Business Ethics

Definition:

Business ethics is an art & science for maintaining harmonious relationship with society, its various
groups and institutions as well as reorganizing the moral responsibility for the rightness and wrongness
of business conduct.

Business ethics is primarily concerned with the relationship of business goals and techniques to specify
human ends

Business ethics or ethical standards are the principles, practices and philosophies that guide the
business people in the day today business decisions.

Areas of business Ethics

There are 2 broad areas which covers business ethics

1. Managerial mischief:
Managerial mischief include illegal , unethical or unquestionable practices of individual
managers or organizations as well as the causes of such behaviors and remedies to irradicate
them
2. Moral mazes:
It includes the numerous ethical problems that managers must deal with on a daily basis, such
as potential conflicts of interest, wrongful use of resources, mismanagement of contracts and
agreements, etc..

Determinants of Business Ethics

1. The ethical standards and values prescribed for a manager by his superiors.
2. The manager’s personal code of conduct.
3. The policies and philosophy of the organization itself
4. The ethical climate of the society.

Characteristics of Business Ethics

1. A discipline
2. It is an art , science and both
It depicts the principles of business, behaviours , ethical standards, moral values , decisions etc.
It is a science because the principles are determined on the basis of observation and
experimentation. It is an art because it emphasis on practical application of principles.
3. Dynamic
4. An ancient concept
5. Theological base
6. Study of goals and means
 7. Based on reality and customs
8. Relating to human aspects
9. Universal application
10. Develops personal dignity
11. Differ with individual perspectives
12. Keeps harmony

Ethical Standards

These are the principles of business conduct by which the propriety of business activities may be judged
in terms of right or wrong. it is difficult to lay to lay down a universal code or ethical standards, because
they primarily depend on time, circumstances and culture

Some of the ethical standards of business are given below

1. Follow the business rule honestly.

2. Equal distribution of business income among various groups.
3. Human behavior with workers and security.
4. Avoid unfair competitions.
5. Follow general business traditions.
6. To make all business activities welfare oriented.
7. Fair selection to the extent of looking into the personal problems of employees.
8. Service first profit next.
9. Satisfaction of customers.
10. Dignity of human labour.
11. Business must just, humane efficient and dynamic.
12. Social rule of business.

Some of the important ethical standards of business contained in the code, premium non
nocere (Hippocratic oath of Greek physician)
1. Do not cheat or deceive customer.
2. Do not destroy or distort competition.
3. Do not tarnish image of competition by unfair practices.
4. Sincerity and accuracy in advertising labeling and packaging.
5. Due payments of taxes and discharging other obligations promptly.
6. No hoarding, black marketing or profiteering.
7. No formation of cartel agreements to control production, price etc to the common
disadvantage.
8. Making genuine records of business available to all authorized persons as and when neede
by them.
9. Fair wages and fair treatment to employees.
10. No kickbacks or pay off to anybody.
 Principles of Business Ethics

The principles of business ethics developed by Cantt, J.S. Mill, Herbert Spencer, Plato,
Thomas Garret, Woodrad, Wilson etc are given below

1. Sacredness of means and ends:

The means and techniques adopted to serve the business ends must be pure and sacred. That
means good end cannot be attained with wrong means
2. Not do anything evil
3. Principle of proportionality
It is unethical to permit a major evil to another or to oneself without a proportionate reason.
The principle suggests that one should make proper judgment before doing anything so that
others do not suffer from any loss or risk of evils by the conduct of business’
4. Non Co-operation in evils
5. Co-operation with others
6. Publicity
According to W. Wilson anything that is being done or to be done, should be brought to the
knowledge of everyone
7. Equivalent price
W.Wilson gives this principle. According to him, the people are entitled to get goods equivalent
to the value of money that he will pay.

8. Business Consciousness

9. Service motto

10. Universal value

11. Human dignity

12. Autonomy

13. Promise Keeping

14. Non- violence

Importance of Business Ethics

1. Increase the goodwill

2. Helps to increase mutual trust and confidence
3. Helps in professionalization of management
4. Protects each other
5. Release from tension
6. Perpetual succession
 7. To face challenges:
Today business is too complex. Competition is increasing day by day. The business
wants to face a number of challenges .So it is better to have a good ethical standards to
face these challenges
a. It helps to establish high standards.
b. It brings improvement in work practices, work culture and lifestyle of business and
society.

Limitations:

a. No reward for ethical conduct.

b. Difficult to decide an act whether it is ethical or not
c. No proper knowledge of ethical standards.

Holistic Approach of Managers in Decision Making

 Profit maximization is the guiding principle of decision making in an economic –based

view of management.
 Executive who follow rational style of management that objectives of the business can
be achieved through precise and calculated means.
 Profit maximization and rationality form the basis of one such set of values, one
frequently used by executives in making decisions
 But rational decision making actually could not produce desired results
 Holistic approach of decision making is a comprehensive planning and management
process that helps people to improve their quality of life and their finances while
simultaneously restoring the environment on which we all depend.
 It is a process that allows people to make decisions based on their deeper values, which
will be economically, socially and environmentally sound.
 It is a new frame work for decision making on all levels that is based on resource
management of the whole
 It is a systematic and comprehensive approach.
 The managers who practice rational approach of decision making are simply guided by
financial statements, and they are more likely to be viewed as autocratic by their
subordinates.
Steps in Holistic Approach of Decision Making

Define the whole under Management

Develop a written goal Statement

Assess Current Situation

Brainstorming to achieve goal

Clarify possible Tools and Actions

Test Possible Actions against

Research / Home work

Retest Remaining possible tools & Actions

Develop plans for each year

Monitor

Control

Re-plan
Structure of ethics Management

Everyone who is entrusted to manage ethics in the organization is bound to prepare a sound
ethical programme which should include the following components.

1. Formal code of conduct

2. Ethical Committee
3. Ethical communication
4. An ethics office with officers
5. Ethics training programme
6. A disciplinary system
7. Establishing an ombudsperson
8. Monitoring

1. Code of conduct:
 Code of conduct are statements of organizational values
 It comprises of 3 elements
a. Code of ethics
b. Code of conduct
c. Statement of values
 A code of conduct is a written document, inspirational contents and specifies clearly
what acceptable or unacceptable behavior in the workplace is.

2. Code of ethics:

 A code of business ethics often focuses on social issues. It may set out general principles
about an organization's beliefs on matters such as mission, quality, privacy or the
environment. It may delineate proper procedures to determine whether a violation of
the code of ethics has occurred and, if so, what remedies should be imposed.

 The effectiveness of such codes of ethics depends on the extent to which management
supports them with sanctions and rewards.

 Violations of a private organization's code of ethics usually can subject the violator to
the organization's remedies (such as restraint of trade based on moral principles).

 The code of ethics links to and gives rise to a code of conduct for employees.

 Code of ethics (business of ethics) focus on social issue of organization. It focuses on

development of business, mission of business, plan of business development; it
determines privacy, environment and great plan to deliver business at the top level.
3. Ethics Committee

 Ethics committees are formed in many organizations

 These committees raise concerns of ethical nature

 They prepare or update code of conduct

 Resolve ethical dilemmas in organizations

 They evaluate the compliance of the organization with these ethical norms

 The members of the ethical should be selected from those persons who are
having knowledge in their industry, their code of ethics and community
standards.

 The committee members should be conscious about corporate culture and

ethical concise of the organization.

 The functions of the committee are:

a. Establishing ethics committee at the board level.

To oversee the development and operation of ethics management

programme.

b. Establishing ethics management committee.

For implementing and administrating an ethics management programme,

including administrating and training about policies & procedures and
resolving ethical dilemmas. The committee should be comprised of
senior officers
4. Ethical Communication System: For employees to make enquiries, gets advice if
needed or report doing wrong.

Objectives:

 To communicate organization values standards and ethical conduct of

business to employees.

 To provide information on company policies and procedures to the

employees.

 To help employees to get guidance and resolve questions regarding firms

standards of conduct and values.

 To set up means of enquiry such as telephone, suggestion box etc.

 5. Ethics office and officers

 To establish, communicate and implement ethics policies among the

employees of the organization.

 For the purpose ethics officers are appointed

 The ethics officers should develop a reputation for credibility, integrity,

honesty and responsibility through establishment of such ethics monitoring
bodies.

Functions of ethics officers are:

a. They are responsible for assessing the needs and risks that an
organization- wide ethics programme must address.

b. To develop and distribute the code of conduct or ethics

c. To conduct ethical training programme for employees

d. To establish and maintain confidential service to answer employees

questions about ethical issues.

e. To ensure that the organization is in compliance with government

regulations.

f. To monitor and audit ethical conduct.

g. To take action on possible violations of company’s code.

h. To review and update code in time.

Establishing an ombudsperson:
The ombudsperson is responsible to help co-ordinate development of policies and
procedures to institutionalize moral values in the work place.

The position is equally likely responsible for resolving ethical dilemmas by interpreting policies
and procedures.

Advantages of Managing ethics in the workplace:

1. Concentration to business ethics has significantly improved society

2. Ethics programmes help to maintain a moral course in turbulent times
3. They help to cultivate strong teamwork and productivity
4. They support employee growth.
5. They are an insurance policy.
 6. They help to avoid criminal acts “of omission” and can lower fines.
7. They help to manage values associated with quality management strategic planning and
diversity management.
8. They promote strong public image.
9. Overall benefits of ethics programs.
a. Legitimizes managerial actions
b. Strengthens organization culture.
c. Improves relationship between individuals and groups.
d. Greater impact on messages and enterprise values.

CFO (Chief Financial Officer):

 The chief financial officer (CFO) or Chief financial and operating

officer (CFOO) is a corporate officer primarily responsible for managing
the financial risks of the corporation. This officer is also responsible
for financial planning and record-keeping, as well as financial reporting to
higher management. In some sectors the CFO is also responsible
for analysis of data.

 The title is equivalent to finance director, a common title in the United

Kingdom. The CFO typically reports to the chief executive officer and to
the board of directors, and may additionally sit on the board.

 Most CFOs of large companies have finance qualifications such as an MBA or

come from an accounting background. A finance department would usually
contain some accountants with Certified Public Accountant or equivalent
status.

 In today’s increasingly challenging and volatile macro world, the role of the
CFO has evolved significantly. Traditionally being viewed as a financial
gatekeeper, the role of the CFO has expanded and evolved to a strategic
partner and advisor to the CEO.

 In fact, in a report released by McKinsey, 88 percent of 164 CFOs surveyed

reported that CEOs expect them to be more active participants in shaping the
 strategy of their organizations. Half of them also indicated that CEOs counted
on them to challenge the company’s strategy.

 The uneven pace of recovery worldwide has made it more challenging for
many companies. CFOs are increasingly playing a more critical role in shaping
their company’s strategies today, especially in light of the highly uncertain
macroeconomic environments, where managing financial volatilities is
becoming a centerpiece for many company’s strategies, based on a survey
held by Clariden Global.

 The duties of a modern CFO now straddle the traditional areas of financial
stewardship and the more progressive areas of strategic and business
leadership with direct responsibility and oversight of operations (which often
includes procurement) expanding exponentially.

 This significant role-based transformation, which is well underway, is best-

evidenced by the “CEO-in-Waiting” status that many CFOs now hold.
Additionally, many CFOs have made the realization that an operating
environment that values cash, profit margins, and risk mitigation is one that
plays to the primary skills and capabilities of a procurement organization,
and become increasingly involved (directly via oversight or indirectly through
improved collaboration) with the procurement function according to a recent
research report that looks at the CFO's relationship with procurement.