CHAPTER ONEINTRODUCTION TO BUSINESS ETHICS/UNDERSTANDING CSRIntroduction to Ethics and Corporate Social Responsibility (CSR)Basic terms of chapter one
INTRODUCTION TO BUSINESS ETHICS/UNDERSTANDING CSR
Introduction to Ethics and Corporate Social Responsibility (CSR)
Basic terms of chapter one
Business ethics –Definition, source of Business Ethics, nature, Elements of Business Ethics, Characteristics, scope of Business Ethics.
Some years ago, one sociologist asked business people, “What does an ethic mean to you?” Among their replies were the following: “Ethics has to do with what my feelings tell me is right or wrong.” “Ethics has to do with my religious beliefs.” “Being ethical is doing what the law requires.” Ethics is not new for people in business. The corporate world has always had some rules, standards and norms for doing business. However these are generally changing with some social and cultural basis which can be different country by country, even though we might are expect universal rules. When the companies apply these standards or norms as a part of their responsibility we can call them an ethical code of conduct of business. Moreover ethics is also inevitably part of business responsibility. Corporate behavior should be ethical and responsible; that is why corporate promises for their shareholders and stakeholders have to behave fair, ethical and equitable.
What is Ethics? The why?
The term “ethics” is derived from the Greek word “ethos” which refers to character or customs or accepted behaviors. The Oxford Dictionary states ethics as “the moral principle that governs a person’s behavior or how an activity is conducted”. The synonyms of ethics as per Collins Thesaurus are – moral code, morality, moral philosophy, moral values, principles, rules of conduct, standards. Ethics is a set of principles or standards of human conduct that govern the behaviour of individuals or organizations. Using these ethical standards, a person or a group of persons or an organization regulate their behaviour to distinguish between what is right and what is wrong as perceived by others.
Ethics shows a corporation how to behave properly in their all business and operations. However, business ethics is characterized by conflicts of interests. Businesses attempt to maximize profits as a primary goal on one hand while they face issues of social responsibility and social service on the other. Ethics is the set of rules prescribing what is good or evil, or what is right or wrong for people. In other words, ethics is the values that form the basis of human relations, and the quality and essence of being morally good or evil, or right or wrong. Business Ethics means honesty, confidence, respect and fair acting in all circumstances. However, such values as honesty, respect and confidence are rather general concepts without definite boundaries. Ethics can also be defined as overall fundamental principles and practices for improving the level of wellbeing of humanity.
Ethics is the natural and structural process of acting in line with moral judgments, standards and rules. Being a concrete and subjective concept, “business ethics” can be discussed with differing approaches and in varying degrees of importance in different fields. Indeed, it is highly difficult to define ethics and identify its limits and criteria. Accordingly, there are difficulties in discussing this concept in literature as it is ubiquitous in business life, at the business level, and in human life. According to what, how, how much and for whom ethics is or should be are important questions. It is not always easy to find answers to these questions (Aras 2006).
Business ethics is a form of applied ethics or professional ethics that examines ethical principles and moral or ethical problems that can arise in a business environment. It is also known as corporate ethics. It applies to all aspects of business conduct and is relevant to the conduct of individuals and entire organizations.
The various sources from where ethical values have been evolved. The main sources are
Characteristics of Business Ethics
- Business ethics are based on social values, as the generally accepted norms of good or bad and ‘right’ and ‘wrong’ practices.
- It is based on the social customs, traditions, standards, and attributes.
- Business ethics may determine the ways and means for better and optimum business performance.
- Business ethics provide basic guidelines and parameters towards most appropriate perfections in business scenario.
- Business ethics is concerned basically the study of human behaviour and conducts.
- Business ethics is a philosophy to determine the standards and norms to make mutual interactions and behaviour between individual and group in organization.
- Business ethics offers to establish the norms and directional approaches for making an appropriate code of conducts in business.
- Business ethics are based on the concepts, thoughts and standards as contributed as well as generated by Indian ethos.
- Business ethics may be an ‘Art’ as well as ‘Science’ also.
- Business ethics basically inspire the values, standards and norms of professionalism in business for the well-being of customers.
- Business ethics is to motivate and is consistently related with the concept of service motives for the customers’ view point.
- Business ethics shows the better and perspective ways and means for most excellences in customization.
- Business ethics aims to emphasize more on social responsibility of business towards society.
Elements of Business Ethics
I .Formal Code of Conduct:
Code of conduct is statements of organizational values. The Sarbanes-Oxley Act, 2002 made it important for businesses to have an ethics code, something in writing which will help the employees know – with both ease and clarity – what is expected of them on the job. The code should reflect the managements desire to incorporate the values and policies of the organization. Code of Ethics:
For every new business incorporated, it is important for the management to have a code of ethics for his business. It is usually unwritten for small businesses. It is basically a buzzword for the employees to observe ethical norms and form the basic rules of conduct. It usually specifies methods for reporting violations, disciplinary action for violation and a structure of the due process to be followed. A code of ethics must summarize the beliefs and values of the organization. For a large business empire, it is important to hire talent to assist existing personnel with regards to integrity, understanding, responsibility, and cultural norms of the country.
II. Ethics Committee:
Ethics committees can rise concerns of ethical nature; prepare or update code of conduct, and resolve ethical dilemma in organization. They formulate ethical policies and develop ethical standards. They evaluate the compliances of the organization with these ethical standards. The committee members should be conscious about the corporate culture and ethical concise of the organization.
Scope of Business Ethics
Ethical problems and phenomena arise across all the functional areas of companies and at all levels within the company.
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 be abiding by the law. An ethical climate in an organization ensures that compliance with law is fuelled by a desire to abide by the laws. Organizations that value high ethics comply with the laws not only in letter but go beyond 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 not at arm’s length
Insider trading, securities fraud leading to manipulation of the financial markets.
Bribery, kickbacks, over billing of expenses, facilitation payments.
Ethics in Human Resources
Human resource management (HRM) plays a decisive role in introducing and implementing ethics. Ethics should be a pivotal issue for HR specialists. The ethics of human resource management (HRM) covers those ethical issues arising around the employer-employee relationship, such as the rights and duties owed between employer and employee. The issues of ethics faced by HRM include:
Discrimination issues i.e. discrimination on the bases of age, gender, race, religion, disabilities, weight etc.
Issues surrounding the representation of employees and the democratization of the workplace, trade etc.,
Issues affecting the privacy of the employee: workplace surveillance, drug testing.
Issues affecting the privacy of the employer: whistle-blowing.
Issues relating to the fairness of the employment contract and the balance of power between employer and employee.
Occupational safety and health.
Ethics in Marketing
Marketing ethics is the area of applied ethics which deals with the moral principles behind the operation and regulation of marketing. The ethical issues confronted in this area include:
• Pricing: price fixing, price discrimination, price skimming.
• Anti-competitive practices like manipulation of supply, exclusive dealing arrangements, tying arrangements etc.
• Misleading advertisements
• Content of advertisements.
• Children and marketing.
• Black markets, grey markets.
Ethics of Production
This area of business ethics deals with the duties of a company to ensure that products and production processes do not cause harm. Some of the more acute dilemmas in this area arise out of the fact that there is usually a degree of danger in any product or production process and it is difficult to define a degree of permissibility, or the degree of permissibility may depend on the changing state of preventative technologies or changing social perceptions of acceptable risk.
Defective, addictive and inherently dangerous products and
Ethical relations between the company and the environment include pollution, environmental ethics, and carbon emissions trading.
Ethical problems arising out of new technologies for eg. Genetically modified food
Product testing ethics
The most systematic approach to fostering ethical behaviour is to build corporate cultures that link ethical standards and business practices.
Nature of Business Ethics
Egoism – is a theory that suggests that an action is morally right if in a given situation all decision makers freely decide to pursue their own self interests. In such it is okay to make a decision that bene to oneself. Important to ensure oneself does not confuse self-interest with selfishness. Enlightened self-interest, we are well aware that any act of self-interest will reap future benefits for self-interest.
Egoism limitations – Relies on an external mechanism to control individual egoists, it can result in significant short-term harm, an egoist persona may know what they want but not what they need.
Utilitarianism –is a theory that seeks the greatest happiness for the greatest number, the maximum pleasure with the minimum pain.
Definition of Corporate Social Responsibility (CSR)
Corporate social responsibility appears to be a rapidly developing topic over the past 40 years, which started with the debate raised by Austrian economic school representatives on whether an enterprise needs to have any social responsibility beyond paying salary (to provide employees living), taxes (to ensure government with the money to implement social projects) and dividends (to improve investors’ wellbeing). Yet the mainstream research in corporate social responsibility indicated that participation in such activities leads to increased profits and better interaction with major enterprises’ stakeholders.
Currently the majority of researchers agree that classical capitalism is unable to resolve social problems, so enterprises need to step in to improve well-being and correspondingly develop their image. Scholars have realized that Corporate Social Responsibility had changed corporate governance practices and led to realization of double goals achieved by corporations. This increased interest from the practitioners’ side enhanced research in the field and led to incorporating the ideas of corporate social responsibility into management curricula in business schools worldwide.
At the current moment, corporate social responsibility was followed by an even more challenging concept, sustainable development. This concept required fulfilment of social, economic and environmental goals as a holistic result of organization’s functioning and development. Another important concept, related to corporate social responsibility, is business ethics. This one is becoming more and more popular among both scholars and practitioners with development of technology.
It can be said that business ethics are integrated into companies through Corporate Social Responsibility (CSR), which cannot be defined in a single way, nor has its concept remained unchanged since its appearance in the business world. The labor conflicts that developed at the end of the 19th century as a result of the industrial revolution, when the model of artisan work was changed to one of mass production, revealed a series of social problems that forced companies to take measures that could be considered as the origin of CSR (Jenkins 2009).
The broadest definition of corporate social responsibility is concerned with what is – or should be the relationship between global corporations, governments of countries and individual citizens. More locally the definition is concerned with the relationship between a corporation and the local society in which it resides or operates. Another definition is concerned with the relationship between a corporation and its stakeholders.
For us all of these definitions are pertinent and each represents a dimension of the issue. A parallel debate is taking place in the arena of ethics – should corporations be controlled through increased regulation or has the ethical base of citizenship been lost and needs replacing before socially responsible behaviour will ensue? However this debate is represented it seems that it is concerned with some sort of social contract between corporations and society.
This social contract implies some form of altruistic behaviour – the converse of selfishness – whereas self-interest connotes selfishness. Self-interest is central to the Utilitarian perspective championed by such people as Bentham, Locke and J. S. Mill. The latter, for example, is generally considered to have advocated as morally right the pursuit of the greatest happiness for the greatest number – although the Utilitarian philosophy is actually much more based on selfishness than this – something to which we will return later. Similarly Adam Smith’s free- market economics, is predicated on competing self-interest.
These influential ideas put interest of the individual above interest of the collective. The central tenet of social responsibility however is the social contract between all the stakeholders to society, which is an essential requirement of civil society. This is alternatively described as citizenship but for either term it is important to remember that the social responsibility needs to extend beyond present members of society. Social responsibility also requires a responsibility towards the future and towards future members of society. Subsumed within this is of course a responsibility towards the environment – which we will also return to later – because of implications for other members of society both now and in the future.
There is however no agreed definition of CSR so this raises the question as to what exactly can be considered to be corporate social responsibility. According to the EU Commission [(2002) 347 final: 5],
“…CSR is a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.”
more people or entities) or effort for the purpose of accomplishing a goal. Re-sourcing
encompasses the deployment and manipulation of human resources, financial resources,
technological resources, and natural resources.
Financial management: It can be defined as the management of capital sources and their
uses so as to attain the desired goal of the firm (i.e. maximization of share holders‟ wealth).
Financial management involves sourcing of funds, making appropriate investments and
promulgating the best mix of financial and dividends in relation to the value of the firm.
Note: capital sources means items found on the right-hand side of the balance sheet i.e.
liabilities and owners‟ equity whereas uses of capital means items found on the left hand side
of the balance sheet i.e. assets.
Financial management is an integral part of overall management. It is concerned with the
duties of the financial managers in the business firm.
The term financial management has been defined by Solomon, ―It is concerned with
the efficient use of an important economic resource namely, capital funds‖.
The most popular and acceptable definition of financial management as given by S.C.
Kuchal is that ―Financial Management deals with procurement of funds and their effective
utilization in the business‖.
Howard and Upton: Financial management ―as an application of general managerial
principles to the area of financial decision-making.
Weston and Brigham: Financial management ―is an area of financial decision-making,
harmonizing individual motives and enterprise goals‖.
Joshep and Massie: Financial management ―is the operational activity of a business
that is responsible for obtaining and effectively utilizing the funds necessary for efficient
Thus, financial management is mainly concern with the effective funds
management in the business. In simple words, Financial Management as practiced by
business firms can be called as Corporation Finance or Business Finance.
Financial management in general it is the concept of proper management of funds within an
organization, investing projects that would possible to generate a reasonable return to the
The responsibilities of every financial manager is obviously to maximize shareholders wealth
and in order for managers to reach that end point on the behalf of the shareholders are
required to work with the best interest of the owners of the firm.
As tuqaa buufadha
Corporate Social Responsibility is increasingly becoming an important strategic agenda for companies. evidence accumulated by various studies in support of Corporate Social Responsibility, strategic implementation of Corporate Social Responsibility is gradually replacing the old view of charity.
Consequently, many companies attempt to communicate their Corporate Social Responsibility initiatives specifically to their customers who are among variues stakeholders that can have significant impact on their performance.
Chapter One: Introduction to Law
What is Business Law? Before defining business law it is better to define business and law.
What is Business? What are the main elements that constitute a Business?
Business can be defined from different perspectives; from accounting and legal perspectives. From Accounting perspective Business may be defined as a process of producing goods and rendering of services in return for profit.
The legal definition of a business is more or less provided under Article 124 of the Commercial Code. Under this Article Business is defined as an incorporeal movable which is consists of movable and immovable things.
Here what we understand from both definitions is that business is a concept which is intangible and movable thing. As a result business is different from the movable and immovable things which are part of the business. Rather business is mainly consists of intangible things such as good will, trade name, trade mark and intellectual property rights such as patent rights, copy rights and industrial design.
Now let’s define law. So far there is no single definition of law agreed up on. However, we can have the following comprehensive and conventional definition: Law is the generally accepted norm; principle or rules of conduct enacted by the sovereign body which regulates social interaction and is backed by sanction or punishment. In Black’s Law Dictionary law is defined as follows:
Law is the regime that orders human activities and relations through systematic application of the force of politically organized society, or through social pressure, or normative sanctions.
In general, from the above definition we can deduce that law is a body of rules of action or conduct that determines what is right and what is wrong. What ought to be done and what should not. The mere fact that the people obey certain rule doesn’t justify that rule as a law. In order for a certain rule to be a law, it should emanate from a legitimate authority i.e. a state.
Business Law,therefore, is a Legal regime which regulates Traders, business person, business organizations and business transaction.
Nature of Law
What we mean by nature of law is those characteristics and features of law which differentiate law from other rules of conduct such as customs, moral rules and standards, societal values and habits. Law is different from socially non-binding soft rules by the following basic natures.
Generality nature of Law connotes two meanings. The first meaning indicates that law is stated in a general terms or languages in which details are left for enforcement organs. While the second meaning of generality implies that law is enacted to govern or bind all members who belong to the group without distinction. When it is said that the law is general one have to note that law does not invariably apply to the people of the world. It only applies to those who fall within its jurisdiction. For instance the law which applies to Traders may not apply to Non-Traders; it applies to traders equally, though. Everyone who belongs to the group is presumed to be equal and treated equally. The law has no regard to individual status, economic or social positions and any other ground of discrimination. The law is equally binding on all persons who belong to the group in case of violation.
Classification of Laws
Based on different factors, laws are classified into different categories. The main reasons for and purposes of classifying laws are for easily management and administration, efficient study and convenience. Generally, based on the following four factors, we may have the following classifications of laws.
Geography-based on geographical location and scopes of application of the Laws we have International and National laws and Federal and State Laws.
Function of Laws-Based on the specific functions of laws, we can classify laws into: Substantive and Procedural; Public and Private and Civil and Criminal laws. Substantive laws are those group of laws which lay down the rights and duties of the citizen, while procedural laws are laws which serve for the enforcement of the substantive rights. Public laws regulate the relationship between the Government and the public or the people whereas private laws regulate the relationship between the individuals. Civil laws are laws which states civil rights and duties while criminal laws formulate crimes and their punishment.
Authority-based on the authority or organ that enacted the law we have primary and secondary laws. Primary laws are all laws which are enacted by the parliament while secondary laws are all other laws which are enacted by other subsidiary organs through delegation.
Convenience-based on convenience of administration and study of the law we may have procedural law and evidence law; civil law and commercial law.
Normativity of law is all about the binding nature of law. The law is binding on its subjects whether one wants or not. Law is the mandatory rule of conduct which is mainly respected for fear of sanction or punishment. It is this nature of law which mainly differentiates law from other non-binding social norms.
If the law is violated, there is an Organ responsible for its enforcement; the Executive organ is responsible for the enforcement of laws. The law is binding on every member of the society because law is superior to human conduct. Normative nature of law presupposes supremacy and prevalence of rule of law.
Functions of Law
Law has different functions and plays many pivotal roles in society. Without comprehensive and efficient legal regime, it is hardly possible to imagine orderly social existence. In the absence of law the tread which serves as a social cohesion would easily torn apart. Social interaction without law is nothing more than chaos and turmoil. Thus, law is quintessential for the very existence of peaceful and orderly social interaction and sustainable development. In the absence of law the society lives in the’ state of nature’ which means a social condition which is characterized by no systematic social interaction, no individual property, civil war, use of force, no orderly change, etc. Generally, the following are some of the main functions of law:
Keeping peace and order within a society
Shaping moral standards
Promoting social justice
Maintaining the statusquo-maintaining social peace and order
Facilitating orderly planning and change
Providing basis for compromise
Maximizing individual freedom
Sources of LawSources of law mean tracing where the law drives its validity and origin or content. In broad terms there are two main categories of sources of law namely: material and formal source.
1. Material sources of Law
Material sources of indicates the origin or contents of the law. Among the material sources of law the most common and important are custom and religion. Most of the time custom and religion are used as the primary material source of law. Law is, at least theoretically expected to reflect custom, religion, values and morality of the society. We have noted above that law is a generally accepted norm of the society which implies the primary material sources of law is the custom and religion of the society. Though most of Ethiopian laws were copied from foreign sources, custom and religion are being used as a material source.
Even custom and religion are recognized as material sources of law under the Ethiopian Constitution. Hence, we can say that custom and religion are the common material sources of law. However, there are times where custom and religion are totally rejected in order to bring new behavioral change in the society. For instance, in case the custom and religion are against the universally accepted principles and when they are considered to teach and maintain harmful and traditional practices, they are totally rejected from being sources of law.
- Forma sources of Law
Formal sources of law deal with the validity claim of the law. It traces the Authority or Organ which enacted the law. Based on the Organ which enacted the law we have the following formal sources of law: The Constitution, International Agreements, Proclamations and Court Decisions. Constitution is the Supreme law of the land which is above every other law because it is the parent of all other laws. International Treaties and Parliamentary laws or proclamations are ranked in the 2nd place next to the Constitution while other laws such as regulations, directives and notices are ranked 3rd, 4th and 5th, respectively.Regulations are enacted by Council of minister, Directives by Ministries and notice is enacted by each departmental Bureaus.