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Business Ethics
Nature and Scope
Nature and Scope of Business Ethics
The word ethics has originated either from Latin word Ethicus
or the Greek word Ethicos. Both these words originated from
the word ethos which means character. Ethics is a system of
moral principles, rules and conduct. As a science of moral
principles, ethics gives guidelines such as what is right? and
what is wrong?.
Ethical problems are faced by people in all the countries and at
all times. In all organizations, family business and religions,
situations arise that demand right decisions. Centuries ago,
Duryodhana said in Mahabharata : I know what is right but I
am not able to act accordingly, I also know what is wrong but I
am not able to restrain myself doing it.
The famous Indian philosopher Kautilya says, We are shaped
by our thoughts. We become what we think, when the mind is
pure, joy follows like a shadow that never leaves.
Ethics can be described as philosophy in action. Business
ethics is a branch of ethics dealing with application of ethical
principles in business. The human beings have freedom of
action to communicate good or bad to the world. While good
acts are performed, people are happy and period of good
activity is called the golden era.
Ethics encourages constructive actions. There are three types
of constructive actions:
1. Certain obligatory actions to be performed by every
individual, such as good quality products, fair price and
customer care; the non-performance of these activities
bring disgrace.
2. Certain activities are to be prohibited such as false
weighing, inferior quality, holding stock and high prices.
3. Certain other actions, called optional actions bring
goodness and welfare to all. For example, handling a
grievance of a customer, training in safe usage of
equipment, car for a test drive etc.
Tamil poet Tiruvalluvar says, When prosperity comes to a
good man from a good family, it is like village tank being filled
with water, it helps everyone. Indian philosophers strongly
believe that ethical action is the supreme governing force of the
universe. The world survives because of ethical action. As for
ethical values and deeds are concerned, they are more or less
instinctive in humans rather than acquired, but in modern days,
ethical training has become a necessity due to various reasons.
Business ethics is simply applying the basic principles of ethics
to the field of business which is the major area of making profits.
Business ethics demonstrates that profits can be made on a
sustainable basis by following certain norms and respecting
other. Organizational goals have to be combined to achieve
mutual benefits. An effective team can be limit based on ethical
Short-cuts can bring benefits in the short-run bit only good
values bring long-run and sustainable results. In short, a good
enterprise can succeed if it takes care of all the stakeholders in
terms of their interests. In this sense, it is holistic and benefits
all. Business ethics is concerned with a code of ethics and not
merely a code of conduct. In course of time, a right code of
ethics gets internalised as a normative value.
Three Principles of Business Ethics
1. Standardisation
All the rules should be allocable to all standardisation is the
secret of success for the implementation of ethical
practices, in other words, favouratism and partiality should
be discouraged. Double standards have to be given up.
Standardisation promotes a uniform standard for all and,
hence, everybody will be happy with the administration.
There is no place for ill-will or frustration.
2. Workable
The rules of business ethics should be practical and
workable so that tangible benefits can be experienced. The
benefits of business ethics should be made available to all
the stakeholders. The rules of the business should not
suffer from a theoretical bias and work for practical
purposes. Ethics is for everybody and should be a concern
of primary importance.
3. Driven from the Top
Business ethics should be always driven from the top.
Business ethics can work only if the top management is
seriously committed to it. Unless and until, the top
management is committed to ethical considerations, the
implementation of ethical programmes would be difficult to
be implemented.
Morals and Ethics
Morals deal with the right behaviour of individuals. Ethics deal
with right character in a given situation. Both are closely related
to each other. Some of the basic morals like helping others,
treating all equally and not cheating others are converted in
terms of good business practices.
Morals form the foundation of ethics which can be applied to
business. The following agreements reveal the relationship
between morals and ethics.
1. All moral standards aim at the development of positive
standards. Ethical standards also aim at the betterment of
the ethical practices in organizations.
2. If the moral standards are not followed, there will be serious
and disastrous consequences like crimes, corruption and
If ethical standards are not adopted, there will be fall in the
values and decline in the efficiency of business enterprises.
3. Both morals and ethical standards can be established only
with the active and sincere participation of the people.
4. Both morals and ethics give more priority to public welfare
rather than private welfare. Both strongly hold the view that
society should over-ride self interest. A balance has to strike
between ethical demands and strategic interests.
5. Both morals and ethics are not only positive sciences but
also normative sciences. A positive science explains what it
is but a normative science explains what it ought to be.
6. Both morals and ethical standards are based on impartial
considerations bringing long-term benefits. Both discourage
short-term gains and partial benefits.
Types of Ethics
There are three important types of ethics, namely, transactional
ethics, participatory ethics and recognition ethics.
1. Transactional Ethics : Man is a social animal. He has to
act and react with others through different transactions. The
practice of ethics in all these transactions is called as
transactional ethics. All involved parties should reciprocate
ethical practices. The common good ethical interests are
binding all the people. It is a win-win approach from all
Let us take the example of a medical doctor. He examines
the patients, gives the right type of treatment and charges
moderately. The patients are also reciprocating on getting
the treatment from this doctor and promote a word-of-mouth
communication. The principle of honesty is the basic
principle in transactional ethics. The interest of both the
parties is taken care of.
2. Participatory Ethics :
It is an important part of business ethics. Guided by
common good, all the participants follow some ethical
practices. The important features of participatory ethics are:
(a) All the parties like consumers, producers and employees
maintain some basic ethical standards.
(b) The level of participation depends on the degree of
motivation in the society.
(c) Participation comes from external forces and inner
commitment. This can take place only through the process
of creating ethical awareness.
(d) The level of participation has to be watched by all the
groups leading to mutual checks and balances.
Special attention has to be given to the least powerful and
marginalised sections of society.
(e) The growth of participation indicates the level of social
development. It is the growth of solidarity in an angle of
individualism. Many social-economic problems of developed
countries are solved by the ethical practices.
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. This
requires a correct perspective and empathy. The strong is
helping the weak. The learned is helping the lesser learned.
The experienced is helping the new entrant. Compensation
is given to victims.
Characteristics of Business Ethics
1. Each and every person is individually responsible for the
ethical or unethical decisions. The way in which the person
is brought up, the values learnt and the working atmosphere
decides the ethical standards of the people. Many times,
uneducated people are more ethical than the so-called
educated people.
2. Ethical decisions are voluntary in nature and people have
the freedom of choice and free-will. The conscience of
people may vary from time to time and place to place. The
freedom of choice is left to the individual to follow a good
practice or not. It is the free-will that makes the successful
implementation of ethical standards and practices.
3. Ethical decisions differ from person to person, time to time
and place to place. Due to socio-economic changes, the
ethical decisions also change. What was considered as
good at one time is considered bad at another point of time.
Many decades ago, the customer care was not given
prominence. In the modern age, customer care is given
utmost importance.
4. Ethical decisions affect in a widespread way. Ethical
decisions affect all the stakeholders like shareholders,
employees and customers. These ethical decisions spread
to other business firms across the region, nation and even
the globe.
5. Ethical decisions involve a trade-off between the cost and
benefits received. Some ethical decisions may be costly in
the short run but these decisions may bring good benefits in
the long run. For example, social responsibility of business
brings a lot of benefits to the business firms in the long run.
6. The effects of ethical decisions cannot be predicted. Ethical
decisions are made by taken into account certain
variables like the growth of the population, prevailing
business and present attitudes. In course of time, these
variables are bound to change. For example, disclosure
norms like disclosure of many business results are
accepted as good business practices in modern days.
These ideas were not encouraged in traditional times.
7. The lower level managers are pressurised to compromise
their ethical standards. In fact, many young people join the
business organisations with the great ideals and ethical
standards. Unfortunately, in course of time, their standards
are diluted due to pressures from different sides.
Unfortunately, they fall in line with others.
8. In most organisations, people experience ethical dilemmas.
Dilemma means choice between two opinions. When values
are in conflict, an ethical examination can help the
managers. Deadlines, sales goals, career advancement
and lack of information are the risks of ethical conduct.
These risks have to be managed effectively.
9. In fact, ethics has to be taught to the managers at the
corporate doors. The managers should be given
opportunities for analysing the various real or hypothetical
situations. Apart from increasing sensitivity to moral issues,
it will build moral courage also. This ethical training will
boost the moral climate of the firm. The managers should
be trained to follow some quick ethical tests, like the
Is it right?
Is it fair?
Who gets the benefit?
Who gets hurt?
What will you feel about this decision after five years?
10. Ethics have to be imparted from very early age both at
home and in schools. The values have to be built with
education. Importance has to be given to both the means
and ends. The managers should be trained to get others
feedback before acting or deciding.

Myths of Business Ethics

1. Ethics is a personal and individual affair.

2. Business and ethics do not go hand-in-hand.

3. Ethical values differ in developed and developing countries.

4. Good business means good ethics.

Source of Ethics


Cultural experience

Philosophical System (Philosophy is the study of nature and

meaning of existence)

Legal System

Societal value system

Factors influencing Business ethics in an organization
1. Leadership

2. Strategy and Performance

3. Environment

4. Corporate culture

5. Individual characteristics
Importance of Business Ethics
1. Social concern - effect of business

2. Social Responsibility giving back

3. Improves organizational effectiveness build trust

4. Healthy competition society at large, wins.

5. Benefit for all stakeholders

6. Avoidance of whistle-blowing.
Reasons for the existing unethical business practices in India
1. Business community prefer to earn money by exploiting
consumers rather than by raising efficiency, reducing cost
and avoiding wastages.
2. Indian consumers accept unethical practices and suffer but
do not react aggressively and collectively. This attitude of
accepting injustice silently is one cause responsible for
unethical business practices continuing in India.
3. Absence of well organized consumer movement at the
national level is one more cause responsible for the
presence of unethical business practices. Consumers are
not united. They do not have adequate consumer education
and guidance. As a result, they accept unethical practices.
4. Many consumer protection laws are not executed properly.
As a result, unethical business practices are used even
when laws are against such practices.
5. Lack of proper education and training of businessmen.
6. Limited interest of political parties in consumer protection.
7. Inadequate support of the government to consumer
movement for its rapid growth.
But growing market competition, economic reforms,
globalization, growing consumer awareness are the major
reasons due to which the intensity of unethical business
practices is reducing in India in recent years.
Risk and Cost associated with unethical business practices
1. Severely damaged company brand and image.
2. Decreased productivity
3. Increased misconduct and conflict internally.
4. Employee Turnover
5. Disregarding stakeholders and eventual bankruptcy.
Professional Ethics
A professional is one who has a thorough knowledge of a
particular area of operation. One should have a thorough
knowledge and practical skills. One should be able to implement
certain tasks with care, confidence and upright conduct. A good
professional should have innovative thinking, a passion for
ethical accuracy and practical vision. Ethical practices have to
be followed in the execution of professional skills and services.
A professional should be humble and humane without any
professional arrogance.
A Professional is one who gives moneys worth
and whose clients feel that they are in safe hands
Abraham Lincolns letter to the teacher of his son
Teach him for every scoundrel, there is a hero; that for every
selfish politician, there is a dedicated leader.
Teach him that for every enemy there is a friend.
Teach him to learn to lose and also enjoy winning.
Teach him it is far more honourable to fail than to cheat.
Teach him to be gentle with gentle people, and tough with the
Teach him to listen to all and filter the truth.
Teach him how to laugh when he is sad.
Let him have the courage to be impatient, let him have the
patience to be brave.