1 Introduction to Business Ethics
• As the public and the media grow more wary and suspicious of the motives of companies,
large and small, it is becoming ever more critical for companies to become more ethical.
What is Business Ethics?
• Ethics refer to society’s perception of what is right or wrong.
• Similar to individual ethics, people may have different perceptions of what is considered
ethical or not in business.
How Prevalent Are Unethical Behaviors Worldwide?
• There are many organizations undertaking business ethics surveys worldwide. Most
societies want their companies to behave ethically and there is an understandable focus
on assessing the degree of ethicality in societies.
• Unethical behaviors are prevalent in all societies. TI also broke down the results of the
survey by sector. Results show that the incidence of bribery is much higher in industries
such as public works and construction, oil and gas, mining, real estate, pharmaceuticals
and medical care. In contrast, industries such as fisheries, agriculture, information
technology, and light manufacturing had the lowest likelihood of bribery.
o Examples of occupational fraud include such activities such as skimming (cash is
stolen from the company before the cash is recorded), billing (submission of
fictitious invoices to the company), expense reimbursement (submission of
fictitious business expenses for reimbursement) and payroll (false claims for
compensation).
What are the Benefits of being Ethical?
• At a fundamental level, an organization can only exist if it has the ability to build and
sustain competitive advantage to make profits. Without profits, a company will
• Having strong corporate social responsibility programs has positive effects on many
performance aspects such as
1. firm financial performance,
2. firm market value,
3. stock market value,
4. stock market returns, and
5. perceived future financial performance.
• Furthermore, the process of rebuilding reputation can take years. It is therefore critical for
any company to be ethical to enhance its reputation and minimize the risk of damaging
such reputation.
• How do good ethics benefit a company?
o An examination of the processes suggests that good ethics benefit the
organization through employees, customers, suppliers, and investors among
others.
• The codes of ethics affect the corporate culture of the organization to reflect these new
values. In turn, such values should deter unethical behavior and provide operational
advantages through new partnerships with key stakeholders. Such processes can also
result in competitive advantage ultimately benefiting the company.
• In addition to direct benefits to companies, business ethics can have important benefits
for employees:
o First, employees who identify with the ethics of his or her organization are more
likely to be intrinsically motivated at work.
• Companies also enjoy significant benefits as strong ethics program cultivate customer
trust and satisfaction.
Are consumers willing to pay more for more ethical products?
• One manifestation of responsible ethics is socially responsible purchasing. In such cases,
large purchasing organizations provide opportunities to suppliers that are usually under-
represented in the typical supplier chains.
• Clearly, being ethical presents many benefits to any organization. Such benefits range
from stronger financial performance to more committed employees to more loyal
customers. It is therefore in the best interest of any organization to behave ethically.
Approaches to Business Ethics
• In contrast, the stakeholder theory of the modern corporation argues that companies
need to go beyond satisfying the needs of shareholders only.
• This theory is based on a few arguments:
o Although any company should operate in the interests of stockholders, the
company has to also operate within the boundaries imposed by the legal system.