BUSINESS ETHICS
AND CORPORATE
GOVERNANCE
DR.VAIDEHI
SHUKLA

Introduction To Business Ethics:
1. Nature Of Ethics
2. Ethical Concepts And Theories
3. Morals And Values
4. Importance And Need of Ethics In
Business
5. Distinction Between Values And
Ethics
6. Kohlberg’s Six Stages of Moral
Development

What is Ethics?
Ethics:
Ethics reflects a society’s notion of rightness and wrongness of an act.
Ethics involves the evaluation and application of certain moral values that a society or culture has
come to accept as its norms.
• is a branch of philosophy.
• is a normative science because it is concerned with the norms of human conduct.
• as a science, it must follow the same rigor of logical reasoning as other sciences.
• as a science, involves systemizing, defending and recommending concepts of right and wrong
behavior.
Ethics defined as..
Ethics as a moral and normative science refers to principles that define human behavior as right,
good and proper.

The Word Ethics is Derived
Ethics
Greek
word
ethikos
Latin word
ethicus

What is Business Ethics?
Business ethics is the application of general ethical ideas
to business behavior.
It is based on the principle of integrity and fairness and
concentrates on the benefits to the stakeholders, both
internal and external. Stakeholder includes those
individuals and groups without which the organization
does not have an existence. It includes shareholders,
creditors, employees, customers, dealers, vendors,
government and the society.

Nature of
Business
Ethics
Ethics Deals
with the
Humans
Ethics is a
Normative
Science
Ethics is a
Science of
Values
Ethics is
Different
from
Morality

Ethical Concepts
Subjectivism
RelativismWhistle Blowing
Consequentialism
Deontological
ethicsEthics of virtue
Ethical Dilemma

1. Subjectivism
This concept emphasizes that the ethical choice of the individual decides the rightness or wrongness of his behavior.
This concept emphasizes that the ethical choice of the individual decides the rightness or wrongness of his behavior.
2. Relativism
According to this concept, no principle is universally applicable and so it would be inaccurate to measure the behavior
of one society with another’s principles or standards. Relativism overlooks the fact that there may be enough
evidence to believe that an ethical practice is based on false belief, illogical reasoning, and so on.
3. Consequentialism
Consequentialism is based on two ideas: the concept of value and the maximization of value. If, for example, honesty is
considered a value, an act is considered ethical only if it maximizes this value. An act, which does not maximize the said
value, is not ethically permissible.
4. Deontological ethics
This concept stresses that ethical values can be developed from the concepts of reason as all rational individuals possess
the ability to reason. We may, for example, end up causing pain unknowingly while trying to create happiness.
Therefore, the ethical value of an action cannot be determined by its consequences. Instead, it is in the motive
that lies behind the particular action..

5. Ethics of virtue
This concept emphasizes those traits that give the individual a sense of satisfaction from ethical point of view. Virtuous
acts like courage, honesty, tolerance and generosity are done as a way of living and not by chance.
6.Whistle blowing
Whistle blowing refers to the attempt of an employee to disclose what he or she believes to be illegal behaviour in
or by the organization. From one point of view, this seems to deceive the principle of honesty in business ethics, as it is
taken for granted that the employees of an organization need to be loyal to its workings. However, when loyalty to
one’s organization in particular is perceived to be harming one’s general loyalty to mankind, the act of whistle blowing is
justified. Failure on the part of the management of the organization to fulfil its social obligations calls for whistle blowing.
It is the responsibility of the whistle blower to be careful about revealing the organization’s secrets and to consider the
harm it may cause to his colleagues and shareholders.
7. Ethical dilemma
An organization’s ethical problems indicate a conflict between its economic and social performance. This results in a
dilemma for managers. Since people handle business, it is a crucial requirement to check and ascertain ethical
behavior at a personal level. This will confirm ethically correct responses from the organization to the mutual actions of
individuals.

Importance and Need for Business Ethics
• A business organization competes in the global market on its own
internal strength, in particular, on the strength of its human
resource and on the goodwill of its stakeholders.
• The value-based management and ethics that an organization
uses in its governance enables it to establish productive
relationship with its internal customers, and lasting business
relationship with its external customers.
• Real life situations (Tata Steel and Infosys) show that use of ethical
practices in business creates high returns for companies.

Values are beliefs of a person or social group in which they have an emotional investment (either for or against
something); "he has very conservative values"
Moral is motivation based on ideas of right and wrong
Ethics defined as:
A theory or a system of moral values: “An ethic of service is at war with a craving for gain"
The rules or standards governing the conduct of a person or the members of a
profession.
Values, Morals & Ethics

Ethics and Morals
Ethics and morals relate to “right” and “wrong” conduct.The basis for ethics must be morals, not the other way
around. While they are sometimes used interchangeably, they are different.
Morality is concerned with the norms, values and beliefs embedded in social process which define right and wrong
for an individual or a community
Ethics is concerned with the study of morality and the application of reason to elucidate specific rules and
principles that determine right and wrong for a given situation.
ORIGIN
Morals: It is derived from the Latin word moralis which implies customs i.e. it refers to a behavior that is accepted or
rejected due to an accepted social customs.
Ethics: It is derived from the Greek work ethike, which attributes to a social environment, referred to as ethos and
social environment

Ethics and Morals
• WHERE DOTHEY COME FROM?
• Moral values are internal to individuals. People develop moral values as an outcome of
bringing up.We follow moral values because we believe in something being right or
wrong.
• Ethical value are external, emerging from social system. People follow ethical values
because society says it is the right thing to do
ACCEPTEBILITY
• Morality transcends cultural norms
• Ethics are governed by professional and legal guidelines within a particular time and
place.There is a possibility of regulating ethical behaviour.

Value and ethics
Values are the rules by which we make decisions about right and wrong, should and shouldn't, good and bad.
Values define by:
• Part of culture: Every society has its own culture
• Learned responses: Behave in a particular way
• Adaptive process:Values are to be adopted from the family
• Social phenomenon: Group behavior are values
• Gratifying responses:Values exist to meet needs of individual in society
• Inculcated: Passed through generation to generation

Distinction Between Values and Ethics
Values Ethics
Personal in nature (e.g.
a belief in providing
customer satisfaction
and being a good
paymaster)
Generalized value
system (e.g. avoiding
discrimination in
recruitment and adopting
fair business practices).
Offer alternatives to
choose from.
Provides general
guidelines within which
the management can
operate.

Kohlberg's
Theory of Moral
Development

Lawrence Kohlberg

3 Levels of Moral Reasoning

1
Preconventional
2
Conventional
3
Post-Conventional
Stage 1
Obedience andPunishment
Stage 2
Individualism andExchange
Stage 3
InterpersonalRelationships
Stage 4
Maintaining SocialOrder
Stage 5
Social Contract &Individual Rights
Stage 6
Universal Principles

(age 4 -10)
a person is motivated by obedience to
authority.
commonly associatedwith young children
involves little thought aboutmorality.
moral code is shaped by the standards of
adults and the consequences of following or
breaking their rules.

A. Stage 1- Obedience &Punishment
• Earlieststage ofmoral development
• Common inyoungchildren
• Childrenseerulesasfixedandabsolute.
• Obeying the rules is important to avoid punishment.
• Moralityismotivated solelybypunishment

B. Stage 2- Individualism&Exchange
children account individual points of view
judge actions based on how they serve
individual needs.
Reciprocity ispossible but only if it serves
one's own interests.

B. Stage 2- Individualism&Exchange
children recognize that there is not just
one right view and that different
individuals have differentviewpoints.
differentfocuses on individualism and
perspectives,
the goal is to avoid punishment.

E XA MPLE S :
Stage 1:
“Iwillkeep quiet so that teacher won’t punish me.”
Stage 2:
“Iwilllet you copy mine if you do my homework.”

(age 10 -13)
people focus on following social normsand
customs.
begin to internalize the moral standards of
valued adult rolemodels.
Reasoning is based on the norms of the
group to which the person belongs.

C. Stage 3- InterpersonalRelationships
Also known as "good boy-good girl"
orientation
focused on living up to social expectations
and roles
emphasis on conformity, being"nice,"
consider how choices influence
relationships.

C. Stage 3- InterpersonalRelationships
emphasizes the maintenance happy
interpersonal relationships and pleasing
others.
a need to avoid rejection, disaffection, or
disapproval fromothers.

D. Stage 4- Maintaining SocialOrder
consider society as a whole when making judgments
focus is on maintaining law and order by following the rules,
doing one’s duty and respecting authority.

D. Stage 4- Maintaining SocialOrder
please individualsto maintaining social order by following social norms,customs, andlaws.
becomes aware of the wider rulesof society to avoidguilt.
a need to not be criticized by a true authorityfigure

E XA MPLE S :
Stage 3:
“Iwillbuy that dress so that my friends willlike me.”
Stage 4:
“You should not cut the class because it’s against
school rules.”

(adolescence -adulthood)
people look beyond convention to
determine moral norms and appropriate
social interactions.
judgment is based onself-chosen principles
moral reasoning is based on individual rights
and justice

E.Stage 5- Social Contract &Individual
Rights
begin to account the differing values,
opinions and beliefs of other people.
Laws are important but members of the
society should agree upon these
standards.

E.Stage 5- Social Contract &Individual
Rights
becomes aware there are times when
they will work against rules or the interest of
particular individuals
emphasis on the social contract and the
maintenance of individualrights

F. Stage 6- UniversalPrinciples
Reasoning is based on universal ethicalprinciples and abstract
reasoning
Follow these internalized principles of justice,evenifits
against the law
Moral judgment ismotivated by one'sown conscience

F. Stage 6- UniversalPrinciples
People have developed their own set of
moral guidelines which may or may not fit
the law.
search for universalprinciples.

E XA MPLE S :
Stage 5:
“It is her own decision, we should just respect that.”
Stage 6:
“If abortion became legal in our country, I willbe one
of the people who willbe against it because it’s
against God’s Law.”