What Are Business Ethics and Why Do They Matter?
Imagine that you own stock in the company you work for, and in the course of your work, you learn that your company is likely to face an earnings shortfall this quarter. Do you sell your stock before the price drops? Or do you take the loss, knowing that you have an unfair advantage over other investors and that your actions might incur legal penalties for you and your employer? Business ethics can guide your actions when you face scenarios that can expose you, your clients, or your business to legal and reputational harm.
It’s likely that you are already employing an ethical framework to guide your decision-making when it comes to issues such as privacy, fair play, pricing, negotiations and dealmaking, and more — whether you’re doing so consciously or not. But it’s worth thinking through your code of conduct more formally and considering, what your ethics are and why are they so important?
What Are Business Ethics?
The field of ethics as it relates to business consists of commonly held values and practices shared by people and organizations that are engaged in commerce. Ethical business practices tend to address common dilemmas and controversial subjects that arise in the course of professional endeavors.
In many instances, we can rely on the law to guide our conduct, but not always. “Legal” is not the same thing as “ethical,” after all. This means that as an employer and as an individual, you need to reflect on your core values and operate from a set of guidelines that will make up the ethical framework, or code of conduct, for you and your employees. The ethical framework you select should underscore your organization’s mission and core values.
Corporate governance, board and trustee behavior, fiduciary responsibilities, and employee management practices are all located on this spectrum. Once you’ve determined the business ethics that will guide your business, it can be used by everyone within your company to help guide how they treat their colleagues, your customers, and your competitors, partners, and vendors.
- Within a company culture, ethics constitute accountability and trust.
- Between businesses, they assure honesty and fairness in deal-making.
- For consumers, they help create a sense of trust that enhances the brand.
Ethics Within Company Culture
Increased investor awareness on environmental, social, and political issues puts reputations at stake, in both the financial markets and the marketplace, so it’s important to hear and respond to those voices. However, ethics within the work environment can be just as complex.
How do you apply consistent business ethics within your workplace and across your workforce? Start by focusing on 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. Treating your employees fairly goes a long way toward encouraging them to in turn treat customers, vendors and business partners, and one another with the same consideration.
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. Your business ethics program should:
- Define the program’s mandate
- Monitor and mitigate risk
- Establish written policies and procedures
- Create a process for addressing allegations of misconduct
- Provide training and communications
- Reinforce behavioral expectations
Companies often look to management and employees to report any incidences of malfeasance they observe or experience. However, barriers within the company culture, such as fear of retaliation, may prevent this. Work toward improving transparency by reinforcing the idea that reporting misconduct is beneficial to the company and acknowledging whistleblowers’ courage.
Ethics Between Businesses
Business is often seen as a win-at-all-cost endeavor, but if you are interested in establishing your brand as a trusted leader in your sector or within your community over the long term, this attitude can be detrimental. This is especially true when it comes to dealings with other businesses.
Whether you are making a deal with a business partner, interacting with a competitor, or negotiating with a vendor, your company’s reputation can be strengthened if you operate in good faith. Though unethical businesses do on occasion thrive for a short while, the most ethical enterprises tend to flourish more consistently over time.
When it comes to deal-making, impeccable etiquette, integrity, and a respectful attitude toward the other party are more likely to yield a favorable outcome for all parties than duplicity. When negotiating on a joint endeavor, this might mean refraining from overpromising or holding back information that the other party might need to make an informed decision. This can also mean abiding by confidentiality agreements.
Ethics in the Consumer Marketplace
Today’s consumers are savvier than ever, especially when it comes to monitoring the ethical behavior of their favorite brands. Making poor ethical decisions or becoming enmeshed in scandal can cost you loyal customers and make it a lot harder to attract new ones. Consumer (and job seeker) scrutiny often goes beyond mere integrity, to include working conditions, environmental impact, and diversity, equity, and inclusion (DEI).
To be successful in a marketplace where information about your company’s ethical shortcomings is just an internet search away, you need to commit to truth in advertising and marketing, transparency about costs and fees, and a real connection with the consumer.
But your reputational risk goes beyond the realm of bad choices. For example, a company using poor customer privacy procedures and protections might fall prey to a data breach, which can lead in turn to a significant loss of customers, erosion of trust, less competitive hires, and share price declines. This means that merely avoiding bad behavior may not be enough. Depending on the size of your operation, your ethical obligation toward your customer base may necessitate allocating appropriate investments to guard against the actions of bad actors outside your company, as well as within.
Assessing Your Ethics Policies
The final stage in implementing an effective set of guidelines for business ethics within your organization is to employ a benchmarking tool to determine where you are excelling and where you are falling short. From there, you can make the necessary adjustments to continue improving upon your ethical framework and enhancing the positive image it will undoubtedly earn you.
Put Your Business Ethics Knowledge Into Practice to Enhance Hiring and Profits
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Legal Disclaimer: 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.