethics.
Money is their major deciding factor, for which
many major brands have been found to break
anti-trust, ethical and environmental laws.
Also many have been fined millions for such
practices.
But the amount of money these companies are
making outweighs the fines applied. Billion
dollar profits blind the companies to their lack of
business ethics, and the dollar sign wins.
1.21 Ethical Standards and Principles of
Social Responsibility of Business
Business Ethics and Social responsibility of business
(frequently termed corporate social responsibility
CSR) are often regarded as the same concepts.
However, the social responsibility movement is but
one aspect of the overall discipline of business ethics.
The social responsibility movement arose particularly
during the 1960s with increased public consciousness
about the role of business in helping to cultivate and
maintain highly ethical practices in society and
particularly in the natural environment. CSR is a
process by which businesses negotiate their role in a
society (employees, community, environment and the
government) and often CSR and ethics go together.
1.22 Ethical Standards relate to
Perceived impropriety (the condition of being
improper)
Responsibilities to the employer
Conflict of interest
Issues of influence
Confidential and proprietary information
Supplier relationships
Reciprocity
Applicable laws
Small, disadvantaged and minority-owned businesses
Professional competence
National and international supply management
conduct
Responsibilities to the profession
1.23 Seven Principles of Social Responsibility
Focus on Community
Diversity in actions
Environment conservation
Ethics
Financial responsibility
Human rights
Safety (at workplace and of clients)
1.24 Factors Impacting Organizational Ethics
Corporate culture
Existence and application of a written code of ethics
Formal and informal policies and rules
Norms for acceptable behavior
Financial reward system
System for recognizing accomplishment
Company attitude toward employees
How employees are selected for promotions
Hiring practices
Applications of legal behavior
Degree to which professionalism is emphasized
The companys decision making processes
Behaviors and attitudes of the organizations leaders