An Analysis of the Nature, Scope, and Importance of Business Ethics

This paper provides a comprehensive overview of business ethics, defining it as the application of moral standards within a business context. It explores the nature of business ethics, emphasizing core values like honesty, fairness, and responsibility. The paper highlights the increasing importance of business ethics, illustrating how it attracts customers, retains employees, and enhances a company's reputation. It delves into the scope of business ethics, covering compliance, leadership, and employee conduct, as well as ethical issues in various functional areas like finance, human resources, and marketing. Furthermore, the paper discusses the competitive advantages of ethical practices and the significance of a well-defined code of business ethics for organizational success. The document emphasizes the need for businesses to adopt ethical practices for long-term growth and sustainability, while also reducing risks and costs associated with unethical behavior. It also touches on the ethical issues in businesses, including accounting issues, HR management, and marketing ethics.

The Nature of Business Ethics

Table of Contents
Introduction................................................................................................................................3
Definition of Business Ethics.....................................................................................................3
Nature of Business Ethics..........................................................................................................4
Importance of Business Ethics...................................................................................................5
Scope of Business Ethics...........................................................................................................7
Competitive Advantages of Business Ethics............................................................................10
Code of Business Ethics...........................................................................................................12
Conclusion................................................................................................................................12
References................................................................................................................................13

Introduction
Ethics is a philosophy that deals with values related to human conduct and in specific, the
right and wrong actions or motives and their outcomes. The ethics can also be considered as
application of moral standards by an individual based on situations arising from traditions,
values or beliefs created in the society regarding right and wrong conduct. Business ethics is
an applied ethics that examines ethical principles and issues arising in the business
environment and it is applicable in all the aspects of business conduct. In addition, it is also
associated with the conduct of individuals and business organizations on the whole. Business
ethics is also a social science, the main aim of which is to define and examine the business
responsibilities as a part of general moral environment of the related society (Investopedia,
2018). It comprises of certain sets of rules and code of conduct, which serves as a means of
protecting from possible infringements of moral codes arising due to general activities and
responsibilities of the organization towards its stakeholders, for example, generating profits
for shareholders as well as payment of taxes to the government. This paper will discuss about
the nature, scope and increasing importance of business ethics in business environment.
Definition of Business Ethics
According to Crane & Matten (2007), “Business ethics is the study of business situations,
activities, and decisions where issues of right and wrong are addressed” (Crane & Matten,
2007). Business ethics is both a normative as well as descriptive discipline, however, being a
corporate practice and career specialization, it is primarily considered as normative rather
than descriptive approach. The normative ethics comprises of development and evaluation of
moral standards. It is an attempt to understand what should be done by people and if their
moral behaviour is reasonable (Ginsberg, 2017).

Nature of Business Ethics
In ethical practice, six core values are Loyalty, Honesty, Fairness, Integrity, Responsibility
and Citizenship (Moylan & Walker, 2012). Business ethics considers an action to be
permissible or non-permissible if it is an action performed or not to be performed by an
individual characteristically under certain specific circumstances. The leaders, managers and
all the employees of businesses are considered to be as virtuous and it is also expected from
them that they will understand these principles and will be able to apply them in developing
their missions and goals as well as in their execution of tasks at workplace.
The characteristics of business ethics are;
 Business ethics is a code of conduct that explains what to do and what not to do for
the wellbeing of an organization and it should be followed by all businessmen.
 On the basis of moral or social values or principles, business ethics comprise of
self-control, consumer protection, service and fair treatment towards society,
prevention of exploitation and many more (Epstein, 2002).
 Business ethics offer basic framework for performing business and it provides for
social, cultural, economic, legal and other limitations on business, under which,
business needs to be performed.
 Business ethics must be voluntary as it is expected from businessmen to accept
business ethics intentionally and must not be enforced by law.
 Proper education and guidance must be provided to the business persons before
introducing business ethics in the business environment and, they must be motivated
to utilize business ethics in their performance by being informed about the
advantages of implementing business ethics.

 Business ethics is considered as relatively changing from one business to the other
and from one country to the other because what is considered as good in certain
business might not be that good for other business purposes.
 Business ethics is a new concept, which is strictly being followed in developed
countries as compared to under-developed and developing nations (Horton, 2019).
Importance of Business Ethics
As mentioned earlier, ethics are concerned with the moral judgments of an individual about
right and wrong but the decisions taken by individuals or groups within an organization are
influenced by the culture of the organization. The decision to behave ethically for the
business purposes is considered to be as moral and employees must take decisions regarding
what they are doing is the right course of action and is ethically correct (DeBenedetti, 2017).
In addition, it might also involve rejection to the pathway that leads to the huge short-term
profit. In this context, ethical behaviour and CSR could bring significant benefits for the
business, which include;
 Attracting customers towards the products and services of the company i.e. to boost
the sales and profits of business
 Retaining employees preferring to work for the company, reducing labour turnover
rate and increasing productivity
 Attracting potential employees preferring to work for the company, reducing
recruitment costs and enabling the company to approach highly skilled employees.
 Attracting the investors and keeping the share price of the company high and thus,
protecting the business from takeover by competitors.

Knowing that the business, in which they have invested money, has stated its morals and
promised to work in an ethical and responsible manner, enables the investors to be in a
peaceful situation that they have invested at the right place. Furthermore, to work with a
company having strong business ethics, make the employees highly comfortable regarding
protection from any kind of unethical practices in the organization (Baker, 2017). Similarly,
customers do not hesitate and keep any kind of confusions in making deals with businesses to
buy products or services from the companies, who source their raw materials and labour in an
ethical and responsible manner. Adding more to it, the companies performing within its own
ethical guidelines are at low risk of getting fined for their poor behaviour and are less likely
to be involved in breaching of various laws concerned with desired behaviour from them. The
reputation and brand name of a business is considered to be as most important asset of a
company and once lost, it is difficult to regain it without specific efforts made on the part of
the company (Pavlo, 2014). In line to it, it is essential to maintain the promises been made by
the company in order to maintain the reputation in the market. The businesses that do not
follow any kind of ethical code of conduct or practices or perform social responsibilities lead
to wider consequences. The unethical behaviour might damage the reputation of the business
and could make it less appealing to the stakeholders, which results in reduction of profit of
the company.
Business ethics also bring long-term growth for the business because sustainability comes
from ethical long-term vision, which considers all the stakeholders (Amakobe, 2016). The
small and sustainable profits for long-term are considered as better than higher but riskier and
short-lived profits. Furthermore, business ethics also reduces risks and costs related to the
business and the companies that recognize the importance of business ethics require spending
less in protecting themselves from internal as well as external behavioural risks particularly,
when supported by sound governance systems and specific research. Business ethics prevent

the resources from getting depleted specifically being utilized for individual gain at huge
costs for existing as well as future generations (Business Ethics, 2012).
Scope of Business Ethics
The ethical issues occur across all the functional areas and at all the levels of the companies.
Ethics in Compliance- Compliance refers to the obeying and adherence to the rules and
authority. It has become a duty to perform in a righteous manner, due to fear of getting
caught instead of a desire or intention to perform abiding by the law. It is ensured by the
ethical environment of the organization that compliance with law is energized by a desire to
be abiding by the laws (Mele, 2008). The organizations that value high level of ethical
consideration in their operations, comply with the laws not only in writing but they go
beyond what is expected or stipulated from them.
Ethics in Leadership- The management team sets the manner or quality for the entire
company to perform on everyday basis. When the prevalent management philosophy rely on
ethical practices and behaviour, the leaders of the organization can direct the employees by
setting their examples and provide them guidance in making decisions that are not only
beneficial for the leaders but, for the employees and organization as well. Developing the
foundation of ethical behaviour provides assistance in creating long lasting positive influence
for the company, which includes the ability to attract and retain highly potential and talented
employees as well as maintaining positive reputation and brand name of the business in the
market (Anaejionu, 2019). The businesses that perform in an ethical manner from top-down
develops strong bond between the individuals within the management team that develops
stability within the company.
Ethics among Employees- When management leads the organization in an ethical manner,
employees also follow similar footsteps. The employees make better decisions in less time

considering business ethics as the guiding principle. It increases the productivity of the
organization along with overall morale of the employees. When employees complete their
work in a manner based on integrity and honesty, the benefits are reaped by the entire
organization (MSG, 2019). The employees, who work in organizations that follow high level
of business ethics in various aspects of operations in the business, are more likely to perform
their job responsibilities at higher level and are more inclined to remain loyal towards the
organization.
Ethical Issues in Businesses
Ethics is considered as an essential element in all the departments of the organization whether
it is finance, human resource, marketing or any other. The ethical issues confronted by the
individuals and organization comprise of accounting issues such as window dressing and
misleading financial analysis (Bhattacharyya, 2016). The other issues include the lack of
transparency in the transactions, insider trading, securities frauds that lead to the
manipulation of financial markets, executive compensation, bribery, over-billing of expenses,
facilitation payments, fake reimbursements and many more.
The issues of ethics experienced by HR Management of the organization comprise of
discrimination issues, which include, discrimination on the basis of gender, race, religion, age
and various other factors. The other HRM issues that might arise in organizations from time
to time include sexual harassment, affirmative action, issues related to the representation of
employees and occupational health and safety issues, privacy of employees i.e. drug testing
and workplace surveillance or issues affecting privacy of employer i.e. whistle blowing
(Leonard & Thompson, 2019). The HRM also deals with the issues related to fairness of
employment contract and balance of power between employee and employer. The HR
Management plays a decisive role in introduction as well as implementation of business
ethics. The ethical concerns should be a pivotal issue for the HR managers and it includes all

the ethical issues existing between employer and employee relationship such as rights and
duties between the employer and the employees. It is the tendency of majority of companies
to shift their economic risks onto the shoulders of their employees (lumen candela, 2019).
The performance related pay schemes as well as flexible employment contracts indicate
recently established forms of shifting risk onto the employees.
The marketing ethics is also essential in conducting business and it is the area of applied
ethics that deals with moral principles existing behind regulating the marketing operations.
The ethical issues that could arise in marketing aspect of business comprise of price fixing,
price discrimination, price skimming in determining the pricing strategies of products or
services (managementhelp.org, 2019). Various anti-competitive practices are followed by the
businesses that do not follow ethics such as manipulation in supply, exclusive dealing
arrangements, tying arrangements and such others. The other ethical issues related to
marketing include misleading advertisements or content of advertisements and existence of
black or grey markets.
The ethics of production is the area of business ethics that deals with the duties of a company
to ensure safe products and production processes. It is a major concern that there is usually an
extent of danger in production processes; however, it is difficult to define the extent of
permissibility that might depend on changing the state of precautionary equipment or social
perceptions regarding acceptable risks (ACCA Global, 2014). The issues related to the
production process include defective, addictive and inherently dangerous products. The
ethical relations between the company and environment comprise of pollution, carbon
emissions and other environment ethical issues. The ethical issues arising due to
technological advancement include genetically modified food products, product testing ethics
and such others. The highly systematic approach to promote ethical behaviour is to develop

corporate cultures that associate ethical standards as well as business practices within all
operational aspects (Norman, 2013).
Competitive Advantages of Business Ethics
As unethical behaviour has negative impact on organizational operations, ethical compliance
can have positive impact on the bottom line of an organization. The research studies
conducted on organizational performance considered ethical performance as it contributes to
the financial performance. The enhancement of the financial performance through ethical
consideration depends on wide range of issues and the association between ethical
performance and financial performance is highly complex (Byars & Stanberry, 2018). The
ethical organizations are more likely to attract as well as retain talented and skilled employees
and in attracting and retaining high quality and potential customers as compared to the
unethical organizations. Similarly, ethical organizations can easily attract and retain high
quality and capable suppliers, attract and retain potential investors as well. Such ethical
organizations can also receive goodwill with community members as well as government
officials. When organizations attract and retain highly potential employees, customers,
suppliers and investors and receive goodwill, are more likely to have more reliable
information for decision-making, high quality products and services, high level of employee
productivity, less employee theft, fewer requirements of employee supervision and enhanced
flexibility from stakeholders during emergency situation.
The ethical organizations are more likely to attract talented and potential employees and have
high level of employee satisfaction along with greater employee commitment for both
organization and quality of products or services (Baker, 2017). If job candidates are offered
with similar salary and benefits, they will prefer ethical organization instead of unethical
organization. The organizations with high ethical values are characterized by high levels of

employee empowerment, job satisfaction and employee benefits. The expert and talented
applicants also seek employment in the organizations that perform well in fulfilling their
social responsibilities, which are essentially important for successful operations in their
businesses.
In a similar manner, ethical reputation is essential for priceless marketing and leads to high
level of customer satisfaction and loyalty. The potential customers consistently prefer ethical
organizations over unethical organizations, when product, price and quality are similar. In a
similar manner, in case of suppliers, they prefer to sell their materials to the organization that
are ethically more compliant so, such organization attract and retain potential suppliers and
possess high levels of supplier satisfaction as well as loyalty (Collins & College, 2012).
Majority of suppliers expect from their customers to pay fair price and bills timely and thus,
prefer partnership with such customers as they trust them. Similar is the case with investors
as potential investors are attracted towards ethical organizations that lead to high levels of
investor satisfaction as well as loyalty. If the expected return on investments is similar, the
potential lenders and investors time and again prefer ethical organization instead of unethical
organization. The investors emphasize on investing in the organizations that implement best
practices in corporate governance. The same is the case with community leader or the
government official as ethical organizations honestly communicate with the stakeholders and
pay their fair share of taxes. The ethical organizations communicate with the stakeholders in
an honest manner and pay their fair share of taxes to the government (Moylan & Walker,
2012). As a result, the ethical organizations gain respect and reputation by the government
officials and community leaders. When issues occur between the company and various
groups of the constituency, the politicians will be more likely to show their sympathetic
perspective to the company having stellar reputation in community service. In this sequence,

secondary performance benefits that are likely to be archived by the ethical organizations are
talented employees and trusted suppliers, investors, government officials.
Code of Business Ethics
The Code of Conduct is often developed by a legal expert and provides substance to the Code
of Ethics. The Code of Ethics of the National Association of Social Workers (NASW) has
scheduled six ethical principles to guide the behaviour of employees and it include service,
dignity and worth of individual, social justice, significance of relationships, competence and
integrity (Horton, 2019). The Code provides for social workers to obtain informed consent
from the clients related to the purpose of services required to be provided along with relevant
costs as well as treatment alternatives. The code of conduct also deals with the situations that
involve conflicts of interests, confidentiality, sexual relationships, records access, harassment,
termination of services and derogatory language and such others. Furthermore, new
employees play a significant role in helping the organization to achieve high standards of
honesty as well as ethical behaviours. Through the discussion of Code of Ethics and Conduct
of the organization, the managers display concern that ethical issues will be suitably
addressed in the organization. It establishes the expectations that new employees will behave
in an ethical manner and will highlight the importance of discussion of ethical issues arising
with the supervisory personnel.
Conclusion
Considering the significant role of implementation of business ethics in the organization, so
they should be welcomed and embraced by the employees having strong moral identities as
well as convictions. The Codes of Ethics can communicate and reinforce moral consensus
instead of opinion of an individual and legitimize the discussion regarding the ethical issues

when the challenging situations arise in the organization. In this way, the organization can
become a place where moral identity and job identity of the employees could exist in
harmony. So, it is suggested that business ethics should be followed by all the organizations
to be competent in market and to gain respect in the eyes of customers, suppliers, investors,
and all other stakeholders of the company.
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