NATURE AND SCOPEOF BUSINESSETHICS

Introduction:
The word 'ethics' has originated either from the Latin word "Ethicus" or Greek word
"Ethicos". Both these words originated from the word "ethos" which means character.
Ethics is a system of moral principles, rules and conduct.
As a science of moral principles, ethics gives a guideline as "What is
right?" and "What is wrong?".
Ethical problems are faced by people in all countries and at all times. Centuries ago
Duryodhana said in Mahabharata, "I know what is right but I am not able to act
accordingly. I also know what is wrong but I am not able to restrain myself doing it".
The famous Indian philosopher Kautilya says, "We are shaped by our thoughts. We
become what we think. When the mind is pure, joy follows like a shadow that never
leaves".
Ethics can be described as philosophy in action. Ethics is a branch of philosophy dealing
with what is good or bad, right or wrong. Life is a continuum of activity and inactivity.
The entire universe is based on activity. The human beings have the freedom of action to
contribute good or bad to the world. While good acts are performed people are happy and
such a period of good activity is called as the golden era.

Ethics encourages constructive actions. There are three types of constructive

actions.
(a) Certain obligatory actions to be performed by every individual such as good quality
products, fair prices etc. the non-performance of such activities brings disgrace.
(b) Certain actions are to be prohibited such as false weightage, high prices etc.
(c) Certain other actions are called optional actions. The optional actions should bring
goodness and welfare to all. A timely customer care can be given as an example.
Indian philosophy strongly believes that ethical action is the supreme governing force of
the universe. The world survives because of ethical action done by all. Ethical action is
concerned with obligatory deeds and avoidance of prohibited deeds. It is stated that the
idea of ethical action is instinctive in man and not acquired.
The level of ethical action in a society is depending on the goodwill and maturity of the
society.
Higher the level of ethical action, greater is the status of the society.
The purpose of ethical action is the welcome to the good and avoidance of bad. "Service
to man is the service to God", is a sound and noble principle.

Religion and ethics:

Religion is providing certain guidelines for people regarding the various aspects of life.
Religion is giving utmost importance to God and provides the people a path to reach the
kingdom of God.
Religion stresses what our life ought to be. It provides the various steps like prayers,
rituals and nature of attitude towards life. Naturally ethics is also a part and parcel of
religion.
Religion stresses the relationship between human beings and strongly suggests that one
should help the other to the extent possible. Being good brings a lot of mental and
spiritual satisfaction.
The people are expected to help each other.
According to Indian philosophy, there are three types of people in the world, namely God
like, man like, and demon like.
The demon like people should give up their bad traits and develop a concern
and compassion for others.
Too much of selfishness leads to nothing but ruin. This should be known to them. The
good men are humanistic, kind and generous in helping others. Pure rational thinking
alone cannot help the help to achieve desired happiness.
The easiest way to be happy is to make others happy.
The God like people promote highest forms of human values and participate in welfare
activities. They inspire the various generations.

The role of Karma Yoga:

Karma Yoga, an Indian doctrine states that action performed without attachment and no
aiming at fruits of action makes people happier. Karma Yoga leads to prosperity, success
and sound decisions because the person is not affected by the thought of fruit of his
action. The doctrine also suggests that the rewards and punishments are due to the actions
in previous births. The fear of punishment and the pleasure of reward give us correct
guidelines for this life. The doctrine of Karma is logical
and ethical.
A human being is not a mere "political animal" as thought by Aristotle, "tool-making
animal" as Benjamin Franklin thought or an "economic animal" as though by Alvin
Toffler.
The Indian philosophical thought strongly believes in the divinity in all the souls.
Ignorance is no longer a bliss. The root of happiness lies in righteous action. Right action
comes from right thinking based on right information. Hence ethical actions have become
a necessity in a modern global economy in this information age.
Chandogya Upanishad says, "Bliss is never attainable by living a life of limited interest.

Bliss comes only from the infinite. There is no bliss in the finite life". According to this
statement, bliss or highest happiness comes from a variety of activities and interests. The
ancient Indian thought suggests a fully diversified life. A life with a lot of diversification
refers to the changes in the interests of life.
This leads to the promotion of the welfare of not only individual but also others around
us.
Swami Vivekananda says, "Religion is the manifestation of the natural strength that is in
the man.
A spring of infinite power is coiled up and is inside this little body and that spring is
spreading itself'.
In fact, the natural strength of the man or woman can be realised only by exposure and
knowledge.
Any person exposed to others and outside events can get strength of wisdom.

Morals and ethics:

Morals deal with the right behaviour of individuals. Ethics deals with the right character
in a given situation. Both are closely related to each other. Some of the basic morals like
helping others, treating others kindly and not cheating others help the business growth in
the long run. Morals form the foundation of ethics. Morals are primarily related to
individuals. But ethics is closely concerned with organisations such as business and
professional institutions.

The relationship between morals and ethics is established through the

following arguments:
1) All moral standards are aiming at the development of positive standards. Ethical
standards also aim at the betterment of ethical practices in the organisations.
2) If moral standards are _no_t followed there will be serious and disastrous
consequences like crimes, corruption, and fraud. If ethical standards are not adopted,
there will be fall in the values and efficiency of enterprises and organisations.
3) Moral standards can be established only with the co-operation and active participation
of people. Ethical behaviour can be initiated by the organisations but the success depends
on the co-operation and participation of people in the organisation.
4) Both morals and ethics give more importance to public welfare than private welfare.
Both believe that society should over-ride self interest. A balance has to be maintained
between ethical demands and strategic interests.
5) Both morality and ethics are not only positive but normal in their approaches. A
positive approach explains 'what it is' but a normal approach explains not only 'what it is'
but also 'what it ought to be'.
6) Both moral and ethical standards are based on impartial considerations having long-
term benefits. Both discourage short-term gains and partial benefits.

Types of ethics:
There are three important types of ethics
1) Transactional ethics:
Man is a social animal. He has to act and react with others through different transactions.
The practice of ethics in all these transactions is called transactional ethics.
All the involved parties should reciprocate ethical practices. The common ethical
interests are binding all the people. It is a win-win approach from all perspectives.
Let us take the example of a medical doctor. He examines the patient, gives right type of
treatment and charges moderately. The patients are also happy in getting the treatment
from this doctor and promote a word of mouth communication. The principle of honesty
and principle of reciprocity are the basic principles in transactional ethics. The interests
of both the parties are taken care of.

2) Participatory ethics:
It is an important part of business ethics. Guided by common interests all the participants
follow some ethical practices.
The important features of participatory ethics are:
(a) All the parties like consumers, producers and employees maintain some basic ethical
standards.
(b) The level of participation depends on the degree of motivation in a society.
(c) Participation cannot come from external forces but from inner commitment. This can
take place only through the process of creating ethical awareness.
(d) The level of participation has to be watched by all the groups leading to mutual
checks and balances. Special attention has to be given to the least powerful and
marginalized sections of society.
(e) The growth of participation indicates the level of social development. It is the growth
of solidarity in an age of individualism. Many socio-economic problems of developed
countries are solved by the ethical practices. Example: Ford Foundation.

3) Recognitional ethics:
As human beings, people are endowed with the ability to understand the problems of
others. This quality leads to the recognition of individuals, institutions, and societies.
Conflicting situations can be solved by the correct recognition of the situation. This
requires a correct perspective and empathy. The strong is helping the weak. The learned
is helping the lesser learned. The experience is helping the new entrant. Compensation is
given to the victims.
Characteristics of business ethics:
(1) Each person is individually responsible for the ethical or unethical decisions.
(2) Ethical decisions are voluntary in nature and people have the freedom of choice and
free will.
(3) Ethical decisions differ from person to person, time to time and place to place.
(4) Ethical decisions affect in a widespread way.
(5) Ethical decisions are involving a trade-off between the costs incurred and benefits
received.
(6) The effects of ethical decisions cannot be predicted.
(7) Because of so many pressures, lower level managers are given pressure to
compromise their ethical standards.
(8) In all organisations, people are frequently finding ethical dilemmas, where values are
in conflict.
(9) In many cases, there is a feeling that ethics has to be taught to the managers at the
corporate doors only.
(10)There is also a belief that ethics cannot be taught to managers beyond an age. The
ethical values can be better incorporated at early age.

Sources of business ethics:

The following are the important sources of ethics of in general and business ethics in
particular.
I. Religion:
All the religions of the world insist on ethical conduct and behaviour. The business
people get guidance and inspirations from their respective religions. In modern days,
religion is interpreted in terms of modern socio-economic problems. Religious guidance
is found in religious texts like Bible, Bhagawad Gita and Quaran.
Religion believes strongly that God has created the world. Naturally God gives the world
a final purpose or goal. The beings on earth have a goal or purpose ordained by God.
Since the world has come from God and aiming towards God, the world has to be good
with positive values.
Religion says that evil is a part of life and we have to avoid it.
Religion is stressing on harmony, beauty, peace of mind, wealth, health and success.
Religious morality guides an individual back into a state of harmony with all that
surrounds the individual.
Religion stresses on three important harmonies, namely, natural, human, and
supernatural.
Natural harmony suggests ecological balances and reduction of pollution rates. It also
encourages sustainable practices in business and production. Human harmony refers to
better understanding among the business firms rather than domination of one over the
others. If harmony is achieved at natural and human levels, naturally supernatural
harmony can take place with the blessings of God.
Religion advocates the maintenance of orderliness and the avoidance of excessiveness.
Too much of production leads to glut and too much of consumption creates imbalances in
society.
The rituals are intended to establish harmony with God. These rituals promote better
relationship and make us to understand the spiritual significance also.
Islam suggests the three canonical elements, namely, faith (Imam), practice (Islam), and
virtue (Ihsan).
Religion covers all areas of human hehaviour like what is required, permitted, discourged
and forbidden.
In modern days, religion shows a compassion to other religions and considers the welfare
of humanity.
Buddhism is discouraging too much of desire and its natural result of unlimited suffering.
It states that suffering arises from a discrepancy between the desire and actuality.
Buddhism has suggested an eight fold path which can be incorporated in any scheme of
business operations. These are right views, right intention, right speech, right action, right
livelihood, right effort, right mindfulness, and right concentration.
Mahayana Buddhism stresses an ethics of compassion for all living things which forms
the basis of social security measures and social responsibility of business.
Religion helps business people to make decisions like the location, nature, diversification
and expansion of business. Religion gives the comfort and consolation necessary for any
business
man irrespective of the outcome of the result of business.

II. Cultural experience:

Culture refers to a system of learned values and norms shared among a group of people.
Culture constitutes a design for living.
Values refer to abstract ideas about the good, the right and the desirable.
Norms indicate the social rules and guidelines which determine appropriate behaviour in
specific situations.
Mores are the norms central to functioning of social life. Mores bring serious retribution
like theft, corruption.
There are various determinants of culture, namely, economic philosophy, political
philosophy, social structure, religion, language and education.
If the social structure is well organised the cultural standards are to be high. High
mobility can promote better culture. If language promotes communication, the culture is
bound to be progressive.
Our basic values are developed only from our culture. The cultural norms and values
promote ethical business practices. Moral debate is extended to business also. Fair
practices such as fair pricing, customer care and after sales service are the result of good
cultural experience.
In the context of globalisation, business firms are interested in adhering to the basic
values of human enrichment to protect the interests of various stakeholders.

III. Philosophical svstem:

Philosophy is the study of nature and meaning of existence. A philosopher is a person
whose mind is not troubled by passions and hardships. He lets reason govern his life. The
old Epicurean philosophy taught that pleasure was the good thing. Later on, the
philosophers of both west and east opposed this view and strongly suggested that one
should be indifferent to pleasure or pain.
The opinion polls place business people in lower esteem than politicians. More than 60
percent of the people feel that recognition of corporations is necessary to protect the
public.
The investors are obsessed with lies, greed and dodgy accounting. The scandal has
engulfed
the big and small companies, eroded the markets and the confidence of investors.
Because of frauds, an organisation on an average is losing Rs.500 per day.
Philosophy is not a mere anti business sentiment. Philosophy gives guidelines and frames
the scope of ethical activities. Modern philosophy is suggesting integrity. Integrity
suggests soundness, principles and honesty. That is why business ethics is stressing the
importance of transparency, accountability and responsibility.
The days of mere material philosophy have come to an end. In the same way, mere
immaterial philosophy cannot deliver the goods. A golden combination of both material
and immaterial aspects of philosophy is practical, tactical and relevant.
All the human activities have well defined rules and regulations. These rules and
regulations have been framed by the philosophical system. Philosophy deals with the
most basic beliefs,
concepts and attitudes of an individual or group. Business philosophy is about bettering
lives of all the stakeholders through empowerment and better business transactions. Our
knowledge is shaped by our attitudes. Optimists live in the hope and believe that business
can provide good solutions to the problems of people. The pessimists live in fear and
expect the worst future scenarios in future.
An ethical guideline has been given by Mark Twain, "Do what is right. You will please
some people and you will astonish the rest".
If there is going to be a choice between reputation and income it is better to protect the
reputation.

IV. Legal svstem:

The legal system of a country is also a source of business ethics. The legal system
includes the constitution, prevailing laws and the judiciary. If the legal system is alert, the
unethical practices are discouraged. The legal system of a country provides the guidelines
for business related to location, production, conditions of employment, pricing and
customer care. For example, The Competition Act, 2002 prohibits anti competitive
measures and encourages the growth of competition. It has established the competition
commission of India which can enquire into any violation of the provisions of the Act.

This Act has provided the major criteria to decide whether an enterprise commands a
dominant position in the market:
(a) The size of the market
(b) Sizeofthe competitors.
(c) Monopoly position.
(d) Barriers to entry.
(e) Social obligation and costs.
The legal system is protecting the interests of its stakeholders. The social and natural
environment have to be taken care. The rights of the consumers have to be protected.
Consumers' rights
1. Right to protection.
2. Right to information.
3. Right to assurance.
4. Right to be heard.
5. Right to redressal.
6. Right to consumer education.

Factors influencing business ethics:

A variety of factors is responsible for the operation of business ethics.
1) Leadership:
Business is all about the interaction of customers, suppliers, employees, financiers and
managers. Greater the effectiveness of interaction, higher is the success of business. An
effective leadership is very much required for the successof business.
Bill George says, "There is no conflict between serving all your stakeholders and
providing excellent returns for stakeholders. In the long term it is impossible to have one
without the other. However, serving all these stakeholder groups requires discipline,
vision and committed leadership". If a leader is strong and follows good skills, he will
have followers.
A value-based leader can lead others on the basis of sound values and effective processes.
The ethical leader is framing actions in ethical terms. According to ethical leader,
leadership is a fully ethical task.
For example, Johnson and Johnson responded to the Tylenol incident in 1980's after it
held a series of challenge meetings all around the world.
Above all, the ethical leaders search for best people and develop them.

2) Strategy and performance:

Ethics is closely related to the strategy followed by the business organisations. An ideal
strategy should not be interested in generating revenue only. It should take into account
the ethical values generated by the proposed decisions.
Corporate governance is the formal system of accountability and control of ethical
organisational decisions involving the use of resources.
Business ethics and accountability are given a reasonable importance in the Board of
Directors meetings. Accountability for organisational decisions begins with a strategic
mission and vision.
An effective board of directors is serving as a type of insurance against the business cycle
and fluctuations of the economy. Many investors believe in the stakeholder model of
corporate governance. A stakeholder model follows a strategy of social investing in terms
of which social and ethical criteria are integrated in investment decisions.

3) Environment:
Business ethics is also decided by the type of environment in which a business
organization is situated. There are two aspects of environment, namely, external and
internal. Internal environment refers to all aspects like vision, mission, power structure,
and other related matters. External environment refers to elements which are outside the
organisation like government policy, monetary policy, fiscal policy, general economic
conditions and labour standards. These factors influence business ethical practices.

4) Corporate culture:
The corporate culture varies from company to company and time to time. It all depends
on the nature of leader. The competition should be healthy based on fair rules. A good
corporate culture should take care of the interests of all the stakeholders. It should take
care of all the customers and employees.
Culture is a body of learned beliefs, traditions and guides for behaviour among the
members of an organisation. Corporate culture includes norms, physical settings, modes
of dress, special language, myths, rituals, heroes and stories.
Organisational culture may be strong or weak. In a strong culture, the standards and
guidelines are known and shared by all. It is providing the common direction for the
behaviour of all on a day to day basis.
Corporations are paying attention to ethical programmes. An ethical programme is
consisting of the rules and policies of an organisation for motivating ethical performance.
Rules and policies are framed for orientation, training, compensation, promotion, and
auditing.

5) Individual characteristics:
The individual characteristics influence the ethical behaviour. Many ethical issues are
related to individuals. For example, sexual harassment in an individual matter. The
individuals differ in their characteristics from one extreme to the other with regard to
ethics. Some are highly ethical and some others are extremely unethical. There are many
in between these two extremes.

Obiectives of business ethics:

Peter Pratley has given a twofold objective of business ethics:
(i) Evaluation of human practices with reference to certain moral standards in business
world. It is the analysis of the situation.
(ii) Offering perspective advice on how to act morally in a specified kind of situation. It
is the normative aspect of business ethics offering curative advice.
Importance of business ethics:
(i) Social concern:
Any business is operated within a society. The society has norms like absence of
exploitation, welfare of all and mutual relationship. No society can afford to be greedy.

(ii) Social responsibilitv:

Each and every business has a social responsibility of helping all the stakeholders. The
objective of business is to make profit but the business has some other objectives like the
promotion of social responsibility.

(Hi) Avoidance of whistle blowing:

Whistle blowing refers to the act of employees who go to public with complaints of
corruption or mismanagement in business organisations. Ethical practices can avoid
whistle blowing.

(iv) Value in business:

Business is an important economic activity and ethical practices can add value to
business. In this way the status of business can be improved.

(v) Improve organisational effectiveness:

Organisational effectiveness can be increased and improved with the ethical practices. It
offers a holistic approach to business development.

(vi) Healthv competition:

The introduction of ethical practices can definitely pave the way for healthy competition.

(vii) Benefit for stakeholders:

The various stakeholders like employees, customers, suppliers and the members of the
community are able to enjoy benefits like good reputation, rewards, and recognition due
to the ethical practices of business. More and more of transactions can bring benefits both
to the stakeholders and business organisations.
In course of time, fair practices promote transformational leaders. Any society is bound
to be improved by this measure.

Summary
Ethical problems are faced by people in all countries and at all times. Ethics encourages
constructive actions. Religion, philosophy, morals and ethics are interrelated.
There are three types of ethics namely, transactional ethics, participatory ethics and
recognitional ethics.
Religion, cultural experiences, philosophical system and legal system are the sources of
ethics.
There are various factors influencing business ethics such as, leadership, strategy,
environment, corporate culture, and individual characteristics.
The study of business ethics is important from different angles.

Questions
Section 'N
1) Define ethics.
2) Discussthe relationship between ethics and religion.
3) What is the relationship between morals and ethics?
Section 'B'
1) Discussthe types of ethics.
2) What are the characteristics of business ethics?
3) Discussthe sources of business ethics.
4) Examine the factors influencing business ethics.
Section 'e'
1) Outline the importance of business ethics in modern management.