What is Corporate Ethics? Scope, Principles

What is Corporate Ethics?

Corporate ethics refers to the moral principles and values that guide a company’s behavior and decision-making processes. Corporate ethics involves taking responsibility for the company’s actions and ensuring that they are conducted with integrity, honesty, and respect for all stakeholders, including employees, customers, suppliers, investors, and the community.

The word ‘ethics’ has originated either from the Latin word “Ethicus” or the Greek word “Ethicos”. Both these words originated from the word “ethos” which means character. Ethics is a system of moral principles, rules and conduct. As a science of moral principles, ethics gives guidelines such as “what is right?” and “what is wrong?”

Ethical problems are faced by people in all the countries and at all times. In all organisations, family business and religions, situations arise that demand right decisions. Centuries ago, Duryodhana said in the Mahabharata: “I know what is right but I am not able to act accordingly, I also know what is wrong but I am not able to restrain myself doing it”.

The famous Indian philosopher Kautilya says, “We are shaped by our thoughts. We become what we think, when the mind is pure, joy follows like a shadow that never leaves”.

Ethics can be described as philosophy in action. Business ethics is a branch of ethics dealing with application of ethical principles in business. The human beings have freedom of action to communicate good or bad to the world. While good acts are performed, people are happy and period of good activity is called the golden era.

Ethics encourages constructive actions. There are three types of constructive actions:

• Certain obligatory actions to be performed by every individual, such as good quality products, fair price and customer care; the non-performance of these activities bring disgrace.
  
  
• Certain activities are to be prohibited such as false weighing, inferior quality and high prices.
  
  
• Certain other actions, called optional actions bring goodness and welfare to all.

Example: Handling a grievance of a customer is an optional activity

The level of ethical action in a society depends on the goodwill and maturity of the society. Higher the level of ethical action, grater is the status of the society.

The purpose of ethical action is to welcome the good and the avoidance of bad, “Service to man is the service to God” is a sound and wise principle, Indian tradition “Sarve Janaahaa Sukhino Bhavantu” (let all the people be happy) is very much relevant in these days of globalisation.

Scope of Corporate Ethics

Corporate ethics is simply applying the basic principles of ethics to the field of business which is the major area of making profit. Corporate ethics demonstrate that profit can be made on a sustainable basic by following certain norms and respecting other. Indian goals have to be combined to achieve mutual benefits. An effective team can be limit based on ethical practices.

Corporate ethics is not just compliance to law. One firm can observe the law but can be unmindful of fair practices. On many occasions, contract labour practices have been unfair and unethical. Exploitation takes place in one form or the other.

The corporate ethics programmes and policies should be top-driven. The success of ethical programme in an organisation depends on the degree of commitment by the top management.

Corporate ethics are not just related to an individual but to the whole organisation. They are concerned with a group that involves in all activities of businesses line production, purchase, selling, finance and managing.

Corporate ethics are shifting the focus from shareholders to stockholders. Business ethics are concerned with a code of ethics and not merely a code of conduct.

Principles of Corporate Ethics

The following are the abiding principles of ethics:

• Standardization: Favouritism and partiality should be discouraged. Double standards have to be given up. Standardised rules should be adopted which promotes a uniform standard for all and, hence, everybody will be happy with the administration. There is no place for ill-will or frustration.
  
  
• Workable: The rules of corporate ethics should be practical and workable so that tangible benefits can be experienced. The benefits of business corporate should be made available to all the stockholders. The rules of the business should not suffer from a theoretical bias and work for practical purposes.
  
  
• Driven form the Top: Corporate ethics should always be driven from the top. Corporate ethics can work only isf the top management is seriously committed to it. Unless and until, the top management is committed to ethical considerations, the implementation of ethical programmes would be difficult to be implemented.

Ethics and Functional Areas of Business

A variety of factors is responsible for the operation of business ethics:

• Leadership
  
• Strategy and Performance
  
• Environment
  
• Corporate Culture
  
• Individual Characteristics

Leadership

Business is all about the interaction of customers, suppliers, employees, financiers and managers. An effective leadership is very much required for the success of business.

Bill George says: “There is no conflict between serving all your stockholders and providing excellent returns for stockholders. In the long-term, it is impossible to have one without the other.

However, serving all these stockholders groups requires discipline, vision and committed leadership”. If a leader is strong and follows good skills, he will attain success in his goals.

A value-based leader can lead others on the basis of sound values and effective processes. The ethical leader frames actions in ethical terms. According to the ethical leader, leadership is a fully ethical task.

Example: Johnson and Johnson responded to the Tylenol incident after it held a series of challenge meetings all round the world.

Above all, the ethical leaders search best people and develop them.

Strategy and Performance

Ethics is closely related to the strategy followed by the business organisations. An ideal strategy should not be limited to generated revenue only. It should take into account the ethical values engendered by the proposed decisions.

Corporate governance is the formal system of accountability and control of ethical organisational decisions involving the use of resources. Accountability for organisational decisions begins with a strategic mission and vision.

An effective board of directors serves as a type of insurance against the business cycle and fluctuations of the economy. Many investors believe in the stockholder model of corporate governance. A stockholder model follows a strategy of social investing in terms of which social and ethical criteria are integrated in investment decisions.

Environment

Business ethics is also divided by the type of environment in which a business organisation is situated. There are two aspects of environment, namely external and internal. Internal environment refers to all aspects like vision, mission, power structure and other related matters.

External environment refers to elements which are outside the organisation like government policy, monetary policy, fiscal policy, general economic conditions and labour standards. These factors influence business ethical practices.

Corporate Culture

The corporate culture varies from company to company and time to time. It all depends on the nature of leader; the competition should be healthy, based on fair rules. A good corporate culture should take care of the interests of all the stockholders. It should take care of the customers and employees.

Culture is a body of learnt beliefs, traditions and guides for behaviour among the members of an organisation. Corporate culture includes norms, physical settings, modes of dress, special language, rituals, heroes and stories.

Organisational culture may be strong or weak. In a strong culture, the standards and guidelines are known and shared by all. It is providing the behaviour of all on a day-to-day basis.

Corporations are paying attention to ethical programmes. An ethical programme consists of the rules and policies of an organisation by motivating ethical performance. Rules and policies are framed for orientation, training, compensation, promotion and auditing.

Individual Characteristics

The individual characteristics influence the ethical behaviour. Many ethical issues are related to individuals.

Example: Sexual harassment is an individual matter; the individuals may differ in their characteristics from one extreme to the other with regard to ethics. Some others are extremely unethical. There are many in between these two extremes.