Solutions to Assignments
MBA and MBA (Banking & Finance)
MMPC 03 - Business Environment
MMPC-003/TMA/JULY/2022
Question No. 2. What do you understand by business ethics? Discuss the importance of business ethics and the ethical issues involved in business.
Business ethics are a kind of applied ethics. It is the application of 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. Ethics are a set of principles or standards of human conduct that govern the
behaviour of individuals or organisations.
Ethics can be defined as the discipline dealing with moral duties and obligations, and explanation
regarding what is good or not good for others and for us. Ethics is the study of moral decisions that
are made by us in the course of performance of our duties. Ethics is the study of characteristics of
morals and it also deals with moral choices that are made in relationship with others. Business
ethics comprises the principles and standards that guide behaviour in the conduct of business.
Businesses must balance their desire to maximize profits against needs of its stakeholders.
Maintaining this balance often requires trade-offs. To address these unique aspects of businesses,
rules, articulated and implicit, are developed to guide the businesses to earn profits without
harming individuals or society as a whole.
Now, let us understand why Corporate Ethics matter to business. Ethics matter because ethical
conduct is the right conduct. However, in the absence of a time-culture, and context-neutral
definition of ‘right’, it is very difficult to develop a code of conduct on this basis alone. It
basically says that businesses avoid many risks and gain reputation by acting in an ethical
manner.
A good ethics process, operationalised in such a way that all decision making procedures and
structures support it on a day-to-day basis, will give an organisation the best chance possible for
finding out about potential problems early so that they can be dealt with before they become a
disaster. There are also market advantages to be gained from an ethical reputation.
Ways in which Ethics are Important -
Major scandals such as WorldCom, Enron, Lehman Brothers etc., in the US and Satyam in India
tell us why ethical business practices are becoming increasingly important. There are several
reasons why ethics are important to business:
- To understand reasons behind increasing influence of corporates in society.
- To ensure that no harm is done to society.
- To meet ethical expectations more effectively.
- To enable companies to identify employee and customer concerns at an early stage.
- To improve the quality of a firm’s relationships with its key stakeholders.
The government is interested in ensuring ethical business practices to ensure a basic level of integrity
in the market place. This promotes international competitiveness of the economy and improves a
country’s image concerning ease of doing business.
Even domestically, predictable levels of ethical behaviour ensures that costs of business such as
transaction costs, hedging and insurance etc., are kept to a minimum.
Unethical behaviour imposes costs on the government and taxpayers. Bad behaviour by a few
impacts on all businesses and might also have an adverse impact on the country’s international
competitiveness.
Ethics can help improve decision making by providing managers with the appropriate knowledge
and tools that allow them to correctly identify, diagnose, analyse, and provide solutions to the
ethical problems and dilemmas they are confronted with.
Ethics help in analysing the reasons behind this, and the ways in which such problems might be
dealt with by managers, and regulators in improving business ethics.
Business ethics can provide us with the ability to assess the benefits and problems associated
with different ways of managing ethics in organisations.
Business ethics also equips us with knowledge that goes beyond the traditional boundaries of
business studies.
ETHICAL ISSUES IN BUSINESS
You have understood that business has various motives. Some of the motives are: wealth motive,
profit motive, societal benefit and overall benefit of shareholders and stakeholders. The dilemma
remains between striking the balance between profits and ethics. The organisations practice
ethics as it bolsters their goodwill and reputation of being fair, honest and integral both at the
business and the corporate level thereby, fortifying their image. Organisations expect the
employees at all levels carry this legacy of identity with utmost care. Ethics provide the
framework within which the organisation makes ethical investment. Ethical investment is
followed in management of investment portfolio which consists of company shares. Profit is an
inherent motive of business. But various economic thinkers have propagated various business
motives varying from profitability, wealth, utility maximization, etc. But there are differences of
opinion too. On the one hand there is the ideology of Karl Marx, according to which it is
unethical to do business to accumulate wealth. On the other hand, Mahatma Gandhi believed in
business but preached trusteeship according to which a businessman should look after the
welfare of his employees.
Let us discuss this further with examples from various companies. In the early 1980s the Indian
automobile industry had two leading brands namely the Ambassador from HM and the FIAT.
The Japanese entered with Suzuki and Maruti became a household name. Subsequently we saw a
lot of foreign brands like the Daewoo, Hyundai, General Motors, Toyota, etc. entering the fray.
Each of these multi-national companies had their own management style and ethic orientation.
Few worked on vendor relations, Research and Development aiming at cost reduction, while
others worked on advertising and creating a robust distribution network. Within all this high
level marketing impact the Indica model from the national brand Tata was launched. Though the
model didn’t compete much with the elite MNC brands but it was able to create a significant
presence for the customers who believed in Tata’s ethical philosophy. So a low advertised
product also garnered a market share as the word of mouth from the customers spread fast
thereby creating a brand identity for Tata.
The advantages of being ethical:
1. Preferred by prospective employees and creation of quality talent pool.
2. Less number of employees leaving the organisation i.e lower attrition rate.
3. Less number of employee strike or labour unrest.
4. Corporate goodwill enables bargaining power which results in cost reduction
- increase
in production
- achieving economies of scale
- more revenue and profits
- longer
business viability.
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