Business Ethics
Ethics
– Ethics is a social science which deals with the concepts such as right and wrong, moral
and immoral, good and bad based on the standards that have been developed by the
society.
– It concerns an individual’s moral judgement about right and wrong.
– Ethics forms the bedrock for the moral guidelines which govern the behaviour of an
individual or business entity.
– It should be noted that ethics is not a universal phenomenon, what is ethical in one
society may be unethical in another society.
– The reader should realise that ethics are moral standards developed and cherished by a
particular society and may vary from one society to another.
– Good ethics is good for a business as every business entity needs to hook in an audience
to be successful.
Business ethics
– Business ethics is concerned with what is right and what is wrong in business behaviour
and conduct judging on the basis of expected standard of behaviour as approved by the
society.
– Business ethics is a system of moral principles and values applied to business activities.
– Business ethics can also be viewed as an art/science of maintaining harmonious
relationship with society, its various groups and institutions as well as reorganising for
right or wrong of business conduct.
– This means that the business activities should be conducted according to ethics or moral
standards which have been weaved and approved by the same society.
– An ethical business considers the wider needs of its employees, consumers and the entire
community it serves.
– Decisions taken within an organisation may be made by individuals or groups, but
whoever makes them will be influenced by the culture of the company.
– Ethical behaviour and corporate social responsibility can bring significant benefits to a
business
– The Corporate Social Responsibility (CSR) of a business is to use its resources and
engage in activities designed to increase its profits; so long as it engages in open and free
competition without deception and fraud.
– All businesses have a duty and an obligation to consider the effects of their activities on
society as a whole.
– The key priority of a business is to make profit for its shareholders, however, a business
must monitor and ensure it complies not only with the law but with the ethical standards
as well to enhance its credibility
– More importantly, respect and compliance of a business to business ethics allows it to
maintain its continued existence in business.
– Ethical businesses
• Do not cheat
• Do not steal
• Do not bribe
– Ethical businesses respect consumer rights
Reasons why consumers need protection from unscrupulous and unethical businesses
– Prices might be fixed artificially high either by one firm or by a group of firms acting
together.
– Misleading price reductions might be offered
– Customers might not receive the correct weight or quantity of goods
– Advertisements might make false claims for goods
– Inferior and even dangerous ingredients and components might be used in production to
keep costs down
Corporate Social Responsibility
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CSR is about how companies manage the business processes to produce an overall
positive impact on society
It is a company’s commitment to manage the social, environmental and economic effects
of its operations responsibly and in line with public expectations.
It is part of a company’s approach to corporate governance and often touches every part
of the business – operations, human resources, manufacturing, supply chain, health and
safety, and more.
It refers to the need for businesses to be good corporate citizens.
CSR involves going beyond the law’s requirements in protecting the environment and
contributing to social welfare.
CSR is widely accepted as an obligation of modern business.
More so, ethical CSR assures customers that their interests are part of the company’s
values.
CSR activities may include:
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Company policies that insist on working with partners who follow ethical
business practices
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Reinvesting profits in health and safety or environmental programs
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Supporting charitable organizations in the communities where a company
operates, for example, giving scholarships to the disadvantaged learners
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Promoting equal opportunities for men and women at the executive level
– Some aspects of CSR may be required by law, for example, banks and hospitals are
legally required to protect people’s private information.
– Other aspects are voluntary, for example, the businesses giving back to the communities
they serve.
– The benefits of CSR are many and these include companies
• establishing good reputations,
• attracting positive attention,
• save money through operational efficiency,
• minimize environmental impacts,
• attract top talent and inspire innovation.
– Public companies often report on their CSR performance in their annual reports.
– CSR matters for companies because if the community does not approve of how they do
business, they may lose customers or see their reputations suffer.
– The news media and activist groups often watch companies closely and are quick to
publicize instances of irresponsible behaviour.
Corporate responsibility types a business can practice include
– Environmental efforts: One primary focus of corporate social responsibility is the
environment. Businesses, regardless of size, have large carbon footprints. Any steps they
can take to reduce those footprints are considered good for both the company and society.
– Philanthropy: Businesses can practice social responsibility by donating money, products
or services to social causes and non-profits. Larger companies tend to have a lot of
resources that can benefit charities and local community programs. It is best to consult
with these organizations about their specific needs before donating.
– Ethical labour practices: By treating employees fairly and ethically, companies can
demonstrate their social responsibility.
– Volunteering: Attending volunteer events says a lot about a company's sincerity. By
doing good deeds without expecting anything in return, companies can express their
concern for specific issues and commitment to certain organizations.
Business ethical considerations
– Obey the law
• Every business should conduct its activities within the confines of the law,
otherwise it may suffer financially paying off penalties, and worse, being forced
to close shop by the government.
• Avoid quid pro quo transactions
• Quid pro quo means something for something
• Refrain from bribes and excessive gifts that sway judgement
• Comply with anti-trust laws – these relate to controlling prices unfairly (pricefixing), restraints, price discrimination and monopolistic practices.
• Price discrimination is the action of selling the same product or service at
different prices to different customers, in different market segments in order to
maximize sales and profits
• Antitrust laws are statutes developed to protect consumers from rapacious and
predatory business practices by making it illegal for businesses to compete in
unfair ways in an open-market economy.
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Antitrust laws (competition laws) are statutes developed to protect consumers
from predatory business practices by ensuring that fair competition exists in an
open-market economy.
– Employees should be loyal to the company
• Employees should be loyal to the organisation, behave ethically and abide by the
policies of the organisation which include code of conduct and security policy.
• This allows the employees to make ethical decisions and help propel the
organisation to remain competitive on the market.
• The decision to behave ethically is a moral one, employees must decide what they
think is the right course of action.
• This may involve rejecting the route that would lead to the biggest short-term
profit
• Ethical business top management avoids quid pro quo harassment especially
sexual harassment even if the opportunity seems to avail itself
– Treat investors, employees and other business entities honestly and fairly
• Companies perceived by their employees as having a high level of honesty and
integrity are more profitable than firms with a low level of honesty and integrity
• Ethics contributes to investor loyalty
• Ethical business climates in organisations provide platform for efficiency,
productivity and profitability
• Honest and fair treatment of employees contribute to their gratification,
contentment and commitment to the firm and this significantly reduces workforce
turnover
Importance of business ethics
– Gives credibility to the business and this boosts the firm’s reputation and image
– Quality products would be produced thereby fairly fight threat of substitutes
– Enables the business to be a good corporate citizen which can ethically survive the threat
of new entrants (fighting horizontal competition).
– Attracts customers to the firm’s products (brand loyalty), thereby boosting the sales and
profits
– Promotes employee loyalty and this help reduce labour turnover and increases
productivity
– Attracts more employees wanting to work for the business, reduce recruitment costs and
enables the business to get the highly knowledgeable/talented and skilled employees
– Attract ethical investors and keep the business’ share price high, thereby protecting the
business from takeovers or mergers
– Promotes investor confidence thereby supporting the business going concern
– The business can avoid legal problems and penalties
– promotes customer satisfaction, loyalty and confidence
– promotes/influence and contribute to employee commitment