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What is ethics?

The word ethics is derived from the gric word “ethos” which means character.

Ethics are the ability that a person has to decide what right and wrong, what is good or
bad etc. but then also the responsibility to then do the right thing. Having ethics is not just
something you think about, it also includes actually choosing the correct option. In their
simplest form, ethics are the moral standards you rely on when you make a decision.

Meaning of business ethics

In a business setting, being ethical means applying principles of honesty and fairness to
relationships with customers, society, employer and employee. Business ethics lay down
the guide lines for the companies.it helps to maintain a proper balance and take care of all
the interest of different groups of society. Business ethics are moral principles that guide
the way a business behaves. The same principles that determine an individual’s actions
also apply to business.

Definition of business ethics.

Business ethics can be defined as written and unwritten codes of principles and values
that govern decision and action within a company and the world of business. In the
business world, the organization’s culture sets standards for determining the difference
between good and bad decision making and behavior.

Acting in an ethical way involves distinguishing between “right” and “wrong” and
then making the “right” choice. It is relatively easy to identify unethical business
practices. For example, companies should not use child labour. They should not
unlawfully use copyrighted materials and processes. They should not engage in bribery.

If you want to run a sustainable business having a high set of ethics is critical, and there
can be serious consequences if poor ethical decisions are made. You need to get every
member of your organization committed to a set of high ethical standards. As a
manager or the business owner, you need to clearly define and communicate to your
employees the consequences of being unethical, and the set of standards you want them
to adhere to.

Why Ethics are Important In business

1. Ethics lays the strategic decision-making - Leaders and workers of a business

characterized by ethical behaviour make decisions that are socially acceptable.
They allow all the stakeholders to participate in the decision-making process.
2. They increase employee retention - Employees always want to stay longer in a
business where the employers value their rights and opinions. To them, their basic
needs are satisfied.
3. An ethical business attracts investors - A business that promotes ethics in its
management and operations create an investment-friendly environment. Investors
like putting their money where they are sure it is safe.
4. Ethics minimizes costs - Fewer funds are spent in employee recruitment since
most employees are retained in the business.
5. Ethical practices help in building and maintaining reputation - A large part of
ensuring business success is down to maintaining a good reputation among your
customers. One of the main things that customers will scrutinize when they decide
whether they trust or want to engage with a business or not is that business’s
ethics. If you can brand yourself explicitly as an ethical business, so much the

Key Roles and Responsibilities in Ethics Management.

Depending on the size of the organisation, certain roles and responsibilities may prove
useful in managing ethics in the workplace. The following functions points out roles and
responsibilities that should be included somewhere in organisation.

1. Loyalty and Support – The organization’s chief executive must fully support the
programme. The chief executive should announce the programme and champion
its development and implementation. The chief executive should consistently
aspire to lead in an ethical manner. If a mistake is made, admit it.
2. Development and Operations – Consider establishing an ethics committee at the
board level. The committee would be charged to oversee development and
operation of the ethics management programme.
3. Ethics Management Committee – Consider establish an ethics management
committee. The committee would be charged with implementing and
administrating an ethics management programme, including training about
policies and procedure and resolving ethical dilemmas.
4. Ethics Officer – Consider assigning ethics officer. The ethics officer is usually
trained about matters of ethics in the workplace, particularly about resolving
ethical dilemmas.
5. An Ombudsperson – Consider establishing an ombudsperson. The
ombudsperson is responsible for co-ordinating the development of the policies
and procedures to institutionalize moral values in the workplace. It is usually
responsible for resolving ethical dilemmas by interpreting policies and

Types of Ethics – Transactional, Participatory and Recognition
Following three major types of ethics as explained below:

Transactional Ethics

Participatory Ethics

Recognition Ethics

1.Transactional Ethics
Man is a social animal. He has to act and react with others through different
transactions. The practices of ethics in all these transactions is called as transactional

In order to let each party’s transaction run smoothly, all parties have to accept the
principle of equality, implying that every agent should allow every other the same
amount of freedom or action he claims for himself. The moral principle of equality
tells us where to refrain from intrusions in the freedom of action of others while
following one’s own affairs, which is negative principle as well as basic.

Example: I need vegetables from vegetable vendor. The vendor wants customer like
me for survival, as we both are dependent on each other, as long as both of us
contribute appropriately, together we generate surplus that none of us on our own are
able to produce.

In order to let things run smoothly, again adherence to two specific moral principles
is required:

Principle of honesty

Principle of reciprocity. The domain of ethics covering transactions that are
performed on the basis of simultaneous or connected interest and that are general by
the principles of equality, honesty and reciprocity if indicated as the domain of
transactional ethics.

2.Participatory ethics

The important thing is that parties in the alliance voluntarily, committing themselves
to a self-imposed and non-enforceable obligation. This entails a specific type of social
relations that is guided, once more, by two particular moral principles:

Principle of decency

Principle of enunciation

Participatory ethics is about the shape of solidarity in an age of individualism. It is the

ethics of the civil society, recently rediscovered as a solid ground for collective
arrangements where both the market and the state fail. By participating in a regular
basis, in common projects on behalf of general welfare, a corporation demonstrates
that it can take seriously its corporate citizenship.

3.Recognition Ethics
As human beings, people are endowed with the ability to understand the problems of
others. This quality leads to the recognition of individuals, institutions and societies.
Conflicting situations can be solved by the correct recognition of the situation.

Example: The employees aged 57-60 years morally obliged to retire to give way to
some younger colleagues, who being in the midst of their careers, can raise a more
weighty claim to a job.

The domain of recognition politics covers a large part of traditional ethics

interventions. Ethics, in fact, is about asymmetrical relations about the rights of
interest of the one generating a duty for another.

Recognition ethics clarifies and supports this type of discussion applying the two
principles mentioned above and other moral convictions that are considered

Approaches of ethics
The Utilitarian Approach:

To analyze an issue using the utilitarian approach, we first identify the various
courses of action available to us. Second, we ask who will be affected by each action
and what benefits or harms will be derived from each. And third, we choose the
action that will produce the greatest benefits and the least harm. The ethical action is
the one that provides the greatest good for the greatest number.

The Rights Approach:

According to these philosophers, what makes human beings different from mere
things is that people have dignity based on their ability to choose freely what they will
do with their lives, and they have a fundamental moral right to have these choices
respected. People are not objects to be manipulated; it is a violation of human dignity
to use people in ways they do not freely choose

The Fairness or Justice Approach:

Favoritism gives benefits to some people without a justifiable reason for singling
them out; discrimination imposes burdens on people who are no different from those
on whom burdens are not imposed. Both favoritism and discrimination are unjust and

The Common-Good Approach:

In this approach, we focus on ensuring that the social policies, social systems,
institutions, and environments on which we depend are beneficial to all. Examples of

goods common to all include affordable health care, effective public safety, peace
among nations, a just legal system, and an unpolluted environment.

\Principles Of Business Ethics

 Be Trustful :

Recognize customers want to do business with a company they can trust, when trust is at
the core of a company, it’s easy to recognize. Trust defined is assured relaince on the char
acter, ability, strength, and truth of a business.

 Keep an open mind :

For continuous improvement of a company, the leader of an organisation must be open to
new ideas. Ask for opinions and feedback from both customers and team members and y
our company will continue to grow.

 Meet Obligations:
Regardless of circumstances, do everything in your power to gain the trust of part custom
ers and clients, particularly if something as gore away. Reclaim any lost business by hono
ring all commitments and obligations.

 Have clear documents:

R-evaluate all print materials including business adverting, brochures, and other business
documents making sure they are clear, precise and professional. Most important, Make su
re they do not misrepresent or misinterpreted

 Become community involved :

Remain involved in community related issues & activities, thereby demonstrating
that your business is a responsible community contributor. In other words, stay in

 Maintain Accounting Control:

Take a hands on approach to accounting and record keeping, not only as a means of gaini
ng a better progress of the company ,but as a resource for any questionable Gaining contr
ol of accounting and record keeping allows you to end any dubious activities promptly.

 Be Respectful:
Treat others with utmost of respect. Regardless of differences, positions, titles, ages or
other types of distinctions. Always treat others with professional respect and courtesy.
Ethical issues in business.
The following are issues currently facing businesses in the ethical behavior.
Fundamental Issues

The most fundamental or essential ethical issues that businesses must face are integrity
and trust. A basic understanding of integrity includes the idea of conducting your
business affairs with honesty and a commitment to treating every customer fairly. When
customers perceive that a company is exhibiting an unwavering commitment to ethical
business practices, a high level of trust can develop between the business and the people
it seeks to serve. A relationship of trust between you and your customers may be a key
determinate to your company's success.

Diversity Issues

According to the HSBC Group, "the world is a rich and diverse place full of interesting
cultures and people, who should be treated with respect and from whom there is a great
deal to learn." An ethical response to diversity begins with recruiting a diverse workforce,
enforces equal opportunity in all training programs and is fulfilled when every employee
is able to enjoy a respectful workplace environment that values their contributions.
Maximizing the value of each employees' contribution is a key element in your business's

Compliance and Governance Issues

Businesses are expected to fully comply with environmental laws, federal and state safety
regulations, fiscal and monetary reporting statutes and all applicable civil rights laws. The
Aluminum Company of America's approach to compliance issues states, "no one may ask
any employee to break the law, or go against company values, policies and procedures."
ALCOA's commitment to compliance is underpinned by the company's approach to
corporate governance; "we expect all directors, officers and other Alcoans to conduct
business in compliance with our Business Conduct Policies."

Employee Behavior

From large corporations to small businesses, individuals involved in all types of business
often face ethical issues stemming from employee behavior. For example, whether an
employee can spend work time checking personal email accounts, how a manager deals
with claims of harassment and to what extent a manager can "groom" a certain employee
for a promotion are all examples of ethical issues regarding employee behavior. There are
legal consequences for some unethical employee behavior. For example, if a supervisor
discriminated against an employee based on her gender, religion or ethnicity when
making recommendations for a promotion, legal action could be sought. Small business
owners can help to prevent ethical problems stemming from employee behavior by
drafting a clear, attorney-reviewed set of standards that dictate behavior policies for
employees at all levels.

Social Networking

Social networking sites are one of the most commonly used features of the internet.
Although it is nearly impossible to curb their use, many issues can arise from employees
having access to websites such as Facebook and Twitter. These may include potential
breach of confidentiality, conflicts of interest, misuse of company time and resources,
disclosure of private information and even damage of company reputation, says
Corporate Compliance Insights. Companies can address their concerns by creating
policies that outline appropriate social media use and expectations for how these sites can

be used professionally to meet their objectives. Is it ethical for companies to fire or
otherwise punish employees for what they post about? Are social media posts counted as
“free speech”? The line is complicated, but it is drawn when an employee’s online
activities are considered disloyal to the employer, meaning that a Facebook post would
go beyond complaining about work and instead do something to reduce business.

Advantages of Ethical Behavior in Business

The following list describes various types of benefits from managing ethics in the

Goodwill and Publicity

One of the major advantages of behaving in an ethical manner is the opportunity to foster
a sense of goodwill among the general public toward your business. Customers are
increasingly concerned with using products produced in an environmentally sustainable
manner and where the producers are paid a fair wage for their work -- for example, fair
trade coffee. Being seen as meeting your social and societal obligations will ingratiate
your business to the public and attract socially responsible consumers

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.

Build Customer Loyalty

Consumers may let a company take advantage of them once, but if they believe they have
been treated unfairly, such as by being overcharged, they will not be repeat customers.
Having a loyal customer base is one of the keys to long-range business success because
serving an existing customer doesn’t involve marketing cost, as does acquiring a new
one. A company’s reputation for ethical behavior can help it create a more positive image
in the marketplace, which can bring in new customers through word-of-mouth referrals.

Conversely, a reputation for unethical dealings hurts the company’s chances to obtain
new customers, particularly in this age of social networking when dissatisfied customers
can quickly disseminate information about the negative experience they had.

Retain Good Employees

Talented individuals at all levels of an organization want to be compensated fairly for

their work and dedication. They want career advancement within the organization to be
based on the quality of the work they do and not on favoritism. They want to be part of a
company whose management team tells them the truth about what is going on, such as
when layoffs or reorganizations are being contemplated. Companies who are fair and
open in their dealings with employees have a better chance of retaining the most talented
people. Employees who do not believe the compensation methodology is fair are often
not as dedicated to their jobs as they could be.

Avoid Legal Problems

At times, a company’s management may be tempted to cut corners in pursuit of profit,

such as not fully complying with environmental regulations or labor laws, ignoring
worker safety hazards or using substandard materials in their products. The penalties for
being caught can be severe, including legal fees and fines or sanctions by governmental
agencies. The resulting negative publicity can cause long-range damage to the company’s
reputation that is even more costly than the legal fees or fines. Companies that maintain
the highest ethical standards take the time to train every member of the organization
about the conduct that is expected of them.

Shareholders and Investors

In most cases, it will be important to shareholders that your business is managed in an
ethical fashion. Transparent accounting practices and an engaging, consultative
relationship with your shareholders will encourage confidence in your business. Investors
will be more willing to put capital into a business that they can see is ethically managed,
because there is less chance that the business will be founded on unsafe practices.
Ethically minded investors may also be unwilling to invest in a business that they see as
socially or environmentally irresponsible.

Competitive Edge

Ethical behavior can serve to differentiate your brand from those of your competitors if
you operate in an oversubscribed market, offering you a competitive edge. Identifying
your product and business practices as being founded on strong ethical principles makes
your product or service more attractive to consumers -- a good example of this model
would be the Body Shop, a cosmetics company whose products are not tested on animals.

Disadvantages of business ethics:

1. Reduce profits:
Business ethics reduce a company’s freedom to maximize its profits. Because the
company cannot break ethics for increase the profits.

2. Diversity in achievements:
The company may have to follow the ethics while conducting business activities
so sometimes company may be diverse from its achievements and turn towards
any other directions.

3. Extra expenditure in some cases:

While doing business the company may have to face may problems. In some cases
company may incur extra cost for solving certain ethical issues in business like
accident compensation, solution for pollutions etc.

Relationship between Law and Ethics:

• Meaning of law:

Law is a system of rules and guidelines which are enforced through social institutions
to govern behavior wherever possible.

• Meaning of ethics:

Ethics is the philosophical study of morality while morality are the rules of conduct
describing what people should do and should not do in various situation.

• The difference between laws and ethics:

Ethics stress on individual while laws stress on whole society. Towards a situation,
different ideas but laws can only have one solution in order to show justice.

Ethics emphasize on logics and reasons while laws are based on the words. The logics
and reasons can change anytime but laws have been issued early. It cannot change no
matter how good the logics and reasons are.

Relationship between Ethics and Morality:

• Ethics relates to what is good or bad whereas morals relates to principles of good
or bad.

• Ethics are professional standards thus they are internally defined and adopted
while morals tend to be externally imposed.

• Ethics is a branch of philosophy concerned with human values and conduct

whereas moral duties are obligations.

Examples of ethical practices in business

For the 11th consecutive year, Starbucks has been named one of the World’s Most
Ethical Companies according to the Ethisphere Institute.

Companies are evaluated in several categories: Reputation, Leadership and Innovation;

Ethics and Compliance Program; Governance; Corporate Citizenship and Responsibility;
Culture of Ethics. Only 124 companies were chosen from thousands of nominations
worldwide, and Starbucks is one of only 13 companies to have earned the honor all 11
years that Ethisphere has published its rankings. The company is also the only winner in
the Specialty Eateries category. “World’s Most Ethical Companies honors our partners
(employees) and their commitment to integrity in the work they do every day. It is the
connection between our culture and the values and behaviors of our people that leads to
receiving this recognition. We are very proud to be an honoree for the eleventh
consecutive year,” said Matthew Swaya, Starbucks senior vice president, deputy general
counsel and chief ethics and compliance officer. While some may argue that Starbucks
has no place on this list due to its competition-crushing business practices, the company's
bad press shouldn't outshine what it does for society. While it isn't perfect, the company
is often quick to fix its environmental problems, from greatly reducing the water it uses
for its dipper well to using recycled paper in its cups. The company also encourages
consumers to be environmentally conscious by offering a 10-cent discount to those who
bring their own reusable cups and giving free coffee grounds to consumers who want to
use them for compost. Starbucks is also dedicated to its baristas, offering them full health
insurance benefits and stock awards. In addition, like another controversial company on
this list, the company is also a vocal advocate of same-sex marriage.


Since 1988, the computer chip manufacturer Intel has been trying to bolster its reputation
through its efforts to strengthen technological education the company hosts the Intel
Science Talent Search and the international Science and Engineering Fair to help
encourage STEM (science, technology, engineering, and mathematics) education for
young people. Intel is also interested in making these areas more diverse; the company
has many donation funds and programs to encourage girls and underprivileged minorities
to study in these fields. Employees of Intel also experience the company's dedication to
education through a very strange corporate perk-the company promotes or reassigns them
to different field of areas every 16-24 months, in the interest of making sure that workers
never become bored with their roles, and encouraging them to explore new fields.
Accepted employees are often told, "Welcome to your next five jobs."


Very often, a company’s relationship with its stakeholders defines its ethical values.
McDonald’s, despite its global success, remains the target of a vitriolic public backlash
owing to what many perceive as bad business ethics in its relationships with employees
and other stakeholders.

This bad business ethics example by McDonald's is what is known as the "McDonald's
Legislation" in popular parlance. In 1972, Ray Kroc, the company’s founder made a rare
donation of $250,000 to Nixon's reelection campaign and in return got a favorable
legislation that allowed companies such as McDonald's to pay teenage employees 20
percent less than federal minimum wages. Most observers consider this a typical case of
corporate influence on lawmakers to enact legislation that serve their selfish ends and
harm society.

McDonald’s also doesn't allow employees to unionize, and in one instance where
workers at St. Hubert Quebec did form a union, the company closed down the unit

The McLibel case ranks as McDonald’s most disastrous cases of bad business ethics and
spawned tons of negative publicity. Between 1986 and 1990, activists of London
Greenpeace distributed pamphlets with the title “What's Wrong with McDonald's?
Everything They Don't Want You to Know" and the wordings “McDollars, McGreedy,
McCancer, McMurder, McProfits, McGarbage," alleging that McDonald's promoted
Third World poverty, sold unhealthy food, exploited workers and children, tortured
animals, and destroyed the Amazon rain forest. McDonald's sued the group for libel. The
court, however, held McDonald’s guilty of exploiting children through advertising
tactics, serving dangerously unhealthy food, paying workers low wages, indulging in
union busting activities worldwide, and ignoring animal cruelty perpetrated by its


• Now we understand idea of business ethics, it is important to practice good ethical


• Ethics are important not only in business but in all aspects of life because it is an
essential part of the foundation on which civilized society is build.

• A business or society that lacks ethical principles is bound to fail sooner or later.

• Good business ethics are essential for the long term success of an organization.

• A company’s ethics will have an influence on all levels of business. So all

organization should maintain good business ethics.


- http://www.minyanville.com/sectors/consumer/articles/Good-
- http://www.yourbusiness.azcentral.com
- http://www.managementhelp.org/com
- http://www.himpub.com
- http://scu.edu
- http://en.m.wikipedia.org/wiki/business_ethics
- http://importantindia.com/business_ethics_importance

Reference Books

1. Business ethics by Ferrell fraedrich

2. A study in business ethics by Rituparna raj.

3. Business Environment by Shaikh Saleem.