28.03.

14 (After Midterm) Lecture- 2

Concept of Ethics
Introduction:
Ethics is the basis of all good conducts of human being. Islam places the highest emphasis on ethical values
in all aspects of human life. In Islam, ethics governs all aspects of life. Ethical norms and moral codes
discernable/visible from the verses of the Holy Quran and the teachings of the prophet (SAW) are numerous
and comprehensive. Islamic teachings strongly stress the observance of ethical and moral code in human
behavior. More principles and code of ethics are repeatedly stressed throughout the Holy Quran Besides there
are numerous teachings of prophet (SAW) which cover the areas of moral and ethical values and principles.
The Holy Quran Says:
“You are the best nation that has been raised up for mankind; you enjoin right conducts, forbid evil and
believe in Allah” (Al Imran-110)(7)
The Prophet (SAW) also says:
‘‘I have been sent for the purpose of perfecting good morals ” (Ibn Hambal [1] No: 8595 (8
Many people in Makkah even the enemies were used to praise his sincerity, honesty, hard work, truthfulness
etc.
Our beloved Prophet (SAW) always emphasized on fair dealings in business with the customers. He said:
“God shows mercy to a person who is kindly when he sells, when he buys and when he makes a claim” (9)
Islam encourages an honest trader greatly and offers a high rank on the Day of Judgment. A businessman will
be honored along with the martyrs but the conditions are sincerity, truthfulness, honesty etc in dealings.
Our Prophet says:
“The Truthful and honest merchant is associated with the prophets, the upright and martyrs”

Definition of Ethics
The word ethics is derived from the Greek word ethos (meaning character) and from the Latin
word mores (customs). Together they combine to define how individuals choose to interact with
one another. In philosophy, ethics defines what is good for the individual and for society and
establishes the nature of duties that people owe themselves and one another.

• Ethics is a branch of philosophy fundamentally with the rules of human conduct from moral point of
view. These rules guide to moral behavior.

• Ethics provide the basic rules or parameters for conducting any activity in an ‘acceptable’ manner.

• Ethical rules tell us when our behavior is acceptable and when it is disapproved and considered to be
wrong.

For many religious beliefs and organizations are a major source of ethical guidance and moral meaning.

According to Rue & Byars “Ethics are standards or principles of conduct used to govern the behavior of an
individual or group of individuals.”

According to Henderson V.E “The word ethics refers to principles of behavior that distinguish between what is
good, bad, right and wrong.”

According to Skinner S. J and Ivancevich J. M, “Business for the 21 st century”, 1992

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“Ethics are principles of behaviour that distinguish right and wrong”. “Ethical conduct conforms with what a
group or society as a whole considers right behavior”.

According to Bittel LR & others “Ethics is a collection of moral principles and rules of conduct accepted by part or
all of the members of a society.”

Therefore, we can say that ethics represents a set of principles prescribing a behavioral code that explains what
is good and right or bad and wrong. In addition, ethics may outline moral duty and obligations.

WHAT IS BUSINESS ETHICS?

In short- Business ethics is the application of general ethical rules to business behavior.

Business ethics (also known as corporate ethics) is a form of applied ethics or professional ethics that
examines ethical principles and moral or ethical problems that arise in a business environment. It
applies to all aspects of business conduct and is relevant to the conduct of individual and entire
organizations (5).
Business ethics are used by managers as guideline in making decisions that affect employees,
organization, consumers and other parties interest.

• According to Skinner S. J and Ivancevich J. M, “Business for the 21 st century”, 1992

“Business Ethics is the evaluation of business activities and behavior as right or wrong”.

“Ethical standard in business are based on commonly accepted principles of behavior established by the
expectations of society, the firm, the Industry, and an individual’s personal values”.

• According to Rue & byars, “Management: Theory and Practice”, 1980

Business ethics are “concerned with the day-to-day behavior standards of individual and organizations concerned
with business.

According to Ivancevich JM and others, “Management: Principles and Practices”, 1996

“Business Ethics are used by managers as guidelines in making decisions that affect employees, the organization,
consumers, and other parties (interested)”.

According to Weihrich H and Koontz H

“Business ethics is concerned with truth and Justice and has a variety of aspects such as the expectations
of Society, fair competition, advertising, public relation, social responsibilities, consumer autonomy, and
corporate behavior in the home country as well as abroad”.

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"Business Ethics" can be defined as the critical, structured examination of how people & institutions should
behave in the world of commerce.

It may be said that the examination of the variety of problems that can arise from the business environment, and
how employees, management, and the corporation can deal with them ethically. Problems such as corporate
social responsibility, corporate governance, shareholder relations, insider trading, bribery and discrimination are
examined in business ethics.

So, Business ethics refers to the moral judgment of business enterprises towards the society.

The Difference Between What is Legal and What is Ethical

Law can be defined as a consistent set of universal rules that are widely published, generally accepted,
and usually enforced. These rules describe the ways in which people are required to act in their
relationships with others in a society. They are requirements to act in a given way, not just expectations
or suggestions to act in that way. Since the government establishes law, the government can use police
powers to enforce laws.

An ethical people and companies often do more than they are required to do and less than they are
allowed to do. The law tell us what we can’t do (i.e., prohibitions) and, sometimes what we must do (i.e.,
mandates); it does not answer the bigger question what should we do.

The Relation Between Law and Ethics

Ethical values and legal principles are usually closely related, but ethical obligations typically exceed
legal duties. In some cases, the law mandates ethical conduct. Examples of the application of law or
policy to ethics include employment law, federal regulations, and codes of ethics.

Though law often embodies ethical principles, law and ethics are far from co-extensive. The law does
not prohibit many acts that would be widely condemned as unethical. And the contrary is true as well.
The law also prohibits acts that some groups would perceive as ethical. For example lying or betraying
the confidence of a friend is not illegal, but most people would consider it unethical. Yet, speeding is
illegal, but many people do not have an ethical conflict with exceeding the speed limit.

Clearly, there is a relationship between law and ethics, and this relationship is important in management.
Managers must evaluate not only what is legal, but what they, their employees, and society consider
ethical as well. Important here is that companies must also consider what behaviors their customers will
and will not accept. A list with examples are given below to identify the actions of following categories:

1. Ethical and legal 2. Unethical & legal 3.Ethical & illegal 4. Unethical & illegal

Category Nature of actions

1. Ethical and legal Manufacturing a new product fuel additive that will increase
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gas mileage by 10%

2. Unethical & legal Knowing that 1% of all tires have production defects but
shipping them anyway and giving mileage allowance to anyone
whose tires wear out prematurely.

3. Ethical & illegal Producing and selling a drug that will reduce heart attracts but
failing to complete all of paper work that be filed with the
Govt. prior to selling the product.

4. Unethical & illegal Offering a member of the city corporation Tk. I lac to get a
business

Importance of Ethics
(a) Ethics is the foundation of the society
(b) Ethics provides the code of conduct that guides an individual in dealing with others.

(c) Ethics is related to all disciplines of management.

(d) It is perfectly possible to make decent (appropriate) living without compromising the integrity of the
company or the individual.

(e) Ethical companies have an advantage over their competitors; such as customer loyalty.

(a) If leaders do not follow ethics their followers will not follow ethics.

IMPORTANCE OF BUSINESS ETHICS

• Public expects business to exhibit high levels of ethical performance and social responsibility.

• Encouraging business firms and their employees to behave ethically to prevent harm to society.

• Promoting ethical behavior is to protect business from abuse by unethical employees or unethical
competitors.

• High ethical performance also protects the individuals who work in business.

Nature of Business Ethics

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Business ethics deal with those activities of business enterprises-some of which should be done and some
should not be done for the society. A businessman must practice some ethics that are discussed below:

1. Ensure legality of business activities: Business activities must be legal and businessman should not to do any
kind of illegal activities.

2. Customer orientation: All of his operations must be customer oriented. He must bear in his mind that the
“customer is the king”. So, he should produce and distribute that type of goods and services which can satisfy the
customers on the basis of moral principles.

3. Supplying good quality product: A businessman must have to ensure the supply of good quality products and
services. He has to maintain minimum standard of his product and service.

4. Following rules and regulations: A businessman must have to follow all business related rules and regulations
that is cumulated by the government.

5. Employer-employee relationship: A friendly relationship should be built up between employer and employees
in an organization because, success of the organization largely depends on it.

6. Avoiding fraud and cheating: A businessman has to avoid unfair means. He should not try to cheat or fraud
the customers or general public. He should always practice honesty and sincerity in his activities.

7. Environmental issues: In the present world, environmental issues are considered a vital matter. A businessman
ensures healthy environment for the insiders as well as the outsiders for running the organization smoothly.

8. Avoiding artificial shortage: Some dishonest businessman create artificial shortage of products and thereby
they want to gain more profit that is strongly prohibited in Islam as well as in state rules.

9. Meeting the claims: Claims of different categories of people like workers, executives, suppliers etc. are not the
same but businessmen have to satisfy them as per their requirements.

10. Avoiding harmful competition: In order to survive in the market successfully; each and every business
organization should co-operate with each other. They should avoid harmful competition.

11. Pricing: Businessman has to claim a reasonable price of his products or services that is under purchasing
capacity of the customers.

12. Social welfare: Profit earning can’t be the sole motive of business activity. Businessmen also have a social
responsibility. Moreover, business organization produces goods and services to generate profit. At the same
time, it must have some impact on society as well as the whole community. The responsibility of businessman is
to provide the goods and services in such a way that is not harmful to the society. Finally, a businessman must
consider the overall social welfare.

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Scope of Business ethics: Almost any business issue which relates to human
value may become scope of business ethics. Thus the scopes of business ethics
include such issues as:

i) Business ideas and objective need to be harmless rather beneficial to the

society.
ii) Product and services must not be directly or indirectly harmful to the
users.
iii) Business locations must not cause difficulty to the neighboring people.
iv) Fuel consumption, by-product and wastage must not cause injury and
discomfort to the surrounding people. Care for least pollution both
economic and & environmental.
v) Customers should be served with true information via fair practice of
advertisement. Right package, reasonable price, product warranty &
safety, after sales service etc.
vi) Employees should be hired without discrimination with fair wage,
providing work safety and healthy working conditions, fair promotion,
retirement facilities, due process for punishment with the scope for
participation.
vii) Cause no harm to the community & urbanization, contribute to the
development of healthy condition, planned structures for enriching
aesthetic beauty and social forestry.
viii) Help the government though paying taxes, faithfully follow national
economic, business and industrial policies.
ix) International business should be conducted with fair dealings-without
interfering local countries affairs.
x) Fair profit earning and paying reasonable dividends to the share holders.
xi) Social contributions to various affairs of the society as a result of social
conviction.

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REASONS FOR ETHICAL PROBLEMS

• Personal gain

• Dubious (Doutful) character

• Individual values in conflict with organizational goals

• Managers’ attitudes and values

• Competitive pressures

• Cross-cultural contradictions

Benefits of studying business ethics.

The study of the business ethics makes one morally conscious, value oriented in the discharge of his
duties and obligations.

Following are the special benefits of studying business ethics.

1. Man is basically animals without morality, social values, justices and care. But the study of
business ethics can help to make a morally and socially value oriented people.
2. Business ethics help entrepreneur, business men, traders and industrialist to refrain from bluntly
harming others.
3. The study of business ethics helps all parties involved in business to behave appropriately.
4. By the study of business ethics government, authorities and regulatory bodies will remain
sensitive to right and expectations of the public.
5. The study of ethics and business ethics will make a society in which everybody connected in
the sphere of business to rise their progress without blocking other’s progress or at least without
causing no major willful harm to others.

Business decisions are so complex. (Causes of complexity of business decisions)

1. Feeling of others: Ethical business decision have extended consequence as

they affect the others out side the venture. So feeling of others should be
considered and considering other feelings very much difficult.
2. Multiple alternatives: Since Ethical business decisions have multiple
alternatives hence there is a possibility of taking less important alternative in
business decision. So be aware in choosing alternative.
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3. Mixed out comes: Social benefits and costs are the mixed out come of ethical
business decision and doing cost benefit analysis in taking decision is time
consuming as well as complex.
4. Uncertain out come: Most business decision may have uncertain ethical out
come so decision taking is difficult.
5. Personal Implications: The entrepreneur may find it impossible to make a
parley impersonal decision because he can’t separate himself from a decision
and its potential outcome.
6. Situational Implications: In Taking decision entrepreneur may be influenced
by situational factors/implication.

Three levels of business ethics

In our mission to define business ethics, Johnson and Scholes provide a useful way of classifying
the diverse elements therein:

 the macro level:

o the role of business in the national and international organization of society

o the relative virtues of different political/social systems, such as free enterprise,

centrally planned economies, etc

o international relationships and the role of business on an international scale

 the corporate level:

o corporate social responsibility

o ethical issues facing individual corporate entities (private and public sector) when
formulating and implementing strategies

 the individual level:

o the behavior and actions of individuals within organizations

At the highest (macro) level, we ask the fundamental question of the role of business in society
and what governance model works best to deliver the most benefits in a moral and responsible
way. Morality itself is, of course a widely interpretable concept but for this purpose we will assume
a broad understanding: that of "proper behaviour" and "knowing the difference between right and
wrong", without specifying what constitutes right and wrong. (This is a whole debate unto itself and
subject to cultural and individual relativism). Suffice it to say here that morality sets the stage for
ethics, and therefore the code of conduct.

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METHODS OF ETHICAL REASONING

• Utilitarian: Compares the costs and benefits of a decision, policy, or an action.

• Rights: Respecting basic human rights.

• Justice: Justice or fairness exists when benefits and burdens are distributed equitably and according to
some accepted rule.

METHODS OF ETHICAL REASONING

Types of Ethical Study

Four Related Phases of Ethical Study

1. Descriptive Ethics:
2. Normative Ethics:

3. Metaethics:

4. Special Ethics:

1. Descriptive Ethics:

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 Closely related to anthropology (the study of human society, custom, belief etc.), sociology, and
psychology.

 Consists in studying and describing the morality of a people, culture, or society.

 Compares and contrasts different moral systems, codes, practices, beliefs, principles, and values.

 Provides basic materials that normative ethics must account for

 Provides a touchstone of the considered morality of a people or society with which the normative
theory must more or less coalesce (to grow together or unit into one body).

2. Normative Ethics:

 Systematically attempts to supply and to justify a coherent (clear and logical) moral system.

 Seeks to uncover, develop, or to justify the basic moral principles, or the basic moral values of a
moral system.

The task of normative ethics is three fold:

First

(i) It attempts to form into a related whole the various norms, rules, and values of a society’s
morality.
(ii) It tries to render(co-operate) these as consistent and coherent as possible with some hierarchical
arrangements of norms.

Second

(i) It attempts to find the basic principle from which the particular norms can be derived

Third: It attempts, in a variety of ways, to justify the basic principle of morality.

3. Metaethics:
1. Closely related to normative ethics. It studies both normative and descriptive ethics. It is sometimes
called analytical ethics because it is concerned with analysis. Meta ethics deal with the meaning of
moral terms and with the logic of moral reasoning.
 The analysis of moral reasoning involves clarifying and evaluating presuppositions (Forecasting)
and investigating the validity of moral arguments.

4. Special Ethics:

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 Applies general ethics to solving particular problems. It also called Casuistry meaning the art of
solving difficult moral problems, cases, or dilemmas (a position or situation giving two choices,
neither pleasant) through the careful application of moral principles.

 Applies general ethics to specialized fields like business, treatment, engineering, professional,
social and so on.

Individual Ethics: Each and every individual has his own ethics. In the same family, it may vary
between members. It has been observed that the same individual may also show different rationale of
his conduct in different situations. Individual ethics means a person may or may not perform some
particular act, not because society or religion says he may or may not, but because he himself think it
right or wrong from within his conscious.

However, ethics of an individual is normally formed with some factors that is shown below:

Following factor influence to form individual ethics

1. Family influences
2. Situational factors
3. Values and morals
4. Experiences
5. Peer influences.

Ethics and Morality:

Morality of ethics deals basically with human relationship – how human treats other beings to promote
mutual welfare, growth, creativity, and meaning in striving for good over bad and right over wrong.

Morality: refers to human conduct and values

Ethics: refer to the study of those areas.

We interchange “unethical” and “immoral” to describe what we consider bad people and wrong
actions.

Foundations of Ethical Business Decisions: Ref. Book-Page-12-13 AR Khan

Major Ethical Theories:

There are three major ethical theories divided into different types as shown by the table below:

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Egoism: Ego means a person’s sense of self-esteem. Egoism is the belief that all human beings ought to
act always in their own self-interests. Egoism is divided into two categories;

a) Psychological Egoism
b) Ethical Egoism

a) Psychological Egoism

Psychological is a scientific and descriptive approach to egoism. According to this egoism people
always do what they really want to do. If anyone does any unselfish act he himself may not be unselfish
rather he does that because he really wants to do that.

b) Ethical Egoism

It is a philosophical and normative or prescriptive approach to egoism. It offers no consistent method of

resolving conflicts of self-interests. It is three types:

i) Universal Ethical Egoism: It states that everyone should always act in his own self-interest
regardless of the interests of others unless their interests serve him.

ii) Individual Ethical Egoism: It states that everyone ought to act in his own interest.

iii) Personal Ethical Egoism: It states that I ought to act in my own self interest, but that I make no
claims about what anyone else ought to do.

Egoism and Altruism: Egoism is the concept of achieving maximum personal benefits. Normally, it is
possible for small organization. Here personal welfare is the manager’s top priority and others benefits
are incidental.

On the other hand altruism is the concept of achieving maximum social benefits. Normally, large
organizations need to consider altruism in making decisions. Manager follows this ethical guideline
would measure right or wrong as “greatest happiness to the greatest number”.

Utilitarianism: This theory formulated by Jeremy Bentham(1748-1832) and John Stuart Mill (1806-
1873) Bentham argued that there is one ultimate moral principle, namely “the principle of utility”. This
requires that whenever we have a choice between alternative actions or social policies, we must choose
the one that has the best overall consequences for everyone concerned. It holds that an action is right if
it produces, or if tends to produce, the greatest amount of good for the greatest number of people
affected by the action. Otherwise the action is wrong. Utilitarianism has the following features;

i) Balance of Value: It is committed to the maximization of the good and the minimization of harm and
evil. Society ought always to produce the greatest possible balance of positive value or the minimum
balance of disvalue for all persons affected.

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ii) Intrinsic Value: The maximization of the good and the minimization of harm and evil have an
intrinsic value for the organization. Efficiency itself is a good which is valuable as a means to growth
and to profit maximization.

iii) Measurement: Utilitarianism is committed to the measurement and comparison of good- to measure
the pleasurable and painful states.

Act and Rule Utilitarianism: According to act-utilitarianism, it depends on the value of the
consequences of the particular act to determine whether the act is right or wrong.

Instead of looking at the consequences of a particular act, rule-utilitarianism states that an act is good
when it performed in accordance with the best rule generalized for conducting such class of acts.
Otherwise that act is bad. The best rule of conduct is found by finding the value of the consequences of
following a particular rule. The rule that results the best overall consequences is the best rule.

Six Points about Utilitarianism:

a) We must consider unhappiness and pain as well as happiness.

b) Utilitarianism evaluates actions according to their consequences, and actions produce different results
in different circumstances. Anything may be morally right in some particular circumstances.

c) The same action affects different persons in different degrees e.g. playing radio loudly may enhance
one’s pleasure a little, cause discomfort to another.

d) Utilitarianism wishes to maximize happiness not only for short run but also for long run.

e) It acknowledges that we often do not certainly know what the future consequences of our actions will
be?

f) When choosing among possible actions our own pleasure and pain enter into the calculus equally
with the pleasures and pains of others.

Criticism of the Theory of Utilitarianism:

a) It is ungodly-it propose only utility, rather than moral judgment.

b) Ambiguous formulation of the principles since it is very difficult to determine the greatest good for
the greatest number of persons affected by an action.

c) Possible immoral actions for the minority.

d) Lengthy time for measuring utility for calculating the consequences before an action.

e) Unknown results since it is impossible to determine all the consequences of all the actions.

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f) Inappropriate weight to be used since it is simply difficult to accurately weigh the different kinds of
good and evil resulting from an action.

g) Difficulty to access all the expectations.

h) Sometimes wrong or immoral action may produce good or happiness.

Universalism: Universalism primarily refers to religious, theological, and philosophical concepts with
universal ("applying to all") application or applicability.

Kant’s Ethics:

The main focus of Kant’s (Immanuel Kant) Ethics is that an act is immoral if the rule which would
authorize it cannot be made into a rule for all human beings to follow. It has the following applications
in an organization;

a) It gives us firm rules to follow in moral decision making.

b) It stresses the importance of motivation and of acting on principles that an action has moral worth if
that is done from the sense of duty.

c) It introduces an important humanistic dimension onto business decisions.

Virtue Ethics:

Virtue ethics emphasizes on the virtue of the person performing the action.

According Plato and Aristotle morality and virtuous persons are correlated. They also said that the
primary function of morality has reference to the traits & character of the persons performing actions,
having motives and following principles.

For example, when persons involved in business for profit, take jobs for wages, they may meet their
obligations yet they may not be engaged in a morally appropriate practice. On the other hand the
practice of business is morally better if is performed by persons whose character includes truthfulness,
justice, compassion, respectfulness and patience.

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