Business Ethics: An overview, Concept, Nature

Ethics is a branch of social science. It deals with moral principles and social values. It helps us to classifying, what is good and what is bad? It tells us to do good things and avoid doing bad things.

So, ethics separate, good and bad, right and wrong, fair and unfair, moral and immoral and proper and improper human action. In short, ethics means a code of conduct. It is like the 10 commandments of holy Bible. It tells a person how to behave with another person.

In short, business ethics means to conduct business with a human touch in order to give welfare to the society.

So, the businessmen must give a regular supply of good quality goods and services at reasonable prices to their consumers. They must avoid indulging in unfair trade practices like adulteration, promoting misleading advertisements, cheating in weights and measures, black marketing, etc. They must give fair wages and provide good working conditions to their workers. They must not exploit the workers. They must encourage competition in the market. They must protect the interest of small businessmen. They must avoid unfair competition. They must avoid monopolies. They must pay all their taxes regularly to the government.

Definition of Business Ethics

According to Andrew Crane,

“Business ethics is the study of business situations, activities, and decisions where issues of right and wrong are addressed.”

According to Raymond C. Baumhart,

“The ethics of business is the ethics of responsibility. The business man must promise that he will not harm knowinfly.”

According to Wikipedia,

“Business ethics (also corporate ethics) is a form of applied ethics or professional ethics that examines ethical principles and moral or ethical problems that arise in a business environment. It applies to all aspects of business conduct and is relevant to the conduct of individuals and entire organizations.”

Nature of Business Ethics

The characteristics or features of business ethics are:

• Code of conduct: Business ethics is a code of conduct. It tells what to do and what not to do for the welfare of the society. All businessmen must follow this code of conduct.
• Based on moral and social values: Business ethics is based on moral and social values. It contains moral and social principles (rules) for doing business. This includes self-control, consumer protection and welfare, service to society, fair treatment to social groups, not to exploit others, etc.
• Gives protection to social groups: Business ethics give protection to different social groups such as consumers, employees, small businessmen, government, shareholders, creditors, etc.
• Provides basic framework: Business ethics provide a basic framework for doing business. It gives the social cultural, economic, legal and other limits of business. Business must be conducted within these limits.
• Voluntary: Business ethics must be voluntary. The businessmen must accept business ethics on their own. Business ethics must be like self-discipline. It must not be enforced by law.
• Requires education and guidance: Businessmen must be given proper education and guidance before introducing business ethics. The businessmen must be motivated to use business ethics. They must be informed about the advantages of using business ethics. Trade Associations and Chambers of Commerce must also play an active role in this matter.
• Relative Term: Business ethics is a relative term. That is, it changes from one business to another. It also changes from one country to another. What is considered as good in one country may be taboo in another country.
• New concept: Business ethics is a newer concept. It is strictly followed only in developed countries. It is not followed properly in poor and developing countries.

Advantages of Business Ethics

More and more companies recognize the link between business ethics and financial performance. Companies displaying a “clear commitment to ethical conduct” consistently outperform companies that do not display ethical conduct.

1. Attracting and retaining talent

People aspire to join organizations that have high ethical values. Companies are able to attract the best talent and an ethical company that is dedicated to taking care of its employees will be rewarded with employees being equally dedicated in taking care of the organization. The ethical climate matter to the employees. 

Organizations create an environment that is trustworthy, making employees willing to rely, take decisions and act on the decisions and actions of the co-employees. In such a work environment, employees can expect to be treated with respect and consideration for their colleagues and superiors. It cultivates strong teamwork and Productivity and support employee growth.

2. Investor Loyalty

Investors are concerned about ethics, social responsibility and reputation of the company in which they invest. Investors are becoming more and more aware that an ethical climate provides a foundation for efficiency, productivity and profits. Relationship with any stakeholder, including investors, based on dependability, trust and commitment results in sustained loyalty.

3. Customer satisfaction

Customer satisfaction is a vital factor in successful business strategy. Repeat purchases/orders and enduring relationship of mutual respect is essential for the success of the company. The name of a company should evoke trust and respect among customers for enduring success. This is achieved by a company that adopts ethical practices. When a company because of its belief in high ethics is perceived as such, any crisis or mishaps along the way is tolerated by the customers as a minor aberration. Such companies are also guided by their ethics to survive a critical situation. Preferred values are identified ensuring that organizational behaviours are aligned with those values. An organization with a strong ethical environment places its customers’ interests as foremost. Ethical conduct towards customers builds a strong competitive position. It promotes a strong public image.

4. Regulators

Regulators eye companies functioning ethically as responsible citizens. The regulator need not always monitor the functioning of the ethically sound company. The company earns profits and reputational gains if it acts within the confines of business ethics. To summaries, companies that are responsive to employees’ needs have lower turnover in staff.

• Shareholders invest their money into a company and expect a certain level of return from that money in the form of dividends and/or capital growth.
• Customers pay for goods, give their loyalty and enhance a company’s reputation in return for goods or services that meet their needs.
• Employees provide their time, skills and energy in return for salary, bonus, career progression, and learning.

Scope of Business Ethics

Ethical problems and phenomena arise across all the functional areas of companies and at all levels within the company.

1. Ethics in Compliance

Compliance is about obeying and adhering to rules and authority. The motivation for being compliant could be to do the right thing out of the fear of being caught rather than a desire to be abiding by the law. An ethical climate in an organization ensures that compliance with law is fuelled by a desire to abide by the laws. Organizations that value high ethics comply with the laws not only in letter but go beyond what is stipulated or expected of them.

2. Ethics in Finance

The ethical issues in finance that companies and employees are confronted with include:

• In accounting – window dressing, misleading financial analysis.
• Related party transactions not at arm’s length
• Insider trading, securities fraud leading to manipulation of the financial markets.
• Executive compensation.
• Bribery, kickbacks, over billing of expenses, facilitation payments.
• Fake reimbursements

3. Ethics in Human Resources

Human resource management (HRM) plays a decisive role in introducing and implementing ethics. Ethics should be a pivotal issue for HR specialists. The ethics of human resource management (HRM) covers those ethical issues arising around the employer-employee relationship, such as the rights and duties owed between employer and employee.

The issues of ethics faced by HRM include:

• Discrimination issues i.e. discrimination on the bases of age, gender, race, religion, disabilities, weight etc.
• Sexual harassment.
• Affirmative Action.
• Issues surrounding the representation of employees and the democratization of the workplace, trade.
• Issues affecting the privacy of the employee: workplace surveillance, drug testing.
• Issues affecting the privacy of the employer: whistle-blowing.
• Issues relating to the fairness of the employment contract and the balance of power between employer and employee.
• Occupational safety and health.

Companies tend to shift economic risks onto the shoulders of their employees. The boom of performance-related pay systems and flexible employment contracts are indicators of these newly established forms of shifting risk.

4. Ethics in Marketing

Marketing ethics is the area of applied ethics which deals with the moral principles behind the operation and regulation of marketing. The ethical issues confronted in this area include:

• Pricing: price fixing, price discrimination, price skimming.
• Anti-competitive practices like manipulation of supply, exclusive dealing arrangements, tying arrangements etc.
• Misleading advertisements
• Content of advertisements.
• Children and marketing.
• Black markets, grey markets.

5. Ethics of Production

This area of business ethics deals with the duties of a company to ensure that products and production processes do not cause harm. Some of the more acute dilemmas in this area arise out of the fact that there is usually a degree of danger in any product or production process and it is difficult to define a degree of permissibility, or the degree of permissibility may depend on the changing state of preventative technologies or changing social perceptions of acceptable risk.

• Defective, addictive and inherently dangerous products and
• Ethical relations between the company and the environment include pollution, environmental ethics, and carbon emissions trading.
• Ethical problems arising out of new technologies for eg. Genetically modified food
• Product testing ethics.

The most systematic approach to fostering ethical behaviour is to build corporate cultures that link ethical standards and business practices.