Business Ethics

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.