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Concepts and Theories of
Business Ethics
Business Ethics: An Indian Perspective
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Definition of Ethics
Ethics as a moral and normative science refers to principles
that define human behaviour as right, good and proper.
“Morality”, according to philosophers, refers to human
conduct and values
Business Ethics: An Indian Perspective
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Law and Morality
There is a clear cut difference between law and morality. In a
particular situation, an act that is legal may not be morally right.
For example, it will be legal for an organization running in loss to
lay off a few employees so as to sustain itself. But it is not morally
right to do so, because the employees will find it difficult to find a
living.
On the other hand, an action performed can be illegal but morally
right. For example, it was illegal to help Jewish families to hide
from the Nazis, but it would have been a morally admirable act.
Business Ethics: An Indian Perspective
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Law vs Morality in Organizations
In the organization too, we will find such situations where an
act will be morally right and legally wrong to perform. The
strong ethical base of the individual as well as that of the
organization helps an employee overcome such a situation.
The law cannot cover the wide variety of possible individual
and group conduct. The law prohibits actions that are against
the moral standards of society.
Business Ethics: An Indian Perspective
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Ethical theories in business
Ethics is a normative study, i.e., an investigation that attempts
to reach normative conclusions.
Ethical theories in business include
Consequentialist normative theory: Normative themes—Egoism,
Utilitarianism, Kantian ethics
Nonconsequentialist normative theory: Nonconsequentialist normative
themes—duties, moral rights, and prima facie principles
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Classification of Normative Theories
Normative Theories
Consequentialist Non-consequentialist
(Deontological – Duty-based)
Egoism Utilitarianism Theories Kantian
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Normative Themes
Egoism
• contends that an act is morally right if and only if it best promotes an
agent's long term interests
• makes use of self interest as the measuring rod for actions performed
• is equated with an individual’s personal interest but it is equally
identified with the interest of an organization or society
• intends to provide positive consequences to the party's interest without
considering the consequence to the other parties
Business Ethics: An Indian Perspective
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Normative Themes : Egoism (Contd.)
Philosophers distinguish between two kinds of egoism: personal
and impersonal.
•Personal egoism: one should pursue his/her long-term interest and not
dictated what others should do.
•Impersonal egoism: everyone should follow their best long-term interest.
Business Ethics: An Indian Perspective
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Utilitarianism
The proponents were:
Jeremy Benthan (1748-1832)
John Stuart Mill (1806-1873)
Utilitarian principle: an action is ethically right only if the sum
total of utilities produced by that act is greater than the sum
total of utilities produced by any other act that could have
been performed in its place.
Business Ethics: An Indian Perspective
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Kantian Ethics
Proponent:
Immanuel Kant (1724-1804)
This theory introduces an important humanistic dimension to business
decisions, which is to behave in the same way that one would wish to be
treated under the same circumstances and to always treat other people
with dignity and respect.
Business Ethics: An Indian Perspective
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Kant’s Philosophy
Stressed that action must be undertaken for duty's sake and not for some
other reason
Opined that the imperatives of morality are not hypothetical but
categorical. The core idea of this categorical imperative is that an action
is right if and only if it will become a universal law of conduct
Business Ethics: An Indian Perspective
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Normative theories of Business Ethics:
Classification
Normative Theories
Stockholder Theory Stakeholder Theory Social Contract Theory
Business Ethics: An Indian Perspective
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Normative theories of business ethics
Stockholder theory: expresses business relationship between stock
owners and their managers running the day-to-day business of the
company. As per the theory, managers should pursue profit only by
all legal, non-deceptive means.
Business Ethics: An Indian Perspective
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Normative theories of business ethics
Stakeholder theory: argues that a corporate’s success in the market
place can best be assured by catering to the interests of all its
stakeholders (shareholders, customers, employees, suppliers,
management and the local community). This objective is achieved
when corporations adopt policies that ensure an optimal balance
among all stakeholders.
Business Ethics: An Indian Perspective
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For example, Marico, the makers of Parachute oil, discovered a harmless tint
in the oil from one of its production lines. The company withdrew the batch
from the market, shut down the production line, but kept the workers on
payroll and involved them in the investigation of the cause. In a short time,
the workers located the cause, rectified it and resumed production
Business Ethics: An Indian Perspective
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Normative theories of business ethics
Social Contract theory: is based on the principles of “social
contract”, wherein it is assumed that there is an implicit agreement
between the society and any created entity such as a business unit, in
which the society recognises the existence of a condition that it will
serve the interest of the society in certain specified ways.
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Ethics and religion
The world’s great religions––Christianity, Hinduism and Islam have all left
their indelible marks on morality and the conduct of people in every aspect
of human endeavour, including business. Every religion has provided its
followers its own set of catechisms, moral instructions, beliefs, values and
virtues, traditions and commitments.
Business Ethics: An Indian Perspective
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Teachings of the Church
The Church always supports and promotes the welfare of the poor. People
often think how we can relate business and ethical teachings of Church.
But now the trend has changed and organizations and institutions relate
business with religion and ethics. This transition is due to the increased
importance of ethics in business. The Church's concerns and ethical
teachings are found in several papal encyclicals.
i.e, letters the pope writes to his followers.
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Rerum Novarum
Since the late 19th century, there has developed a strong tradition of
reflective thought on economic issues within the Catholic Church. This
concern on economic issues effectively started in May 1891, with the
publication of Rerum Novarum, an encyclical by Pope Leo XIII. The
central theme of the letter was the relationship among the State,
employers and the workers.
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Key feature of the encyclical
Directs the State and organizations to perform their duties to the
working class to avoid corruption or unethical behaviour in the
society.
When man is deprived of dignity and equality he will indulge in
unethical practices. Mutual support in the society and organization
will help individuals to perform their best for productivity and
profit.
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Gautim Et Spes
Pastoral documentation of the Church released during the Second
Vatican Council held between 1962 and 1965
The rapid change and technological advancement have led to
aggressive demands on individuals, forcing them to indulge in
unethical practices. There is an internal fight of values, and basic
values of human beings have changed.
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Indian Ethical Traditions
The Hindu scriptures such as the Gita and the Upanishads speak of
the performance of right duty, at the right time in the right manner.
The rich Indian tradition has always emphasised the dignity of human
life and the right to live in a respectful manner.
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Gandhian Principles of Trusteeship
Implies that an industrialist or businessman should consider himself
to be a trustee of the wealth he possesses. The trusteeship concept
should also be extended to the labour in industry.
The origin of the trusteeship principle can be traced to the concept of
non-possession detailed in the Bhagawad Gita.
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Practicing Gandhian Principles
In the recent past, social involvement by business has, for the most
part, taken the shape of public charity. This has included the building
of temples, hospitals and educational institutions. A few examples
include the Birla Temple in Calcutta, the Shree Vivekananda
Research and Training Institute set up by Excel Industries in Mandvi,
the L&T Welfare Centre in Bombay, the Tata Institute of
Fundamental Research, and the Voltas Lifeline Express.
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Righteousness as the way in Gita
The Bhagawad Gita cites numerous instances of how moral values
and ethics can be incorporated in one's work life. Many of its verses
are directly significant for the modern manager who may be confused
about his direction and struggling to find an answer to ethical
dilemmas. The Lord reiterates that work or karma is the driving force
of life, and that this work has to be ethical.
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Message of the Gita: Chapter II, Verse 47
“You have a right to perform your prescribed duty, but you are not
entitled to the fruits of action. Never consider yourself the cause of
the results of your activities and never be attached to not doing your
duty”.
This stanza implies that the performer of an action has only to
perform the prescribed duty and not think about the result of the
action, because the result is beyond his control. This teaching of Gita
draws one's attention to Nishkama Karma.
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Gita’s message in an organization
When applied to an organization where one is only worried of the
result, he is likely to fall into improper activities. On the other hand, if
he is ready to do his duty to the utmost of his ability and set aside the
result, he will be an ethical person in the organization
Business Ethics: An Indian Perspective
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Message of the Gita: Chapter II, Verse 56
“One who is not disturbed in mind amidst the threefold misery or
elated when there is happiness and who is free from attachment, fears
and anger, is called a sage of steady mind.”
A steady mind gives the right attitude and right direction. Detachment
is that quality which enables the individual not to accept anything for
his personal gratification. Personal desires and conflicting interests
end up in unethical practices.
Business Ethics: An Indian Perspective
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Business and Islam
All principles covering business emanate from the Holy Quran, as
they are explained and amplified in the Hadith (collection of the
Prophet’s sayings)
The Prophet Mohammed ordained that businesses should promote
ethical and moral behaviour and should follow honesty, truthfulness
and fulfilment of trusts and commitments, while eliminating fraud,
cheating, cut-throat competition, lending money at interest to people
in need and false advertising.
Business Ethics: An Indian Perspective
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Shariah and Interest on Capital
Shariah, the canonical law of the followers of Islam, forbids payment
and receipt of interest on capital and money lent and condemns
usurious practices.
Shariah requires that investors profit only from transactions based on
the exchange of assets, not money alone, and therefore, interest is
banned.
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Islamic Bonds or Sukuk
Bankers sell Islamic Bonds or Sukuk, by using property and other
assets to generate income equivalent to interest they would pay on
conventional debt.
The money cannot be invested on stocks of companies dealing in
alcohol, conventional financial services (banking and insurance),
entertainment (cinemas and hotels), tobacco, pork meat, defence and
weapons while computer software, drugs and pharmaceuticals and
automobile ancillaries are all Shariah compliant.
Business Ethics: An Indian Perspective