Meaning of Ethics

In Latin, the word ethics is termed as

ethicus and in Greek, it is termed as ethicos. In fact,
this word has originated from the word ethos which
means character or manner or sentiments of a
community. Ethics can be considered as a source of
character of a person expressed as right or wrong conduct
or action. In other words, ethics are the rules or standards
that govern behaviours.
As a discipline, ethics is one that examines
the moral standards or codes of conduct of a person or a
society as a whole and includes the moral principles,
standards of beliefs and values that guide the various
conducts, behaviours and activities. In short, ethics
provide the boundaries to our actions and help us to do
the right things.
The following are the personal qualities
constituting ethical behaviour:
1)Honesty
2)Integrity
3)Impartiality
4)Fairness
5)Loyalty
6)Dedication
7)Responsibility

8)Accountability
A good code of ethics is built on the
following foundations:
1)Compliance with internal policies and procedures
2)Compliance with external laws and regulations
3)Direction from organisational values
4)Direction from individual values

Definition of Ethics
Concise Oxford Dictionary: Ethics is relating to morals;
treating of moral questions; morally correct; honourable.
R. Wayne Mondy: Ethics is the discipline dealing with
what is good and bad, or right or wrong, or with moral
duty and obligation.

Objectives of Ethics
The objectives of ethics include:
1)Primary objectives-The primary objective is to define
the highest good of man and to set a standard for the
same. This can be used to deal with several
interrelated and complex problems which may be
psychological, legal, commercial, philosophical,
sociological or political in nature.
2)Other objectives-The other objectives are:
i. Studying human behaviour

ii.
iii.
iv.
v.

Establishing moral standards and norms of behaviour

Making judgement upon human behaviour
Prescribing moral behaviour
Expressing opinions or attitudes about human
conduct

Business Ethics
Business ethics are moral principles that
define right and wrong behaviour in the world of
business. What constitutes right and wrong behaviour in
business is determined by the public interest groups,
business organisations as well as an individuals personal
morals and values. In short, business ethics is the study of
business situations, activities and decisions where issues
of right and wrong are addressed and involves the
application of general ethical rules to business behaviour.

Nature of Business Ethics

The following are the characteristics
or nature of business ethics:
1)It is something for which each and every person is
individually responsible.
2)Ethical decisions are voluntary in nature as people
have the freedom of choice and freewill.

3)Ethics differ from person to person, time to time and

place to place and also due to socio-economic
changes.
4)Ethical decisions affect in a widespread way
5)Ethical decisions involve a trade-off between cost
and benefits received.
6)The effects of ethical decisions cannot be predicted.
7)Ethics is something which should be imparted at an
early age.

Sources of Business Ethics

The following are the important sources
of ethics, in general, and business ethics, in particular:
1)Religion-All the religions in the world insist on
ethical conduct and behaviour. Most business people
get guidance and inspirations from their respective
religions. In todays world, religion is interpreted in
terms of modern socio-economic problems.
A religion strongly believes that God has
created the world and also says that evil is a part of
life and one must avoid it. Religion stresses on
harmony, beauty, peace of mind, wealth, health and
success. An individual is guided back into a state of
harmony with all that surrounds the individual
through religious morality and also encourages
sustainable practices in business and production.

Religion advocates the maintenance of

orderliness and the avoidance of excessiveness. It
covers all the areas of human behaviour like what is
required, permitted, discouraged and also forbidden.
In the modern world, religion shows compassion to
other religions and considers the welfare of humanity.
2)Philosophical system-Philosophy is the study of
nature and the meaning of existence. It is not a mere
anti-business sentiment but rather gives guidelines
and frames the scope of ethical activities. The reason
why business ethics stresses on the importance of
transparency, accountability and responsibility is that
modern philosophy suggests integrity which means
soundness, principles and honesty.
All human activities have well-defined
rules and regulations that have been framed by a
philosophical system. Business philosophy is about
bettering the lives of all stakeholders through
empowerment and better business transactions. Ones
knowledge is shaped by ones attitude.
Optimists live in hope and believe that the business
can provide good solutions to peoples problems
whereas pessimists live in fear and expect the worst
future scenarios.
3)Cultural experience-Culture refers to a system of
learnt values and norms shared among a group of
people and constitute a design for living. Here, values
refer to abstract ideas about the good, the right and

the desirable whereas norms indicate the social rules

and guidelines which determine appropriate
behaviour in specific situations.
There are various determinants of
culture namely, economic philosophy, political
philosophy, social structure, religion, language and
education. If the social structure is well organised, the
cultural standards are high. High mobility can
promote better culture. If language promotes
communication, the culture is bound to be
progressive.
Basic values are developed only from
culture. The cultural norms and values promote
ethical business practices. Morals are extended to
business too. Fair practices such as fair price,
consumer care and after sales service are the results
of positive cultural experience. In the context of
globalisation, business firms are interested in the
basic values of human enrichment to protect the
interest of various stockholders.
4)Legal system-The legal system of a country is also a
source of business ethics and includes the
constitution, prevailing laws and judiciary. If the
legal system is alert, the unethical practices are
discouraged. The legal system of a country provides
the guidelines for business related to location,

production, conditions of employment, pricing and

customer care. Protecting the interests of
stockholders, protecting the rights of consumers and
taking care of the social and natural environment are
the important business ethics in a legal system.

Importance of Business Ethics

It is important to make clear what
business ethics is and what it is not:
a) Business ethics is not about morality but about the
accomplishment of transparent norms of relationship
in an organisation. Morality is an individual set of
commitments and ethics that brings the idea of
introducing good practices.
b)Business ethics is not just philanthropy but also
promoting social awareness in the business world.
c) Business ethics is not just concerned with
shareholders but more concerned with the
stakeholders.
d)Business ethics is not just a code of conduct but is
concerned with a code of ethics. A code of ethics can
easily bring about a defined and suitable code of
conduct. A code of conduct should be internalised as
a normative value and cannot be an external
instrument of control.
e) Business ethics is not just about establishing
compliance but concerned with establishing

employee morale. Employee morale depends upon

the good cultural conditions of an organisation.
f) Business ethics aims to bring about commitment
from all the stakeholders and this can be done only
by mutual benefits.
The importance of business ethics can be
discussed as follows:
1)Social concern-Any business operating in a society
has a moral responsibility of giving back to the
society in terms of welfare schemes and projects. No
society can afford to be greedy and no business can
be called an island. Business is always a part and
parcel of any society.
2)Social responsibility-Social responsibility refers to a
firms obligation to maximise its positive impact on
stakeholders and to minimise its negative impact.
There are four areas of social responsibility, namely,
economic, legal, ethical and philanthropic. At the
basic level, business firms have an economic
responsibility to be viable and profitable so that all
the stakeholders are rewarded.
Adherence to the legal practices promotes
welfare to all. Ethical principles provide a foundation
for the best practices of business. Above all,
philanthropic responsibility refers to those activities
that promote human welfare.

3)Avoidance of whistle blowing-Whistle blowing refers

to the act of employees who go to the public with the
complaints of corruption or mismanagement in
business organisations. Every employee has certain
expectations to be fulfilled by the organisation. When
an employee feels that something is unfair in the
organisation, he nurses a grievance.
A grievance refers to any form of
discontent. It arises out of employment conditions
and sometimes may be factual or imaginary or
disguised. Effective handling of grievance is an
ethical act. The management should feel the pulse of
the employees.
4)Value in business-Business ethics promotes good
business by generating support both within and
outside the organisation. It is a well known fact that
by adopting unethical practices, a firm can do well in
the short run, but only ethical firms can continue to
sustain in the long run.
Business ethics adds value as its effects
are experienced by all the stakeholders, who in turn,
develop a legitimate interest in the growth and
development in the business. Moreover it also creates
sustainable creativity among the employees and
management. In short, in following ethical principles,
a firm is better related to employees, customers,
shareholders and public.

5)Improves organisational effectiveness-During the

process of growth, the organisation experiences
different challenges and problems. Every problem
should not be considered as a challenge and every
challenge should add a learning curve to the
organisation
Ethical organisations promote standard
training for their staff including time management,
stress management and effective communication.
Role clarity, supportive climate and empathy are the
inputs provided by an ethical administration. Ethics
offers a holistic approach to business development.
6)Healthy
competition-Business
ethics
offers
competitive guidelines so that all the firms can follow
good business practices. There is less room for
exploitation of either the customers or the employees.
The core values are formulated and these core values
promote better competitive conditions.
Impartiality, technical experience and
professional respect among the colleagues are some
of the examples of these core values. The core values
have to be clearly operationalised in terms of general
business place. In short, business is a cooperative
activity and ethical behaviour alone can promote an
ideal cooperative behaviour.
7)Benefits for stakeholders-Originally, business was
meant to bring good returns only to investors. In
modern times, the importance of all the stakeholders

has been recognised from the ethical angle. Apart

from shareholders, those who should be benefitted
include employees, customers, suppliers and
members of the community.
The stakeholders enjoy benefits like good
reputation, records and recognition due to the ethical
practices of the business. An increasing number of
transactions can bring benefits both to the
stakeholders and business organisations.

Factors influencing Business Ethics

A variety of factors are responsible for the
operation of business ethics. They are as follows:
1)Leadership-Business is all about the interaction
between customers, suppliers, employees, financiers
and managers. Greater is the effectiveness of
interaction, higher is the success of business. An
effective leadership is very much required for the
success of the business. Even though, there is no
conflict between serving and providing excellent
returns for shareholders, it requires discipline, vision
and committed leadership.
If a leader is strong and follows good
skills, he will attain success in his goals. A valuebased leader can lead others on the basis of sound
values and effective processes. The ethical leader
frames actions in ethical terms as, for him; leadership

is a fully ethical task. Above all, the ethical leaders

search for the best people and develop them.
2)Strategy and performance-Ethics is closely related to
the strategy followed by the business organisations.
An ideal strategy should not be limited to generated
revenue only. It should take into account the ethical
values engendered by the proposed decisions.
Corporate governance is the formal
system of accountability and control of ethical
organisational decisions involving the use of
resources. Business ethics and accountability are
given a reasonable importance in the Board of
Directors meetings. Accountability for organisational
decisions begins with a strategic mission and vision.
An effective Board of Directors serves as
a type of insurance against the business cycle and
fluctuations of the economy. Many investors believe
in the stockholder model of corporate governance. A
stockholder model follows a strategy of social
investing in terms of which social and ethical criteria
are integrated in investment decisions.
3)Environment-Business ethics is also divided by the
type of environment in which a business organisation
is situated. There are two aspects of environment,
namely external and internal. Internal environment
refers to all aspects like vision, mission, power
structure and other related matters. External
environment refers to elements which are outside the

organisation like government policy, monetary policy,

fiscal policy, general economic conditions and labour
standards. These factors influence business ethical
practices.
4)Corporate culture-The corporate varies from
company to company and from time to time. It all
depends on the nature of the leader; the competition
should be healthy, based on fair rules. A good
corporate culture should take care of the interests of
all the stockholders, customers and employees.
Culture is a body of learnt beliefs,
traditions and guides for behaviour among the
members of an organisation. Corporate culture
includes norms, physical settings, modes of dress,
special language, rituals, heroes and stories.
Organisational culture may be strong or weak. In a
strong culture, the standards and guidelines are
known and shared by all. It is providing the
behaviour of all on a day-to-day basis.
Corporations are paying attention to
ethical programmes. An ethical programme consists
of the rules and policies of an organisation by
motivating ethical performance. Rules and policies
are framed for orientation, training, compensation,
promotion and auditing.
5) Individual
characteristics-The
individual
characteristics of a person influences his ethical
behaviour. Many ethical issues are related to

individuals. The individuals may differ in their

characteristics from one extreme to the other with
regard to ethics. Some others are extremely unethical.
There are many in between these two extremes.