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 individual’s 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?
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 people’s moral beliefs.
Normative ethics is the attempt to provide a general theory that tells us how we ought
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
Prof. Abdul Kadir Khan 1
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.
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.
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
doesn’t matter what those acts are; the end justifies the means. All that matters for
ethics is making the world a better place.
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 man’s actions; what
he did was good, according to the consequentialist, because he prevented the youth
from suffering injury.
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.
Prof. Abdul Kadir Khan 2
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.
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
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..
Prof. Abdul Kadir Khan 3
List of subfields of applied ethics
• Animal rights issues
• Business ethics
• Computer ethics
• Education ethics
• Medical ethics
• Military ethics (e.g.
just war theory)
• Media 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
• Legal ethics
• Marketing ethics
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.
Prof. Abdul Kadir Khan 4
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
individual’s 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
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
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: Nokia’s Code of Conduct-
Our aspiration to be the world’s 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.
Prof. Abdul Kadir Khan 5
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.,
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
Prof. Abdul Kadir Khan 6
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
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.
Prof. Abdul Kadir Khan 7
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
One ought to act in his or her own self interest
Ethical behavior is that which promotes one’s 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 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.
Prof. Abdul Kadir Khan 8
Entrepreneur and Manager – Role and Responsibilities:
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
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.
Prof. Abdul Kadir Khan 9
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
• 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 the Montessori approach to early
• 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, co-founder 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.
Prof. Abdul Kadir Khan 10
A person who manages, conducts, trains, directs, deals, supervises, organizes
and controls resources, expenditures, an organization, an institution, a team, a
What are the roles and responsibilities of a managerial position?
1. Supervise and manage the overall performance of staff in his department.
2. Analyzing, reporting, giving recommendations and developing strategies on
how to improve quality and quantity .
3. Achieve business and organization goals, visions and objectives .
4. Involved in employee selection, career development, succession planning and
periodic training .
5. Working out compensations and rewards .
6. Responsible for the growth and increase in the organizations' finances and
7. Identifying problems, creating choices and providing alternatives courses of
Responsibilities towards Stakeholders: An Overview
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
Prof. Abdul Kadir Khan 11
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
Level 3 - An understanding of broader societal issues
Today’s 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.
Prof. Abdul Kadir Khan 12
• 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
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 don’t invest in Research and Development projects because this will
increase their costs and minimize profits. Customer satisfaction in these cases is kept
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
• 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’.
Prof. Abdul Kadir Khan 13
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
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 couldn’t 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 Organization’s
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 Nestlé, 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.
Prof. Abdul Kadir Khan 14
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
“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 today’s 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 society’s interest is also important as business is the
sub-set of the society.
Companies must make profits ethically….
==========================End of Unit onE=============================
Prof. Abdul Kadir Khan 15