Business ethics is a form of applied ethics. In broad sense ethics in business is simply the application moral or ethical norms to business. The term ethics has its origin from the Greek word “ethos”, which means character or custom – the distinguishing character, sentiment, moral nature, or guiding beliefs of a person, group, or institution. The synonyms of ethics as per Collins Thesaurus are – conscience, moral code, morality, moral philosophy, moral values, principles, rules of conduct, standards.
SCOPE OF BUSINESS ETHICS
Ethical problems and phenomena arise across all the functional areas of companies and at all levels within the company.
Ethics in Compliance
Compliance is about obeying and adhering to rules and authority. The motivation for being compliant could be to do the right thing out of the fear of being caught rather than a desire to be abiding by the law. An ethical climate in an organization ensures that compliance with law is fuelled by a desire to abide by the laws. Organizations that value high ethics comply with the laws not only in letter but go beyond what is stipulated or expected of them.
Ethics in Finance
The ethical issues in finance that companies and employees are confronted with include:
• In accounting – window dressing, misleading financial analysis.
• Related party transactions not at arm’s length
• Insider trading, securities fraud leading to manipulation of the financial markets.
• Executive compensation.
• Bribery, kickbacks, over billing of expenses, facilitation payments.
• Fake reimbursements
Ethics in Human Resources
Human resource management (HRM) plays a decisive role in introducing and implementing ethics. Ethics should be a pivotal issue for HR specialists. The ethics of human resource management (HRM) covers those ethical issues arising around the employer-employee relationship, such as the rights and duties owed between employer and employee.
The issues of ethics faced by HRM include:
• Discrimination issues i.e. discrimination on the bases of age, gender, race, religion, disabilities, weight etc.
• Sexual harassment.
• Affirmative Action.
• Issues surrounding the representation of employees and the democratization of the workplace, trade unionization.
• Issues affecting the privacy of the employee: workplace surveillance, drug testing.
• Issues affecting the privacy of the employer: whistle-blowing.
• Issues relating to the fairness of the employment contract and the balance of power between employer and employee.
• Occupational safety and health.
Companies tend to shift economic risks onto the shoulders of their employees. The boom of performance-related pay systems and flexible employment contracts are indicators of these newly established forms of shifting risk.
Ethics in Marketing
Marketing ethics is the area of applied ethics which deals with the moral principles behind the operation and regulation of marketing. The ethical issues confronted in this area include:
• Pricing: price fixing, price discrimination, price skimming.
• Anti-competitive practices like manipulation of supply, exclusive dealing arrangements, tying arrangements etc.
• Misleading advertisements
• Content of advertisements.
• Children and marketing.
• Black markets, grey markets.
Ethics of Production
This area of business ethics deals with the duties of a company to ensure that products and production processes do not cause harm. Some of the more acute dilemmas in this area arise out of the fact that there is usually a degree of danger in any product or production process and it is difficult to define a degree of permissibility, or the degree of permissibility may depend on the changing state of preventative technologies or changing social perceptions of acceptable risk.
• Defective, addictive and inherently dangerous products and
• Ethical relations between the company and the environment include pollution, environmental ethics, and carbon emissions trading.
• Ethical problems arising out of new technologies for eg. Genetically modified food
• Product testing ethics.
The most systematic approach to fostering ethical behaviour is to build corporate cultures that link ethical standards and business practices.
ADVANTAGES OF BUSINESS ETHICS
More and more companies recognize the link between business ethics and financial performance. Companies displaying a "clear commitment to ethical conduct" consistently outperform companies that do not display ethical conduct.
1. Attracting and retaining talent
People aspire to join organizations that have high ethical values. Companies are able to attract the best talent and an ethical company that is dedicated to taking care of its employees will be rewarded with employees being equally dedicated in taking care of the organization. The ethical climate matter to the employees. Ethical
Organizations create an environment that is trustworthy, making employees willing to rely, take decisions and act on the decisions and actions of the co-employees. In such a work environment, employees can expect to be treated with respect and consideration for their colleagues and superiors. It cultivates strong teamwork and Productivity and support employee growth.
2. Investor Loyalty
Investors are concerned about ethics, social responsibility and reputation of the company in which they invest. Investors are becoming more and more aware that an ethical climate provides a foundation for efficiency, productivity and profits. Relationship with any stakeholder, including investors, based on dependability, trust and commitment results in sustained loyalty.
3. Customer satisfaction
Customer satisfaction is a vital factor in successful business strategy. Repeat purchases/orders and enduring relationship of mutual respect is essential for the success of the company. The name of a company should evoke trust and respect among customers for enduring success. This is achieved by a company that adopts ethical practices. When a company because of its belief in high ethics is perceived as such, any crisis or mishaps along the way is tolerated by the customers as a minor aberration. Such companies are also guided by their ethics to survive a critical situation. Preferred values are identified ensuring that organizational behaviours are aligned with those values. An organization with a strong ethical environment places its customers’ interests as foremost. Ethical conduct towards customers builds a strong competitive position. It promotes a strong public image.
Regulators eye companies functioning ethically as responsible citizens. The regulator need not always monitor the functioning of the ethically sound company. The company earns profits and reputational gains if it acts within the confines of business ethics. To summaries, companies that are responsive to employees’ needs have lower turnover in staff.
• Shareholders invest their money into a company and expect a certain level of return from that money in the form of dividends and/or capital growth.
• Customers pay for goods, give their loyalty and enhance a company’s reputation in return for goods or services that meet their needs.
• Employees provide their time, skills and energy in return for salary, bonus, career progression, and learning.
In making ethics work in an organization it is important that there is synergy between vision statement, mission statement, core values, general business principles and code of ethics. A commitment by corporate management to follow an ethical code of conduct confers a variety of benefits. An effective ethics program requires continual reinforcement of strong values. Organizations are challenged with how to make its employees live and imbibe the organization codes and values. To ensure the right ethical climate, a right combination of spirit and structure is required.
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