Lecture No.

07 – Factors Influencing Business Ethics

Academic Script

What does a Business ethic mean?

Business ethics actually means to carry out business with an individual touch in order to
give happiness to the society.
So, the entrepreneur must give a standard supply of good-quality commodities and
services at reasonable prices to their customers. They must avoid involving in unfair trade
practices like black marketing, adulteration, cheating in weights and measures, promoting
misleading advertisements etc. They must provide fair wages and good working conditions
to their workers. They must not make use of the workers in unfair way. In the market, they
must encourage competition. They must look after the interest of small businessperson.
They must avoid monopolies. They must avoid unfair competition. They must pay all their
taxes on a regular basis to the government.
Definition of Business Ethics
According to Andrew Crane,
“Business ethics is the study of business situations, activities, and decisions where issues of
right and wrong are addressed.”
According to Peter Drucker,
“Business Ethics is plain, everyday honesty.”
According to Oxford Dictionary,
“Business Ethics means science of moral, moral principles, rules of conduct, whole field of
moral conduct.”
Business Ethics
Ethics means the set of rules or principles that the organization should follow. Whereas in
the business ethics refers to a code of conduct that businesses are expected to follow at the
same time as doing a business. Throughout ethics, a standard is set for the organization to
control their behavior. This helps them in distinguishing between the right and the wrong
part of the businesses. The ethics that are created in the organization is not so difficult to
understand. It is not like a rocket science but the creation by a human brain. That is why
ethics depend on the influence of the situation, place and time.
Code of conduct is another word that is widely used in businesses nowadays. It is a set of
rules & regulations that are considered as necessary by the people working in the
organization.
Business ethics compromise all these principles and values and helps in guiding the behavior
in the organizations. Businesses should have stability between the needs of the stakeholders
and their want to make profits. Many times businesses require doing tradeoffs, while
maintaining this stability. To fight against such scenarios, principles and rules are formed in
the organization. These ensure that the business gains money without affecting the society
or individuals as a whole. The ethics indulge in the businesses send back the philosophy of
that organization.
One of this policy, determine the fundamentals of that organization. As an outcome,
businesses often have ethical values.

Importance of Business Ethics

Every organization should have their own ethical rules and principles. Business ethics will
help you to keep and attract customers, employees and investors.
For example, consider that if company is a “Healthy Food” manufacturing and they have
proclaimed on the advertisements and labels that they don’t add any preservatives to the
food and then they should adhere to the claim they have made. If they disobey their
claims and started selling the product by adding preservatives, then it is considered as
unethical business practices. It will harm the brand and eventually, you will be unable to
find trust from the customers. It will too damage the status and keep away the
stakeholders. Hence, status is one of the most vital assets of a company and it is also one
of the most difficult jobs to rebuild in same manner once it is lost. One will start building a
good status with consistent ethical behavior. Shareholders and potential investors are
expected to get attracted to the organization which adheres to their moral guiding
principle and promises they’ve made; this keeps the organization’s share price high.
To retain a positive status and brand image, businesses must be dedicated to operating on
an ethical institution as it relates to treatment of employees, respecting the surrounding
environment and good market practices in terms of consumer behavior and cost.
An employee also feels comfortable and wants to remain in the business for the long
period when working with an organization which has strong business ethics. This reduces
the labor turnover and increases the productivity. They are certainly bound to go after the
footsteps of the organization. Hence, when an employee does his work with honesty and
integrity and by following the rules, it will eventually benefit the organization.

The objectives of business ethics are:

(i) On personal level:
On personal level the policy should be set so that no misuse of the property of the others
or of the company taking care of the promises and extending the mutual help, not to
desire to obtain quick gains and not to involve in politics to gain powerful position.
(ii) On internal policy level:
The business organization should not follow unfair practices in dealing with employees and
other stakeholders. The organization should have better openly communication at all
levels. The organization leadership should encourage employees for improved
productivity.
(iii) On societal level:
The social level relates like no discrimination concerned for the down firmed be the prime
concerns of the business organizations. The best use of clean environment, scarce
resources and ensuring improved quality of life to all the other stakeholders should be
stressed in the internal policy.
(iv) On stakeholder’s level:
The organization should be concerned of the maximum number of stakeholders and follow
ethical behavior with customers, employees, suppliers, banks and financial institutions,
government and all other shareholders that are connected with the organization.

The following are the need for business ethics in today’s era:
1. To Survive a Business – If an organization does not follow business ethics it will have a
bad status in the market as a result its survival will become very difficult.
2. To Protect Consumer Rights - Business ethics protects the rights of customers such as
health and safety, correct and true information and selection.
3. To protect employees and shareholders – Business Ethics safeguards employees and
shareholders against exploitation and unfair practices.
4. To develop strong relationships – Business Ethics results in good and strong relations
between the business and the society. It will help control sufficient supply, more profits
and improved economic development.
5. To know the importance of labor- Work ethics and good business help keep hold on
employees through job security, proper salaries and good working conditions. This helps a
business to be more steady due to worker’s loyalty.

From an Indian Perspective- Ethical Principles in Businesses:

Basically, any businesses that run their organization in India comprises of these ethical
principles which are as follows:
Integrity:
Integrity principle is tested, each time when there is immense pressure to do right instead of
maximizing the profits. The executives need to demonstrate the personal and courage
integrity, by doing what think is right. For such principle, they will not back down and be
experience.
Loyalty
Without trust, no ethical behavior can be promoted. And also for trust, loyalty needs to be
confirmed. While remaining loyal to the institutions, the executives require to be worthy of
this trust. There should be friendship, kindness in the time of adversity-devotion and support
for the duty. People should not disclose or use personal information. This may leads to
confidence in the institution. They should protect the capability of a professional to make
their own decision by avoiding any kind of influence or the conflicts.
Hence, they should remain loyal to their colleagues and their company. When they accept
the other staff, they need to respect the ownership information attached with the previous
institute and to give a reasonable time to the institute. Thus, they should avoid taking part in
any activity that may take the undue benefit of the firm.
Honesty
The ethical executives are sincere while dealing with their usual work. They also require
being honest and do not intentionally mislead the information to others. There should be
refusing of the partial truths, misrepresentations, overstatements etc. Therefore, they should
not have selective lapse by any means.
Concern and Respect
Concern and respect are two necessarily different kinds of behavior in the institution. But
they go on one bike that is why they have been set under one principle. When the executive
is ethical he is kind and caring. There is one golden rule which says that help those people
who are in need. Moreover, seek their activities in such a manner that the business goals of
the organization are achieved. The executives also require showing respect towards the
employee’s dignity, privacy and rights. He needs to keep the interests of all those important
decisions which are at risk. They need to treat the person rightly and equally.
Fairness
The executives need not be fair in all the business, but they also should not implement the
wrong use of their power. To gain any sort of benefit, they should not try to use over each
one or other indecent manners. Furthermore, they should not take an undue benefit of
anything or other person’s mistake.
Fair persons are tending more towards justice and ensure that the person is equally treated.
They should be open-minded, tolerant, willing to admit their own mistake. The executives
should be able to change their positions and beliefs based on the situation.
Leadership
If ethical then any executive should be a leader to others. They should be able to handle all
the responsibilities given to them. They should be aware of all the opportunities provided to
their position. The executives should also be a proper role model for others.

Elements of Business Ethics

The life of the business organization greatly depends on the ethics established and
followed by the entrepreneur and unethical practices create a threat to the growth and
survival of the business. Following ethics in business creates a positive status that opens
different opportunities for profit. Moreover, the techniques adopted to practice business
objectives should be pure i.e. lawful, because the goals of business cannot be
accomplished if it employs unfair means.
1. Code of Conduct: Those institutions which undertake to inculcate ethical conduct in the
business institution establish and implement the code of conduct, for their members and
employees. These codes are the report of institutional values.
2. Ethical committee: There are many institutions, which create the ethical committee,
which is particularly dedicated to maintaining ethics in the institution. Such committees
raise ethical concerns and update the code of conduct, settle down ethical dilemma, in the
institutions.
3. Ethics Communication: An another major component to play a great role in making the
ethics programme successful is the development of an effective ethical communication
system. It tends to educate staff regarding the ethical norms and standards of the
institution.
4. Ethical office: The next step is to set up an ethical office, to enact policies and
communicate among various members of the institution.
5. Disciplinary method: A disciplinary method should be created, so as to hold the ethical
contravention severely and quickly.
6. Ethical training programme: Another important step is the ethical training programme,
in which the staffs of the institution undergoes training and learn ethical norms and
standards of the institution.
7. Effective Monitoring: When an effective monitoring committee is created, an ethical
programme is considered fruitful and successful which just looks after various processes
and controls deviations.

Social Responsibility
Human Being is a social animal and cannot live in isolation. He is expected to behave in a
manner that is morally and socially acceptable to others. The same is applied to
businesses. Although the primary goal of any business is to earn maximum profits for the
shareholders and owners, it is also expected to conduct its operations in a way that it
fulfills its social obligation too. For example, though it is not compulsory on any private
sector company to offer employment to the weaker or disabled sections of the society, it
is considered to be a part of the social responsibility of the organization to absorb person
from such sections of the society. Likewise though there is not written law to compel a
organization to engage in acts to do something for the betterment of environment or to
do something to reduce pollution, taking initiatives to clean up environment are
considered to be a part of the social responsibility of the organization.
Difference between Business Ethics and Social Responsibility
Although business ethics and social responsibility appear to be overlapping, there has
always been a contradiction between both of them. Organization, though they are
dedicated to be socially responsible for their behavior have been found to be engaging in
activities that cannot be said as ethical.
What is good for the people is sometimes not good for the business but what is good for
the business is almost always not good for the people.
Society responds in such a way that businesses are forced to act responsibly, if it is
conscious. The same applies to the judiciary and the administration of any nation.
Selling of tobacco and liquor in any society is not just against business ethics though it may
be against the principles and values of social responsibility. The same applies to gambling
and lotteries. But it is definitely against the social responsibility as well as against the
business ethics to attract minors to engage in drinking and smoking.

Factors influencing Business Ethics

Today entrepreneurs are very well aware of the ethical issues and so they want to improve
the ethical standards of the business. Self-regulating is of course improved and produce
impressive outcomes. Besides it, there is also various numbers of factors, which
considerably influence the manager to obtain ethical decisions.
Some of them are as follows:
1. Private Code of Ethics
A person’s private code of ethics that is what one considers moral is the primary
responsible factor influencing his behavior.
2. Legislation
It already states that the Government will interfere and enact laws only when the
businessperson become too selfish and unethical and completely ignore their
responsibility towards the society. Such misbehavior will not be tolerated continuously by
the society. It will definitely apply pressure on the Government and then the Government
consequently has no other option to prohibit such unhealthy behavior of the businessman.
3. Rules and Regulations by Government:
Government regulations supported by laws regarding the product safety, working
conditions etc. These provide some rule to the business leaders in determining what are
recognized or acceptable standards and practices.
4. Ethical Codes:
When an organization grows bigger, its standard of ethical conduct tends to increase. Any
unethical behavior or code of conduct on the part of the organization shall put in danger
its established status, goodwill and public image. Therefore, most of the organizations are
very careful in such respect. They also issue exact guidelines to their subordinates
regarding the dealings of the organization.
5. Social Force and Pressure:
Social force and pressure have significant influence on ethics in business. If an organization
supplies sub-standard products and get involved in unethical conducts, the consumers will
become indifferent towards the company. Such refusals shall exert a pressure on the
company to act honestly and adhere strictly to the business ethics. Sometimes, the society
itself may turn against a company.
6. Climate of the Industry:
Today Modern industry is working in a more competitive atmosphere. Therefore only those
industries which firmly stick to the ethical code can retain its place unaffected in its line of
business. If the industry’s performance is below than other firms in the same industry then it
cannot survive in the field in the long run.
7. Legal & Political factors:
On ethical values, prominent political parties in the nation and the government in power may
too have influence. They also apply their influence through legislative enactments whenever
they needed. Some examples of government rules and regulations are safety in printing of
weight, anti pollution measures, factories and mines etc.
8. Social values:
Each & every society has values, norms, traditions and customs to govern behaviors. The
society has a great influence on the business persons. It can compel the businessman to
admit and follow ethical norms and cease from unethical business practices.
9. Cultural values:
These are approved on from generation to generation. The business managers have to follow
as they have a long lasting impact on the ethical norms. Institution provides for values of
people and institutions which are interrelated and they reinforce the values passed by each
other. These organizations set down what is good or bad for a person or an organization.
10. Personal Values:
Employees usually go after the behavior standards of their bosses. For example, Expert
managers have a tendency to focus less on profit maximization than owner managers.

ADVANTAGES OF BUSINESS ETHICS

More than one organization recognizes the link between financial performance and
business ethics. Following are some advantages of business ethics:
1. Attraction and retaining talent
Organizations that have high ethical values are usually aspired to join by the people.
Organizations are able to attract the best talent and an ethical institute that is committed
to taking care of its staff will be rewarded with staff being equally committed in taking
care of the organization.
2. Loyal Investor
Investors are concerned about reputation, ethics and social responsibility of the institution
in which they invest. Investors are becoming more conscious that an ethical climate
provides a foundation for profits, productivity and efficiency. Relationship with any
stakeholder as well as investors based on commitment, trust and dependability results in
sustained loyalty.
3. Customer satisfaction
For successful business strategy, Customer satisfaction is a vital factor. The name of a
company should bring to mind trust and respect among customers for long lasting success.
This is only achieved by an organization that adopts ethical practices. A company with a
strong ethical environment places its customers’ interests at prime. Ethical conduct
towards customers builds a strong competitive place. It also promotes a strong reputation.
4. Regulators
The regulator need not always observe the implementation of the ethically sound
organization. If organization acts within the confines of business ethics then it can earn
profits and reputational gains. Companies that are open to employee’s wants have lower
turnover in employees.
 Shareholders invest their money into a company and expect a certain level of return
from that money in the form of dividends and/or capital growth.
 Customers pay for goods, give their loyalty and enhance a company’s reputation in
return for goods or services that meet their needs.
 Employees provide their time, skills and energy in return for salary, bonus, career
progression, and learning.