Chapter: Business Science : Business Ethics, Corporate Social Responsibility and Governance

Introduction of Business Ethics

The term "ethics" is derived from the Greek word "ethos" which refers to character or customs or accepted behaviors.




Some years ago, one sociologist asked business people, "What does an ethic mean to you?" Among their replies were the following:


"Ethics has to do with what my feelings tell me is right or wrong." "Ethics has to do with my religious beliefs."


"Being ethical is doing what the law requires."


"Ethics consists of the standards of behavior our society accepts." "I don't know what the word means."


Definition & Nature of business ethics:


The term "ethics" is derived from the Greek word "ethos" which refers to character or customs or accepted behaviors. The Oxford Dictionary states ethics as "the moral principle that governs a person's behaviour or how an activity is conducted". The synonyms of ethics as per Collins Thesaurus are - conscience, moral code, morality, moral philosophy, moral values, principles, rules of conduct, standards.

Ethics refers to well- founded standards of right and wrong that prescribe what humans ought to do, usually in terms of rights, obligations, benefits to society, fairness, or specific virtues.


Ethics is a set of princ iples or standards of human conduct that govern the behavior of ind ividua ls or organizations. Using these ethical standards, a person or a group of persons or an


organization regulate their behavior to distinguish between what is right and what is wrong as perceived by others. It is not a natural science but a creation of the human mind. For this reason, it is not absolute and is open to the influence of time, place and situation.


In bygone times, kings used to keep food testers who ate the food prepared for the king before it was offered to him. This was royal clinical research to find out if the food was poisoned. The practice did not raise eyebrows because the king was regarded as the most important person in the kingdom, and his life was more precious than that of anyone else. It was the ethics of the time.


— Ethics can be defined as the discipline dealing with moral duties and obligation, and explaining what is good or not good for others and for us.


— Ethics is the study of moral decisions that are made by us in the course of performance of our duties.


— Ethics is the study of characteristics of morals and it also deals with the moral choices that are made in relationship with others.


— Ethics is concerned with truth and justice, concerning a variety of aspects like the expectations of society, fair competition, public relations, social responsibilities and corporate behavior.


Business Ethics


Business ethics is a form of applied ethics. In broad sense ethics in business is simply the application moral or ethical norms to business. Business ethics refers to a 'code of conduct' which businessmen are expected to follow while dealing with others. 'Code of conduct' is a set of


principles and expectations that are considered binding on any person who is member of a particular group. The alternative names for code of conduct are 'code of ethics' or 'code of practice'.


Business ethics comprises the principles and standards that guide behaviour in the conduct of business.


Businesses must balance their desire to maximize profits against the needs of the stakeholders. Maintaining this balance often requires tradeoffs. To address these unique aspects of businesses, rules - articulated and implicit, are developed to guide the businesses to earn profits without harming individuals or society as a whole.


The coverage of business ethics is very wide as it deals with norms relating to a company and its employees, suppliers, customers and neighbors, its fiduciary responsibility to its


shareholders. It reflects the philosophy of business, one of whose aims is to determine the fundamental purposes of a company.


Business ethics stands for the saneness or purity of p urpose that is upheld through carefully designed actual practices of business enterprises. It is an embodiment of conscience concern

towards execution of business processes in tune with the nobility of the purpose.





Ethical problems and phenomena arise across all the functional areas of companies and at all levels within the company which are discussed below:

Ethics in Compliance


Compliance is about obeying and adhering to rules and authority. The motivation for being compliant could be to do the right thing out of the fear of being caught rather than a desire to be abiding by the law. An ethical climate in an organization ensures that compliance with law is fuelled by a desire to abide by the laws. Organizations that value high ethics comply with the laws

not only in letter but go beyond what is stipulated or expected of them.




Ethics in Finance


The ethical issues in finance that companies and employees are confronted with include:


— In accounting - window dressing, misleading financial analysis.


— Related party transactions not at arm‘s length


— Insider trading, securities fraud leading to manipulation of the financial markets.


— Executive compensation.


—Bribery, kickbacks, over billing of expenses, facilitation payments.


— Fake reimbursements


Case of unethical practice


Mr. A, is a respected senior officer in the company, he enjoyed all the benefits and

perquisites from the company including car with driver, medical facility, reimbursements of certain expenditures.


During the  months  September, October, December  it  was observed that  his telephonic

reimbursements were on a ris ing note, fro m Rs. 500 p.m it we nt up to Rs. 2500 p.m. The matter was reported and was investigated. It was found that Mr. A has made arrangements with

the Telephone Company for making a single bill for two telephone numbers at his residence.



Case of unethical practice


A middle level executive, Mr. X, based in Delhi, opts for a 3 day training programme in Bangalore, which happens to be his hometown. He also applies leave for 3 days immediately following the training which is granted to him. Mr. X reaches the venue of the training. On the first day, registers himself, takes the training kit, attends the training for two hours, befriends a dealing officer and arranges to have the presentations etc. sent to him. He does not attend the training programme thereafter.


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