What Are Business Ethics and Why Do They Matter?

A management team discussing an important ethical issue.

You learn your company, in which you own stock, faces an earnings shortfall this quarter. Do you sell your stock before the price dips? Or, what would you do if your business was losing money due to a price-fixing scheme between two of your largest competitors

Business ethics are a major aspect of every decision we make, whether we acknowledge it or not. But what are they, and why are they so important?

What Are Business Ethics?

“Business ethics” refers to the common standards for right and wrong conduct in the business realm, staking out appropriate business policies and practices on sometimes controversial subjects and common dilemmas.

The law can define our conduct, but only partially: “legal” is not the same thing as “ethical,” after all. Therefore, an outline of acceptable behaviors beyond government control supplements these more formal rules. Ultimately, business ethics benefit the bottom line: they improve profitability and reduce losses.

Corporate governance, board and trustee behavior, wrongful acts such as bribery and discrimination, and any number of social and fiduciary responsibilities are all located on this spectrum. They involve a mix of ethical concerns, some more integrated into the law, like the minimum wage, environmental regulation, or insider trading (as in our example above).

Business ethics are a matter of extreme balance, reconciling what companies should do legally while maintaining their competitive advantage.

  • Within a culture of ethical behavior, they mean accountability and trust
  • Between two businesses, they assure honesty and fairness in deals
  • For consumers, they help create a sense of trust that enhances the brand

Ethics Within the Company Culture

Increased investor awareness on environmental, social, and political issues puts reputations at stake, both in the market and with the customer, so it’s important to hear and respond to those voices. However, there’s a lot more to ethics on the level of the work environment.

What are business ethics concerns when it comes to the workplace? It begins by creating an ethical workplace, starting with hiring the right talent. Integrity, honesty, and follow-through are all qualities to look for when hiring.

Employees follow business ethics when their company clearly demonstrates their importance. The next step in building this kind of ethical culture is to create an ethics program. A complete program should touch on all business functions, from operations and human resources to marketing. Integrate your ethics program with business operations to make ethics part of the workflow.

An ethics program should:

  • Define the program’s mandate
  • Monitor and mitigate risk
  • Establish written policies and procedures
  • Oversee allegations of misconduct
  • Provide training and communications
  • Reinforce behavioral expectations

Companies often look to management and employees to report any incidences they observe or experience. Barriers within the company culture itself, like fear of retaliation, may prevent this. Work toward improving corporate culture by reinforcing the idea that reporting misconduct is beneficial to the company and acknowledging the employee’s courage in making the report.

Ethics Between Two Businesses

What are business ethics in the corporate world?

Let’s say company XYZ sells a breakfast cereal with all-natural ingredients. The marketing department wants to use this as a selling point, but it must balance this enthusiasm with the laws that govern labeling.

Competitor ads talk about their cereals reducing the risk of cancer, but your company can’t make dubious health claims on their boxes without risking fines. Even though competitors with larger market shares of the industry use shady labeling practices, this is unethical behavior and shouldn’t be mirrored.

To give another example, imagine the quality control department for a company that manufactures electronic components for gaming consoles. These components must ship on time, or the manufacturer of the parts risks losing this lucrative contract. QC discovers a possible defect: Every component in one shipment faces checks.

If the checks take too long, the shipping window will close, delaying the client’s product release. The QC department can ship without the checks, hoping not all of them are defective, or delay it and test everything. If the parts end up defective, the company that buys the components might face backlash, leading the client to a more reliable supplier. That’s how ethics can affect the bottom line.

Ethics in the Consumer Marketplace

What are business ethics we owe to consumers? You need to protect their right to honesty and choice at every step in your funnel: truth in advertising and marketing, transparency about costs and fees, and a real connection with the consumer.

Not all breaches of ethics are immediately apparent, so the background behind some ethics rules can be a little confusing. A company using unethical practices such as poor customer privacy procedures and protections, for example, might fall prey to a data breach—which leads in turn to a significant loss of customers, erosion of trust, less competitive hires, and share price declines.

Now That You Know Ethics, Let’s Put Them into Practice

Now that you can answer the question, “what are business ethics?” you can cultivate an ethical environment and workflow, increase employee satisfaction, and bring your company into compliance. Let Monster show you how to successfully and effectively lead your team.

This article is not intended as a substitute for professional legal advice. Always seek the professional advice of an attorney regarding any legal questions you may have.