INTRODUCTION UNIT 1

CONCEPT OF BUSINESS ETHICS

• Business is part of society. It activities must be observed
& viewed to see major factor in our society.
• It is a branch of social science. It clears with moral
principles & social values. It helps to clarify what is good
and what is bad?
• Ethics is the code of moral principles and values that
governs the behaviors of a person or group with respect
to what is right or wrong.
• It deals with internal values that are a part of corporate
culture and shapes in decisions concerning social
responsibility with respect to external environment.
• According to Andreq Crane, "Business ethics is the study of
business situations, activities and decisions where issues of
right and wrong are addressed.“
• Ethical issues affect the efficiency and effectiveness of a
nation’s business commerce.
• Ethical behavior increases the company’s profitability as well
as nation’s standard of living.
• It is a study of perception of people about morality, moral
norms, moral rules and ethical principles as they apply to
people and institution in business.
• It refers to the contemporary standard or sets of values that
govern the actions & behavior of an individual in an orga.
 Importance of ethics in business
1. Employee Commitment:
Employee's perceptions that their firm has an ethical practice like safe work
environment, competitive salaries, fulfillment of all contractual obligations
towards employees etc. reduce labor turnover & therefore increase
productivity.
2. Investor Loyalty:
Investors are recognizing that an ethical culture provides a foundation for
efficiency, productivity and profits.
So ethical practices attract investors and keep the company's share price
high there by protecting the business from take over.
3. Customer Satisfaction:
Ethical conduct toward customers builds a strong competitive position that
has been shown to positively affect business performance & product
innovation.
Ethical behavior attracts customers to the firm's products thereby boosting
sales & profits.
4. Ethics Contribute to profit:
• Ethical conduct toward customers builds a strong competitive
position that has been shown to positively affect business
performance & product innovation.
• Ethics is becoming an integral part of management efforts to
competitive advantages & higher profitability.
5. Builds trust & promotes confidence:
• Ethics is importance to build trust & confidence among
shareholder, employees, customers and business.
 Myths about Business ethics
1. Business ethics is more matter of religion than management.
A systematic approach to business ethics asserts that altering
people's values or souls is not the aim of an organizational ethics
program-managing values & conflict among them is….
2. Myth: Our employees are ethical so we don’t need attention
to business ethics.
• Most of the ethical dilemmas faced by managers in the
workplace are highly complex.
• Kirrane mentions that when the topic of business ethics
comes up, people are quick to speak of the Golden Rule,
honesty and courtesy. But when presented with complex
ethical dilemmas, most people realize there’s a wide “gray
area” when trying to apply ethical principles.
3. Myth: Business ethics is a discipline best led by
philosophers, academics and theologians.
It is believed business ethics is primarily a complex philosophical
debate or a religion. However, business ethics is a management
discipline with a programmatic approach that includes several
practical tools. Ethics management programs have practical
applications in other areas of management areas, as well.
4. Myth: Business ethics is superfluous — it only asserts the
obvious: “do good!”
Many people react that codes of ethics, or lists of ethical values
to which the organization aspires, are rather superfluous
because they represent values to which everyone should
naturally aspire. However, the value of a codes of ethics to an
organization is its priority and focus regarding certain ethical
values in that workplace. For example, it’s obvious that all
people should be honest.
5. Myth: Business ethics is a matter of the good guys preaching to
the bad guys.
Some writers do seem to claim a moral high ground while lamenting
the poor condition of business and its leaders. However, those people
in managing organizations realize that good people can take bad
actions, particularly when stressed or confused. (Stress and confusion
are not excuses for unethical actions — they are reasons.) Managing
ethics in the workplace includes all of us working together to help each
other remain ethical and to work through confusing and stressful
ethical dilemmas.
6. Myth: Business ethics in the new policeperson on the block.
Many believe business ethics is a recent phenomenon because of
increased attention to the topic in popular and management literature.
However, business ethics was written about even 2,000 years ago — at
least since Cicero wrote about the topic in his On Duties. Business
ethics has gotten more attention recently because of the social
responsibility movement that started in the 1960s.
7. Ethics can't be managed
Actually ethics is always managed but too often indirectly.
for e.g. Laws, regulations & rules, strategic priorities the
behaviour of the orga's leader etc. are forms of mgmt.
8. Business ethics & social responsibility are the same thing:
The social responsibility movement is one aspect of the overall
discipline of business ethics.
Writing about social responsibility often do not address practical
matters of managing ethics in the work place.
e.g. developing codes, updating policies & procedures,
approaches to resolving ethical dilemmas etc.
9. Myth: Our organization is not in trouble with the law, so we’re
ethical.
One can often be unethical, yet operate within the limits of the law,
e.g., withhold information from superiors, fudge on budgets, constantly
complain about others, etc. However, breaking the law often starts with
unethical behavior that has gone unnoticed.
10. Myth: Managing ethics in the workplace has little practical
relevance.
Managing ethics in the workplace involves identifying and prioritizing
values to guide behaviors in the organization, and establishing
associated policies and procedures to ensure those behaviors are
conducted. One might call this “values management.” Values
management is also highly important in other management practices,
e.g., managing diversity, Total Quality Management and strategic
planning.
• Moral Reasoning
• Moral reasoning is the mental process which sets a human’s mind in
action to reach to a certain decision of right and wrong.
• It depends on the person’s values, learning and most of the time a
person’s psychology.
• It is the process in which an individual tries to determine the
difference between what is right and what is wrong in a personal
situation by using logic.
• It is the ability to look situation from multiple perspectives before
deciding what to do (moral creativity), should be able to understand
how my action is going to affect another person life (moral
sensitivity) and should be able to reason correctly regarding what
needs to be done in different situation (moral judgement).
• Moral reasoning has become not just a matter of conscience, but a
make or break element of business public image.
• Example: ABC company launches new cosmetic products (face compact)
for an instance and avoids taking it to test lab because testing incurs huge
cost to the company. The manager might justify his action saying it is just
not necessary because I trust my employees. This statement is strong &
positive if looked from employee’s perspective but doing business
concerns customers as well. The reasoning is justified but is it really
correct?

• There are 3 criteria in Moral reasoning

 Moral reasoning must be logical.
 Factual evidence should support the judgement which must be accurate,
relevant and simple.
 Ethical standards used in reasoning should be reliable.
There are two forms of moral reasoning:
• Reasoning that attempts to demonstrate the truth of some general
moral principle.
• Reasoning that attempts to establish the truth of particular moral
claim on the basis of general ethical principles.
• Everyday people are faced with dilemma of whether or not to lie in a
given situation. People make this decision by reasoning the morality
of the action & weighting of moral behavior.
• There are four components of moral behavior.
• Moral sensitivity: ability to see an ethical dilemma including how our
action affect others
• Moral judgment: ability to reason correctly about what to be done in
specific situation
• Moral motivation: a personal commitment to moral action accepting
to responsibility for outcome
• Moral character: courageous persistence inspire of fatigue to take
the easy way out.
The morality of profit motive
• Profit motive refers to the motivation of business to make more
money which is morally criticized because the owner is motivated
solely by the profit and it is related with selfishness and greed.
• If people and firms are motivated by something else besides profit,
they would be better able to provide the things that consumers really
need.
• The major criticism against the profit motive centers at the idea that
profits should not supersede the needs of people. At the same time,
many academicians believe that profit motive will in fact bring a
morally proper environment.
• The good side of profit motive:
• Profit motive motivates the people to do meaningful as it gives human life
a goal to pursue & something to live for.
• It helps to promote creativity & cleverness in running a business.
• It makes people productive.
• Profit-motives generates potential capital for the business & this potential
capital can be invested to establish new business which results in various
job opportunity & more goods & service to consumers.
• The bad side of profit motive
• Profit-motive promotes rivalry among competitors as competition
sometimes stiff. It creates negative effect in business environment &
consumers.
• Profit-motive makes people so focused only in making money but forget
customer which builds negative trust among people.
• Profit-motive makes businessman as a questioning person because it focus
his attention on the practical activity for making money.
• Profit-motive promote self-interest rather than the common interest.
Ethics and philosophy
• Ethics is that part of philosophy which deals with the good and bad, or
right and wrong, in human conduct. It asks: What is the good? What
should I do? What is a good life? Is morality objective or subjective? Is it
absolute or relative? Why should I be moral? What is the relationship
between self-interest and morality?
• As a branch of philosophy, ethics investigates the questions like what is the
best way for people to live?
• Ethics and philosophy combined is sometimes also referred as Moral
philosophy.
Major areas of study of ethics and philosophy
1. Meta-ethics
It is the philosophy of ethics dealing with the meaning of ethical terms, the
nature of moral discourse (prawachan) and the foundations of moral principles.
Meta-ethics is concerned with what we mean when we use words like good,
bad, right and wrong. It raises question why this is wrong about the whole
situation and give reasons it.
It investigates where our ethical principles come from, and what they mean.
Are they merely social inventions?
 Example: Thomas Hobbes – The truth of mankind ideas can be evaluated only
by self examination, by looking into our selves to judge our behaviors, thoughts
and passions, which is the basis of all actions.
2. Normative ethics
It is a philosophy of ethics that tell us how we ought to live. It tell us about what
should be done in various situation.
this theory attempts to provide action guide, procedures for answering the
practical question like “what I ought to do?”
3. Descriptive ethics
It is the observational study of moral beliefs and practices of different people
and cultures in various places and times.
It describes the whole situation but do not criticizes.
4. Applied ethics
It is an attempt to answer difficult moral questions that actual people face on
their lives.
It attempt to use philosophical method to identify the morally correct course of
action to various field of human.
For example: old times yuddha, profession ethics, bio ethics, business ethics,etc.
 Core element of Ethical Character
1. Trustworthiness
It includes honesty, reliability and loyalty which is the ethical character of
manager.
2. Respect
Respecting people in all situations even when dealing with unpleasant people
is the another core element of ethical character. We should treat everyone with
respect, regardless of who they are and what they have done.
3. Responsibility
Responsibility means being accountable for what we do and who we are.
Ethical people show responsibility by being accountable, pursuing excellence
and exercising self-control.
4. Caring
Managing a business without hurting anyone’s feelings is difficult but not
impossible. Manager must response to both emotional condition like pleasure
and pain of others and should seek to cause no harm to others.
5. Citizenship
It includes as a citizen of country what are the duties of manager and what
behaviour should be shown by him as a part of community. It may includes
obeying laws, execute duties in better way, providing information and so on.
6. Fairness
By fairness, here it means the manager should be able to provide equal
opportunities and outcomes to all its members. It does not require that fairness
must be shown visibly by the manager while he do it but he can do it to group
of member indirectly also.
 Ethics and morality
Definition of Morals
• Morals are the social, cultural and religious beliefs or values of an
individual or group which tells us what is right or wrong. They are the
rules and standards made by the society or culture which is to be followed
by us while deciding what is right. Some moral principles are: Do not
cheat, Be loyal, Be patient, Always tell the truth.
• Morality is subjective. It depends on the personal belief so may differ from
person to person. It is related to internal.
Definition of Ethics
• Ethics is a branch of philosophy that deals with the principles of conduct of
an individual or group. It works as a guiding principle as to decide what is
good or bad. They are the standards which govern the life of a person.
Ethics is also known as moral philosophy. It regulates the business sector.
• Ethics is objective. For example rules and regulation is equally imposed to
all the member of company.
Benefits of Business Ethics
 provide a competitive advantage in terms of customers
When a company behaves ethically, they can attract customers to their
products and services and influence them towards loyalty. This is indicated by
a Unilever survey which found a third of consumers (33 percent) choose to
buy from brands that are making a positive social or environmental impact.
 improve employee happiness
Employees will feel more comfortable working for a business that’s behaving
ethically than one that’s not. After all, they don’t want to be partially
responsible for any unethical consequences, such as contributing to the
deforestation of an area or poverty due to underpaying labourers.
This will boost productivity, as indicated by a 2015 survey of more than 2,000
Brits which found that 36 percent of people would work harder if they knew
their company helped society.
The same survey found that 62 percent of people born between 1981 and
1996 (millennials) want to work for a company that makes a positive impact.
 Attract more investors
If investors know that the company they work with prioritises having high
morals and will operate in an ethical way, they will be safe in the knowledge
that their money is being used in a responsible way.
 Better for society
Business ethics are beneficial for the company by attracting customers,
investors and employees). But that’s not all. When a company cares about its
behaviour, impact and environmental footprint, it’s also better for society
overall.
For example, a print company might care about sourcing their materials
sustainably and producing their products in a way that’s environmentally
friendly. Both of these approaches help to benefit society in a number of ways:
The print company’s stock (such as paper, card etc) will be sourced in a way
that doesn’t impact the environment. For every tree that’s cut down to make
the stock, another might be planted in its place.
The labourers who plant, maintain, chop and produce the stock will be paid a
good living wage and ensure their business doesn’t damage the local way of
life.
 Having a Code of Ethics Provides a Moral Compass During Tough Times
By having a code of ethics, it provides you a tool to make consistent
decisions about what is right and wrong. This is especially helpful when
making decisions in times of conflict.
 Clear Business Ethics Can Promote a Strong Public Image and Goodwill
Supporting behaviors with values is important in developing a positive
image for your business. Today’s savvy consumer is doing more research
and watching more closely how businesses conduct themselves.
Code of Conduct/Ethics
• A code of conduct is a guide of principles designed to help professionals
conduct business honestly and with integrity. A code of ethics document
may outline the mission and values of the business or organization, how
professionals are supposed to approach problems, the ethical principles
based on the organization's core values, and the standards to which the
professional is held.
• Code of ethics are formalized rules and standards that describe what a
company expects of its employees.
• Many companies have adopted codes of conduct, too frequently they are
ignored. Either they are distributed to employees when hired but then
ignored, or hung on the wall for show and not taken seriously.
• It requires careful training to the people in the code and incorporating it as
part of an ongoing commitment to ethical behavior in an ethics program.
• Ethical code is significant in a manner that it provide important guidance to
people challenging ethical dilemmas in the work place.
Meaning and Importance of Social Responsibility
• Social responsibility is the way a corporation achieves a balance among its
economic, social and environmental responsibilities in its operations so as
to address shareholders and other stakeholders expectation.
• It is a general management concern and is important to all aspect of
business.
• Business have to associate themselves with various group in society
including religious groups, compelling them to become habituated to
operating in a pluralistic society wherein no group is in a position to apply
excessive power but the functioning of each group has an impact on the
other.
• Importance of Social Responsibility
 it improves financial performance.
 It enhances brand image and reputation.
 It increases customer loyalty and sales.
 It increases the ability to attract and retain employees.
 It brings less regulatory/activists oversight.
Evolution of CSR (Corporate social responsibility)
• In USA, idea of corporate social responsibility appeared around the start of
20th century. Corporations at that time came under attack for being for
being too big, too powerful & guilty and using dominant practices.
• In this protest, few farsighted business executives advised corporations to
use their power and influence voluntarily for broad social purpose rather
than profits alone.
• Steelmaker Andrew Carnegie who became great philanthropist gave much
of their wealth to education and charitable donations.
• Henry Ford developed paternalistic programs to support the recreation and
health needs of employees.
• These business leaders believed that business has responsibility to the
society that went beyond their only efforts to make profits.
• Different Phases of Evolution of CSR:
Phase 1: Charity and Philanthropy
• Culture, religion, family values, tradition & industrialization had an influential
effect on CSR.
• In the pre-industrialization periods (till 1850) wealthy merchants shared a part
of their wealth with the wider society by way of setting up temple for a
religious cause.
• The industrial families of the 19th century were included towards economic as
well as social consideration.
Phase 2: Dedication to the progress of the society
• In this stage there was increased of industrialists to demonstrate their
dedication towards the progress of the society.
• In this stage business established trusts for schools & colleges and also helped
in setting-up training & scientific institutions.
Phase 3: Shift from the focus on public organizations to private organizations
for socio-economic development
• During 1960-80 the private sector was forced to take a backseat.
• The public sector was seen as the prime mover of development.
• The policy of industrial licensing, high taxes & restrictions on the private
sector led to corporate malpractices.
• This led to enactment of legislation regarding corporate governance, labor &
Phase 4: Concern for labor & environmental standards(1980-2000)
• In the 1990’s the first initiation towards globalization & economic
liberation were undertaken.
• Redefining management practices & marketing in modern age contribute
towards social cause.
• As western markets are becoming more & more concerned about labour &
environmental standards in the developing countries which export and
produce goods for the developed world need to pay a close attention to
compliance with the international standards.
Phase 5: Long term sustainability & CSR into business strategy (2000-
present)
• The basic objective of CSR in these days is to maximize the company’s
overall impact on the society & stakeholders.
• A growing number of corporate feels that CSR is not just another form of
indirect expenses but is important for protecting the goodwill & reputation,
defending attracts & increasing business competitiveness.
• Companies have specialized CSR terms that formulate policies, strategies
& goals for their CSR programs & set a side budgets to fund them.
• CSR programs range from community development to development in
education, environment & healthcare etc.
• HISTORY OF CSR IN NEPAL:
• The CSR in Nepal started mostly in the form of philanthropic contribution
like guthi (trust).
• Almost all major temples in Nepal has a large area of land donated to them,
usually managed by the guthi.
• The income of such property is used for rituals and maintenance of the
shrine & for the service of the needy people.
• Construction of wells for drinking water, rest place for travelers & porters
(pati, pauwa, chautara), rest houses for pilgrims (dharmashalas), donation
of the land and money for schools, hospitals and traditional rituals of
donation to the poor and needy are another eg. of philanthropic acts
rooted in Nepali culture & tradition.
• The dominant culture and religion of Nepal “Hinduism”,
“Muslim” ,“Buddhism” etc. reflected in the practices of CSR.
• The cultural tradition and religion teaches us serving free meals to poor
people to donate money to beggars alongside road, these activities are
viewed as our responsibilities to the society.
Morale argument of CSR
• CSR broadly represents the relationship between a company and the
principles expected by the wider society within which it operates. It
assumes businesses recognize that for profit do not exist in a vacuum and
that a large part of their success comes as much from actions that are
consistent with societal values as from factors internal to the company.
• Modern business have become so powerful and possess large resources,
many claim that they have a moral responsibility to take both social and
environmental concerns into account.
• modern society has become much more complex and its challenges are of
such an increasingly global nature that the government cannot be expected
to meet these challenges alone.
• Zsolnai supports these moral arguments for CSR by claiming that the
conventional justification for profit making is no longer valid because of
the environmental damage and human deprivation caused by modern
business. He calls for an ethical and social justification of profit making
and a new business practice based on responsibility.
• The moral arguments for CSR are as follows:
1. The externalities argument:
• Companies have a moral responsibility to deal with the negative
externalities they cause, such as pollution, resource depletion or
community problems, insofar as they are not dealt with by governments.
2. The power argument:
• Organizations have access to resources & they should use the power &
resources responsibility in society.
• It’s more like Spiderman maxim: “with power comes great responsibility”.
3. The dependency argument
• Corporations rely on the contribution of much wider set of stakeholders in
society rather than just shareholders & thus have a duty to take into
accounts the interests & goals of those of shareholders.
Increasing relevancy of CSR
CSR simply do not affect the relationship between business and society rather it
affect the large area nowadays. A variety of forces are heightening interest in
CSR. Among these are increased affluence, ecological sustainability,
globalization, the free flow of information, and brands.
 Growing affluence
Affluence means choices. Citizens of wealthy countries can make choices
based on considerations that are more varied and complex than simple survival
and economics. Increasing affluence on a global basis continue to push CSR up
the agendas of corporation worldwide.
 Ecological sustainability
Ecological sustainability matters, from both the reality of a shared planet and
the public’s perceptions of a firm’s commitment to the health and well-being of
the communities in which it operates—especially since more people identify
themselves as supporting ecological concerns than either major political party in
the United States. And, of course, firms that do obvious ecological damage are
increasingly penalized by high profile protests from activist groups such as
Greenpeace, which have become particularly adept at gaining media attention.
 Globalization
Globalization increasingly strips down geographical and cultural barriers, so
that actions in one place (even if legal and proper) are subject to evaluation
from the perspective of multiple cultures, laws, and societal expectations.
Actions and practices in one locale can jump across the globe.
 Free flow of information
The growing influence of global media corporations make sure that any CSR
lapses by companies are brought rapidly to the attention of the worldwide
public.
Scandal is news & yesterday’s eyewitness is today armed with pocket-sized
video cameras or pictures taken by mobile phones that provide all necessary to
convict by TV.
 Brands
Brands today are often a focal point of corporate success & should be
protected by integrating a strategic CSR perspective throughout the firm.
Companies try to establish popular brands in consumer’s mind because it
increases their competitive advantage.
Brand value is critical to firms and today the value of intangible brand is more
than the tangible asset
Social responsibility and ethics
• Social responsibility is an ethical theory, in which individuals are
accountable for fulfilling their civil duty- the actions of an individual must
benefit the whole of society so that there must be balance between
economic growth and the welfare of society and the environment.
• The theory of social responsibility is built on a system of ethics, in which
decisions & actions must be ethically validated.
• If the actions or decisions cause harm to the society or the environment
then it would be considered to be socially irresponsible.
• The theory of social responsibility & ethics applied in both individual and
group practices.
• Social responsibility and business ethics are often regarded as same
concepts. However, the social responsibility movement is one of the
overall disciplines of business ethics.
• Business has developed a system of social responsibility that is tailored to
their company environment.
• If social responsibility is maintained within a company than the employees
& the environment are held equal to the company’s economics.
 CSR domains
1. The Economic Domain (motive: to be profitable)
• It includes those economic activities which are intended to have either a direct or
indirect positive economic impact on the corporation.
• Direct economic activities are concerned with the immediate increase in either
profit or share value like increase in sales & indirect economic activities could be
the kind of activities which are design to improve employee morale or the
company’s public image.
2. The Legal Domain (motive: to obey the law)
• The legal domain concerns society’s expectations regarding company’s
responsiveness to compliance federal, state and local jurisdictions & laws.
• Legality is divided into following categories.
a. compliance:
• Compliance can be further divided into three types; passive, restrictive &
opportunistic
• A passive type of compliance is of accidental nature, i.e the company does what it
wants & simply happens to the following the law. A restrictive type of compliance
happens when a company is legally compelled to do something that it would
otherwise not do. Opportunistic compliance occurs when a company actively
seeks out & takes advantages of loopholes in the legislation to make certain
activities possible.
b. Avoidance of civil litigation:
c. anticipation of the law:
• It relates to anticipation of changes to legislation.
• The legal process is often slow and companies might want to engage in
activities which will result in immediate compliance once the law is
ultimately enacted.
3. The Ethical Domain
• It submits an organization’s ethical responsibility to its environments.
• It compasses the public & relevant stockholder’s expectations regarding
business-ethical responsibilities in both a domestic & global context.
• There are three general ethical standards ;
a. The conventional standards: those standards or norms which have been
accepted by the organization, or society as necessary for the proper
functioning of business.
b. The consequentialist standards: the actions are considered ethical
according to consequentialism when they are promoting the good for society.
c. The deontological standard: this standards has a focus on activities that
reflect a thought for person’s duty or obligation as opposed to focusing on
consequences.