Business Ethics: Meaning, Sources and Importance

Business ethics refers to the moral principles and values the govern the behaviour of a person of group. Ethics helps us in deciding what is good or bad, moral or immoral,fair or unfair in conduct and decision-making.

Definition of Business Ethics

According to John Donaldson__“Business ethics in short can be defined as the systematic study of ethical matters pertaining to the business, industry or related activities, institutions and beliefs. Business ethics is the systematic handling of values in business and industry”.

According to Mackenzie__ “Ethics is the study of what is right or good in human conduct” or the “science of the ideal involved in human life”.

According to Webster__ “Ethics is the discipline dealing with that which is good and bad and with moral duty and obligations”.

Business Ethics

Elements of Business Ethics

1. Values: Values are the moral beliefs held by an individual, an organizational and a society. Values represents moral convictions and are relatively permanent. For example, a company may charge reasonable prices due to its value systems inspite of its monopoly position in the industry.

2. Rights: Rights are the claims of the individual or organization. For example, every citizen of India enjoys certain rights under the country’s constitution.

3. Duties: Duties are the obligations of a person or an organization. For example, every citizen has the duty to follow the country’s Law.

Sources of Business Ethic

1. Religion: Religion is the oldest source of Religion is the oldest source of ethical inspiration. Every religion gives an expression of what is wrong and right in business and other walks of life. The Principle of reciprocity towards one’s fellow beings is found in all the religions. Great religions preach the necessity for an orderly social system and emphasize upon social responsibility with an objective to contribute to the general welfare. With these fundamentals, every religion creates its own code of conduct.

2. Culture: When we talk about culture we typically refer to the pattern of development reflected in a society’s pattern of knowledge, ideology, values, laws, social norms and day to day rituals. Depending upon the pattern and stage of development, culture differs from society to society. Moreover culture is passed from generation to generation. Culture facilitates the generation of commitment to something larger than one’s individual self interest. Culture also serves as a sense making and control mechanism that guides and shapes the attitudes and behaviour of people. Managers have to run an industrial enterprise on the cutting edge of cultural experience. The tension that their actions create makes the business ethically more complex.

3. Law: The legal system of any country, guide the human behaviour in the society. Whatever, ethics the law defines are binding on the society. The society expects the business to abide by the law. Although it is expected that every business should be law abiding, seldom do the businesses adhere to the rules and regulations. Law breaking in business is common. E.g: Tax evasion, hoarding, adulteration, poor quality & high priced products, environment pollution etc.

Need and Importance of Business Ethics

1. Protection of Society: Ethics can protect the society in a better way than even the legal system of the country.

2. Ethics helps in maintaining quality: An ethical company will strive to deliver goods and services of high quality to their customers even in times when the demand is higher than supply.

3. Ethics lead to long-term gains. A company that values ethics believes in small, but long-term benefits rather than big, but short-term returns.

4. Ethics in business allows for healthy competitions. It is common to find two or more companies that offer similar services and goods. A company characterized with ethical behavior will not engage in malpractices such as spreading false information about the other company or lowering their prices. Instead, they will allow the customers to choose where they like.

5. Ethics increases business profits. The decrease in risks and costs mean that the output is likely to be higher than the input hence the company makes a profit.

6. Ethics create customer loyalty. A reputation build on good ethics helps create a positive image in the marketplace. This, in turn, makes customers trust your products and services. They also pass information to their friends and family, hence, creating more customers for you.

7. Ethics in enhances partnerships. Partnerships in the business world are very crucial. They help expand your marketplace and improve business relations. In order to get a good partner(s), your reputation must be built on a strong business ethics foundation.