Business ethics

Business ethics
Nature, purpose and scope of ethics
Importance of ethics and moral standards
Relevance of values
Secular vs. spiritual values in

management

A business that makes

nothing but money is a
poor business.
Henry Ford
3

The concept comes from the Greek word

ethos that means both an individuals

character and a communitys culture.
Business ethics involves adhering to legal,

regulatory, professional and company

standards, keeping promises and
commitments and abiding by general
principles like fairness, truth, honesty and
respect.
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The institute of global ethics defines ethics

as

obedience to the
unenforceable.

The maxims such as business is business

or principles like caveat emptor (let the

buyer beware) fall for short of public
expectation.
Businesses are under pressure to define

their standards and codes of practice.

Ethics are moral guidelines which govern

good behaviour
So behaving ethically is doing what is
morally right
Behaving ethically in business is widely
regarded as good business practice.

An important distinction to remember is

that behaving ethically is not quite the

same thing as behaving lawfully:
Ethics are about what is right and what is

wrong
Law is about what is lawful
and what is unlawful

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Ethics constitutes desirable conduct in a

particular set of social circumstances.

Business ethics are that functions which

leads to choosing right decision at right

time which leads for the welfare of not only
business owners but also society,
consumers, stakeholders and its
employees.

There are three approaches to studying

business ethicsDescriptive- describing practices, moral

codes and beliefs

Prescriptive- an attempt to formulate and

defend basic moral norms

Conceptual study- analyzing central ethical

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terms such as right, good, an attempt to

distinguish what is moral and what is
immoral.

Proponents of moral relativism believes

that the bulk of moral rules are culturespecific. In other words things are right or
wrong in a particular context.

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Nature of business ethics

Business ethics has a five part structure:
1.
2.
3.
4.
5.

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The specification of moral judgment

Moral judgment and the moral standard
Justification of moral judgment
Logical reasoning and moral judgment
Moral judgment and moral responsibility

Requirements for moral judgments

Moral judgment should be
Logical- our goals should be able to support

our moral judgments with reason and

evidence.
Based on facts- must collect as much

relevant information as possible for making

them.
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Based on acceptable moral principles-

The ethics movement has grown most

strongly in the USA because the risk of

being penalized by the courts for unethical
behavior is greatest there.

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Initial approaches were heavily based on

compliance, the creation of rules and

systems that people and companies had to
follow. But rules are hard to draft and can
quickly become out of date.
This has led to the evolution of the belief that

although some level of compliance will

always be necessary, it is more important to
instill ethical values into the corporate
body and the employees that inhabit it.
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To do this successfully businesses must have a

vision about why they exist and which ought

to be shared by every one connected with the
company.
They must also have shared beliefs about

acceptable standards of behavior.

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Unethical behavior can cost a company its

reputation and hard cash and reduce its

stock price.
Whereas, ethical companies are most likely

to build trust among their shareholders,

employees, customers and wider
community and thus surely is good for
business.

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Ethical relativism
What is right in one place may be wrong in

another because the only criterion for

distinguishing right from wrong is the
moral system of the society in which the
act occurs.
For e.g., abortion is condemned as immoral

in catholic Ireland but is

practiced as a morally neutral form of birth
control in Japan.
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Many immoral moralities have been adopted,

tolerated or even encouraged by the moral

system of one society or another.
Albert Carr argues that business has its own

norms and rules that differ from those of the

rest of society.
There are number of things that we normally

think of as wrong are really permissible in

business context.
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 Conscious misstatement and concealment

of pertinent facts in negotiation.

Lying about ones age on a resume.
Deceptive packaging
Overcharging of electricity uses.
Hence business has its own moral
standards and business actions should be
evaluated only by those standards.

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Herd morality and conventional

morality
In the earliest period of human history,

men lived in herds and were totally

dependent for their survival on the group of
herd, and hence what was good for the
herd was good for its members. Also known
as instinctive morality.

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When men graduated from nomadic stage

to the agricultural stage, his struggle for

existence became less harsh, he found
some leisure to think and social life begin
to take shape.
But here too, the iron grip of social rules

and regulations held complete sway over

the individual.

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When we claim to be highly civilized, the

majority of us follow the rules of conduct

regarded as good and avoid those regarded
as bad.
This certainly ensures smooth functioning

of the society and simplifies problems of

the individual.

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The question is why do we call a particular

conduct good and another bad.

Is good a fact like tables and chairs? If so

a conduct called good by one should be

regarded as good by others.

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Ethics is essentially a social phenomenon.

That which is approved by the group or

society is ethical and conduct frowned upon
by the group is bad or immoral.
Does this not prove that morality means

following rules prescribed by the elders or

majority of society?

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For e.g., At the beginning of the battle of

Kurukshetra, Arjuna asked Sri krishna to

take him before the army of Kauravas. He
was overwhelmed by the idea of killing his
kith and kin and was on the point of fleeing
the battlefield.
He could not determine what is his duty

and what is good for him.

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Ethics as a normative science

A normative science seeks to determine

norms, ideals, standards or values.

There are three ideals of human life viz.,

Truth, Beauty and Goodness. They

correspond to three aspects of our
experience thinking, feeling and willing.

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Ethics is concerned not with human

conduct as it is but as it ought to be. It

passes judgments of value upon human
actions with reference to the moral ideal.
Moral judgments are not descriptive but

prescriptive, they state what we ought to

do, not what we actually do.

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Postulates of ethics
All types of behaviour or conduct of men do

not come under the purview of ethics.

E.g., an office employee going to a bank to

deposit a large office sum. On the way he is

shot at by certain miscreants, is slightly
wounded and the money is snatched from
him by those miscreants.

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Postulates: Something assumed without proof as

being self evident.

1. Freedom of will of the agent or doer is

fundamental postulate of morality. Such

events that do not follow from the free
will of the doer, do not form the subject
matter of moral judgments.

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Exceptions are:
Instinctive action- A man fleeing from
a dangerous animal is behaving under
the influence of the instinct of self
preservation.
Reflex action when we withdraw our

hand when it touches a very hot object.

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Ideo motor action- A spectator watching

a footballer about to kick ball into the net,

himself kicks the man standing in front of
him.
Accidents breaking ones leg as a result

of slipping on a banana skin.

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2. Reason only persons with a properly

developed rational faculty, i.e., with the

power of distinguishing good from bad
are to be held responsible for their
voluntary actions.
For e.g., A boy of eight sets fire to a hut
and causes considerable loss of property.

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3. Personality the unity and continuity of

the mental life of a person.

The consequences of actions come after the
deeds are done. Sometimes, there is
considerable time gap between an action
and its result.
For e.g., a man commits a crime and during
the course of his trial, is found to be insane,
he is not punished for his crime.
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Apart from voluntary actions, habitual

actions also come under the scope of

moral judgment.
For e.g., a smoker tries hard to give up

smoking, but he does not succeed. This is

more of a psychological problem, how can
he be held morally responsible?

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A voluntary action is not a simple event. It

has three stages

The mental stage
The bodily stage
The external stage of consequences

For e.g., quenching thirst by water.

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Motive or intention?
The motive is the fuel for the intent. The

motive is the reason why someone is going

to do something, the intent is what they
desire the outcome of that something to
be.
Motive is the fountain from which the

actions spring, whereas intent is the goal to

which they are directed.

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In short intention = motive + means

adopted
To actually do good to my friend, I need to

adopt proper means then only the result

will be satisfactory.
E.g., A surgeon performs an operation with

utmost care to cure a patient; but in spite

of that the patient dies.
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The means adopted for realizing the motive

must be good.
For e.g., motive of passing exam is good, but

adopting unfair means to do that is not good.

Hence the morality of an action depends not

merely on the motive but also on the means

adopted.

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The term intention is used in a wide sense

which includes:
Immediate and remote intention
Direct and indirect intention
Conscious and unconscious intention
Formal and material intention

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Examples:
Two person trying to save a man from

drowning, one is policeman.

Helping a beggar.
A politician adopting various measures to

strengthen his hold on power.

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Importance of ethics and

moral standards

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Importance of ethics in business

Ethical behavior is essential for long term

success in business, both from micro and

macro perspective.

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The market system leads to a more

efficient way of allocating resources and

the conditions required are:
1. The right to own and control private

property.
2. Freedom of choice in buying and selling
goods and services.
3. The availability of perfect information
regarding these goods and services.
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Macro perspective unethical

behavior
Bribery reduces freedom of choice by

changing the conditions under which the

decision is made. Greater appeal is created
by enhancing the personal gain associated
with the choice by addition of unearned
income.
Coercive acts threats that prevent a

seller from dealing with certain customers.

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Deceptive information creates false

impressions and leads buyers to select

goods and services that provide less
satisfaction.
Delivering products and services below the
promised quality also distorts the system.
Theft losses due to theft may be made

up via larger profit margins that increase

prices.
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Unfair discrimination results in the

purchase of services from less capable

people or sale to less capable people.

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Macro perspective ethics and trust

Ethics is closely associated with trust. In

order to develop trust, behavior must be

ethical.
Trust in a business setting reduces costs,

makes life more pleasant and improves

efficiency.

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Two norms are to be honored in all

situations:
1. Commitments are to be honored in
almost all situations.
2. One ought to produce a good product

and stand by it.

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Trust involves three fundamental elements

Predictability
Dependability
Faith

Need for trust arises when one faces

some type of risk. Thus trust, is a risk

reducing mechanism.
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1. Trust in supplier relations purchases

move from a series of discrete transactions

to an on going buyer seller relationship
which is called an exchange relationship,
which is based on trust between both parties
that each will honor his commitments.
2. It also provides several benefits to the buyer.

The buyer gets a dependable source of

supply, during the period of shortages also.

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2. Trust in customer relations a

salesman earn customers trust by being

dependable, honest, competent and
customer oriented.
. Customers who trust suppliers are more

likely to stay with them.

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3. Trust in employee relations a

climate of trust provides:

Improved communication
Greater predictability
Dependability and confidence among

employees
Reduction in employee turnover
Openness and willingness to listen and
accept criticism
Reduction of friction among employees
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 The following factors promote trust:

Open communications
Giving workers a greater share in decision

making.
Sharing of critical information
Trust based sharing of perceptions and
feelings

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Moral standards
Moral standards are the yardsticks of

business ethics. They provide the

basis for deciding whether an act is right
or wrong.
Moral standards consist of specific moral

norms and general moral principles.

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Business ethics is the process of

evaluating decisions, either pre or post,

with respect to the moral standards of
societys culture.
Moral norms prohibit certain types of

behaviour such as lying, stealing and

killing.
Moral principles provide more general
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guidelines for behaviour and are applicable

to decision situations.

Moral Versus Nonmoral Standards

Nonmoral standards: Standards about behavior or

practices with no serious or immediate effects upon

human well-being.
Moral standards: Standards about behavior or

practices with serious or immediate effects upon human

well-being.

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Some Features of Moral Standards

Not all standards and rules in a society

are moral ones. For example chewing

with ones mouth open violates
etiquette laws not morality laws. Driving
faster than allowed with a city without
harming someone violates traffic laws
not morality laws. On the other hand,
breaking promises, stealing, telling lies
are all moral violations.

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Characteristics of moral standards.

1. Violating moral standards may result in a

serious threat to human welfare. It may hurt

people but violating non-moral standards does
not. Stealing, lying and killing deal with action
can hurt people. The moral principal that
human beings should be treated with dignity
and respect strengthens the human
personality. The standards that govern our
conduct in these matters are moral standards.

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2. Moral standards take priority over other standards

including self-interest. For example, stealing from your

neighbors home cannot be justified on the non-normal
ground that it would be fun or it would make you rich.
We take moral standards to be more important than
other consideration in guiding our actions.
3. The strength or the validity of moral standards

depends on the sufficiency of reasons that support or

justify the standards. No authorities create moral
standards, however, they can accept them or reject
them based on the quality of arguments of the
reasoning that supports them. Example: When law
makers discussing a new law.
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Morality and Etiquette

1. Morality refers to the rules and

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standards of what is right and what is

wrong; what is good and what is bad in
society.
2. Etiquette refers to the rules and
standards of what is polite conduct and
what is impolite conduct; what is correct
conduct and what is incorrect conduct in
society.
Not all societies have the same
etiquette standards. For example some
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people may consider eating with ones

Examples
A. What is (un)ethical is not necessarily

(il)legal, and vice versa:

1. EX: Ethical and legal: donating money to

charity.
2. EX: Ethical and illegal: hiding Jews in Germany
during WWII.
3. EX: Unethical and legal: slavery (years ago in
America).
4. EX: Unethical and illegal: first degree murder
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The Sources of Morality

Some people argue that without religion

people will have no incentive to be

moral.
Religion teaches us to be good so we
should base morality on it.

Kruckberg (1996: 181-189) noted that

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religion heavily influences the peoples

ethical judgments throughout the Middle
East. (Sharia Law)
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The Sources of Morality

The justification of moral norms: Moral

philosophers study mainly the justification,

rather than the origin, of moral norms.
The claim that morality is based on religion:
Religion provides incentives to be moral.
Religion provides moral guidance.
Moral norms are in essence divine commands.

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Integrative social contracts theory is

used for evaluating the ethical dimension

of decisions.
It is a normative theory of business ethics

and it allows for moral diversity among

various cultures while maintaining certain
universal norms.

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Essential elements of social contract

theory
S.No.

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Hypernorms

Personal freedom

Physical security

Political participation

Informed consent

Ownership of property

Right to subsistence

Equal dignity to all humans

Universal

S.No Macro social contract Globally based

.

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Moral free space

Free consent with right

to exist

Compatible with
Hypernorms

Priority levels

S.No Micro social contract

Individual norms
.

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Do not lie in
negotiations

Honor all contracts

Give job preference to

natives

Give contract
preference to local
suppliers

Provide a safe
workplace

Community
based

Relevance of values

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Value
The word value is derived from a French

word, Valoir which means the worth,

merit, usefulness or importance of a thing.
Values are prescriptive belief which depicts

what is good and what is bad.

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Allport described a value as a belief upon

which one acts by preference. When we

place importance on something that we
cherish we are valuing that trait, ideal, or
characteristic.
Values describe what managers try to

achieve through work and how to behave.

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Values may be based on rules and are

referred to as deontological or rule based

belief;
or values may be based on the perceived

outcomes and are referred to as

teleological beliefs.

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Features of values
Values are the core of personality and are a

powerful force affecting behaviour.

Values contain a judgmental element in

that they carry an individuals ideas as to

what is right or wrong.
Values are not fixed, they change over

time.

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Values have both content and intensity

attributes. The content attribute indicates

that a mode of conduct of existence is
important. The intensity attributes specifies
how important it is.
Many values are relatively stable and

enduring.

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Value formulation
Genetic source
Environmental source
Influence of superiors
Media
Values describe what managers try to

achieve through work and how to behave.

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Importance of values in business

Values should be in alignment with the

business goals, and mission and vision

statements, otherwise there is bound to be
organizational conflict.
Values will also help you in finding your

purpose in life.
Values lay the foundation for the

understanding of perception, attitudes and

motivation of people.
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Values help you get and stay motivated.

Values relate to our purpose in life and are

used as guiding principles, to make your

life easier.
Values provide you with a strong

foundation; a method for living your life to

its fullest.

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Corporate culture: an effective value

system creates a strong corporate culture

which is necessary for high performance.
Guide to action: serves as social guides

to decision making and actions to be taken

in business.

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Objective standards: serves as norms

against which the conduct of businessmen

and their performance can be judged.
Social responsibility: help to persuade

businessmen to discharge their social

responsibilities.

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Value based management

Judgment and guided actions which are

based on individuals beliefs or

convections. Every organisation has its own
beliefs and convictions.
A managers values determine the

managerial functions he performs.

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A managers value system plays a

significant role in the performance

appraisal of his subordinates.
The job of planning, organizing and

controlling the behaviour of employees

should be compatible with managerial
values.

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Importance of value based

management
Value orientations of managers underlie
managerial behavior. The importance are as
follows:
Managerial effectiveness based on value

based management can solve problems

harassing the economy in country.
Selfless action purifies our mind. Purer mind

concentrate and mediate to approach divinity

or perfection.
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Proper use of valuable human and material

resources offered by the earth.

Promotes work culture, self discipline and

consciousness among the employees.

Helps in bringing human harmony and

happiness in the organization.

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It cares for its people. People are protected

from unwanted stress and strains, unrest

and loneliness.
Helps in reducing conflicts and disputes.

This enhances reputation and goodwill of

the organization.

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Types of values
These are personal convictions about

life-long goals (terminal values) and modes

of conduct (instrumental values).

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INSTRUMENTAL VALUES
Instrumental Valuesarecore

values,permanent in nature, comprise

personal characteristics and character
traits.

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INSTRUMENTAL VALUES
Cheerfulness
Ambition
Love
Cleanliness
Self-Control
Capability
Courage
Politeness
Honesty
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Imagination
Independence
Intellect
Broad-Mindedness
Logic
Obedience
Helpfulness
Responsibility
Forgiveness

TERMINAL VALUES
In our personal lives, Terminal Values are

those things that we can work towards or

we think are most important and we feel
are most desirable terminal values are
desirable states of existence.

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TERMINAL VALUES
True Friendship
Mature Love
Self-Respect
Happiness
Inner Harmony
Equality
Freedom
Pleasure
An Exciting Life
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Social Recognition
Wisdom
Salvation
Family Security
National Security
A Sense of Accomplishment
A World of Beauty
A Comfortable Life

Secular versus Spiritual values in

management

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Secularism
Secularism is the doctrine that morality

should be based solely with regard to the

well-being of mankind in the present life to
the exclusion of all considerations drawn
from belief in God.
Secularism means non-religious. The

secular values are based on facts and

science.

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Secularism means being materialism and

task oriented for managers.

Secularism is a professional value which

completely ignores the difference of caste,

color, religion, culture etc.

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Main features:
Primary emphasis on the material and

cultural improvement of human being.

Concern for this world and its improvement.
Maximize the profit without discriminating

work force.

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Responsibility towards society: One should

take maximum efforts for the well being of

society.
Professionalism: decision should not be on

the basis of religion, caste, colour etc.

Secular values lay emphasis on brother

hood of man and unity of the world.

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Secularism and management

Under this the management acted as

handmade of profit and motto was more

and more money at any cost. Hence we got
external growth at the cost of internal
growth.
Some consequences of management by

secularism are as follows:

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Workers are demoralized

Labor management conflict is rampant.
Human welfare is neglected
Wealth is accumulated
Main objective of management is to earn

money at any cost.

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Spiritualism
Spiritual means religious one or the people

who believe in religion.

They behave that work and religion are two

side of a coin.
Human values are based on spiritualism.

They act as base for thoughts, actions,

skills and behaviour and will mould
character.
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Main features:
Divine qualities: such as respect for elders,
belief in giving than taking, satisfaction etc.
Work is worship: one should work with

more confidence, loyalty, dedication,

responsibility and motivation.
Self disciplined: helps in proper usage of

our time, energy and other resources.

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Belief in religion: spiritual people believe in

religion.

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Spiritualism and management

The quality of work life in an organization is

greatly influenced by the spiritual and

ethical values prevalent in the organization.
There is no clash between secularism and

spiritualism.
Spiritualism shows the goal and secularism

supplies the tools.

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SECULAR Vs SPIRITUAL VALUES IN MANGEMENT

Secular

Spiritual

It refers to the worldly thoughts and

philosophies as reproduced by
management Gurus.

management by Vedas and Upanishad or

by spiritual Gurus.

Find its way from maslows need

Find its base from Vedas and Upanishads

hierarchy and culminate till most

modern thoughts on management.

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It refers to the insights thrown on

with special reference to Gita.

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Spiritual

Secular
Treat management values as a science.
Treat management values as an

evolutionary concept.

Treat management values as a

philosophy.
Believe sources like Bhagvad Gita, as a

ready reckoner of value based

management.

Views on values are not generally

ethical by nature.

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Ethical or moral in its true sense.

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Spiritual

Secular
Contribution of Indian thoughts is

comparatively poor.
As propounded by management

experts lack any ideals.

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Contribution of Indian thoughts has

magnificent theories.
Have divinity as the ideal to be

portrayed.

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Examples
Worship of Tulsi
Spiritualism: we do worship tulsi by giving

water or by lighting a lamp in the plant of

tulsi.
Secularism: believes that lighting a lamp

in tulsi kills insects, and tulsi also has

medicinal value as it cures cough and cold.

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Giving Argh to Sun

Spiritualism: it is a spiritual value.
Secularism: believes that when we give

argh to Sun, our eye sights will also

become good.

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Touching feet of elders

Spiritualism: we get blessing by touching

feet of elders.
Secularism: believes that blood circulation

is maintained by it.

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Secular practices with human dignity,

human morality and human value will alone

bring bright future for India.
The country should have common law

which is applicable to all cities.

There should be no privileges based on

religion or faith.

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