Chapter 1: Introduction

Concept of Business Ethics

Ethics refers to the study of behavior regarding the issue of right and wrong conduct. It is a
branch of philosophy that studies about systems, norms, and values that distinguishes between
what is good and what is bad or fair and unfair or right and wrong conduct.
Business ethics, as one of the field of ethics, can be defined as a subject of corporate behavior
that deals with the fair and unfair action of the business. It can be thought of as a subject of
analyzing and guiding a company’s attitude and behavior towards its internal and external
stakeholders. The ‘Business Ethics’ refers to the moral guidelines principles and rules that are
important to conduct any business. These are the moral values that guide an organization to
achieve its goals. Ethics tells the business what is right or wrong and what is good or bad.
According to Crane and Matten (2010) “Business ethics is the study of business situation,
activities, and decision where issues of right and wrong are addressed.”
We should understand that morally right and wrong, as opposed to commercially,
Financially or strategically right or wrong. Honesty, integrity, fairness, justice, and
trustworthiness are the basic terminologies that represent as right or good in common idiom. It
embraces those activities and practices that are expected and prohibited by social members
from the business entity even though they are not codified by law.

Important agendas of business ethics

Business ethics refers to the set of moral principles and values that guide the behavior of
organizations in the business world. Some of the important agendas of business ethics include:
1. Social Responsibility: Businesses have a responsibility to contribute to the well-being of
society by engaging in ethical practices that promote the greater good.
2. Fair Treatment of Employees: Businesses have an obligation to treat their employees fairly,
providing them with a safe and healthy work environment, fair compensation, and
opportunities for growth and development.
3. Environmental Responsibility: Companies should be mindful of their impact on the
environment and take steps to minimize their negative impact on the environment by
engaging in sustainable practices.
4. Ethical Leadership: Ethical leadership is essential for creating a culture of ethics in the
workplace. Leaders should set the tone by modeling ethical behavior and promoting a
culture of transparency and accountability.
5. Transparency and Accountability: Businesses should be transparent in their operations,
providing accurate and timely information to stakeholders, including investors, employees,
and customers. They should also be accountable for their actions and take responsibility for
any harm caused by their actions.
6. Ethical Marketing: Companies should engage in ethical marketing practices, which mean
that they should not make false or misleading claims about their products or services.

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7. Fair Business Practices: Companies should engage in fair business practices, including fair
competition and avoiding unethical practices such as bribery and corruption.
8. Respect for Human Rights: Businesses should respect the human rights of their employees,
customers, and communities in which they operate, including the right to dignity, equality,
and non-discrimination.
Overall, the agenda of business ethics is to promote ethical behavior and practices that benefit
society, stakeholders, and the environment while upholding the values of honesty, integrity,
and accountability. Product safety, quality and quantity, Honest advertising, telling the truth
while serving customers, Make a profit through honest pricing, provide accurate financial data
to stockholders, Reasonable return on invested capital, No cheating in commercial dealings,
Fair supply chain arrangement, Use the natural resources sustainably, Being a good neighbor
in community, Law- abiding etc.

Importance of Ethics in Business

Ethics play a vital role in a company’s long term success and development of business and
societies. Good ethics can earn a company’s positive reputation and encourage brand loyalty.
Consumers and stakeholders increasingly expect corporations to have strong values. Beyond
satisfying customer demands, ethical behavior has many other advantages for business,
including the following.
1. Ethics Improves Business Reputation: Business ethics help ensure a good reputation for the
company. Not only does it feel good to be part of a company with a great reputation, but
it's great for business. When company have a reputation for consistently being ethical in
how its source and build products, and treat employees, customers and the community,
more people will want to do business with company.
This means appeals to a variety of people and organizations that will be great for boosting
business such as:
Clients and customers who believe with company and want to support it.
Investors who want to help business grow,
Communities that want to host business or events.
Trade, community organizations and other businesses that want to partner with company.
Newspapers, magazines and other media who want to offer special recognition.
2. Business Ethics Help Retain Top Talent: Good ethics at a business start at the top. If you're
a business owner or manager, it's important to set a good example. When employees see
you make ethical choices, it lets them know that they can have confidence in the company;
they know that you'll do right by them and your customers. This boosts morale and as word
spreads about how you treat employees well, you'll draw in good workers. Having strong
employee retention rates will help you save money over time on recruitment costs and
training.
3. Limit Risk with Good Business Ethics: Businesses that practice good business ethics face
less risk for fines and other legal trouble. Sure, the law and regulations are complicated,
but a lot of trouble can be avoided just by doing what's morally right. If business decisions
are made with that in mind, you can save the stress of having to defend your company
against lawsuits and fines.

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4. Reduce Anti-capitalist sentiment: Profits of some of the world's largest corporations are
surprising attracts a lot of negative sentiment from those outside the world of business and
finance. While clearly a result of the scale of these organizations, there is always a doubt
that these profits have been achieved through not entirely ethical means and in some cases
absolute unethical means, frequently resulting in major public failures. This is, of course, a
huge generalization and simplification of the issue but it is the natural reaction of the
general public, who lack such detailed information and understanding. Public sentiment
cannot be ignored. This situation makes the importance of business ethics. Organizations
recognize the importance of business ethics and the resulting need to change to a more
sustainable model of growth.
5. A Marketplace advantage: When most managers and employees study ethics in learning
institutions as an academic discipline, it enables them gain intelligence of business ethics,
that latter attracts more customers and investors who will have more trust for the corporate
practices and values as primary considerations in their decision-making to either, if
customers, buy the organization's product or, if the investors, decide to invest in the
organization.
6. Powerful legal and financial incentives: Another importance for the organization to follow
business ethics is that the international regulatory developments shall provide strong legal
and financial incentives to corporations that establish standers of conduct and provide
ethics education and training to employees promoting business ethics as an academic
discipline and ethical conducts of individuals in an organization.
7. Enhanced consumer and employee loyalty: Consumer and employee commitment comes
from their belief that their future in attached to the organization and thus is willing to make
sacrifices for the organization.

Myths about Business Ethics

Myths simply denotes a legendary or a popular belief that has grown up around a phenomenon.
In many situations, myths represent a commonly believed but a false idea. Some of these myths
arise from general confusion about the notion of ethics. Other myths arise from narrow or
simplistic views of ethical dilemmas. Following are some myths about business ethics.
Business ethics is more a matter of religion than management:
This myth undermines the real context of applied ethics. Business has no religion, however, it
accepts its norms differently in doing business Business ethics, as a part of applied ethics, is
a subject of moral management. An ethical culture deals with managing values between the
individual and the company, to best handle the unavoidable conflicts that crop up in every
business.
Our employees are ethical so we don’t need attention to business ethics;
Most of the ethical dilemmas faced by managers in the workplace are highly complex. One
knows when they have a significant ethical conflict when there is presence of
 Important value conflicts among differing interests.
 Real alternatives that are equality justifiable.
 Significant consequences on "stakeholders" in the situation.

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 When the topic of business ethics comes up, people are quick to speak of the Golden Rule,
honesty and courtesy. But when presented with complex ethical dilemmas, most people
realize there's a wide "gray area" when trying to apply ethical principles.
Business ethics discipline best led by philosophers, academics and theologians:
This myth does not consider the subject as applied one. Business ethics is an applied discipline,
and it is highly associated with everyday business activities. Ethical decision is part of everyday
life for those who work in organizations. In most cases, business leaders play a major role in
this discipline. But we cannot ignore the role of philosophers, academics and theologians for
their scholarly works; they are good observers as well.
Business ethics is superfluous: it only asserts the obvious: "do good!": Many people react that
codes of ethics, or lists of ethical values to which the organization aspires, are rather
superfluous because they represent values to which everyone should naturally aspire. However,
the value of codes of ethics to an organization is its priority and focus regarding certain ethical
values in that workplace. For example, it's obvious that all people should be honest. However,
if an organization is struggling around continuing occasions of deceit in the workplace, a
priority on honesty is very timely and honesty should be listed in that organization's code of
ethics. Note that a code of ethics is an organic instrument that changes with the needs of society
and the organization.
Business ethics is a matter of the good guys preaching to the bad guys: Some writers do
seem to claim a moral high ground while lamenting the poor condition of business and its
leaders. However, those people well versed in managing organizations realize that good people
can take bad actions, particularly when stressed or confused. (Stress and confusion are not
excuses for unethical actions they are reasons). Managing ethics in the workplace includes all
of us working together to help each other remain ethical and to work through confusing and
stressful ethical dilemmas.
Business ethics in the new policeperson on the block: Many believe business ethics is a
recent phenomenon because of increased attention to the topic in popular and management
literature. However, business ethics was written about even 2,000 years ago at least since
Cicero wrote about the topic in his On Duties. Business ethics has gotten more attention
recently because of the social responsibility movement that started in the 1960s.
Ethics can't be managed: Actually, ethics is always "managed" but, too often, indirectly. For
example, the behavior of the organization's founder or current leader is a strong moral influence
or directive if you will, on behavior or employees in the workplace. Strategic priorities (profit
maximization, expanding market share, cutting costs, etc.) can be very strong influences on
morality. Laws, regulations and rules directly influence behaviors to be more ethical, usually
in a manner that improves the general good and minimizes harm to the community. Some are
still disbelieving about business ethics, believing you can't manage values in an organization.
But management, after all, is a value system. Disbelievers might consider the tremendous
influence of several "codes of ethics".
Business ethics and social responsibility is the same thing: Although many people use the
terms social responsibility and ethics interchangeably, they do not mean the same thing.
Business ethics relates to an individual's or a work group's decisions that society evaluates as
right or wrong, whereas social responsibility is a broader concept that concerns the impact of
the entire business's activities on society.

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The social responsibility movement is one aspect of the overall discipline of business ethics.
Business ethics to be:
 An application of ethics to the corporate community.
 A way to determine responsibility in business dealings.
 The identification of important business and social issues.
 A critique of business.
Writings about social responsibility often do not address practical matters of managing
ethics in the workplace, e.g., developing codes, updating policies and procedures,
approaches to resolving ethical dilemmas, etc.
Our organization is not in trouble with the law, so we're ethical: One can often be unethical,
yet operate within the limits of the law, e.g., withhold information from superiors, fudge on
budgets, constantly complain about others, etc. However, breaking the law often starts with
unethical behavior that has gone unnoticed. The "boil the frog" phenomenon is a useful fable
here: If you put a frog in hot water, it immediately jumps out. If you put a frog in cool water
and slowly heat up the water, you can eventually boil the frog. The frog doesn't seem to notice
the adverse change in its environment.
The business of a business is the business: This myth expresses that business and ethics are
two separate domains; ethical language is simply not the business. “This myth fails to recognize
the presence of stakeholders while doing the business. There is no possibility to do whatever is
necessary in order to succeed the business. Therefore, the business of a business is an ethical
business.

Moral Reasoning
Moral reasoning applies critical analysis to specific events to determine what is right or wrong,
and what people ought to do in a particular situation. Both philosophers and psychologists
study moral reasoning. It is a thinking process with the objective of determining whether an
idea of doing something is right or wrong by using logic. So it is understood as the cognitive
process that people use in making ethical decision. In order to act ethically, an individual is
expected to have a well -developed moral reasoning ability.

Lawrence Kohlberg (1958) Stages of Moral Development

Kohlberg's theory of moral development is a theory that focuses on how children develop
morality and moral reasoning. Kohlberg's theory suggests that moral development occurs in a
series of six stages and that moral logic is primarily focused on seeking and maintaining justice.

How Kohlberg Developed His Theory

Kohlberg based his theory on a series of moral dilemmas presented to his study subjects.
Participants were also interviewed to determine the reasoning behind their judgments in each
scenario.

One example was "Heinz Steals the Drug." In this scenario, a woman has cancer and her doctors
believe only one drug might save her. This drug had been discovered by a local pharmacist and

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he was able to make it for $200 per dose and sell it for $2,000 per dose. The woman's husband,
Heinz, could only raise $1,000 to buy the drug.

He tried to negotiate with the pharmacist for a lower price or to be extended credit to pay for it
over time. But the pharmacist refused to sell it for any less or to accept partial payments.
Rebuffed, Heinz instead broke into the pharmacy and stole the drug to save his wife. Kohlberg
asked, "Should the husband have done that?"
Kohlberg was not interested so much in the answer to whether Heinz was wrong or right but in
the reasoning for each participant's decision. He then classified their reasoning into the stages
of his theory of moral development.

Stages of Moral Development

Kohlberg's theory is broken down into three primary levels. At each level of moral
development, there are two stages. Similar to how Piaget believed that not all people reach the
highest levels of cognitive development, Kohlberg believed not everyone progresses to the
highest stages of moral development.
Level 1. Pre conventional Morality
Pre conventional morality is the earliest period of moral development. It lasts until around the
age of 9. At this age, children's decisions are primarily shaped by the expectations of adults and
the consequences of breaking the rules. There are two stages within this level:

Stage 1: Obedience and Punishment: The earliest stages of moral development, obedience
and punishment are especially common in young children. According to Kohlberg, people at
this stage see rules as fixed and absolute. Obeying the rules is important because it is a way to
avoid punishment. In Heinz dilemma, perhaps, individual in this stage react as Heinz should
not steal the medicine because stealing is against the law and he could go to jail.

Stage 2: Self-interest orientation (Individualism and Exchange)

In this stage, an individual defines right or wrong as that which serves his or her own interest.
Right or wrong is determined by what is rewarded, gained and profited. One’s actions are based
on what they will get.

In Heinz dilemma, an individual in this stage possibly reacts as Heinz should steal the drug
because he will be happier if his wife survives even if that means he goes to jail. Or, Heinz
should not steal the medicine because a prison is an awful place, and he would more likely
languish in a jail cell than over his wife's death.

Level 2. Conventional Morality

The next period of moral development is marked by the acceptance of social rules regarding
what is good and moral. During this time, adults internalize the moral standards they have
learned from their role models and from society. This period also focuses on the acceptance of
authority and conforming to the norms of the group. There are two stages at this level of
morality:

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Stage 3 Developing Good Interpersonal Relationships (seeking approval and avoiding
disapproval):

This is the stage of mutual interpersonal expectations, relationships, and conformity. It is the
stage of a beginning of development in adults. In this stage, awareness of society's (others)
expectations determines their actions.

So in Heinz dilemma, an individual in this stage possibly reacts as Heinz should steal the drug
because his wife expects him to, and he wants to be seen as a good husband. Or, Heinz should
not steal the drug because stealing is bad and he is not a criminal.

Stage 4 (Maintaining Social Order): This stage is focused on ensuring that social order is
maintained. At this stage of moral development, people begin to consider society as a whole
when making judgments. The focus is on maintaining law and order by following the rules,
doing one’s duty, and respecting authority.

In Heinz dilemma, an individual in this stage could react as Heinz shouldn't steal the drug
because the law prohibits stealing of any kind. Or, Heinz should steal the drug for his wife but
also take the prescribed punishment for the crime as well as paying the druggist what he is
owed. Criminals cannot just run around without regard for the law; actions have consequences.

Level 3. Post conventional Morality

Post-conventional morality is the third stage of moral development and is characterized by an
individual's understanding of universal ethical principles. These are abstract and ill-defined but
might include: the preservation of life at all costs and the importance of human dignity.
Individual judgment is based on self-chosen principles, and moral reasoning is based on
individual rights and justice.
Stage 5 (Social Contract and Individual Rights): The ideas of a social contract and individual
rights cause people in the next stage to begin to account for the differing values, opinions, and
beliefs of other people. Rules of law are important for maintaining a society, but members of
the society should agree upon these standards.
In Heinz dilemma, an individual in this stage may perhaps react as Heinz should steal the
medicine because everyone has a right to choose life, regardless of the laws. Or, Heinz should
not steal the medicine because the scientist has a right to fair compensation. Even if his wife is
sick, it does not make his actions right.

Stage 6 (Universal Principles): Kohlberg’s final level of moral reasoning is based on universal
ethical principles and abstract reasoning. At this stage, people follow these internalized
principles of justice, even if they conflict with laws and rules.
In Heinz dilemma, an individual in this stage may possibly react as Heinz should steal the drug
because a human life has more value than the property rights of another person. Or Heinz
should not steal the medicine, because others may need the medicine just as badly, and their
lives are equally significant.

Kohlberg believed that only a relatively small percentage of people ever reach the post-
conventional stages (around 10 to 15%). One analysis found that while stages one to four could

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be seen as universal in populations throughout the world, the fifth and sixth stages were
extremely rare in all populations.

The Morality of Profit Motive

The ultimate goal a business is to make a profit. It is only the motivation factor to allocate
resources efficiently. The mainstream microeconomic theory also posits the same. However,
as it extends beyond the horizon of economics into the moral philosophy, the profit motive may
become a subject of debate.
critics often raise concerns about the potential negative consequences of prioritizing profit
above all else. They argue that an unchecked profit motive can lead to exploitation, inequality,
environmental degradation, and unethical behavior. For example, companies may prioritize
short-term profits over long-term sustainability, exploit workers or communities in pursuit of
higher margins, or engage in deceptive practices to maximize sales.

Some scholars argue that profitable business activity benefits society in numerous ways. The
profit motive is often seen as a driving force behind innovation, economic growth, and job
creation. When businesses are motivated by profit, they are incentivized to find new and more
efficient ways to produce goods and services, which can lead to technological advancements
and increased productivity. This can also lead to lower costs for consumers, as businesses strive
to offer competitive pricing in order to increase their profits.

Sure, here are some of the positive aspects associated with the profit motive:
1. Innovation and Technological Advancement: The profit motive can encourage businesses to
invest in research and development, leading to new and improved products and services that
benefit consumers.
2. Increased Productivity: Businesses that are motivated by profit are incentivized to increase
efficiency and reduce costs, which can lead to increased productivity and economic growth.
3. Job Creation: As businesses grow and expand, they often hire more employees, which can
provide job opportunities and contribute to the overall economy.
4. Reinvestment: Profits can be reinvested back into the business, leading to further growth and
job creation.
5. Entrepreneurship: The potential for financial gain can incentivize individuals to take risks
and start their own businesses, which can lead to further innovation and economic growth.
6. Consumer Benefits: The pursuit of profit can lead to lower costs for consumers, new goods
and services for customers as businesses strive to offer competitive pricing in order to increase
their profits. Overall, while the profit motive can have negative effects on social and
environmental concerns, it can also have positive effects on innovation, economic growth, job
creation, and entrepreneurship.
7. Profits for shareholders: Another positive aspect of the profit motive is that it can provide
returns for shareholders who invest in the business. When a business is profitable, it can
distribute profits in the form of dividends to its shareholders. This can incentivize individuals

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to invest in the business, and contribute to their growth, which can ultimately benefit both the
shareholders and the broader economy.
8. Taxes for society: It can contribute to the overall well-being of society through the taxes that
businesses pay. When businesses earn profits, they are typically required to pay taxes on those
profits to the government. These taxes can then be used to fund public services and
infrastructure, such as education, healthcare, transportation, and public safety. In this way, the
pursuit of profits can indirectly contribute to the well-being of society by supporting the public
services and infrastructure that benefit everyone.
However, the term profit itself is a very unclear phenomenon. While discussing the morality of
profit motive, we must be alert with the following financial matters:
1. Profit before tax or profit after tax: It is important to consider whether profits are being
reported before or after taxes are paid. Businesses may engage in legal tax minimization
strategies, but it is also possible for businesses to engage in illegal tax evasion. In either case,
the reported profit may not accurately reflect the business's true financial performance.
2. Total profit or profit per share: Profit can be reported in different ways, such as a total dollar
amount or as a profit per share. The latter can be influenced by the number of shares
outstanding, and may not accurately reflect the business's true financial performance.
3. Short-term profit or long-term profit: The pursuit of short-term profit can sometimes come
at the expense of long-term sustainability. For example, a business may cut costs by reducing
investment in research and development, which may harm its ability to innovate and grow in
the future.
4. Corporate profit versus shareholders' wealth: It is important to consider who is benefiting
from the profits being generated. While shareholders may benefit in the short term from
increased profits, it is important to consider whether these profits are being generated at the
expense of other stakeholders, such as employees or the environment.
Many scholars, as well as practitioners, argue in favour of long run profit and they believe that
it cannot be achieved by ignoring ethical base. Further, they believe that there is a positive
correlation between ethics and long-run profitability. It is a concern of sustainability and
management for sustainability obviously address morality in making a profit. But in contrast,
if firms are motivated toward short term profit, morality can be ignored.
Overall, while the profit motive can have positive effects on innovation, economic growth, job
creation, and entrepreneurship, it is important to remain alert to the potential downsides and to
carefully evaluate the financial matters that surround it. Ultimately, the morality of the profit
motive depends on how it is balanced with other values and considerations, such as social
responsibility, ethical conduct, and the well-being of individuals and communities. Many argue
that a more sustainable and ethical approach to business involves integrating profit with broader
goals such as environmental stewardship, social justice, and employee welfare. In this view,
profit becomes a means to an end rather than the end itself.
Ethics and Philosophy
Ethics is a branch of philosophy dealing with what is morally right or wrong. The field of ethics
is known as moral philosophy. Ethics are referred to as moral guidelines a person can follow

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when doing actions. Hence, they can be used as moral advice or guidelines for the style of
living of an individual. Social benefit and religious teaching act as the foundation for ethics in
society.
Philosophy is an academic discipline that exercises reason and logic in an attempt to understand
reality and answer fundamental questions about existence, knowledge, life, power, morality,
human nature, and general reality.

Ethics Philosophy
Moral principles a person can follow. Study of the fundamental nature of
knowledge, reality and existence, as an
academic discipline.
Comprise of moral guidelines and advice a Contains theories and ideologies postulated
human can follow in his/her lifestyle. by philosophers concerning a specific subject
matter in life.
There is no specific origin, has a strong There are specific founders or several
relation to religions and morality in human pioneering figures known as philosophers.
society.
Cannot be separated according to period, Has varied branches according to period,
country and subject matter since they are movement country and subject matter etc.
universally considered moral principles.

Ethics and Morality

Ethics: Generally, it is said that ethics are societal decisions with consistency and structure. It
refers to community values more than personal values. Ethics is rules of conduct in a particular
culture or group recognized by an external source or social system. For example, a medical
code of ethics that medical professional must follow.
Morality: Morality is a person or society's idea of what is right or wrong, especially in regard
to a person's behavior. Morals are more self-determined and influenced by many influences
from family, education to religion. It is principles or habits relating to right or wrong conduct,
based on an individual's own scope of right and wrong.

Ethics Morality
Ethics refer to rules provided by an external Moral refer to an individual to an
sources, e.g., professional ethics, principle in individual’s own principles conscience
religion, or social system. regarding right and wrong. Therefore, it
comes from internal source.
Ethics is much wider in scope because it Moral small in the scope than ethics address
addresses the need of society. the human need.
Much diversity is possible in daily life in Relatively more consistent in daily life
different work environment.
Ethics can be defined as code of behavior More personal in nature.
with reference to group or entity.

Benefits of Business Ethics

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As we know, Business ethics refers to the principles and standards that guide the decisions and
actions of businesses and their employees. Business ethics are essential for the successful
functioning of an organization. They promote fairness and honesty in the business
environment, ensure that all stakeholders have an equal opportunity to benefit from the
company's activities, and foster a positive image of the company in the public eye.
Draws more investors towards the business: Investors are a big part of any business for
growth and raising funds. If the investors of an organization realize that the company they
are working with is working ethically and prioritizes high morale in the business, they will
feel safe knowing that their money is being used responsibly and for good purposes. Also,
they can feel comfortable knowing that they are not entering into anything unethical
indirectly. Besides, companies with strong ethics get more attention from investors.
Provide a competitive advantage in terms of customers: Like investors, customers are also
a huge part of a business as they are the reason for the sales and revenue of a company. When
an organization behaves ethically, it can gain customer loyalty and attract them to their goods
and services. It ultimately helps the business in fulfilling its profit-earning motive.
Enhance a company’s reputation: A company behaving ethically can create a positive
image in the eyes of the public, which can help the business retain its existing customers by
ensuring them that they are spending their hard-earned money on an ethical business and
bringing in new customers. Besides, today’s world is highly social, and dissatisfied customers
can easily and quickly give reviews about the negative experience and unethical behavior of
the business, which can be bad for the company and its growth.
Stronger collaboration: Team members or staff of the company working together on
business ethics have respect for each other, which leads them to work together effectively.
The practice of ethics not only creates a good work environment, but also helps the members
collaborate and bring productivity.

Avoid lawsuits: Behaving ethically may be expensive for an organization, but unethical
behavior can be more expensive as an organization involved in unethical practices may face
lawsuits and will have to pay huge fines.

Improve the Financial Performance of a Company

Finally, business ethics can help improve a company's financial performance. Companies that
adhere to ethical business practices are more likely to be financially successful, as customers
and suppliers will be more likely to do business with them. Additionally, ethical practices can
help attract investors, as they will be more likely to invest in a company that is considered
responsible and trustworthy.

Creates a Sense of Trust and Loyalty

The primary advantage of business ethics is that it creates a sense of trust and loyalty among
customers, suppliers, and other stakeholders. Customers will be more likely to trust a business
if they know it operates ethically and that its interests are taken into consideration. Suppliers
will be more likely to do business with a company that is considered ethical. This trust can lead
to better relationships with customers and suppliers and more profitable business relationships.

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In conclusion, business ethics are essential for the successful functioning of an organization.
They create a sense of trust and loyalty among customers and suppliers, foster a culture of
fairness and respect within the organization, protect the environment and promote social
responsibility, improve the company's public image, and improve its financial performance. By
implementing ethical business practices, companies can ensure their long-term success and
contribute to a healthier and more sustainable society.

Code of Conducts

A code of conduct is known as a formal statement that describes what an organization expects
of its employees or members. It outlines specific behaviors that are required or prohibited as a
condition of ongoing employment. The employees or members are responsible for its
adherence and held accountable for its violation. A code of conduct, typically, is issued by a
board of directors or top level management that determines the social norms, regulations, and
responsibilities. The code relates both to the behavior of individual employees and to the
collective behavior of the organization as a whole, and it indicates how responsibility is
distributed within the firm.

When we use the term only as 'code of conducts,' it simply denotes the employees' code of
conduct. However, there are different forms of the code of conducts, like professional code of
conducts, business code of conducts, and the like. A code of conduct lays out an organization's
expectations and guiding principles for appropriate workplace behavior. A code of conduct
policy should:

1. Conflicts of interests: This topic addresses situations where an individual's personal interests
conflict with the interests of the organization. It may include guidelines for disclosing potential
conflicts and avoiding situations that could give rise to conflicts.

2. Confidential information: This topic typically includes guidelines for handling confidential
information, such as customer data, trade secrets, and other sensitive information. It may
include requirements for protecting the confidentiality of this information and guidelines for
sharing it only on a need-to-know basis.

3. Employment discrimination: This topic typically addresses issues related to workplace

diversity and inclusion, such as guidelines for hiring and promoting employees based on their
qualifications and performance, rather than factors such as race, gender, or religion.

4. Use of the organization's property: This topic typically includes guidelines for using the
organization's property, such as equipment, supplies, and facilities, in a responsible and
appropriate manner. It may include restrictions on personal use of company resources and
guidelines for protecting these resources from theft and damage.

5. Financial reporting and accounting: This topic typically includes guidelines for accurate and
transparent financial reporting, including guidelines for maintaining proper accounting records,
avoiding conflicts of interests, and reporting financial information in a timely and accurate
manner.

6. Health and safety issues: This topic typically addresses workplace safety issues, such as
guidelines for maintaining a safe and healthy work environment, reporting safety hazards, and
complying with relevant health and safety regulations.

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7. Political contributions and campaigning in the office: This topic typically addresses issues
related to political activity in the workplace, such as guidelines for making political
contributions and participating in political campaigns while on the job.

8. Legal compliance issues relevant to the organization: This topic typically includes guidelines
for complying with relevant laws and regulations, such as antitrust laws, data privacy laws, and
environmental regulations.

Overall, business codes of conduct are designed to promote ethical behavior and compliance
with relevant laws and regulations, and typically cover a wide range of topics that are relevant
to the organization and its stakeholders.

Meaning of Social Responsibility

Social responsibility is an ethical focus for individuals and companies whereby they seek to
take action and be accountable for practices that benefit society. In other words, social
responsibility is an ethical framework in which individuals and corporations are accountable
for fulfilling their public duty and taking action that benefit society. A business has a particular
obligation towards society which is known as the social responsibility of business. Social
responsibility has become increasingly important to investors and consumers who seek
investments that not only are profitable but also contribute to the welfare of society and the
environment.

Social responsibility of a business is also known as corporate social responsibility (CSR). It is

the way a corporation achieves a balance among its economic, social and environment
responsibilities in its operations so as to address shareholder and other stakeholder expectation.

Davis and Blomstrom, "Social responsibility is the obligation of decision makers to take actions
which protect and improve the welfare of the society as a whole along with own interests."

Richard Steers, "Social responsibility focuses on what an organization does to society and what
it does for society."

Thus, social responsibility is understood as the obligation of decision- makers to take actions,
which protect and improve the welfare of society as whole along with their interests. There are
social effects of all the activities undertaken by the business. The social responsibility of
business represents commitments and activities that extend applicable laws and regulations on
trading, health and safety, human rights, consumer and environmental protection, and
reporting.

Examples of CSR, Charitable giving and volunteer efforts, Changes to company policies to
improve or benefit the environment, improving labor policies and embracing fair trade etc.

Importance of Social Responsibility

Employees: Rates of pay, job security, compensation, respect, truthful communication,

participation on profit.

Customers: Reasonable price, quality assurance, customer care, ethical products, honest
advertisement.

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Suppliers: Continuity in business, disciplined payment schedule, equitable business
opportunities.

Creditors: Good credit score, new contracts, liquidity, scheduled repayment.

Shareholders: Profitability, return on investment, sustainable growth, reputation, succession

planning, social prestige, value maximization.

Government: Taxation, VAT, legislation, employment, truthful reporting, legalities,

externalities,

Community: Job opportunities, philanthropy, involvement, environmental protection, shares,

and truthful communication.

Trade Unions: Fair wages, worker protection, healthy working environment.

Business Associations: Gain power, social prestige, protection, strong pressure group.

Intergovernmental Organizations: Human right, fair labor management, social justice,

environmental justice, anti-corruption.

The Evolution of CSR

Corporate Social Responsibility (CSR) has evolved significantly over the years, shaped by
changing societal expectations, environmental concerns, and economic paradigms. It has
developed gradually over time as business and society have come to recognize the importance
of sustainable and responsible business practices. Here's a brief overview of its evolution:
1. Philanthropic Era (Pre-1950s): In this era, businesses engaged in CSR primarily through
charitable donations. Philanthropy was seen as a way for companies to give back to society,
often driven by the personal values of company founders or leaders.
2. Reactive Era (1950s-1970s): The focus shifted from pure philanthropy to addressing social
issues that directly impacted businesses. This era saw responses to issues such as civil
rights, consumer protection, and environmental pollution, often as a reaction to public
pressure or regulatory mandates.
3. Strategic Era (1980s-1990s): Companies began to integrate CSR into their business
strategies, recognizing that social and environmental responsibility could also create
business value. This era saw the emergence of concepts like stakeholder theory, which
emphasized the importance of considering the interests of all stakeholders, not just
shareholders.
4. Sustainable Development Era (2000s-2010s): The focus expanded beyond short-term
social and environmental concerns to long-term sustainability. Businesses started to adopt
practices that aimed to balance economic, social, and environmental goals, considering the
impact of their operations on future generations.
5. Shared Value Era (2010s-Present): This era emphasizes the idea that creating societal value
can also drive business value. Companies seek opportunities to align their business goals
with societal needs, finding ways to generate profit while also addressing social and

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 environmental challenges. Concepts like creating shared value (CSV) and the triple bottom
line (people, planet, profit) have gained prominence.
6. Digital and Global Era (Present and Beyond): The rise of digital technologies and
globalization has further influenced CSR practices. Companies now face increased scrutiny
and transparency due to social media and online platforms. Additionally, the
interconnectedness of global economies means that CSR efforts often extend beyond
national borders, requiring companies to consider the impact of their actions on a global
scale.
Overall, the evolution of CSR has been driven by recognition of the interconnectedness of
business, society, and the environment, and the importance of responsible and sustainable
practices to the long- term success of business and society as a whole. Throughout this
evolution, CSR has transformed from a peripheral activity to an integral aspect of business
strategy. Today, CSR is not only about mitigating risks and complying with regulations but
also about innovation, brand building, and creating long-term value for both businesses and
society.

A Moral Arguments of CSR

Corporate Social Responsibility (CSR) can indeed be framed within a moral argument, which
often revolves around the idea that businesses have a responsibility not only to generate profits
for their shareholders but also to contribute positively to society and the environment. Moral
argument of CSR may vary in different circumstances to different people and at the different
time. However, based on different logical viewpoints, we can describe a moral argument of
CSR in general as follows:
1. Public Expectations: It is obvious that business organizations create a wide range of social
and environmental issues. Society expects organizations to assist in the resolution of such
issues. Business organizations must be socially responsible in order to meet society's
expectations.
2. Long-run Profits: Business organizations that are socially responsible tend to have more
secured long-term profit. Donations that are approved for social welfare projects and
institutions are tax deductible. Business organizations benefit economically from social
responsibility. As a result, it is important for the long survival and growth of business in society.
3. Ethical obligation: Business organizations should be socially responsible because it is the
right thing to do. Preventing social problems is preferable to curing them. Business
organizations bear an ethical obligation to prevent social problems. It is in their best interests.
Social responsibility is a morally correct action to take.
4. Public Image: By pursuing social objectives, business organizations can improve their public
image. Organizations that make a clear and visible contribution to society can improve their
reputation and gain a larger share of the market. To attract customers, employees, and investors,
they must improve their image.
5. Better Environment: Social responsibility improves the business environment. It benefits
both society and business. Better neighborhoods and employment opportunities benefits
society, while businesses benefit from a better community which is the source of its workforce
and consumers of its goods and services.

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6. Less Government Regulation: The government regulates business organizations in the
interest of the general public. Additional government regulation and intervention are
discouraged by social involvement. As a result, business organizations have more freedom and
flexibility in making decisions. If business organizations fail to take on social responsibilities,
the government may enact legislation compelling them to do so.
7. Balance Responsibility and Power: Power and responsibility are inevitability connected.
Business organizations have considerable economic and social power. Social responsibility is
needed to balance the power of business organizations. It is required in order to avoid
irresponsible behaviour toward society. "The greater the social responsibility of a business
organization, the greater its power"
8. Shareholder Interests: Shareholders may benefit from social involvernent. Business
organizations that contribute to society can gain a better reputation and a larger market share
for their goods and services. In the long run, social responsibility will improve the stock price
of the organizations. As a result of their social involvement, business organizations will
prosper.
9.Possession of Resources: Business organizations have a strong foundation in terms of capital,
human, information, and technological resources. They also possess management talent and
functional expertise. This gives them the ability and means to solve society's problems.
Therefore, business organizations should devote some of their resources to the betterment of
society. They should try to solve social problems that other institutions have failed to solve.

Increasing Relevancy of CSR

It has also been found that to a growing degree companies that pay genuine attention to the
principles of socially responsible behavior are also favored by the public and preferred for their
goods and services. This has given rise to the concept of CSR. The concept of corporate social
responsibility is now firmly rooted on the global business agenda. Some of the positive
outcomes that can arise when businesses adopt a policy of social responsibility include:
Social responsibility may sound like a moralistic term with little meaning for a pragmatic
corporate; yet it is the bird word in corporate circles today. The corporation has been defined
as a legal entity with unlimited life, limited liability and divisibility of ownership.
Contemporary society expects that businesses operate within society, are dependent on society
for getting their inputs as well as for marketing their goods and services. Therefore, in addition
to providing goods and services, business needs to look after welfare of the various
stakeholders.
1. Survival and Growth: In recent times the concept of CSR has turn out to be a vital strategy
for companies to survive in. A ruthless market environment. In todays environment where
markets shift and consumer preferences become even more unpredictable and complex, CSR
can become a powerful tool for survival and growth.
2. Enhanced Corporate Image and Reputation: CSR activities of a business are aim towards the
welfare of society and this help develop a positive image for the firm. Enhanced Goodwill and
Reputation will, on the one hand attract better employees to join such firms, and on the other
hand attracts more customers- people do prefer to patronize a firm because of its positive image
in society.

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3. Avoid government Regulation: If firms discharge their duties voluntarily and responsibly,
much government regulations can be avoided. A lot of legislation has been enacted with respect
to waste management, air and water pollution. If a firm is proactive and incorporates
environment-friendly practices voluntarily, it can save itself from the forced implementation
of strict government regulation, which sometimes may pose the business to close down.
4. Change Consumer expectation: Todays consumer has become more conscious about their
rights and are also more demanding. They protest against supplier of harmful/inferior goods
and services and other unethical practices of business.
5. Moral Responsibility: Business is an integral part of society, dependent on it for getting its
input as well as for marketing its goods and services. Therefore, business managers have a
moral responsibility to protect the interests of society, and look after the welfare of their
different stakeholders apart from providing goods and services.
6. Huge Resources: Large organization have human talent and financial resources to solve
societal problems, hence they should be socially responsive. They are also more efficient and
ensure a business and result oriented approach towards social projects.
7. Attracts better human resources: CSR is seen to be a great way to attract “good” talent and
to retain them. Social initiatives are a good way to satisfy the emotional and social needs of
employees by helping them contribute towards the good of society.
In recent years CSR has become a fundamental business practice and has gained much attention
from the management of large international companies. They understand that a strong CSR
program is an essential element in achieving good business practices and effective leadership.
Although the prime goal of a company is to generate profit, companies can at the same time
contribute to social and environmental objectives by integrating corporate social responsibility
as a strategic investment into their business strategy. A number of companies with good social
and environmental records indicate that CSR activities can result in a better performance and
can generate more profit and growth.

Social Responsibility and Ethics

Social responsibility and ethics are two interconnected concepts that guide individuals,
organizations, and societies in making decisions and actions that consider the well-being of
others and the environment.
Social Responsibility: This refers to the idea that individuals and organizations have an
obligation to act in a manner that benefits society at large. This can include actions such as
philanthropy, ethical business practices, environmental sustainability efforts, and promoting
social justice and equality.
Ethics: Ethics are principles or standards of behavior that guide individuals and groups in
determining what is right or wrong. Ethical behavior often involves considerations of fairness,
honesty, integrity, and respect for others. Ethical principles can apply to various aspects of life,
including personal conduct, professional behavior, and decision-making in organizations.

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Business Ethics, as one of the field of applied ethics, can be defined as the subject of corporate
behavior that deals about right and wrong conducts of the business. Fairness and justice in
business conduct are the ultimate goal of studying business ethics whereas CSR deals with the
obligations of business towards its stakeholders, social issues, and natural environment while
earning a profit. It is closely associate with rational business conduct.
Though CSR and business ethics seem to be overlapping, there are distinctions in many cases
between the two. In facts, with much likeness, these two subjects carry different concept, and
they command the business differently in many situations. For example, selling of liquor and
tobacco is not against business ethics though it may be against the principles of social
responsibility. But, it is certainly against business ethics as well as against CSR to engage in
smoking and drinking. Furthermore, following discussion highlights the contradictions of CSR
and business ethics in practice.
When discussing social responsibility and ethics together, the focus is on how individuals and
organizations can integrate ethical principles into their actions and decisions to contribute
positively to society. This might involve:
Corporate Social Responsibility (CSR): Businesses engaging in activities that benefit society
beyond their financial interests. This can include initiatives related to environmental
sustainability, community development, employee well-being, and ethical sourcing practices.
Ethical Decision-Making: Individuals and organizations considering the ethical implications
of their actions and decisions, and choosing courses of action that align with principles of
fairness, honesty, and respect for stakeholders.
Social Impact: Assessing the potential social consequences of actions and policies, and striving
to maximize positive impacts while minimizing harm to individuals, communities, and the
environment.
Transparency and Accountability: Being open and honest about actions and decisions, and
holding oneself accountable to ethical standards and societal expectations.
In summary, social responsibility and ethics guide individuals and organizations in making
choices that not only benefit themselves but also contribute to the greater good of society and
the environment. Integrating these principles into decision-making processes can lead to more
sustainable and equitable outcomes for all stakeholders.
CSR Domain
CSR" typically stands for Corporate Social Responsibility. This domain encompasses a
company's commitment to operate in an economically, socially, and environmentally
sustainable manner while balancing the interests of various stakeholders, including
shareholders, employees, customers, suppliers, communities, and the environment. There are
several domains or areas that fall under the umbrella of CSR, including:
Environmental Sustainability: This domain involves a company's efforts to minimize its impact
on the environment. This can include reducing carbon emissions, conserving natural resources,
and implementing sustainable waste management practices.
Social Responsibility: This domain involves a company's commitment to improving the well-
being of its employees, customers, and the communities in which it operates. This can include
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promoting diversity and inclusion, supporting employee health and wellness, and contributing
to charitable causes.
Ethical Business Practices: This domain involves a company's commitment to ethical and
transparent business practices. This can include complying with relevant laws and regulations,
ensuring product safety and quality, and maintaining fair labor practices.
4. Human Rights: This domain involves a company's commitment to respecting and promoting
human rights. This can include ensuring that its operations do not contribute to human rights
abuses, promoting freedom of association and collective bargaining, and addressing any human
rights violations that occur within its supply chain.
5. Economic Development: This domain involves a company's efforts to support economic
development in the communities in which it operates. This can include providing job
opportunities, supporting small and medium-sized enterprises, and investing in local
infrastructure and education.
Overall, CSR domains aim to ensure that companies are operating in a responsible and
sustainable manner, taking into account the impact of their operations on the environment,
society, and the economy.

Carroll’s Four Domains of CSR

CSR stands for corporate social responsibility, it’s an umbrella term that refers to business
practices that consider the effects a company has on society, its employees and other
stakeholders. It incorporates the idea that companies should play a positive role in the
community and also consider the environmental and social impact of their business practices.
By adopting CSR practices a company can achieve a balance of economic, social and
environmental considerations, while at the same time addressing the expectations of the
company's stakeholders and shareholders.
Archie Carroll, the creator of Carroll’s CSR Pyramid, adopted a four-part definition of CSR:
“To be socially responsible a business must meet economic, legal, ethical and philanthropic
expectations given by society at a given point in time”
Caroll’s CSR Pyramid expands on this definition by using the shape of the pyramid to depict
the importance of each of the CSR dimensions. It aims to help companies adapt their business
practices so that their activities are not only profitable, but also ethical, legally compliant and
socially responsible.

Economic responsibilities

According to Carroll’s CSR Pyramid, businesses profitability is the foundation of the pyramid,
upon which all the other responsibilities rest.

Caroll argued that businesses have an economic responsibility to society. By providing goods
or services they meet the needs of society, and in order to continue doing so the business must
be able to make a profit on them.

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There are many different stakeholders who may be relying on a company. For example, there
may be shareholders who expect a return on their investment, employees who are relying on
the company to provide them with fair pay in return for their work, and clients who are relying
on them for their goods or services. If a company isn’t able to turn a profit, then the reality of
the situation is that they’ll eventually be unable to sustain activity and will cease to operate.
Therefore, according to Caroll’s CSR Pyramid, the foundation of a company is based on
profitability.

Legal Responsibilities:

The second level of Caroll’s CSR Pyramid covers the legal responsibilities of a company.
Companies have a legal responsibility to comply with the relevant legal system’s laws,
regulations and practices - this can be internationally, nationally, regionally and even on a local
level.

These rules of law establish how an organisation should conduct their business operations in a
fair manner, and generally speaking cover requirements such as complying with employment
laws, tax regulations, health and safety requirements, regulations controlling anti-competitive
behaviour… the list goes on. Essentially it’s about conducting business practices in a fair
manner.

Ethical Responsibilities

Sometimes the laws that apply to a company don’t go far enough, and ethical principles are
needed to ensure that a company does the right thing.

The third level of Caroll’s CSR Pyramid is all about morals and ethics. Of course laws are often
based in ethics as well but they can often lag behind a rapidly changing society. Take climate
change for example - sustainability and mitigating harm to the environment was on society's
conscience before legal systems caught up and started to legislate on the matter. This is why
businesses need to embrace activities, standards and practices that are based on ethical
considerations, even where they haven’t been codified in law yet.

Philanthropic Responsibilities

The fourth and final level of Caroll’s CSR Pyramid is philanthropic responsibilities. This
embraces voluntary responsibilities that go above and beyond society's general expectations of
what's required of a business. It asks businesses to be good corporate citizens.

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This might sound like businesses are being asked to go the extra mile here, and that
philanthropic responsibility is something that’s not really expected of businesses. But
nowadays people actively expect companies to give back to the communities that support them.

Carroll's four domains of CSR recognize that companies have responsibilities beyond just
making a profit. By considering their economic, legal, ethical and philanthropic
responsibilities, companies can work towards creating long-term value for both shareholders
and society as a whole.

The Triple Bottom Line (TBL) approach by Elkington

The Triple Bottom Line (TBL) approach of CSR is a framework that emphasizes the three main
areas of sustainability: economic, social, and environmental. The TBL approach aims to create
value in all three areas and to balance the interests of stakeholders. The three dimensions of the
TBL approach are:

1. Economic sustainability: This dimension focuses on a company's financial performance and

its ability to create economic value for its stakeholders, including shareholders, employees, and

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suppliers. It involves maximizing profits while also considering the impact of the company's
operations on the wider economy.

2. Social sustainability: This dimension focuses on a company's impact on society and its
stakeholders, including employees, customers, and the communities in which it operates. It
involves promoting social justice, equity, and human rights, as well as ensuring that the
company's operations do not harm people or communities.

3. Environmental sustainability: This dimension focuses on a company's impact on the natural

environment and its ability to operate sustainably. It involves reducing the company's carbon
footprint, conserving natural resources, and promoting sustainable practices.

The TBL approach recognizes that a company's success is not just measured by its financial
performance but also by its impact on society and the environment. By taking a triple bottom
line approach, companies can create long-term value for all stakeholders and work towards a
sustainable future.

Three-Domain Approach by Schwartz’s and Carroll’s

A three-domain approach is presented in which the three core domains of economic, legal, and
ethical responsibilities are depicted in a Venn model framework. The Venn framework yields
seven CSR categories resulting from the overlap of the three core domains.

1. The economic domain (Motive: to be profitable): It's includes those activities which are
intended to have either a direct or an indirect positive economic impact on the company. This
can be seen in terms of maximizing shareholder value or maximizing profit. Activities with a
direct impact need not be much explained as it refers to any action, which will resolve in an
immediate increase in either profit or shareholder value.

2. The legal domain (Motive: to obey the law): It's refers to a company's responsiveness to and
compliance with legal expectations and laws about different standards. It includes both
standards about waste, resources, working conditions, products, services, packaging, supplies
etc. hence, the infrastructure of the environment in which an organization exists.

3. The ethical domain (motive: to sustain legitimization): It's submits an organization's ethical
and social responsibility to its environment. This responsibility is the aggregated societal
expectations from all stakeholders (external, internal, active, and passive), i.e. the ethical
domain constitutes the complexity of CSR. This also explains why the economic domain is not
sufficient if an organization wants to sustain its legitimacy. The motive of maximizing profit
or shareholder value may always be present; however, it is vital that an organization in

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corporate and makes outstanding the ethical and legal domain in its CSR strategy as well, in
order to fulfill with the societal expectations.

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