Business Ethics
Ethics: Taken from Greek word ‘Ethos’ means norms, morals. These are morally acceptable
beliefs.
Business Ethics: It refers to the application of ethical principles and values to the business
world. These are set of principles governing human activity may be written or oral to promote
honesty, integrity, and transparency in all business dealing.
An organisation without ethics can earn a profit in the short run, but it can be harder for the
organisation to sustain in the market in the long run.
• Characteristics of Business Ethics
Following are the characteristics of business ethics:
1.Discipline of Moral Values
A business affects society to a large extent, thus having a number of responsibilities to fulfil
for society. Businesses must ensure a regular supply of quality goods and services at reasonable
prices to their consumers. Practices such as adulteration, insider trading, false advertisements
and black marketing, must be avoided by businesses.
*Adulteration: process of adding an any substance to reduce quality of a food product while
increasing the quantity.
*Green Washing: process of conveying a false impression or misleading information about
how a company’s products are environmentally sound.
*Black marketing: an economic activity that takes place outside government-sanctioned
channels i.e. Illegal market transactions
2. Relative Term
Ethics is a relative term for morality and immorality. It deviates from one person to another or
from one society to another. For example, something that is considered moral in one society
may be immoral in another society.
3. Interest of Society
Business ethics explain the importance of business in society. They lay emphasis on the fact
that a business should first do well to society and then to itself.
e.g: Corporate Social Responsibility (CSR) or Corporate Citizenship- Corporate social
responsibility is a business model by which companies make a concerted effort to operate in
ways that enhance rather than degrade society and the environment.
4. It requires education and guidance
5. It is voluntary
• Elements or Components of Business Ethics
Ethics and Law
Ethics and laws are both systems of rules and principles that govern human behavior, but they
differ in their origins and scope. Ethics are moral principles that guide individuals in making
decisions about what is right and wrong, based on values and beliefs. Laws, on the other hand,
are rules established by a governing authority that are enforced through penalties and
consequences.
Norms:
Moral Compass: Person’s ability to judge what is wrong and right.
Ethical Dilemma or Ethical Paradox or Moral Dilemma
A problem in the decision-making process between two possible options, neither of which is
absolutely acceptable from an ethical perspective. They are extremely complicated challenges
that cannot be easily solved.
An ethical dilemma in business occurs when a financial decision may impact various
stakeholders, including customers, clients, investors, and employees. These dilemmas can arise
at different levels within the finance industry, such as investment management, corporate
finance, accounting, and banking.
Gray Area : A point where it is unclear what is wrong and right.
Moral Disengagement: Moral disengagement is a mental process that regulates the exercise
of moral agency, allowing individuals to behave unethically despite the presence of internal
moral standards.
• Emerging Ethical Issues in Business
1.Corporate espionage, Industrial espionage or Corporate spying. - act of stealing
proprietary information, trade secrets, or intellectual property from a business and giving or
selling it to another.
The primary intent behind corporate espionage is to use the acquired information to gain a
competitive advantage.
It occurs when sensitive information like a trade secret is taken from one company and given
to another.
Theft of trade secrets is defined and prohibited by the Economic Espionage Act (EEA) of
1996, enacted to discourage stealing secrets from companies.
Competitive Intelligence: Competitive intelligence can also include acquiring products or
services legally—like purchasing a product at a store—intending to reverse engineer or
analyze a product or service to discover trade secrets unless it is legally protected under a
patent. Basically, it’s an analysis of competitors.
2.Bullying: Bullying is unwanted, aggressive behavior among school aged children. The
behavior is repeated, or has the potential to be repeated, over time.
Types of Bullying
• Verbal bullying is saying or writing mean things. Verbal bullying includes:
o Teasing
o Name-calling
o Inappropriate sexual comments
o Taunting
o Threatening to cause harm
• Social bullying, sometimes referred to as relational bullying, involves hurting
someone’s reputation or relationships. Social bullying includes:
o Leaving someone out on purpose
o Telling other children not to be friends with someone
o Spreading rumors about someone
o Embarrassing someone in public
• Physical bullying involves hurting a person’s body or possessions. Physical bullying
includes:
o Hitting/kicking/pinching
o Spitting
o Tripping/pushing
o Taking or breaking someone’s things
o Making mean or rude hand gestures
Insider trading: involves buying or selling a publicly traded company's stock based on non-
public, material information about that company.
Sexual Harrassment: Uninvited and unwanted sexual behavior, whether verbal or physical,
especially by an individual in a position of authority over the victim.
Sexual Harrassment of women at workplace act, 2013.
Discrimination: The intended or accomplished differential treatment of persons or social
groups for reasons of certain generalized traits.
e.g. Apartheid in South Africa and Segregation in US
Fraud: Fraud is an intentional act of deceit designed to reward the perpetrator or
to deny the rights of a victim.
Fraud Triangle: Given by Dr. Donald Cressey . The fraud triangle is a framework commonly used in
auditing to explain the reason behind an individual’s decision to commit fraud. The fraud triangle
outlines three components that contribute to increasing the risk of fraud: (1) opportunity, (2) incentive,
and (3) rationalization.
Privacy concern: Digital privacy, a subset of the broader concept of privacy, focuses on the
proper handling and usage of sensitive data—specifically personal information,
communication, and conduct—that are generated and transmitted within digital environments.
In essence, it denotes the rights and expectations of individuals to keep personal information
confidential and secure in the digital realm.
Misuse of organisational resources: In any organization, the efficient use of resources is vital
for achieving business objectives and maintaining profitability. However, misuse of company
resources by employees is a common challenge that can lead to financial losses, decreased
productivity, and a negative impact on workplace morale.
1. Personal Use of Company Assets: Employees may use company property, such as
vehicles, computers, or office supplies, for personal purposes. This can result in wear
and tear, increased maintenance costs, and depletion of resources meant for business
operations.
2. Time Theft: Time theft occurs when employees spend work hours on non-work-
related activities, such as browsing the internet, socializing, or running personal
errands. This reduces overall productivity and affects project timelines and
deliverables.
3. Financial Fraud: Employees might engage in fraudulent activities, such as
embezzlement or unauthorized use of company funds. This can have severe financial
implications and damage the company’s reputation.
Employee Theft: Employee theft, the act of stealing from an employer. A shocking statistic
reveals that 75% of employees have stolen at least once from their employer.
Embezzlement: when a person intentionally uses funds for a different purpose than they
were intended to be used.
Ex: create bills and receipts for activities that did not occur and then use the money paid for
personal expenses. Such as ponzy scheme, investment scheme which pays early investors with
money taken from later investors to create an illusion of big profits. Such schemes promise a
high rate of return with little risk.
Payroll fraud is the embezzlement of an organization’s funds through breaches in the payroll
process, resulting in financial losses.
Skimming is a type of employee theft that occurs before the incoming money or product is
recorded in your point-of-sale system
Conflict of Interest: Conflict of interest can be referred to as the situation where an
individual's or organization's personal interests compromise their professional interests or
duties.
Conflict of interest is a common phenomenon seen in many official settings. For example, in
business and law, there are many instances where individuals might be in a position where they
might form a bias due to their interests taking over professional ones.
1.Financial Conflicts: self-dealing and insider trading.
2.Non-Financial Conflicts: gift exchange and nepotism
3.Conflict of Roles
Institutionalization of Business Ethics In India
Environmental Laws: Environment refers to the physical elements. It includes the land, water
and air. It is the living ecosystem that maintains the existence of human life. Destruction of the
environment can lead to various calamities. In order to prevent such disaster or calamities, laws
are implemented to protect the environment for the livelihood of present and future generations.
Legislations that came post-independence are as follows-
• The Prevention of Air and Water Pollution, 1974, 1981. It was in this act that the
Central Pollution Control Board (CPCB) was constituted.
• The Forest Conservation Act, 1980. It was enacted by the Central govt to provide
conservation of forests and matters connected with deforestation
• The Air Prevention and Control of Pollution, 1981.
• The Environmental Protection Act, 1986. It came into force soon after the Bhopal
Gas Tragedy.
• The Environmental Conservation Act. 1989.
• The National Environmental Tribunal, 1995.
• National Environmental Appellate Authority Act, 1997.
• National Environment Management Act (NEMA), 1998
• Handling and Management of Hazardous Waste Rule in 1989.
• The Public Liability Insurance Act (Rules and Amendment), 1992
*Environmental Protection Act, 1986:- Section 2(a) states that environment includes water,
air and land and the inter-relationship which exists among and between water, air and land, and
human beings, other living creatures, plants and property.
Anti trust laws: Antitrust laws also referred to as competition laws, are statutes developed by
the U.S. government to protect consumers from predatory business practices. They ensure that
fair competition exists in an open-market economy. These laws have evolved along with the
market, vigilantly guarding against would-be monopolies and disruptions to the productive
ebb and flow of competition.
Antitrust laws are applied to a wide range of questionable business activities, including but
not limited to market allocation, bid rigging, price fixing, and monopolies.
Consumer Protection Laws: The Consumer Protection Act, first enacted in 1986, is a
milestone in Indian socio-economic legislation. It serves as the guardian of consumers against
unfair business practices and subpar products, and ensures that the economy stays intact by
providing a minimum standard that has to be met by companies to survive in the country.
Investor Protection: Investors are the backbone of the securities market, and they play a vital
role in the activity of stock market along with enhancing the level of activity in the economy.
Earlier the Companies Act 1956, was unable to assure the investor’s interest and overcome
corporate crime. It didn’t compete with the needs of changing business environment. The 2008
Satyam fallout was one of the important failures of the Companies Act 1956 regarding
investor’s protection. The Satyam incident increases the debates to reform the corporate
structure, i.e., the corporate system & processes need to be credible & transparent so that the
interest of the investors may be a safeguard in a manner to make an independent or safe
decision.
There are mainly five regulations or legislation framed in India to regulate the interest of
investors in Corporate Sector. They are –
• SEBI Act 1992
• Companies Act 2013
• Securities Contract (Regulation Act) 1956
• The Depositories Act 1996
• The Prevention of Money Laundering Act 2002.
Intellectual Property right laws:
Corruption Prevention Laws: The Prevention of Corruption Act of 1988 is a crucial Indian
law enacted to combat corruption and promote integrity in public administration. The Act
defines corruption and its various forms, including bribery, abuse of power, and illicit
enrichment, and covers public servants in the government and public sector.
Laws promoting equity and Safety at workplace: The Indian Constitution provides special
protection and affirmative action for Scheduled Castes, Scheduled Tribes, any socially and
educationally backward classes of citizens or Other Backward Classes, and economically
weaker sections of society. These protections extend in the form of reservations of
seats/vacancies, or additional protections such as relaxations in age limits, attempts at
examinations/applications and eligibility criteria such as marks/score in test results etc., in
educational institutions or employment in government or public sector.
Traditional and Contemporary Moral Philosophies
1. Teleological or Consequetialism Approach:
‘Telos’ Greek word means goal, outcome or result.
This approach considers consequences of our judgement or action. E.g. Hitting dog
with stick and that dog got saved from car accident.
This approach was first used by Plato & Aristotle
2. Deontological or Non- Consequentialism Approach:
‘Deon’ Greek word means ‘duty, motives behind certain actions”.
This approach considers actions based on a sense of duty and responsibility.
E.g: Hitting dog with stick is wrong
This approach was first used by Immanuel Kant.
Utilitarianism is a theory of morality that advocates actions that foster happiness or pleasure
and oppose actions that cause unhappiness or harm.
Ex:
Egoism
Different Views on Business Ethics:
Window dressing:
The efforts taken to make the financial statements of a business look better before they are
publicly released.
Window dressing doesn’t typically involve making genuinely false representations that will
violate the law. It’s usually more of a matter of bending but not breaking the truth.
Window dressing is often performed heavily with mutual funds. At the end of a reporting or
financial period, mutual funds often quickly sell stocks in their portfolio that are not performing
well. The money generated from the sales is then used in a quick turnaround to buy shares of
stocks in the high-performance range.
Whistle blowing: An act of reporting unethical, illegal, or harmful activities within an
organization. Whistleblowers can be employees or former employees who disclose information
about wrongdoing, such as fraud, corruption, safety violations, or violations of laws and
regulations.
Kohlberg’s Cognitive Moral Development Theory
This theory focuses on how children develop morality and moral reasoning. Kohlberg's theory
suggests that moral development occurs in a series of six stages and that moral logic is primarily
focused on seeking and maintaining justice.
It is important in that it can help parents guide their children as they develop their moral
character.
One example was "Heinz Steals the Drug." In this scenario, a woman has cancer and her doctors
believe only one drug might save her. This drug had been discovered by a local pharmacist and
he was able to make it for $200 per dose and sell it for $2,000 per dose. The woman's husband,
Heinz, could only raise $1,000 to buy the drug.
He tried to negotiate with the pharmacist for a lower price or to be extended credit to pay for it
over time. But the pharmacist refused to sell it for any less or to accept partial payments.
Rebuffed, Heinz instead broke into the pharmacy and stole the drug to save his wife. Kohlberg
asked, "Should the husband have done that?"
Level 1. Preconventional Morality
Preconventional morality is the earliest period of moral development. It lasts until around the
age of 9. At this age, children's decisions are primarily shaped by the expectations of adults
and the consequences of breaking the rules. There are two stages within this level:
• Stage 1 (Obedience and Punishment): The earliest stages of moral development,
obedience and punishment are especially common in young children, but adults are also
capable of expressing this type of reasoning. According to Kohlberg, people at this
stage see rules as fixed and absolute.6 Obeying the rules is important because it is a way
to avoid punishment.
• Stage 2 (Individualism and Exchange): At the individualism and exchange stage of
moral development, children account for individual points of view and judge actions
based on how they serve individual needs. In the Heinz dilemma, children argued that
the best course of action was the choice that best served Heinz’s needs. Reciprocity is
possible at this point in moral development, but only if it serves one's own interests.
Level 2. Conventional Morality
The next period of moral development is marked by the acceptance of social rules regarding
what is good and moral. During this time, adolescents and adults internalize the moral standards
they have learned from their role models and from society.
This period also focuses on the acceptance of authority and conforming to the norms of the
group. There are two stages at this level of morality:
• Stage 3 (Developing Good Interpersonal Relationships): Often referred to as the
"good boy-good girl" orientation, this stage of the interpersonal relationship of moral
development is focused on living up to social expectations and roles.6 There is an
emphasis on conformity, being "nice," and consideration of how choices influence
relationships.
• Stage 4 (Maintaining Social Order): This stage is focused on ensuring that social
order is maintained. At this stage of moral development, people begin to consider
society as a whole when making judgments. The focus is on maintaining law and order
by following the rules, doing one’s duty, and respecting authority.
Level 3. Postconventional Morality
At this level of moral development, people develop an understanding of abstract principles of
morality. The two stages at this level are:
• Stage 5 (Social Contract and Individual Rights): The ideas of a social contract and
individual rights cause people in the next stage to begin to account for the differing
values, opinions, and beliefs of other people.6 Rules of law are important for
maintaining a society, but members of the society should agree upon these standards.
• Stage 6 (Universal Principles): Kohlberg’s final level of moral reasoning is based on
universal ethical principles and abstract reasoning. At this stage, people follow
these internalized principles of justice, even if they conflict with laws and rules.
Heinz Dilemma
Kohlberg used the Heinz Dilemma to test children's moral reasoning and categorize them into
six stages of moral development.
Kohlberg’s best-known stories (1958) concerns Heinz, who lived somewhere in Europe.
Heinz’s wife was dying from a particular type of cancer. Doctors said a new drug might save
her. The drug had been discovered by a local chemist, and the Heinz tried desperately to buy
some, but the chemist was charging ten times the money it cost to make the drug, and this was
much more than the Heinz could afford.
Heinz could only raise half the money, even after help from family and friends. He explained
to the chemist that his wife was dying and asked if he could have the drug cheaper or pay the
rest of the money later.
The chemist refused, saying that he had discovered the drug and was going to make money
from it. The husband was desperate to save his wife, so later that night he broke into the
chemist’s and stole the drug.
Should Heinz have broken into the laboratory to steal the drug for his wife? Why or why not?
Justice theory of Rawls
John Rawls's theory of "justice as fairness" recommends equal basic liberties, equality of
opportunity, and facilitating the maximum benefit to the least advantaged members of society.
This theory provides a moral theory alternative to utilitarianism and addresses the problem of
distributive justice (proper allocation of resources and goods).
Categorical Imperative (given by Immanuel Kant)
Categorical Imperative is a moral compass that doesn’t care who you are or what you want; it
cares about what’s right. It says “Do the right thing because it is right, not just when it suits
you or when you get rewards.”
It pushes us toward a world where we value each other and act nicely out of good intentions.
If everyone lived by this rule, we’d probably see a lot less unfairness and a lot more peace and
respect.
Kant told us about a few different ways to look at the Categorical Imperative. Think of these
as different lenses to help judge what’s right:
▪ The Formula of Universality: Act only in a way that you’d be okay with everyone
else acting too.
▪ The Formula of Humanity: Treat others as valuable in themselves, not just as tools to
get what you want.
▪ The Formula of the Kingdom of Ends: Behave like you’re making rules for a perfect
world where everyone’s fair to each other.
Hypothetical Imperative
It states that if someone wants to achieve a certain outcome, they must take specific actions to
get there.
1. Hypothetical imperatives are conditional and depend on individual goals, such as 'If
you want to be healthy, you should exercise.'
2. Unlike categorical imperatives, hypothetical imperatives do not carry moral weight;
they are about practicality rather than morality.
Difference between Hypothetical and Categorical Imperative
Hypothetical imperatives are conditional commands based on personal desires or goals,
meaning they only apply if one wishes to achieve a specific outcome. In contrast,
categorical imperatives are unconditional and assert that certain actions are morally
required regardless of personal desires.
Integrated Social Contract Theory (ISCT)
It was coined by Tom Donaldson and Tom Dunfee. This theory combines culturally sensitive
decision making capacities with trans-cultural norms (norms which are similar in different
culture) by setting up a layered system of social contracts.
ISCT is particularly relevant in discussions about corporate social responsibility and ethical
decision-making in a globalized economy, where companies often face conflicting ethical
expectations from different stakeholders.
The core idea is that while there are certain universal ethical standards (such as human rights),
businesses also need to respect the diverse social contracts that exist within different cultures
and communities. This approach emphasizes the need for dialogue and understanding between
global ethical norms and local practices, aiming to create a balance that respects both universal
values and local customs.
Virtue Theory of Aristotle
