Introduction to

UNIT 1 INTRODUCTION TO BUSINESS Business Ethics

ETHICS
Structure

1.0 Objectives
1.1 Introduction
1.2 Concept of Business Ethics
1.2.1 Features of Business Ethics
1.2.2 Principles of Business Ethics

1.3 Importance of Business Ethics

1.4 Theoretical Approach to Business Ethics
1.4.1 Traditional Theory of Business Ethics
1.4.2 Normative Theory of Business Ethics

1.5 Essential Elements of Business Ethics

1.6 Ethics in Retail
1.7 Advantages of Business Ethics
1.8 Stakeholders’ Perspectives of Business Ethics
1.9 Code of Conduct
1.10 Challenges and Implementation
1.11 Let Us Sum Up
1.12 Key Words
1.13 Answers to Check Your Progress
1.14 Terminal Questions

1.0 OBJECTIVES
After studying this unit, you will be able to:

● Explain the concept of business ethics

● Explain ethics in retail

● Identify code of conduct

● Identify challenges and implementation of business ethics

1.1 INTRODUCTION
All businesses need to follow a set of rules or ethics for all purposes. These
fundamental rules must be followed by businesses including offering its
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Business Ethics customers high-quality products and services at fair costs. These rules include
ethical practices to be observed in managing routine day-to-day activities
with all the stakeholders, namely other similar companies, suppliers, vendors,
consumers, employees, government, and business environment. Additionally,
it must abstain from adulteration, deceptive advertising, and other unfair
business practices.

Ethics is a subject of study in social science. It is a topic connected to

morality and social values. The study of appropriate company practices and
regulations with respect to potentially contentious topics, like corporate
governance, insider trading, bribery, discrimination, corporate social
responsibility, and fiduciary responsibilities, is known as "business ethics."
Let us now discuss in detail the concept of business ethics and try to
understand the features, principles, and elements of business ethics.

1.2 CONCEPT OF BUSINESS ETHICS

The term ethics originates from the Greek word ethos, signifying
"character." Ethics, a branch of philosophy, focuses on human character
and behavior, delving into questions of 'good and bad,' moral duty, and
obligation. It serves as the framework for defining 'right' and 'wrong' in
human actions and determining what actions 'ought to be.' In essence,
ethics involves the embodiment of moral principles. Described as the
"consideration and application of frameworks, values, and principles for
developing moral awareness and guiding behavior," ethics is synonymous
with terms such as "moral, good, right, just, and honest." Ethical
standards are often referred to as "human conduct principles or ideals,"
reflecting qualities that contemporary society deems desirable.

While ethics is universally applicable to human character and behavior,

its interpretation can vary in different contexts. In the realm of business,
ethical considerations may diverge from those in general society.
Business ethics, primarily concerned with the interplay between business
objectives, techniques, and specific human needs, scrutinizes the impact
of actions on individuals, firms, the business community, and society at
large.

The definition of business ethics is articulated as "the study of

professional practices," encompassing the exploration of the content,
development, enforcement, and effectiveness of codes of conduct guiding
individuals engaged in business activities. Various thinkers have offered
distinct perspectives on business ethics. According to Andrew Crane, it
entails examining business situations, activities, and decisions where
issues of right and wrong are addressed. Raymond C. Baumhart defines
business ethics as the "ethics of responsibility," emphasizing the
commitment of businessmen to avoid knowingly causing harm.

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1.2.1 Features of Business Ethics Introduction to
Business Ethics
The salient features of business ethics are as follows:

 Code of Conduct: In essence, a code of conduct serves as a

manifestation of business ethics, delineating acceptable and
unacceptable behavior that companies are obligated to follow.

 Moral and Social Values as Foundation: Business ethics finds its

roots in moral and social values, providing a set of principles for
companies to guide their operations.

 Safeguarding Stakeholders: Business ethics functions as a

protective mechanism for various stakeholders associated with the
business, including customers, employees, suppliers, vendors,
shareholders, investors, and government entities.

 Establishing a Fundamental Framework: Business ethics acts as a

foundational framework, outlining the parameters within which a
company is expected to conduct its operations. It defines the social,
cultural, economic, legal, and ecological context for the company's
functioning.

 Voluntary Nature: Business ethics is inherently voluntary and is

meant to be adopted willingly by companies operating within the
broader regulatory framework.

 Education and Training Requirements: To enforce and implement

ethical practices, businesses require adequate education, awareness,
and training. This ensures that they comprehend the significance of
ethical practices and can implement them in accordance with the
norms and regulations of their respective countries.

 Relative in Nature: Business ethics is relative, exhibiting variations

between different businesses and countries. For example, the ethical
norms prevalent in European Union nations may differ from those in
North or South American countries.

1.2.2 Principles of Business Ethics

Some of the important principles of business ethics are:
o Integrity:This includes maintaining the highest standards of honesty
and veracity in all business transactions.
o Trustworthiness: It entails exhibiting dependability, consistency, and
legitimacy in deeds and promises.
o Accountability:Business needs to take responsibility for all its
actions and decisions made and is prepared to take the responsibility
of the results or consequences of all these actions and decisions.

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Business Ethics o Transparency:This includes providing complete and correct
information to all the stakeholders.
o Fairness:A business is considered to be fair when it treats all
concerned stakeholders including employees, customers and other
companies with equality, impartiality and without any kind of
discrimination.
o Respect: Treating all the people with equal dignity and respect both
within and outside the company.
o Caring:To show concern and consideration for the welfare of the
people and the society. Besides, it should be ensured that all activities
of the company are sustainable and observe ecological protection.
o Citizenship: Being an accountable and ethical member of the society
as a whole, the business community should favorably advance
common good of the community.
o Sustainability: Ensure promotion of long-term sustainability in its
business functions, practices, and strategic decisions.
o Compliance: Adherence to all legislations governing the company,
rules and regulations, and industry norms simultaneously with
maintenance of highest ethical standards.
o Conflict of Interest Management: Avoiding circumstances in which
relationships or personal interests could taint unbiased decision-
making or undermine the organization's integrity.
o Whistleblower Protection: Supporting and defending workers who
bring up unethical activity or policy infractions to notice.

1.3 IMPORTANCE OF BUSINESS ETHICS

Moral rectitude and high ethical standards are vital qualities for the people to
exhibit as they have no desire to violate rules and regulations. Naturally, we
understand that doing good deeds and acting honorably is a vital thing to do,
but we also need to promote and encourage such behavior by considering the
goals of moral and ethical excellence. Being moral and integral is important
for a variety of reasons, including:
1. Build Customer Loyalty: Customers might be willing to take
advantage of a business once, but they will not return if they feel they
have received unfair treatment, such as being overcharged. Since
serving an existing client does not involve marketing costs, and
obtaining a new one does, having a loyal customer base is one of the
keys to long-term business success.
2. Enhance a Company's Reputation: A business's standing in the
community for upholding moral principles can help it project a more
favorable image, which in turn helps attract new clients through word-
8 of-mouth recommendations. On the other hand, a reputation for
 unethical business practices damages a company's ability to attract Introduction to
Business Ethics
new clients, especially in this age of social media, when unhappy
clients may spread word about their bad experiences with ease.
3. Retain Good Employees: Talented people want to be appropriately
compensated for their effort and dedication, regardless of their
position in the organization. They want to grow professionally inside
the company to be determined by the caliber of their work rather than
by favoritism. They want to work for an organization whose
management team is honest with them about what's happening,
including when layoffs or reorganizations are being considered.
Talented individuals are more likely to stay with companies that treat
them fairly and transparently. Employees who do not think the
remuneration as fair may not be as committed to their work as they
should be.
4. Positive Work Environment: Employees must conduct themselves
ethically from the start of their employment interviews. They must be
truthful about their qualifications and background. Employees who
uphold ethics are viewed as team players as opposed to the lone
individuals. They cultivate a good rapport with their colleagues.
Because of their supervisors' confidence in them with sensitive
material, they frequently receive increased autonomy.
Workers who are exposed lying by the managers jeopardize their
prospects of growing within the company and run the danger of losing
their jobs. Stealing by the employee is a severe example of unethical
behavior. This can be quite costly for the businesses in some sectors,
including restaurants where staff members pilfer food from the freezer
or storage locker. Making the effort to teach the employees about the
appropriate behavior is one strategy used by ethical businesses to
prevent this kind of act.
5. Avoid Legal Problems: In the quest of profit, a company's
management may be inclined to cut corners, such as not completely
complying with environmental standards or labor laws, ignoring
worker safety measures, or utilizing inferior materials in their
products. The consequences of being caught can be significant,
including legal expenditures as well as fines or sanctions imposed by
government bodies. Even more expensive than legal bills or fines are
the potential long-term harm to the company's reputation that could
arise from the negative publicity that follows.

1.4 THEORETICAL APPROACHES TO BUSINESS

ETHICS
Broadly there are two main theoretical approaches to business ethics, the
traditional theories, and the normative theories. Let us now try to understand
in depth about these theories.
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Business Ethics 1.4.1 Traditional Theories of Business Ethics:
a. Utilitarianism: According to this point of view, actions that benefit
the most people while causing the least harm are considered ethical.
The emphasis is on providing the best overall utility and value.
However, utilitarianism is criticized for potentially overlooking the
interests of individuals and minority groups in favour of doing the
most-good for the greatest number. It also gives no clear guidance on
how to evaluate the interests of other organizations. Utilitarianism
can sometimes encourage unethical shortcuts that result in the
greatest aggregate benefit.

b. Rights-Based Ethics: This viewpoint contends that enterprises must

respect the basic human rights and dignity of all stakeholders,
particularly employees. Businesses must respect workers' rights to
fair treatment, safe working conditions, proper remuneration, and
privacy. The emphasis is on fundamental rights. However, some
contend that it is uncertain if corporations have moral commitments
in addition to economic and legal requirements. Rights-based ethics
also provides a hazy framework because it does not consider the
interests of stakeholders other than rights holders.

c. Justice and Fairness: Firms should properly divide costs, rewards,

opportunities, and risks across all stakeholder groups based on their
claims and merits. Employees should be compensated and
empowered based on their performance and merit, not on factors
such as nepotism or bias. The emphasis is on reasonable and
equitable procedures and outcomes. However, detractors point out
that other definitions of justice exist, and it is unclear which feeds the
best framework for business ethics. There are also disagreements
over which stakeholders in distributional justice deserve to be
respected.

d. Virtue Ethics: Businesses should foster moral traits such as honesty,

integrity, caring, and trustworthiness among their personnel. Having
a virtuous disposition leads to ethical decisions. The emphasis is on
developing moral character. However, some say that it is unclear
how corporations, as opposed to people, may develop virtues. There
is some disagreement on which virtues are most relevant and
valuable in business. In addition, virtue ethics provides little
assistance on specific judgements and policies.

1.4.2 Normative Theories of Business Ethics:

a. Stakeholder Theory: The entities affected by business decisions
have moral claims (stakeholders). The firms have moral duties
towards many stakeholders, such as consumers, employees,
community, environment, suppliers, etc. The decisions taken in the
business should consider that the interests of all relevant stakeholder
10 groups are taken into consideration. This theory provides a
 comprehensive framework for integrating insights from several Introduction to
Business Ethics
ethical theories.

b. Social Contract Theory: Businesses function with the approval of

society and in accordance with its regulations. In exchange,
corporations must operate in the best interests of society. The moral
and legal constraints within which businesses must operate are
defined by society, and enterprises exist to serve the common good
rather than to maximize profits.
I. Universal Principles: Universality and consistency should
influence ethical decisions. The organizations should adhere to
the same principles that they would want all firms to adhere to
in similar situations. It emphasizes ethical values such as justice,
dignity, human rights, and welfare, as well as providing an
objective norm for corporate ethics that is not based on self-
interest.
II. Common Good Theory: The basic goal of enterprises is to
benefit society. Human flourishing, well-being, and societal
progress should be promoted by businesses. Decisions should
contribute to the overall well-being of society while maintaining
human dignity.

Check Your Progress A

1. What is meant by business ethics?
2. List any four features of business ethics.
3. Explain virtue ethics.
4. Which of the following statements are True or False?
(i) Ethics involves excellent character and morality.
(ii) For all types of businesses, ethics are same.
(iii) Common good theory aims to benefit society.
(iv) Positive work environment helps the workers only.
(v) Managers should not try to cut corners to enhance profits.

1.5 ESSENTIAL ELEMENTS OF BUSINESS

ETHICS
There are several elements that help us understand business ethics:

1. Ethical Leadership: The ethical culture of an organization is shaped

by its ethical leadership. They provide an exemplary instance for
others to follow by acting with justice, honesty, and integrity.

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Business Ethics 2. Corporate Values: Companies establish a set of core values that
outline their moral principles and direct decision-making. These
principles could include social responsibility, honesty, openness, and
respect.
3. Code of Conduct: A written code of conduct or ethics policy that
specifies acceptable conduct and moral guidelines for stakeholders
and workers is developed by many businesses. This code functions
as a point of reference for ethical judgement.
4. Compliance and Legal Standards: Following legal and regulatory
requirements is a cornerstone of corporate ethics. Businesses need to
make sure that all local, federal, and international laws and
regulations are followed in their operations.
5. Stakeholder Consideration: The interests and well-being of all
stakeholders, including employees, customers, suppliers, investors,
and the broader community form an integral part of ethical standards
followed by businesses.
6. Transparency: Building trust and accountability requires openness
and transparency in financial reporting, corporate operations, and
communication. A fundamental component of business ethics is
truthful and accurate reporting.
7. Fair Treatment: One of the main principles of business ethics is to
treat individuals and groups fairly and without discrimination. This is
applicable in all the spheres of functions including hiring, promotion,
compensation, and customer interactions.
8. Social Responsibility: Companies are under more and more pressure
to act responsibly towards society and the environment. Initiatives to
address social and environmental challenges are referred to as
corporate social responsibility (CSR).
9. Environmental Responsibility: Businesses are required to reduce
their negative environmental impacts, implement sustainable
practices, and support environmental conservation.
10. Measuring Results: Precisely gauging the results of an ethics
program poses challenges. Consequently, organizations adopting
ethics programs may scrutinize and audit the final outcomes to verify
that employees conduct their work in alignment with ethical norms.
Following the audit, top-level management and other personnel can
deliberate on the findings to determine the subsequent course of
action.
11. Top Management Commitment: The pivotal role of an
organization's top management in ensuring corporate ethics cannot
be overstated. They steer the ethical conduct of the entire
organization, and for optimal results and the cultivation of ethical
12 behaviors among employees, the CEO and other top-level managers
 must wholeheartedly commit to ethical practices. Their adherence to Introduction to
Business Ethics
the ethical code of conduct serves as a model for employees,
fostering motivation among the workforce to follow suit. Their
leadership should inspire ongoing development and the upholding of
the company's ideals.
12. Publication of a Code of Conduct: Companies with robust ethical
frameworks articulate the principles of conduct for the entire
organization in written form. This written compilation of ethical
principles is commonly referred to as a "code." The code of conduct
addresses diverse issues such as product quality, safety, honesty,
legal compliance, financial reporting, marketing practices,
employment policies, workplace health, and safety, among others.
These principles or standards function as a guide for the
organization's actions.
13. Establishment of Compliance Mechanisms: Merely publishing a
code of conduct is insufficient; organizations must establish
mechanisms to ensure employees adhere to it, and the firm's actions
align with these standards. This may involve assessing values and
ethics during the recruitment process, creating communication
channels for employees to report unethical behavior, and similar
measures.
14. Involving Employees at all Levels: Employees play a pivotal role in
translating ethical standards into practice within the organization.
Therefore, it is imperative for organizations to engage employees in
ethical programs. For instance, a company may form a small group
of employees to discuss the organization's core ethical principles and
gather feedback on employees' perceptions of these policies.

1.6 ETHICS IN RETAIL

With the passage of time, business ethics has emerged as an important area of
study, with very wide scope and challenge in the business world. It has
implications in all the functional areas of management including retailing.
Retailers try to maximize revenues by providing customer satisfaction
through ethical means. Ethical order ensures an organization's sense of order
and justice, and specific rules and regulations govern the retail industry.
Corporate Social Responsibility (CSR) is related with the ethical expression
of doing business, and this concept is critical in retailing. Customers have
direct interphase with retailers; hence it is vital that retailers behave ethically
because they have a major impact on many people's lives. Ethical practices
are not just a retailer's moral obligation, but they are also vital to the retail
industry.Ethics is important for retail due to the following reasons

1. Image Building in the Society: People in general prefer to associate

with organizations that have a positive reputation in society. Take the
example of Microsoft Corporation, the IT multinational giant. It is
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Business Ethics famous across the globe for its CSR and philanthropy. They are
committed towards empowering people in all the organizations. Their
firm belief in four dimensions,i.e. expand opportunity, earn trust, protect
fundamental rights, and expand sustainability makes them one of the
leading organizations in the world, with a positive image amongst people
irrespective of the country they belong to.

2. Satisfaction of Needs of the People: Ethics is essential for customer

retention. It is also important for people management in terms of
enhancing employee satisfaction and improving their sense of belonging
towards the organization. All the stakeholders,specially, consumers and
employees, align with the company which conducts business with
honesty and follows the rules and regulations. Besides, organizations
complying with the norms and regulations have greater acceptability in
the society. Therefore, following ethical practices are important for
sustained customer retention and employee loyalty.

3. Role of Ethics in Decision Making: In everyday life, retailers must

make critical decisions for the organization's success. When an
organization believes in ethical practices, it makes decisions that benefit
the organization, its employees, and its customers. In the absence of
ethical practices, a store can make decisions that might be unethical and
irrational. For example, an organization that does not adhere to ethical
practices may make decisions to face competition which might be
detrimental for its growth and development in the long run.

4. Acts as a Binding Force for the People: Employees admire and

appreciate organizations whose actions are guided by ethical standards.
An ethical organization will consider not only its own interests, but also
the interests of its employees and consumers. It results in the creation of
a healthy harmonious relationship between the employees and the
employer. A healthy relationship is critical to the organization's success.
A satisfied employee will never deceive his organization and will
continually make efforts to ensure its success.

5. Improved Society and Better Quality of Life: If everyone adopts

ethical practices, the society will be a better place to live. A society in
which everyone is concerned with themselves and are selfish and self-
centered, will not thrive and grow. There will always be differences
between people. However, we all know that no two persons are alike.
There will always be people who engage in unethical behaviors, and it is
then that ethical laws take effect and limit such behaviors.

6. Sustained Profits: Organizations adopting ethical practice are known to

have sustained profits and repute not only in the business environment
but also in the society. It looks after the well-being of its employees,
customers, and the society. On the contrary, organizations using
unethical methods might accrue short term benefits but in the long run,

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 will not remain profitable and will encounter several problems which Introduction to
Business Ethics
might ultimately lead to losses by the company.

For example, Tata Group adheres to its mission and uses ethical
practices. Many of Tata Group's competitors are publicly traded
companies, but Tata is a family business that has developed into a large
multinational conglomerate. Its success is built on basic beliefs and an
unbeatable business approach. In simple words, it can be said that ethics
shows the path of right doing to the organization and let it make
decisions which are both in favor of its employees as well as customers.

Areas of Ethics in the Retail:

1. Implementation of Laws, Rules, and Regulations:Each country has a

well-defined set of company laws, rules, and regulations such as
employee welfare acts, industrial relations laws, right protection laws,
company laws, etc. related to the retail sector. These laws, enactments,
rules, and regulations are implemented from time to time depending on
the environmental circumstances. The companies are supposed to follow
these rules and regulations and ensure their proper implementation on a
day-to-day basis.

2. Protect the Interests and Rights of Customers:The first and most

important task of an organization and its employees is to defend the
rights and interests of the consumers, and they are responsible for
ensuring the safety and security of the customers. An organization
cannot engage in unethical behavior by infringing on the rights of
consumers to make profit. Deceptive advertising, sharing incorrect
information with customers, misbehavior with customers, invading
customers' privacy, lack of quality control of the products sold by the
organization, questionable pricing policies, and other actions violate
customers' rights and interests.

3. Mismatch of Interests: A conflict of interest develops when an

individual's personal interests do not align with the interests of the
organization. Employees must follow the organization's laws and norms,
and retailer must always take steps that are in the best interests of their
employees.

4. Integrity:Employees working in an organization have access to files,

data, and details about customers, vendors, and other stakeholders. Often
such data, files or details which are confidential for the organization and
are supposed to be preserved with caution, get leaked to outside
individuals or groups or organizations. These are then misused which
leads to breach of trust and confidentiality. This is a common instance of
unethical practice in retail business.

5. Receiving Gifts in Return for Favor: Employees are typically asked

not to accept any gifts or favours from those outside the organization.
People send gifts to employees to take advantage of the employee's 15
Business Ethics position, and if employees accept valuable gifts, they may feel obligated
to repay the favour. This might result in conflicts within the
organization.

1.7 ADVANTAGES OF BUSINESS ETHICS

As we all know, business ethics encompasses the values and standards that
influence businesses' and their workers' decisions and behavior. Business
ethics are critical to the smooth operation of any organization. They build an
upbeat portrayal of the company in the public eye, encourage impartiality and
integrity in the business environment, and make certain that everyone
involved has a fair chance to benefit from the company's actions.

1. Builds Trust and Loyalty: The most significant benefit of business

ethics is that it fosters confidence and allegiance among customers,
vendors, and other stakeholders. Customers are more inclined to trust a
company if they know it works ethically and with their best interests in
mind. Suppliers are more willing to deal with a company that is thought
to be ethical. This confidence can lead to improved consumer and
supplier connections, as well as more successful company relationships.

2. Favorable Organization Culture: Business ethics also contributes to

an organizational culture of justice and respect. When employees believe
that their employer is committed to ethical practices, they are more
likely to be inspired and productive. Business ethics can also help to
prevent unethical behavior such as corruption, embezzlement, and fraud
by creating an ethical atmosphere.

3. Fosters Corporate Social Responsibility: Business ethics can also aid

in environmental protection and social responsibility. Companies that
follow ethical business practices are more likely to examine the
ecological impact of their decisions and take steps to guarantee that their
operations are long-term. Companies can also help to lower their carbon
footprint and contribute to a healthy environment by supporting ethical
business practices.

4. Improves Public Image of the Company: Corporate ethics can aid in

the enhancement of the image of a business in the marketplace.
Customers are more inclined to buy items or services from a firm that is
thought to be ethical and responsible. Furthermore, ethical practices can
assist in attracting and keeping talented employees, who are more likely
to continue working with an ethical organization.

5. Boosts Employee’s Morale: Business ethics ensures implementation

and maintenance of rules in the organization along with ensuring respect
for the workforce.This leads to creation of conducive work environment
and positively motivated employees.

6. Better Financial Status of the Company: Finally, corporate ethics can

16 aid in the financial performance of a corporation. Companies that follow
 ethical business practices have a greater probability to be successful Introduction to
Business Ethics
economically since their consumers and suppliers are more willing to
deal with them. Furthermore, ethical practices can assist attract investors
because they are more willing to invest in a firm that is seen as
responsible and trustworthy.

Finally, corporate ethics are critical to the smooth operation of any

organization. They increase consumer and supplier trust and loyalty, establish
an atmosphere of equality and dignity within the organization, safeguard the
planet and foster social responsibility, boost company’s public reputation,
and boost its financial performance. Companies can assure their profitability
and longevity by embracing ethical business practices.

1.8 STAKEHOLDERS’ PERSPECTIVES OF

BUSINESS ETHICS
Every individual is affected by ethics, from entrepreneurs, company
executives, and personnel to suppliers, consumers, and competitors. The
study and practice of ethics helps us acquire abilities in articulating our own
values as well as techniques for evaluating the values and behaviors of
others—all of which influences how we as individuals form connections and
interact with others. The same is true for a business. Better interactions with
individuals both within and outside the organization result from a more
ethical workplace. And better interactions result in better outcomes. As a
result, ethics is closely related to stakeholders of the organization. These
include:

1. Ethical Practice Towards Employees

An organization should not just adopt ethical practices about its

customers, but also about its staff. A huge number of retail staff
members operate at various levels in a retail store. If employees are
mistreated in the organization, they will speak negatively about it in the
presence of others, creating a negative image of the organization in the
minds of the general public. Furthermore, this will result in low output,
low staff motivation, low profit, and elevated labor turnover, among
other things.

2. Vendors

Organizations work together with their suppliers and merchants. A

provider is an organization that provides parts or services to another
organization. Ethical providers give excellent products and strive for
long-term production. A wholesaler is a company that sells and
transports products to retail stores or acts as a middleman in business.
Providers expect to be compensated fairly and promptly for their
information sources, while merchants expect to acquire amazing things
at agreed-upon prices. The terms of legal contracts constitute the most

17
Business Ethics important difficulties related to instalments or the attributes of items,
though numerous other issues depend on corporate ethics.

3. Consumers

The merchant should charge a reasonable price for the goods they sell to
customers. Customers have an entitlement to accurate and correct
information about the products supplied to them. They should be
informed about all aspects of the product, such as guarantee, warranty,
usage, ingredient, and pricing, among others. They should not sell low-
quality goods to the customers.

4. Ethical Practice Towards Shareholders and Investors of a Company

Investors' investments enable businesses to get established. The financiers
and shareholders are also the owners of the business. As a result, it is the
company's responsibility to provide appropriate returns to their investors
at regular intervals. It is an organization's ethical responsibility to inform
its investors about the organization's accurate financial situation. It should
conduct business in such a way that it benefits both the organization and
its owners and investors. If an organization fails to achieve this, it may
permanently lose the trust of its investors, which is not in the interest of
the organization.

5. Government
It is also the responsibility of the company to abide by the rules and
regulations laid down by the government. Government is an important
stakeholder in the system. While the government lays out the norms and
acts for regulation of the operations of the company, the company in turn
follows them for ensuring a certain responsibility towards the nation.
These laws and acts prevent the organization from following unethical
practices. The organization at the same time contributes to the wellbeing
of the nation by way of paying the mandatory duties and taxes.

1.9 CODE OF CONDUCT

Codes of conduct have evolved over the years, most notably from a set of
rules, i.e. what can be done and cannot be done to a set of values-based
principles.Codes of conduct are no longer written in the pages of
incomprehensible material, legalistic terminology, and business jargon. These
have been replaced by clear, understandable standards of conduct that
employees can use as guidance to assist them make ethical decisions and act
accordingly. The elements of an effective code of conduct are as follows:

1. Message needs to be sent from the top leadership.

2. Company values and mission need to be interwoven within and linked

with the code of conduct.

18 3. Applicable to all the employees including the top management.

4. Need to mention the consequences of non-compliance in the code. Introduction to
Business Ethics
5. Provision of channels and methods of seeking advice and raising
concerns in case of non-compliance.

6. Provide clearcut value based behavioral guidelines and compliance

measures.

7. Reinforce with live situations and cases for better understanding and
adaptation.

8. Easily comprehensible and used.

9. Needs to be visually attractive and easy to understand.

1.10 CHALLENGES AND IMPLEMENTATION

Ethical issues develop at every stage of the business process. The
environment has a significant impact on the implementation of corporate
ethics. Let us look at how the outside world and different stages of business
affect the application of business ethics.

1. Aligning Talk about Ethics with Action: The major difficulty is

that leaders occasionally preach about ethics but do not necessarily
live their own lives according to the same rhetoric. To create really
ethical organisations, the two must be aligned.

2. Building Trust within the Organization: Building trust throughout

your organization is the first step towards building trust with
shareholders and customers. Employees are more likely to follow the
guidelines when the rules are equitable and the expectations are
acceptable. When mistakes occur—and they will—constructive
assistance rather than punitive measures keep employees from
becoming reclusive or going above and beyond to cover up their
transgressions.

3. Expanding Leadership’s Awareness: The range of systems and

delicate understanding that leaders possess influences their ethical
decision-making ability. Take time to think it over, have someone to
turn to who can question your views, and establish a strong and
diversified personal network to consciously extend this breadth. Pay
attention to what matters in your organization and encourage others
to speak up.

4. Knowing your Specific Organizational Core Values: Know what

you believe and discuss them with your staff to see how they are
reflected in the organization. When you are genuinely aiming to
strive for perfection in an ethical issue, stakeholders will notice.

5. Aligning Incentives to Drive both Financial and Customer-first

Outcomes: The tension between shareholders and stakeholders—the 19
Business Ethics emphasis on objectives and important results that would drive the
achievement of financial measurements, or measures that lead to
financial measures, and a focus on customer-first outcomes—is
difficult to resolve. Beyond the surface, ethics is often driven by
mismatched incentives which fuel a desire for progress, power, and,
in some cases, greed. Focus should be on how the employees are
motivated.

6. Integrating and Sharing Expectations: Too often, businesses fail

to make ethics tangible and quantifiable. They are frequently
underutilized aspirations that become ignored material. Integrating
and sharing ethical expectations on a regular basis in all
organizational departments and activities is critical to ensure
commitment, productive conversation, and accountability, as well as
controlling behaviors that indicate excellence in generating business
goals.

7. Facilitating Timely Reporting of Concerns: To excel ethically, a

company must have a procedure established for staff at all positions
to safely report occurrences and concerns. If staff lack understanding
or confidence in this area, management may not be aware of
problems until their integrity has been jeopardized. Timely reporting
will allow leaders to make sound ethical decisions, plans, and
pronouncements.

8. Balancing and Measuring Priorities for Growth Versus Health:

The difficulty for businesses to excel ethically is to balance and
measure priorities in terms of company development and results vs
organizational well-being and character, which are based on ethics
and values. Unlike the former, the latter lacks distinct metrics. To
address this, leaders may set a good example by demonstrating and
supporting transparency and communication. As a result, include
both favorable and adverse ethical scoring in overall awards.

9. Aligning Market Offerings and Ethical Intentions: A significant

problem for ethically conscious businesses is ensuring that their
commercial offerings and ethical aims do not contradict each other.
Profit margins and ethical principles may coexist! Their
organizational leaders' performance should be linked to ethical
tactics and behaviors that are quantifiable and provide tangible value
to their consumers.

Check your progress B

1. List any four essential elements of business ethics.

2. How does business ethics help in building up good image of the

company?

3. Why are the employees asked not to accept the gifts?

20
4. Who are the stakeholders in a business enterprise? Introduction to
Business Ethics
5. Which of the following statements are True or False?

i) Following legal and regulatory requirements is a cornerstone of

corporate ethics.

ii) The ethical practices benefit the organization, its employees, and its
customers.

iii) Following business ethics downs morale of the employees.

iv) The leaders occasionally preach about ethics but do not necessarily
live their own lives according to the same rhetoric.

v) Companies should look after the interests of the shareholders only.

1.11 LET US SUMUP

To sum up, it can be stated that business ethics have a very important place in
any organization. They are a set of formally written norms, rules, regulations,
and codes that spell out what and how things are to be carried out in the
organization. These rules include ethical practices to be observed in
managing routine day-to-day activities and with all the stakeholders, namely,
other similar companies, suppliers, vendors, consumers, employees,
government, and business environment. Additionally, it must abstain from
adulteration, deceptive advertising, and other unfair business practices. They
act as a fundamental framework based on moral and social values to protect
stakeholders. It is everyone’s responsibility in the organization to participate
in enforcing the ethics and abide by them. However, their proper
implementation requires adequate training and sensitization so that all
concerned become aware of what is expected of them and how they should
behave while in the organization.

There are several challenges that are faced by the organizational leadership in
ensuring the sustained implementation of the ethical methods across the
company. It must be applicable at all the levels to be complied with fully.

1.12 KEY WORDS

Stakeholders : Persons or groups whose interests are associated with
an enterprise.

Contentious Topics : The issues that may create controversy.

Environment : Theaggregateof certain conditions and influences

that makes a particular activity, such as business
favorable or unfavorable.

Discipline : The field of a particular activity, such as business.

21
Business Ethics Framework : A basic structure, plan, or system, as of concepts,
values, customs, or rules.

Sensitization : The process of becoming adapted to a particular set

of rules.

Loyalty : An act of being adherent to a certain system

Utilitarianism : The ethical doctrine that virtue is based on utility,

and that conduct should be directed toward
promoting the greatest happiness of the greatest
number of persons.

Transparency : The act of not hiding the facts or way of doing the
things.

Fair Treatment : The act of doing the things without any bias,
dishonesty, or injustice.

Compliance : A system to monitor whether prescribed rules have

Mechanism been followed or not.

Sustained : Continuous efforts.

Integrity : Following moral and ethical principles

1.13 ANSWERS TO CHECK YOUR PROGRESS

A 5. (i) True; (ii) False; (iii) True; (iv) False; (v) True

B5. (i) True; (ii) True; (iii) False; (iv) True; (v) False

1.14 TERMINAL QUESTIONS

1. Define business ethics?
2. What are the principles of business ethics?
3. Enlist the challenges faced by an organization in implementing business
ethics?
4. What are the advantages of implementing business ethics in an
organization?
5. Name the traditional theories of business ethics? Explain any two of
them.
6. Discuss challenges in implementation of business ethics.
7. What is meant by code of conduct ? List the elements of effective code
of conduct.
8. What is meant by stakeholders? Discuss stakeholders' perspective of
22 business ethics.
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challenges-companies-face-in-striving-to-excel-
ethically/?sh=4538b39d4bc4
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converted-converted-converted.pdf
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quarterly/article/abs/normative-theories-of-business-ethics-a-guide-
for-the-perplexed/DD0C0E36B769E9DEDCCF4CE1285D1BFE
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and-elements/
19. https://testbook.com/ugc-net-commerce/theories-of-business-ethics
20. https://plato.stanford.edu/entries/ethics-business/
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