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

world of commerce. In particular, it involves examining appropriate constraints on the pursuit of self-interest, or (for firms) profits, when the actions of individuals or firms affects others. Business ethics can be defined as written and unwritten codes of principles and values that govern decisions and actions within a company.In the business world, the organizations culture sets standards for determining the difference between good and bad decision making and behavior.
Importance of Business Ethics in Business Profit Maximization The importance of ethics in business can be understood by the fact that ethical businesses tend to make much more profits than the others. The reason for this is that customers of businesses which follow ethics are loyal and satisfied with the services and product offerings of such businesses. Let us take an example. Suppose, there is an organization named XYZ which manufactures cosmetics. XYZ greatly believes in the importance of business ethics. When XYZ advertises its cosmetics in the market, being an ethical organization, it will be very truthful and honest in its communication with the probable customers. It will tell correctly about the kind of ingredients it has used while manufacturing the cosmetics. It will not lie or exaggerate about the benefits or uses of its products either. So the customers who buy its cosmetics, know precisely what they are buying and how useful that product is going to be for them. This way, the product will meet their expectations and thus, satisfy the customers. When customers are satisfied, they will become loyal to the company and come back again for re-purchasing. This will surely increase the profits of the organization. Thus, the importance of business ethics is that it creates loyalty in customers and maximizes the profits. Read more on ethical and unethical business practices. Efficient Utilization of Business Resources In an organization, people working at the junior levels often emulate the ones working at the top. The same applies with ethics too. If the management or seniors of an organization follow ethical business practices, i.e, they do not bribe to get their way or they do not cheat the customers, investors, suppliers, etc., the employees will follow suit. The employees too will refrain from using the office property or resources for personal benefits. This will result in better and efficient utilization of the business resources. Creates Goodwill in the Market An organization, which is well-known for its ethical practices, creates a goodwill for itself in the market. Investors or venture capitalists are more willing to put their money in the businesses which they can

trust. Shareholders too, remain satisfied with the practices of an ethical businesses. Thus, the importance of business ethics in creating goodwill and building long-term relationships, cannot be denied. Also, an ethical business puts greater value on its employees and thus, employees remain loyal to such an organization too.

Primarily it is the individual, the consumer, the employee or the human social unit of the society who benefits from ethics. In addition ethics is important because of the following: 1. Satisfying Basic Human Needs: Being fair, honest and ethical is one the basic human needs. Every employee desires to be such himself and to work for an organization that is fair and ethical in its practices. 2. Creating Credibility: An organization that is believed to be driven by moral values is respected in the society even by those who may have no information about the working and the businesses or an organization. Infosys, for example is perceived as an organization for good corporate governance and social responsibility initiatives. This perception is held far and wide even by those who do not even know what business the organization is into. 3. Uniting People and Leadership: An organization driven by values is revered by its employees also. They are the common thread that brings the employees and the decision makers on a common platform. This goes a long way in aligning behaviors within the organization towards achievement of one common goal or mission. 4. Improving Decision Making: A mans destiny is the sum total of all the decisions that he/she takes in course of his life. The same holds true for organizations. Decisions are driven by values. For example an organization that does not value competition will be fierce in its operations aiming to wipe out its competitors and establish a monopoly in the market. 5. Long Term Gains: Organizations guided by ethics and values are profitable in the long run, though in the short run they may seem to lose money. Tata group, one of the largest business conglomerates in India was seen on the verge of decline at the beginning of 1990s, which soon turned out to be otherwise. The same companys Tata NANO car was predicted as a failure, and failed to do well but the same is picking up fast now. 6. Securing the Society: Often ethics succeeds law in safeguarding the society. The law machinery is often found acting as a mute spectator, unable to save the society and the environment. Technology, for example is growing at such a fast pace that the by the time law comes up with a regulation we have a newer technology with new threats replacing the older one. Lawyers and public interest litigations may not help a great deal but ethics can.

WHY BOTHER WITH ETHICS? We need to study business ethics to make better decisions for ourselves, the businesses we work for and the society we live it.

Society as a Whole Benefits o Corporate compliance with the law is insufficient alone to ensure ethical conduct b/c the laws do not encompass all expressions of ethical behavior. (Corporate Social Responsibility Debate) STAKEHOLDER THEORY vs. PROFIT MAXIMIZATION THEORY

People Feel Better o Studying ethical concepts and theories will help individuals define ethical conduct and learn to use a strategy or framework for making decisions. o Studying ethical concepts and theories helps us understand ourselves and others better.

Unethical Behavior Can Be Very Costly o o Corporations are in positions of power that allow them to do greater damage to others when they act unethically or socially irresponsibly. Increased exposure to liability and the passage of onerous legislation controlling/monitoring business activity. Civil and criminal actions against wrongdoing corps. & their executives. Congress passed the Sarbanes-Oxley Act of 2002 which increased penalties for corporate wrongdoers & established rules designed to deter and prevent future wrongdoing. Purpose of Statute: Encourage & enable corporate executives to be ethical & socially responsible. Negative impact of public criticism on reputation and corps ability to earn profits. Negative impact within the firm (Unethical environment may encourage even more unethical conduct on part of employees)

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