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Business Ethics BAF NOTES

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Business Ethics Business Ethics is a topic which is receiving a lot of attention in the literature. However, the term business ethics is not adequately defined. Typical definition refers to the rightness or wrongness of behavior, but not everyone agrees on what is morally right or wrong, good or bad, ethical or unethical. Ethics and Business: Morality: are the standards that an individual or group has about what is right or wrong, or good and evil. Ethics: are the principles of conduct governing
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  Business Ethics Business Ethics is a topic which is receiving a lot of attention in the literature. However, the term business ethics is not adequately defined. Typical definition refers to the rightness or wrongness of  behavior, but not everyone agrees on what is morally right or wrong, good or bad, ethical or unethical. Ethics and Business:  Morality: are the standards that an individual or group has about what is right or wrong, or good andevil.  Ethics: are the principles of conduct governing an individual or a group. It is the study of morality.  Ethics is the study of moral standards – the process of examining the moral standards of a person of society to determine whether these standards are reasonable or unreasonable in order to apply them toconcrete situations and issues. The ultimate aim of ethics is to develop a body of moral standards – which have been thought over carefully and which we can apply to the various choices in our lives.  Business Ethics concentrates on the moral standards as they apply to business policies, institutionsand behavior. Business ethics, in other words, is a form of applied ethics. It includes not only theanalysis of moral norms and moral values, but also attempts to apply the conclusions of this analysis to business.The study of ethics per se is an ancient tradition rooted in the religious, cultural and philosophical beliefs. But the study of business ethics is of recent interest. Within the last decade, business ethics has become a topic of popular discussion by everyone, be it business executives, employees, shareholders,consumers and all college professors.The purpose of ethics is not to make students model corporate citizens, rather the intention is to makestudents aware of the ethical implications of business decisions. Business Ethics defined: The term ethics has many nuances. It has been defined as ‘inquiry into the nature and grounds of morality where the term morality is taken to mean moral judgements, standards and rules of conduct.Ethics has also been called the study and philosophy of human conduct, with an emphasis ondetermining what is right and wrong. One difference between an ordinary decision and an ethical onelies in ‘the point where the accepted rules no longer serve, and the decision maker is faced with theresponsibility for weighing values and reaching a judgement in a situation which is not quite the sameas any he or she has faced before. Another difference relates to the amount of emphasis decisionmakers place on their own values and accepted practices within their company. So values and judgements play a critical role when we make ethical decisions.Building on these definitions, lets develop a concept of business ethics. Some aspects must beconsidered when applying ethics to business.1.First to survive businesses must earn a profit. If profits are realized through misconduct,however, the life of the organization may be shortened.  Many firms including Arthur Anderson, Enron, Sunbeam that made headlines due to wrongdoing and scandal ultimately went bankrupt or failed because of the legal and financialrepercussions of their misconduct.2.Secondly, businesses must balance their desires for profits against the needs and desires of society. Maintaining this balance often requires compromises or tradeoffs. To address theseunique aspects of the business world, society has developed rules both legal and implicit – to guide businesses in their efforts to earn profits in ways that do not harm individuals or society as a whole.Whether a specific action is right or wrong, ethical or unethical, is often determined by investors,employees, customers, interest groups, the legal system, and the community. Although thesegroups are not necessarily ‘right’ their judgements influence society’s acceptance or rejection of a business and its activities. Why study Business Ethics? Ethical misconduct has become a major concern in businesses today.Accounting fraud, insider trading of stocks and bonds, falsifying documents, deceptive advertising,defective products, bribery and employee theft are all problems cited as evidence of decliningethical standards. For example US justice department is investigating whether MetabolifeInternational made false statements to the Food and Drug Administration about side effectsassociated with its popular herbal weight loss supplement. The supplement contains ephedra whichhas been linked to adverse effects such as high blood pressure, seizures and heart attacks as well asan unsubstantiated report of 70 deaths. Studying business ethics is valuable for several reasons. Business ethics is not merely an extension of an individuals’ own personal ethics. Many people believe that if a company hires good people with strong ethical values, then it will be a ‘goodcitizen’ organization. In reality, individual’s personal values and moral philosophies are only onefactor in the ethical decision making process. Many important ethical issues do not rise very oftenin the business context, although they remain moral dilemmas in one’s own personal life. For example abortion may be a moral issue for a person, but usually not an issue in the businessorganization. Normally a business does not establish rules or policies on personal ethical issues such as use of alcohol outside the workplace. However, when a person’s values influence their performance onthe job, it is then that an individual’s ethics play a major role in the evaluation of businessdecisions.Just being a good person and having sound personal ethics may not be sufficient to enable you tohandle the ethical issues that arise in a business organization. It is important to recognize therelationship between legal and ethical decisions. Business strategy decisions involve complex anddetailed discussions. A high level of personal moral development may not prevent an individualfrom violating the law in a complicated organizational context, where even experienced lawyersdebate the exact meaning of the law.Because organizations are culturally diverse and personal values must be respected, ensuringcollective agreement on organizational ethics (i.e. codes capable of preventing misconduct) is asvital as any other effort an organization’s management may undertake.  Many people who have business experience suddenly find themselves making decisions about product quality, advertising, pricing, sales techniques, hiring practices and pollution control. Thevalues they learned from family, religion and school may not provide specific guidelines for thesecomplex business decisions. Many business ethics decisions are close calls. It takes many years of experience in a particular industry to know what is acceptable.Consider the challenge faced by Henry Kramer, CEO of Baxter International. After 53 dialysis patients died during treatment in USA, Spain and 5 other continents. The dialysis filters had beenmanufactured by Althin Medical AB, a firm that Baxter had acquired the previous year. After investigating, Kraemer took responsibility, apologized, recalled all of Althin’s dialysis filters anddecided to shut down Althin’s operations which cost Baxter $ 189 million. He later asked thecompany’s board of directors to reduce his bonus because of the deaths. He could have takendifferent decisions but he put the situation in a broader context. ‘We have this situation. Thefinancial people will assess the potential financial impact. The legal people will do the same. But atthe end of the day, if we think it’s a problem that a Baxter product was involved in the deaths of 53 people, then those other issues become pretty easy. If we don’t do the right thing, then we wont bearound to address those other issues.’Studying business ethics helps in identifying ethical issues when they arise and recognizing theapproaches available for resolving them. Business ethics enables us to learn about the ethicaldecision making process and ways to promote ethical behavior in the organization. It helps us tounderstand how to cope with conflicts between our personal values and those of the organization inwhich we work. Why business ethics is gaining importance? In the last 2 years we have witnessed the most devastating financial crisis since the GreatDepression. It appears that greed, excessive risk taking and the financial industry culture of focusing on rewards and the bottom line helped to create their own demise. The failure to focus onethical principles, values and transparency in decision making was widespread. While individualsare often held accountable for lying, cheating and deception, we now have networks of organizations that created corrupt systems that severely damaged society.The lack of business ethics has challenged our economic viability and entangled countries andcompanies around the world. Every individual has unique personal values and every organizationhas its own set of values, rules and organizational ethical culture. Business ethics must consider theorganizational culture and interdependent relationships between individual and other significant persons involved in organizational decision making. Without effective guidance, a business personcannot make ethical decisions while facing a short term orientation, feeling organizational pressureand rewards based on outcomes, and the challenges and changes caused by the competitive as wellas the external environment.Employees cannot make the best, most ethical decisions in a vacuum devoid of the influence of organizational codes, policies and culture. Most employees and all managers are responsible notonly for their own ethical conduct but for the conduct of co – workers and those who theysupervise. Employees must know how to recognize and when to report and address ethical issues inthe workplace.The past decade has reinforced that Business ethics is not a ‘fad’ but a prevailing set of risks thatorganizations face on an ongoing basis. By focusing on the concerns and issues of today’s  challenging business environment, we will realize that the study of business ethics is imperative tothe long term well being of not only business, but our economic system.Business ethics in organizations requires values based leadership from top management and purposeful actions that include planning and implementation of standards of appropriate conduct,as well as openness and continuous efforts to improve the organizations’ ethical performance.Although personal values are important in ethical decision making, they are just one of thecomponents that guide the decisions, actions and policies of the organizations. The burden of ethical behavior relates to the organization’s values and traditions, and not just to the individualswho make the decisions and carry them out. A firm’s ability to plan and implement ethical businessstandards depends in part on structuring resources and activities to achieve ethical objectives in aneffective and efficient manner. Reasons for unethical behavior 1.Unethical behavior that is not illegal frequently falls in a grey area between right and wrongthat makes it difficult to decide what to do when it is encountered.2.Different people have different views regarding what is ethical and what is unethical.3.Pressure from the board / management to meet unrealistic business objectives anddeadlines.4.Desire to further one’s career.5.Protect one’s livelihood.6.Working in an environment with cynicism or diminished morale, improper training about or ignorance that acts are unethical and lack of consequences when caught can cause unethical behavior. Creating an Ethical Organizational culture: The content and strength of a culture influences an organizations’ ethical climate and the ethical behavior of its members.An organizational culture most likely to shape high ethical standards is one that is high in risk tolerance, low to moderate in aggressiveness, and focuses on means as well as outcomes. Managersin such a culture are supported for taking risks and innovating, are discouraged from engaging inunbridled competition and will pay attention to how goals are achieved as well as to what goals areachieved.If the organization culture is strong and supports high ethical standards, it should have a very powerful and positive influence on employee behavior.For eg. Johnson and Johnson has a strong culture that has long stressed on corporate obligations tocustomers, employees, the community, the shareholders. When poisoned Tylenol (a Johnson andJohnson product) was found on store shelves, employees at Johnson and Johnson across U.S.A.independently pulled the product from these stores before management had even issued a statementconcerning the tamperings. No one had to tell these individuals what was morally right; they knewwhat J & J would expect them to do. Techniques used by the management can be:
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