UNIT I - Introduction to Business Ethics

Ethics is that branch of philosophy, which is concerned with the

principles of behavior that distinguishes between the right from the wrong. It is the study of morals and moral choices.

Business Ethics (also known as corporate ethics) is a form of applied

ethics or professional ethics that examines ethical principles and moral or ethical problems that arise in a business environment.

In the simplest terms, business ethics are moral principles that define right and wrong behavior in the world of business. What constitutes right and wrong behavior in business is determined by the public interest groups, and business organizations, as well as individuals moral values and principles. # Normative Ethics, Descriptive Ethics and Applied Ethics Normative (prescriptive) ethics: How should people act? Descriptive ethics: What do people think is right? Applied ethics: How do we take moral knowledge and put it into practice?

Normative Ethics: Norms are sentences or concepts with practical, i.e. action-oriented (rather than descriptive, explanatory, or expressive) import. Normative ethics is the branch of philosophical ethics that investigates the set of questions that arise when we think about the question how ought one act, morally speaking? Normative ethics examines standards for the rightness and wrongness of actions. Normative ethics is also distinct from descriptive ethics, as the latter is an empirical investigation of peoples moral beliefs. Normative ethics is the attempt to provide a general theory that tells us how we ought to live. For any act, there are three things that might be thought to be morally interesting: first, there is the agent, the person performing the act; second, there is the act itself; third, there are the consequences of the act. There are three types of normative ethical theory--virtue,

deontological, and consequentialist-each emphasizing one of these elements.

Virtue Ethics This first normative ethical theory, virtue theory, concentrates on the moral character of the agent. According to virtue theory, we ought to possess certain character traits--courage, generosity, compassion, etc.-and these ought to be manifest in our actions. We therefore ought to act in ways that exhibit the virtues, even if that means doing what might generally be seen as bad or bringing about undesirable consequences. Deontology Normative theories of the second type, deontological theories, concentrate on the act being performed. According to deontological theories, certain types of act are intrinsically good or bad, i.e. good or bad in themselves. These acts ought or ought not to be performed, irrespective of the consequences. Consequentialism The third approach to normative ethics is consequentialism. Consequentialist theories hold that we ought always to act in the way that brings about the best consequences. It doesnt matter what those acts are; the end justifies the means. All that matters for ethics is making the world a better place. Application To give an example, then, suppose that a man bravely intervenes to prevent a youth from being assaulted. The virtue theorist will be most interested in the bravery that the man exhibits; this suggests that he has a good character. The deontologist will be more interested in what the man did; he stood up for someone in need of protection, and that kind of behaviour is intrinsically good. The consequentialist will care only about the consequences of the mans actions; what he did was good, according to the consequentialist, because he prevented the youth from suffering injury. Descriptive Ethics Descriptive ethics is a form of empirical research into the attitudes of individuals or groups of people. Those working on descriptive ethics aim

to uncover people's beliefs about such things as values, which actions are right and wrong, and which characteristics of moral agents are virtuous. Research into descriptive ethics may also investigate people's ethical ideals or what actions societies condemn or punish in law or politics. Because descriptive ethics involves empirical investigation, it is a field that is usually investigated by those working in the fields of evolutionary biology, psychology, sociology or anthropology. Information that comes from descriptive ethics is, however, also used in philosophical arguments. Value theory can be either normative or descriptive but is usually descriptive. Applied Ethics It is a term used to describe attempts to use philosophical methods to identify the morally correct course of action in various fields of human life. Bioethics, for example, is concerned with identifying the correct approach to matters such as euthanasia, or the allocation of scarce health resources, or the use of human embryos in research. Environmental ethics is concerned with questions such as the duties of humans towards landscapes or species. Business ethics concerns questions such as the limits on managers in the pursuit of profit, or the duty of 'whistleblowers' to the general public as opposed to their employers. As such, it is a study which is supposed to involve practitioners as much as professional philosophers. Applied ethics is distinguished from normative ethics, which concerns what people should believe to be right and wrong, and from meta-ethics, which concerns the nature of moral statements. An emerging typology for applied ethics (Porter, 2006) uses six domains to help improve organizations and social issues at the national and global level:

Decision ethics, or ethical theories and ethical decision processes Professional ethics, or ethics to improve professionalism Clinical ethics, or ethics to improve our basic health needs Business ethics, or individual based morals to improve ethics in an organization Organizational ethics, or ethics among organizations Social ethics, or ethics among nations and as one global unit

Much of applied ethics is concerned with just three theories: 1. utilitarianism, where the practical consequences of various policies are evaluated on the assumption that the right policy will be the one which results in the greatest happiness, 2. deontological ethics, notions based on 'rules' i.e. that there is an obligation to perform the 'right' action, regardless of actual consequences (epitomized by Kant's notion of the Categorical Imperative), and 3. virtue ethics, derived from Aristotle's and Confucius's notions, which asserts that the right action will be chosen by a suitably 'virtuous' agent.. List of subfields of applied ethics

Animal rights issues Bioethics Business ethics Computer ethics Education ethics Medical ethics Military ethics (e.g. just war theory) Media ethics / journalism ethics

Environmental ethics (e.g. global warming) Government ethics Hospitality ethics Human rights issues (e.g. gender ethics) Research ethics Sexual ethics Social work ethics or Ethics in social work Sports ethics

International ethics (e.g. world hunger) Legal ethics Marketing ethics Neuroethics Public administratio n ethics

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Ethics, Morality and Legality:

Ethics

can be defined as a branch of philosophy dealing with values

relating to human conduct, with respect to the rightness and wrongness of certain actions and

Morality as moral judgments, standards and rules of conduct. Law are rules and principles developed through ethics and apply in
situations involving morality. Ethics and morality cover a wider scope when compared to law because law only regulates particular aspects of ethics and morality. The limited scope of law in considering the issue of good or bad or right and wrong is exemplified by the existence of the concepts of law and equity in the resolution of cases. The consideration of equity usually occurs in instances when law insufficiently distinguishes the acceptability of an action subject to litigation or provides a resolution to the case deemed consistent with the code of ethics and morality judgments commonly accepted in a particular society. However, law is based on ethics and morality determined through societal context and translated into enforceable rules with corresponding penalties.

Ethics and morality then translate into law with the intention of creating a basis for encouraging people to opt for what is good or right instead of merely relying upon every individuals value judgments or conscience. Ethics and morality also differ since ethics involves the consideration of reasons underlying existing principles or values while morality constitutes cognitive judgments of the individual regarding right or wrong. This means that ethics consider principles in the decision on right and wrong while morality is the result of the cognitive processing of ethical principles. This further implies that the resulting judgment may not necessarily be aligned to ethical values. Ethical Organism and Corporate code of conduct: Corporate codes of conduct do not have any authorized definition. The concept "corporate code of conduct" refers to companies' policy statements that define ethical standards for their conduct. There is a great variance in the ways these statements are drafted. Corporate codes of conduct are completely voluntary. They can take a number of formats and address any issue - workplace issues and

workers' rights being just one possible category. Also, their implementation depends totally on the company concerned. Potential authors of a code are the founder, board of directors, CEO, top management, legal departments, consultants. The process can involve employee representatives and/or randomly or otherwise selected employees. Case Example: Nokias Code of ConductOur aspiration to be the worlds most loved and admired brand can only be achieved by considering not just what we do but how we do it. It requires us to strictly adhere to laws and regulations and to go beyond this, by setting our goals much higher. We want to be the leader in ethical business conduct. The Nokia Code of Conduct sets our approach to ethical business practice. It outlines our commitment to respect and promote human rights and fair workplace practices, equal opportunities, environmentally sustainable business, and our zero-tolerance policy on bribery and corruption. The Nokia Code of Conduct, which was first introduced in 1997, has had its latest renewal in 2009. We apply the Code of Conduct globally in our own operations and require the same standards from our suppliers. All Nokia employees must understand and comply with the Code of Conduct.

Business Ethics Conceptual Background:

# Conceptual Approaches to Business Ethics Bartels defines ethics as the pile of moral principles and values determined by society. He points out ethics guides people what good or bad is, and what correct or wrong is and what duties and responsibilities are: (1). Ethics is universal, it is thinking on moral and also moral attitude. This attitude is to see every living being as equal (2). It means to behave by angle of human rights and respect to man, and survival right is the first. According to the philosophies, environment means humanity. Today's ethics approaches note depending on keeping human wants under pressure for the benefits of all human beings. By these words

environment includes not only men, but also animals, plants, i.e., the nature. Ethics occurs by relations of humans with themselves, and their physical and social environment. Therefore, the origin of the problems and solution is human. The philosophies note many approaches in these relations. These approaches can be grouped into three groups: - The human-oriented approach - The living oriented approach - The environment oriented approach Every approach describes one of parts of the whole environmental ethics. But the common point of these approaches is that all human beings and their equal rights take place in the ecosystem. By the new approach in the concept of deep ecology it is accepted that the diversity of the ecosystem has an internal value and no one has any right to decrease this diversity and difference. For centuries, people have established a lot of establishments to achieve these goals. Human beings have seen that producing something by cooperation is more productive and effective than doing it alone, so they have established enterprises. They have seen unlimited needs, increasing wants and scarcity of objects and they have also seen establishing enterprises as a way of producing more. But in this century humans saw a lot of impacts from our living. Air, water and soil pollution, the danger of consuming natural resources, acid rain, gas, dust and liquids industries caused, soiling of natural foods, industrial pollution and dangerous wastes, just to mention a few problems we face.

These environmental problems make us reconsider the goals of organizations and their responsibilities to the society and nature. The organizational goals are often not environmentally friendly. In some events the goal of the establishment is opposite to the environment and sometimes organizational activities damage the environment in achieving the goals. In this process, we should emphasize the reasons why they should have responsibility. First, they use environmental resources and resources are limited. Second, they damage the environment by their activities. Third, they use common assets of mankind. Finally, the enterprises have various forces to influence the environment: Economic force, social and cultural force, technological force, politic force, forces on individuals and physical environment (3).

In spite of these impacts and forces of establishments, there is no social control system on the activities of enterprises. This point emphasizes business ethics terms as an institutional framework, i.e., social ethics. As an institutional term, social ethics means searching ethical norms to protect the social benefits, and determining the possibilities for achieving a kind society. Then, business ethics means, the norms, duties, responsibilities, courses of actions of enterprises to protect the benefits of whole society. In a broader view, because of the impacts on the natural and social environment, business ethics concepts determine the responsibilities towards ecosystem. It is the common denominator of business ethics and environmental ethics is the interrogation of relations and dilemmas between economy and nature, man and society. According to the common classification of conceptual approaches on business ethics, there are three approaches (4). The first approach reconciles ethical values with economic goals. The second approach gives priority to the ethical values. According to Ulrich, a new multidimensional goal system should replace to the profit maximization. And the third approach is pragmatic approach. In this approach, the attitudes model of business managers is the focus of interests. The last two approaches are very important for us to develop a new concept and term on business ethics. The approach which gives priority to the ethical values is important, because the enterprises are not a purpose; they are only a tool which we use to get benefits. If this tool causes various damages on the ecosystem to get profit, then we should revise our organizational goals, targets and activities. A pragmatic approach is characterized with the importance of individual conscience and discussion of alternative individual courses of actions.

Therefore, these two approaches define the new term business ethics as an institutional concept. This concept includes both organizational responsibility and individual duties as business managers, also covered the ecosystem. We can name this concept as "environment oriented business ethics" or "enterprise ethics". As determined above, if people are the focus of the problems and solution, educating people becomes our great responsibility. People should be educated as a member of business organizations. This

education process should begin in childhood and continue during our life.

Egoism vs Altruism
Egoism: One ought to act in his or her own self interest Ethical behavior is that which promotes ones own self interest Does not mean should not obey laws - only do so if in self interest Ethical egoism (also called simply egoism) is the normative ethical position that moral agents ought to do what is in their own self-interest. It differs from psychological egoism, which claims that people do only act in their self-interest. Ethical egoism also differs from rational egoism, which holds merely that it is rational to act in one's self-interest. These doctrines may, though, be combined with ethical egoism. Ethical egoism contrasts with ethical altruism, which holds that moral agents have an obligation to help and serve others. Altruism: Altruism means unselfish concern for the welfare of others; selflessness. Altruism (also called the ethic of altruism, moralistic altruism, and ethical altruism) is an ethical doctrine that holds that individuals have a moral obligation to help, serve, or benefit others, if necessary at the sacrifice of self interest. Auguste Comte's version of altruism calls for living for the sake of others. One who holds to either of these ethics is known as an "altruist." Altruism is often seen as a form of consequentialism, as it indicates that an action is ethically right if it brings good consequences to others.

Entrepreneur and Manager Role and Responsibilities: Entrepreneur:

An entrepreneur is an individual who accepts financial risks and undertakes new financial ventures. The word derives from the French "entre" (to enter) and "prendre" (to take), and in a general sense applies to any person starting a new project or trying a new opportunity.
Many societies place great value on the entrepreneur. To encourage their activity, they may be offered access to inexpensive capital, tax exemptions and management advice. An entrepreneur has the greatest chance of success by focusing on a market niche either too small or too new to have been noticed by established businesses. To help new technologies come to market, many universities establish business incubators for entrepreneurs hoping to turn leading edge research into marketable products. Characteristics of an entrepreneur include spontaneous creativity, the ability and willingness to make decisions in the absence of solid data, and a generally risk-taking personality. An entrepreneur may be driven by a need to create something new or build something tangible. In the Austrian school of Economics, entrepreneurs are described as being engaged in the creative destruction of existing products and services. As new enterprises have low success rates, an entrepreneur must also have considerable persistence. Entrepreneurs are generally highly independent, which can cause problems when their ventures succeed. In a small company the entrepreneur is able to personally manage most aspects of the business, but this is not possible once the company has grown beyond a certain size. Management conflicts often arise when the entrepreneur does not recognize that running a large stable company is different from running a small growing company. The problem is often resolved by the entrepreneur either leaving to start a new venture, or being forced out by shareholders. At Apple Computer, for example, one founder, Steve Wozniak, left to pursue other interests, while the other, Steve Jobs was ultimately fired and replaced with a CEO from a much larger company. Note that many years later, Jobs returned to the helm. An intrapreneur is an individual who acts like an entrepreneur but from inside the confines of a large organization or corportation.

Social Entrepreneurship:
A social entrepreneur is someone who recognizes a social problem and uses entrepreneurial principles to organize, create, and manage a venture to make social change (a social venture). Thus, the main aim of social entrepreneurship is to further social and environmental goals. Historical Examples of Social Entrepreneurs:

Susan B. Anthony (U.S.): Fought for Women's Rights in the United States, including the right to control property and helped spearhead adoption of the 19th amendment. Vinoba Bhave (India): Founder and leader of the Land Gift Movement, he caused the redistribution of more than 7,000,000 acres of land to aid India's untouchables and landless. Dr. Maria Montessori (Italy): Developed approach to early childhood education. the Montessori

Florence Nightingale (U.K.): Founder of modern nursing, she established the first school for nurses and fought to improve hospital conditions. Margaret Sanger (U.S.): Founder of the Planned Parenthood Federation of America, she led the movement for family planning efforts around the world.

Recent Examples of leading social entrepreneurs: One well-known contemporary social entrepreneur is Muhammad Yunus, founder and manager of Grameen Bank and its growing family of social venture businesses, who was awarded a Nobel Peace Prize in 2006. The work of Yunus and Grameen echoes a theme among modern day social entrepreneurs that emphasizes the enormous synergies and benefits when business principles are unified with social ventures. In India, a social entrepreneur can be a person, who is the founder, cofounder or a chief functionary (may be president, secretary, treasurer, chief executive officer (CEO), or chairman) of a social enterprise, which primarily is a NGO, which raises funds through some services (often fund raising events and community activities) and occasionally products. Rippan Kapur of Child Rights and You and Jyotindra Nath of Youth United, are such examples of social entrepreneurs, who are the founders of the respective organizations. Jay Vikas Sutaria of Bhookh.com is a social entrepreneur who is leveraging the power of the Internet to fight hunger in India.

Manager:
A person who manages, conducts, trains, directs, deals, supervises, organizes and controls resources, expenditures, an organization, an institution, a team, a household, etc.
What are the roles and responsibilities of a managerial position? 1. Supervise and manage the overall performance of staff in his department. 2. Analyzing, quantity objectives 4. Involved . 5. Working . 6. Responsible 7. Identifying for the growth creating and increase and in the organizations' finances and earnings. problems, choices providing alternatives courses of actions. out compensations and rewards in succession reporting, . . employee planning selection, and career development, training periodic giving recommendations and developing strategies on how to improve quality and 3. Achieve business and organization goals, visions and

Responsibilities Overview

towards

Stakeholders:

An

A corporate stakeholder is a party that can affect or be affected by the actions of the business as a whole. The stakeholder concept was first used in a 1963 internal memorandum at the Stanford Research institute. It defined stakeholders as "those groups without whose support the organization would cease to exist."

Internal and External Stakeholders

A stakeholder approach applies as much to an entrepreneurial start-up and to a mid-sized closely-held firm as it does to a corporation with diffuse ownership. Four Levels of Commitment to the Stakeholder Approach Company stakeholder responsibility requires that companies be
committed to a stakeholder approach to management on the following four levels.

Level 1 - Basic Value Proposition At this most basic level, the entrepreneur or manager needs to understand how the firm can make the customer better off, and simultaneously offer an attractive value proposition to employees, suppliers, communities, and financiers. How do we make our stakeholders better off? What do we stand for? Level 2 - Sustained stakeholder cooperation The competitive, macro-economic, regulatory, and political environments are so dynamic they necessitate constant revision of the initial stakeholder arrangements. Each revision upsets the delicate balance struck in the basic value propositions to various stakeholders. Managers must have a deep understanding of how these trade-offs affect each stakeholder, the amount of sacrifice a given stakeholder will accept, and how these current sacrifices can be compensated. What are the principles or values on which we base our everyday engagement with stakeholders?

Level 3 - An understanding of broader societal issues Todays managers must recognize and respond to a rising number of international issues, without the moral compass of the nation, state or religion as a guide. Managers may need to take positions on issues that apparently are not purely business related. A pro-active attitude is necessary towards all stakeholder groups, both primary, i.e., those that have direct business dealings with the company, and secondary, such as NGOs and political activists, who can affect the operations of the company. Do we understand how our basic value proposition and principles fit or contradict key trends and opinions in society? Level 4 Ethical leadership Recent research points to a strong connection between ethical values and positive firm outcomes such as sustained profitability and high innovation.7 Proactive ethical leadership is possible only if there exists a deep understanding of the interests, priorities, and concerns of the stakeholders. What are the values and principles that inform my leadership? What is my sense of purpose? What do I stand for as a leader? There are 10 general principles that collectively develop a mindset necessary for entrepreneurs and managers to understand and practice all four levels of Company Stakeholder Responsibility.

Profit making; An Objective with an ethical dimension:

We shall analyze the relationship between Ethics and Business: Ethics conflicts with profits, whereas Business always chooses profits over ethics. There are companies which suggest a somewhat different perspective a perspective that many companies are increasingly taking. The management of such companies spends millions of dollars on developing products that they knew had little chance of ever being profitable because they had an ethical obligation to make its potential benefits available to people. In such cases, companies choose ethics over profits. Many companies dont invest in Research and Development projects because this will increase their costs and minimize profits. Customer satisfaction in these cases is kept on stake. We find companies behaving differently with regard to ethics and profits.

Many companies choose profits over ethics. Some often engage in unethical behavior for profit. Customers buy goods and services from a business which is honest and trustworthy. Company with a regulation for ethical behavior has an advantage over one with a reputation for being unethical.

The Japanese proved that firms can produce goods that were both high quality and low cost. There are many businesses that we see as successful. But when we look closer at how the businesses made their profits, lots of them have sacrificed their morals in order to make money. So are we just following in their footsteps, knowing that the easiest way to become successful is to abandon our morals?

Case Example: NESTLE

One of the first companies I came across was Nestle. Nestle is a worldwide company that has thousands of products though it is mainly known for its breakfast cereals and coffee. Two years ago, there was a huge boycott against nestle for their breast milk sales in Africa. Nestle owns over 50% of the worlds breast milk substitute market and most of its products are sold in third world countries. It started by nestle promoting their products by giving away free samples to struggling mothers. In promotional advertising in these countries nestle was pushing the idea that twins and premature babies need to have breast milk substitute as they are unable to breastfeed. Also, a lot of their instructions or health warnings are not on the bottles or are in a foreign language to the country they are being sold in. Another issue nestle was being criticized on was exploiting employees. When workers in Brazil striked against poor working conditions, pay and discrimination against women, forty employees were sacked, most of which were the people who were leading the strike. There is proof from legal aid charities that nestle has been targeting and profiting out of third world countries for over twenty years now. So why did it only come to light in 2003? Personally, I think it was because of media attention. It was widely covered by the daily mail and the guardian. The guardian published this quote: Nestle, in the first six months of this year, made a profit of 3.7bn Swiss francs (1.63bn), up 32% from a year ago. (Mark Tran, 2005, the

guardian) This was published on the 1st September 2005 just after nestle had published their annual report showing that they were then making more profit than ever before. So all in all, the top management for nestle were doing an outstanding job (profit wise), the business was successful. But by now they had over 20 countries with organizations trying to boycott them. Nestle claimed they had not done anything wrong. In a way they were right (legally anyway), there WAS nothing wrong with their breast milk, it was sterile, cheap, nutritious and it only had to be mixed with water. It was being sold all over the world to healthy children in Britain and America also. What was going wrong in the third world countries was that the milk powder was being mixed with contaminated water. The state of the contaminated water in Africa couldnt be helped. Nestle hit back to the campaign: Nestle claims to have a strong Corporate Social Responsibility policy, taking social issues very seriously, especially as they relate to health and nutrition. (Unnamed nestle spokesperson, 2003, answers.com) Nestle does comply with both the letter and the spirit of the World Health Organizations International Code of Marketing of Breast-Milk Substitutes as well as with national regulations giving effect to the WHO Code when these are stricter (Chemist Henri Nestl, 1867, nestle infant policy) Finally the world health organization stepped in and said that although pregnant women and breastfeeding mothers should be told of the benefits of breastfeeding, they should also be given the option to use powdered milk. Nestle also started to give mothers more information about the social and financial opinions of using powdered milk. They said that nestle had broken part of the 1981 health code of breast milk substitutes by giving away free sample to encourage people to buy their products. Manufacturers and distributors should not distribute to pregnant women or Mothers or infants and young children any gifts of articles or utensils which may promote the use of breast-milk substitutes or bottle-feeding. (1981, the world health organization) So Nestle stopped campaigning with their harsh advertising so much. They still continue to trade over in Africa and Brazil, now they are trying to build bridges by building schools and cleaning water. They have now a section on their website all about the breast milk issue and the main title is:

Nestle: Committed to the encouragement of breastfeeding all over the world Some argue that it is unethical to make profits in companies. Even our EX-Prime Minister Jawaharlal Nehru said in 1950, profit is a dirty work, referring to public companies. Even private companies making profits were viewed as disclaim. In todays dynamic business environment profit-making is a must. Therefore it can be concluded that a business cannot survive without profits but at the same point of time societys interest is also important as business is the sub-set of the society. Companies must make profits ethically.
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