Chapter 04 (Business Ethics and CG)

7/30/2019 Chapter 04 (Business Ethics and CG)

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Q1: Definition of Ethics

An ethic is a singular, logically deduced, self-created, and self-chosen choice to think and

behave as deemed most correct to the individual. The discipline dealing with what are good

and what are bad things and moral duty and obligation. In a simple we can say Ethic is the

basic concepts and fundamentalprinciples of right human conduct.

Definitions of 'Business Ethics'

Paul and Elder define ethics as "a set of concepts and principles that guide us in

determining what behavior helps or harms sentient creatures".

The Cambridge Dictionary of Philosophy states that the word ethics is "commonly used

interchangeably with 'morality' and sometimes it is used more narrowly to mean the moral

principles of a particular tradition, group, or individual."

According to Andrew Crane ("Business ethics is the study of business situations, activities,

and decisions where issues of right and wrong are addressed." individuals or firms affects

others.

According to Raymond C. Baum hart "The ethics of business is the ethics of responsibility.

The business man must promise that he will not harm knowingly."

Investopidia explains 'Business Ethics' Business ethics are implemented in order to ensure

that a certain required level of trust exists between consumers and various forms of

market participants with businesses. For example, a portfolio manager must give the

same consideration to the portfolios of family members and small individual

investors. Such practices ensure that the public is treated fairly.

Business ethics are ethics that refer to the moral rules and regulations governing the

business world. In other words, they are the moral values that guide the way corporations or

other business make decisions. Business ethics are often guided by law, while other times

provide a basic framework that businesses may choose to follow in order to gain public

acceptance.

Some business ethics are imposed by law. For example:
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The Securities and Exchange Commission governs the way investment bankers and

stock brokers do business

Court rules dealing with attorney client privilege dictate some ethical decisions for

attorneys.

There are also business decisions that do not fall within the guidelines of the law, in which

the businessperson must make their own ethical or moral judgments.

So finally we can say that, business ethics means to conductbusiness with a human touch in

order to give welfare to the society.
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Q2: Roots of Unethical Behavior, some unethical issues.

Unethical behavior is any action that is aimed at taking advantage of another without their

knowledge or consent. Most define this as manipulating someone without their permission.

There are more root causes of unethical behavior. Some of these are given below:

Personal Ethics:

We follow a personal ethics code influenced by our parents, schools, religion, as well as

media. For example; we are taught that is wrong to lie and cheat; standing up for our beliefs

are also very important. This personal ethics code we carry has a strong impact on our

behavior as workers in the corporate world. When we develop personal ethics and hold firm

to them, we are more unlikely to submit to unethical behaviors.

Decision-Making Processes

While working for a small or large company, many people disregard asking whether or not

the decisions and processes are ethical. Sometimes managers main focus is getting the job

done and it forces employees to practice unethical work tactics due to pressure. The key to

resolving this is to simply combine ethical practices with business decision making processes.

Organizational Culture

Like societies, businesses have cultures also. The culture of an organization greatly

influences its ethical practices. In many cases the values and norms of a company may

conflict with its employees. Majority of the time good employees find themselves out of a job

when they disagree with the culture of the organization they are working for. For example, a

company may value greed and deception. In this case the top managers main focus would be

their personal wealth rather than the success of the company itself. They may only hire close

friends and relatives in top management level positions. Therefore, other employees

conflicting with any decisions or practices could easily lose their jobs.

Leadership

On several occasions leadership plays a tremendous role when finding unethical practices in

businesses. People look to leaders to help establish the foundation of an organization while

also setting the right example for others. You will find that people tend to behave exactly as


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their leaders do in many situations. In school, church, work and other organizations that

require leaders, actions speak much louder than words. Its not what leaders say that matters,

its they do. For example, a professor has a code of ethics that he follows to not show

favoritism however, he always assign the same group of students special tasks that other

students would really like to take part in. Hes also found socializing with the same group of

students outside of campus. Furthermore one of the students father plays golf with the

teacher. One can immediately assume that this is a violation of that professors code of ethics.

Unrealistic Performance expectations.

Every business has a goal. Logically, which requires its employees to perform at a certain

level on a day to day basis? But what happens when your employees feel pressured and

overwhelmed by their performance goals? In many cases companies set unrealistic

expectations for the workers. The only way to meet some goals would be to perform in an

unethical manner. The key to overcoming this unethical behavior is to have confidence and

respect for people, open communication, and concern for the individual employee.

Primary Psychological Traps

Primary psychological traps are traps that force people to do certain things or act a certain

way. For example obedience to a higher authority. With primary psychological traps people

most likely undermine ethics because of the belief that higher authority is telling them the

right thing to do. Or in some cases they overlook ethics due to fear of the consequences of

disobeying higher authority. These traps are referred to as external stimuli.

Personality Traps.

Personality traps are internal forces. These are our day-to-day personality traits that make it

difficult for us to withstand certain work conditions. These traits make people more

vulnerable to wrong doings. An example of a personality trap would be the inability to

tolerate confusion and ambiguity. This normally comes when work conditions are difficult.

For example a loud workplace, pressured deadlines, difficult information being processed

etc;. These working conditions bring a need for closure. People with this need, will in many

cases, neglect using ethical behavior and focus on the main objective of getting the job done.

They do so in hopes of avoiding all confusion on the job.


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Defensive Psychological Traps

The defensive psychological trap is better known as the False Consensus Effect These are

excuses. People try to find ways to justify their unethical actions. When able to justify for

unethical actions the likelihood to continue these actions are more probable. Some people

may justify employee theft on the basis that everyone does it.

Greed

The reason that millions of people are suffering is a combination of Wall Street greed and

incredible economic management. Personal satisfaction is one of the leading causes of

unethical behavior. Greed takes place when a business or person has accumulated wealth but

still pushes for more without giving back to society. In some cases top level managers try to

keep high positions within his/her family. This relates to the idea of organizational values and

norms as it relates to their employees. Most people still believe in giving back to their society

after taking from it.

Corruption

As noted in our text book, corruption has been a problem in just about every society in

history. There always will be and always have been corrupt government officials. This plays

a tremendous role in unethical behavior as it relates to leadership. If our government

participates in unethical practices and values then its justifiable to have citizens that do the

same.


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Q3: Importance and need for business ethics.

There are many reasons that business ethics matter. Companies that have made a commitment

to behaving in a socially responsible manner know that committing to ethical behavior is not

only the right thing to do it's also good business.

It is an important aspect of any organization, regardless of how large or small, to have proper

ethics. With the problems of the economy and the extremely high market competition, many

businesses have started ignoring their ethics in order to stay on top with the competition. This

is sad, and needs to be addressed. This article will explain the importance of business ethics

and the best advice on how a business can maintain the use of their current ethical standards,

while still remaining competitive.

It is important to the success of a business that those who are in a leadership position set the

pace for the others. Management personnel should be taught that their ethical behavior

determines the ethical behavior of the other employees in the company. Most importantly, if

the owner of the business uses the utmost applications of business ethics, those that he

employs will follow the same ethical behavior. Business ethics are important to every

stakeholder, society and for the business own.

Stakeholders Need for business ethics

Shareholder,

owners $ business

Stop business malpractices

Survival of business

Creates good image

Smooth functioning

Profit Maximization

Creates Goodwill in the Market

Interest of Industry


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Employee Protecting employees and shareholders

Importance of labor

Competitor Healthy competition

Customer Improve customers' confidence

Safeguarding consumers' rights

Consumer movement

Consumer satisfaction

Buyers Market

Local community

&society

Develops good relations

Efficient Utilization of Business Resources

Fig: Importance of business ethics

1. Stop business malpractices: Some unscrupulous businessmen do business

malpractices by indulging in unfairtrade practices like black-marketing, artificial high

pricing, adulteration, cheating in weights and measures, selling of duplicate and

harmful products, hoarding, etc. These business malpractices are harmful to the

consumers. Business ethics help to stop these business malpractices.2. Improve customers' confidence: Business ethics are needed to improve the

customers' confidence about the quality, quantity, price, etc. of the products. The

customers have more trust and confidence in the businessmen who follow ethical rules.

They feel that such businessmen will not cheat them.

3. Survival of business: Business ethics are mandatory for the survival of business. The

businessmen who do not follow it will have short-term success, but they will fail in the

long run. This is because they can cheat a consumer only once. After that, the

consumer will not buy goods from that businessman. He will also tell others not to buy
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from that businessman. So this will defame his image and provoke a negative

publicity. This will result in failure of the business. Therefore, if the businessmen do

not follow ethical rules, he will fail in the market. So, it is always better to follow

appropriate code of conduct to survive in the market.

4. Safeguarding consumers' rights: The consumer has many rights such as right to

health and safety, right to be informed, right to choose, right to be heard, right to

redress, etc. But many businessmen do not respect and protect these rights. Business

ethics are must to safeguard these rights of the consumers.

5. Protecting employees and shareholders: Business ethics are required to protect the

interest of employees, shareholders, competitors, dealers, suppliers, etc. It protects

them from exploitation through unfair trade practices.

6. Develops good relations: Business ethics are important to develop good and friendly

relations between business and society. This will result in a regular supply of good

quality goods and services at low prices to the society. It will also result in profits for

the businesses thereby resulting in growth of economy.

7. Creates good image: Business ethics create a good image for the business and

businessmen. If the businessmen follow all ethical rules, then they will be fully

accepted and not criticised by the society. The society will always support those

businessmen who follow this necessary code of conduct.

8. Smooth functioning: If the business follows all the business ethics, then the

employees, shareholders, consumers, dealers and suppliers will all be happy. So they

will give full cooperation to the business. This will result in smooth functioning of the

business. So, the business will grow, expand and diversify easily and quickly. It will

have more sales and more profits.

9. Consumer movement: Business ethics are gaining importance because of the growth

of the consumer movement. Today, the consumers are aware of their rights. Now they

are more organized and hence cannot be cheated easily. They take actions against those

businessmen who indulge in bad business practices. They boycott poor quality,

harmful, high-priced and counterfeit (duplicate) goods. Therefore, the only way to

survive in business is to be honest and fair.

10.Consumer satisfaction: Today, the consumer is the king of the market. Any business

simply cannot survive without the consumers. Therefore, the main aim or objective of

business is consumer satisfaction. If the consumer is not satisfied, then there will be no
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sales and thus no profits too. Consumer will be satisfied only if the business follows all

the business ethics, and hence are highly needed.

11.Importance of labor: Labor, employees or workers play a very crucial role in the

success of a business. Therefore, business must use business ethics while dealing with

the employees. The business must give them proper wages and salaries and provide

them with better working conditions. There must be good relations between employer

and employees. The employees must also be given proper welfare facilities.

12.Healthy competition: The business must use business ethics while dealing with the

competitors. They must have healthy competition with the competitors. They must not

do cut-throat competition. Similarly, they must give equal opportunities to small-scale

business. They must avoid monopoly. This is because a monopoly is harmful to the

consumers.

13.Profit Maximization: The importance of ethics in business can be understood by the

fact that ethical businesses tend to make much more profits than the others. The reason

for this is that customers of businesses which follow ethics are loyal and satisfied with

the services and product offerings of such businesses. Let us take an example.

Suppose, there is an organization named XYZ which manufactures cosmetics. XYZ

greatly believes in the importance of ethics in business. When XYZ advertises its

cosmetics in the market, being an ethical organization, it will be very truthful and

honest in its communication with the probable customers. It will tell correctly about

the kind of ingredients it has used while manufacturing the cosmetics. It will not lie or

exaggerate about the benefits or uses of its products either. So the customers, who buy

its cosmetics, know precisely what they are buying and how useful that product is

going to be for them. This way, the product will meet their expectations and thus,

satisfy the customers. When customers are satisfied, they will become loyal to the

company and come back again for re-purchasing. This will surely increase the profits

of the organization. Thus, the importance of business ethics is that it creates loyalty in

customers and maximizes the profits.

14.Efficient Utilization of Business Resources: In an organization, people working at

the junior levels often emulate the ones working at the top. The same applies with

ethics too. If the management or seniors of an organization follow ethical business

practices, , they do not bribe to get their way or they do not cheat the customers,

investors, suppliers, etc., the employees will follow suit. The employees too will
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refrain from using the office property or resources for personal benefits. This will

result in better and efficient utilization of the business resources.

15. Creates Goodwill in the Market: An organization, which is well-known for its

ethical practices, creates goodwill for itself in the market. Investors or venture

capitalists are more willing to put their money in the businesses which they can trust.

Shareholders too, remain satisfied with the practices of ethical businesses. Thus, ethics

creates goodwill and builds long-term relationships, and that cannot be denied. Also,

an ethical business puts greater value on its employees and thus, employees remain

loyal to such an organization too.

The chief goal of any organization is to maximize its profits. The importance of

business ethics can be understood from the fact that it helps the businesses in achieving

its goal of profit-making by creating goodwill for the business in the market,

increasing its loyalty among the customers, by aiding in employee retention and by

maximum utilization of its resources.

16.Interest of Industry: Business ethics are required to protect the interest of small

business firms. Big firms normally try to dominate and eradicate small firms. If

industry follows code of conduct, small firms can fight for their existence and stay in

the business for long.

17.Buyers Market: In recent times, structural changes have taken place in the concept of

business. In case of many products, sellers market has been converted into buyers

market. Under such changed business conditions business ethics is needed to stress the

importance of consumer satisfaction and service orientation in place of profit

orientation.

Ethics is no doubt an important business subject for any entrepreneur to study, but it also has

a wider application throughout organizations. One man's concept of what is ethical and for

the best may be completely different from another man's concept, and so it's important to

establish a collective set of ethics that represent the entire organization rather than just

adopting a piecemeal approach. This can be installed through training, through creating

business policies and even through careful selection at the HR stage, although it's important

that there are also enforcement mechanisms within the business concerned, and that ethics


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remain a forefront consideration in day-to-day trade to ensure a unified, morally sound

approach to doing business.

Q4: How Ethics Can Make Corporate Governance More Meaningful?

We know that Business ethics are guided by law, while other times provide a basic

framework that businesses may choose to follow in order to gain public acceptance. And for

the conducting an organization there need business ethics that is helping in conducting

corporate governance. Ethics make corporate governance more meaningful that are given in

below-

I. Corporate governance is meant to run companies ethically in a manner such that all

stakeholders creditors, distributors, customers, employees, the society at large and

governments are dealt in a fair manner.

II. Good corporate governance should look at all stakeholders and not just shareholders

along. Otherwise, a chemical company, for example, can maximize the profit of

shareholders, but completely violate all environment laws and make it impossible for

the people around the area to lead a normal life.

III. Corporate governance is not something which regulators have to impose on a

management, it should come from within. There is no point in making statutory

provisions for enforcing ethical conduct.

IV. There is a lot of provisions in the companies act, for example, in dealing with the

following issues: (1) disclosing the interest of directors in contracts in which they are

interested; (2) abstaining from exercising voting rights in matters they are interested;

(3) statutory protection to auditors who are supposed to go into the details of the

financial management of the company and report the same to the shareholders of the

company. But most of these may be observed in the letter, but not in spirit. Members

of the board and top management should ensure that these are followed both in the

letter and spirit.

V. There is a number of grey areas where the law is silent or where regulatory

framework is weak, which are manipulate by unscrupulous persons. In the US, for


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instance, the courts recognize that new forms of fraud may arise, which may not be

covered technically under any existing law and cannot be interpreted as violating any

of the existing laws. For example, a clever conman can try to sell a piece of the blue

sky. In order to check such crooks, there is the concept of the blue sky law.

However, such wide-ranging processes are not available to courts in developing

countries.

VI. The serious Fraud Investigation Office (SIFO) in the Department of Corporate Affairs

(DCA) has been investigating several Vanishing Companies. By 2003, SEBI has

indentified 299 as Vanishing Companies which tapped the capital market, collected

more than Rs 800 crores from the public and subsequently became untraceable.

However, thousands of investors have lost their hard-earned money and no agency

has come to their rescue so far.

Documents

Chapter 04 (Business Ethics and CG)