Explore Business Ethics – Meaning, Scope, Principles and Types

Explore Business Ethics – Meaning, Scope, Principles and Types

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Syed Aquib Ur
Syed Aquib Ur Rahman
Senior Executive Content
Updated on Nov 28, 2023 20:00 IST

To thrive today, no organisation can survive without business ethics. Look into the meaning, principles and types of business ethics to know why.

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Business ethics is a set of practices differentiating which values and norms are ethically right or wrong for an organisation. These practices guide how any business transaction should take place in an ethical manner in a specific context and environment. 

Generally, business ethics addresses various challenges in society, culture, law, environment, politics, ideology, etc. 

It would be incorrect to assume that business ethics is always legally enforceable and the same across all organisations. It is voluntary and can lead to penalties that an organisation can decide on when not complied with. 

What is Business Ethics?

It is important to understand the meaning of ethics before delving into the business side of ethics. 

Ethics is a branch of philosophy that concerns with moral conduct or human behaviour in society. It prescribes standards that define what is right and wrong and promotes virtues that uplift society as a whole. 

Now, business ethics is applied ethics that is also known as corporate ethics. 

According to Fraedrich and Ferrell –

“Business ethics comprises the principles, values, and standards that guide behavior in the world of business”.

The authors describe the principles in business ethics as ‘pervasive boundaries’ that are accepted universally and are the basis for the creation of rules. Values, on the other hand, are created on a social basis. 

Historically, business ethics emerged as a concept in the 1970s. It soon became an academic discipline around the 1980s. 

 

Scope of Business Ethics

Business ethics can vary from one department to another. 

Business Ethics Challenges in Human Resources Department

The HR department should set policies that address policies on discrimination. It should cover issues such as whistleblowing, democratisation, safety and health, employee privacy, etc. 

Also explore What is Human Resources?

Business Ethics Challenges in Finance Department

Insider trading, incorrect analysis of finances, fake reimbursements, bribes, etc., are among the most common issues to address as far as business ethics in the finance department is concerned. 

Also explore What is Finance?

Business Ethics Challenges in Marketing Department

Creating ads that mislead the audience, black-hat SEO, price skimming, etc., are some common ethical concerns when it comes to marketing. 

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Principles of Business Ethics

  • Being Accountable – An organisation should be committed to upholding ethical standards that benefit society and employees at every level. 
  • Being Trustworthy – An organisation should promote trust 
  • Being Respectful – It is necessary to respect others’ opinions and to promote that thought in an organisation
  • Being Transparent – While it is unethical to share trade secret, but the company market shares, recruitment practices, etc., should be accessible to all. 
  • Being Fair -Every employee must be treated fairly and each one of them should get the same opportunity to grow in the organisation and their careers.
  • Being Concerned for Environment – Climate change, wastage of resources, etc., are affecting the environment to a great degree. These should be an ethical concern for businesses. Coca-Cola, for example, states that it has goals to conserve water and ‘increase water security’. 
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Types of Business Ethics

Here are some of the most common types of business ethics. 

Corporate Social Responsibility 

CSR or corporate social responsibility describes how companies try to control and measure their impact on society as a whole. 

According to United Nations Industrial Development Organization 

“CSR is generally understood as being the way through which a company achieves a balance of economic, environmental and social imperatives (“Triple-Bottom-Line-  Approach”), while at the same time addressing the expectations of shareholders and stakeholders”.

Read more on What is CSR?

Also read on Green Marketing 

Data Privacy

Google is removing third-party cookies by 2024. The reason for this is that users are not willing to share their information through cookies when they visit websites. 

As a business ethics practice, issues such as private data breach must be stopped and it should be accepted by organisations. The International Data Privacy Principles, General Data Protection Regulation, etc, are some examples. 

Workplace Fairness

This is a constantly modified practice when it comes to business ethics. Diversity, fair wages, emotional wellbeing, etc are still some issues that many small organisations do not follow till this day. 

Business Ethics Case Study of Volkswagen

The Volkswagen Emissions Scandal stands as a significant case study in business ethics. This study, primarily sourced from the International Journal of Human Resource Management and Research, outlines the company's ethical breaches, attempts to cover up, and subsequent consequences.

Where Volkswagen Went Wrong?

Initially, Volkswagen denied the presence of any emission-defeat device, but later, engineers admitted its existence, leading to a massive recall of affected cars, a sharp decline in stock prices, and an estimated revenue loss of $1.84 billion. The scandal resulted in an $18 billion penalty, eroded employee confidence, and forced the resignation of CEO Martin Winterkorn, succeeded by Porsche A.G. executive Matthias Mueller. This prompted an independent investigation and suspension of high-ranking officials, including heads of brand development, Audi, and Porsche.

The analysis of this scandal reveals two significant organisational behaviour problems: Leadership & Corporate Social Responsibility (CSR) and Organisational Culture.

Leadership & Corporate Social Responsibility (CSR): The scandal highlighted leadership flaws, indicating a failure in character rather than competence. VW's leaders lacked vital qualities such as integrity and accountability, leading to poor decision-making that jeopardised the organisation. The leaders' inability to foster open communication contributed to a dictatorial work environment. Moreover, the company's violation of environmental norms contradicted its commitment to corporate social responsibility and ethical practices.

Organisational Culture: Volkswagen's hierarchical structure fostered a closed, bureaucratic culture where employees lacked freedom of speech and had limited autonomy. The dictatorial management style stifled open dialogue and discouraged diverse perspectives, hindering open communication and contributing to the scandal. This hierarchical, mechanistic structure impeded employee creativity and problem-solving ability.

Parting Thoughts

Hope you have gotten a hang of what is business ethics. Adopting it is always beneficial for an organisation, its employees, customers and society as a whole. 

FAQs

Why is business ethics important in corporate governance?

Business ethics improves corporate governance. They guide how the members of the organisation should be accountable. By following ethical principles, an organisation improves its revenue.

What are ethical behaviours in management?

Honesty, trustworthiness, fairness, kindness, respect, and responsibility are among the most important ethical behaviours in management.

How does ethics attract investors?

Investors look for sustainability and good reputation in businesses they want to invest. To be able to highlight how the business follows ethical principles, there is a much better chance.

About the Author
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Syed Aquib Ur Rahman
Senior Executive Content

Aquib is a seasoned wordsmith, having penned countless blogs for Indian and international brands. These days, he's all about digital marketing and core management subjects - not to mention his unwavering commitment ... Read Full Bio

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