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A crucial measure in understanding organisational behaviour (OB) is the need to comprehend the ethical issues that surround modern-day organizations. Business ethics or corporate ethics is the study of the principles and ethical values that an organization considers moral and just in its individual and organizational behavior  within the organization and in its conduct of business as relevant to the society.

Ethical issues in business could include accounting misappropriations, remuneration of top executives, exploitation and destruction of the natural environment, evasions of corporate taxes, exploitation of labor in third world countries. including low wages and ‘sweat-shop’ conditions, the sub-prime mortgage investments by banks that led to the recent financial crisis and so on.

Milton Friedman (1970) argued that the main objective of corporates was to make profit for their shareholders and anything that prevents such profit-making was unnecessary.  Utilitarianism and  Kantian philosophy are often brought forward to explain business ethics.  Utilitarian philosophy holds that making more (profits) for more people (investors) as important than considering the interests and welfare of a few (employees). Laws are also passed to create the best overall consequences. Kant, however, does not advocate the focussing on the overall outcome of an action or law but urges the importance of the intention behind the law or action. He also stresses on the importance of respecting the rights and dignity of human beings. But Karl Marx challenges the idea of ‘business ethics’ when the material conditions of different stakeholders are very different. So he concludes that ethical values cannot be made applicable to all people.But if companies ignore their other obligations to their stakeholders and the society, they are harming the very basis for their existence.

Business ethics can affect functional business areas like finance, sales and marketing, production, purchase and maintenance of property and property rights, intellectual property rights, human resources, safety, justice and welfare of the workers,  corporate policy making, laws and regulations at the local, national and international levels, advertising, personal selling, suppliers, contracts, and pricing.

Ethical responsibility can be made made mandatory through laws and regulations such as in ensuring safety and security in the workplaces, safety standards of the products, minimum wages, worker’s rights, and responsibility of the corporation in sustaining the environment. Organizations can also come out with a voluntary response such as in setting up a Corporate Social Responsibility (CSR) wing that would look after any contentious issues that arise in these areas and take active part in the improvement of relationship with the stakeholders, the environment and society.

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