Why business ethics are important?

Introduction

The word 'ethics' generally refers to moral judgment about what is right and wrong conduct. In the context of business developments, ethics are decided upon and formed by each company. The thinking of employees also plays an important role as an individual's action within the company affects the entire company. Business ethics can be considered as a system of moral principles dealing with right and wrong actions.

The main objective of ethics is to set the highest standard of goodness in human beings. In achieving so, ethics has to deal with several inter-related and complex problems, which can be political, psychological, philosophical, legal, commercial, and sociological in nature.

Business ethics is not a mere word used for enhancing the image of a corporation but also the foundation for the success of any company. Recently, there has been an increasing awareness and interest in business ethics due to the present stage of globalization.

However, an ongoing conflict always arises between ethics and the maximization of profits. In the past era, it was considered that the main purpose of business is to maximize profits for its owners or shareholders, and such activities should be encouraged, which increases profit by any means for the survival of companies. At the same time, it's a known fact that customers always have the interest to pay low prices for any goods or services.

Therefore, many questions are being raised about the importance of ethics in business developments. This paper is an attempt to explain the role of ethics in business developments.

Meaning of Business Ethics

The word ethics is extracted from the greek word 'Ethos,' which means- a person's elementary inclination towards life. It can also be defined as the science of the individual character expressed right or wrong. It can also be defined as the science of the individual character expressed right or wrong. Garret states that 'The science of concluding precisely human ends and the relationship of means to those ends is known as ethics. In some way, it is also the art of managing means so that they will serve specifically human ends".

We can say business ethics is introduction of ethics in business. According to Shaw and Barry, "business" means 'any organization whose aim is to provide goods or services for profit.'

Business ethics can be regarded as the study of business activities, decisions, and situations where issues of right and wrong are considered. It can also be considered the relationship between business firms and consumers or between business firms and their employees.

Business ethics is also determined as a form of applied ethics or executive ethics that inspects ethical principles and ethical problems that arise in a business environment. It is relevant to the conduct of individuals or entire organizations and applies to all aspects of business conduct.

In 1994, business ethics has been claimed as an oxymoron by J.Collins. The word oxymoron refers to bringing together two apparently opposite concepts such as 'a deafening silence'.  Suggesting business ethics as oxymoron concludes that business can be both ethical and unethical.

View of Classical Economists on 'Business Ethics' in past

In the past era, classical economists considered that the main aim of business is profit maximization and ethics has nothing to do with business. While in the medieval and pre-medieval periods, the moral functioning of business and making moral declarations like- all business must remain closed on Sunday, the holy day, etc., we're regulated by the church itself.

The two extreme views are known as the Unitarian view and the Separatist view. 

According to the Unitarian view, business and morality can't be separated, whereas business must work by the community's rules of morality and ethics. The view was encouraged by the churches in European countries.

Dramatically, opposite to the Unitarian view, classical economists like Adam Smith and Milton Friedman supported the Separatist view and considered that profit maximization is the only goal of business and ethics, or morality doesn't play any role in business conducts.

A well-known psychologist, Theodore Levitt, believed that allowing ethics and morality to enter the business realm will cause danger of business values ultimately dominating over social values.

Apart from above two views, integration view was founded by Talcott Parsons.This view states that business is an economic entity with the right and needs to make profits. Still, it must also discharge its obligation to the society where it exists and operates. This view supports that society consists of several subsystems, and business and morality are just two of these subsystems.

Potential Benefit of Implementation of Business Ethics

Business development is long-term value creation for an organization. To develop business it is essential to take care of its business ethics. The media had kept a consistent spotlight on corporate abuses and malpractices. In contrast, consumers and pressure groups have demanded that firms seek out additional ethical and ecological ways of doing business. Business ethics is not just about the dissimilarity between correct and incorrect it is the genuine implementation of that knowledge to the business. 

Any business firm which acts ethically attracts more investors and the faith of society. This can bring invaluable success to the company. 

The business ethics survey report India- conducted by KPMG India suggests these five steps to develop an ethical corporation:-

1. An ethical officer should be appointed- preferably a retired and respected senior executive from that organization.
2. Employees should be involved in developing a mission statement along with ethics.
3. Code of conduct should be evolved and every employee should know how their company like to conduct business.
4. Upstream communication from employees should be facilitated by investing in a grievance cell or an ombudsman.
5. A personal example of ethical culture should be built in front of the company.

In modern society, business ethics play these five important roles-

• Business ethics attract investment.
• Business ethics promotes benefits to the organization.
• Business ethics adjust employees' behavior.
• Business ethics improve the public image of the company.
• Business ethics increase socio-economic development.

Business Ethics a Need Of Hour

Business in a free society requires honesty, prudence, integrity, respect for contracts, and property rights. Mainly business ethics issues revolve around the principle or virtue of honesty.

In general, business ethics are a set of guideline principles that encourage individuals to make decisions based on the company's stated beliefs and attitudes towards business practices. The infield of virtue, personal life is not different from business life. Since the business exists and operates within the society, its functioning must contribute to the welfare of society.

Social sanction of the society is an important factor for the survival of businesses in the society. In the absence of a social sanction, a business can't earn loyal customers.

Any business requires two important things-

• profit maximization
• satisfaction of stakeholder

The social dimensions of business ethics cannot be overlooked because many problems arise from the relationship between business and broad society.

Business requires to remain ethical for its own good, which can lead to the lead term survival of the business.

Apart from being economic entities, business organizations are also considered social institutions primarily due to two reasons.

• Any business organization should earn social acceptance because it exists and operates within a society.
• Business organizations must discharge social responsibilities as they exercise a definite and extensive influence on our social lifestyle.

Corporate Social Responsibility(CSR) is introduced to harmonise the business effectively in the society. The need to improve ethical behavior has become essential due to some widely publicized cases scams like- 2G spectrum scam, Commonwealth Games Scam, Telgi scam, Harshad Mehta, and Ketan Parekh stock market scam, etc. Hence, implementation of ethical behaviour is the only alternative in present time.

Conclusion

Ethics is particularly essential for the development and prosperity of a nation. We individuals are mainly responsible for the creation and destruction of a nation. To reach sustainable development in the general progress of humanity, a system of rational ethical principles in behavior and business should be set up.

The ethical behavior of any business organization can increase its sales and reputation in society.

The business goal should not be limit upto profit maximization; it should also deal ethically with customers, employees. Investors, the community, and society.

Nowadays, the public more and more expect the private sector to fulfill its ethics and obligations due to its direct and serious impact on the public interest in modern society. Thus, the expectations of customers should be fulfilled by business corporations.

In this regard, Mahatma Gandhi has rightfully said, "we are not doing a favor by serving customers. Rather, the customer is doing us a favor by allowing serving them."

Many classical economists asserts that mixing ethics with business will decrease in production and profit maximization.If we examine this point on the surface, it comes out to be true but deep down, everyone knows only ethical actions can survive for a long time.

Though unethical business-like black marketing, adulteration etc. can cause a huge profit but one day this business will come upto an end.

Right from birth, a child is taught that "honesty is the best policy" then how ethical code of conduct in business development can decrease production rate and profit maximization?

To conclude, we can say ethics are an important factor in human life and society. Business corporations are subsystems of society and thus, ethics cannot be separated from business too.

Although the enforcement of ethical codes may not be easy, such codes can increase ethical behavior in business firms.

Consistent ethical behavior and support from top management can enforce effective, ethical codes in business corporations.