Business Ethics: Definitions, Scope, Features, Importance

What is Business Ethics?

Business ethics is a form of applied ethics. In broad sense ethics in business is simply the application of moral or ethical norms to business.

Business ethics refers to a ‘code of conduct’ that businessmen must follow while dealing with others. A ‘Code of Conduct’ is a set of principles and expectations that are considered binding on any person who is a member of a particular group. The alternative names for code of conduct are ‘code of ethics’ or ‘code of practice’.

Business ethics comprises the principles and standards that guide behavior in the conduct of business. Businesses must balance their desire to maximize profits against the needs of the stakeholders. Maintaining this balance often requires tradeoffs.

Business ethics stands for the saneness or purity of purpose that is upheld through carefully designed actual practices of business enterprises. It is an embodiment of conscience concern towards the execution of business processes in tune with the nobility of the purpose.


Definition of Business Ethics

These are the definitions of business ethics by authors:

Business ethics is the study of business situations, activities, and decisions where issues of right and wrong are addressed.

Andrew Crane

The ethics of business is the ethics of responsibility. The business man must promise that he will not harm knowingly.

Raymond C. Baumhart

Scope of Business Ethics

Ethical problems and phenomena arise across all the functional areas of companies and at all levels within the company which are discussed below:

  1. Ethics in Compliance
  2. Ethics in Finance

Ethics in Compliance

Compliance is about obeying and adhering to rules and authority. The motivation for being compliant could be to do the right thing out of the fear of being caught rather than a desire to abide by the law.

An ethical climate in an organization ensures that compliance with the law is fuelled by a desire to abide by the law. Organizations that value high ethics comply with the laws not only in letters but go in what is stipulated or expected of them.

Ethics in Finance

The ethical issues in finance that companies and employees are confronted with include:

  • In accounting – window dressing, misleading financial analysis.
  • Related party transactions are not at arm’s length.
  • Insider trading, and securities fraud lead to the manipulation of the financial markets.
  • Executive compensation.
  • Bribery, kickbacks, over-billing of expenses, facilitation payments.
  • Fake reimbursements.
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Features of Business Ethics

The characteristics or features of business ethics are:

  1. Code of Conduct
  2. Based on Moral and Social Values
  3. Gives Protection to Social Groups
  4. Provides Basic Framework
  5. Voluntary
  6. Requires Education and Guidance
  7. Relative Term
  8. New Concept

Code of Conduct

Business ethics is a code of conduct. It tells what to do and what not to do for the welfare of the society. All businessmen must follow this code of conduct.

Based on Moral and Social Values

Business ethics is based on moral and social values. It contains moral and social principles (rules) for doing business. This includes self-control, consumer protection, and welfare, service to society, fair treatment to social groups, not exploiting others, etc.

Gives Protection to Social Groups

Business ethics give protection to different social groups such as consumers, employees, small businessmen, government, shareholders, creditors, etc.

Provides Basic Framework

Business ethics provide a basic framework for doing business. It gives the social cultural, economic, legal, and other limits of business. Business must be conducted within these limits.

Voluntary

Business ethics must be voluntary. Businessmen must accept business ethics on their own. Business ethics must be like self-discipline. It must not be enforced by law.

Requires Education and Guidance

Businessmen must be given proper education and guidance before introducing business ethics. Businessmen must be motivated to use business ethics. They must be informed about the advantages of using business ethics. Trade Associations and Chambers of Commerce must also play an active role in this matter.

Relative Term

Business ethics is a relative term. That is, it changes from one business to another. It also changes from one country to another. What is considered good in one country may be taboo in another country.

New Concept

Business ethics is a newer concept. It is strictly followed only in developed countries. It is not followed properly in poor and developing countries.


Importance of Business Ethics

Let’s discuss the needs or importance of business ethics:

  1. Stop Business Malpractices
  2. Improve Customers Confidence
  3. Survival of Business
  4. Safeguarding Consumers Rights
  5. Protecting Employees and Shareholders
  6. Develops Good Relations
  7. Creates Good Image
  8. Smooth Functioning
  9. Consumer Movement
  10. Consumer Satisfaction
  11. Importance of Labor
  12. Healthy Competition

Stop Business Malpractices

Some unscrupulous businessmen do business malpractices by indulging in unfair trade practices like black-marketing, artificial high pricing, adulteration, cheating in weights and measures, selling of duplicate and harmful products, hoarding, etc.

These business malpractices are harmful to the consumers. Business ethics help to stop these business malpractices.

Improve Customers Confidence

Business ethics are needed to improve the customers’ confidence in the quality, quantity, price, etc. of the products. The customers have more trust and confidence in the businessmen who follow ethical rules. They feel that such businessmen will not cheat them.

Survival of Business

Business ethics are mandatory for the survival of business. The businessmen who do not follow it will have short-term success, but they will fail in the long run. This is because they can cheat a consumer only once. After that, the consumer will not buy goods from that businessman.

He will also tell others not to buy from that businessman. So this will defame his image and provoke negative publicity. This will result in the failure of the business. Therefore, if businessmen do not follow ethical rules, they will fail in the market. So, it is always better to follow an appropriate code of conduct to survive in the market.

Safeguarding Consumers Rights

The consumer has many rights such as the right to health and safety, the right to be informed, the right to choose, the right to be heard, right to redress, etc. However many businessmen do not respect and protect these rights. Business ethics are a must to safeguard the rights of consumers.

Protecting Employees and Shareholders

Business ethics are required to protect the interests of employees, shareholders, competitors, dealers, suppliers, etc. It protects them from exploitation through unfair trade practices.

Develops Good Relations

Business ethics are important to developing good and friendly relations between business and society. This will result in a regular supply of good quality goods and services at low prices to society. It will also result in profits for the businesses thereby resulting in the growth of the economy.

Creates Good Image

Business ethics create a good image for the business and businessmen. If businessmen follow all ethical rules, then they will be fully accepted and not criticized by society. The society will always support those businessmen who follow this necessary code of conduct.

Smooth Functioning

If the business follows all the business ethics, then the employees, shareholders, consumers, dealers, and suppliers will all be happy. So they will give full cooperation to the business.

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This will result in the smooth functioning of the business. So, the business will grow, expand, and diversify easily and quickly. It will have more sales and more profits.

Consumer Movement

Business ethics are gaining importance because of the growth of the consumer movement. Today, the consumers are aware of their rights. Now they are more organized and hence cannot be cheated easily.

They take action against those businessmen who indulge in bad business practices. They boycott poor quality, harmful, high-priced, and counterfeit (duplicate) goods. Therefore, the only way to survive in business is to be honest and fair.

Consumer Satisfaction

Today, the consumer is the king of the market. Any business simply cannot survive without the consumers. Therefore, the main aim or objective of a business is consumer satisfaction.

If the consumer is not satisfied, then there will be no sales and thus no profits too. Consumers will be satisfied only if the business follows all the business ethics and hence is highly needed.

Importance of Labor

Labor, i.e. employees or workers play a very crucial role in the success of a business. Therefore, businesses must use business ethics while dealing with employees. The business must give them proper wages and salaries and provide them with better working conditions.

There must be good relations between employers and employees. The employees must also be given proper welfare facilities.

Healthy Competition

The business must use business ethics while dealing with competitors. They must have healthy competition with the competitors. They must not do cut-throat competition. Similarly, they must give equal opportunities to small-scale businesses. They must avoid monopoly.


Code of Business Ethics

These are statements of behavioral ideals, exhortations, or prohibitions common to a culture, religion, traditional profession, corporation, or trade association. Codes combine philosophy with admonitions to avoid certain illegal actions and espouse certain moral principles, especially those that elevate personal behavior.

The Ten Commandments is the most well-known code of ethics known worldwide. In addition, we have all heard of a Code of ethics in the form of a Hippocratic Oath that all Doctors are supposed to take prior to being awarded permission to practice medicine. Poor ethics can shape business productivity, so follow the Ten Commandments of Ethical Business Behavior:

  1. Be honest, truthful, forthright, candid, and sincere.
  2. Have integrity: Strive to be scrupulous.
  3. Keep your word and abide by the spirit as well as the letter of the law.
  4. Maintain fidelity: Be faithful and never disclose confidential information.
  5. Always be fair: Demonstrate a commitment to justice, with equal treatment of all.
  6. Care for others: Be kind.
  7. Respect others in every way.
  8. Be a responsible citizen. Obey just laws and protest unjust ones.
  9. Rigorously pursue excellence. Never be content with mediocrity.
  10. Always be accountable: good leaders lead by example.

FAQs Related to the Business Ethics

What is the definition of business ethics?

Business ethics is the study of business situations, activities, and decisions where issues of right and wrong are addressed. By Andrew Crane

What is the importance of business ethics?

The following are the points of importance of business ethics:
1. Stop Business Malpractices
2. Improve customer confidence
3. Survival of Business
4. Safeguarding Consumers Rights
5. Protecting Employees and Shareholders
6. Develops Good Relations
7. Creates Good Image
8. Smooth Functioning
9. Consumer Movement
10. Consumer Satisfaction.