Concept of Business Ethics

The application of moral norms and principles to business conduct is known as business ethics. It entails examining what is right and wrong in the business sector in order to direct people’s and organizations’ decisions and activities in a way that is consistent with moral principles, social responsibility, and just practices.

Corporate governance, insider trading, bribery, discrimination, corporate social responsibility (CSR), and environmental sustainability are just a few of the many topics that fall under the broad category of business ethics. It is focused on the practices of entire businesses and their effects on stakeholders, society, and the environment in addition to the acts of individual employees.

• Ethics is the conception of right and wrong conduct that tells us whether our behavior is morular immoral, good or bad. Ethics deals with fundamental human relationships—how we think and behave toward others and how we want them to think and behave toward us.
• Ethical principles are guides to moral behavior.
• For example, in most societies lying to, stealing from, deceiving, and harming others are considered unethical and immoral.
• Honesty, keeping promises, helping others, and respecting the rights of others are considered ethically and morally desirable behaviors.
• Notions of right and wrong come from many sources.
• Religious beliefs are a major source of ethical guidance for many.
• The family institution-whether two parents, a single parent, or a large family with brothers and sisters, grandparents, aunts, cousins, and other kin-imparts a sense of right and wrong to children as they grow up.
• Schools and schoolteachers, neighbors and neighborhoods, friends, admired role models, ethnic groups, and the ever-present electronic media and the Internet influence what we believe to be right and wrong in life.
• The totality of these learning experiences creates in each person a concept of ethics, morality, and socially acceptable behavior.
• Ethical ideas are present in all societies, organizations, and individual persons, although they may vary greatly from one to another.

Consequences of Ethical Problems

Individuals, companies, societies, and even the larger international community may all be significantly impacted by ethical issues. These repercussions may be immediate or long-term, direct or indirect, and may show themselves in several ways. Below are some of the major consequences of ethical problems:

Loss of Trust

• Individuals: Ethical problems, especially those involving dishonesty or betrayal, can damage personal relationships. People who engage in unethical behavior can lose the trust and respect of friends, family, and colleagues, which can take years to rebuild.
• Organizations: When a company or institution engages in unethical practices, it can erode trust among employees, customers, and investors. For example, financial scandals or data breaches can significantly damage an organization’s reputation and credibility.
• Society: Ethical problems in political or social systems can lead to widespread cynicism and distrust toward public institutions, such as government bodies, healthcare, or the legal system.

Legal and Financial Consequences

• Ethical violations often lead to legal issues, which can result in fines, penalties, lawsuits, and even criminal charges. In many cases, unethical actions such as fraud, corruption, or discrimination can lead to significant financial loss, both for individuals and organizations.
• Financial instability can also result from reputational damage. For instance, companies involved in unethical practices may experience a drop in stock prices or lose clients, leading to reduced profits and layoffs.

Reputational Damage

• Ethical problems can severely damage an individual’s or organization’s reputation. Once trust is broken, it can be difficult to restore a positive public image.
• For companies, bad publicity, especially if it spreads on social media, can lead to a decline in customer loyalty and may drive away both existing and potential customers.

Negative Social Impact

• Ethical problems, especially those involving exploitation, inequality, or injustice, can have negative effects on broader society. For example, systemic corruption or discrimination can perpetuate cycles of poverty, inequality, and social unrest.
• Unethical practices in business, like environmental degradation or labor exploitation, can harm communities, causing long-term consequences for public health, quality of life, and the environment.

Deterioration of Moral Standards

• When ethical problems are not addressed or resolved, they can lead to a decline in moral standards within organizations or communities. If unethical behavior becomes normalized, it can encourage others to adopt similar behaviors.
• Over time, this can create a culture of impunity where unethical actions are tolerated, reducing accountability and making it harder to enforce ethical norms.

Psychological and Emotional Toll

• Individuals involved in ethical violations may experience guilt, shame, and anxiety, especially if their actions hurt others or go against their personal values.
• Victims of unethical behavior can suffer emotional and psychological harm, such as stress, trauma, or a sense of betrayal, which can have lasting impacts on their well-being.

Loss of Opportunities

• Both individuals and organizations may experience missed opportunities due to ethical lapses. For example, a person caught in a scandal may be passed over for promotions or future job opportunities.
• Organizations known for unethical behavior may find it harder to attract top talent, partners, or customers, limiting their growth and potential.

Negative Long-Term Consequences

• Individual Career: Unethical actions, such as plagiarism or dishonesty in professional settings, can have long-lasting career consequences. Even if an individual escapes immediate legal or financial penalties, the stigma associated with unethical behavior can hinder career advancement or future opportunities.
• Organizational Sustainability: Businesses that engage in unethical practices may experience short-term gains, but over time, such behavior can undermine their long-term sustainability. For example, exploiting workers or cutting corners to increase profits can lead to regulatory scrutiny, workforce dissatisfaction, and customer backlash.

Moral and Ethical Dilemmas for Others

• Ethical problems can create a ripple effect, causing others to face difficult moral decisions. For instance, employees who witness unethical behavior may struggle with whether to report it (whistleblowing), fearing personal or professional repercussions. This can create moral distress, uncertainty, and division within teams or organizations.

Core Elements of Ethical Character

The traits and attributes that help people make morally right decisions and behave in a way that is consistent with ethical standards are referred to as ethical character. It is the cornerstone of moral conduct and entails cultivating a few essential qualities that enable people to handle challenging circumstances with honesty, accountability, and consideration for others.

A. Managers’ Values

• Managers are one of the keys to whether a company and its employees will act ethically or unethically.
• Managers being major decision-makers, have more opportunities than others to create an ethical tone for their company.
• Values held by managers, especially top-level managers, serve as models for others who work in any organization.
• If managers keep values like caring, contribution, honesty, justice, and responsibility category, they generally do not engage in unethical business practices.

B. Virtue Ethics

• It focuses on character traits that a good person should possess and that these values will direct the person toward good behavior.
• Virtue ethics is based on a way of being and on valuable characteristics rather than on rules for correct behavior. It deals with a wider vision like a good life, a proper family, social values, etc.
• Aristotle argued, “Moral virtue is a mean between two vices, one of excess and the other of deficiency, and it aims at hitting the mean in feelings, desires, and action.”
• Moral values acknowledged by Aristotle include courage, temperance, justice, and prudence.

C. Personal Character, Spirituality, and Moral
Development

• Personal character is one of the keys to higher ethical standards in business.
• People of integrity produce organizations with integrity better; when they do, they become moral managers.
• There is a close connection between ethical leadership and a person’s belief system or values.

Personal Spirituality

• Personal spirituality, that is, a personal belief in a supreme being, religious organization, or the power on nature or some other external, life-guiding force, has always been a part of the human makeup Recently, efforts appear to be on the rise to integrate people’s work with their spirituality
• Most companies use chaplains on an outsourced basis from secular employee-assistance programs or from chaplaincy providers such as Marketplace Ministries (a nonprofit concern that provides about 1,000 Protestant chaplains to more than 240 companies nationwide)
• Research conducted by the McKinsey & Company’s Australia office reported that when companies engaged in spiritual techniques for their employees, productivity improved and turnover was reduced.
• Employees who worked for organizations they considered to be spiritual were less fearful on the job, less likely to compromise their values and act unethically, and more able to become committed to their work.
• There is also another school of thought that believe that business is business, and spirituality is best left to churches, synagogues, mosques, and meditation rooms, not corporate boardrooms or shop floors.

Managers’ Moral Development

• Taken together, personal values, character, and spirituality exert a powerful influence on the way ethical work issues are treated.
• People have different personal histories and have developed their values, character, and spirituality in different ways, they are going to think differently about ethical problems. This is as true of corporate managers as it is of other people.
• In other words, the managers in a company are likely to be at various stages of moral development. Some will reason at a high level, others at a lower level.

Making Ethics Work in Organizations

Establishing an atmosphere that promotes, rewards, and reinforces ethical behavior is essential to making ethics function in businesses. This calls for an all-encompassing approach that incorporates ethics into the organization’s fundamental functions, choices, and culture. In addition to shielding the company from legal and reputational threats, ethical business practices promote long-term success, loyalty, and trust.

• Any business firms that wishes to do so can improve the quality of its ethical performance
• Doing so requires a company to build ethical safeguards into everyday routines
• Managers must acknowledge their role in shaping organizational ethics and grab this opportunity to create climate that can strengthen the relationships and reputations on which their companies success depends.
• Executives who ignore ethics run the risk of personal and corporate accountability in today’s increasingly tough legal environment.

Top Management Commitment and Involvement

• When senior level managers signal employees the they believe ethics should receive high priority in all business decisions, a giant step taken toward improving ethical performance throughout the company
• By personal example, through policy statements, and by willingness to back up words with actions, top management can get its message across
• Research has consistently shown that the “tone at the top”- the example set by top executives- is critical in fostering ethical behavior
• Whether the issue is sexual harassment, honest dealing with suppliers, or the reporting of expenses, the commitments (or lack thereof) by senior management and the employees’ immediate supervisor and their involvement in ethics as a daily influence on employee behavior are the most essential safeguards for creating an ethical workplace.

Codes of Ethics/ code of business principles

• Code of ethics behaves like constitution with general principles to guide the managerial decision making whereas the code of conduct is like regulation that outlines specific behavior’s that are required or prohibited as a condition of ongoing employment.
• The Code of Conduct Policy provides a set of principles that support a culture of strong corporate governance, sound business practices and the highest ethical conduct which is critical to business success.
• The Code of Conduct is defined by our integrity, professionalism, and behaviors. All personnel must comply with the Code. The Code applies to all business activities with all stakeholders, including suppliers, contractors, clients, shareholders, other personnel, government and the wider community.

Ethics training programmers

• Another step companies can take to build in ethical safeguards is to offer employee training.
• Training generally is offered annually and held for less than two hours on average.
• Employees need to know whom to contact for guidance when encountering gray areas.

Goals Of Successful Ethics Training Programs

• Identify key risk areas employees will face.
• Provide experience in dealing with hypothetical or disguised ethical issues within the industry through mini-cases, online challenges, DVDs, or other experiential learning opportunities.
• Let employees know wrongdoing will never be supported in the organization and employee evaluations will take their conduct in this area into consideration.
• Let employees know they are individually accountable for their behavior.
• Align employee conduct with organizational reputation and branding.
• Provide ongoing feedback to employees about how they are handling ethical
• issues.
• Allow a mechanism for employees to voice their concerns that is anonymous, but provides answers to key questions (24-hour hotlines).
• Provide a hierarchy of leadership for employees to contact when they are faced with an ethical dilemma they do not know how to resolve.

Ethics Assist Lines or Helplines

• In some companies, when employees are troubled about some ethical issue but may be reluctant to raise it with their immediate supervisor, they can place a call on the company’s ethics assist line or helpline (the new preferred term to hotline or crisis line)

Assist lines typically have three uses:

• to provide interpretations of proper ethical behavior involving conflicts of interest and the appropriateness of gift giving.
• to create an avenue to make known to the proper authorities allegations of unethical conduct
• to give employees and other corporate stakeholders a way to discover general information.

Ethics Audits

• Ethics Audit one of technique that some firms have attempted to assess the effectiveness of their ethical safeguards by documenting evidence.
• Typically, the auditor was required to note any deviations from the company’s ethics standards and bring them to the attention of the audit supervisor.
• Often the managers of each operating entity were required to file a report with the auditor on the corrective action they took to deal with any deviations from the standards that emerged in the prior year’s audit.
• Audit is a management tool t hat profiles t he policies , programs , and practices behind information and knowledge processing in a firm.
• Systematic evaluation of an organization’s ethics program and performance to determine whether it is effective.
• Regular, complete, and documented measurements of compliance with policies and procedures.
• Can be a precursor to establishing an ethics program.
• Should be the most important part of an ethics program.
• Primary purpose is to identify risks and problems in activities and plan steps to adjust/correct.

Benefits of Ethics Audit

• Detect misconduct before it becomes a major problem.
• Identify potential ethical issues and improve legal compliance.
• Improve organizational performance.
• Improve relationships with stakeholders who demand greater transparency.
• Sets goals against which to measure actual performance.
• Identify potential risks and liabilities and improve legal compliance.

Auditing Process

• Secure top management and board commitment.
• Establish an ethics audit committee.
• Define the scope of the audit.
• Review the organizational mission, goals, and values.
• Collect and analyze relevant information.
• Verify the results through an outside agent.
• Report the findings to.
• Audit committee, managers, and stakeholders.

Principle based international standards

Principle-based standards do not certify or accredit(recognize) but are designed to offer corporations guidance on accept2able and unacceptable

UN Global Compact

• 1st launched by United Nations Secretary Kofi Annan in 2000, there are around 25 active participants of UN Global Compact in Nepal including Yeti Airlines, Chaudhary group, Formation Carpets, ECCA Nepal, etc.
• UN Global Compact is a call to companies to voluntarily align their operations with ten universal principles in the areas of human rights, labor standards, the environment, and anti-corruption.
• By participating in the Global Compact businesses are expected to contribute to the fulfillments of the initiative’s two major objectives.
• to mainstream the ten principles in business activities around the world.
• to catalyze actions in support of broader UN goals (including the Millennium Development Goals)

Ten Principles of UN Global Compact

Human Rights:

• Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and
• Principle 2: Make sure that they are not complicit in human rights abuses.

Labour Standards:

• Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining.
• Principle 4: The elimination of all forms of forced and compulsory labour.
• Principle 5: The effective abolition of child labour.
• Principle 6: The elimination of discrimination in respect of.
• Principle 6: The elimination of discrimination in respect of employment and occupation.
  

Environment

• Principle 7: Businesses should support a precautionary approach to environmental challenges.
• Principle 8: undertake initiatives to promote greater environmental responsibility.
• Principle 9: encourage the development and diffusion of environmentally friendly technologies.

Anti-Corruption

Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery.

Caux Round Table

• Developed by Caux Roundtable an international group of business executives from Japan, Europe and USA who meets every year in Caux, Switzerland.
• Through an extensive and collaborative process in 1994, business leaders developed the Caux Round Table (CRT) Principles for Business to embody the aspiration of principled business leadership.
• The Caux Round Table (CRT) Principles for Responsible Business set forth ethical norms for acceptable businesses behavior.
• Events like the 2009 global financial crisis have highlighted the necessity of sound ethical practices across the business world.

Principle 1: Respect stakeholders beyond shareholders

• A responsible business acknowledges its duty to contribute value to society ; maintains its economic health and viability not just for shareholders, but also for other stakeholders; respects the interests of, and acts with honesty and fairness.

Principle 2 – Contribute to economic, social and
environmental development

• A responsible business recognizes that business cannot sustainably prosper in societies that are failing or lacking in economic development; contributes to the economic, social and environmental development of the communities.

Principle 3- Build trust by going beyond the letter of law

• A responsible business therefore adheres to the spirit and intent behind the law, as well as the letter of the law, which requires conduct that goes beyond minimum legal obligations.

PRINCIPLE 4 –RESPECT RULES AND CONVENTIONS

• A responsible business respects the local cultures and traditions in the communities in which it operates, consistent with fundamental principles of fairness and equality.
• A responsible business, everywhere it operates, respects all applicable national and international laws, regulations and conventions, while trading fairly and competitively.

PRINCIPLE 5 – SUPPORT RESPONSIBLE GLOBALISATION

• A responsible business, as a participant in the global marketplace, supports open and fair multilateral trade.
• A responsible business supports reform of domestic rules and regulations where they unreasonably hinder global commerce.

PRINCIPLE 6 – RESPECT THE ENVIRONMENT

• A responsible business protects and, where possible, improves the environment, and avoids wasteful use of resources.
• A responsible business ensures that its operations comply with best environmental management practices consistent with meeting the needs of today without compromising the needs of future generations.

Principle 7– Avoid illicit activities

• A responsible business does not participate in, or condone, corrupt practices, bribery, money laundering, or other illicit activities; does not participate in or facilitate transactions linked to or supporting terrorist activities, drug trafficking or any other illicit activity.

Organization for Economic Cooperation &Development (OECD) Guidelines for Multinational Enterprises (MNEs)

• They are recommendations providing principles and standards.
• for responsible business conduct for MNEs operating in or from countries adhered to the Declaration.
• The Guidelines are legally nonbinding. Originally, the Declaration and the Guidelines were adopted by the OECD in 1976.
• The Guidelines cover business ethics on: employment, human rights, environment, information disclosure, combating bribery, consumer interests, science and technology, competition, taxation.
• The guidelines were approved in 2002 by the governments of the 30 members of the OECD and 9 non-member countries.

Whistle Blowing

Reporting unethical, unlawful, or incorrect behavior within an organization is known as whistleblowing. An employee or insider who divulges information to reveal misconduct or infractions of laws, rules, or corporate policies is usually referred to as a whistleblower. This action is frequently taken to safeguard the organization’s integrity or the general welfare.

Types of Whistle Blowing

Internal: it is blowing the whistle inside the organization. For example designated officer, workers or bosses in the same organization. Disclosure of the improper conduct of a person within the organization.

External::-blowing the whistle to law enforcement agencies or to teams worried with the matters for example Lawyers, Mass media, law enforcement.

Effects of Whistle-Blowing

• Forced to leave organization/demotion
• Credibility ruined
• Family, health, and/or life in jeopardy
• Outrage and divisiveness of people directly or indirectly involved
• Physical or psychological isolation
• Organization experiences loss of money, restitution, productivity, and positive reputations.
• Incarceration

Impact of Ethics on Business and Society

• It is challenging to determine how to conduct business appropriately.
• Businesses wrongdoing can draw attention of public and government and any business decision might be judged as right or wrong ; ethical or unethical; legal or illegal.
• Consumers and other stakeholders (especially social advocates) believe and expect that businesses make profits and consider social implications.
• Ethics affect decision-making and, ultimately, institutional culture. By creating a value-based culture within the organization, positive influences that perpetuate outside the organization can improve society.
• Many people use the terms social responsibility and ethics interchangeably, they do not mean the same thing. (Business ethics relates to an individual’s or a work group’s decisions that society evaluates as right or wrong, whereas social responsibility is a broader concept that concerns the impact of the entire business’s activities on society).
• The most basic ethical and social responsibility concerns have been codified as laws and regulations that encourage businesses to conform to society’s standards, values, and attitudes.
• It is important to understand that business ethics goes beyond legal issues.
• Ethical conduct builds trust among individuals and in business relationships, which validates and promotes confidence in business relationships.
• Establishing trust and confidence is much more difficult in organizations that have established reputations for acting unethically.

Frequently Asked Questions (FAQs)

Business and its Stakeholders