UNIT Introduction to Business Ethics

Introduction, definitions, need, importance for Business ethics; factors

affecting business ethics;
Importance of Ethics & Moral standards; Ethics & Moral Decision Making,
ethical Principles in Business.
Business theories: Normative Theories, Gandhian Approach, Friedman’s
Economic theory, Kant’s Deontological theory, Mill &Bentham’s Utilitarianism
theory.
UNIT II Indian Ethos values
Need, purpose& relevance of Indian Ethos.
Meaning and Nature of values; Holistic view of life and its value, Values impact
in Business. Indian Value System-Teachings from scriptures and traditions.
Business Ethics – Introduction
The term ‘ethics has been derived from the Greek word ‘ethos’ which
implies character, ideas and standards of behaviour practiced within a
society. Personal ethics define right and wrong behaviour for an
individual. In the business sense, ethics describe what constitutes good or
bad in human conduct in organizational context. We can also say that
business ethics are concerned with making life, not just living.
By definition, business ethics are moral ideas that guide the way a
business acts. It is the application of ethical reasoning to certain business
situations and activities, so that any moral issue emerging in business can
be resolved or clarified.
A businessperson is said to be ethical only when his or her actions are
righteous arid in favour of the society. Ethical behaviour plays a
significant role in any business and in the advancement of the society.
Ethical behaviour results in better goodwill in the market, wins public
confidence and success in the business domain.

Business Ethics – Meaning

Business ethics refers to the application of ethical principles and moral
values while conducting business. A company must demonstrate ethical
behaviour in all internal matters as well as in dealings with the external
environment. All stakeholders must ensure that ethical standards are
adhered to while handling business transactions. The challenge for
management is to make sure that the standards of all internal functions
are reasonably maintained in a controlled environment, and are managed
through policy, procedures, and punishments.
To understand the nature of this issue in greater detail, one needs to first
understand the challenges inherent in various internal functions of a
company.
Today, the maturity in corporate practices and standards has ensured
that well- established procedures are followed in competitive companies.
Usually, it is seen that in companies, business ethics are always normative
in nature, that is, prescriptive about the ‘dos and don’ts.’ The interest in
business ethics was accelerated dramatically during the 1980s and 1990s,
both within major corporations and within academia. This was mainly
because of the surfacing of many corporate scams and frauds, especially,
with respect to financial instruments, markets, and false reporting.
However, most major companies today lay emphasis on commitment to
promoting non-economic social values under a variety of headings such
as ethics codes, or social responsibility charters.
Infosys’ ‘code of conduct and business ethics has detailed guidelines to
help guide its transactions with employees, communities, customers,
governments, investors, regulators, and society. This is what the company
believes will help it achieve the highest standards of governance and help
it live up to the level of transparency and integrity it has set itself.
Similarly, Toyota Motor Corporation is another company that is well-
respected across the globe for its guiding values and code of conduct.
Another well-known company that is internationally talked about is
Hewlett-Packard (HP). It has set standards of business conduct (SBC) that
form the basis of ethics in its business. There are regular updates which
reflect recent policy, business, organizational, and legislative changes. It is
believed that the SBC provides helpful links to questions and answers, key
tips, and red flags to assist in applying it to situations encountered by an
employee.
The SBC also contains links to corporate policies and other supporting
documents. The company SBC cannot contain every policy that is relevant
in every country and for every employee. In addition to the guidance
contained in SBC, there are other policies and rules that must be
followed. If employees have concerns or questions about the right thing
to do, they are encouraged to check with management.
Hewlett-Packard recommends a test called ‘the headline test’ that
encourages an employee to evaluate the soundness and impact of
decisions. It recommends that decisions that are likely to make an
employee uncomfortable in front of colleagues should not be pursued.
This is a very simplified way of saying that the company does not want an
employee to do something that is not legal, or not in its SBC.

Business Ethics – 6 Main Needs

1. Survival of the Business Unit:

Businessmen should consider the interest of the business unit. Unethical
practices of businessmen will lead to the closure of business unit. The
closure of a business unit does not only create problems to business but
also to employees and the society in general. Normally, good behaviour is
rewarded and bad behaviour is punished. Since, a business is an
economic institution, it aims at maximising profits.
Businessmen do not maximise the profit at the cost of existence of a
business unit. The behaviour of a businessman is affected by some of the
factors such as – leadership qualities, integrity, knowledge, skills,
influence and exercising power. Businessmen are expected to protect
their units in all respects.
2. Growth of Business Unit:
The next reason for observing business ethics is that it ensures the
growth of a business. Whenever a businessman observes ethics strictly,
definitely the business unit will get developed. A business could not be
run in such a manner as is detrimental to the interest of society or
business itself. So, it is argued that there should be some business ethics
for the growth of a business.
3. Earning Goodwill:
The prime objective of any business is to earn profit. At the same time, no
business is allowed to earn profit without following business ethics. If
business ethics are properly followed by a business, automatically that
business unit earns a good name among the public.
4. Improving the Confidence:
Business ethics are necessary to improve the confidence of the
customers, employees and the like. If confidence is infused, they
(customers and employees) will popularise the name or excellent
consumer services of the business unit. For example, by speaking well of
its merits and pointing out its flaws.
5. Maintaining Inter-Relationship:
No business functions separately or independently. Each business has
close relationship with another business even though the nature and size
of the other business differs. The proverb “No tree can be considered as a
forest” attests this fact. It is expected that each business unit should have
a smooth relationship with others. The inter-relationship of business is
maintained by adopting business ethics.
6. Solving Social Problems:
If a businessman observes ethics in his business, the public have no
difficult in having their wants fulfilled. There is no bargaining between the
businessman and public. There is a fair treatment of an employee by him.
This will avoid social problems like strike, lockout, etc.
Business Ethics – Importance:
1. Basic Human Needs:
Ethics corresponds to basic human needs. It is human trait that man
desires to be ethical: not only in his private life but also in his business
affairs where, being a manager, he knows his decisions may affect the
lives of thousands of employees or customers.
2. Improve Creditability:
Values create credibility with the public. A business perceived by the
public to be ethically and socially responsive would be honoured and
respected even by those who have no intimate knowledge of its actual
working. There will be an instinctive prejudice in favour of its product;
since people believes that the business offers value for their money.
Public issues attract an immediate response from the business as it
affects its credibility.
3. Improve Coordination:
Values give credibility to the management by coordinating the language
of value from the top to the lower level in the organisations.
Organisational ethics, when perceived by the employees as genuine and
create common goals, improves ethical environment.
The entrepreneur has credibility with its employees precisely because it
has credibility with the public. Neither sound business strategy, nor a
generous compensation policy and fringe benefits can win the employee
credibility. Perceived moral and social uprightness about the business by
its employees can be the basis for credibility among the employees.
4. Better Decision Making:
Values help better decision making. An ethical attitude helps the
management to make better decisions, i.e., decisions which are in the
interest of the public, their employees, and the business own long good,
even though the decision making is slower. Ethics force a management to
take various aspects of economic, social decisions keeping in mind their
ethical implications.
5. Trade Off between Ethics and Profits:
Ethic and profit can go together. A company, which is inspired by ethical
conducts, is also profitable one. Value driven companies are sure to be
successful in long run, though in the short run they can lose money. Ethics
help the business to develop long term brand equity in the society which
ultimately improves sales and profit.
6. Humanitarian Approach:
An ethical oriented management takes measures to prevent pollution and
protects workers health. Leading business houses had already initiated
social responsibility initiatives to protect the environment, provides social
welfare amenities to the workers etc. These business houses are incurring
huge expenditures without any mandatory initiative of the government. It
is a sharing of wealth by the business in favour of society at large.
Factors affecting business ethics:
1. Personal Code of Ethics (Individual Ethics)
A person’s personal code of ethics which is what one considers moral is
the prime responsible factor influencing his behaviour.
For Example, Ratan Tata, chairman of Tata Group, is known for his
personal code of ethics that leads to the high brand value of tata group
and employee satisfaction.

2. Legislation
It is already stated that the Government will intervene and enact laws
only when the businessmen become too unethical and selfish and totally
ignore their responsibility to society.
No society can tolerate such misbehaviour continuously. It will certainly
apply pressure on the Government and the Government consequently
has no other substitute to prohibit such inefficient behaviour of the
businessmen.
 
3. Leadership
If the leader leads in ethical ways and motivates the employees, so the
employees will perform in legal ways then it will be beneficial for the
company and for the employees also.
Leadership plays an important role in business ethics because the leader
is a person who can mould the organization.

 4. Government Rules and Regulations

Laws support Government regulations regarding working conditions,
product safety, statutory warnings, etc. These provide some strategies to
the business managers for figuring out what is acceptable or recognized
standards and practices.
 5. Ethical Code & Policy of the Company
When a company grows larger, its standard of ethical conduct also rises.
Any unethical behaviour or conduct on the part of the company shall
endanger its established reputation, public image, and goodwill.
Hence, most companies are very cautious in this respect. They issue-
specific strategies to their subordinates regarding the dealings of the
company.

6. Social Pressures
Social forces and pressures have a considerable influence on ethics in
business. If a company supplies sub-standard products and gets involved
in unethical conduct, the consumers will become indifferent towards the
company.
Such refusals shall apply pressure on the company to act honestly and
stick strictly to business ethics. Sometimes, society itself may turn against
a company.
For example, Family, Friends, Colleagues, Neighbour, and the media.

 7. Ethical Climate of the industry

The modern industry today is working in a more and more competitive
atmosphere. Hence only those firms, which strictly adhere to the ethical
code, can retain their position unaffected in their line of business.
When other firms, in the same industry, are strictly attached to the
ethical standards, the firm should also perform up to the level of others.
If the company’s performance is below that of other companies, in the
same industry, it cannot survive in the field in long run.
Ethical Principles in Business:
 Honest: Businesses must show honesty in all their communications
and conducts. Abraham Lincoln has drawn a comparison between
character and reputation as a tree and its shadow. To build a
reputation, one must have character and honesty at the forefront
of it. Honesty must be accompanied with forthrightness and
candidness. 
 Integrity: You demonstrate integrity when your thoughts, words
and actions are in line with each other. Ethical executives earn trust
by having the integrity of character. Integrity often requires walking
the extra mile with moral courage and inner strength to do the right
thing even if it costs some personal losses.
 Keeping Promises: An executive who makes all efforts to fulfil the
spirit of their commitments and promises earns trust and respect.
They do not manipulate agreements or misinterpret them to avoid
compliance with the commitment.
 Loyalty: Executives must be loyal with their organizations as well as
people or other organizations they work with. They must strive to
protect the lawful interests of their companies and colleagues. They
need to safeguard information learned in confidence and not use it
for personal gains.
 Fairness: Fairness means not to exercise power arbitrarily to gain or
maintain any advantage. This also means to not take undue
advantage of another person’s mistakes or difficulties.
 Caring: A genuine compassion should be shown towards other’s
wellbeing. An ethical business person would meet his/her business
objectives without causing harm to others and considering their
good.
 Respect For Others: Every person with whom a business executive
interacts with must be treated with respect, autonomy, and dignity.
 Law-abiding: All laws, rules and regulations related to one’s
business activities must be followed.
 Commitment to Excellence: Excellence in their job is key to an
organization's success. Ethical executives must be well-informed
and constantly work towards improving their proficiency in diverse
areas.
 Leadership: An ethical role model would strive to be a role model
for his or her subordinates or employees. They promote ethical
decision-making principled reasoning.
 Reputation and Morale: Reputation of a company and the pride
and morale of their employees is of the utmost importance to an
ethical businessman. They are constantly trying to build the
reputation and morale of their business and people with their
affirmative words and actions.
 Accountability: A business person must own the outcome of their
decisions and accountability of the ethical quality of decisions they
make.
FRIEDMAN’S ECONOMIC THEORY
Pointwise Explanation -
Introduction
Milton Friedman - an American economist whose research is based on
consumption analysis monetary history and complexity of stabilization
policy.
He promoted two principles.
Capitalism & Freedom
 Capitalism relates to proper role and use of company’s profits.
 Freedom is directed for moral foundation for stable society.
* It is to be noted that capitalism is accepted in general without freedom
approach is totally unfortunate.
He stated further: -
 Social responsibility of business is to increase the profits of
company.
 Social aspects without the element of profit should not be
considered.
 There is only one social responsibility is to say, engages in open and
free competition without any deception or fraud.
 Companies should focus effectively an activity related to company’s
profit and effectively exclude charitable activities. It at all charity is
concerned then legitimate activities should be done with
government apex bodies
 avoid deception and fraud can be done through effective
implementation of monetary aspects for the society within
jurisdiction of laws. It does not mean that directors of the company
can act in any way to follow for maximisation of profits. They must
act within ethical custom.
  It excludes corporate social responsibility on ethical spending by -
1. Wisely spent.
2. Spend wisely but it should be challenging.
3. Spend society’s money on yourself and give vary rare incentives to
economies.

 He proclaimed on Rate of Investment.

1. Directors of the company should always give fair and enough justice
to Stakeholders investment.

 Counterpoint of his theory is socio-economic school. It states that

business community should oversee the operation of an economic
system which fulfils the expectations of the society in general.

Conclusion of this theory: -

 Shareholder’s fund should not be mis-utilised on the grounds of
CSR.
 Company should do best with its capacity to fulfil the
socioeconomic norms.
 Directors cannot cross the boundaries of their pursuit for
maximisation of profit.
Kant’s Deontological Theory: -
Theory in points -
Introduction: - Kant was a German philosopher who proposed duty based
theory which states that what is morally right that person should
perform.
 One should have moral duties to one-self and others such as
developing one’s talent, and fulfilling promises made to others.

It provides following elements: -

 Method for deriving moral rules and guidelines.
 For moral values and human action, he provided justification
 and criteria.
 He promoted Principles of Categorical Imperative: - It is nothing
 but an appeal to reason based on certain conditions.

These conditions are: -

 Act according to ethical guidelines which can become in due
 course universal law.
 One can act as per the needs of requirement.
 Treat Humanity always as means as well as an end.
Utilitarianism Theory:
Points are to be discussed with two angles: -
1) Jerry Bentham’s view.
2) J. S. Mill’s view.

 J. Bentham’s approach: -
 Recognition the fundamental role of pain and pleasure in human
life.
 approve or disapprove the action based on above aspects.
 equates good with pleasure and evil with pain.
 Ascertainment of capacity of pleasure and pain.
 Pleasure and pain are merely types of sensations they may differ on
the following grounds -
Extent, intensiveness, time duration, propinquity, certainty, fecundity,
and purity.

 (2) J. S. Mill’s view: -

His views are based on: -
 Hedonism means - pleasure is supreme end of life and it is freedom
from pain. According to him character, health, respect etc. will
ultimately lead to happiness. He classified hedonistic description of
good and evil.
 Psychological hedonism: - According to him what is implied is that
we always desire only that object which is pleasant.
 Logic of ethical hedonism: - The only proof that a sound is audible
is that if people will hear it.
 Altruism: - It means standard of utilitarianism is not maximum
pleasure but it is maximum yield. He criticised the Bentham’s
approach of general happiness is an ultimate end.
-Person’s happiness is good to that person and general happiness is
aggregate of all people. He explains this statement with the help of
Human Psychology.

GANDHIAN APPROACH OF TRUSTEESHIP

Introduction
Trusteeship is a socio-economic philosophy where Trustee is the holder of
property in trust for others. It is an application to the law of human
society. It provides means by which rich people will be trustees of ‘Trust’
which should always look after as a form of welfare of the society.

Here, according to him making money should be fair and ethical but on
what grounds this has been accumulated should also be taken into
consideration by way of returning of wealth in certain proportion to the
society.

Analytical review of Trusteeship

Analytical review of Trusteeship on the ground of
Do’s: -
 Be fair in dealing with internal and external constituents i.e., micro
and macro business environmental factors.
 Do protect the interest of investors, stakeholders and ultimate
efforts and care should be taken to create wealth for them through
legitimate means.
 Be honest in financial accounting and reporting up to the mark in
each aspect.
 Be act within the jurisdiction of the law in respect of operations,
suggestions, modification etc.
 Be active in social development process and disclose fully, facts as
they are.
 Be faithful towards, society where you operate your business.

Don’ts: -
 No indulgent in deception, poaching into created wealth.
 No violation of rights of employees, society and pre-empt
workplace harassment and safety breaches.
  Do not be cruel towards animals and non-humans in fact give caring
treatment to ensure least pain to animals.
 Do not make any damage in any form to the environment on the
grounds of development; do seek concurrence from the affected
transparent disclosures.
 Do not keep and maintain silence against injustice, within your
means try to make efforts to overcome them or bring it before
judicial systems.

Doctrine of ‘Satya’ and ‘Ahimsa’

Mahatma Gandhi’s principle of Ahimsa is based on ethics of ahimsa
propounded by Lord Gautam Buddha. It gives a new outlook on life based
on social, economic, and political problems. It gives new orientation to
the problems that face humanity today with new solutions.

 Presenting for acceptance is truth and Ahimsa in day-to-day life.

Principle of Life is based on truth as per his philosophy.

 The word ‘Satya’ is combination of

(1) ‘Sat’ being
and nothing exists except ‘Truth.’
(2) Truth always follows pure knowledge and it leads to bliss.

 According to Mahatma Gandhiji God is an impersonal, omnipresent

power. God is Truth, lone and bliss. God is an end. He can be known
through truth and love.

Ahimsa: -
 It is supreme kind approach and self-sacrifice. It is neither denial
from killing nor doing harm. It is an abstinence from causing pain
through.
 ill words
 thoughts
 resentment

 It is non-violence in every form.

 It has positive aspect with overflowing love and affection with
each one.
 It is based on non-injury and love.
 It is the basis of search of truth. The only resource for realisation
of truth is Ahimsa.

UNIT 2
Ethos is a set of beliefs, ideas, etc., about social behaviour and
relationship of a person or group. Indian Ethos is all about what can be
termed as “national ethos.” Indian ethos refers to the principles of self-
management and governance of society, entity or a system by wisdom as
revealed and brought-forth by great scriptures like Veda, Upanishads,
Gita, Mahabharata, Bible, and Quran. This wisdom evolved through the
old practices of Indian mystics, philosophers and religious ‘gurus,’ and is
now found to have profound implications for self-management and good
governance of a stormy society and business environment, or even a
politically divided world.

According to Oxford Advanced Learner’s Dictionary, “Ethos are the moral

ideas and attitudes that belong to a particular group or society.”

NEED AND RELEVANCE OF INDIAN ETHOS

Indian ethos is needed due to the following reasons:
1. Maintain Holistic Universe: Modern science has accepted that in this
holistic universe, all minds and matters are interconnected at a deeper
level. The basic unity of life cannot be broken. Love, sacrifice therefore
emerges as the only means for a meaningful living. Based on this holistic
vision, Indians have developed work ethos of life. This helps in living life
to the fullest.

2. Elucidate Motivation: Concept of motivation can be explained

holistically by Indian ethos. Considering motivations as internal, every
human being has the same divine atman with immense potentialities
within. Vedanta brings infinite expansions of the mind, breaks down all
the barriers and brings out the God in man. Motivation is to be internal
and not external. Such motivation involves the inner beauty and does not
promote any greed in an individual to have more and more in return for
his work.

3. Welfare: Indian ethos teaches welfare of all (yagna spirit). “Atmano

Mokharth Jagat Hitay Cha” (serve your personal interest but do not forget
others). This philosophy is needed in modern times.
4. Unique Work Culture: Indian ethos helps in development of unique
work culture. Work is considered as duty or Sadhana and there is no
difference between Karma(work) and Dharma(religion). The term Dharma
does not indicate any religion. Dharma is a duty to be performed in each
situation. Thus, Dharma is possible through Karma only.
5. Evenness of Mind: Indian ethos helps in evenness of mind. Means are
equally important as the ends. Thus, society acceptable values are to be
followed in determining the objectives as well as in the process of
achieving these objectives.
6. Self-development: Integrated human personality of self-developed
manager can assure best and competent management of any enterprise,
involving collective works and efforts. The refined or higher
consciousness will adopt holistic attitude. It will bring out the divine in
man. It will achieve perfection or excellence in whatsoever sector of
work. One shall achieve peace, harmony, and prosperity within and
without, i.e., in the internal world and in the external world
simultaneously.
7. Provides Concentration: Vedanta provides the ways and means of
controlling the mind. It helps to concentrate, increase efficiency,
productivity, and prosperity. It is not religion of resignation and
retirement. One cannot renounce their action. As the Gita says “You have
to be a man of action, do not run away from your action or Karma but the
same should be according to your Dharma.” The second aspect, is while
doing the Karma; do not be tempted by worldly pleasures, materialism,
and the results. One must be man of action, working in a 4 Indian Ethos in
Management spirit of renunciation. Renunciation does not mean living a
life of isolation or living in a forest. One has to face the world and should
not run away from your action. Do not get attached to anything.

8. Establishes Value System: Many of the present ills are the results of
decline in our value system and loss of character. Forces of fierce
competition in the technology driven era of globalisation have taken a
heavy toll of traditional values. People need to re-imbibe the Santana
values of honesty, integrity, compassion, care, and cooperation. There is
again a need to establish conduct, based on truth and non-violence,
peace, and harmony. One needs to promote a secular ethos that entails
‘sarva-dharm-sambhav.’ That alone will promote enshrined in our ancient
maxim of ‘Vasudhaiv Kutumbakam.’ That will be India’s unique
contribution towards enrichment of content of globalisation which today
has its focus only on trade and commerce.

Purpose of Indian ethos

• To develop proper management
To develop proper management system in the organization. Management
systems based on principles as per ancient wisdom are of immense help
for the smooth conduct of business. Value oriented management system
can be established with the help of Indian ethos
• To ensure all round development
To ensure all round development growth and prosperity i.e., productivity,
marketing, profitability
• Work sincerely
Indian ethos teaches us that if you work sincerely for the society, for your
organization and for the nature you will really enjoy your life through
money harmony, peace, and happiness your image is bright
• Productivity of human being
Indian wisdom indicates that productivity of human being is more
importance than plant capacity