MULTITECH BUSINESS SCHOOL

DERPTMENT OF BUSINESS
&
HUMAN RESOURCE
MANAGEMENT

BUSINESS ETHICS
PROGRAMME : DEGREE / DIPLOMA

------- 2021 ------

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 1.0 UNDERSTANDING BUSINESS AS A HUMAN ACTIVITY
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1.1 WHAT IS BUSINESS?

In general terms, Business is any human activity, economic in nature, directed
towards producing or acquiring wealth through buying and selling of goods and
services that satisfy society's needs.

Particularly, Business is an Economic activity of individuals or organization

performed for earning profits through production and distribution of goods and
services.

Hence, a Business Company is an entity involved in the provision of goods and

service to consumers / community / society in return to both meet the needs of
human society and earn a profit.
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1.2 BUSINESS CONCEPT:

Let us consider two types of business concepts:

a. Traditional Concept: Business is an activity to earn profit through

production and marketing / selling of productions.

b. Modern Concept: Business is consumer satisfaction. Profit can be earned

by maintaining social responsibility. Business or company is a socio –
economic institution which is always responsible towards the society.
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The term “Business” refers to both a human activity and also to an entity. Hence
business / company is a legal entity. Business can sue or be sued. Business can
take moral or ethical responsibility.

Business as a human activity has ethical values. It can be right or wrong. This is
because it is performed by an agent with knowledge, freedom and intention.
Business qualifies to be a human act because it has the three qualities:

a. Knowledge, b. Freedom, c. Intention.

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1.3 DEFINITION
According to well-known professors William Pride, Robert Hughes, and
Jack Kapoor, business is 'the organized effort of individuals to produce
and sell, for a profit, the goods and services that satisfy society's needs.' A
business, then, is an organization which seeks to make a profit through
individuals working toward common goals. The goals of the business will
vary based on the type of business and the business strategy being used.
Regardless of the preferred strategy, businesses must provide a service,
product, or good that meets a need of society in some way.
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1.4 CHARACTERISTICS OF BUSINESS

Below let us note some of the key characteristics of business both as an

activity or an entity.

 First, businesses must be the result of individuals working together in an

organized way.

 Second, business is a human activity with ethical values.

 Third, business is an entity than can sue or be sued, hence it assumes

moral / ethical responsibility.

 Fourth, businesses must satisfy a societal need.

 Fifth, businesses must seek to make a profit.

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1.5 ANALYSIS OF CHARACTERISITICS OF BUSINESS

Below find a detailed analysis of the main characteristics of business both as a
human activity and an entity.

1. Economic activity:
Business is an economic activity of production and distribution of goods and
services. It provides employment opportunities in different sectors like banking,
insurance, transport, industries, trade etc. it is an economic activity corned with
creation of utilities for the satisfaction of human wants.
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It provides a source of income to the society. Business results into generation of
employment opportunities thereby leading to growth of the economy. It brings
about industrial and economic development of the country.

2. Buying and Selling:

The basic activity of any business is trading. The business involves buying of raw
material, plants and machinery, stationary, property etc. On the other hand, it
sells the finished products to the consumers, wholesaler, retailer etc. Business
makes available various goods and services to the different sections of the
society.

3. Continuous process:

Business is not a single time activity. It is a continuous process of production and

distribution of goods and services. A single transaction of trade cannot be termed
as a business. A business should be conducted regularly in order to grow and
gain regular returns

Business should continuously involve in research and developmental activities to

gain competitive advantage. A continuous improvement strategy helps to
increase profitability of the business firm.

4. Profit Motive:

Profit is an indicator of success and failure of business. It is the difference

between income and expenses of the business. The primary goal of a business
is usually to obtain the highest possible level of profit through the production and
sale of goods and services. It is a return on investment. Profit acts as a driving
force behind all business activities.
Profit is required for survival, growth and expansion of the business. It is clear
that every business operates to earn profit. Business has many goals but profit
making is the primary goal of every business. It is required to create economic
growth.

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5. Risk and Uncertainties:
Risk is defined as the effect of uncertainty arising on the objectives of the
business. Risk is associated with every business. Business is exposed to two
types of risk, Insurable and Non-insurable. Insurable risk is predictable

Predictable factors are controllable to some extent, such as:

a) Taxes
b) Change in the volume of expected sales
c) Cost of supplies and equipment
d) Overhead costs
e) Salaries
f) Cost of goods and services offered
Unpredictable factors include:

a) Changes in trends and tastes of customers.

b) Impact of the local economy on customer base.
c) Any unexpected action taken by your competitors.

The calculation and management of the risk is vital to ensure the success of a
business firm. Insurance and Risk management helps in minimizing the risk
associated with the business.

6. Creative and Dynamic:

Modern business is creative and dynamic in nature. Business firm has to come
out with creative ideas, approaches and concepts for production and distribution
of goods and services. It means to bring things in fresh, new and inventive way.

One has to be innovative because the business operates under constantly

changing economic, social and technological environment. Business should also
come out with new products to satisfy the growing needs of the consumers.

7. Customer satisfaction:
The phase of business has changed from traditional concept to modern concept.
Now a day, business adopts a consumer-oriented approach. Customer
satisfaction is the ultimate aim of all economic activities.

Modern business believes in satisfying the customers by providing quality

product at a reasonable price. It emphasize not only on profit but also on

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customer satisfaction. Consumers are satisfied only when they get real value for
their purchase.

The purpose of the business is to create and retain the customers. The ability to
identify and satisfy the customers is the prime ingredient for the business
success.

8. Social Activity:
Business is a socio-economic activity. Both business and society are
interdependent. Modern business runs in the area of social responsibility.
Business has some responsibility towards the society and in turn it needs the
support of various social groups like investors, employees, customers, creditors
etc. by making goods available to various sections of the society, business
performs an important social function and meets social needs. Business needs
support of different section of the society for its proper functioning.

9. Government control:
Business organisations are subject to government control. They have to follow
certain rules and regulations enacted by the government. Government ensures
that the business is conducted for social good by keeping effective supervision
and control by enacting and amending laws and rules from time to time.

10. Optimum utilization of resources:

Business facilitates optimum utilization of countries material and non-material
resources and achieves economic progress. The scarce resources are brought to
its fullest use for concentrating economic wealth and satisfying the needs and
wants of the consumers.

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1.6 ETHICAL OBLIGATION OF BUSINESS

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What is an ethical obligation?

Ethical obligations are a set of “ought to” standards that define a moral course
of action and draw a line between right and wrong.
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Ethical obligations are a set of “ought to” standards that define a moral course of
action and draw a line between right and wrong. Although ethical obligations in
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business share similarities with legal rules and regulations in determining how a
business conducts itself while striving to make a profit and achieve strategic
company goals, ethical obligations are really more about discretionary decisions
and value-guided behavior
Identification:

Ethical obligations exist in almost every facet of a business environment. Policy

and decision-making in areas such as sales, pricing and advertising all involve
ethical obligations, as do dealings with staff members, contractors and suppliers.
Each has benefits for carrying out an ethical obligation as well as consequences
that can cause ethical dilemmas. For example, a business may realize they have
an ethical obligation to instruct the sales stall to conduct needs-based selling and
not to “oversell.” During a month when sales are slow, however, living up to that
obligation by not pressuring the staff to “sell” can mean the difference between
turning a profit or not.
Ethical Obligations

Some of the most common internal ethical obligations in business relate to

recruiting and hiring staff, maintaining a safe and healthy work environment,
using business resources wisely and avoiding situations that have the potential to
create a conflict of interest, such as accepting gifts from suppliers or making a
hiring decision not because the applicant has the best qualifications, but because
the applicant is a relative of the business owner. Common supplier-side ethical
obligations include considering how and where suppliers get their products and
whether to sell products that are detrimental to the health of customers, such as
cigarettes and fatty foods.
Responsibilities

Business owners are ultimately responsible for whether a business fulfills its
ethical obligations. Accomplish ethical obligation objectives by leading by
example. Work with staff members to create ethics standards and a code of
ethical conduct. Not only do these actions set clear expectations but may also
encourage open communication and discussion regarding ethical dilemmas –
and how to solve them – among the ethics team. Conduct ethics training that
sets clear expectations and shows staff members how their decisions and
attitude towards ethical behavior impacts long-term business.

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Decision-Making Framework
Developing an ethical decision-making framework can reduce the chance for
ethical dilemmas that result in ignoring ethical obligations. The Institute of
Business Ethics suggests using a seven step decision-making framework
originally developed by Linda K. Trevino and Katherine A. Nelson in 2007. These
steps start with gathering the facts, defining the ethical issue or issues and by
identifying the parties involved, the consequences and ethical obligations. From
there, fully consider your personal character and integrity, get creative with
possible actions and always “check your gut.
Sociability traits are characteristics people possess that encourage effective
relationships. Many individuals naturally display sociability traits, such as a
friendly and outgoing attitude, self-control, adaptability, integrity and team spirit.
Other people adopt sociability skills over time. Workers who display sociability
traits are self-motivated leaders who are an asset to employers and coworkers

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What is social obligation in business?

Social responsibility is an ethical framework and suggests that an entity, be it an
organization or individual, has an obligation to act for the benefit of society at
large. Social responsibility is a duty every individual has to perform so as to
maintain a balance between the economy and the ecosystems
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Assertion:
The price of enjoying the authorization or license to operate in a
society where profits are generated include the aspect of respecting
set operating standards so that a business organization adds value
to the society beyond merely making a profit.

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 2.0 Business Ethics : An Introduction
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2.1 ETHICS IN GENERAL

Ethics is the branch of philosophy concerned with the meaning of all aspects of human conduct. Theoretical
ethics, sometimes called normative ethics, is about discriminating / distinguishing right from wrong. It is
supremely intellectual and, given that it is a branch of philosophy, it is rational in nature. It is the reflection
on and definition of what is right, what is wrong, what is just, what is unjust, what is good, and what is bad
in terms of human conduct. It helps us develop the rules and principles (norms) by which we judge and
guide meaningful decision-making.

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2.2WHAT IS BUSINESS ETHICS?

There is a host of possible descriptions of ‘Business Ethics” as a study. Below let us make note of some of
these attempts:

1. Business ethics, in particular, is a form of applied ethics or professional ethics that examines
ethical principles and moral or ethical problems that arise in a business environment. It applies to
all aspects of business conduct and is relevant to the conduct of individuals and entire
organizations.

2. Business ethics is the study of proper business policies and practices regarding potentially
controversial issues, such as corporate governance, insider trading, bribery, discrimination,
corporate social responsibility and fiduciary responsibilities.

3. Business ethics is about moral principles that guide the way a business behaves. The same
principles that determine an individual’s actions also apply to business.

4. Business ethics is the analysis of moral behavior in practice and activities, and is a reflection of
morals and values in any given society. It is obvious that business does affect our lives, both at an
individual and social level.

5. Business ethics can also be defined as the written and unwritten codes of principles and values
determined by an organization's culture that govern decisions and actions within that organization.
It applies to all aspects of business conduct on behalf of both individuals and the entire company.
In the most basic terms, a definition for business ethics boils down to knowing the difference
between right and wrong and choosing to do what is right.

6. Business ethics may also be defined as a set of moral principles or values and conduct that affect
each of us on a personal level in business related activities.

There are three parts to the discipline of business ethics: personal, professional and corporate. All the three
are intricately related. It is helpful to distinguish among them because each rests on a slightly different set
of assumptions and requires a slightly different focus in order to be understood.

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At its most basic definition, business ethics revolves around relationships. These relationships exist
between businesses and consumers on multiple social and economic levels. Business ethics therefore,
define the relationship between an individual and a business, or may apply to employees, various areas of
government, and the community.

Business ethics generally is built upon four basic foundations: attitude, value, behavior, and normal
customs and expectations. The study of business ethics may stray into fields of law, but more often than
not deals with the behavior, expectations, and demands of common courtesy, manners, honesty, and
integrity.

Business ethics has developed into standards of moral and ethical responsibility around the world. The
demand for moral and ethical behavior in all aspects of domestic and international business
communications and partnerships has encouraged the development and evolution of business ethics.

The field of business ethics is not simple to define. The wide range of industries and areas of social
behavior that exist between any business and the consumer or general public complicate the field of
business ethics. Business ethics can be practiced in corporate offices, as well as local mom-and-pop
grocery stores. It has to do with social responsibility and corporate compliance, as well as employer and
employee rights. The field of ethics addresses, morality, responsibility, decisions, and actions taken by any
company or business from the grassroots level to the highest positions in local or national governments.

This studyon the basics of business ethics will explore and define the difference between corporate
compliance, corporate and social responsibilities, corporate responsibilities, as well as ethics in the
workplace and its impact on business.

Consumer rights, as well as expectations, are receiving increased attention in society today. The explosion
of the Internet and international business development has demanded the need for further development
and structuring of international business ethics in a wide range of countries with different cultural
backgrounds. Business ethics also plays an important role in the financial world, as has commonly been
seen in news accounts of leveraged buyouts, insider trading, and the proliferation of junk bonds.

Developing standards and infrastructures in the field of business ethics helps to bridge economic,
language, and moral or value gaps between countries and their ways of conducting business. As such,
business ethics have had a great impact on the way business is conducted in the 21st century.

Unethical business behaviors damage productivity and living standards. Such practices also affect social,
as well as environmental, degradation that results in damage to many aspects of society, which results in
lack of trust. Businesses have become increasingly competitive and the value of products and their
manufacturers has gone far beyond price-per-unit or the function they perform.

Understanding business ethics provides a way for individuals to resolve ethical dilemmas, as well as to
acquire respect for honesty, development of trust, a sense of fair play, and human dignity issues.
Obligations between employers and employees are just as important as the observation of ethics in every
avenue of business, from sales and advertising, to and marketing and competition.

In addition, business ethics help individuals in various levels of business to recognize and analyze ethical
considerations that may be relevant to many different types of business activities. The nature of business
itself, as well as various models for conducting business, is placed under a microscope, where ethics judge
behavior, business practices, and final outcomes.

In appreciation of the role that business ethics play not only in business, but also in our social environment,
will help to illustrate the fact that ethics and morality are an expected part of the consumer-provider
relationship.

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2.3 WHY STUDY BUSINESS ETHICS

Many people may believe that the study of business ethics is merely a sentimental endeavor, one that is
based primarily on personal opinion and standards. However, there are others who believe that business
ethics affect the efficient running of a business. One might wonder who is considered right or wrong when it
comes to determining a moral or ethical evaluation of any given situation.

However, contemporary business ethics is not so much about why, or even whether, ethics should be a
part of business, but instead, is about how ethics can be used to guide business decisions to the benefit of
all.

Nearly every aspect of business brings with it a code of ethics, conduct, or behavior that is expected from
its employees and managerial staff. These fields may include human resource management, accounting,
finance, and marketing in fields of medicine, education, and various forms of industry and manufacturing.

Dozens of companies have been involved in one scandal after another and as a result, ethics have become
more important in the business practices of the 21st century than ever before. Such incidents and the
aftermath have caused thousands of employees to lose their jobs, health care benefits, and retirement
funds. It is general consensus of the public, that persons involved in such scandals be brought to trial over
their behavior. As a result, demands for ethical behavior is made to heighten.

Today's business managers have a right to be extremely concerned about the ethical behavior and
standards followed by their own organizations.

In 2002, the United States Congress passed the Sarbanes-Oxley act to address accounting and corporate
scandals, and to develop a code of ethics for senior financial officers. The act also requires corporations to
have a code of ethics that promotes honest and ethical conduct, full disclosure, and compliance with
governmental regulations.

Recent polls illustrate that such codes have become an integral and essential part of corporate
development and practices. Each one of us may somehow be affected in our lifetimes by scandals, unfair
practices or unethical or dishonest conduct by a wide range of individuals. The decisions made in any
business institution or company, no matter how small, have an impact on us, either as citizens, consumers,
or even as employees.

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“Though providing strong returns for business shareholders remains a company’s prime objective,
we do not believe that these can or should be achieved at the expense of social, environmental and
moral considerations. Indeed any long-term business will only thrive if it also takes into account
the needs of other stakeholders such as governments, employees, suppliers, communities and
customers.”

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2.4The Importance of Business Ethics

The importance of business ethics in the 21st century has reached an all-time high, basically due to
countless numbers of business scandals.

Ethics in government has long been an issue with voters and can range from financial scandals that
originate in Cabinet Ministers, to personal travails of high government officials and sexual harassment in

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the military. Child sexual abuse within religious institutions, schools and sports organizations also receive
regular and abundant media attention.

Scandals ranging from performance-enhancing drug use by high-profile athletes, academic plagiarism and
mismanagement of charity funds concern each and every one of us to a certain degree. Such scandals and
examples of inappropriate or unethical behavior may affect us at our place of work, our school, and even
our homes.

Ethics reflect morals, standards, and values from all socioeconomic levels and demographics. Race,
gender, and age don't play a huge role in whether or not something is considered ethical or unethical. It
seems odd that in today's society, we feel compelled to announce and publicly recognize good deeds,
when in fact such deeds used to be considered the norm.

A stranger rescues a woman from a mugger, a young man pulls an elderly woman from a car stranded on
railroad tracks moments before a train demolishes it, and a woman jumps into an icy pond to save a toddler
who has wandered away from his mother. These stories personify the basic and innate goodness that is
found in most people, and yet we give such individuals certificates and awards, parades and accolades. In
many cases, this is because we, as a society, have become increasingly cynical about the ability of people
to perform selfless deeds without expectation of reward.

Unfortunately, these traits are not so commonly found in our bosses, our corporate directors, and even in
some of our government officials. Many consumers don't like to deal with local and state forms of
government because of their highhanded practices, their attitudes, and endless reams of red tape.

Many of us work for employers who don't appear to care one whit about employee benefits and job
security, but only about production numbers and costs. Many employers are not so concerned with quality
as quantity, and as such, many employees are caught in the conundrum of balancing their own sense of
right and wrong with maintaining their monthly paycheck.

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The concept “Business Ethics” is more than knowing the difference between good and bad, or right
from wrong, and has as much to do with character, attitude, and motivation as anything else.

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The study of business ethics is not to tell people how to behave, but to engage students, employees, and
employers in a process that involves thought and questions based on customary values and morals. Every
student of business ethics must be able to think for him- or herself. Because of this, there always will be a
large number of differences in what people perceive as ethical or unethical behavior.

One of the largest challenges for those teaching or learning business ethics is to find a balance between
the intellectual or spiritual sense that may be applied in a wide range of scenarios in society in general. The
leading trend is to enable business managers to empower employees to make their own decisions.

The word ethics comes from the Greek word ethos, which means "conventional" or "customary". In many
cultures, values and morals are directly connected to religious views. Philosophical ethics defines the
difference between what someone does to what someone should do. As such, some aspects of ethics
delve into the field of philosophy and abstract thinking. Many people are cynical about such an approach to
the study of business ethics because it requires that one seek an understanding of what is valued rather
than what should be valued. As with anything else, this is often a personal choice and decision. After all,
none of us want someone to tell us what we should feel about anything.

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Perhaps this area of study requires each of us to attempt to determine how various business decisions will
affect our lives. Do the decisions or practices engaged in our daily business environment promote well
being or undermine it?

Socrates, the ancient Greek philosopher, said, "The unexamined life is not worth living." As such, each of
us often struggles with our own feelings of morality, virtues and instances where we must determine
whether something is right or wrong. Business ethics address both morality and virtue as determining
factors of how we should act and behave both in our personal lives and within a business environment.

A fundamental goal of business ethics is to encourage students to ask such questions as, "What should I
do?" or "What kind of person am I supposed to be?" Even better, "What would I do if...?"

For example, business ethics address public policy. Business ethics require us to define how we should live
both as an individual and as a part of a larger community. As such, the study of business ethics is
extremely relevant in all areas of business, and indeed, any area of contact between providers and
consumers in order to encourage responsible and ethical modes of behavior.

2.5 SUMMARIES: Importance of Ethics in Business

1. Ethics lays the basis for strategic decision-making. Leaders and workers of a business characterized
by ethical behavior make decisions that are socially acceptable. They allow all the stakeholders to
participate in the decision-making process.

2. Ethics increase employee retention. Employees always want to stay longer in a business where the
employers value their rights and opinions. To them, their basic needs are satisfied.

3. An ethical business attracts investors. A business that promotes ethics in its management and
operations create an investment-friendly environment. Investors like putting their money where they are
sure it is safe.

4. Ethics minimizes costs. Fewer funds are spent in employee recruitment since most employees are
retained in the business. Employee turnover is indeed insignificant.

5. Ethical practices help in building and maintaining reputation. A large part of ensuring business
success is down to maintaining a good reputation among your customers. One of the main things that
customers will scrutinize when they decide whether they trust or want to engage with a business or not is
that business’s ethics. If you can brand yourself explicitly as an ethical business, so much the better!

6. An ethically oriented company is bound to avoid fines. They comply with the law, file their tax
returns in time, ensure quality of products and services, etc.

7. Ethics in a business attracts more employees. When your company is reputable, more people will be
interested to work for you.

8. Good Business ethics is the key to enhancing productivity. People will work harder at their jobs if
they believe that what they are doing is ethical. They will not be held back by moral uncertainties, and they
may feel extra motivated to work because they feel that by doing so they are making the world a better
place. So if you want to make a normal profit rise and rise until you are making big bucks, you need to keep
your business totally ethical.

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9. Ethics create customer loyalty. A reputation build on good ethics helps create a positive image in the
marketplace. This, in turn, makes customers trust your products and services. They also pass information
to their friends and family, hence, creating more customers for you.

10. Ethics encourage teamwork. Employers and employees who trust one another work together
harmoniously and effectively.

11. A business that values ethics attracts more suppliers. A business without suppliers is as good as a
failed enterprise. Suppliers are attracted to a company that appreciates what they supply and pay for them
promptly.

12. Ethics in enhances partnerships. Partnerships in the business world are very crucial. They help
expand your marketplace and improve business relations. In order to get a good partner(s), your reputation
must be built on a strong business ethics foundation.

13. Ethics reduces business risks. As trust and loyalty are built on ethics, chances of losing potential
customers, suppliers, employees and even the company itself are minimal.

14. It improves a company’s bottom line (last line that shows profit or loss). The bottom line of your
business will increase since costs and risks are reduced.

15. Ethics increases business profits. The decrease in risks and costs mean that the output is likely to
be higher than the input hence the company makes a profit.

16. Ethics lead to sustainable growth in sales. An increase in customers leads to an increase in
demand. Therefore, more goods and services are sold. It may seem that a little selfishness might help your
business, however this is never the case. Selfish or unethical actions may seem to give your business a
temporary boost, but they will thwart your long term goals. Ethical action is the key to sustainability and
success in business.

17. Good ethics in a business boosts the morale of the employees. Good business ethics involves
rewarding your employees. When an employee is rewarded, he/she works harder leading to more profits.

18. Ethics helps in building consumer confidence. Other than customer loyalty, business ethics makes
consumers believe in you even during difficult times. For example, when a company’s product is found to
be faulty and the company takes full responsibility, consumers are bound to trust that it was just a mistake.

19. Ethics enable a company to make good use of the limited resources. Instead of wasting the
company’s resources on themselves, company leaders can put them to good use.

20. Ethics in business allows for healthy competitions. It is common to find two or more companies that
offer similar services and goods. A company characterized with ethical behavior will not engage in
malpractices such as spreading false information about the other company or lowering their prices. Instead,
they will allow the customers to choose where they like.

21. Ethics lead to long-term gains. A company that values ethics believes in small, but long-term benefits
rather than big, but short-term returns.

22. Ethics helps in maintaining quality. An ethical company will strive to deliver goods and services of
high quality to their customers even in times when the demand is higher than supply.

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23. Ethics offers extra asset protection. Employees who abide by the business ethics are in a position to
respect and protect the business’s assets. For instance, they will not make long personal calls using the
business line.

24. Ethical practices foster community improvement. Ethics teaches the art of giving back. Ethically
oriented companies will help a community to be better through things like road construction or schools
construction.

2.6The Ethical Decision-Making Process

When it comes to making sound ethical decisions, several factors come into play. Moral awareness is one
of them. Moral awareness is defined as the recognition of the existence of an ethical dilemma. Another key
factor in making an ethical decision involves a judgment that decides what's right and what's wrong. Ethical
behavior, or taking action to do the right thing, is another part of the ethical decision-making process
triangle.

Keep in mind that most decision-making processes are divided into two types: individual decisions and
organizational decisions. A business manager must be able to represent the organization, while the
individual is more concerned with the morality of such a decision. Individuals often know what the right
thing to do is, but find it difficult to do so because of pressure from inside groups or organizations. Because
of this, it is extremely important for businesses and organizations to manage their conduct and to maintain
codes of ethics and conduct to determine what is expected in such environments.

Individuals are characterized by their differences and biases. Internal pressures and the culture of the
organization itself influence organizations. In both instances, awareness of standard morals, as well as
judgments based on such morals, automatically lead to ethical behavior. It sounds rather simple, though
the concept is complex, and quite difficult at times to employ in an organizational business structure.

2.7 THE BENEFITS OF INCORPORATING BUSINESS ETHICS IN BUSINESS

Business ethics entails the way the organization interacts with their customers and the world at large.

1. Reputation: This is an area that gives a particular commercial enterprise a certain reputation
depending on its dealings with the general public. People will have a certain perspective towards
an enterprise depending on how the enterprise treats its customers and how it conducts its
dealings – you want this perspective to be great for your company or organization!

2. Able to realize its aims and goals : Business Ethics reflect on the fundamental principles that
form a particular company. This entails all the fields in the business environment which may
include finance, relationship with the environment, human resource management, and sales and
marketing, among others. The business is required by law to follow the set rules and procedures in
its pursuit to realize its aims and goals.

3. Business Success : Good business ethics is a distinguishing quality that can bring unmeasured
success to a commercial organization. When good conduct and morals are applied in all the levels
of an organization’s structure, that is, from the junior employees to the management staff, the
company is most likely headed for success.

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 4. Goodwill from the Customers : Good practices bring forth goodwill from the customers and the
public in general. This goodwill earned over a certain period of time can translate into profitability
for the company. People will tend to do business with firms that value and are concerned about
them. Profitability of an investment translates into the sustainability of that particular investment in
the market.

5. Goodwill and Publicity : One of the major advantages of behaving in an ethical manner is the
opportunity to foster a sense of goodwill among the general public toward your business.
Customers are increasingly concerned with using products produced in an environmentally
sustainable manner and where the producers are paid a fair wage for their work -- for example, fair
trade coffee. Being seen as meeting your social and societal obligations will ingratiate your
business to the public and attract socially responsible consumers.

6. Trust in the organization / company / business: Some of the principles of admirable practices
in a commercial environment are trust, respect, open mindedness, community involvement, and
maintaining an accounting control. Customers will always want to do dealings with a company they
trust for both the quality of services and goods they offer. The trust of the organization will be
reflected within its ability to deliver and in what manner it delivers.

7. Competitive Edge : Ethical behavior can serve to differentiate your brand from those of your
competitors if you operate in an oversubscribed market, offering you a competitive edge.
Identifying your product and business practices as being founded on strong ethical principles
makes your product or service more attractive to consumers.

8. Well intentioned participation in community concerns: Participating in community based issues

will give the enterprise a good view from the society. It is deemed as a way of giving back to the
society and the customers will definitely see that they are perceived as valuable people by the
company. Advertisements, brochures, magazines, and communications sent to the public should
be crafted in a professional and precise manner in order to avoid issues with other competitors in
the market.

9. Keeps lawsuits and wrangles at bay: Maintaining better moral practices in a company prevents
the firm from far too many lawsuits. The customers and employees are nowadays amply educated
on their rights and most of them may opt to go to court when they realize their rights are infringed.
Realizing the importance of business ethics as a tool for achieving the set goals and aims of the
company is the beginning of the success story for any enterprise. All the dealings and branches of
an organization must adhere to moral practices in order to have a successful balanced business!

Companies with good ethical policies earn:

 Marketing advantages over their competitors. Customers readily invest in the companies through
shares and also want to establish long lasting business relations with the company.
 The performance of employees improves with good ethical policies present in a company. Morale
is high and employees feel obligated to put in their all to continue to make it a success.

16 | Business Ethics - Class notes

Companies with bad / unethical policies earn:

 Reputation management: a bad reputation is created by unethical behaviour which will

eventually lead to a scandal. A scandal will result in falling stock prices, anxiety, and low
morale among employees as well as government and public scrutiny and inquests.

Arguments in Favor and Against Introducing Ethics in Business.

a. Arguments in favour:
i. Business ethics is a specialized study of moral right and wrong that concentrates on moral
standards as they apply to business institutions, organizations, and behavior.

ii. Ethics applies to all human activities. Business is a human activity, therefore, Business
cannot survive without ethics.

iii. Customers, employees, and people in general care about ethics.

iv. Studies suggest ethics does not detract from profits and seems to contribute to profits.

b. Arguments against:
i. In a free market economy, the pursuit of profit will ensure maximum social benefit so
business ethics is not needed.

ii. A manager’s most important obligation is loyalty to the company regardless of ethics.

iii. So long as companies obey the law they will do need ethics, they will safely do all that
ethics requires.

2.8ETHICAL PRINCIPLES FOR BUSINESS EXECUTIVE

Ethical values, translated into active language establishing standards or rules describing the kind of
behavior an ethical person should and should not engage in, are ethical principles. The following list of
principles incorporate the characteristics and values that most people associate with ethical behavior.

Some common ethical principles, in business, include the following:

 Honesty.
 Integrity.
 Promise-Keeping & Trustworthiness.
 Loyalty.
 Fairness.
 Concern for Others.
 Respect for Others.
 Law Abiding.
 Commitment to Excellence.
 Leadership.
 Reputation and Morale.
 Accountability.

DETAILS ON:PRINCIPLES FOR BUSINESS EXECUTIVES

17 | Business Ethics - Class notes

1. HONESTY. Ethical executives are honest and truthful in all their dealings and they do not deliberately
mislead or deceive others by misrepresentations, overstatements, partial truths, selective omissions, or any
other means.

2. INTEGRITY. Ethical executives demonstrate personal integrity and the courage of their convictions by
doing what they think is right even when there is great pressure to do otherwise; they are principled,
honorable and upright; they will fight for their beliefs. They will not sacrifice principle for expediency, be
hypocritical, or unscrupulous.

3. PROMISE-KEEPING & TRUSTWORTHINESS. Ethical executives are worthy of trust. They are candid
and forthcoming in supplying relevant information and correcting misapprehensions of fact, and they make
every reasonable effort to fulfill the letter and spirit of their promises and commitments. They do not
interpret agreements in an unreasonably technical or legalistic manner in order to rationalize non-
compliance or create justifications for escaping their commitments.

4. LOYALTY. Ethical executives are worthy of trust, demonstrate fidelity and loyalty to persons and
institutions by friendship in adversity, support and devotion to duty; they do not use or disclose information
learned in confidence for personal advantage. They safeguard the ability to make independent professional
judgments by scrupulously avoiding undue influences and conflicts of interest. They are loyal to their
companies and colleagues and if they decide to accept other employment, they provide reasonable notice,
respect the proprietary information of their former employer, and refuse to engage in any activities that take
undue advantage of their previous positions.

5. FAIRNESS. Ethical executives and fair and just in all dealings; they do not exercise power arbitrarily,
and do not use overreaching nor indecent means to gain or maintain any advantage nor take undue
advantage of another’s mistakes or difficulties. Fair persons manifest a commitment to justice, the equal
treatment of individuals, tolerance for and acceptance of diversity, the they are open-minded; they are
willing to admit they are wrong and, where appropriate, change their positions and beliefs.

6. CONCERN FOR OTHERS. Ethical executives are caring, compassionate, benevolent and kind; they like
the Golden Rule, help those in need, and seek to accomplish their business objectives in a manner that
causes the least harm and the greatest positive good.

7. RESPECT FOR OTHERS. Ethical executives demonstrate respect for the human dignity, autonomy,
privacy, rights, and interests of all those who have a stake in their decisions; they are courteous and treat
all people with equal respect and dignity regardless of sex, race or national origin.

8. LAW ABIDING. Ethical executives abide by laws, rules and regulations relating to their business
activities.

9. COMMITMENT TO EXCELLENCE. Ethical executives pursue excellence in performing their duties, are
well informed and prepared, and constantly endeavor to increase their proficiency in all areas of
responsibility.

10. LEADERSHIP. Ethical executives are conscious of the responsibilities and opportunities of their
position of leadership and seek to be positive ethical role models by their own conduct and by helping to
create an environment in which principled reasoning and ethical decision making are highly prized.

11. PRUDENCE. Ethical executives seek to protect and build the company’s good reputation and the
morale of its employees by engaging in appropriate conduct that might undermine respect and by taking
whatever actions are necessary to correct or prevent inappropriate conduct of others.

18 | Business Ethics - Class notes

12. ACCOUNTABILITY. Ethical executives acknowledge and accept personal accountability for the ethical
quality of their decisions and omissions to themselves, their colleagues, their companies, and their
communities.

__________________________________________________________________________________

19 | Business Ethics - Class notes

3.0 BUSINESS THEORIES
_____________________________________________________________________________________
SHAREHOLDERS VS STAKEHOLDERS
_____________________________________________________________________________________

What is meant by shareholder theory?

The idea of the shareholder theory is that managers primarily have a duty to maximize shareholders'
interests in the way that is still permitted by law or social values.
What is meant by stakeholder theory?

Stakeholder theory suggests that the purpose of a business is to create as much value as possible for
stakeholders. In order to succeed and be sustainable over time, executives must keep the interests of
customers, suppliers, employees, communities and shareholders aligned and going in the same direction.
_____________________________________________________________________________________

Difference between Shareholders & Stakeholders

Shareholder is a person, who has invested money in the business by purchasing shares of the concerned
enterprise. On the other hand, stakeholder implies the party whose interest is directly or indirectly affected
by the company’s actions. The scope of stakeholders is wider than that of the shareholder, in the sense
that the latter is a part of the former. Stakeholders represents the entire micro-environment of the business.

While shareholder own the company’s share by paying the price for it, hence they are the owners of the
company. In contrast, stakeholders, are not the owners of the company, but are they are the parties that
deal with the company. In the given article excerpt, we’ve broken down all the important differences
between shareholders and stakeholders.

Shareholders Vs Stakeholders

Comparison Chart

Basis for
Shareholder Stakeholder
Comparison
The person who owns the shares of the The party, who is having a stake in the company
Meaning
company is known as a Shareholder. is known as Stakeholder.
Who are they? Owners Interested Parties
What is it? Subset Super set
Only a company, which is limited by Every company or organization have
Company
shares have shareholders. stakeholders.

20 | Business Ethics - Class notes

Basis for
Shareholder Stakeholder
Comparison
Shareholders, Creditors, Debenture holders,
Equity shareholders, Preference
Includes Employees, Customers, Suppliers, Government
shareholders
etc.
Focuses on Return on investment Performance of the company

Definition of stakeholder

A Stakeholder is a party that can influence and can be influenced by the activities of the organization. They
are the interested parties who help the organization to exist. In the absence of stakeholders, the
organization will not be able to survive for a long time.

As per the traditional governance model, the company’s management is accountable only to the
shareholders. But nowadays, this scenario has been completely changed because many corporations are
having the opinion that apart from the shareholders, many other constituents exist in the business
environment and the management is answerable to them also. As the business operates in an environment
and there are many factors which affect it. Similarly, the steps taken by the entity will also have a positive or
a negative impact on its constituents. These constituents, are classified in the following categories:

 Internal Stakeholders
o Owners
o Managers
o Employees
o Trade Unions

 External Stakeholders
o Suppliers
o Creditors
o Government and its agencies
o Customers
o Society
o Competitors

Key Differences Between Shareholders and Stakeholders

The following are the differences between shareholders and stakeholders:

1. The person holding the shares of the company is known as Shareholders. The party having a stake
in the company or organization is known as Stakeholder.
2. Shareholders are the owners of the company as they had bought the financial shares, issued by
the company. Conversely, Stakeholders are the interested parties who affect or gets affected by
the company’s policies and objectives.
3. Shareholders are a part of the Stakeholders. It can also be said that shareholders are
stakeholders, but the stakeholders are not necessarily the shareholders of the company.
4. Shareholders lay emphasis on the return on their investment made in the company. On the other
hand, Stakeholders focuses on the performance, profitability, and liquidity of the company.
5. The scope of stakeholders is comparatively wider than the shareholders because there are other
constituents also apart from shareholders.
6. Only the company limited by shares have shareholders. However, every company or organization
have stakeholders, whether it is a government agency, nonprofit organization, company,
partnership firm or a sole proprietorship firm.

21 | Business Ethics - Class notes

Conclusion

Therefore, it can be clear from the above discussion that shareholder and stakeholder are two different
terms. Hence, should not be confused while using them. Shareholders are just the legal owners of the
company, who have got the ownership by purchasing the shares of the company. Stakeholders is a little
bigger term than Shareholders, which includes all those factors which have an effect on the business. Not
only business doing entity have stakeholders, but every organization irrespective of its size, nature, and
structure are accountable to Stakeholders.

Read more: http://keydifferences.com/difference-between-shareholder-and-stakeholder.html#ixzz4vlnSdEEI

SHAREHOLDER STAKEHOLDER
1. A shareholder is a person or entity that 1. Stakeholders represent a substantially
owns shares in a corporation. A shareholder is broader group, because they include anyone
entitled to vote for the board of directors and a having an interest in the success or failure of a
small number of additional issues, as well as business. This group can include
receive dividends from the business and share shareholders, but goes well beyond
in any residual cash if the entity is sold or shareholders to also include creditors and
dissolved. The holder of preferred shares may customers, employees, the local community,
have additional rights. and the government.
2. Shareholders are a subset of the larger 2. The priority of shareholders over
group of stakeholders. Traditionally, stakeholders is gradually changing, in light of
shareholders have been considered more the increasing impact of pollution by
important than all other stakeholders in a businesses on local communities and
business, since they own the entity and have employees, as well as the impact of workforce
rights to receive its cash flows under certain reductions on local governments,
circumstances. communities, and employees.

SHAREHOLDERS THEORY AND STAKEHOLDERS THEORY:

Shareholders theory and stakeholder’s theory are the two normative theories of business ethics and
corporate social responsibility. Both of them are theories about how corporate leaders deal in their business
environment by each of their different perspectives, one is emphasizing to put priority on shareholders’
interests, the other is emphasizing to put priority on larger business stakeholders’ interests. These different
perspectives drive how executives and managers make business decisions.

A. Shareholders theory is introduced by Milton Friedman. In 1970, Friedman wrote in NY Times

that “there is one and only one social responsibility of business: to use its resources to engage in
activities designed to increase its profits so long as it stays within the rules of the game, which is to
say, engages in open and free competition, without deception or fraud.” The idea of the
shareholder theory is that managers primarily have a duty to maximize shareholders’ interests in
the way that is still permitted by law or social values.

B. Stakeholder theory is introduced by Edward Freeman in 1988. Stakeholders is a group that is

broader than shareholders. They are individuals or groups that provide critical support to business
firm, such as shareholders, employees, suppliers, customers, local community, environment, even
the world community. Therefore, they get benefits and risks regarding their involvement with the
22 | Business Ethics - Class notes
 company. According to stakeholder theory, business leaders’ duty is to balance the shareholders’
interests with other stakeholders’ interests. In other word, stakeholder theory demands that
interests of all stakeholders should be considered. It also shows the importance of social contracts,
not just a business contracts. align

There is debate between both theories supporters. With “maximizing shareholders’ interests” jargon,
shareholder theory is frequently misunderstood as it allows executives and managers to do anything that
can make profit. It should be remembered that shareholder theory obligates managers to increase profits
only through legal, non-deceptive means. Therefore, this theory puts laws and ethics as control mechanism
how company conducts business.

On the other hand, the stakeholder theory is also criticized by its opponents. They claims that the
stakeholder theory does not put focus on profitability. Even though the ultimate objective of stakeholder
theory is the concern’s continued existence, it must be achieved by balancing the interests of all
stakeholders, including the shareholders, whose interests are in profits.

Both theories can be applied in daily business activities. Executives and managers should be clear about
the choice of theory applied in internal and external corporate communications. If employees are confused
about the corporation’s objectives, they will likely make inconsistent decisions which, at the end, will
backfire to company itself. The clear choice will provide same ground to decide in daily business

_____________________________________________________________________________________

STAKEHOLDERS IN BUSINESS AND THE STAKEHOLDER THEORY

1. Stakeholders are persons or groups of persons who can affect or be affected by the
organization's actions, objectives and policies.

2. A stakeholder is an individual or group that has a legitimate interest in a company.

The stakeholders are divided in internal and external stakeholders. The picture below displays these
divisions:

23 | Business Ethics - Class notes

STAKEHOLDERS

The picture shows the typical stakeholders of a company.

INTERNAL STAKEHOLDERS
Internal stakeholders are entities within a business (e.g., employees, managers, the board of directors,
investors). Employees want to earn money and stay employed. Owners are interested in maximizing the
profit the business makes. Investors are concerned about earningincome from their investment.
EXTERNAL STAKEHOLDERS
External stakeholders are entities not within a business itself but who care about or are affected by its
performance (e.g., consumers, regulators, investors, suppliers). The government wants the business to pay
taxes, employ more people, follow laws, and truthfully report its financial conditions. Customers want the
business to provide high-quality goods or services at low cost. Suppliers want the business to continue to
purchase from them. Creditors want to be repaid on time and in full. The community wants the business to
contribute positively to its local environment and population.

Examples of a company's stakeholders

Stakeholders Stakeholder's concerns:[2]
:
Government taxation, VAT, legislation, employment, truthful reporting, legalities,
externalities...
Employees rates of pay, job security, compensation, respect, truthful communication,
appreciation, acknowledgement, recognition.
Customers value, quality, customer care, ethical products.
Suppliers providers of products and services used in the end product for the customer,
equitable business opportunities

24 | Business Ethics - Class notes

 Creditors credit score, new contracts, liquidity.
Community jobs, involvement, environmental protection, shares, truthful communication.
Trade unions quality, worker protection, jobs.
Owner(s) profitability, longevity, market share, market standing, succession planning,
raising capital, growth, social goals.
Investors return on investment, income.

TYPES OF STAKEHOLDERS

Any action taken by any organization or any group might affect those people who are linked with them in
the private sector. For examples these are parents, children, customers, owners, employees, associates,
partners, contractors, and suppliers, people that are related or located nearby.

Primary Stakeholders – usually internal stakeholders, are those that engage in economic transactions
with the business (for example stockholders, customers, suppliers, creditors, and employees).

Secondary Stakeholders – usually external stakeholders, are those who – although they do not engage in
direct economic exchange with the business – are affected by or can affect its actions (for example the
general public, communities, activist groups, business support groups, and the media).

Excluded Stakeholders – those such as children or the disinterested public, originally as they had no
economic impact on business. Now as the concept takes an anthropocentric perspective, while some
groups like the general public may be recognized as stakeholders others remain excluded. Such a
perspective does not give plants, animals or even geology a voice as stakeholders, but only an
instrumental value in relation to human groups or individuals.

_____________________________________________________________________________________

4.0 CORPORATE SOCIAL RESPONSIBILITY

______________________________________
What does the term Corporate Social Responsibility really mean? It is, however, true that different
organisations have framed different definitions although there is considerable common ground between
them. Basically, Corporate Social Responsibility is about how companies manage the business processes
to produce an overall positive impact on society [Mallen Baker: 2004].

Again, Corporate Social Responsibility is referred to as the continuing commitment by business to behave
ethically and contribute to economic development while improving the quality of life of the workforce and
their families as well as of the local community and society at large. [The World Business Council for
Sustainable Development].

Kotler and Lee [2005] defined CSR as “a commitment to improve community well-being through
discretionary business practices and contribution of corporate resources” (p. 3). On the other hand, Basu
and Palazza [2008] reasoned that CSR is “the process by which managers within an organization think
about and discuss relationships with stakeholders as well as their roles in relation to the common good,
along with their behavioral disposition with respect to the fulfillment and achievement of these roles and
relationships” (p. 124).

25 | Business Ethics - Class notes

CSR is “the continuing commitment by business to behaving ethically and contributing to economic
development while improving the quality of life of the work force and their family as well as the community
and society at large” [Watts &Holmes, 1999 cited in Sims, 2003, p.43]

Again, CSR is a concept whereby companies integrate social and environmental concerns in their business
operations and in their interaction with their stakeholders on a voluntary basis.

The central question always has been this: Does each organization, as it strives to achieve its mission and
vision, add value to the society which supports its existence?

CSR is a management planning and performance challenge. Corporate initiative to assess and take
responsibility for the company's effects on the environment and impact on social welfare. The term
generally applies to company efforts that go beyond what may be required by regulators or environmental
protection groups.

[CSR From Wikipedia, the free encyclopedia]

Corporate social responsibility (CSR, also called corporate conscience, corporate citizenship or
responsible business) is a form of corporate self-regulation integrated into a business model. CSR policy
functions as a self-regulatory mechanism whereby a business monitors and ensures its active compliance
with the spirit of the law, ethical standards and international norms. With some models, a firm's
implementation of CSR goes beyond compliance and engages in "actions that appear to further some
social good, beyond the interests of the firm and that which is required by law." CSR aims to embrace
responsibility for corporate actions and to encourage a positive impact on the environment and
stakeholders including consumers, employees, investors, communities, and others.

Business dictionary defines CSR as "A company’s sense of responsibility towards the community and
environment, both ecological and social, in which it operates. Companies express this citizenship (1)
through their waste and pollution reduction processes, (2) by contributing educational and social programs
and (3) by earning adequate returns on the employed resources."

A broader definition expands from a focus on stakeholders to include philanthropy and volunteering.

A more common approach to CSR is corporate philanthropy. This includes monetary donations and aid
given to nonprofit organizations and communities. Donations are made in areas such as the arts,
education, housing, health, social welfare and the environment, among others, but excluding political
contributions and commercial event sponsorship.

_________________________________________

CSR Common ideas

_________________________________________

Despite the many CSR definitions as number of companies that exist, one can focus on, common element
to most of them are the following:

1. Management of business processes to produce an overall positive impact on society.

2. Sense of responsibility towards the community and environment, both ecological and social, in
which a company operates.

26 | Business Ethics - Class notes

 3. Commitment by business to behaving ethically and contributing to economic development while
improving the quality of life of the work force and their family as well as the community and society
at large”
4. Management ,within an organization, of relationships with stakeholders as well as their roles in
relation to the common good.

From the above stated, CSR is more than strategic philanthropy or community relations. Such efforts to
sponsor league teams and engage in goodwill fundraising and the like, follow in the category of
philanthropy. But CSR is more than the sort of odious public relations where accommodation and being
nice is seen to be more effective than engaging in policy development and implementation that achieves a
true community of interest, focused on sustainability.

Types of corporate social responsibility

Here are a few of the broad categories of social responsibility that businesses are practicing:

Environment:

One primary focus of corporate social responsibility is the environment. Businesses, both large and small,
have a large carbon footprint. Any steps they can take to reduce those footprints are considered both good
for the company and society as a whole.

Philanthropy:

Businesses also practice social responsibility by donating to national and local charities. Whether it involves
giving money or time, businesses have a lot of resources that can benefit charities and local community
programs.

Ethical labor practices:

By treating employees fairly and ethically, companies can also demonstrate their corporate social
responsibility. This is especially true of businesses that operate in international locations with labor laws
that differ from those in the country of operation.

_____________________________________
Carroll’s Four Part Definition
_____________________________________
CSR encompasses the economic, legal, ethical and discretionary (philanthropic) expectations that
society has of organizations at a given point in time

27 | Business Ethics - Class notes

 RESPONSIBILITY SOCIETAL EXPECTATION EXAMPLES

1. Economic Required Be profitable. Maximize sales,

minimize costs, etc…
2. Legal Required Obey laws and regulations
3. Ethical Expected Do what is right, fair and just.
4. Discretionary Desired / Expected Be a good corporate citizen.

CSR in Equation Form Is the Sum of:

1. Economic Responsibilities (Make a profit)

2. Legal Responsibilities (Obey the law)
3. Ethical Responsibilities (Be ethical)
4. Philanthropic Responsibilities (Good corporate citizen)

_________________________________
CSR AND MANAGEMENT

__________________________________

Corporate Social Responsibility is a management concept whereby companies integrate social and
environmental concerns in their business operations and interactions with their stakeholders. CSR is
generally understood as being the way through which a company achieves a balance of economic,
environmental and social imperatives (“Triple-Bottom-Line- Approach”), while at the same time addressing
28 | Business Ethics - Class notes
the expectations of shareholders and stakeholders. In this sense it is important to draw a distinction
between CSR, which can be a strategic business management concept, and charity, sponsorships or
philanthropy. Even though the latter can also make a valuable contribution to poverty reduction, will directly
enhance the reputation of a company and strengthen its brand, the concept of CSR clearly goes beyond
that.

_______________________________________________________________________
NB : What form is followed, which model is applied? How does the company define CSR?

A properly implemented CSR concept can bring along a variety of competitive advantages, such as
enhanced access to capital and markets, increased sales and profits, operational cost savings, improved
productivity and quality, efficient human resource base, improved brand image and reputation, enhanced
customer loyalty, better decision making and risk management processes.

________________________________________

MODEL : Key CSR issues: environmental management, eco-efficiency, responsible sourcing,

stakeholder engagement, labour standards and working conditions, employee and community
relations, social equity, gender balance, human rights, good governance, and anti-corruption
measures.
_______________________________________

Some of the positive outcomes that can arise when businesses adopt a policy of social
responsibility include:

1. Company benefits:

 Improved financial performance;

 Lower operating costs;
 Enhanced brand image and reputation;
 Increased sales and customer loyalty;
 Greater productivity and quality;
 More ability to attract and retain employees;
 Reduced regulatory oversight;
 Access to capital;
 Workforce diversity;
 Product safety and decreased liability.

2. Benefits to the community and the general public:

 Charitable contributions;
 Employee volunteer programmes;
 Corporate involvement in community education, employment and homelessness programmes;
 Product safety and quality.

3. Environmental benefits:

 Greater material recyclability;

 Better product durability and functionality;
 Greater use of renewable resources;

29 | Business Ethics - Class notes

  Integration of environmental management tools into business plans, including life-cycle
assessment and costing, environmental management standards, and eco-labeling.

____________________________________________________

CORPORATE SOCIAL RESPONSIBILITY (CSR)

Corporate social responsibility:

Corporate social responsibility is a business’s concern for the welfare of society. This concern is
displayed by managers who take into consideration the long-term interests of the company and the
company’s relationship with the society it which it operates.

A new theory in social responsibility is sustainability. Sustainability is the concept that companies that
are socially responsible will outperform their peers or competitors by concentrating on society’s
problems, seeing them as opportunities for profit building and aiding the world at the same time.

Sustainability also includes the notion that companies cannot thrive for very long in a world where
billions of people are suffering and desperately poor. Therefore, it is in a company’s best interest to
find ways to solve society’s problems. Along with this theory is the belief that only businesses have
access to the talent, creativity, executive ability, and capital to make a difference.

Today, few people argue that corporate social responsibility is important. Instead, people debate about
the degree and forms of social responsibility in which businesses should engage.

____________________________________________________

ARGUMENTS FAVOUR CORPORATE SOCIAL RESPONSIBILITY:

The simplest argument for social responsibility is that it is the right thing to do. Some of society’s problems
have been created by corporations such as pollution and poverty-level wages. It is the ethical responsibility
of business to correct these wrongs.

1. Protect the interests of stakeholders:

Labour force is united into unions which demand protection of their rights from business enterprises. To get
the support of workers, it has become necessary for organisations to discharge responsibility towards their
employees.

Caveat emptor (‘let the buyer beware’), no more holds true. Consumer today is the kingpin around whom all
marketing activities revolve. Consumer does not buy what is offered to him. He buys what he wants. Firms
that fail to satisfy consumer needs will close down sooner or later. Besides, there are consumer redressal
cells to protect consumers against anti-consumer activities. Consumer sovereignty has, thus, forced firms
to assume social responsiveness towards them.

30 | Business Ethics - Class notes

Firms that assume social responsibilities may suffer losses in the short-run but fulfilling social obligations is
beneficial for long-run survival of the firms. The short-term costs are, therefore, investments for long-run
profitability.

2. Long-run survival:

Business organisations are powerful institutions of the society. Their acceptance by the society will be
denied if they ignore social problems. To avoid self-destruction in the long-run, business enterprises
assume social responsibility.

3. Self-enlightenment:

With increase in the level of education and understanding of businesses that they are the creations of
society, they are motivated to work for the cause of social good. Managers create public expectations by
voluntarily setting and following standards of moral and social responsibility.

They ensure paying taxes to the Government, dividends to shareholders, fair wages to workers, quality
goods to consumers and so on. Rather than legislative interference being the cause of social responsibility,
firms assume social responsibility on their own.

4. Avoids government regulation:

Non-conformance to social norms may attract legislative restrictions. Government directly influences the
organisations through regulations that dictate what they should do and what not. Various agencies monitor
business activities.

For example, Central Pollution Control Board takes care of issues related to environmental pollution,
Securities and Exchange Board of India considers issues related to investor protection, Employees State
Insurance Corporation promotes issues related to employees’ health etc. Organisations that violate these
regulations are levied fines and penalties. To avoid such interventions, organisations have risen to the
cause of social concerns.

5. Resources:

Business organisations have enormous resources which can be partly used for solving social problems. Businesses
are the creation of society and must work in the best interest of society, both economically and socially.

6. Professionalization:

Management is moving towards professionalism which is contributing to social orientation of business.

Increasing professionalism is causing managers to have formal management education and qualifications.
Managers specialize in planning, organizing, leading and controlling through their knowledge and subscribe
to the code of ethics established by a recognized body.

The ethics of profession bind managers to social values and growing concern for society. Thus, there is
increasing awareness of social responsibility. To grow in the environment of dynamism and challenge,
business concern does not decide whether or not to discharge social responsibilities but decides how much
social responsibility to discharge. A good business anticipates developments and acts in accordance with
the currently conceived social responsibilities to achieve the future targets.

_____________________________________________________________________________________

ARGUMENTS AGAINST CORPORATE SOCIAL RESPONSIBILITY:

31 | Business Ethics - Class notes

1. Corporation is for Profits
Milton Friedman and other conservative critics have argued against CSR, stating that a corporation's
purpose is to maximize returns to its shareholders (or shareholder value) and that it does not have
responsibilities to society as a whole

Skeptics often claim that businesses should focus on profits and let the government or nonprofit
organizations deal with social and environmental issues.

Milton Friedman claimed that free markets, rather than companies, should decide what is best for the world.
He believes that Adam Smith’s “invisible hand” will do all the work to make everything better.

Another argument is that companies are meant to create products or provide services rather than handle
welfare activities. They do not have the expertise or knowledge necessary for handling social problems.
Also, if managers are concentrating on social responsibilities, they are not performing their primary duties
for the company at full capacity.

Finally, being socially responsible damage a company in the global marketplace. Cleaning up the
environment, ensuring product safety, and donating money or time for welfare issues all raise company
costs. In the end, this cost will be passed on to the consumer through the final prices of the product or
service. While some customers may be willing to pay more for a product from a company that is socially
responsible, others might not be. This can place a company at an economic disadvantage.

2. Business is an economic activity:

It is argued by the opponents of social responsibility that basic function of a business enterprise is to look
into economic viability of its operations. It is for the Government to look after interests of the society. The
prime responsibility of assuming social responsibility should, therefore, be of the Government and not of the
business enterprises.

3. Quantification of social benefits:

What measures social responsibility and to what extent should a business enterprise be engaged in it, what
amount of resources should be committed to the social values, whose interest should hold priority over
others (shareholders should be preferred over suppliers or vice versa) and numerous other questions are
open to subjective considerations, which make social responsibility a difficult task to be assumed.

4. Cost-benefit analysis:

Any social-benefit programme where initial costs exceed the benefits may not be taken up by enterprises
even in the short-run.

5. Lack of skill and competence: Professionally qualified managers may not have the aptitude to solve the
social problems.

6. Transfer of social costs:

Costs related to social programmes are adjusted by the business concerns in the following ways:

(a) High prices:

The costs are passed to consumers by increasing prices of goods and services.
32 | Business Ethics - Class notes
 (b) Low wages:

If managers maintain the level of prices, the social costs may be reflected in reduction of wages.

(c) Low profits:

If wages are stabilized, profits would be reduced, which will lower dividends to the shareholders. Low profits
will reduce managers’ desire to further engage in corporate social responsibility

7. Sub-optimal utilization of resources:

If scarce resources are utilized for social goals, this would violate the very purpose of existence of an
organisation.

_____________________________________________________________________________________

UNRESOLVED ISSUES: CSR

After considering the arguments in favour and against the concept of CSR, some points are still left
unanswered. These are:

1. Operational definition of CSR:

The traditional view on CSR provided no information on business concerns about social values. The
modern approach also provides no clear guidelines to managers. Business executives follow their own
values and interests about social expectations. Actual meaning of CSR is, however, difficult to determine.

2. No view of competitive corporate environment:

Every business operates in the larger business system. It cannot come out of that system and
transformation of society within the existing parameters of business system seems to be illusory. Business
power is not unified and, therefore, even if they wish, they cannot fully meet the needs of the society.
Redirecting resources towards needs of the society can perhaps be possible if government rewrites rules
under which business corporations will operate.

3. Limited ability:

The proponents of CSR assume that business units have unlimited ability to fulfill social desires. However,
it is not so. Business firms have limited ability to respond to social changes. Social actions will increase the
costs and prices, which will place these firms at a competitive disadvantage in relation to firms who are not
socially responsive.

4. Lack of uniformity in business policies:

Solving social problems is not feasible in competitive business environment unless all firms follow the same
policy. Government can intermediate and make all competitors pursue the same policy on social problems.
Government is in fact, framing standards for businesses to follow with respect to physical environment,
occupational safety and health, equal opportunity, consumer concerns etc.

5. Moral responsibility:

33 | Business Ethics - Class notes

Business firms feel that they have economic responsibility to produce goods and services. Their economic
responsibilities justify their reason for existence. Why should business organisations have moral
responsibilities? What are the moral justifications for the same?

__________________________________________

Benefits of CSR
Corporate Social Responsibility has many benefits that can be applied to any business, in any
region, and at a minimal cost.

Improved financial performance:

A recent longitudinal Harvard University study has found that “stakeholder balanced” companies showed
four times the growth rate and eight times employment growth when compared to companies that focused
only on shareholders and profit maximization.

Enhanced brand image & reputation:

A company considered socially responsible can benefit -both by its enhanced reputation with the public, as
well as its reputation within the business community, increasing a company’s ability to attract capital and
trading partners. For example, a 1997 study by two Boston College management professors found that
excellent employee, customer and community relations are more important than strong shareholder returns
in earning corporations a place Fortune magazine’s annual “Most Admired Companies” list.

Increased sales and customer loyalty:

A number of studies have suggested a large and growing market for the products and services of
companies perceived to be socially responsible. While businesses must first satisfy customers’ key buying
criteria – such as price, quality, appearance, taste, availability, safety and convenience. Studies also show
a growing desire to buy based on other value-based criteria, such as ” sweatshop-free” and “child labor-
free” clothing, products with smaller environmental impact, and absence of genetically modified materials or
ingredients.

Increased ability to attract and retain employees:

Companies perceived to have strong CSR commitments often find it easier to recruit employees,
particularly in tight labor markets. Retention levels may be higher too, resulting in a reduction in turnover
and associated recruitment and training costs. Tight labor markets as well the trend toward multiple jobs for
shorter periods of time are challenging companies to develop ways to generate a return on the
consideration resources invested in recruiting, hiring, and training.

Reduced regulatory oversight:

Companies that demonstrate that they are engaging in practices that satisfy and go beyond regulatory
compliance requirements are being given less scrutiny and freer rein by both national and local government
entities. In many cases, such companies are subject to fewer inspections and paperwork, and may be
given preference or “fast-track” treatment when applying for operating permits, zoning variances or other
forms of governmental permission.

Easier access to capital:

It is clear that companies addressing ethical, social, and environmental responsibilities have rapidly
growing access to capital that might not otherwise have been available.

CONFLICT OF INTEREST
_____________________________________________________________________________________

34 | Business Ethics - Class notes

A conflict of interest is a situation in which an individual has competing interests or loyalties.

A termused to describethesituation in which a publicofficial or fiduciarywho,contrary to

theobligationandabsoluteduty to actforthebenefit of thepublic or a
designatedindividual,exploitstherelationshipforpersonalbenefit,typicallypecuniary / financial.

A situation that has the potential to undermine the impartiality of a person because of the possibility of a
clash between the person’s self-interest and professional interest or public interest.

Conflicts of Interest in the Workplace:An employee may work for one company but he or she may
have a side business that competes with the employer. In this case, the employee would likely be
asked to resign or be fired.

A conflict of interest arises in the workplace when an employee has competing interests or loyalties that
either are, or potentially can be, at odds with each other.

A situation in which aclashbetweenprofessionalobligationsandpersonalinterestsarises. For example,

theappearance of a conflict of interest is present if there is a potentialforthepersonalinterests of an
individual to clashwithfiduciaryduties,such as when a clienthashis or herattorneycommence an
actionagainst a company in whichtheattorney is themajoritystockholder

A situation in which the concerns or aims of two different parties are incompatible. A situation in which a
person is in a position to derive personal benefit from actions or decisions made in their official capacity.

 A conflict of interest is a situation in which a corporation or person with a vested interest in a

company becomes unreliable because of the clash between personal interests and professional
interests.
 A conflict of interest in business normally refers to a situation in which an individual’s personal
interests conflict with the professional interests owed to his employer or the company in which he is
invested.
 A conflict of interest arises when a person chooses personal gain over the duties to an organization
in which he is a stakeholder.

Types

The following are the most common forms of conflicts of interests:

 Self-dealing, in which an official who controls an organization causes it to enter into a transaction
with the official, or with another organization that benefits the official only. The official is on both
sides of the “deal.”
 Outside employment, in which the interests of one job conflict with another.
 Nepotism, in which a spouse, child, or other close relative is employed (or applies for employment)
by an individual, or where goods or services are purchased from a relative or from a firm controlled
by a relative. To avoid nepotism in hiring, many employment applications ask if the applicant is
related to a current employee of the company.
 Gifts from friends who also do business with the person receiving the gifts or from individuals or
corporations who do business with the organization in which the gift recipient is employed. Such
gifts may include non-tangible things of value such as transportation and lodging.

Other improper acts that are sometimes classified as conflicts of interests may have better classification.
For example, accepting bribes can be classified as corruption, use of government or corporate property or
assets for personal use is fraud, and unauthorized distribution of confidential information is a security
breach.

35 | Business Ethics - Class notes

_____________________________________________________________________________________

WHISTLE BLOWING
_____________________________________________________________________________________

Whistle blowing is when a worker reports suspected wrongdoing at work. Officially this is called 'making a
disclosure in the public interest'. A worker can report things that aren't right, are illegal or if anyone at work
is neglecting their duties, including: when someone's health and safety is in danger

What is a whistleblower in business?

A whistleblower (whistle-blower or whistle blower) is a person who exposes any kind of information or
activity that is deemed illegal, unethical, or not correct within an organization that is either private or public

What is the Whistleblower Protection Act?

Many federal employees are protected from retaliation for reporting legal violations or government waste
or fraud by the government agencies they work for. Government / Civil Servants who come out and report
on cases of illegal activities in government offices or other companies are protected by the Whistleblower
Protection Act of 2016.

Is it illegal to be a whistleblower?

Whistleblowers are persons, often employees or former employees, who report illegal or fraudulent
activity by an employer, government or organization. Employees may risk retaliation from their employers
for making such reports, giving rise to state and federal protections for whistleblowers

The information of alleged wrongdoing can be classified in many ways: violation of company policy/rules,
law, regulation, or threat to public interest/national security, as well as fraud, and corruption.
Those who become whistleblowers can choose to bring information or allegations to surface either
internally or externally.
Internally, a whistleblower can bring his/her accusations to the attention of other people within the accused
organization.
Externally, a whistleblower can bring allegations to light by contacting a third party outside of an accused
organization. Whistleblowers can reach out to the media, government, law enforcement, or those who are
concerned but also face stiff reprisal and retaliation from those who are accused or alleged of wrongdoing

ETHICS AND WHISTLE BLOWING

The ethical implications of whistle blowing can be negative as well as positive. However, sometimes
employees may blow the whistle as an act of revenge or in order to save life or humanity in general.
Discussions on whistleblowing generally revolve around three topics: attempts to define whistleblowing
more precisely, debates about whether and when whistleblowing is permissible, and debates about
whether and when one has an obligation to blow the whistle
Robert A. Larmer describes the standard view of whistleblowing in the Journal of Business Ethics by
explaining that an employee possesses prima facie (based on the first impression; accepted as correct
until proved otherwise) duties of loyalty and confidentiality to their employers and that whistleblowing
36cannot be justified
| Business Ethics -except on the basis of a higher duty to the public good.[45] It is important to recognize
Class notes
that in any relationship which demands loyalty the relationship works both ways and involves mutual
_____________________________________________________________________________________________

INSIDER TRADING
_____________________________________________________________________________________________

Insider Trading or Insider dealing refer to :

1. the illegal practice of trading on the stock exchange to one's own advantage through having access to
confidential information.
2. Insider trading is the buying or selling of a security by someone who has access to material nonpublic
information about the security. Insider trading can be illegal or legal depending on when the insider
makes the trade. It is illegal when the material information is still nonpublic; trading while having special
knowledge is unfair to other investors who don't have access to such knowledge.
3. Insider trading is the trading of a public company's stock or other securities (such as bonds or stock
options) by individuals with access to nonpublic information about the company.

[“Insider trading”From Wikipedia, the free encyclopedia]

Definition: Insider trading is defined as a malpractice wherein trade of a company's securities is

undertaken by people who by virtue of their work have access to the otherwise non public information
which can be crucial for making investment decisions.

Description: When insiders, e.g. key employees or executives who have access to the strategic
information about the company, use the same for trading in the company's stocks or securities, it is called
insider trading and is highly discouraged by the Securities and Exchange Boards to promote fair trading in
the market for the benefit of the common investor.

Insider trading is an unfair practice, wherein the other stock holders are at a great disadvantage due to lack
of important insider non-public information. However, in certain cases if the information has been made
public, in a way that all concerned investors have access to it, that will not be a case of illegal insider
trading.

What is insider information? This is defined as any confidential price-sensitive knowledge and data that
can provide an unfair advantage when buying and selling shares of a publicly traded company.

In this regard, the definition of an insider depends on the country where the case arises. In most cases,
insiders include any company employee, trader, or non-employees of the company who might be deemed
to be in possession of insider information.

Who is an Insider? An "insider" is any person who possesses of the following:

37 | Business Ethics - Class notes
 a. access to valuable non-public information about a corporation (this makes a company's directors
and high-level executives insiders)
b. ownership of stock that equals more than 10% of a firm's equity

A common misconception is that all insider trading is illegal, but there are actually two methods by which
insider trading can occur. One is legal, and the other is not.

The more infamous form of insider trading is the illegal use of undisclosed material information for profit. It's
important to remember that this can be done by anyone, including company executives, their friends and
relatives, or just a regular person on the street, as long as the information is not publicly known. For
example, suppose the CEO of a publicly-traded firm inadvertently discloses his/her company's quarterly
earnings while getting a haircut. If the hairdresser takes this information and trades on it, that is considered
illegal insider trading.

38 | Business Ethics - Class notes

EVALUATION

This is illegal and unethical because it is seen as unfair to other investors who do not have access to the
information, as the investor with insider information could potentially make far larger profits that a typical
investor could not make.

A section of the interested persons insist that “ Insider Trading” raises the cost of capital for securities issuers,
thus decreasing overall economic growth. However, some economists have argued that insider trading should
be allowed and could, in fact, benefit markets.

Trading by specific insiders, such as employees, is commonly permitted as long as it does not rely on material
information not in the public domain. Many jurisdictions require that such trading be reported so that the
transactions can be monitored.

The rules governing insider trading are complex and vary significantly from country to country. The extent of
enforcement also varies from one country to another. The definition of insider in one jurisdiction can be broad,
and may cover not only insiders themselves but also any persons related to them, such as brokers, associates
and even family members. A person who becomes aware of non-public information and trades on that basis
may be guilty.

Obviously, the reason insider trading is illegal is because it gives the insider an unfair advantage in the
market, puts the interests of the insider above those to whom he or she owes a fiduciary duty, and allows an
insider to artificially influence the value of a company's stocks.

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39 | Business Ethics - Class notes