Business Ethics
Introduction:
The word ethics finds its origin from the Greek word
ethos which means character or customs.
It is a subject of moral philosophy where we study certain values that
concern human beings. A sense of ethical
values informs people’s lives, directly in deciding what to do, and in their
comments, and judgments on people and actions including their own. People try to shape their lives by reference
to such values. The subject is called
indifferently, ‘moral philosophy’ or ‘ethics’, but the terms, ‘moral’ and
‘ethical’ do have slightly different resonances. ‘Ethical’ (derived from Greek word for
personal character) carries a broader conception including a concern with the
value of different kinds of like and activity; ‘moral’ (derived from Latin Word
for social custom) tends to narrow its interest to rules and obligation, and to
the experiences and consideration most closely related to those morality deals
with right and wrong conduct and also with good and bad character. Ethics clarifies the concept or right and
wrong with rationality. It tries to define
and distinguish with reasons, what is right and what is wrong. Since beginning of history, people have lived
by rules of some kind or other. These
rules were simple in the traditional village society but became more complex
and more complicated as these societies grew, they formed certain moral
codes. These were often closely
identified with their religion. The
‘Golden Rule’, with its simple statement, “Do unto others as you would have
them do unto you”, has remained over the centuries a basic moral code. Society judges the human behavior in the
light of the motives and actions. Either
an action it self may be right or wrong or the motive behind the action is good
or bad. Some persons do not believe in
following rules or codes often these persons believe in a code for others but
not for themselves. This situation
demands enforcement of more and more laws.
However there are some schools of thought who criticize government
intervention and advocates less governmental control.
Concept of Business Ethics:
When The ethics is applied to business dealing. Business is an economic activity which aims
at earning profit by producing at optimum cost.
Therefore some people think that business and ethics are two different
concepts. They cannot be put together
under any case. As we have already
explained above ethics is concerned with moral behaviour of an individual and
guide individual behaviour by defining what is good or bad, right or wrong
behaviour.
Though this view is logical but one should not forget
that business is a part and parcel of human life. Business organizations do not exist and
function outside society. Therefore it
is quite normal that business organizations accept the social responsibility
and behave for the maximum good of the society.
The business ethics, however, should be given special attention due to
the specific problems and opportunities faced by business. We shall try to look at a few definitions of
ethics and business ethics to clarify the meaning and concept.
According to Webster dictionary – “Ethics is the
discipline dealing with what is good or bad, right or wrong or moral duty or
obligation. It is as group of moral
principles or set of values. These
principles and values govern the conduct of an individual or a profession.”
According to Paul W. Taylor, ethics may be defined as
a philosophical enquiry into the nature and grounds of morality.
Ethics is related to law, but it is a much broader
field because it includes more than the punishment of the individual. An act may be lawful and yet unethical
because it violates a moral consideration involving the difference between
right and wrong. Ethical rules differ
from legal rules chiefly because the former are not enforced by public
authority, whereas legal rules are. If
business transactions were conducted on a high ethical place there would be no
need for business law. Though the basic
ethical standards are universal, the difference lies in the application of
ethical principles in business situations.
Therefore Baumhart says that, the objectives, intentions, circumstances
and outcomes of the actions of businessmen and the right or wrong of it is the
domain of business ethics.
To some it is very surprising that there should be a
term called business ethics. On their
opinion the basic ethical standards are universal. The business community forms such a large
part of society that “ethics of businessmen”
or “business ethics” are of social
importance. This business ethics, we may
define as: “Businessman’s integrity so far as his conduct or behaviour is
concerned in all fields of business as well as towards the society and other
business”.
“Business ethics’ deals with morality in the business
environment it involves moral judgments based on understanding of norms of
society. Ethics extends beyond the legal
question and involves goodness or badness of an act. Therefore charging higher price by a village
trader may be legally right but morally, this is not fair.
In ethical conduct, there is an implicit awareness of
the need to transcend selfishness, greed, and striving exclusively for material
wealth. The desire for profit is seldom
the sole motive in managerial decisions.
As managers become more professionally oriented and as corporate social
consciousness expands, the ethical foundations of managerial actions will
increase its importance.”
“Garrett has defined “ethics” and “Business ethics” in
the following words, Ethics is the science of judging especially human ends and
the relationship of means of those ends.
In some way, it is also the art of controlling means so that they will
serve specifically human needs”. From
this point of view, ethics involves the use of any human knowledge whatsoever
which has something to tell us about the relations between men or about the
suitability of the available instruments.
As an art it involves techniques of judging and decision making as well
as the tools of social control and personal development. Ethics is or should be involved in all human
activities.
“Business ethics” is concerned primarily with the
relationship of business goals and techniques to specific human needs. It studies the impact of acts on the good of
an individual, the firm, the business community and the society as a
whole. Business ethics, in other words,
studies the special obligations which a men and a citizen accepts when he
becomes a part of the world of commerce.
Business ethics examines the impact of actions and interactions of the
business people as a whole. Business
system is a means, not an end in it self.
The system is controlled by businessmen.
Business ethics attempts to develop self-monitoring mechanisms to see
that fair practices prevail and business will be organized and conducted in
good sprit.
(1)
Ethics relates to all human activities including business
activities as an individual.
(2)
The lawful act may also be unethical. This means the field of ethics is broader
than law.
(3)
Ethical behaviour in one society may differ from another
society. Thus the behaviour which is
accepted as ethical in one societal situation may be generally unethical
behaviour in another. It is the
socio-cultural environment that determines the behaviour as ethical or
unethical.
(4)
The concept of equity is implied in ethical rules. It provides basis of ethics.
(5)
Ethical behaviour is personal.
(6)
Ethics carries the idea of what should be, it demands the
existence of sound moral character.
(7)
Business ethics is the behaviour of business man as an
individual different from the business organization. It makes businessman honest, just and
responsible citizen.
(8)
Business ethics is not enforced by legislation but by a sense
of moral values and good behaviour. It
emphasizes self-imposed discipline rather than any external force.
(9)
Ethics is not simply an emotional expression such as be good
and do well. It is a rational analysis
and conclusions about the fundamental elements that decides good and bad
behaviour.
(10) According to William Shaw
business ethics is the study of what constitutes right and wrong or good and
bad, human conduct in business context.
Key Terms of
Ethical Language:
The key terms of ethical language are as follows:
(i)
Values: The moral principles and faiths that they think are
important in life.
(ii)
Rights: A right is something that a person is normally or
legally entitled to do it or to have it.
Right is entitlement. The scope
of right is limited by the right of others.
(iii)
Duties: A duty is something that a person feels he ought to
do. In simple words, a duty is an
obligation.
(iv)
Moral Rules: These rules are rules for behaviour and guide
people in competitive situations where interests collide. A rule is the course of action to achieve a
goal. The examples of moral rules are
‘keep promises’, ‘use no violence’, help each other, ‘do not copy in exams’,
etc.
Need for
Business Ethics:
Ethics in general and ethics in business are very
intimate to one another. Therefore it
exists in association with its environment which provides resources and imposes
limitations. One’s person ethics cannot
be completely separated from one’s business ethics. A business organization does not exist in
vacuum, manager while taking decisions must give due weightage to all the
elements including ethical considerations.
The need for business ethics i.e., for a set of generally accepted
standards of personal conduct in the context of business, is evident through
out the world. The legislative
representatives establish status and administrative laws in critical areas of
inter-personal conduct where the safety and personal welfare of the people can
get affected by unethical behaviour.
Ethics is not skill which one can acquire. Ethics is professional codes or codes of
conduct in real life situation.
These have been and are being developed by the trade
associations concerned with these broad objectives;
(i) the publication of a Code of Ethics is essential to safe
guard the interest of customers, clients, employees in the quality of service
they may expect customers are the cause and purpose of every business. A business is supposed to serve them
satisfactorily to improve the confidence of customer. However, most of the time the rights and
privileges of customers are neglected.
In order to save the customer from the unethical behaviour of business
firms there is a need of normal binding on businessmen. This is what exactly business ethics
does. The most important consumer rights
which need to be protected through ethical practices are as follows: : 1.1 Rights
of Information,
1.2 Right of
Safety,
1.3 Right of
Choice,
1.4 Right to
be heard.
(ii) The codes of conduct for business
popularly called as business codes govern the inter-relationships of the
members. Business can not be carried on,
in its present complexity, without trusts in ethical standards of vendors and
suppliers, dealers, financiers and of government agencies.
(iii)
The interest of all those who deal with business i.e. the
interests of the stock-holders employees, customers, competitors, dealers and suppliers,
and the local community need be protected from unethical and dubious ways of
dealing against unfair trade practices and exploitation. It this is permitted the entire business
system will collapse.
(iv)
Business today is confronted with major groups of social issues:
(a) people oriented management; (b) ecology and environmental protection; (c)
consumerism, and (d) the energy crisis and resource utilization and
development. These issues being
inter-related, need that business should feel some obligation for meeting these
issues.
Principles of Business Ethics:
There are certain basic principles of business ethics
which are to be observed in all kinds of situations. The principles of business ethics are laws or
rules that show how the theory or philosophy of business ethics is put into
action. Principles of ethics are
universal and they are applicable to business also. The four important principles for conduct of
business as laid down by former President of USA Woodrow Wilson are as follows:
(i)
The Rule of Publicity:
People should be adequately informed about nature, purpose and
consequences of business. Let people
know what it is going to do i.e., the business firms should follow the policy
of transparency, suspicion; false conjecture and misunderstanding arise out of
secretiveness.
(ii)
The Rule of Equivalent Price:
Consumers spend their hard earned money on purchase of goods and
services. It is their right to get true
value of their money they spend. This
rule states that let the public receive goods
and services fully equivalent to the money the paid.
(iii)
The Rule of Conscience in Business: This principles emphasizes that the rules of
business games must be of higher order than those of an ordinary game,
sustained by moral judgement of honourable men. Because business is very special type of
activity.
(iv)
The rule of sprit of service:
To see that the things you do for the public and get money for it is the
best thing of that kind that can be done.
Besides the above mentioned
principles put forward by Woodrow Wilson the following principles have also
been stated as principles of business by different scholars.
(1)
Achieve Right Objectives Through Fair Means: It is generally accepted rule that means used
for achieving business goals must be fair.
It also emphasizes that both the ends and the means must be ethically
right. A right objective should also use
right means otherwise. Business activity
would be called unethical.
(2)
Cooperate with others:
Man lives in a society. All the
goods and services desired by men may not be satisfied by individuals
themselves. They have to cooperate with
one another. Morality and moral codes
are the important guide past of individual and social behaviour. Much as we have a negative desire that these
individual should refrain from harming us, we also have a positive desire that
they should help us. From this desire,
we conclude that individuals should help one another if the cost of doing so is
not too much.
(3)
Do no Evil to yourself or to others : The general principle accepted by the society
is do not harm yourself or to others.
There are of course, exception – we allow police to use force against
criminals; we accepted wars that we regard as just; we let people defend
themselves when the are attacked without cause. But morality, by its very nature, requires to
avoid violence in setting disputes.
(4)
Observe Rule of Proportionate Reason : According to this rule it is unethical to
permit an evil to another or to oneself without a proportionate reason.
(5)
Never Cooperate in Evil :
Sometimes an unethical means may be adopted to achieve a business
end. This would be an unethical act,
except in those cases where there is proportionate reason for doing an
evil. A proportionate reason exists when
the good willed as a means or ends equals or out weights the harmful effects,
which are not willed as either means or end.
(6)
Respect Persons: By
and large, common morality also requires us to regard other people as ends in
themselves, not as mere means to our own ends.
(7)
Keep Promises : Almost
all of us want to have some assurance that other people will fulfill their
promises most of the time. In absence of
this the business would be impossible.
Code of ethics is general
statements of principle with which few would disagree. They usually emphasize such things with which
all persons agree e.g. honesty in dealing with others and fair treatment to
all. Employees of a particular
organization are greatly benefited if their company follow a code of conduct as
it provide guidelines.
Ethics in Practice:
The ethical behaviour needs to
be encouraged. The best way to encourage
employees to behave ethically is to convince them that it is in their own
interests.
(1)
Ethics Regarding Employees:
The way employing organizations treat employees is of special concern to
the issue of managerial behaviour. The
employment issues include the ethics of hiring and firing. The issue of hiring is governed by the norm
of efficiency or the ability and willingness to serve the social good of the
company and the public. If hiring is
done on the basis of merit through a set procedure, on the basis of job
specifications there is no discrimination, but if it is done on caprice or
prejudice, it is irrational and unethical.
Firing or dismissal of the
employee is based upon certain obligations to the employees :
(i)
It must be done only for a just cause.
(ii)
It must also appear first.
(iii)
It must mitigate the harmful effects of dismissal.
The above discussion makes it clear that the removal
from the job should be done only if no other way is left and the worker is
involved in misconduct. If he / she is
not devoted to his / her duties due to old age, frequent illness. Other employees of the organization on a
majority basis should feel that the action was justified. The whims of the management or personal
political conviction are not the just cause.
Firing should not be done arbitrarily.
It these is no way left removal be done after adopting proper legal
procedure.
Similarly, in promotion an d transfers also, justice
should be followed wages, working hours, job conditions should be specified as
per the statutory requirement salary and wages of employees must be defined in
terms of the contribution to the firm and market looking at wages and salary in
other organizations. It any of these
factors is ignored great harm may result.
It is also essential to keep in mind the bargaining power of the trade
union any wage cut or increase must be mutually agreeable. But undue pressure should not be accepted.
Job security is of prime importance. Workers should not have fear of job cut. If the installation of new machines,
automation, demand shock etc. cause temporary threat and any adjustment is
required, the employers should make necessary arrangements with the employees’
organizations. The working hours and
working conditions should be fair. There
must be proper light, air and safety at the work place. “Safety is ethically important”. Ethics demand that a worker should be treated
as a commodity.
Good ethics and good business require that reasonable
methods be taken for the protection of the worker and the firm. It is very important to keep watch on the
employees. Senior employees should not
use their position for exploitation of new employees e.g. any kind of sell of
insurance policies, any lottery, there are occasional supervisors who misuse
their staff in their unethical and unlawful activities. Such situations need protection of the
employees.
(2)
Ethics Regarding Information Secrecy: The issue of information secrecy is a much
broader issue. Any violation of the
secrecy norm personal gain is unethical.
When some information relating to business becomes more vital, keeping
it secret is an important obligation of employees and employers. Certain formulae, financial information,
business processes, launching of new and innovative models, business decisions
if made available to competitive firms may do a great harm to business. These
are to be kept secret in the best interest of the firm. A secret is a knowledge which a person has a
right and / or an obligation to keep hidden.
These obligatory secrets always involve situations in which revelation
of the knowledge would cause serious harm or the violation of a contract. These secrets may be natural promised or
professional.
(i)
Natural Secret: The
natural secret involves knowledge of something which by its nature will cause
harm if revealed. Unless there is a
proportionate reason, the secret should not be disclosed.
(ii)
Promised Secret: The
promised secret involves a natural secret, the obligation to keep it secret
arises from the contract or promise by which one binds itself. These may be revealed when silence will cause
more harm than good.
(iii)
Professional Secret: The
professional secret involves net only the above two types of secrets but also
the reputation of a group whose services are necessary for the society
(doctors, lawyers etc.).
(3)
Ethics and Honesty: Honesty is an important virture in
personal and work life of an individual.
Honesty is truthfulness, integrity and involves transparency in all
kinds of dealings. It is unethical to
have double standards in business because they encourage dishonesty. Dishonest employees should be dealt with
strictly. Ethics demands to condemn
them, since, allowed to continue, it disrupts the working of business and
exposes innocent persons to unnecessary losses.
The expenditure incurred by the employee must be reimbursed
satisfactorily. Their expenses may be paid at a flat rate so he
need not to make an account.
(4)
Ethics regarding Buyers :
Ethics demands that businessmen must recognize the rights of the buyers
and users of the product. The seller
should respect the buyers as “human beings” rather than as “enemies or sheep to
be shorn” for making a profit.
Therefore, there must be a fair sales contract based upon a free
agreement. The seller must disclose
latent material defects to the buyer. It
is unethical to gain advantage by using fraud or power. “Frand” exists when there is a deliberate
attempts to deceive someone about a material fact. “Lying” exists whenever one provides false
information about the qualities of a product.
Sound ethics condemns not only the intent to deceive but also the
risking or permitting of deception without a proportionate reason.
(5)
Ethics in Business Relations:
The competition is the basis of business. There are many players in it. Single commodity is produced by a number of
producers big or small. Relations with
competitors should be governed by basic ethics and the rules of fair play. The business rivalry should not turn into a
ruthless battle. Such competition is
often done in many ways, e.g. :
(i)
Interference in the work of other producers and distributors
;
(ii)
Fermenting labour disputes and work stoppages as well as boycotts
of a competitor’s product ;
(iii)
After increased pay packages for hiring away key employees of
competitors ;
(iv)
Using market power & throw out the competitors ;
(v)
Price cutting ;
(vi)
extorting and bribing.
(vii)
Making use of discriminatory or mistending advertisements
about the competitors’ product or quality.
Thus in order to maintain good relations is business
it is the duty of the government to check unethical attacks among competing
firms. Government should form laws to
protect the honest businessmen by such regulations as are necessary to build
confidence in the society.
Unethical Practices : Ethical problems are faced by all
managers. All decisions have ethical
aspects. In order to get the work done
businessmen uses unethical practices. Corruption
is deep rooted and get nourished as business cannot wait. Government offices work under bureaucratic
set up where files move slowly. Even
after the signature of the higher authority the concerned ministerial staff may
hold dispatch of an order on flimsy grounds under such conditions businessmen
pay illegal gratification to the subordinate concerned. The research conducted by some scholars like
father Raymond Baumhart, John F. Clark and Archic B. Corroll concluded that
some practices were acknowledged unethical such as:
(1)
Giving and accepting bribes because other competitors
blatantly do so and purchase the decision.
(2)
Entertainment of personal (official or influential customers)
to procure favours by using call girls or making all arrangements in a posh
hotel.
(3)
Using inside information.
(4)
Payment of regular kick-back money to various government
officials. Such expenditure is looked
under paddy expense account.
(5)
Bribe has to be given in case of obtaining government
tenders.
(6)
Employing a competitor’s employee to learn trade secrets.
(7)
Misappropriation of corporate assets.
(8)
Giving costly presents to attract deposits for a bank and
investment company.
(9)
Dishonesty in keeping company’s account.
(10) Taking advantage of the
scarcity situations and putting up unfair prices thereby ignoring social
obligations to the community.
Remedies for unethical
behaviour :
A majority of business managers believe in good ethics
; various circumstances often comes in the way of ethical behaviour and prevent
the managers from putting this belief into practice. What exactly constitutes unethical behaviour
may be debatable; but it is certain that unethical behaviour is undesirable and
therefore needs to be remedied. There
are no simple solutions to this problem.
(1) Establishing Policies and Guidelines for Ethical Behaviour
: In most of the situations, unethical
behaviour results from uncertainties about what is right for the organization
compared to what seems right to individuals.
To ensure ethical behaviour, these uncertainties are to be changed into
certainties about what is considered unethical in a given situation. The organization should state their policies toward
behaviour that is considered unethical clearly.
There is need for clear guidelines with specific ways of handling
situations for enhancing ethical behaviours.
(2) Conducting Training Programmes on Ethics : Ethical issues are very complex and is is not
easy to understand them. It is therefore
suggested that specific training programmes be conducted in workshops and
seminars for managers.
(3) Developing Codes of Ethics : Every organization should develop its written
code of conduct. The code may be
prepared in consultation with the employees in the organization. Top management should be committed to
implement it.
(4) Consulting Advisors :
To improve ethical standards in an organization advisors may be
appointed. Whenever such situation
arises the managers may consult these advisors.
However, most of the ethical problems are so highly situational that
those directly involved can know enough to make effective decisions.
The most common belief is that ‘good ethics is good
business” in the longrun.
