Business ethics | Meaning | What & Why | Need | Principles


Application of general principles of ethics customary in a society to the areas where business operates is known as Business Ethics. That is business ethics relate to the behavior of a businessman in a business situation. They are concerned with the actions measured by ethical rules as contracted with strictly economic and financial rules.

Busieness Ethics - Meaning, Definition, need, what is ethical for businessmen
Image: Business Ethics – Meaning, Definition, need, what is ethical for businessmen

Every businessman at the inception itself must assume these obligations i.e. when he enters into the business itself. With this introduction, we shall now proceed to examine the exact meaning of business ethics and what constitutes business ethics.

Meaning and Definition of Business Ethics

In the foregoing discussion, we have seen that ethics is concerned,with moral values or acts which a man is bound to do. Business ethics, therefore, refer to the acts, which a businessman ought to do. But such a simple definition is not sufficient to satisfy intellectuals. Hence, we shall reproduce some of the definitions developed by learned scholars.

Definition of T.M. Garrett:

Business ethics is a study of the moral rightness or wrongness of the acts involved in the production, distribution and exchange of economic goods and services.

Definition of Thomas J. Adams:

Business ethics deals with the values of what is right and wrong, good and bad and moral and immoral in business relationship.

The term business relationship is used here in a broader sense. It includes relationship with its employees, consumers, competitors, Governments, and finally the society at large.

What is ethical for a businessman?

It is simply stated that a businessman should strictly adhere to the code of business ethics. But there is no comprehensive list to specify those which are ethical and which are unethical? This question poses a serious problem to the businessman acting in a particular business situation. When there are specific legal principles, no complication will arise. He should strictly follow the laws though it is unethical in his opinion.

A businessman should not try to violate the legal provisions. If he feels that the law is unfair or unjust, he should seek to change them by employing democratic devices. He should gather public opinion against such unfair legislation and persuade the Government to change or amend it.

But in the absence of well-defined law, the businessman should face a problem in deciding what is ethical or unethical because of contradictory moral values. His act may be ethical and justifiable in a given situation. But it may do harm to a few. Those affected by his acts will consider them as unethical. Thus, drawing a line between right and wrong, black and white i.e. ethical and unethical practices is not an easy matter.

Due to this ambiguity, decisions with ethical overturns have become more complex. Arriving at a compromising solution suitable to conflicting interests is not so easy to a practical manager. Hence, there is a tendency to over simplify the matters of ethical problems in business organizations.

Why Business Ethics?

Though it cannot be clearly decided as to what is ethical and unethical for all, we cannot presume that businessman need not follow the ethical standards. Ethical considerations in business are highly important to the managers as individuals. The need for ethics in business had been a matter of great concern even in the ancient times.

The businessmen must render justice to various parties – the suppliers and the customers. They should be just and honest. Truthfulness should be the basic theme of their life. They maintain a long chain of honest tradition. This being the case the relevance of ethical code and its importance in business world is all the greater today in the context of growing industrialization and influence of the business on the society.

Today business has come to stay as dominant socioeconomic political institution next only to Government. Hence, ethical questions have become a primary concern of business managers. Besides, there are also a large number of factors, which necessitate the strict adherence of ethical behavior by the business community.

Factors which necessitate ethical behavior in business

1. Ours is an industrial society and its values tend to become those of the entire culture.

2. There is a growing awareness among the public. The society insists the business leaders to shoulder the responsibility for maintaining their welfare.

3. If an organization fails to live upon the expectations of the society, it will lose its market share, its prestige and reputation.

4. Unethical practices shall lead to Government control ultimately through legislation. Hence, prevention is better than cure.

Thus, not even for the society’s sake, but at least for his sake, the businessman, should adhere strictly to the ethical norms and the code of conduct.

Need for Business ethics

It is necessary to observe business ethics for the following reasons:

Need for business ethics
Image: Need for business ethics

1. Survival of the Business Unit

Unethical practices of businessmen will lead to the closure of business unit. The closure of a business unit does not only create problems to business but also to employees and the society in general. Businessmen do not maximize the profit at the cost of existence of a business unit.

The behavior of a businessman is affected by some of the factors such as leadership qualities, integrity, knowledge, skills, influence and exercising power. Businessmen should protect their units in all respects.

2. Growth of Business Unit

Business ethics ensure the growth of a business. Whenever a businessman observes ethics strictly, definitely the particular business unit will get developed. A business could not be run in such a manner, which is detrimental to the interest of society or business itself. So there should be some business ethics for the growth of a business.

3. Earning Goodwill

If business ethics are properly followed by a business, automatically that particular business unit earns a good name among the public.

4. Improving the Confidence

Business ethics are necessary to improve the confidence of the customers, employees and the like. If confidence is infused, customers and employees will popularize the name of the particular business unit.

5. Maintaining Inter-relationship

No business functions independently. Each business has close relationship with another business even though the nature and size of the other business differs. It is expected that each business unit should have a smooth relationship with others. The inter-relationship of business is maintained by adopting business ethics.

6. Solving Social Problems

If a businessman observes ethics in his business, the public will not have any difficulty in getting their wants fulfilled. There is no bargaining between the businessman and public. There is a fair treatment of an employee by him. This will avoid social problems like strike, lockout etc.

30 Important principles of Business Ethics

30 Important Principles of Business Ethics

Some of the basic and important principles of business ethics are as follows:

30 Basic principles of business ethics
Image: 30 Basic principles of business ethics

1. Service motive should be preferred rather than profit motive.

2. There should not be any discrimination as to the rich, the poor, the high, the low, the caste, the religion etc. against any particular group of people.

3. Maximum satisfaction should be available to consumers.

4. Enough consideration should be given for clean environment.

5. Human feelings should be given importance.

6. Scarce resources should not be wasted.

7. Business must be a dynamic one.

8. It should provide quality products at reasonable price.

9. It must assist in raising the standard of living.

10. Competition should be healthy.

11. There should be job security to employees.

12. Businessman must pay fair wages.

13. Better working conditions should be provided.

14. Efficient employees should be properly motivated and recognized.

15. Employees should be allowed to participate in management.

16. Monetary and non-monetary incentives must be given to employees.

17. Businessman must pay taxes and fulfill other obligations promptly.

18. It must avoid unfair trade practices such as hoarding, black-marketing etc.

19. Businessman should not form cartel agreements to control production, price etc.

20. He must disclose all relevant information to those persons who require the same.

21. He must prepare genuine books of accounts and present before all authorized persons as and when required by them.

22. He should protect the interests of its members at the time of amalgamation, absorption etc.

23. He should be ready to extend mutual co-operation and mutual help.

24. It should work for the development of the nation.

25. He should follow proper communication system at all levels.

26. He should not make promises that could not be fulfilled.

27. Its assets should not be utilized for personal use.

28. Employees should be allowed to share their opinion in the work place.

29. It should follow proper personnel policy as to promotion, transfer etc.

30. He should not involve in politics.