Business Ethics
Business Ethics includes moral principles and values that help guide how organizations and their employees conduct business. These guiding principles dictate how a company interacts with its customers, suppliers, competitors, employees, and the broader community.
What is a business?
Businesses are organized entities engaged in commercial, industrial, or professional activities to produce goods or provide services in exchange for profit. Their primary goal is economic growth, wealth creation, and value addition to society.
We want these businesses to be ethical for two reasons:
- Ethical business practices, innovation, and customer satisfaction drive long-term success.
- Essential for socio-economic advancement: While profit-making is central, businesses also contribute to employment, social development, and technological progress.
Thus society is a major stakeholder in the businesses and we want to regulate these activities for everyone’s sake.
Types of Businesses
Businesses can be either informal or Formal. Informal businesses are the ones that are not registered by the government. These are generally small but highly significant due to their sheer numbers in India.
Formal Businesses can be classified based on ownership structures, such as sole proprietorships, partnerships, corporations, and cooperatives. These include:
- Partnerships – These include a Maximum of 50 participants. In India there are two types of partnerships:
- Partnerships are defined Partnership Act, 1932 as the “relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all“;
- Limited Liability Partnerships(LLP) are defined LLP Act, 2008. Unlike partnerships, LLP is a body corporate and legal entity separate from its partners. Thus any change in the partners of LLP does not change the existence, rights or liabilities of the LLP.
- Private Limited Companies: It does not invite the general public to subscribe, unlike a Public company. It can have a minimum of 2 and a maximum of 200 members, excluding employees.
- Public Limited Companies: It has a Minimum of 7 shareholders, with no upper restriction. Further, there is no restriction on the Transferability of shares. Thus it is allowed to sell shares to investors; This is important for raising capital.
Major Stakeholders Involved in Businesses
There are several interested parties in any business although their interest might be different in terms of their influence on the decision-making in the business.
- Owners/Shareholders – They provide capital and expect financial returns, influencing major decisions through voting rights and board representation.
- Employees – The workforce is crucial for business operations. Their productivity, skills, and satisfaction directly impact efficiency and growth.
- Customers – As end-users of products or services, customers drive demand and revenue. Their satisfaction determines brand loyalty and market success.
- Suppliers and Vendors – Businesses rely on suppliers for raw materials, goods, and services. A strong supplier relationship ensures smooth production and quality standards.
- Government and Regulators – Authorities impose regulations, taxes, and policies that businesses must comply with. They ensure legal and ethical operations through labour laws, environmental standards, and consumer protection rules.
- Investors and Financial Institutions – Banks, venture capitalists, and lenders provide financial support, expecting returns through interest, dividends, or capital appreciation.
- Competitors – Rival businesses shape market dynamics, pushing for innovation, better pricing, and improved quality. Healthy competition drives industry growth.
- Local Community and Society – Businesses impact communities through job creation, environmental practices, and corporate social responsibility (CSR) initiatives.
- Media and Public Opinion – Public perception, shaped by media coverage and social discussions, influences brand reputation and customer trust.
Dimensions of Business Ethics
Responsibility towards Society
Corporations must be responsible towards the society that they serve.
- Environmental sustainability: Industries must carry out their operations such that they do not degrade the environment beyond repair and recovery. They must also minimize the harm through measures like energy efficiency, effluent treatment plants, rooftop solar energy etc.
- Corporate Social Responsibility in India is one such mechanism. It makes not only moral sense but also business sense as it improves the image of any business. As industries use society’s resources (human as well as natural), they must return the favour.
Responsibility towards its Workers
- Worker rights: Since industries use labour to generate output and profits, they are bound to guarantee basic rights and facilities for the workers so that they get humane conditions of work.
- Gender equality: In a patriarchal society, companies have the responsibility to act as torch bearers and set examples for gender equality and justice through policies like equal work for equal pay, maternity leave, anti-sexual harassment bodies and so on.
Responsibility towards Consumers
- Anti-competitive Practices: Companies often love to create monopolies, which is never in the best interest of the consumers in the long run. Once all the competition is killed, producers reduce their investment in the product and increase their prices. Most commonly employed tactics include giving Services for free and monopolizing the Market by Influencing Policy Makers.
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- Advertising Issues: Several issues have often been raised in recent times, namely:
- Misleading Deceptive Advertisements –
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- Unintended Advertising Channels such as Spam e-mails etc.,
- Negative advertisement – instead of advertising the features of their own products, often companies malign others’ products.
- Surrogate Advertisement: Promoting a banned product in disguise of another product. For Example, advertising Soda instead of Alcohol, and pan masala instead of Tobacco.
- Targeting Vulnerable audiences, for example, Children are targeted with Junk Food that creates Obesity.
- Market Exclusion: companies might ignore the needs of minorities, Homosexuals, and Trans-genders, while marketing and designing their products.
- Consumer Safety – Ensuring that products meet quality and safety standards to prevent harm.
- Fair Pricing – Avoid exploitative pricing, price discrimination, or hidden charges.
- Right to Privacy – Protecting consumer data from misuse, ensuring confidentiality in transactions.
- Sustainability and Responsibility – Using ethical sourcing, environmentally friendly practices, and avoiding harmful business operations.
- Prompt Redressal of Complaints – Establishing efficient grievance mechanisms to address consumer concerns.
