BUSINESS ETHICS

INTRODUCTION:

Business ethics (also known as corporate ethics) is a form of applied

ethics or professional ethics that examines ethical principles and moral
or ethical problems that arise in a business environment. It applies to all
aspects of business conduct and is relevant to the conduct of individuals
and entire organizations.

These ethics originate from individuals, organizational statements or

from the legal system. These norms, values, ethical, and unethical
practices are what is used to guide business. They help those
businesses maintain a better connection with their stakeholders.

Business ethics refers to contemporary organizational standards,

principles, sets of values and norms that govern the actions and
behavior of an individual in the business organization. Business ethics
have two dimensions, normative or descriptive.

As a corporate practice and a career specialization, the field is primarily

normative. Academics attempting to understand business behavior
employ descriptive methods. The range and quantity of business ethical
issues reflects the interaction of profit-maximizing behavior with non-
economic concerns.

Interest in business ethics accelerated dramatically during the 1980s

and 1990s, both within major corporations and within academia.

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For example, most major corporations today promote their commitment
to non-economic values under headings such as ethics codes and social
responsibility charters.

Adam Smith said, "People of the same trade seldom meet together,
even for merriment and diversion, but the conversation ends in a
conspiracy against the public, or in some contrivance to raise prices."
Governments use laws and regulations to point business behavior in
what they perceive to be beneficial directions.

Ethics implicitly regulates areas and details of behavior that lie beyond
governmental control. The emergence of large corporations with limited
relationships and sensitivity to the communities in which they operate
accelerated the development of formal ethics regimes.

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DEFINITION:

Maintaining an ethical status is the responsibility of the manager of the

business. According to the Journal of Business Ethics "Managing ethical
behavior is one of the most pervasive and complex problems facing
business organizations today.

History

Business ethics reflect the norms of each historical period. As time

passes, norms evolve, causing accepted behaviors to become
objectionable. Business ethics and the resulting behavior evolved as
well. Business was involved in slavery, colonialism, and the cold war.
The term 'business ethics' came into common use in the United States in
the early 1970s.

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By the mid-1980s at least 500 courses in business ethics reached
40,000 students, using some twenty textbooks and at least ten
casebooks supported by professional societies, centers and journals of
business ethics.

The Society for Business Ethics was founded in 1980. European

business schools adopted business ethics after 1987 commencing with
the European Business Ethics Network (EBEN). In 1982 the first single-
authored books in the field appeared.

Firms began highlighting their ethical stature in the late 1980s and early
1990s, possibly in an attempt to distance themselves from the business
scandals of the day, such as the savings and loan crisis. The concept of
business ethics caught the attention of academics, media and business
firms by the end of the Cold War. However, criticism of business
practices was attacked for infringing the freedom of entrepreneurs and
critics were accused of supporting communists.

This scuttled the discourse of business ethics both in media and

academia. The Defense Industry Initiative on Business Ethics and
Conduct(DII) was created to support corporate ethical conduct. This era
began the belief and support of self-regulation and free trade, which
lifted tariffs and barriers and allowed businesses to merge and divest in
an increasing global atmosphere.

ISSUES

Ethical issues often arise in business settings, whether through business

transactions or forming new business relationships.
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An ethical issue in a business atmosphere may refer to any situation that
requires business associates as individuals, or as a group (for example,
a department or firm) to evaluate the morality of specific actions, and
subsequently make a decision amongst the choices.

Some ethical issues of particular concern in today's evolving business

market include such topics as: honesty, integrity, professional behaviors,
environmental issues, harassment, and fraud to name a few. It is integral
to the success of an organization that ethics issues such as these be
properly addressed and resolved. Businesses should strive to educate
themselves on these issues, and ethical practices in general.

From a 2009 National Business Ethics survey, it was found that types of
employee-observed ethical misconduct included abusive behavior (at a
rate of 22 percent), discrimination (at a rate of 14 percent), improper
hiring practices (at a rate of 10 percent), and company resource abuse
(at a rate of percent).

The ethical issues associated with honesty are widespread and vary
greatly in business, from the misuse of company time or resources to
lying with malicious intent, engaging in bribery, or creating conflicts of
interest within an organization.

Honesty encompasses wholly the truthful speech and actions of an

individual. Some cultures and belief systems even consider honesty to
be an essential pillar of life, such as Confucianism and Buddhism
(referred to as sacca, part of the Four Noble Truths).

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Many employees lie in order to reach goals, avoid assignments or
negative issues; however, sacrificing honesty in order to gain status or
reap rewards poses potential problems for the overall ethical culture
organization, and jeopardizes organizational goals in the long run.

Using company time or resources for personal use is also commonly

viewed as unethical because it boils down to stealing from the company.
The misue of resources costs companies billions of dollars each year,
averaging about 4.25 hours per week of stolen time alone, and
employees' abuse of Internet services is another main concern. Bribery,
on the other hand, is not only considered unethical is business practices,
but it is also illegal.

In accordance with this, the Foreign Corrupt Practices Act was

established in 1977 to deter international businesses from giving or
receiving unwarranted payments and gifts that were intended to
influence the decisions of executives and political officials. Although,
small payments known as facilitation payments will not be considered
unlawful under the Foreign Corrupt Practices Act if they are used
towards regular public governance activities, such as permits or
licenses.

International issues

While business ethics emerged as a field in the 1970s, international

business ethics did not emerge until the late 1990s, looking back on the
international developments of that decade.

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Many new practical issues arose out of the international context of
business. Theoretical issues such as cultural relativity of ethical values
receive more emphasis in this field. Other, older issues can be grouped
here as well. Issues and subfields include:

 The search for universal values as a basis for international

commercial behaviour.

 Comparison of business ethical traditions in different countries. Also

on the basis of their respective GDP and [Corruption rankings].

 Comparison of business ethical traditions from various religious

perspectives.

 Ethical issues arising out of international business transactions;

e.g., bioprospecting and biopiracy in the pharmaceutical industry;
the fair trade movement; transfer pricing.

 Issues such as globalization and cultural imperialism.

 Varying global standards—e.g., the use of child labor.

 The way in which multinationals take advantage of international

differences, such as outsourcing production (e.g. clothes) and
services (e.g. call centres) to low-wage countries.

 The permissibility of international commerce with pariah states.

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Law and regulation

“Laws” are the written statutes, codes, and opinions of government

organizations by which citizens, businesses, and persons present within
a jurisdiction are expected to govern themselves or face legal sanction.

Sanctions for violating the law can include (a) civil penalties, such as
fines, pecuniary damages, and loss of licenses, property, rights, or
privileges; (b) criminal penalties, such as fines, probation, imprisonment,
or a combination thereof; or (c) both civil and criminal penalties.

Very often it is held that business is not bound by any ethics other than
abiding by the law. Milton Friedman is the pioneer of the view. He held
that corporations have the obligation to make a profit within the
framework of the legal system, nothing more.

Friedman made it explicit that the duty of the business leaders is, "to
make as much money as possible while conforming to the basic rules of
the society, both those embodied in the law and those embodied in
ethical custom". Ethics for Friedman is nothing more than abiding by
'customs' and 'laws'. The reduction of ethics to abidance to laws and
customs however have drawn serious criticisms.

Counter to Friedman's logic it is observed[by whom?] that legal

procedures are technocratic, bureaucratic, rigid and obligatory where as
ethical act is conscientious, voluntary choice beyond normativity. Law is
retroactive. Crime precedes law. Law against a crime, to be passed, the
crime must have happened. Laws are blind to the crimes undefined in it.

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Further, as per law, "conduct is not criminal unless forbidden by law
which gives advance warning that such conduct is criminal".

Also, law presumes the accused is innocent until proven guilty and that
the state must establish the guilt of the accused beyond reasonable
doubt. As per liberal laws followed in most of the democracies, until the
government prosecutor proves the firm guilty with the limited resources
available to her, the accused is considered to be innocent. Though the
liberal premises of law is necessary to protect individuals from being
persecuted by Government, it is not a sufficient mechanism to make
firms morally accountable

CHARACTERISTIC OF BUSINESS ETHICS

Leadership

The culture of an ethical business is defined starting from the very top of
the organizational chart. For a business to be ethical, its leaders must
demonstrate ethical practices in any situation.
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The true test of this leadership is in the decision-making process when
there is a choice between what is ethically responsible and what will
result in profit or gain.

Leaders who can consciously choose the path that is ethically correct,
as opposed to one that is purely financially driven, have successfully
created an ethical culture in the business. When the culture is solid at
the top of the organization, it trickles down to all areas and employees.

Values

An ethical business has a core value statement that describes its

mission. Any business can create a value statement, but an ethical
business lives by it. It communicates this mission to every employee
within the structure and ensures that it is followed.

The ethical business will institute a code of conduct that supports its
mission. This code of conduct is the guideline for each employee to
follow as he carries out the company's mission.

Integrity

Integrity is an all-encompassing characteristic of an ethical business.

The ethical business adheres to laws and regulations at the local, state
and federal levels. It treats its employees fairly, communicating with
them honestly and openly. It demonstrates fair dealings with customers
and vendors including competitive pricing, timely payments and the
highest quality standards in the manufacture of its products.

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Respect

Ethics and respect go hand in hand. An ethical business demonstrates

respect for its employees by valuing opinions and treating each
employee as an equal. The business shows respect for its customers by
listening to feedback and assessing needs. An ethical business respects
its vendors, paying on time and utilizing fair buying practices. And an
ethical business respects its community by being environmentally
responsible, showing concern and giving back as it sees fit.

Loyalty

Solid relationships are a cornerstone of an ethical business. Loyal

relationships are mutually beneficial and both parties reap benefits.
Employees who work for a loyal employer want to maintain the
relationship and will work harder toward that end.

Vendors and customers will remain loyal to a business that is reliable

and dependable in all situations. An ethical business stays loyal to its
partnerships even in challenging times. The result is a stronger
relationship when emerging from the challenge.

Concern

An ethical business has concern for anyone and anything impacted by

the business. This includes customers, employees, vendors and the
public. Every decision made by the business is based on the effect it
may have on any one of these groups of people, or the environment
surrounding it.

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THE IMPORTANCE OF ETHICS

Ethical behavior, be it at the organizational, professional or individual

level, is a direct representation of the principles and values that govern
the individual and the organization they represent.

Organizations create an internal culture, which is reflected externally as

organizational values.

These values impact the relationships within the organization,

productivity, reputation, employee morale and retention, legalities, and
the broader community in which they operate.

As a result, most organizations generate a statement of organizational

values and codes of conduct for all employees to understand and
adhere to.

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Motivating and reinforcing positive behavior while creating an
environment that avoids unethical behavior is a critical responsibility of
both managers and employees.

RELIGIOUS VIEWS

In Sharia law, followed by many Muslims, banking specifically prohibits

charging interest on loans. Traditional Confucian thought discourages
profit-seeking. Christianity offers the Golden Rule command, "Therefore
all things whatsoever ye would that men should do to you, do ye even so
to them: for this is the law and the prophets."

According to the article "Theory of the real economy", there is a more

narrow point of view from the Christianity faith towards the relationship
between ethics and religious traditions. This article stresses about how
capable is Christianity of establishing reliable boundaries for financial
institutions. One criticism comes from Pope Benedict by describing the
"damaging effects of the real economy of badly managed and largely
speculative financial dealing."

It is mentioned that Christianity has the potential to transform the nature

of finance and investment but only if theologians and ethicist provide
more evidence of what is real in the economic life.

Business ethics receives an extensive treatment in Jewish thought and

Rabbinic literature, both from an ethical (Mussar) and a legal (Halakha)
perspective; see article Jewish business ethics for further discussion.

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According to the article "Indian Philosophy and Business Ethics: A
Review", by Chandrani Chattopadyay, Hindus follow "Dharma" as
Business Ethics and unethical business practices are termed "Adharma".
Business men are supposed to maintain steady-mindedness, self-
purification, non-violence, concentration, charity and control over
senses. Books like Bhagavat Gita and Arthashastra contribute a lot
towards conduct of ethical business.

TWO BROAD AREAS OF BUSINESS ETHICS:

Managerial mischief.

"Managerial mischief" includes "illegal, unethical, or questionable

practices of individual managers or organizations, as well as the causes
of such behaviors and remedies to eradicate them."

There has been a great deal written about managerial mischief, leading
many to believe that business ethics is merely a matter of preaching the
basics of what is right and wrong. More often, though, business ethics is
a matter of dealing with dilemmas that have no clear indication of what is
right or wrong.

Moral Mazes

The other broad area of business ethics is "moral mazes of

management" and includes the numerous ethical problems that
managers must deal with on a daily basis, such as potential conflicts of
interest, wrongful use of resources, mismanagement of contracts and
agreements, etc.

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BENEFITS OF MANAGING ETHICS IN THE WORKPLACE

Many people are used to reading or hearing of the moral benefits of

attention to business ethics. However, there are other types of benefits,
as well. The following list describes various types of benefits from
managing ethics in the workplace.

1. Attention to business ethics has substantially improved society.

A matter of decades ago, children in our country worked 16-hour days.

Workers’ limbs were torn off and disabled workers were condemned to
poverty and often to starvation. Trusts controlled some markets to the
extent that prices were fixed and small businesses choked out. Price
fixing crippled normal market forces. Employees were terminated based
on personalities. Influence was applied through intimidation and
harassment. Then society reacted and demanded that businesses place
high value on fairness and equal rights. Anti-trust laws were instituted.

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Government agencies were established. Unions were organized. Laws
and regulations were established.

2. Ethics programs help maintain a moral course in turbulent times.

As noted earlier in this document, Wallace and Pekel explain that

attention to business ethics is critical during times of fundamental
change -- times much like those faced now by businesses, both
nonprofit and for-profit.

During times of change, there is often no clear moral compass to guide

leaders through complex conflicts about what is right or wrong.
Continuing attention to ethics in the workplace sensitizes leaders and
staff to how they want to act -- consistently.

3. Ethics programs cultivate strong teamwork and productivity.

Ethics programs align employee behaviors with those top priority ethical
values preferred by leaders of the organization. Usually, an organization
finds surprising disparity between its preferred values and the values
actually reflected by behaviors in the workplace.

Ongoing attention and dialogue regarding values in the workplace builds

openness, integrity and community -- critical ingredients of strong teams
in the workplace. Employees feel strong alignment between their values
and those of the organization. They react with strong motivation and
performance.

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4. Ethics programs support employee growth and meaning.

Attention to ethics in the workplace helps employees face reality, both

good and bad -- in the organization and themselves.
Employees feel full confidence they can admit and deal with whatever
comes their way. Bennett, in his article "Unethical Behavior, Stress
Appear Linked" (Wall Street Journal, April 11, 1991, p. B1), explained
that a consulting company tested a range of executives and managers.
Their most striking finding: the more emotionally healthy executives, as
measured on a battery of tests, the more likely they were to score high
on ethics tests.

5. Ethics programs are an insurance policy -- they help ensure that

policies are legal.

There are an increasing number of lawsuits in regard to personnel

matters and to effects of an organization’s services or products on
stakeholders. As mentioned earlier in this document, ethical principles
are often state-of-the-art legal matters.

These principles are often applied to current, major ethical issues to

become legislation. Attention to ethics ensures highly ethical policies
and procedures in the workplace. It’s far better to incur the cost of
mechanisms to ensure ethical practices now than to incur costs of
litigation later.

A major intent of well-designed personnel policies is to ensure ethical

treatment of employees, e.g., in matters of hiring, evaluating,
disciplining, firing, etc.

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Drake and Drake (California Management Review, V16, pp. 107-123)
note that “an employer can be subject to suit for breach of contract for
failure to comply with any promise it made, so the gap between stated
corporate culture and actual practice has significant legal, as well as
ethical implications.”

6. Ethics programs help avoid criminal acts “of omission” and can
lower fines.

Ethics programs tend to detect ethical issues and violations early on so

they can be reported or addressed. In some cases, when an
organization is aware of an actual or potential violation and does not
report it to the appropriate authorities, this can be considered a criminal
act, e.g., in business dealings with certain government agencies, such
as the Defense Department. The recent Federal Sentencing Guidelines
specify major penalties for various types of major ethics violations.
However, the guidelines potentially lower fines if an organization has
clearly made an effort to operate ethically.

7. Ethics programs help manage values associated with quality

management, strategic planning and diversity management -- this
benefit needs far more attention.

Ethics programs identify preferred values and ensuring organizational

behaviors are aligned with those values. This effort includes recording
the values, developing policies and procedures to align behaviors with
preferred values, and then training all personnel about the policies and
procedures.

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This overall effort is very useful for several other programs in the
workplace that require behaviors to be aligned with values, including
quality management, strategic planning and diversity management.Total
Quality Management includes high priority on certain operating values,
e.g., trust among stakeholders, performance, reliability, measurement,
and feedback. Eastman and Polaroid use ethics tools in their quality
programs to ensure integrity in their relationships with stakeholders.

Ethics management techniques are highly useful for managing strategic

values, e.g., expand market share, reduce costs, etc. McDonnell
Douglas integrates their ethics programs into their strategic planning
process.

Ethics management programs are also useful in managing diversity.

Diversity is much more than the color of people’s skin -- it’s
acknowledging different values and perspectives. Diversity programs
require recognizing and applying diverse values and perspectives --
these activities are the basis of a sound ethics management program.

8. Ethics programs promote a strong public image. Attention to

ethics is also strong public relations -- admittedly, managing ethics
should not be done primarily for reasons of public relations.

But, frankly, the fact that an organization regularly gives attention to its
ethics can portray a strong positive to the public. People see those
organizations as valuing people more than profit, as striving to operate
with the utmost of integrity and honor. Aligning behavior with values is
critical to effective marketing and public relations programs.

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Consider how Johnson and Johnson handled the Tylenol crisis versus
how Exxon handled the oil spill in Alaska. Bob Dunn, President and CEO
of San Franciscobased Business for Social Responsibility, puts it best:
“Ethical values, consistently applied, are the cornerstones in building a
commercially successful and socially responsible business.”

OBJECTIVES OF BUSINESS ETHICS:

The Objectives of Ethics are to evaluate the human behaviours and

calling up on the moral standards.
The objectives of business ethics are:

(i) Personal level:

At personal level the policy should be set that not to misuse the
properties of the others or of the organisation keeping the promises and
extending the mutual help, not to seek quick gains and not to indulge in
politics to gain power.

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(ii) Internal policy level:

The business organisation should follow fair practices in dealing with

employees and other stakeholders. The organisation should have open
and better communication at all levels. The organisation leadership
should motivate employees for better productivity and for common good.

(iii) Societal level:

The social concerns like no discrimination concerned for the down

trodden be the prime concerns of the business organisations. Optimal
use of scarce resources, clean environment and ensuring better quality
of life to all the stakeholders should be stressed in the internal policies.

(iv) Stakeholder’s level:

The organisation should take care of the maximum number of

stakeholders and follow ethical means with shareholders, customers,
suppliers, employees, banks and financial institutions, government and
all others that are connected with the organisation

Business Ethics - Environmental Challenges

Ethical issues arise in every stage of business. There is a considerable

effect of environment on the application of business ethics.

Let’s see how the environment and various stages of business affect the
application process of business ethics.

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Ethics, Economics, and Politics

It is now an accepted fact that there is an integral relationship between

ethics, economics, and politics. That is the reason, they should be
understood when it is integrated and should not be studied in silos.

Economics is the study of individual pursuit of prosperity through

markets. There are three dimensions of economic goal of prosperity,
which are efficiency, growth, and stability.

Politics is concerned with the community's pursuit of justice through the

government. The goal of their justice has three dimensions, namely
individual freedom, equity in the distribution of benefits and burdens, and
social order.

Economic and political environment can both help and distract the
application process of ethics. Ethics that doesn’t have support of
economics and politics has no means to achieve the community ends.

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