Meaning of Business Ethics
Business ethics refers to moral principles and social values that business should adopt in its code of conduct. These are rules that businesses must accept and follow in its day to day operations for the welfare of society and all its stakeholders. Business is termed as a social organ, and therefore it should not indulge in any activity that is harmful to the interest of all its stakeholders. It should not only focus on objectives like profit maximization, higher growth but should work for the upliftment of its surroundings also. These ethics help the business in deciding what is right and what is wrong for the business taking into account its circumstances.
Business ethics helps the business to maintain better and harmonious relations with society, customers, employees, and the concerned industry sector. Ethics adopted by the business should be followed strictly by each and every person working with the business. There should be a reward-punishment system linked with business ethics for those violating these ethics and one who properly abide by these ethics. Business ethics have an important role in raising the profitability and productivity of a business and improves its goodwill in the market.
Importance of Business Ethics
- Control Business Malpractices: Business ethics directly influence the operations of the business. It is the one which helps business in deciding what is wrong and what is right. These ethics set certain rules and principles to be followed strictly by business, and their violation leads to a penalty. Implementation of these principles ensures that business does not indulge in any unfair practices like black marketing, providing misleading advertisement, frauds in measures and weight, adulteration, etc. Through business, ethics works on providing better products to its customers at reasonable prices.
- Better Relation with Employees: Employees are an important part of the business and necessary for the survival of the business. Business ethics ensures that business works for the welfare of its employees working with it. The business should not only work for the achievement of its objectives like profit maximization and higher growth but should also focus on peoples working with it. These ethics ensures that business provides better monetary compensation and good working conditions to its employees, active participation in decision making, addressing complaints, and providing promotions as per their progress. This helps in maintaining a good relationship with employees.
- Improves Customer Satisfaction: The consumer is termed as king in the market and is the one who decides the success or failure of every business. It is important that the business fulfills the needs of its customers. Business ethics provides principles for business operations under which it is required to provide better quality products at reasonable prices. It ensures that the business provides better customer support and redressal of all complaints. This helps businesses in improving the satisfaction levels of its customers.
- Increase Profitability: Business ethics improve the productivity and profitability of every business. It sets certain rules to be followed by every person working with the business. Every employee is required to adhere to these rules and should focus on its duties with sincerity. These ethics ensure that there is no wastage of resources, and every resource is efficiently utilized. This eventually leads to an increase in business profit in the long run.
- Improves Business Goodwill: Business goodwill has an important effect on capturing the market. Better goodwill businesses are able to attract more and more customers. By implementing ethics in its operations business aims at providing better service to the market. Businesses that work ethically operate at the low-profit base and with honesty. This develops a better image in front of the public and is easily accepted by customers with fewer efforts.
- Better Decision Making: Ethics in business helps them in making better decisions timely. It provides certain rules and guidelines that every business needs to follow in its operations. Every decision is taken in light of the moral principles and social values provide through these ethics. It helps businesses in deciding what is right and what is wrong. Every person working within the business is required to respect these ethics, violation of which would lead to the penalty.
- Protection of Society: Society is very important for the success of every business. If a business does not consider the interests of its society, then it will harm its survival. Business ethics direct that business should work for the welfare of its society and take part in various infrastructural development programs.
It ensures that business contributes actively to its corporate social responsibility. A business should not perform any activity that creates a problem for the society in which business exists.
Types of Business Ethics
- Personal Responsibilities: Personal responsibilities refer to the personal code of ethics of an individual which he follows firmly in his daily activities. Such ethics are: always behaving honestly, respecting elders, performing accepted duties properly and timely, promptly settling all dues, not indulging into criminal activities etc.
- Official Responsibilities: These are the responsibilities which comes with the position that a person occupies. Every official position has certain rules and regulation that are meant to be strictly followed in all situations. An individual holding such a position should follow all standards and norms set for that particular official position.
- Corporate Responsibilities: Corporation is an artificial person which is treated as a separate legal entity. They have their own moral responsibilities towards the society that is distinct from personal moral ethics of managers running them. Such responsibilities are both internal and external which assists in deciding matters related to employees, shareholders, customers, creditors, society and government.
- Economic Responsibilities: These ethics are one which guides actions of an individual which are of economic nature. Economic responsibilities consist of moral values which directs toward the usage of resources. Every business should make efficient use of all resources and try to enhance the profitability without involving in any fraud. They should avoid any kind of wastage and contribute towards the welfare of society.
- Legal Responsibility: Legal responsibilities provides a framework within which a business should operate. It shall abide by all the rules and regulations imposed by legal authority. All unethical activities should be avoided as they are treated as illegal in eyes of law.
- Personal loyalties: It means the loyalties that superiors have towards thier subordinates and loyalty that subordinates have towards their superiors. If a superior act honestly and treats its subordinates fairly, then the subordinates will not face any problem. Similarly, the subordinates having strong personal loyalty for their superior will turn blind eyes towards the blunders of their superior.
- Organizational loyalties: This involves the loyalty of employees towards their organization. Some employees develop a deep sense of loyalty out of love and affection for the organization. Such loyalties are so strong that they even do not hesitate from neglecting their personal interest for the sake of organization. They work efficiently toward the achievement of organizational goals.
- Technical morality: Technical morality is related to state of technology implied by enterprise for production of its goods or services. Every professional person having technical morality shall not compromise with quality of goods. They should properly adhere to all the ethical standards provided by competent bodies. Organizations focusing on technological advancement are able to attain better efficiency and create more challenging situation for competitors.
Functions of Business Ethics
- Protect consumer rights: Business ethics ensures that customers are treated fairly and provided with their full rights. Organizations that implement ethics operates economically and provide better quality goods at lower cost. They serve customers at a reasonable profit without exploiting them. Customers are fully satisfied with services that makes them loyal to such businesses for a long term.
- Enhance relations with society: Relationship with society is must for survival of every business organization. Ethics directs business to consider the interest of society and work for their welfare. It should not focus only on its growth at the cost of exploitation of society. Business should actively participate in corporate social responsibility and should contribute towards infrastructural development programmes for its society.
- Safeguard interest of industry: Business ethics protects the small scale business from exploitation by large firms in an industry. It provides them full rights to operate efficiently and establish their position in market. Following of ethics in an industry ensures that all firms works fairly without the exploitation of other players in market.
- Improve business goodwill: Ethics play a key role in enhancing the overall image of business in market. It monitors all operations of business and avoids any unethical activities. Practicing of ethics maintains the legality of business thereby providing better service to customers. All unfair trade activities are controlled and quality goods are delivered. Customers are happy with the services which leads to create a positive image of company.
- Assist in decision making: Supporting in decision making of organization is an important function played by business ethics. Ethics provides rules and guidelines to be followed by business in its functioning. All decisions are taken in light of moral and social values mentioned in these ethics. It guides in deciding what is right or wrong for business organization. Every ethic need to be practiced properly and any violation will lead to penalty.