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Business Ethics

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S.6  Business  Studies  Notes                                                          Business  Ethics


Ethics is a collection of moral principles and rules of conduct accepted by part or all of the members of a society.

Ethics guides behaviour based on beliefs about what is right and wrong.  The source of these beliefs may be tradition, religion, or reasoned judgments about what is best for the individual and society as a whole.  

Business Ethics is the group of rules of conduct applied specifically to business situations.

Ethics is not the same as law.  Many ethical beliefs are formally reinforced by law, but many are not.  Until recently, it was legal to fire almost any employee for any reason, regardless of the length of his or her service.  Often  the terminated employees was denied any provision for a company pension.  Today, this practice is inhibited by federal law.

In practice, ethics is expressed and felt as a combination of pressures that direct one to take or not to take certain actions.  Decisions must be acceptable to many different elements of society.    First, they must be acceptable to the conscience of the decision maker.  A manager may legitimately think, “ I could legally take this action, and I could probably get others to accept it, but I ought not do it because it is not right.”

Managers must consider the potential effects of their decisions on the people and companies directly involved with the business operation:  customers,  suppliers,  competitors,  employees, investors,  and creditors.  In addition,  manager must consider- and try to control-  the possible effects of their decisions on the community at large.

It is only recently that business has become aware of how it affects individuals and the whole society.   The lassez-faire business environment of the nineteenth century promoted the belief that almost any practice that increased profits was, in the long run,  good for the country.  The result was cutthroat competition,  fraud,  deceptive marketing, price and market manipulation,  worthless and dangerous products,  exploitation of workers, and other practices that today are considered unethical.

At the same time that so many harmful business activities were being carried on,  some companies did abide by the fundamentals of good business ethics.  At the height of the ruthless development of the nineteenth century,  many managers still believed in producing high-quality products,  honestly sold at a fair price.  They felt success could be built on hardwork, creativity, and genuine customer satisfaction.   It is the belief that high ethical  standards are in the long run good for profits that is stressed in business today.

In spite of improvements, however,  there is evidence that managing a business may involve, at every level,  a compromise with an individual’s ethical standards.  In 1975,  a major survey asked 238 managers whether they felt “ pressured to compromise their personal standards to attain the company goals. “ About  50 percent  of the top-level executives said they did.

Ethical  Issues

Ethical  issues are not confined to court cases.  All business people face them daily,  and they stem from a variety of sources.  Although some types of issues arise infrequently, others occur regularly.  Let’s take a closer look at several ethical issues.

Fairness and Honesty

Fairness and honesty in business  are two important ethical concerns.  Besides obeying all laws and regulations,  business persons are expected to refrain from knowingly deceiving,  misrepresenting, or intimidating others.  

Organizational   Relationships

A business person may be tempted to place his or her personal welfare above the welfare of others or the welfare of the organization.   Relationship with customers and coworkers often create ethical problems-- since confidential information is expected to be kept secret and all obligation should be honoured.  Unethical behaviour in these areas includes taking credit for others’ ideas or work, not meeting one’s obligation in a mutual agreement,  and pressuring others to behave unethically.

Conflict of interest

Conflict of interest results when a business person takes advantage of a situation for his or her  own interest rather than for the employer’s interest.  Such conflict may occur when payments and gifts make their way into business deals.  A wise rule to remember is that anything given to a person that might unfairly influence that person’s business decision is a bribe,  and all bribes are unethical.


Business communications,  especially advertising,  can  present ethical questions.  False and misleading advertising is illegal and unethical,  and it can infuriate customers.   Sponsors of advertisements aimed at children must be especially careful to avoid misleading messages.  Advertisers of health-related products must also take precautions to guard against deception when using such descriptive terms as  “ low fat,”  “ fat-free,”  and   “  light.”

Demand for Ethical  Behaviour

Businesses,  governments,  and the public  are all paying more attention to business ethics.  The Foreign Corrupt Practice Act  (FCPA) of 1977 was enacted in response to disclosure that American corporations were paying bribes to high governmental officials in foreign countries.  The bribes were used in an attempt to win contracts and sell products and services.  In their defense,  the companies argued that firms in other countries did the same thing;  the American firms had to pay bribes or risk losing sales.  Congress disagreed and passed the FCPA to outlaw the practice.

Bribes and kickbacks have come under particularly close scrutiny lately.  A kickback occurs when someome who has won a contract or made a sale through favourable treatement gives back part of the profits from the transaction to the party providing the favour.  For example,  a retailer hires a market researcher to find a good location for a new store.  The retailer does not know that the researcher has previously agreed to recommend the property of a real estate developer.  In return, the researcher will secretly receive a percentage of the first year’s rent on the property.

A bribe is a payment made “up front’ to influence a transaction.  Thus,  a bribe occurs before a transaction and a kickback afterwards.  Bribery is especially a problem in overseas dealings.  Following a criminal investigation by the Justice Department,  Lockheed Corporation pleaded guilty to charges of concealing payoffs to Japanese business and government officials.  Lockheed was fined $647,000.  In another instance,  the Brunwick Corporation admitted to the Securities and Exchange Commission that it had paid bribes to two Latin American countries to win contracts.   The Joseph Schlitz Brewing Company faced a 747-count federal indictment for giving kickbacks to beer retailers and distributors in exchange for their business.  It later agreed to pay a $750,000 penalty.

Most recently,  General Dynamics,  General Electric,  and other large companies have been charged with defrauding the Pentagon.  The illegal exploits of Ivan Boesky and other Wall Street  traders sent shock waves  through the Investment community in 1987.  In  December  1988,  the Wall Street firm of Drexel Burham Lambert pleaded guilty to six felony counts of mail, wire,  and security fraud and agreed to pay $650 million in fines and restitution.  It subsequently filed for bankruptcy.  Michael Milken,  head of Drexel’s  Beverly Hills junk bond office, agreed in 1990 to plead guilty to six felony counts and to pay $600 million in fines and restitution.

Also in 1990,  American Express publicly apologized for what it admitted was  a “shameful” and “baseless”  smear campaign against rival financier Edmund Safra.  Among other things,  the company had spread false rumours that Safra was connected to drug cartels.  The company agreed to donate $8 million to charities selected by Safra.  At about the same time,  the Bank of Credit and Commerce International  (BCCI)  scandal was exploding.  Finally shut down by regulators in mid-1991,  Luxembourg-based BCCI had been under suspicion since the 1970s.   The collapse of BCCI,  which operated in 73 countries,  revealed fraud of historic proportion, involving bribery,  corruption,  money laundering, gun running,  drug smuggling,  terrorism, amd more than $5  billion in lost and stolen assets.


Within the workplace,  an additional factor--- the company itself-- can influence ethical behaviour,  if not always beliefs.   As illegal and/or unethical activities by managers have caused more problems for companies,  many firms have taken steps to encourage their employees to practise  more ethical behaviour.  The Strategies for Success “ Succeeding with Ethical Business Behaviour offers some guidelines.

Perhaps the single most significant thing a company can do to influence its employees is to demonstrate top management’s support for ethical behaviour.  During a recent scandal at Rockwell International ‘s Rocky Flat plutonium plant,  for example, executives’ unwillingness to acknowledge wrongdoing led to  greater problems.  If Rockwell executives had responded more openly,  the company  might not have lost its right to operate the Rocky Flats plant.

To  demonstrate their commitment to ethical  business practices, many companies have adopted written codes of ethics that formally acknowledge the firm’s intent to conduct its business ethically.

An excellent illustration of the power of business ethics occurred a few years ago at   Johnson &  Johnson.  On two different occasions,  several of the company’s Tylenol capsules were found to be laced with cyanide.  Such a disaster would have ruined many  companies.  Managers at Johnson  &  Johnson,  however, quickly recalled all of the Tylenol capsules still on retailer’s shelves and offered fortright and candid information whenever asked.  The highly ethical practices exemplified by Johnson & Johnson  allowed both the firm and the Tylenol brand to bounce back much more quickly than anyone thought possible.

A lively current debate concerns the degree to which business ethics can be “taught “ in schools.  Not surprisingly,  business schools have been important participants in such debates.  But companies also need to educate their employees.  More and more firms are taking this route by offering ethics training to their managers.  Such training helps employees to assess situations in which they might have to make reasoned,  ethical decisions.


                          A  message from  David R.  Whitwam

                                 Chairman of the Board

 Whirpool corporation

The question of ethics in business conduct has become one of the most serious challenges to the business community in modern times.

At Whirpool, we share with millions of other Americans,  a deep concern over recent relationships of unethical and othen illegal conduct on the part of some of this nation’s most prominant business people and corporation.

The purpose of this message is not to pass  judgement on any of these occurrence;  each must and will be judged on its own merits by those charged with that responsibility.

Rather this message is intended to place firmly on record the position of Whirpool Corporation regarding business ethics and the conduct of every Whirpool employee.  It represents an irrevocable commitment to our customers and stockholders that our actions will be governed by the highest personal and professional standards in all activities relating to the operation of this business.

Over the years,  circumstances have prompted us to develop a number of specific policies dealing with such critical elements of ethical  business practice as conflict of interest, gifts,  political activities,  entertainment, and substantiation of claims

We aslo have a basic statement of ethics which places the ultimate responsibility for ethical behaviour precisely where it  belongs in any organization.... on the shoulders of the person in charge:

                   “ No employee of this company will  ever be called upon to do

                   anything in the line of duty that is morally, ethically or legally


                   Furthermore,  if in the operation of this complex enterprise, an

                   employee should come upon circumstances of which he or she

                   cannot be personally proud, it should be that person’s duty to

                   bring it to the attention of the top management if unable to correct

                   the matter in any other way.”

Every Whirpool manager carries the dual responsibility implicit in this policy statement,  including the chairman of the board.

Our written policies deals with nearly all facets of business experience.  We review,  revise and recommunicate them to our managers on a regular basis.... and we see that our managers carry on the communication throughout the company.

But as a practical matter,  there is no way to assure ethical  behaviour with written  policies and policies statements.

In the final analysis,  “  ethical behaviour “  must be an integral part of the organization,  a way of life that is deeply ingrained in the collective corporate body.

I   believe this condition exists at Whirpool,  and that it constitutes our greatest single assurance that htis company’s employees will conduct the affairs of this business in a manner consistent with the highest standards of ehtical behaviour.

At Whirpool we have certain ways of doing things.  They are commonly accepted practices,  enforced not by edict, but rather by a mutual conviction that they will, in the long term,  work in the best interest of our customers, our stockholders, the company and all its employees.

In any business enterprise,  ethical behaviour must be a tradition, a way of conducting one’s affairs that is passed on from generation to generation of employees at all levels of the organization.  It is the responsibility of management , starting at the very top. to both set the examples by personall conduct and create an environment that not only encourages and rewards ethical behaviour, but which also makes anything less totally unacceptable.

I  believe this has been achieved at Whirpool.  The men who founded  this company back in 1911 were individually possessed of great integrity and honour.  They forstered a tradition of ethical conduct in their business practices,

and they perpetuated that tradition through careful  selection of the people who

would one day fall heir to leadership of the company.

The system works.  Time and time again I have witnessed its efficacy.  It shows no hospitality whatsoever to those not willing to abide by its standards, and unerringly identifies and purges them.

Unfortunately,  the system is not automatically self-sustaining.  It must be constantly reaffirmed by each new generation of leaders.  In the position I now occupy,  I view this as one of my most important responsibilities.

As this company grows,  and as the  pressures upon it increase,  maintaining our tradition of ethicial conduct become an increasingly difficult task.  But I am confident it will be maintained, because it is necessary for continued growth,  profitability and success.



Business ethics:  the study of moral behaviour,  character,  guiding beliefs,  standards, or ideas that pervade  a group,  a community,  a person;  it deals with what is right and wrong, good and bad.

The question of ethics-  the branch of philosophy that deals with the “ right”  and “ wrong” of human behaviour-  has been connected with business since the beginning of commerce.

In business,  what determines the line between honest and dishonest methods?

What is ethical business conduct?

What is unethical business conduct?

Answers to these questions may not be consistent because they depend upon the ethical standards of the person passing judgment, and the basic moral and beliefs of society.

The guides to business ethics in our society derive primarily from religion and law.

- Religious teaching spell out the requirements for moral responsibility.

- Law provides codes for governing business behaviour.

S.K. H.  CHAN  YOUNG  SECONDARY  SCHOOL                          PATRICK  S.  W.  KWAN  

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