Level 4 Diploma In Business and Professional Administration
Unit 402 Business Ethics
The definition of business ethics is the set of moral rules that govern how businesses operate, how business decisions are made and how people are treated. In business, there any many different people you have to answer to: customers, shareholders and clients.
1.1 Explain the nature and purpose of business ethics
The Nature / characteristics of business ethics;
1. 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.
2. 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 to exploit others, etc.
3. Gives protection to social groups: Business ethics give protection to different social groups such as consumers, employees, small businessmen, government, shareholders, creditors, etc.
4. 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.
5. Voluntary: Business ethics must be voluntary. The businessmen must accept business ethics on their own. Business ethics must be like self-discipline. It must not be enforced by law.
6. Requires education and guidance: Businessmen must be given proper education and guidance before introducing business ethics. The 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.
7. 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 as good in one country may be taboo in another country.
8. 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.
The purpose of business ethics is so a company can use them as a guideline when interacting with outside stakeholders and internal stakeholders. It is a conscious effort to treat these stakeholders with respect and therefore helping to establish a positive working environment. The effects if this in a business can benefit the company financially, politically and socially.
1.2 Describe theories on ethics which apply to business practice
Egoism, Utilitarianism, human rights, Kantian ethics, social and contract
Can be best defined as a process whereby:
‘An action is morally right if the decision-maker freely decides to pursue a particular course, to meet either short-term desires or their long-term interest’
Ethical Egoism takes the position that people should do what is in their own self-interest. Ethical egoism can be broadly divided into three categories:
An individual egoist holds the view that all people should do what’s in ‘my’ best interest.
A personal egoist holds the view that they should act in their own best interest but not make a claim on how others should act.
A universal egoist holds the view that everyone should act in ways that are in their own best interest.
What makes something good or bad, or right or wrong, is that it produces the greatest amount of pleasure or least amount of pain for the greatest number of people. The best action is the one that maximises utility. The word utility is described in various ways, but it is often associated with well-being or sum of all pleasure that results from an action.
The basic idea is that you can determine whether an action is right or wrong, solely based on the outcome that it will produce. If the outcome will bring happiness to people, then it is the morally correct choice. However if the consequence of your action will bring more pain and sadness, it is morally wrong.
This theory is based on the work of philosophers such as Jeremy Bentham (1748- 1832) and John Stuart Mill (1806 – 73). The principle is also know as the ‘greatest happiness’ principle, and revolves around the basis that ‘Mankind is happiest when he maximises “pleasure” and minimises “pain” ‘
The idea of rights goes back to the British philosopher John Locke (1632 – 1714), who advanced the theory that all people were entitled to their natural rights, and thee should be respected and protected. The key rights identified by Locke and his successors were the rights to life, freedom and property. These have subsequently have been extended and cover rights such as freedom of speech, and the right to a fair legal process. They key significance for business is that rights are usually balanced by duties:
‘I can only obtain my rights if someone else has duty to preserve them’
Human Rights are the principles for all human beings that seek to ensure an essential quality of life by virtue of being a human being.
The German Philosopher Immanuel Kant (1724 – 1804) argued that morality, and decisions about right and wrong, were not dependent on a particular situation, nor on the consequences of ones actions. For Kant, moral laws should apply to all ethical problems, and these laws are eternal unchangeable. His ‘Categorical imperative’ was designed to apply to every moral issue, no matter who is involved, who profits, or who is harmed. Contrast this with the ‘utilitarian’ approach above where every instance of ‘pleasure’ and ‘pain’ had to be weight in the round.
Kants theory is an example of deontological moral theory, which argues that the right and wrong of our actions depends only on whether they fulfil our duty. For example, if murder or taking the life another is ethically wrong, then it is wrong in every circumstance. So in times of war, it would still be wrong to take a life, even though it might create a better outcome for many.
The two key questions that Kantians should ask themselves are:
1. Can I rationally will that everyone acts as I intend to act? (If the answer is no, then we should not perform the act.)
2. Does my action represent the goals of human beings, rather than my own purpose? (If the answer is no, then we should not perform the action.)
The social contract theory of ethics surrounds the establishment of a set rules agreed upon by reasonable people to bring order to social living.
So, when making an ethical decision you should ask yourself ‘what rule would reasonable, unbiased people agree to?’ You then follow such rules, regardless of whether they benefit you in particular situations.
Social contract theorists view ethics as a human creation. They judge ethical systems in terms of how well they function at promoting the interests of the contractors.
Thomas Hobbes (1588-1679) viewed the state of nature as a ‘war of all against all’ and, for Hobbes, the fundamental purpose of the social contract was to establish order and provide security. So long as a social system achieves that end, Hobbes regarded it as at least a decent bargain.
A somewhat more elaborate system of social contract ethics was developed by John Rawls (1921 – 2002). Rawls proposed that we consider what sort of ethical system or rules we would favour for a society if we knew nothing about our own particular place within that society. Essentially, this means that ethical judgments should be made from behind a ‘veil of ignorance’. He suggested that the system we would adopt from that unbiased perspective would be most fair.
(Evidence / reference from the Business ethics book provided on the day of the course in regards to the information regarding the theories¬)
1.3 Describe how governments influence ethical approaches to business
The ways in which legislations influences ethical business actions;
Discrimination and equality acts, privacy laws, personal data, intellectual property, anti corruption, health and safety and tax evasion.
Legislation is necessary to ensure that all businesses comply with their ethical responsibilities so ensure that the public does not suffer as a result of dishonest business practices. As businesses that do not engage in illegal activities would be placed at a disadvantage to those that would if not monitored.
As the government will have to ensure that Anti-Competitive behaviour does not occur in large businesses , as if a business had a majority share / monopoly in there “product” there is always a temptation for it to act in an unethical manner such as tax avoidance., which therefore could be detrimental to the public.
The government can encourage ethical behaviour by incentivizing it with tax breaks, or by imposing surcharges on certain businesses with high levels of emissions. Therefore businesses that adhere to environmentally friendly practices are rewarded by the government.
2.1 Describe contemporary national and international ethical issues affecting businesses
– Employee behaviour
– Working condition
– Supplier/ customer relations
– Human rights
– Climate change
– Working conditions
– Child labour
– Bribery to conduct business under certain regimes
2.2 Explain the impact of ethical issues on business activities