BUSINESS ETHICS AND CORPORATE GOVERNANCE

DR. MRS AKUA FRIMPONG

ETHICS

Ethics come from the Greek word “Ethikos” meaning character.

Morality comes from the word “moralist” which means behavior.

Ethico-moral actions pertain to a set of actions engineered by the characters and expressed
through behavior.

Definitions

Ethics is a concept of right and wrong behavior defining for us when our actions are moral
and when immoral.

Important Ethical Questions are

 What is?

 What ought to be?

 How do we get from what is to what ought to be?

 What is our motivation for acting ethically?

 Values verses Ethics:

 Values are our measures of importance, whereas ethics represent our judgments about
right and wrong. The close relationship between importance and right and wrong is a
powerful influence on our behavior and how we evaluate the behavior of others.

 Morality:

 A system of principles and values concerning people's behavior, which is generally

accepted by a society or by a particular group of people.

 Principles: Natural laws in the human dimension that are just as real, just as
unchanging, as laws such as gravity are in the physical dimension

 Principles are not invented by us or by society.

 They are the laws of the universe that pertain to human relationships and
organizations.

 They are part of the human condition, consciousness and conscience.

Examples of principles

 Fairness
  Equity

 Justice

 Integrity

 Honesty

 Trust

 Excellence

 Justice

 Human potential

People who recognize basic principles move toward survival and stability on the one hand or
disintegration and destruction on the other.

 Principles unlike values are objective and external. They operate in obedience to
natural laws, regardless of condition

 Principles apply at all times in all places

 Values are subjective and internal

 Values change, principles don’t

Values are our measures of importance, whereas ethics represent our judgments about right
and wrong. The close relationship between importance and right and wrong is a powerful
influence on our behavior and how we evaluate the behavior of others.

Types of Ethics

 PERSONAL ETHICS

 SOCIAL ETHICS

 RELIGIOUS ETHICS

 PROFESSIONAL ETHICS

 BUSINESS ETHICS

 GLOBAL ETHICS

 ENVIRONMENTAL ETHICS

Personal values -the conception of what an individual /group regards as desirable.

Personal ethics - application of these values in everything one does. Personal ethics might
also be called morality since they reflect general expectations of any person in any society
acting in any capacity.

Principles of Personal Ethics.

These are the principles we try to instill in our children, and expect of one another without
needing to articulate the expectation or formalize it in any way.

The principles of personal ethics are:

 Concern and respect for the autonomy of others.

 Honesty and the willingness to comply with the law.

 Fairness not to take advantage of others.

 Benevolence

 Respect for the autonomy of others

 Trustworthiness

 Refusing to take unfair advantage

 Preventing harm

These principles are woven into the fabric of every civilized society and constitute the
roots of every family and institution that has endured and prospered.

What motivates people to be ethical:

• Most people want to maintain a clear conscience and would like to act ethically under
normal circumstances

• It is natural for people to ensure that their actions do not cause injury, whether
physical or mental to others.

 People are obliged to obey the laws of the land

 Social and material well-being depends on one’s ethical behavior in society

 Social ethics-standards that govern how members of a society are to deal with other
on issues such as fairness, justice, poverty, and the rights of the individual

 Religious Ethics-Most religions have an ethical component often derived from

purported supernatural revelation or guidance.
Professional ethics.

Profession is a vocation or calling especially, one that involves a specific branch of advance
learning or branch of science, for example the profession of a doctor, lawyer, business
manager, etc

Professional Defined

A professional is one who is engaged in a specific activity as one’s paid occupation like a
salaried business manager who is paid for his specific skill in managing the affairs of the
business enterprise he is engaged in.

Principles of professional ethics:

 Impartiality: Objectivity

 Openness; full disclosure

 Confidentiality; trust

 Due diligence; duty of care

 Fidelity to professional responsibilities

 Avoiding potential or apparent conflict of interest.

Global Ethics:

The concept of Global Ethics proposes that there exists a common base of universal values

It deals with Ethical issues or problems arising from globalization.

Principles of Global ethics

 Global justice

 Society before self (Social Response.)

 Environmental stewardship

 Interdependence and responsibility for the whole

 Reverence for place

 Environmental ethics is the studies of moral relationship of human beings to, and
also the value and moral status of, the environment and its non-human contents

 It considers the ethical relationship between humans and the environment

Principles of Environmental ethics:

• We should have a profound respect for nature

 • We must maintain a harmonious relationship with other spicies

• Everyone should take responsibility for his/her impact on nature

 Local and indigenous environmental knowledge should be respected

 We must plan for the long term (Sustainable Development).

Business Ethics

Definitions:

 Business ethics is the application of general ethical ideas to business behavior.

 “Business ethics is the application of general ethical principles to business dilemmas

and encompasses a broader range of issues and concerns than laws do, as everything
that is legal might not be ethical.”

 A set of moral rules that govern how businesses operate, how business decisions are
made and how people are treated.

 Business Ethics implies the good or bad, right or wrong behavior, in pursuing
business, determined on the basis of expected behavior approved by the society.
E.g. Charging reasonable prices, just and fair treatment to workers, earning a
legitimate profit, providing a good environment to employees, etc

 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.

 Business ethics means to conduct business with a human touch in order to give
welfare to the society

 Ethics deals with what is right or wrong. Business ethics is nothing but an application
of ethical judgments to business activitiesBusiness ethics is that set of principles or
reasons which should govern the conduct of business whether at the individual or
collective level

 Ethics can be described as philosophy in action and business ethics is the application
of ethical principles in business

 Business ethics is not just related to an individual but to the whole organization. Any
business, operating in a society, has a moral responsibility of contributing to society
in terms of welfare schemes and projects

 Business ethics promotes good business by generating support both within and
outside the organization. It is not about morality but about the establishment of
transparent norms of relationship in an organization

WHAT BUSINESS ETHICS ARE NOT

Ethics is different from religion

Though all religions preach high ethical/moral standards, generally, they do not address all
the types of problems people face today. E.g. cybercrimes and environment related issues are
totally new in the context of most religions

Ethics is not synonymous with Law

A good legal system may incorporate many moral/ethical standards. But there are several
instances where law deviates from what is ethical. Legal systems many vary from society to
society depending upon the social, cultural and religious beliefs.

Ethics: a set of moral principles or values that governs the conduct of an individual or group.
- Rule of law and rule of ethics may demand the same response.
- Law may permit an act that is ethically wrong.
- Law may demand certain conduct, but person's ethical standards are contrary.

Ethical Standards are Different from Cultural Traits

The English adage, “When in Rome do as the Romans do” leads to an unethical behavior.
Some cultures are ethical, but many others are not.

Ethics is prescriptive, offers reasons for how humans ought to act under such situations

Ethics is different from feelings

Our ethical choices are based on our feelings. Most of us feel bad when we indulge in
something wrong. But many especially hardened criminals may feel good when they do
something bad

Ethics is not just a collection of values

Values are almost always oversimplified, so cannot be applied uniformly. Values tend to be
under-defined, situational by nature and subject to flawed human reasoning thus by
themselves, they cannot assure true ethical conduct

Sources of Ethical Norms in Society

1. Religion: One of the oldest fundamentals of ethical standards. All religions talks about the
nature of right and wrong in business and in life. Fundamentally, they all operate on the
principle of reciprocity towards ones fellow beings! all of them are in agreement on the
fundamental principles

2. Culture: The culture that an individual has to follow pertaining to certain guidelines
prevalent in the society to which he belongs to. The culture implies the rules, standard, values
that are transmitted from generations to generations.
3. Law/ Legal System: Laws are rules of conduct formulated by the legal system of the state
that guide human behavior in any society. They codify ethical expectations and keep
changing when new evil emerges. But laws cannot cover all ethical expectations in society.

Code of Ethics and Code of Conduct

Code of Ethics: Code of ethics is a document, developed by major companies which
basically sets out the rules that each company lives by and how they deal with situations
where those rules have not been complied.

A code of ethics/professional conduct outlines the ethical principles that govern decisions and
behavior at a company. They give general outlines of how employees should behave, specific
guidance for handling issues like harassment, conflicts of interest.

Code of ethics deals with a range of issues including, but not limited to, the following:

 Bribery Corruption and Illegal Conduct – This refers to issues where there are
allegations that criminal conduct has occurred

 Workplace Bullying and Harassment – This refers to harassment in the workplace

including sexual harassment

 Discrimination – This is to ensure that company policies and, to the extent necessary,
the law, is complied, and that people are treated fairly and equally regardless of age,
gender, race, marital status, sexual orientation or any other head of power set out in the
code of ethics or indeed in the relevant legislation that may apply in the jurisdictions where
the company may do business

 Conflicts of Interest – This is where you declare any relationships or situations which
would impede your capacity to act properly on behalf of the company. For example,
does your brother work for a client company?

 Acceptance of Gifts – The Code of Ethics sets out guidelines by which you can accept
gifts from people as an officer of the company. Usually gifts above a particular value
set out by the Code of Ethics must be declared.
 Social Responsibility – This refers to the company policies and their desire to be good
corporate citizens in their country of origin and internationally
 Protection of Assets – This usually refers to issues surrounding protection of the
intellectual property held by the company

Code of Ethics for Business Managers

  Integrity-integrity is the cornerstone of all values. A business manager should be
morally upright. It is this characteristic that distinguishes a professional from a
mercenary

 Impartiality- a manager should look at and treat all aspects of an issue in a fair and
unprejudiced manner Responsiveness to both public and shareholders interest should
be paramount to Managers.

 Accountability-accountability is one of the basic characteristics of a good business

manager. Business managers are responsible for all their actions and are accountable
to all stakeholders, stockholders (shareholders), employees, customers, governments
and society at large.

 Honesty-A cardinal ethical value that a manager should possess is honesty. Managers
should be fair, just and sincere. They should not indulge in cheating or stealing and
should be free of deceit and untruthfulness

 Transparency-Good business managers should be transparent and set standards for

others to follow. They should be frank and open. Their actions should easily be
discussed and understood by others.

Code of Conduct

A code of conduct is a way for management to say what the culture of the
organization should be how employees should act and how they shouldn't act
Ethics and values should form the basis of code of conduct that ought to govern the
behavior of business managers. In the exercise of their duties and responsibilities,
managers should observe the following:
In many organizations, employees must meet standards of professional behavior as a
condition of employment. These standards help an organization create a respectful
working environment for everyone.
Organizations provide a code of conduct to explain which behaviors are and are not
permitted by employees. Employees can be required to acknowledge this code by
signing an agreement upon employment.

ETHICAL THEORIES

Ethical theories are the rules and principles that determine right and wrong for a given
situation.

Types of Ethical theories in Business

Descriptive -Attempts to describe the moral systems of groups or society. It involves

empirical research on individuals, groups and societies in order to uncover moral beliefs.

Normative Ethical Theories

Normative/moral Theories –Ethical theories are said to be normative if they propose “to
prescribe the morally correct way of acting.” (Cranne and Matten 2010).

They are meant to help us figure out what actions are right and wrong

Normative Ethical theories try to answer two main questions.

1. What is the good life for a human?

2. How should human beings behave?

Types of Normative Theories

1. Consequentialist/teleological-An ethical theory which bases moral judgment on the

outcomes of an action.

General Principle:

Of all the things a person might do at any moment, the morally right action is the one
with the overall best consequences (Internet encyclopedia of philosophy)

 Whether an act is right or wrong depends only on the results of that action.

• The more good an act produces, the better or more right that action is.

• A person should choose the action that maximizes good consequences

 People should live so as to maximize consequences

Types of consequentialists/teleological

 Utilitarianism-An action is right if it results in the greater amount of good/happiness

for the greatest number of people affected by the action. (Cranne and Matten 2010).

“After assessing the best we can, the likely results for each action, not just in the short
term but in the long run as well, we are to choose the course of conduct that brings
about the greatest net happiness.” (Shaw, 2011)

Business Ethics

Ethical Fundamentalism- Ethical Fundamentalism

A person looks to an outside source or a central figure for ethical rules or commands.
- This maybe a book or a person.
- Critics argue that ethical fundamentalism does not permit people to determine right and wrong for
themselves.

- Utilitarianism-Utilitarianism- A person must choose the action or follow the rule that provides
the greatest good to society.
+ Origins in works of Bentham and Stuart
- It has been criticized because:
+ It is difficult to estimate the "good" that will result from different actions.
+ It is hard to apply.
+ it treats morality as an impersonal calculation

Good/Happiness for Utilitarianism:

 Freedom

 Knowledge

 Life

 Pleasure

 Political right

Corollaries

 The rightness or wrongness of an action is separated from the goodness or badness of

the agent. (Worth of action not worth of agent).

 The right moral action is the one that maximizes good.

 Whether an act is right or wrong depends only on that act

 The more good consequences an act produces, the better or more right that is.

 A person should choose the action that maximizes good consequences

 People should live so as to maximize good consequences

 The general principle of utility does not provide a rule to decide on the moral worth of
an action in face of actual consequences and foreseen consequences. We should do
what we have most reason to believe will bring about the best consequences of the
known available alternatives.

 Egoism-The correct moral action is the one that meets the self-interest of individuals.

Corollary-The most important principle is the principle of self-interest, personal

advantage or

gain.

 Hedonism: happiness/pleasure should be pursued and pain should be avoided

It is the view that our fundamental moral obligation is to maximize pleasure or happiness.

2. Non-Consequentialist-Normative theory
 Any ethical theory which bases its moral judgment not on the

outcomes (consequences) of an action but on its principle (intrinsic properties) or on the

agent’s character.

Types of non-consequentialists:

 Deontology: Immanuel Kant (1784-1804 and W.D. Ross (1877-1971)

Bases moral judgment on moral principle (duty) underlying the action.

Main Corollaries

• Morality is a matter of duty, compliance to a moral law

• Whether something is wrong or right doesn’t depend on its consequences.

• Actions are right or wrong in themselves

 We have duties regarding our own actions

According to Kant, human action are motivated either by reason of happiness.

 So morality depends either by reason or happiness

 Happiness is conditional because it differs from individual to individual and it can be

either good or bad

 Reason alone is universal, so morality must be based on reason in order to become

truly universal.

 This moral universal reason is “the Good Will” (The power of rational moral choice)

 The Good Will is good because it motivates us to act out of duty, not on inclination,
desire or personal interest/gain

 The Good Will makes us act according to the moral law and in order to know it, it
must check if it conforms to the categorical imperative

 CI is imperative because it is a command. It commands us to exercise our wills in a

particular way, not to perform some action or other.

 CI is categorical simply because we possess rational wills without reference to any

ends that we might or might not have.

Kant’s categorical Imperative

 Formula of Universal law: Act as if the maxim of your action were to secure through
your will a universal law of nature
  Formula of Humanity: Act so that you treat humanity, whether in your own person
or that of another, always as an end and never as a means only

 Formula as autonomy: “Act as if in your maxims a law making member of a

kingdom of ends”

 Individuals ought to do what is morally right, no matter what the consequences.

“Categorical” means “without exception”

 Question to ask, “Would we want everyone to make the same decision we did?” If the
answer is “no”, then we have made the wrong choice

 For Kant, ethics is based on reason alone and not on human nature.

 The core idea of his categorical imperative is that an action is right if and only if we
can will it to become a universal law of conduct.

- Kantian Ethics- A person owes moral duties based on universal rules.

- The rules are based on two principles:
+ Consistency - All cases are treated alike
+ Reversibility - Actor must abide by the rule he or she uses to judge the morality of
someone else's conduct.
- Critics argue that it is hard to reach a consensus as to what the universal rule should be.

NON-CONSEQUENTIALIST-DEONTOLOGICAL-ROSS

 W.D. Ross-There is several prima facie duties that we can use to determine what
concretely we ought to do.

 A prima facie duty is a duty that is obligatory other things being equal. I.e. unless it is
over ridden by another duty or duties.

 When there is a prima facie duty to do something, there is a fairly moral reason in
favor of doing it.

 Example of prima facie is the duty to keep promises unless stronger moral
considerations overrides, one ought to keep a promise made.

 By contrast with prima facie duties, our actual/concrete duty is the duty we should
perform in the particular situation of choice. Whatever one’s actual duty is, one is
morally bound to perform it.

• Fidelity: obligation to keep a promise

• Reparation: obligation to repair the harm

• Gratitude: Obligation to recognize a granted benefit and express it.

  Justice: obligation to fairly distribute the goods

 Beneficence: obligation to do good to someone

 Self-improvement : Obligation to make yourself a better person

 Non-malfeasance: obligation to not harm anyone.

 Non-Consequentialist-Deontological Agent’s Virtue

The Agent’s virtue: The central moral concept is that of the morally good character or
morally good disposition

It analyzes the rightness or wrongness of individual choices indirectly in terms of character or

dispositions of the agent making the choices.

Virtue ethics: morally correct actions are those undertaken by actors with virtuous
characters. Therefore the formation of character is the first step toward morally correct
behavior. (Crane and Matten 2010)

Virtue ethics highlight the role of the person or actor in the ethical decision making. They
argue that individuals with high moral character are more likely to make wise ethical choices.

Virtue theorists seek:

 To develop a description of the ideal person.

 To identify the virtues that make up the character of this ethical prototype

 To outline how individuals can acquire the required virtues.

Aristotle’s Ethical theory:

The virtuous person exhibits the joint excellence of reason and character. He/she not only
knows what the good thing to do is, he/she is also emotionally attached to it. These virtues
are also intimately connected.

Contemporary Ethical Theories

 Ethical relativism- morality is relative to the norms of one's culture. That is, whether
an action is right or wrong depends on the moral norms of the society in which it is
practiced. The same action may be morally right in one society but be morally wrong
in another. E.g. premarital sex

 Right and wrong are determined by what one’s society says is right and wrong.

 No criterion of right and wrong by which to judge other than that of a particular
society. What morality requires is relative to society. (Shaw, 2011). There are no
moral absolutes
If ethical relativism is correct, there can be no common framework for resolving moral
disputes or for reaching agreement on ethical matters among different members of different
societies

- Ethical Relativism- Ethical Relativism

A person must decide what is ethical based on his or her own feelings as to what is right or wrong

No universal rules to guide a person’s conduct

Critics argue that actions widely regarded as unethical would be seen as ethical under this theory
depending on perpetrator’s viewpoint

Problems with Ethical relativism

 It undermines any moral criticism of other societies as long as their actions conform
to their own standards

 There is no such thing as ethical progress. Moralities can change, but they cannot get
better or worse.

 It makes no sense to criticize principles or practices accepted by their own society.

Whatever a society takes to be right really is right for it

Rawls's Social Justice Theory

A Theory of Justice (1971) Rawls's theory of justice revolves around the adaptation
of two fundamental principles of justice which would, in turn, guarantee a just and
morally acceptable society.
 The first principle guarantees the right of each person to have the most extensive basic
liberty compatible with the liberty of others. The theory draws on two fundamental
principles the first being the right for each person to have the most basic liberty that is
compatible to the liberties of others (Rawls, 2009).
This means that every individual has an equal right to the same rights and freedoms
that are applicable to others in the society.
 Secondly Rawls asserts that the economic positions are to be to everyone’s advantage
and open to all. Although there are questions on how these principles can be applied
to all, it is clear that the main concept that they are hinged on is equality towards
developing a just society.
 Post Modern Ethics

Postmodernists ground their ethical systems in atheism, naturalism, and evolution.

In Postmodern ethics, community moral standards are decided by

both coercion and consensus. Morality is not connected to God or
dictated by any type of natural laws; rather, ethical systems are
constructed within societies. Every culture, thus, has its own set of
moral standards arising from the various influences within each
particular group. Moreover, morality is not stagnant; it changes,
adapts, and is constantly evolving according to the dictates of the
group.

“Postmodernists reject the idea that there are universal, transcultural standards, such
as the laws of logic or principles of inductive inference, for determining whether a
belief is true or false, rational or irrational, good or bad.”

With postmodern ethical system, the first point one must think of is a system that says
there is no unified approach to understanding what is and is not ethical.

What they think is right and wrong in a particular situation. (Crane and Matten 2010).
There is no way to say that anything is right or wrong.

Post Modern ethics emphasizes the following in terms of ethical reasoning and
analysis :

 Analytical Approaches

Ethical analysis is a systematic approach to figuring out the right moral decision
in a particular situation. By analyzing the situation logically, in accordance with
your ethical code, you can figure out which options are both effective and moral.

 Analytical -Tend not to address moral questions or to address substantive moral

problems directly but rather to be connected with the status of ethical judgments and
character of moral reason.

 Morality is relative -a system for helping humans stay happy and alive.

 The fundamental task of ethics is not to discuss substantive moral questions and to
seek solutions for them, but to examine the meaning of moral terms such as “good”,
“duty” “right”, “ought” and to make them as clear and precise as possible.

 There are no moral standards independent of our social groups.

 Whatever a social group decides is right is right and whatever it decides is wrong is
wrong –

 there is nothing "above" the group to which we can appeal in order to challenge those
standards.
BUSINESS ETHICAL THEORIES

No one theory can stand on its own. The theory that is presented by one school of thoughts is
not sufficient or practical enough in overcoming a multitude of moral problems which exist in
real life situation

“Currently, many businesses choose to adopt interdisciplinary theories in order to achieve

better outcomes in handling ethical issues” (Shaw, 2010).

Types of Normative theories of Business Ethics

 Stockholder/ shareholder expresses the business relationship between the owners

and their agents who are the managers running the day to day business of the
company.

In this arrangement, managers (including Board of Directors) act as agents for shareholders.

The sole responsibility of managers is to increase shareholders profit.

The core concept is that the ultimate objective of a company is to maximize wealth for
shareholders.

The only qualification on the rule to make as much money as possible is “conformity to the
basic rules of the society, both those embodied in law and those embodied in ethical custom.”

This relationship binds managers not to spend the available resources on any activity without
the authorization from their owners, regardless of any societal benefit that could be accrued
by doing so. This obviously implies that a business can have no social responsibility.
Managers have no option but to follow the dictates of their masters.

Milton Friedman asserts that “there is one and only social responsibility of business-to use its
resource and engage in the activities designed to increase its profits so long as it stays within
the rules of the game, which is to stay engaged in open and free competition without
deception or fraud.

The theory does not give the managers the opportunity to ignore ethical constraints in single-
minded pursuit of profits. The theory stresses that managers should purse profit only by all
legal non-deceptive means.

The stockholder theory is associated with a line of utilitarian argument that “One’s pursuit of
profit guided by one’s enlightened self-interest in a free market economy leads collectively to
the promotion of general interest as well.

Everyone by pursuing his/her own self interest promotes the interest of the society more
efficiently than when her/she really intends to promote it. As such it is unwarranted to expect
businesses to act directly to promote the common good
Therefore, there is no justification to make a claim that businesses “have any social
responsibilities other than to legally and honestly maximize profits of the firm.”

“Stockholders provide their capital to managers on condition that they use it in accordance to
their wishes. If the managers accept this capital and spend it on some social goals
unauthorized by the stockholders, does it not tantamount to a clear breach of the agreement?”

 Stakeholder theory- A company owes a responsibility to a wider group of

stakeholders other than shareholders

A stakeholder is any person/group which can affect/be affected by the actions of business.-
employees, customers, suppliers, creditors, competitors, wider community.

According to the stakeholder theory, a company must consider the interests of all
stakeholders when making business decisions. Consistent with stakeholder approach,
organizations are not only accountable to their shareholders but should also consider the
contrasting interest of all other stakeholders that can affect or be affected by the achievement
of organization‟s objective

Stakeholder theory, is an important element of Corporate Social Responsibility (CSR), a

concept which recognizes the responsibilities of corporations in the world today, whether
they be economic, legal, ethical or even philanthropic

 Enlightened shareholder value-

Corporations should pursue wealth with a long run orientation that seeks sustainable growth
and profits based on responsible attention to the full range of stakeholders’ interest.

It focuses on generating stakeholder value, while having regard to the long term external
impact of the wealth generation.

 Social contract theory- people live together in society in accordance with an

agreement that establishes moral and political rules of behavior. Some believe that if
we live according to a social contract, we can live morally by our own choice and not
because a divine being requires it.

Social contract theory is the view that persons' moral and/or political obligations are
dependent upon a contract or agreement among them to form the society in which
they live. It is a way for managers to take decisions in an ethical context.

They differentiate between macro-social contracts and micro-social contracts. Thus a

macro-social contract in the context of communities, for example, would be an
expectation that business provide some support to its local community and the
specific form of involvement would be the micro-social contract. Hence companies
who adopt a view of social contracts would describe their involvement as part of
‘societal expectation’.
 The implication of the theory is that managers must realized that by providing for the
welfare of their employee through micro-social contract they are indirectly also taking
care of the communities because injury to workers in the course of duty sometimes
affects the family and extend to the community.

Thus in addition to their profit maximization interest, organizations also display that
tendency to consider societal interest by taking on a massive responsibility for the
impact of their activities on employees, customers, suppliers, stakeholders and local
communities in which they operate not forgetting their environmental obligations as
well. The importance of considering societal prosperity is because it positively
impacts organizations prosperity.

According to the societal approach, firms are responsible to society as a whole, of

which they are an integral part. The main idea behind this view is that business
organizations operate by public consent in order to serve constructively the needs of
society to the satisfaction of society (Van Marrewijk, 2003). As a result, all
companies prosper when the society prospers and would be better off if social
responsibility was an integral component of every marketing decision.

The real objective behind this development of theories is to create companies, which
are sustainable and economically, ethically and socially responsible.

PURPOSES OF BUSINESS ETHICS

 To give people the tools for dealing with moral complexities in business

 Business decisions have an ethical component

 Ethical implications must be weighed before acting

 To hold a company and its employees accountable for their actions as they affect
others. It keeps businesses and professionals mindful of the consequences of their
actions so that they can pursue success responsibly.

 To manage behavior that cannot be covered by governmental laws. There are many
actions which, while they are legal, are also detrimental to certain groups such as
employees.

 Having a code of ethics can encourage employees to stay honest and steer clear of
potentially illegal behavior.

 It enhances the company's core values, beliefs and sets the right culture

 Gives a vision and a mission to the company

 Builds a reputation of the company in the market

  Keeps the company and its employee's from violating laws and regulations

 Fosters an environment of trust and ethical behavior

ROLE OF BUSINESS ETHICS

 To hold a company and its employees accountable for their actions as they affect
others. This includes both internal and external behavior. It keeps businesses and
professionals mindful of the consequences of their actions so that they can pursue
success responsibly.

 To manage behavior that cannot be covered by governmental laws. Many actions,

while legal, are detrimental to certain stakeholders that are affected by the actions of a
company. By having a code of conduct, a business can self-regulate its behavior and
act appropriately.

 To demonstrate behavior that is the current norm. Actions that were acceptable in the
past can become inappropriate in later years and vice versa.

 To keep the business honest. While many unethical behaviors are not illegal, they can
often lead to unlawful acts. Having a code of ethics can encourage employees to stay
honest and steer clear of potentially illegal behavior.

 Ensure that the power wielded by large corporations is used to good effect. As a
business expands, opportunities for corruption also grow.

 With a good code of conduct, a company can work to repair possible damage caused
by its success and even work proactively to help others.

 To provide a critique of the process of value formation in organizations and in the free
market economy

 To prescribe the values which should hold in organizations

 To prescribe how decision should be made with sound moral principles.

Assignment Questions

1.