BUSINESS ETHICS AND CORPORATE GOVERNANCE
UNIT I: Introduction to Values and Ethics - Values – importance - sources of value systems-types of
values - loyalty and ethical behavior - values across cultures – ethics - principles and characteristics of
ethics - the concept of business ethics - factors affecting business ethics- importance of business ethics -
advantages of business ethics – overview of ethical philosophies - divine command - deontological
ethics - teleological ethics – egoism – utilitarianism - distributive justice - social contracts - concepts of
moral objectivism and moral relativism
Ethics is the branch of philosophy that studies the values and behavior of a person. Value study
of a person is used to determine his positive and negative attitude towards life. Ethics studies
concepts like good and evil, responsibility and right and wrong. Ethics can be distinguished in
three categories: normative ethics, descriptive ethics and meta ethics. Meta ethics focuses on
the issues of universal truths, ethical judgments and the meaning of ethical terms. Normative
ethics can be used to regulate the right and wrong behavior of individuals. Descriptive ethics,
also called applied ethics, is used to consider controversial issues, such as abortion, animal
rights, capital punishment and nuclear war.
Every person believes in certain critical values. Jesus Christ valued love, Mahatma Gandhi
valued truth, Plato valued wisdom, and Moses valued justice.
Value is anything which has utility or worth. It may be a physical or intrinsic value.
Intrinsic values are things of positive or negative value that have that value just for Existing.
A value is a general belief which helps differentiate good from bad. Values
guide actions in your personal or social life. It is a particular standard that a community gives
importance to. In most communities, moral values are assigned to fairness, justice, honesty and
integrity to name a few. Mostly our actions are guided by our values.
Moral value is something that is esteemed, or highly revered. When we can
assign values to particular objects, it becomes easier to make a choice. Values are related to
culture, society or a system. When a particular thing conforms to our basic value or conviction,
we prefer it, compared to another alternative which may appeal more to another person with
another point of view. As a social phenomenon, values are inculcated and sustained through an
Values are desires that have content and intensity. The content aspect of value
indicates the nature of achievement or the ultimate benefits as realized by the user. The
intensity attribute of value indicates the degree of its importance in a particular context.
Individual values are commitments to which a particular person subscribes, like social justice,
honesty, and so on.
Ie. Values are principles, standards, or qualities you consider worthwhile or desirable. Values
will vary greatly from person to person because they depend on your personal judgment
IMPORTANCE/SIGNIFICANCE OF VALUE
A set of values is critical since it gives a person direction and motivation to live in a desired
way. Value is also socially useful and has many positive external influences for others. For
instance, if a person is non-violent, he is helping others by not hurting them. Similarly, a person
of good character is not only an ideal man but he is also a source of good work and inspiration
for others. A knowledgeable man helps himself and others by disseminating his knowledge and
new ideas. A value system that a person is endowed with through experience and inherent
predisposition may help him in the following ways.
The value system helps a person in making clear decisions.
1.The value system helps build the perception of an individual.
2.A clear value premise helps a person arrive at flawless logical deductions and moral
3.It gives clarity of understanding to a person confronted with a particular situation.
Some examples of individual values:
a. Adherence to justice
b. Practice of honesty under all situations
c. Hard work
g. Care and compassion for the poor
i. Respect for others
VALUES ARE :-
• Qualities, characteristics, or ideas about which we feel strongly.
• Our values affect our decisions, goals and behavior.
• A belief or feeling that someone or something is worthwhile.
• Values define what is of worth, what is beneficial, and what is harmful
• Values are standards to guide your action, judgments, and attitudes.
SOURCES OF VALUE SYSTEM (VALUES AND ATTITUDES)
There are many sources of values:
Parents and family
Teachers and classmates
Peer groups and friends
Culture and tradition
(our homes, school, society,friends,TV,church, music,books,families,culture,employers,time-period in which
you were raised (green , peace, health and fitness), etc.
Your age will greatly influence your values. Different people and things influence you at
• Ages 1-7 --- parents
• Ages 8-13 --- teachers, heroes (sports, rocks, TV)
• Ages 14-20 --- peers (values because of peers or peers because of values?)
• Ages 21+ your values are established, but you may test your values from time to time.
Let us elaborate on some important sources of value:
The most important source of value formation is the family. Parents are the first people to
instill the ideas of right and wrong and good and bad in the minds of young children. The
conscience of the parents and their ideas on morality gradually are drilled into the minds of
youngsters. If parents tell lies, the children pick up that habit and it will be very difficult to
erase it in the coming years. Children experience moral development and distinguish
between right and wrong through reward and punishment by parents too. Children in the
course of time, internalize these moral lessons. At a young age children accept certain
values without questioning them. They have blind faith in their parents. Thus, it is evident
that moral reasoning does not develop at a young age. However, as children grow up they
become capable of developing their own sense of moral reasoning.
2. Peer Groups
The second important source of value formation peer groups, friends and colleagues with
whom you interact in day-to-day life. In the adult days, a person is influenced by the value
system of his classmates, religious institutions, clubs and playmates. During this phase of
life, the adult is confronted with several challenging issues involved in his acquired value
system. He may, after moral reasoning once again, either retain his values or reject them in
favor of new values. He may experience a wave of creative destruction. A good peer group
may be helpful in inculcating good moral values and vice versa.
3. Role Models
In our lives you meet some people whom you admire, respect, adore and emulate. These
people may be one of your teachers, a sportsman, a film star or a political leader. They exert
a profound influence on the minds of an adolescent especially. A film hero‘s moral behavior
in a film which has become famous or notorious influences the minds of millions of fans all
over the country. Like peer groups, the role models can also modify the values of people
from good to bad, or from bad to good.
Institutions exert a strong and significant influence on the minds of people regarding moral
development of values. The institutions may be educational, religious or social. Social
institutions through the process of socialization may mould values and attitudes. Similarly, a
religious institution like a church influences value premise and value system. They bring
about positive change and there influences have far reaching effects. Thus, a regular church-
goer inculcates a value system that is morally progressive with qualities like compassion,
care, love, kindness and sacrifice.
Characteristics of Value
1. A value or values are chosen freely without any coercion or compulsion.
2. A value is chosen from a number of options.
3. The choice of value is made after taking into account different consequences of this
4. The value that is chosen is practiced and then sustained and applied at different stages of
5. Value makes a man. It shows up in every situation of his life.
6. Value becomes a part of yourself and being. It persists and stays on, unless some drastic
value changing situation and experience arises.
7. Values are partly genetically determined, and partly acquired through experience and
TYPES OF VALUES Values - Types
T.K.M. Institute of Management
V A L U E S
An ultimate goal in a
desired status or outcome
A tool for achieving
the terminal value
Three classificatory schemes are generally used by researchers in the categorization of value.
A) Terminal Values and Instrumental Values
Terminal values are those that a person wants to address at the end.
As against the end, there may be many means to achieve the terminal value or the desideratum.
These values are called instrumental values.
In terms of spirituality, to be just or righteous is instrumental in the
realization of God which is the terminal value. An instrumental value is necessary to achieve
the ultimate goal.
B) Personal Values
The following are basic categories of personal values:
1. Egocentric value: The value is directed towards satisfying the ego.
2. Socio-centric value: The value aims at socialization and adaptation to society.
3. Existentialist value: This value is in conformity with the existing reality.
4. Conformist value: This is an orientation to achieve a materialistic goal by controlling
the physical resources.
5. Supernatural value: It a type of a metaphysical value beyond norms of the physical
world to achieve the ultimate reality.
6. Tribalistic value: It consists of submission of oneself to higher power and authority.
7. Deontic value: It considers one‘s own duty as the supreme religion.
8. Utilitarian value: In this type the aim is to realize the net benefits over cost.
9. Consequentiality value: In this case, an important value is assigned to those actions
having good consequences.
C) Many psychologists, philosophers and sociologists have classified values into the
D) Individual values can further be classified into the following two categories:
Practical or pragmatic value
Moralistic or metaphysical value
Values relating to social responsibilities
Values relating to civic responsibilities
E) Another type of classification of value is based on the following:
Acquiring and dissemination of knowledge
Justice, righteousness and fair play
Care and compassion
Truth and non-violence
No desire for materialistic possession Character-building
Honesty Kindness and sacrifice
LOYALTY AND ETHICAL BEHAVIOUR
Solid relationships are a cornerstone of an ethical business. Loyal relationships are
mutually beneficial and both parties reap benefits. Employees who work for a loyal employer
want to maintain the relationship and will work harder toward that end. Vendors and customers
will remain loyal to a business that is reliable and dependable in all situations. An ethical
business stays loyal to its partnerships even in challenging times. The result is a stronger
relationship when emerging from the challenge.
Conducting one‘s life in complete accord with a firmly held set of values and principles. These
principles may be derived from religious beliefs, philosophical understanding, etc.
• Application should be in all areas of one‘s life: personal, family, business, social, etc.
• ―Integrity‖ is the consistent application of ethical behavior.
Foundations of ethical behavior
– Judaism: What you hate, do not do to anyone.
– Islam: No one of you is a believer until he loves for his brother what he loves for
– Hinduism: Do nothing to thy neighbor which thou wouldst not have him do to thee.
– Sikhism: Treat others as you would be treated yourself.
– Buddhism: Hurt not others with that which pains thyself.
– Confucius: What you do not want done to yourself , do not do to others.
– Aristotle: We should behave to our friends as we wish our friends to behave to us.
– Plato: May I do to others as I would that they should do unto me.
– TREAT PEOPLE THE WAY
– YOU WANT THEM TO TREAT YOU
VALUES ACROSS CULTURES
Here are many cultures: professional, corporate, educational, national (with geographical
differences), religious/spiritual, sexual orientation, generational, family and gender. All of these
cultures influence us. Sometimes one or more cultures may take dominance over another
culture, depending on the situation. Examples are:
• Corporate culture dominates over national culture
• National culture dominates over religious culture
• Religious culture dominates over sexual orientation
• Generational culture dominates over gender culture
A number of cultural aspects influence the way we interact with other people, including
national culture, gender culture, corporate culture and various communication styles. All these
• how we conduct work
• our behavior and style
• our use of language
• how we solve challenges, problems, and conflicts
• how we negotiate and
• how we go about creating relationships.
The Importance of Values
Diving a bit deeper on that, all of the above is driven by our values. Values and beliefs are
learnt in a national culture, and they may be unconscious. You may not be aware of your own
values and beliefs until you are confronted with someone different than you, e.g. working with
a colleague from another country (and it may be quite a challenge). Values vary enormously,
especially across national cultures. We have a tendency to judge other‘s behavior based on our
own cultural norms, the ―lens‖ we see through. And here we have lots of opportunities for
potential conflict, misunderstandings and miscommunication. Different values lead to different
behavior, behavior you may not understand. It is important that we try to learn and appreciate
these differences in order to work effectively with people from other cultures.
There appears to be a decline in business ethics. Recent
corporate scandals involving accounting manipulation, cover-ups, and conflicts of interest
certainly suggest such a decline. This is not a recent phenomenon.
Although the issue is debatable, a lot of people think ethical standards began to erode in the late
1970s. After all, managers consistently report that the action of their bosses is the most
important factor influencing ethical and unethical behavior in their organizations. Given this
fact, the values of those in middle and upper management should have a significant bearing on
the entire ethical climate within an organization.
We described the new global village and said managers have to become capable of working
with people from different cultures, because values differ across cultures, an understanding of
these differences should be helpful in explaining and predicting behavior of employees from
One of the most widely referenced approaches for analyzing variations among cultures was
done in the late-1970s by Geert Hofstede. He surveyed more than 116,000 IBM employees in
40 countries about their work-related values. He found that managers and employers vary on
five value dimensions of national culture. They are listed and defined as follows:
The degree to which people in a country accept that power in institutions and organizations is
distributed unequally. This ranges from relatively equal (low power distance) to extremely
unequal (high power distance).
Individualism versus collectivism:
Individualism is the degree to which people in a country prefer to act as individuals rather than
as members of a group. Collectivism is the equivalent of low individualism
Achievement versus nurturing:
Achievement is the degree to which values such as assertiveness, the acquisition of money and
material goods, and competition prevail. Nurturing is the degree to which people value
relationships, and show sensitivity and concern for the welfare of others.
The degree to which people in a country prefer structured over unstructured situations. In
countries that score high on uncertainty avoidance, people have an increased level of anxiety,
which manifests itself in greater nervousness, stress, and aggressiveness.
Long-term versus short-term orientation:
People who are in cultures with long-term orientations look to the future and value thrift and
persistence. A short-term orientation values the past and present and emphasizes respect for
tradition and fulfilling social obligations.
A research study was done and here are a few highlights. China and West Africa scored high on
power distance; the United States and the Netherlands scored low. Most Asian countries were
more collectivist than individualistic; the United States ranked highest among all countries on
individualism. Germany and Hong Kong rated high on achievement; Russia and the
Netherlands rated low. On uncertainty avoidance, France and Russia were high; Hong Kong
and the United States were low. And China and Hong Kong had a long-term orientation,
whereas France and the United States had a short-term orientation
Ethics or moral philosophy is the branch of philosophy that involves systematizing, defending,
and recommending concepts of right and wrong conduct. The term ethics derives from
the Ancient Greek word ethikos (meaning conduct, habit or custom), which is derived from the
word ethos (habit, ―custom‖).These meanings is quite similar to the meaning of a Latin word
mores. Thus, when applied to business, this means Business with Character.
Ethics refers to well- founded standards of right and wrong that prescribe what humans
ought to do, usually in terms of rights, obligations, benefits to society, fairness, or specific
Ethics are principles or standards of human conduct, sometimes called morals, and, by
extension, the study of such principles is sometimes called moral philosophy.
Business ethics is ethics applied to the business environment in order to study the moral and
ethical issues related to it. Although business ethics can be both a normative and descriptive
discipline, when it comes to corporate practice, it is essentially a normative science.
Ethics is a set of principles or standards of human conduct that govern the behavior of
individuals or organizations. Using these ethical standards, a person or a group of persons or an
organization regulate their behavior to distinguish between what is right and what is wrong as
perceived by others. It is not a natural science but a creation of the human mind. For this
reason, it is not absolute and is open to the influence of time, place and situation.
ETHICS deals with Laws of Mortality and Rules of Conduct.
It determines the Rightness or Wrongness of Actions.
According to Garret, ―ETHICS is the science of judging specifically human ends and the
relationship of means to those ends. In some way it is also the art of controlling means so that
they will serve specifically human ends.
There is another word ―Morality‖ considered as Synonym of ETHICS. The word
Morality has been derived from the Latin language ―MORALIS‖ which means Behavior.
In this way, ETHICO-MORAL actions pertain to a set of actions engineered by
the character and expressed through behavior.
Alternatively, while character is relatively internal, Behavior is relatively external and
Character is Externalized via Behavior. Character defines Action whereas Behavior gives it
1. ETHICS refers to Rules and Principles that define right and wrong conduct.
2. It is the Science of Morals, Moral Principles, and Recognized Rules of Human Conduct.
3. In other words, ETHICS is doing things in a TRUTHFUL, RIGHTEOUS, and FAIR and
1. SWAMI VIVEKANANDA said: ―External Principle of truth is Ethics‖.
A) Ethics is the study of what is right or good human conduct.
B) Ethics is the science of ideal involved in human life.
C) Ethics is the science of moral judgment.
D) Ethics is the science of morals in human conduct.
E) Ethics is the study of the general nature of morals & of specific moral choices.
Ethics is the study of what is right or wrong regarding the conduct of human for the well
being of the society. It is the study of moral judgment. In materialistic science, right or
wrong is explained with reference to context, in the ethical sense there is something called
as ethical relativism which implies that ethical behavior is to be judged with ref to time,
place, and circumstances.
a. FEATURES/CHARACTERISTICS OF ETHICS
The nature of Ethics has the following features:
1. Ethics contains a set of principles of personal and professional conduct.
2. Existing norms and judgment may contain valuable insights but Ethics test them in terms of
3. Ethics does not rest on feelings of approval or disapproval but in the careful examination of
the reality around us. It may, for example, be unpleasant to fire an employee but Ethics may
demand just this. Principles, not feelings, give us Ethics.
4. Ethics is not legal; through it does not permit violation of Laws: It is a Guide to Law In so
far as it highlights its short coming.
5. What constitutes Ethical behavior in one society may be unethical in others. For example,
artificial birth control is mandatory in China but restricted in Islamic Countries.
6. Ethics is involved in all human activities including business.
b. Objectives of Ethics
According to Pratley, Ethics has a twofold objective:
1. Normative Objective
2. Descriptive Objective
(1) Normative Objective:
It evaluates human behavior against moral standards. It implies an Ethical Post-Mortem of
already performed actions and exhibited behaviors.
Normative Ethics analyze human moral judgment against moral standards and then makes the
moral assumption based judgments explicit as much as possible.
It also seeks to understand the actual issues and dilemmas that are at stake in order to make
adequate and fair evaluation. In summary, the normative objective of Ethics is evaluative.
(2) Descriptive Objective:
It provides prescriptive advice and solutions on how to act and behave morally in a specific
situation. In other words, descriptive objective prescribes solutions when facing a dilemma
where a choice has to be made between several alternatives.
Therefore, objectives of Ethics can be stated in the following manner.
a. Concerned with human behavior ie. Ethics studies human conduct and evaluates these as
moral or immoral and right or wrong and good or bad.
b. Ethics sets moral standards and norms for human behavior.
c. Ethics evaluates past behavior against standards and norms and, then, makes judgment
upon human behaviors as right or wrong and moral or immoral.
d. Ethics prescribes moral standard behavior and also provides solutions about how to behave
in a given specific situation.
e. Diagnostic in nature –it passes judgments on human behavior.
f. Also prescriptive-it recommends ideal ethical behavior that can be followed.
g. It‘s analytical-it analyses over human behavior &conduct& passes judgments.
1. Development of Ethics
Study of Ethics has developed as a science of moral reasoning in the following phases:
1. Greek Ethics:
It advocates that Ethics deals with duties of a person as moral citizen of the nation. A good or
Ethical man is the one who performs his duties as a good citizen.
Exponents of the above are Socrates, Plato, and Aristotle.
2. Medieval Ethics:
This is the period when Christianity spread in Europe. It says that Ethics is not part of politics
(as said in the Greek Philosophy). It does not deal with increasing inner aspect of one‘s
3. Modern Ethics:
This Era of Ethics believes in performing actions whose results bring good to us and others. It
deals with determining rightness of the acts. It proclaims what individuals or institutions ought
d. Branches of Ethics
Based on religious and philosophical point of views, Ethics is divided into the following five
(1) Normative Ethics
Largest branch of Ethics which deals with how individuals can decide the correct moral action
that they should take in a given situation of ethical nature.
involves supplying and justifying moral systems
―What should be‖
This was the prevalent form of ethics in philosophy until the end of the 19th century. What things are
good and bad and what kind of actions / behavior are right and wrong. It involves how people ought to
act on the principles, how they make moral choices, and how rules apply to individual lives. It includes
a consideration of the importance of human freedom, and a discussion of the limits of a human's
responsibility for moral decisions and for the consequences of actions. Consideration for the role of
conscience in moral decision making is also a part of Normative ethics. This may come from an
established group of culture, such as the Christian tradition, or it may be based on some other way of
thinking. This is the traditional way of doing Ethics.
Socrates and John Stuart Hill elaborated this branch.
This branch seeks to understand the nature of Ethical properties and judgments such as if
true values can be found and the theory behind moral principles.
(3) Applied Ethics
This is the study of applying Ethical theories developed by various philosophers in our
This area of Ethics asks questions like:
―Is it right to have an abortion‖?
―Is it right to take office supplies home‖?
(4) Moral Ethics
This branch of Ethics raises questions like:
1. How people develop their morality?
2. Why certain aspects of morality differ across cultures?
3. Why certain aspects of morality are generally universally applicable?
(5) Descriptive Ethics
This branch of Ethics focuses on application aspect of Ethics. Alternatively, this branch of
Ethics studies how people actually conduct in the real world, rather than attempts to just
theorize about how people should conduct in their day-to-day affairs.
i.e. involves describing, characterizing and studying morali
It is the study of ways in which different people and different societies have answered moral questions.
It can be described as moral sociology or moral anthropology, a description of the moral code
prevailing in different societies. It involves different approaches inside one society to the resolution of
Fig : classification of ethics
Meta-ethics -The Greek word meta stands for beyond. Thus meta-ethics laterally means
beyond ethic, suggesting an in-depth study of the discipline. In other words, it is scientific
study of the concepts of ethics in itself.
This is sometimes called moral philosophy or philosophical ethics. This group attracts most interest
today. It seeks to understand the meaning and function moral language, of ethical terms like good and
bad. It looks at the logic used in arriving at the conclusion of an argument that justifies a moral choice.
Posing an ethical question illustrates the different ways the two positions respond to it. If you asked the
question "Is pre-marital sex right," a Normative Ethical answer would be more concerned with the
reasons why it might be right or wrong, how they relate to certain teachings, or traditions of, say the
Christian Church, or some other group. A meta-Ethical response would be more interested in what you
mean by right, and what it means by a right sexual action as opposed to a wrong one.
2. 3 Models of Management Ethics
1. 1.Immoral Management—A style devoid of ethical principles and active opposition to
what is ethical.
2. Moral Management—Conforms to high standards of ethical behavior.
3. Amoral Management
Intentional - does not consider ethical factors
Unintentional - casual or careless about ethical considerations in business
3. Nature (Ontology) and Scope of Ethics
Ethics is a normative science. It sets the norm by explaining what ought to be the ideal human
conduct and character. Hence, it is not a positive science. It studies what is right in human
action in the pursuit of the supreme ideal good but it does not lay down the rules to achieve that
state of perfection.
The nature and scope of ethics
i. Ethics deals with human behavior that is related to character, conduct, moral issues and
right or wrong.
ii. The human conduct that ethics studies are voluntary and not forced or imposed.
iii. Ethics is a science in the sense that it gives you systematic knowledge about moral
conduct, behavior and moral standard. It is a type of social science.
iv. Ethics sets the ideal moral standard for social and human welfare.
v. The mom standard is set with reference to religious tradition and custom. These
standards are based on nomological axioms which have been prevalent in human society
from time immemorial.
4. Ethics vs. Morality
Although, the two terms, ethics and morality are used as synonyms, it is necessary to
know that both have different connotations.
Morality involves individual character and disposition, but ethics studies how one should
behave in a group or society.
Ethics consists of a standard or code of behavior of a group. Often, the various types of ethics
like professional, social or corporate could be conflicting. For instance, a manager encounters a
clash between personal morality and corporate ethics.
Ethical considerations arise from right or wrong practices with respect to a profession.
5. MORAL & META MORAL (NON- MORAL) STANDARDS
Moral stds have certain rules and codes. But in a society, there are also some standards for non-
moral things like etiquette, dress codes and rule of games among the many. More over these
stds are defined by certain authorities making them distinct.
Who sets moral stds?
1. Tradition & convention
2. Institutions such as religion, social institutions & educational institutions.
3. Nomoligical axioms
4. Knowledge, wisdom& experience
5. Family &friends
What is Virtue?
It is Moral Excellence or Righteousness. It is conformity of one‘s life and conduct to Moral and
Ethical principles. A virtue is a positive trait or quality deemed to be morally good and thus is
valued as a foundation of principle and good moral being.
KOHLBERG ANGD GILLIGAN’S ANALYSIS OF MORAL DEVELOPMENT
Lawrence Kohelberg, the famous psychologist with his 20 years pioneering research in the
field of morality, recorded that moral values / standards develop in a sequential order of six
Kohelberg grouped these six stages into three levels, each comprising
two stages. According to Kohelberg, the second stage of each level is the more advanced and
Level I: Pre- Conventional Stages
This stage comprises of the following two stages.
In this stage, a person knows right /wrong on the basis of reward & punishment. When a
mother punishes or rewards the child for their respective action , the child realizes what is
undesirable & what is right.
1. Punishment and Obedience Orientation.
At this stage, the physical consequences of an act become the only basis to judge an action as
right or wrong.
2. Instrument and Relativity Orientation
At this stage, the child becomes aware that others who care for him or her also have needs and
desires similar to his / her own. The child, therefore, considers those actions good and right that
can satisfy his/her own and others desires and needs.
Level II: Conventional Stages
This level is also called ―Adolescent Level‖ as one now is able to see situations from others
point of view also, only with a perspective of viewpoints of his/her familiar groups he/she
belongs such as family, friends, peers, community and nation (Environment).
This stage too, comprises of the following two stages:
1. Interpersonal Concordance Orientation
At this early conventional level of moral development, one exhibits good behavior to satisfy
those for whom one feels loyalty, affection, and trust such as, one‘s own family and friends.
One is mainly motivated to do good and right things, what makes one to be seen as a good
performer in one‘s own eyes as well as in the eyes of others whom one cares.
2. Law and Order Orientation:
This is the more mature stage of conventional level at which one starts to care for his/her
surrounding society and even nation at large. Laws of the land are upheld except in the
exceptional cases of conflict and contradiction between laws and social obligations.
Level III : Post- Conventional Stages
At this stage, person no longer simply follows the norms and rules imposed to him/her by the
family and surrounding society. Based on one‘s own chosen moral standards, he/she starts
questioning, examining and characterized the existing rules and norms of the society from an
impartial point of view considering everyone‘s interest into account.
This level comprises the following two stages of autonomy and ethical principles.
1. Social Contract Orientation:
In this stage, person will try to arrive at some consensus by agreement because he/she
understands that people hold variety of personal beliefs and opinions. The values and norms are
regarded as relative and therefore, need to be accepted and tolerated. Where the law is not
affected, what is right is a matter of personal opinion and agreement between persons.
2. Universal Ethical Principles Orientation:
At this final Post-Conventional Stage, the person with his/her logical comprehensiveness
defines and decides the Moral principles to be adopted. These are abstract principles with
universal application. The Universal Ethical Principles deal with Justice, Equality and Dignity
of all people. These principles are higher than any law of the land.
Stages of Moral Development
Level Stage Description
Cognitive disequilibrium(CD): it happens when a person feels the need to pass on to another
stage of MD. The CD occurs when 1 does not understand the behavior of another group in
relation to his own group.
a. Moral development does not always follow a particular seq as shown by Kohlberg
b. Even if some sequence of progress can be observed in MD, the stages themselves could
overlap, or be skipped.
c. he discussed the male pattern of MD & neglected the gender perspective.
Many criticized Kohelberg‘s theory and most notable is the work of Carol Gilligan. Carol
argues that Kohelberg‘s theory identifies the stages of moral development of men, but it failed
to adequately explain the stages through women pass as they progress in age.
Carol Gilligan’s Theory of Moral Development
Stage I : Pre-Conventional
Influenced exclusively by personal interest.
Decisions are made in terms of self-benefit
as defined by the rewards and punishments
that come from different types of behavior.
1. Sticking to rules to avoid physical
2. Following rules only when it‘s in
3. Living up to what is expected by
people close to you.
4. Maintaining conventional order
by fulfilling obligations to which you
Stage II : Conventional
Influenced by the expectations of others
includes obedience to the law, response to
the expectations of others, and a general
sense of what is expected.
5. Valuing rights of others: and
upholding non-relative values and
rights regardless of majority‘s
6. Following self-chosen Ethical
principles even if they violate law.
Stage III : Post-Conventional
Influenced by personal ethical principles of
what is right. These may or may not be in
accordance with rules or Law of Society.
Gilligan claims that there are two different approaches to study the morality of
human beings, male approach and female approach. She opines that the male approach is
inclined to deal with moral issues in terms of impersonal, impartial, and abstract moral
guidelines which Kohelberg followed in his theory. Gillian claims that the female approach
looks at moral issues from a different perspective.
According to her, females see themselves as part of a ―WEB‖ of relationships
with family and friends. Therefore, while dealing with moral values, their approach in dealing
with moral issues becomes ―CARING‖ and ―BEING-RESPONSIBLE‖ for others to sustain the
relationships with which one is related.
Carol Gilligan emphasized the fact that the female pattern of moral development is
of a special type and occurs in 3 stages.
She said, women pass through the following 3 stages in their moral development:
1. Caring for oneself
2. Caring for others
3. Balancing caring for oneself and others.
At the pre-conventional (1st) stage, women learn to care for themselves. In the second stage or
what is known as the conventional stage, women internalize the prevailing moral norms or
standards. Along with these norms, they learn to make sacrifices for their near and dear ones
which would sometimes involve neglecting themselves. In the more mature third stage (post-
conventional stage), women generally maintain a balance-they care for themselves and others.
In this stage women become cautious and question the prevailing standard of morality which
was initially accepted by them in the second stage.
Ethical syllogism/Moral Reasoning/Ethical Reasoning
In ethical reasoning, the moral standard of any country or society can be judged With reference
to the set of universal moral standards. In ethical or moral reasoning, there are two interrelated
ethical propositions, and on the basis of this relationship, one can arrive at the third proposition.
The third proposition is called the inference or conclusion.
The whole logical process of drawing conclusions from the two given
propositions is called syllogism in logic.
Let us give an example: A country is unjust if there is gender discrimination.
Saudi Arabia is a country where there is gender discrimination. Therefore Saudi Arabia
is an unjust country.
In this example, the first proposition can be regarded as ethically correct. Any form of
discrimination is morally unjust in the sense that it violates human rights and goes against the
natural principle of equality. The second proposition is to be based on strict empirical truth. If
the second proposition is factually incorrect, we will not have correct ethical reasoning.
Making Ethical Judgments
Behavior or act
that has been
and perceptions of
Elements of Moral Judgment
Moral identification and ordering
Tolerance of moral disagreement and ambiguity
Integration of managerial and moral competence
A sense of moral obligation
Developing Moral Judgment
External Sources of a Manager’s
Internal Sources of a Manager’s Values
Respect for the authority structure
Moral Reasoning means making Moral Judgment or Decisions as good or bad.
Moral Reasoning means reasoned examination of things to decide them as right or wrong and
good or evil.
Moral Reasoning refers to the reasoning process by which human behavior is judged to be in
accordance with or in violation of Moral Standards.
Moral Reasoning means a more intentional form of decision- making based on reasoned
scrutiny of human behavior.
Moral Reasoning involves two essential elements
(1) Understanding of reasonable moral standards
(2) Evidence of these moral standards in behavior, institution, and policy.
Moral Syllogism: It is a form of reasoning in which a conclusion is drawn from two statements.
e.g.: All men must die. I am a man. Therefore, I must die.
Ethical Relativism (ER) and Ethical Absolutism (EA)
It is an empirical fact that all ethical norms and practices are not equally valid and applicable to
all societies. Some ethical norms or practices are acceptable in some countries but not
acceptable in others. For example, caste system or untouchability was accepted in India, but not
in other countries. Matrimony between homosexuals is legally acceptable in the United
Kingdom; based on marital ethics; but is considered unethical and immoral in other countries.
Thus, the meaning of ethical relativism cannot be defined in theory. Ethical
standards differ from country to country or from place to place, and hence the birth of ethical
relativism. Ethical standards are relative to a situation, place, time and circumstances & hence
named as ER.
Relies on the fact that some ethical std‘s are universal, permanent & absolute & are applicable
to all countries and places. They do not change over time.
Eg. Do not steal, don‘t lie etc. This is EA.
[On behavior ,
Institution and Policy].
Institution and Policy].
[On rightness or
Institution and policy.
SOURCES OF ETHICAL NORMS
ETHICS, ECONOMICS AND LAW
Law often represents an ethical minimum
Ethics often represents a standard that exceeds the legal minimum
Ethics is higher and more than law.
First, the law is not appropriate for regulating certain aspects of business activity. The
reason is that not everything that is immoral is illegal.
For example, Ethical issues in business concern inter-personal relations at work
or relations between competitors, but this would be difficult to regulate by law.
Similarly, taking credit for someone‘s work, making unreasonable demands on subordinates
and unjustly reprimanding an employee are all ethically objectionable practices but they are
best outside the law.
Second, the law itself is often unsettled. As such, whether some action is legal is to
be decided by the courts. The courts are often guided in decision making by moral
considerations. Judges have some leeway or discretion in making decisions. Therefore,
while exercising the discretion, judges do not necessarily substitute morality for law, but
rather express morality that is embodied in the law.
Third, the law is often slow to develop. Christopher D. Stone (1975) points out
that the law is primarily reactive, because it responds to the problems that the people in the
business world deal with and even can anticipate long before they come to public notice.The
legislative and judicial processes themselves take a longtime, and meanwhile much damage
can be made.
FOUR CRITICAL PRINCIPLES OF ETHICS
1. Ego-based Principle (Ethical or Psychological Egoism)
Human actions are essentially ego-centric and selfish. Even when a man is making a donation
to an organization, his intention is to gain popularity which will feed his ego.
However as Adam Smith observed some consequences of human selfishness may
bring social welfare by satisfying human needs. However, there is a difference between
selfishness and self centredness. If a cake is bought for the members of a family consisting of
three individuals, and half of it is eaten by a person before distributing it to others. The person
can be called selfish, as he has reduced the share of others. But if a person buys a cake and does
not share it with his friends, he is self-centered.
Thus humans are either self centered or selfish.
2. Rule-based Principle
This principle believes that ethical action should be based on certain given rules of ethics. In
such a case, the consequences are not important, but the open action is crucial. For instance, the
dictum: ―always speak the truth" is important; whether its consequences are good or bad.
3. End-based Principle (consequentialism or utilitarianism.)
This ethical principle is based on the notion of the consequence of actions. Thus an action is
undertaken only when it produces some positive results or utility. This is often termed as
consequentialism or utilitarianism.
4. Care based Principle
It is revered as the golden rule in ethics. In this rule the action of an agent is based on care and
compassion. Thus, if an accident victim is lying on the road, your involvement may bring less
utility as it will involve time and money to give him the necessary medical care and the
consequences may be dealing with a police case. So, utility & consequence based ethics, will
not advise one to take care of the victim.
CONCEPT OF BUSINESS ETHICS
Business Ethics deals with determining rules or behavior of business enterprises. It determines
rightness or wrongness of actions of businessmen.
It is the study of what is ethically permissible and of what is positively virtuous, in regard to
Management ethics is a concept closely related to the concept of social responsiveness of a
firm. It is the discipline of dealing with what is good and bad, or right and wrong or with moral
duty and obligation. It is the set of moral principles that governs the actions of an individual or
Business Ethics is the application of Ethical Principles of Business
Relationships and Activities. It governs the way a business runs and carries its operations. It
determines the standard of behavior that guides Managers in their work.
According to Mahatma Gandhi, there are 7 things that will destroy us
(1) Wealth without Work
(2) Pleasure without Conscience
(3) Knowledge without Character
(4) Religion without Sacrifice
(5) Politics without Principles
(6) Science without Humanity
(7) Business without Ethics
Business Ethics is a form of applied Ethics. In simple words, the application of moral standards
to the sphere of business is called Business Ethics.
Peter Pratley : - ―Business Ethics adopts the method and purpose of Normative Ethics to the
specific requirement of moral issues in business.‖
The most basic business ethics concepts can be summed up as the values of honesty, integrity
The exact behavior will depend on the country and the company. Honesty has to
do with ethical advertising and a reasonable cost for the quality of the product or service as well
as the company keeping its word to everyone it deals with and in everything it does. Integrity
covers a wide range of ethics, but includes issues such as social and environmental
responsibility. Fairness is one of the very basic concepts in business ethics in that it can refer to
the simplest form of treating all people in commercial dealings, whether buyers, employees or
Fairness in business dealings means being objective and having an interest in
creating a win-win situation for both parties whether that is employer-employee or company-
client. The basic business ethics concepts of fairness can be tested through the analysis of
negotiations and commercial dealings from both parties by an objective observer. Sometimes
referred to as a fair playing field, ethical business dealings should be profitable or beneficial for
both parties. Ethical business concepts of fair play include the fact that profit must be made, but
not at the expense of deception.
Integrity in business includes the social aspect of being considerate and
fair to others while at the same time realizing a profit. It also means keeping agreements and
promises. Whether an employer promises an employee a raise or a vendor agrees to supply top
quality merchandise, the basic business ethics concepts of integrity mean keeping one's word
and following through. Dependability and telling the truth are basic integrity ethics concepts
that are used in all aspects of business from serving customers to hiring and firing employees.
Honesty applies to every part of running a business while making a
profit. Honesty also relates to fairness and integrity as it means telling the truth to others.
Honest businesses sell quality products at reasonable prices. They make a profit through ethical
business strategies rather than trying to take advantage of others through dishonest pricing.
Personal ethics are usually considered as the foundation for running ethical
businesses. Basic business ethics concepts should flow down from the top ownership and
management of a company to all workers. Leadership ethics also influence customer relations
and how well the values are enforced in the workplace environment.
A) Objectives of Business Ethics
The main objective of Business Ethics is to conduct business in a good and/ or righteous
manner, i.e.: Ethical Manner, because the sound Business Ethics makes good business in the
For this, Business Ethics has mainly two fold objectives: Diagnostic and Therapeutic.
Under this objective, the actual business practices are evaluated against the standards set in this
regard to judge them as moral or immoral and good or bad, and right or wrong.
Under this objective, the prescriptions are made how to conduct business in a righteous manner
in a given situation.
B) NATURE/ FEATURES OF BUSINESS ETHICS
There are generally two recognized perspectives of BE: the naturalist approach and the
normative approach .
The naturalist approach to BE takes into account the natural laws, natural
religion and nomological principles embedded in the natural system.
The normative approach is couched in empirical terms. Business ethics is
essentially a normative science ―here one talks about various ethical norms, and standard
practices as prevalent in a particular country.
NATURE OF ETHICAL ENQUIRY IN BUSINESS
The following five dimensions of the ontology of business ethics:
1. Business ethics as a subject is analytical. Its purpose is to analyze things as they are. The
type of study is known as positive study. I t is both a normative and positive science.
2. Business ethics is diagnostic in nature. After examining the various aspects of business
dealings, operations and management techniques, it is possible to know the ethical or
non-ethical pathology of the business.
3. Business ethics is evaluative in nature. It makes an evaluation of business dealings,
overt firm behavior and performance and comes to judge whether a particular business
concern is ethical or not.
4. Business ethics is prescriptive in nature. It makes various prescriptions to eradicate the
unethical behavior of the firm so that it can be ethical. It suggests many corrective ways
and means to purge the firm out of the morass of moral wrongs.
5. Business ethics sets the moral standard in business as its guiding principle to be
followed in all its dealings with the public, employees, suppliers and consumers.
6. It determines issues that business houses face while operating their activities.
7. It distinguishes between right or wrong, fair or unfair, just or unjust.
8. It is an important component of Corporate Social Responsibility (CSR) that demands
business houses to engage in socially responsible behaviors.
9. It demands that corporate houses should not only be profit – making units, they should
be good corporate citizens also.
10.It demands that corporate houses should obey the law. Legal obedience is an Ethical
content that ensures long-run survival and prosperity of Business Houses.
11.It defines not just what Business Managers do (Descriptive Ethics) but also why they
should be doing so (Normative Ethics).
12.It is broader than law. There may be business activities that are ethical but illegal or
unethical but legal.
C) Characteristics of Business Ethics:
(i) A Discipline:
Business ethics are the guiding principles of business function. It is the knowledge through
which human behavior is learnt in a business situation.
(ii) Ancient Concept:
Business ethics is an ancient concept. It has it origin with the development of human
(iii) Personal Dignity:
The principles of ethics develop the personal dignity. Many of the problems of ethics arise due
to not giving dignity to individual. All the business decisions should be aimed by giving dignity
to the customers, employees, distributors, shareholders and creditors, etc. otherwise they
develop in immorality in the business conducts.
(iv) Related to Human Aspect:
Business ethics studies those activities, decisions and behaviors which are concerned with
human aspect. It is the function of the business ethics to notify those decisions to customers,
owners of business, government, society, competitors and others on good or bad, proper or
improper conduct of business.
(v) Study of Goals and Means:
Business ethics is the study of goals and means for the rational selection of sacred objects and
their fulfillment. It accepts the principles of ―Pure goals inspire for pure means and ―Means
justifies the end. It is essential that goals and means should be based on morals.
(vi) Different from Social Responsibility:
Social responsibility mainly relates to the policies and functions of an enterprise, whereas
business ethics to the conduct and behavior of businessmen. But it is a fact that social
responsibility of business and its policies is influenced by the business ethics.
(vii) Greater than Law:
Although the law approves various social decisions, but the law is not greater than ethics. Law
is usually related to the minimum control of social customs whereas ethics gives importance to
individual and social welfare actions.
D) Scope of Business Ethics
Every aspect of business organization comes under the scope of Business Ethics. For
application and understanding, all activities can be grouped as follows:
1. Systematic Issues
2. Corporate Issues
3. Individual Issues
(1) Systematic Issues:
The systematic issues relate to economic, political, legal and social systems in existence within
which a business operates. eg: FDI
(2) Corporate Issues:
Corporate issues refer to the ethical or moral issues and questions relating to a particular
business operation. In other words, the corporate ethical issues relate to the policies,
procedures, practices etc. of the individual corporate.
3) Individual Issues:
These relate to the Moral and Ethical issues and questions raised about the acts or conduct of an
individual or group of individuals in operating a Business Organization.
eg: Unethical practice of (late) Harshad Mehta
Business ethics works at different planes and levels. It encompasses different levels of
Individual level (Personal level)
Organizational level (May or may not be business organizations)
Association level (May be with various types of institutions and domestic associations)
Societal level (Customers, Banks and Government)
Internal policy making (Making business strategies)
Global level (Business interactions)
In all these five levels, some ethical issues are conspicuously present and such issues come
within the domain of business ethics. For instance, whether tax is to be evaded or not, whether
price is to be raised or not, whether insider trading is to be encouraged or not, are all considered
as ethical issues. The scope of business ethics is very vast. It encompasses the following areas
where ethical issues are directly or indirectly involved with a business concern:
1. Ethical responsibilities of business
2. Unethical practices in HRM, finance, marketing and informational technology
3. Ethical responsibilities towards employees, consumers, suppliers, and other stakeholders
4. Ethical leadership and performance of social responsibilities
5. Ethical decision-making and solution of various types of ethical dilemmas
6. Ethical issues in corporate governance
7. Ethical business strategy
8. International business ethics
9. Ethical audit
10. Professional ethics
E) Ethical Business Activities
Amongst a host of ethical activities that constitute Manager‘s actions, Barry Posner and
Warren Schmidt highlights the following ethical activities observed by Business Mangers.
1. The foremost goal of Managers is to make their organizations effective.
2. Profit maximization and stockholder‘s interest is not the central goal of Managers.
3. Attending to customers is important.
4. Integrity was the characteristic most highly rated by Managers.
5. Pressure to conform to organizational standards was seen as high.
6. Spouses are important in helping their mates grapple with Ethical Dilemmas.
7. Most Managers seek the advice of others in handling Ethical Dilemmas.
The following factors contribute to Unethical Business Behavior:
1. Environmental Competition:
In industries where there is intense competition amongst the companies producing similar
products or services, companies tend to foster unethical behavior in their desire to win customer
2. Inter-Organizational Dependence:
Companies that manufacture tinned food items can sell them after getting the approval of Food
Products Organization (FPO). To expedite such approvals, companies tend to foster unethical
practices like bribery or presentation of false data or samples.
Bribery and Kickback can take the forms of money [paying money to get the work
done], gifts [to get the work done by offering gifts like Jewelry, Electronic Gadgets],
entertainment [offering facilities in five star hotels, foreign trips] or political contributions
[Giving donations to political parties to launch their election campaigns, providing them with
hotel accommodation, luxury car for personal use] in order to procure quotas, licenses or
(a) Bribery: Is a payment or remuneration for performing an act which is
inconsistent with the nature of the work or for which one has been hired to perform. It is in the
form of personal payment, gift or special favor to an official to get the work done.
(b) Kickback: Is different in terms of mode of payment from Bribery. In this,
payment is given after the favor gets completed.
3. Pressure For High Performance:
When workers are pressurized by management to report high performance in terms of
production, they may adopt short cuts, compromise with quality and speed up the assembly
line. This is Unethical in nature.
4. Poor Financial Performance:
If firms are reporting financial losses and heavy debts and are unable to recover them through
regular Business Operations, they may adopt Unethical practices to convert their loss- incurring
units into profit making units.
5. Labor Dissatisfaction:
If workers are dissatisfied with their employer‘s behavior and policies, they resort to Unethical
behavior to show discontentment and disregard for their employers.
Inventory of Ethical Issues in Business(describe the areas in which ethical issues
arise in business)
Guidelines for Ethical Behavior
James O‘ Toole prescribes the following guidelines to be followed by Managers:
1. Obey the Law:
Obeying legal practices of the nation is conforming to Ethical values.
2. Tell the Truth:
Disclosing fair accounting results to the concerned parties and telling the truth are also ethical
3. Respect for People:
Management Ethics require Managers to respect people who come in contact with them.
4. The Golden Rule:
The Golden Business Principle is ―Treat others as you would want to be treated‖. This will
always result in Ethical Behavior.
5. Above All, Do Not Harm:
Even if law does not prohibit use of chemicals in producing certain products, Managers must
avoid using them if they pollute the environment.
6. Practice Participation: Not Paternalism:
Managers should not decide on their own what is good or bad for stakeholders. They should
assess their needs, analyze them in the light of business needs, and integrate the two by
allowing stakeholders to participate in the decision-making processes.
7. Act When You Have Responsibility:
Actions which should be taken by Managers only (given the level of their competence and
skill) must be conscientiously taken by them for the benefit of the organizations and the
F) SOURCES OF BUSINESS ETHICS
Three repositories of ethical values influence managers in every society: religion, culture
& law. These repositories contain unique system of values that exert varying degrees of control
over managers. A common thread, the idea of mutual help, runs through all the value systems.
Ethical values are mechanism that controls behavior in business & in other walks of life.
Ethical restraints are more effective than are cruder controls such as police, lawsuits, etc.
One of the oldest sources of ethical inspiration is religion .The world‘s great religions
are in agreement on fundamental principles. The principle of reciprocity towards one‘s fellow
human beings is found in all major religions. The great religions
Preach the necessity for an orderly social system & emphasis social responsibilities in such a
way as to contribute to the general welfare.
2. CULTURAL EXPERIENCE:
Culture refers to a set of values, rules & standards transmitted among generations &
acted upon to produce behaviors that fall within acceptable limits. These rules & standards
always play an important part in determining values, because individuals anchor their conduct
in the culture of the group. Civilization itself is a cumulative cultural experience in which
people have passed through three distinct phases of moral codification (hunting & gathering
stage, agricultural stage & industrial stage).
3. THE LEGAL SYSTEM:
Laws are rules of conduct, approved by legislatures that guide human behavior in
any society. They codify ethical expectations & keep changing when new evils emerge. But
laws cannot cover all ethical expectations of society.
G) FACTORS INFLUENCING BUSINESS ETHICS
Robert J Mocker identifies five factors that affect Ethical Decisions:
3. Legal Concern:
Ethical concerns tend to overlap legal concerns. There can be business activities which are legal
but still unethical. Using company‘s assets for personal use or receiving gifts for favoring
business ethics are business practices which are not illegal but are unethical.
4. Government Regulations:
Government regulations simplify ethical standards to be followed by Managers. Unfair
competition, unnecessary price cuts or curb on producing toxic products, set guidelines for
Managers to engage in ethical behavior.
5. Industry and Company Ethical Codes:
The values and practices followed by other business enterprises in the industry simplify the
ethical standards to be followed by a particular company. Though no written Code of Ethics is
prescribed for business enterprises to follow, it is commonly presumed that they follow
common practices in dealing with parties, internal and external to the organization.
6. Social Pressures:
The ethical system assumes that different values and beliefs are held by each individual and
group members of the society if common values are held by the society members; it will help
Managers in promoting their behavior in the desired direction. But if value systems are
different, it will resist Managerial performance in a unified direction.
7. Tension between personal standards and organizational needs:
Standards that Managers follow as organizational members are different from those they follow
as members of the society. As members of the organization, they aim to maximize company‘s
profits and as member of the society, they want part of the profits to be used for social welfare.
Change in the perception of Ethical Values of the same individual makes Manager‘s awareness
of social responsiveness a difficult task.
In taking decisions involving ethical issues a business must take in to several considerations.
Among others these include:
Identification of stakeholders of the business and their rights and responsibilities. The
stakeholder generally include customers, employees, shareholder or owners, suppliers, other
business partners, government and other statutory organizations, and general public.
Importance of profit and other similar motives of the business and its managers in relation to
the importance of morality, honesty and other similar values.
The extent of responsibility of business for specific areas of responsibility to community in
general. Among others it includes environmental protection, equality and fairness in dealing
with people among all stake holder groups, product quality and reliability, and abetting
Personal value system and belief of the managers and owners of the business.
Impact of ethical behavior on short term and long term business performance and prospects
H) Relevance of Ethics in Business
Ethics is important in business because of the following reasons:
1. Business practices affect our lives considerably. Scandals and disasters like Bhopal Gas
tragedy can be disastrous for people within and outside the business organizations. Therefore,
need for business houses to perform actions that are morally right and those that do not
adversely affect the lives of people at large.
2. There is increasing awareness amongst society that business houses are the creation of
society and, therefore, must work for the benefit of the society. It should not be the sole
responsibility of the government to look after the desired social programs (education, hospitals,
employment, old age homes). The changing social expectations of businesses, thus make it
necessary to follow ethical business practices.
3. Liberalization and globalization have united markets in the world into a single market.
Business houses operating in global markets must have common standards of employment,
which is possible only if they have uniform Code of Ethics.
4. Business houses that do not have ethical profile in favor of public at large, may face the
threat of consumer boycotts. This may threaten the survival of business enterprises and,
therefore the growing need for business ethics is relevant.
5. Globalization may be disadvantageous for small and weak economies. These economies can
favorably operate as developed countries if they develop a common Code of Business Ethics.
6. Unethical Business firm will invite government regulations and interference. In order to
avoid this, firms prefer to regulate their activities and address issues that are morally and
Importance/Need / Significance for Code of Ethics
1. It protects the interests of consumers as they are not being misled or misguided by false
advertisement or price fixing. They have faith in their dealings with business firms.
2. It helps firms in obeying the law and treating people honestly and fairly.
3. It promotes employment ethics: Fairness in hiring people, promotions, conforming to health
safety issues by providing safe working conditions etc.
4. It helps in making valid contracts with third parties which are subject to compliance.
5. It ensures safety of investors dealing with firms; investors are not misled by false promises
made by companies regarding increase in value of their investment.
6. It promotes healthy and fair competition amongst business firms in the same industry which
is beneficial for the public at large.
Consumers are, arguably, more likely to buy from a company which can be seen to
be acting ethically.
Graduates are more likely to be attracted to companies which treat their employees
fairly and give customers a fair deal.
Ethical business practice is a means of forestalling legislation and stringent
Business ethics requires companies doing their bit to contribute towards a just and
fair society, while also ensuring that environmental pollution is brought under
Another significance of business ethics stems from the fact that businesses need to
retain the vast amount of social power entrusted to them by the public.
I) Advantages/ Benefits of Ethical Behavior in Business
Ethical people are those who recognize the difference between right and wrong and
consistently strive to set an example of good conduct. In a business setting, being ethical means
applying principles of honesty and fairness to relationships with coworkers and customers.
Ethical individuals make an effort to treat everyone with whom they come in contact as they
would want to be treated themselves
a) 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.
b) 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
c) Positive Work Environment
Employees have a responsibility to be ethical from the moment they have their first
job interview. They must be honest about their capabilities and experience. Ethical employees
are perceived as team players rather than as individuals just out for themselves. They develop
positive relationships with coworkers. Their supervisors trust them with confidential
information and they are often given more autonomy as a result. Employees who are caught in
lies by their supervisors damage their chances of advancement within the organization and may
risk being fired. An extreme case of poor ethics is employee theft. In some industries, this can
cost the business a significant amount of money, such as restaurants whose employees steal
food from the storage locker or freezer.
d) 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.
The various benefits of managing ethics in a business are as follows:
Business ethics helps in improving society by establishing government agencies, unions,
laws and regulations in the society.
Business ethics helps an organization maintain ethical values during times of crisis. Business
ethics programmes guide leaders about the right or wrong ways of dealing with complex
dilemmas and how they should act during that time.
Business ethics helps employees behave according to the ethical values that are preferred by
the top management of an organization. An organization discovers many differences between
the values that reflect in the actions of the employees and the values preferred. Employees
experience a relationship that is strong between the values of the organization and their values.
Ethical values induce teamwork and increase the efficiency of the employees Ethics supports
employee growth. When an employee pays attention to ethics, it induces confidence in the
employee to deal with reality and face both good and bad circumstances.
Ethics have become legal instruments. These days, there are several lawsuits regarding
personnel matters and the influence of the services of the organization on the investors and
customers. Major ethical principles that are applied in the organization are the laws that are
made by the government. A greater attention on ethical issues on the part of the government
ensures high ethical procedures and policies in the workplace. An employee, for example, is
subject to breach of contract on non-compliance of the terms and conditions of the contract.
Business ethics helps to avoid criminal acts of ‗omission‘ and it also helps in lowering the
fines. Ethics helps in ascertaining the violation of ethical issues and helps in rectifying the
violation that is committed by the organization. The guidelines set by an organization about
ethical values helps to lower fines. An organization, for example, that has knowingly violated a
contract is considered to have committed a criminal act and the organization is subject to
Business ethics helps to identify and manage the values associated with quality management,
strategic management and diversity management. For managing these values, ethical
programmes record the values, develop policies and procedures and then provide training to the
employees on these policies and procedures. These ethical programmes manage certain values
of quality management, such as reliability, performance, measurement and feedback. Similarly,
these programmes also manage various strategic values, such as reducing cost and increasing
Business ethics helps in building a strong and positive public image of an organization.
Ethical values enable an organization to increase their goodwill in the market. Those
organizations that value their customers have a positive influence in the market. Ethical values
are the milestones that enable the establishing of a successful and socially responsible business.
Business ethics strengthens organizational culture. Ethical values improve relationships
between an organization and its customers. They strengthen the organization by ensuring
consistency in the standard and quality of the product.
Business ethics makes sure that the right activities are performed in an organization.
J) PRINCIPLES OF BUSINESS ETHICS
The principles of business ethics are related to social groups that comprise of consumers,
employees, investors, and the local community. The important rules or principles of business
ethics are as follows:
Avoid Exploitation of Consumers: Do not cheat and exploit consumer with measures such
as artificial price rise and adulteration.
Avoid Profiteering: Unscrupulous business activities such as hoarding, black-marketing,
selling banned or harmful goods to earn exorbitant profits must be avoided.
Encourage Healthy Competition: A healthy competitive atmosphere that offers certain
benefits to the consumers must be encouraged.
Ensure Accuracy: Accuracy in weighing, packaging and quality of supplying goods to the
consumers has to be followed.
Pay Taxes Regularly: Taxes and other duties to the government must be honestly and
Get the Accounts Audited: Proper business records, accounts must be managed. All
authorized persons and authorities should have access to these details.
Fair Treatment to Employees: Fair wages or salaries, facilities and incentives must be
provided to the employees.
Keep the Investors Informed: The shareholders and investors must know about the
financial and other important decisions of the company.
Avoid Injustice and Discrimination: Avoid all types of injustice and partiality to
employees. Discrimination based on gender, race, religion, language, nationality, etc. should be
No Bribe and Corruption: Do not give expensive gifts, commissions and payoffs to people
Discourage Secret Agreement: Making secret agreements with other business people to
influence production, distribution, pricing etc. are unethical.
Service before Profit: Accept the principle of "service first and profit next."
Fulfill Customers’ Expectations: Adjust your business activities as per the demands, needs
and expectations of the customers.
Respect Consumers Rights: Honor the basic rights of the consumers.
Practice Fair Business: Businesses should be fair, humane, efficient and dynamic to offer
certain benefits to consumers
Accept Social Responsibilities: Honor responsibilities towards the society.
Aviod monopoly: No private monopolies and concentration of economic power should be
Satisfy Consumers’ Wants: Satisfy the wants of the consumers as the main objective of the
business is to satisfy the consumer‘s wants. All business operations must have this aim.
Service Motive: Service and consumer's satisfaction should get more attention than profit-
Optimum Utilization of Resources: Ensure optimum utilization of resources to remove
poverty and to increase the standard of living of people.
Intentions of Business: Use permitted legal and sacred means to do business. Avoid Illegal,
unscrupulous and evil means.
Follow Woodrow Wilson's rules: There are four important principles of business ethics.
These four rules are as follows:
The rule of publicity - Business should be transparent. The nature, purpose and consequences
of business transactions should be informed to all concerned. Maintaining secrecy leads to
The rule of equivalent price – States that let the public receive goods and services equivalent
to the money paid. More precisely buyers should get the best returns for their spending. Quality
products should be given to the customers equal to the price paid.
The rule of Conscience - This rule states that the decision of business men should be governed
by the concern for the society rather than selfish motives. Therefore all businesses should
function in the interest of stake holders and society at large.
The rule of spirit of service – states that Service first and Profit next Customers should get
quality of service for the price paid.
EVOLUTION OF BUSINESS ETHICS
The historical evolution of BE spreads over a span of 60 yrs. Divided as before
1960‘s, during 1960‘s, 1970‘s. 1980‘s, 1990‘s & 2000. Early 1920‘s capitalism was in question
& employees were asked to provide fair wages to workers. 1930‘s witnessed the new deal
blamed business for the economic predicament & lower personal income.
In 1950‘s environmental problems were also considered as ethical issues
which are to be addressed by the mgt. in 1960‘s religious leaders & catholic churches raised the
question about morality in capitalism, labour practices, workers rights & unfair wages.
Many catholic colleges started teaching social ethics as a part of their curriculum. In the same
era consumer‘s bill of rights were passed in America, protecting the safety of consumers from
unethical business practices in the country.
The idea of CSR emerged in 1970‘s & it became a subject in 1974 named
as BE. 1980‘S was the decade where the new way of globalization made a lot if structural &
operational changes in business. 1990‘s, institutionalization of BE emerged where companies
were forced to formulate their own corporate values and implement them seriously.
OVERVIEW OF ETHICAL PHILOSOPHIES (THEORIES OF ETHICS)
The field of ethics (or moral philosophy) involves systematizing, defending, and recommending
concepts of right and wrong behavior. Philosophers today usually divide ethical theories into three
general subject areas: Meta ethics, normative ethics, and applied ethics.
1. DIVINE COMMAND THEORY
Philosophers both past and present have sought to defend theories of ethics that are grounded in
a theistic framework. Roughly,
Divine Command Theory is the view that morality is somehow dependent
upon God, and that moral obligation consists in obedience to God‘s commands. Divine
Command Theory includes the claim that morality is ultimately based on the commands or
character of God, and that the morally right action is the one that God commands or requires.
The specific content of these divine commands varies according to the
particular religion and the particular views of the individual divine command theorist, but all
versions of the theory hold in common the claim that morality and moral obligations ultimately
depend on God.
• Focuses on ―Religion‖ which means – “I Bind”
• General belief that “God Commands” – Universal Leader.
Eg: Christianity – The Holy Bible.
Muslims – The Khuran.
Jews – The Torah.
Hindus – Bhagavad Gita
Commandments – Hindu
Mathru Devo Bhava
Pithru Devo Bhava
Aacharya Devo Bhava
Adhithi Devo Bhava
Divine Command Theory Influences Law
Eg: Adultery - Law as Example in Muslim Countries
―There are certain rights and wrongs controlled by GOD, that no matter what a society does, it should
not drift from the basic tenets.‖
The Bible has given the following Ten Commandments to make followers morally good. The
Christian concept of a good man incorporates obedience; devotion and love to commandments
are listed below.
1. Worship your God with all your heart, soul and mind.
2. Worship no idol, image or anybody except your God.
3. Observe Sabbath (the seventh day of the week) and keep it holy. None in your family
including your domestic help is to work on that day. It is a day of rest. It is the day of special
worship to God.
4. Do not use God‘s name for any evil purpose.
5. Respect your parents.
6. Do not commit murder.
7. Do not commit adultery.
8. Do not steal.
9. Do not accuse anyone falsely.
10. .Do not desire another man‘s house, his wife, his slaves, his cattle, his donkeys, or anything
else that he owns.
The divine command theory is a cluster of related theories that state that an action is right if
God has decreed that it is right
The Divine Command Theory is a form of deontology because, according
to it, the rightness of any action depends upon that action being performed because it is a duty,
not because of any good consequences arising from that action. If God commands people not to
work on Sabbath, then people act rightly if they do not work on Sabbath because God has
commanded that they do not do so.
If they do not work on Sabbath because they are lazy, then their action is not
truly speaking "right", even though the actual physical action performed is the same. If God
commands not to covet a neighbour's goods, this theory holds that it would be immoral to do
so, even if coveting provides the beneficial outcome of a drive to succeed or do well.
The whole purpose of these commandments is to make people socially and Personally moral by
sacrificing rapacity, selfishness and irresponsibility.
Pros of the Divine Command Theory:
– We owe obedience to God, our creator
– God is all good and all knowing
God is the ultimate authority, the supreme, the Universal leader.
Cons of Divine Command Theory
• There are many holy books that disagree with each other
• In a multicultural society it‘s unrealistic to adopt a religion based morality
• Some moral problems are not mentioned in the holy books
• Equating ―good‖ with ―God‖ is the ―equivalence fallacy‖ (trying to equate two things that are
• Divine Command Theory is not based on reason
2. DEONTOLOGICAL ETHICS/DEONTOLOGY
Deontological ethics or deontology (from Greek deon, obligation, duty) is the normative
ethical position that judges the morality of an action based on the action's adherence to a rule or
It is sometimes described as "duty-" or "obligation-" or "rule-" based
ethics, because rules "bind you to your duty."Deontological ethics is commonly contrasted to
consequentialism, virtue ethics, and pragmatic ethics. In this terminology, action is more
important than the consequences.
I.e. It refers to a particular type of ethical behavior based on rights & duties not merely
its consequences- it is the intention or motive that matters rather than the consequences of the
Deontology is the science of duty.
States that people should adhere to their obligations and duties when analyzing an ethical dilemma.
Duty is ethically right.
• Example : Crossing Road.
The deontological theory states that people should adhere to their obligations and duties when
analyzing an ethical dilemma. This means that a person will follow his or her obligations to another
individual or society because upholding one's duty is what is considered ethically correct.
For instance, a deontologist will always keep his promises to a friend and will
follow the law. A person who follows this theory will produce very consistent decisions since they will
be based on the individual's set duties.
Deontology provides a basis for special duties and obligations to specific people, such
as those within one's family. For example, an older brother may have an obligation to protect his little
sister when they cross a busy road together. This theory also praises those deontologists who exceed
their duties and obligations, which is called "supererogation" .
For example, if a person hijacked a train full of students and stated that one person
would have to die in order for the rest to live, the person who volunteers to die is exceeding his or her
duty to the other students and performs an act of supererogation.
Although deontology contains many positive attributes, it also contains its fair number of
flaws. One weakness of this theory is that there is no rationale or logical basis for deciding an
individual's duties. For instance, businessman may decide that it is his duty to always be on time to
meetings. Although this appears to be a noble duty we do not know why the person chose to make this
his duty. Perhaps the reason that he has to be at the meeting on time is that he always has to sit in the
two other faults of deontology including the fact that sometimes a person's duties conflict and that
deontology is not concerned with the welfare of others.
For instance, if the deontologist who must be on time to meetings is running
late, how is he supposed to drive? Is the deontologist supposed to speed, breaking his duty to society to
uphold the law, or is the deontologist supposed to arrive at his meeting late, breaking his duty to be on
time? This scenario of conflicting obligations does not lead us to a clear ethically correct resolution nor
does it protect the welfare of others from the deontologist's decision. Since deontology is not based on
the context of each situation, it does not provide any guidance when one enters a complex situation in
which there are conflicting obligations
Deontological Theories/philosophies have been classified into four types:
(1) Duty Theory - Basic duties and obligations to people.
(2) Rights Theory – Right of a person for its entitlement to something (positive or negative).
(3) Kantian Duty Theory – Which emphasizes a single principle of duty and duty only.
(4) Ross’s Duty Theory – British philosopher W.D. Ross considers human duties as the ―part of the
fundamental nature of the universe‖. Duties reflect our actual moral and Ethical convictions.
KANTIANISM (IMMANUEL KANT)/ KANTIAN DEONTICISM
• Immanuel Kant's theory of ethics is considered deontological for several different
• First, Kant argues that to act in the morally right way, people must act from duty (deon).
• Second, Kant argued that it was not the consequences of actions that make them right or
wrong but the motives of the person who carries out the action.
Kant's argument that to act in the morally right way one must act purely from duty begins with
an argument that the highest good must be both good in it and good without
qualification. Something is "good in itself" when it is intrinsically good, and "good without
qualification", when the addition of that thing never makes a situation ethically worse. Kant
then argues that those things that are usually thought to be good, such
as intelligence, perseverance and pleasure, fail to be either intrinsically good or good without
qualification. Pleasure, for example, appears not to be good without qualification, because
when people take pleasure in watching someone suffering; this seems to make the situation
ethically worse. He concludes that there is only one thing that is truly good:
• Kant's ethical philosophy was that actions must be guided by universalisable principles
that apply irrespective of the consequences of the actions. In addition an action can only
be morally right if it is carried out as a duty, not in expectation of a reward. Knowing
what to do in a situation will be determined by a set of principles that have been
established by deductive reasoning, independent of, or before, the specifics of the
decision in hand have been considered. For Kantian ethics the context and consequences
of a decision are irrelevant. For Kant actions have moral worth only when they spring
from recognition of duty, and a choice to discharge it. The duties were formulated
around the concept of the 'categorical imperative'. A categorical imperative refers to a
command/principle that must be obeyed, with no exceptions.
• Frances Kamm's "Principle of Permissible Harm" is an effort to derive a deontological
constraint which coheres with our considered case judgments while also relying heavily
on Kant's categorical imperative. The Principle states that one may harm in order to save
more if and only if the harm is an effect or an aspect of the greater good itself.
• This principle is meant to address what Kamm feels are most people's considered case
judgments, many of which involve deontological intuitions. For instance, Kamm argues
that we believe it would be impermissible to kill one person to harvest his organs in
order to save the lives of five others.
• Yet, we think it is morally permissible to divert a runaway trolley that would otherwise
kill five innocent and immobile people onto a side track where one innocent and
immobile person will be killed. Kamm believes the Principle of Permissible
• Harm explains the moral difference between these and other cases, and more importantly
expresses a constraint telling us exactly when we may not act to bring about good
ends—such as in the organ harvesting case.
3. TELEOLOGICAL ETHICS.
Teleological ethics, (teleological from Greek telos, ―end‖; logos, ―science or consequences‖),
theory of morality that derives duty or moral obligation from what is good or desirable as an
end to be achieved.
Consequentialist Theories (or Teleological Theories): Theories that claim that what
determines whether an act is right or wrong are its consequences.
Also known as consequentialist ethics, it is opposed to deontological
ethics (from the Greek deon, ―duty‖), which holds that the basic standards for an action‘s being
morally right are independent of the good or evil generated.
Modern ethics, especially since the 18th-century German deontological
philosophy of Immanuel Kant, has been deeply divided between a form of teleological ethics
(utilitarianism) and deontological theories.
Teleological theories differ on the nature of the end that actions ought to promote.
– Aristotle popularized this theory
– Theory of consequentialism is directly associated with teleological ethics of
consequentialism comes from teleological branch of ethical theory.
Teleology is the study of ends, goals and purposes. This theory judges the rightness of an action
based on its consequences in terms of ends, goals and purpose. In other words, a moral theory
is regarded as Teleological when actions finally bring about good or happiness. Because the
final consequence of action has been regarded as the sole criteria to consider any action as right
under Teleological theory. This theory is also referred to as Consequentialist theory and is
generally phrased as ―No harm, No foul‖. Under the Consequentialist Theory, the consequences
of an action determine its moral rightness.
Depending on the consequences of actions on different groups, it has 3 forms.
(a) Ethical Egoism: An action is morally right if the consequences of that action are more
favorable than unfavorable only to the agent performing action.
(b) Ethical Altruism: An action is morally right if the consequences of that action are more
favorable than unfavorable to everyone except the agent.
(c) Utilitarianism: An action is morally right if the consequences of that action are more
favorable than unfavorable to everyone
There are three main types of theories under Teleological theory of Ethics:
1. Theory of Utilitarianism
2. Theory of Justice and Fairness
3. Theory of Virtue
Utilitarianism was conceived in the 19th century by Jeremy Bentham and John Stuart Mill. It is
a teleological theory regarding what ought to do.
This theory accepts utility, or the greatest happiness principle, as the
foundation of morals. It holds that actions are right in proportion, as they tend to promote
happiness, wrong, as they tend to promote the opposite of happiness. Bentham (1994): the
greatest happiness of the greatest number is the foundation of morals and legislation. The term
utilitarianism was coined by John Stuart Mill. Utilitarianism is a calculating approach to ethics.
It assumes the quantity and quality of happiness can be weighed. To a utilitarian, the choice
that yields the greatest benefit to the most people is the choice that is ethically correct.
Basic meaning of utilitarianism
a. Greatest good of the greatest number
b. Maximization of pleasure
c. Minimization of pains
d. Maximization of happiness
e. Satisfaction of desire
– One benefit of this ethical theory is that the utilitarian can compare similar predicted
solutions and use a point system to determine which choice is more beneficial for more
people. This point system provides a logical and rationale argument for each decision
and allows a person to use it on a case-by-case.
There are two types of utilitarianism, act utilitarianism and rule utilitarianism. Act
utilitarianism adheres exactly to the definition of utilitarianism as described in the above
section. In act utilitarianism, a person performs the acts that benefit the most people, regardless
of personal feelings or the societal constraints such as laws. Rule utilitarianism, however, takes
into account the law and is concerned with fairness. A rule utilitarian seeks to benefit the most
people but through the fairest and most just means available. Therefore, added benefits of rule
utilitarianism are that it values justice and includes beneficence at the same time.
– The theory of utilitarianism is sometimes interpreted in terms of Cost-benefit analysis
(CBA). Cost-benefit analysis is a natural tool of a utilitarian approach because it
measures not only the direct costs and benefits to an organization but also externalities.
– Rather than maximise individual welfare, utilitarianism focuses on collective welfare
and it identifies goodness with the greatest amount of good for the greatest number of
people: the 'greatest happiness principle'.
– So maximising benefits for the greatest number of people involves net assessments of
benefit: utility is the net result of benefits and 'disbenefits' - or costs. Utility has entered
modern economics as a key quantitative concept. The concept of trade-offs is
specifically embraced and social and environmental cost-benefit analyses are explicit
utilitarian tools for assessing the goodness of an action. A simple balance sheet of costs
and benefits can be drawn up to assess the overall utility of a decision.
– Utilitarianism has three essential elements: