BUSINESS ETHICS

• Ethics reflects a society’s notions about the

rightness or wrongness of an act.
• Business ethics, therefore, is a sum total of
principles and code of conduct businessmen
are expected to follow in their dealings with
their fellow men such as stockholders,
employees, customers and creditors.

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• Business ethics can remove issues like lower
wage rates, workforce exploitation, public
safety, ecological problems( e.g pollution
waste), consumer rights, bill of rights,
among others.

• Principle means basic truth, law or

assumption, rule, belief or idea that guides
one, helps one know what is right or wrong
and influences his or her actions.

• Principles of business ethics include:

trust, excellence, responsibility, customer
focus, safety, accountability ,focus on
people etc. 2
• Internal controls are policies designed to
implement a system of checks and balances in
an organization.
• Corporate Governance refers to the
structures and processes for the direction and
control of companies.
• Corporate governance is what the board of
directors is charged with doing-governing the
affairs of the corporation.
• The board of directors have to ensure there
are adequate internal controls.
• IC is a component of corporate governance.
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•1. Teleological Theory – Consequence Theory.
It states that moral worth of an
action/practice is determined solely by the
consequences of action or practice.
In simple words, ethicality of an action is
determined solely by the results it
produces. In this theory, “the end
justifies the means”.e.g a factory might
pollute the environment and justify that the
end product is more important.

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• 2. Deontological theory
• It is exact opposite of Teleological
approach. Here,” the means justifies
the end”. Consequences are irrelevant.
• It believes that actions are not
justified by their consequences.
Factors other than good or bad
outcomes determine the rightness or
wrongness (ethicality) of actions or
practices. E.g when forced to borrow
money you know you wont refund,
simply because you want to satisfy a
basic need.
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 They make sense of cases where consequences
seem irrelevant e.g. honouring contracts or
promises even if the cost is very high.
Angloleasing contracts in Kenya come to
mind.

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3. Utilitarian theory
• Utilitarian theory is about moral behavior that
produces the greatest good/benefit (utility) for
the greatest number.

4.Relativistic theory
• Ethical behaviors are derived subjectively from
the experiences of individuals and groups.

5. Justice theory
• This relates to evaluation of fairness. Justice is
fair treatment and due respect in accordance with
ethical or legal standards-standards of equity,
fairness, and impartiality.

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1.To protect its own interest and reputations;
2.To protect the interests of the business
community as a whole so that the public will
have trust in it;
3.To meet stakeholder expectations and build
trust ;customers ,employees, investors, society
etc
4.To prevent harm to the general public;;
5.To protect themselves from abuse of
unethical employees and competitors;

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6.To protect their own employees; and to create an
environment in which workers can act in ways
consistent with their values.
7.Attract customers to the firm's products,
thereby boosting sales and profits
8.Make employees want to stay with the business,
reduce labour turnover and therefore increase
productivity
9.Attract more employees wanting to work for the
business, reduce recruitment costs and enable
the company to get the most talented employees
10.Attract investors and keep the company's share
price high, thereby protecting the business from
takeover.

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• Unethical behaviors in Business organizations
can be reduced through the following ways:
1. Business ethics programmes-these are
guidelines and approaches to raising ethical
awareness of employees within a business
organization. It includes code of ethics among
other components.
• Code of ethics-a set of statements about
appropriate and expected behavior of
members of a group.
2.Whistle-blowing policies.

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• 3.Consistent leadership-when the
organization’s leadership changes, the
established ethical values should remain in
place. Ethics should not be negatively
affected by management successions.
• 4. Traditions-traditions of integrity and high
ethical standards should be maintained
• 5. Rewards-performance evaluation and
compensation should consider employee’s
behavior with respect to code of ethics.

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 6. Open climate-decision making discussions
should welcome or consider differences of
opinions and consideration of the ethical
standards.

 7.Controls-A control system strengthened

with ethical audits should supplement trust
with surveillance

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• 8. Punishment-Violators of the law of the
organization’s code of ethics should receive
punishment in conformity to the code of ethics
and relevant provisions of the law.
• 9. Ethical Ombudsman – This is a corporate
conscience keeper who can be reported to for
any ethical wrong doing by any employee in
the company.
• 10 Ethics Committee – Group appointed to
monitor company ethics.
• 11. Hot lines- Employees can report
questionable behaviour, possible fraud, waste,
or abuse on those numbers.
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•Ethics and compliance programs are systematic
approaches to raising ethical awareness of
employees ,providing guidelines and education on ethics
and having resources available to assist in identifying
and resolving ethical issues.

Components of an ethics and compliance programme

•-Code of ethics
•-Ethics training for employees
•-A means for communicating with employees
•-Reporting mechanism
•-Audit system
•-Investigation system
N/B Not every program will contain all of these
components, and the emphasis on these will vary.
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-These are statements of behavioural ideals,
exhortations, or prohibitions common to a
culture, religion, tradition, profession,
corporations or trade associations.
• Codes combine philosophical with admonitions

to avoid certain illegal actions and espouse

certain moral principles, especially those that
elevate personal behaviour.
• -The Ten Commandments is the most well

known code of ethics known worldwide.

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• 1. It’s a communication tool .
• 2. Minimize subjective and inconsistent
management standards.
• 3. Guide employees in situations where the ethical
course of action is not immediately obvious.
• 4. Help the company reinforce – and acquaint new
employees with – its culture and values. A code
can help create a climate of integrity and
excellence.
• 5. Help a company remain in compliance with
complex government regulations. It offers
protection in preempting or defending against
lawsuits.

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• 6. Build public trust and enhance business
reputations. Also, a code helps demonstrate
the company’s values to socially responsible
investors.
• 7. Enhance morale, employee pride and
loyalty of employees.
• 8. Help promote constructive social change by
raising awareness of the community’s needs
and encouraging employees and other
stakeholders to help.

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 At times a written code may be better than
unwritten code because one can always refer to the
set guidelines when faced with an ethical dilemma.
 It may take some effort to learn the unwritten rules
in your organization – you will need to do your
research, plan ahead, ask questions and observe
others and how things work in your organization.
 One disadvantage of written codes is that what
was appropriate in the past may become
inappropriate today; but the mere fact of being
written into a formal code of ethics may hinder or
prevent a timely or rational change.

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Unwritten code of ethics are those behaviors deemed
appropriate or inappropriate, depending on the
internal culture of a company.
Merits
An unwritten code of ethics based on conventions

has the advantage of being extremely adaptable or

flexible.
Unwritten code of ethics are more easily modified

than written code of ethics.

 Since it is unwritten, it can be changed easily to

deal with new situations.

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• A Whistleblower is a person who reveals
wrongdoings within an organization to public
or persons of authority.
• Not every act of whistle blowing is an act
of ethical conduct.
• On the contrary, a large number of whistle
blowings are motivated by desire to draw
revenge on boss or management.
• Organizations should develop whistle
blowing policies.

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• Any insider may wave the red flag when he
witnesses the following in the organization –
• (a) Crime
• (b) Corruption
• (c) Civil offences (including negligence,
breach of contract, etc)
• (d) Harassment
• (e) Injustice
• (f) Danger to health and safety or environment
• (g) Cover up of any of these

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Advantages of a Whistle blowing policy
• (a) It acts as a very effective anti

corruption tool as the insider has first

hand fresh information and he is able to
supply clinching evidence for pinning down
the guilty.

• (b) If done at early stages, it can help

check corruption. By protecting the
whistleblowers, corrupt and misbehavior in
others can be deterred.

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• (c) It also helps to place honest ethical
employees right in the centre of administration
unlike situations where they are helpless
spectators or are bullied into acceptance by their
corrupt colleagues who dominate the show.

• (d) Making whistle blowing official and acceptable

would also obviate anonymous petitioning and
unauthorized leaking of news to the media leading
to the loss of reputation of the company.

• (g) Protecting Whistle Blowers may deter

misbehavior by others

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• (a) A whistleblower disrupts trust, teamwork and
open communication – creating fear & suspicion
• (b) Whistle blowing discourages corruption –
but can also discourage initiative, willingness
to take bold decisions and encourage negativism,
defensiveness.
• (c) Risk of Whistle blowing used to blackmail
colleagues or even bosses
• (d) Most often than not, it is seen that the
very few subordinates have the courage to blow
the whistle on top officers. Ultimately, it is
these big game hunters go scot-free and the poor
small fish get caught and fried!

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Other ethical issues in business
1.Trading in unsafe commodities
2.Insider trading- trading based on non-public
information obtained by insiders within a given
firm. If the information is material, then the act
is unethical and also illegal.
3.Conflicts of interest-when personal interests
interfere with organization’s interests.
4.Accepting and giving gifts-Before accepting or
giving out any gift ,one should consider
whether the process is transparent and the
intentions are genuine, whether laws ,
regulations and company policy support the
act.

5.Leadership and integrity

6.Potential exposure to liabilities

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Examples of conflict of interests
1.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. The official is on both
sides of the "deal."
2.Outside employment, in which the interests of
one job contradict another.
3.Family interests, in which a spouse, child, or
other close relative is employed (or applies for
employment) or where goods or services are
purchased from such a relative or a firm
controlled by a relative..

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4.Gifts from friends who also do business with
the person receiving the gifts. (Such gifts may
include non-tangible things of value such as
transportation and lodging.)
5.Pump and dump, in which a stock broker
who owns a security artificially inflates the
price by "upgrading" it or spreading rumors,
sells the security and then "downgrades" the
security or spreads negative rumors to push
the price down.

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1.Actual conflict of interest -occurs when personal
interests leads an agent to act against the interests of the
principal.
2. Potential conflict of interest- is the possibility that a
person(agent) will fail to fulfill an obligation to act in the
interest of another(principal) .
3. Personal conflict of interest -occurs when an individual
has a personal stake in the outcome of a conflict.
4. Impersonal conflict of interest -occurs when an individual
has an active but not personal stake in a conflict.
Board members cannot let their personal interests interfere
with the decisions they make as directors. So, almost all
corporations have conflict of interest policies and
statement which they require directors to sign.

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 Ways to mitigate conflicts of interests
a)Avoiding those situations-The best way to
handle conflicts of interests is to avoid them
entirely.
b)Disclosure-Directors are required to disclose any
potential conflict of interest . 
c)Recusal-Those with a conflict of interest are
expected to recuse (execuse) themselves from
(i.e., abstain from) decisions where such a
conflict exists
d)Third-party evaluations-Third-party evaluations
may also be used as proof that transactions were,
in fact, fair ("arm's-length").
e)Codes of ethics- help to minimize problems with
conflicts of interests because they can spell out
the extent to which such conflicts should be
avoided.

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f)Chinese wall policy-Chinese wall is a barrier
that separates two or more groups usually as a
means of restricting the flow of information .
The policy is meant to prevent exchanges of
communication that could lead to conflict of
interest.
For example, a Chinese wall may be erected to
separate and isolate people who make
investments from those who are privy to
confidential information that could influence
the investment decisions.
Chinese wall policy also helps to safeguard
insider information and ensure that improper
trading does not occur.

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THANK YOU

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